Speaker 1: The first reason is because I like the sector that they’re predominantly engaged in, mainly engage them because they are engaged in a lot of different sectors.
But the main one is e-commerce. And when I look at e-commerce, I just see so much more room for growth. I mean, just look at how e-commerce is done over the past couple of years. Look at Amazon, look at the growth in share price, look at the Garren revenue, look at the growth in earnings. It’s being crazy. And I just see this trend growing and the future. Just think about it. It’s just so much easier just to buy online compared to driving to the shops, going to building, talking to someone. You actually have to talk to someone instead. You can just go click, click, click, buy. A few days later, it turns up at your door. It’s just a smarter system and I only see e-commerce growing. And the future, especially in China as well, with the middle class, is booming. There’s a growing pattern in China with the Chinese and moving from the lower class to the middle class. I just want to point out a quick fact for you guys. OK, so seventy six per cent of China’s urban population will be considered middle class by two. And in the year 2000, they were just four percent of the urban population who are considered middle class. So they’re growing from the lower class to the middle class. Now, what does this mean for Alibaba who engage in e-commerce now? What do you guys think when the Chinese or when people in general become more richer? What do they tend to do with the money they spend it OK? I mean, I could just give you guys an anecdote from me. My friends have to go on Amazon at least once a week to buy some dumb stuff that they don’t need, especially my female friends. They’ll have to go on at least three times a week to buy some junk. And I think the pattern is pretty similar in China. We and the Chinese just get richer. They’re going to spend more and engage more in e-commerce, online commerce. What does this mean for Alibaba? Who are the main players in e-commerce in China? It means growing revenue, growing earnings and good business for US shareholders. I mean, the power that they have already is pretty crazy. Taobao, which is their individual and small business platform to consumers that has five hundred and eighty million monthly active users, which is owned by Alibaba. And then you got Seemore, which is four brands and bigger businesses. They have five hundred million monthly active users.
So think about the power that that gives Alibaba and the potential that that gives them to make money and grow from this growth and middle class in China and offers a lot of potential. And this is the first reason why I like Alibaba stock, because they’re predominantly engaged in e-commerce, which has a lot of room for growth. And I believe e-commerce is the future. I get to talk about my second reason. And second reason is I want to expose my portfolio more towards the Chinese economy and more towards China. At the moment, I don’t own any Chinese stocks. And there are three reasons why I want to move some of my portfolio more towards China instead of the US, New Zealand, Australia. The first reason is diversification. You know, I don’t just want to rely on one country. I want to have my money and a bunch of different countries, which just because I’m a little bit risk averse, it’s just a smart way of engaging with your portfolio. I believe the second reason is because China is just cheaper than the USA at the moment, just on a PE multiple. The average PE stock in China is fifteen and the average PE ratio in USA is twenty four. So China is quite a bit cheaper. Charlie Munger has referred to this as well. He said it’s actually built its own Chinese stock in the US stock just because the price is cheaper. And the last reason why I like China is because they’re a growing economy and they’ve grown a lot more than the USA at the moment. The GDP growth rate in 2016 was six point seven per cent, I believe, whereas the US GDP growth rate was one point six per cent. So what’s that about three fold, three times the amount of economic growth. So obviously this is good for the stocks that are based in the country where the economy is growing. What makes the economy grow as stocks, as companies? So if you if you see a noticeable pattern where the economy is grown, it means the stocks are doing well and the stocks will grow as well. So those are the three reasons why I want to move my portfolio a little bit more towards China, buy some Chinese stocks. And so my second reason for buying Alibaba is to expose myself towards China. Okay, let’s talk about the third reason, which is I like the leaders, the. The leaders of Alibaba and the two key leaders that I like, Jack Ma and a guy called Joe Taizé, I think I’m saying his name right. I’m not actually 100 percent sure, but I’ve watched Jack Ma for a bunch of years now, and I just love the way he speaks.
I love the values that he espouses. And I’ve just started getting into this guy, Joe Taizé. And I also I enjoy the way he speaks. I enjoy the way he thinks as well. And I’ll leave a couple of videos and my description of some interviews that these two guys have done and perhaps you might like them as well. So my values are aligned with these the leaders of the company. The key thing that Alibaba focused on and the leaders of Alibaba focused on as empowering individuals and empowering small businesses, which is a key thing for me as well, which is what I try to do with this channel, is to empower individuals, help them grow their own wealth and grow their own stocks and become better people in the finance sector. So the third reason is because I like Alibaba leaders in particular, Jack Ma. He’s just the man. He’s awesome. You should watch some of his interviews that he’s done. Anyway, let’s move on to my fourth reason, which is Alibaba actually have a number of growth opportunities and the world of beatified throughout China. First, growth opportunity that I can think of is that they own the company, Youku Tudou. Now, Yoki Totoo are known as the YouTube of China. Now, when I think about YouTube, I think about growth. This pattern is pretty well documented throughout the West that people are moving from TV towards YouTube and things like Netflix and things like streaming. And just me personally, a lot of my friends actually don’t own a TV at all. Don’t watch any TV. All they do is just watch YouTube and they stream stuff. So this is a noticeable pattern throughout the West and I believe it is fairly similar in China yolked. So to have a large amount of opportunity to grow, get more users and to monetize the platform better as well. The second reason that I can think of is that on the platform, Weibo or Weibo, I’m not sure how to say 100 per cent, but Weibo is China’s version of Twitter and Facebook. But from my knowledge, it’s just get a little bit more towards Twitter now. Again, this offers more opportunity for growth. We all know how much social media is growing. It’s our way of talking nowadays. We don’t talk to people face to face who talks face to face that we just type on a keyboard, use emojis, whatnot. And, you know, Alibaba, I have so much great opportunities there with Weibo. I mean, at the moment they have four hundred million monthly active users. It’s actually bigger than Twitter. Twitter’s monthly active users. There’s three hundred and thirty five, I think so a lot of power, a lot of opportunity for growth with Weibo. And the third reason why I like Alibaba is because they only pay now hourly pay as China’s version of PayPal seen a noticeable pattern here. You know, China’s version of Twitter, China’s version of cable, that China’s version of everything. It’s just the way we relate to it, I guess, from the West. But anyway, so they own Alpay, which has the biggest market share for payment platforms in China with five or ten, 20 million monthly active users. Yep, five hundred twenty. So with a growing economy, with growing amounts and e-commerce, all I say with regards to pay is further growth. So again, there’s a bunch of different growth opportunities for China. And that’s the fourth reason why I like Alibaba stock.
Let’s get into five, which is I like the numbers that Alibaba has. So Alibaba sometimes are called the Amazon of China. In a way they are, but also they’re engaged in a bunch of different things. But so if we compare it to Amazon stock, it’s pretty interesting and it’s actually a lot cheaper based on a PE multiple than Amazon, Amazon’s PS 150, whereas Alibaba pays forty seven point seven. So it’s about one third of the price on a PE multiple. Also, they have better growth opportunities as well. So lower price and better growth. That’s not a bad combo, but we are comparing it to Amazon. So Amazon’s five year expected growth is going to be twenty six point five per cent and Alibaba is five expected growth is going to be thirty two point three per cent. So Alibaba is going to grow at a higher clip, the Amazon and a cheaper price. So comparing it to Amazon, I prefer it. And now lastly, let’s finish off with an intrinsic value and expected return calculation, which is important. So currently, Alibaba are selling for price of around one hundred and seventy seven dollars. So that for me is pretty much based at the fair value if we use a discount rate of fifteen percent. OK, so discount rate is the expected return that you can expect to get if it achieves the growth rates that you put in here in the. Formula, which are right here, so I it’s expected to grow at around 30 per cent for the next five years and for the next five to 10 years, I put on 20 per cent growth. So if it does achieve those growth rates, then we should see a present value of one hundred seventy seven. If the discount rate is 15 per cent, which is a pretty high discount rate, a pretty high expected return, 15 per cent, not bad. So overall, I like the numbers 13 per cent return expect to return is pretty good. But the key thing here is it must meet the growth rates. Will it? I don’t know. We’ll see. But either way, no one knows for sure what’s going to happen. It’s got a lot of growth opportunities, but Alibaba also comes with a lot of risk. And one of the risks that I should talk about is the risk of the government. So at the moment, Alibaba are quite close to the government, as are all large Chinese technology stocks.
However, if you put a foot wrong and you do something that is deemed to be unaligned with the government’s values that they espouse, you could get burns. The government has the right and the power to take away a platform from any company that it disagrees with. So that is a risk for Alibaba and will achieve its growth rates. I don’t know for sure because the business comes with risks and everyone should be aware of this risk that comes with Alibaba and comes of all large Chinese technology stocks. And if you want to see a more in-depth analysis of Alibaba stock, I’d recommend that you go back to my previous video that I did on it only about a week ago. So I just got my channel and find Alibaba deep analysis and it goes into a bunch of the different risks and a bunch of different growth opportunities. I think I’m going to leave it here, guys. I hope you enjoyed the video. I hope it gave you a lot of value. And let me know your thoughts on it as well. You know, I’ve got a lot of smart viewers out there with a range of different viewpoints, and it’s so important for me to get your viewpoints and so I can analyze it, see what other people are thinking. They always point out something different. You know, something about a stock that I may have missed. So it’s so important for me to give those comments. I love reading them. That’s one of the things I look forward to most. And it’s so important so that other viewers to get a range of different perspectives. But so thank you guys for commenting and thank you guys all for liking the videos as well. On my previous video on Alibaba, I have almost got three hundred likes on the video, which I never expected to get three hundred likes on a video so soon. It blew me away. So everyone always been like in the videos. Thank you so much. I really appreciate you all.