Analysts: Cristiano Fernandes, Jonathan Ebberhart, Timothy Davis October 15, 2019 NYSE: BABA | Current Price: $166 | Intrinsic Value: $214.40 | 2-Yr Target Price: $232.00 | Implied Return: 39%

Company Profile Recommendation

Alibaba Group Holding Limited is a Chinese multinational conglomerate holding company specializing in e-commerce, , internet, and technology. Founded on April 4th, 1999 in Hangzhou,

Zhejiang the company provides consumer-to-consumer, business-to- consumer, and business-to-business sales services. Holding Limited enables businesses to transform the way these firms BUY market, sell and operate, and improve their effectiveness.

Historical Total Return Key Information

150% Sector: Consumer Discretionary 130% Industry: Retail 110%

90% IPO Date: September 19, 2014 70% Market Capitalization: 430.11 Bn 50% 52-Week High: $195.50 30% 10% 52-Week Low: $130.60 -10% ROA: 8.31% -30% ROE: 14.69% -50% 9/15/2014 9/15/2015 9/15/2016 9/15/2017 9/15/2018 9/15/2019 Beta: 1.23 BABA S&P 500

Investment Thesis

Alibaba Group Holding Limited

§ Alibaba has seen the United States-China trade war and its associated geopolitical fallout exert downward pressure on the stock price. From a relative valuation perspective, the stock is currently trading at the lowest EV/EBITDA, EV/SALES, EV/GMV, and P/E levels since its IPO. We see this as a unique opportunity to buy. § Revenues have continued to rise through the trade war, driven by higher levels of Gross Merchandise Volume (GMV), an increase in the number of active customers, and an increase in the amount spent per

customer. § Alibaba has aggressively expanded into Southeast Asia, the Middle East, and Northern Africa. Successful market penetration will give the company the ability to double its currently monthly active users to over 1.8 billion. § Services is the fastest growing subsidiary on the platform and margins increased 20% in 2019FY. We expect margins to continue to rise as they continue to dominate market share in Asia.

Company Breakdown

Overview

Alibaba Group Holding Limited intends “to make it easy to do business everywhere”. The company aims to build the future infrastructure of commerce through three fundamental principles: “Meet @ Alibaba – We enable commercial and social interactions among hundreds of millions of users, between consumers and merchants, and among business every day, Work @ Alibaba – We empower our customers with the fundamental infrastructure for commerce and new technology, so that they can build businesses and create value that can be shared among our digital economy participants, and Live @ Alibaba – We strive to expand our products and services to become central to the everyday lives of our customers.” The company’s businesses are comprised of core commerce, cloud computing, digital media and entertainment, and innovation initiatives. In addition, Ant Financial, an unconsolidated related party, provides payment and financial services to consumers and merchants on all Alibaba platforms. They have built what they refer to as a “Digital Economy” that consists of consumers, merchants, brands retailers, third-party service providers, strategic alliance partners and other businesses. Alibaba leverages its own subsidiaries to buttress the digital economy and increase the performance of adjoining businesses through technological advancements and synergies.

CORE COMMERCE Alibaba breaks down core commerce into retail commerce, both in China and internationally, and wholesale commerce, both in China and internationally. Alibaba is the largest retail commerce business in the world based on Gross Merchandise Volume (GMV) as of March 31st, 2019. Approximately 66% of total revenues for 2019FY were from retail commerce inside of China. ‘New Retail’ initiatives were introduced to reengineer the fundamentals of retail, transforming operations and the selling landscape. The goal is to converge online and offline retail by leveraging digitized operating systems, in-store technology, supply chain systems, consumer insights, and mobile ecosystems. Alibaba has multiple global retail marketplaces which enable consumers from around the world to buy directly from manufacturers both in China and internationally. Core Commerce saw a 41% year- over-year increase in revenues for 2019FY and, after the recent acquisition of 33% of ’s Ant Financial, will have over 740 million active users in its Digital Economy to fuel future revenue growth in 2020FY. Through multi-brand strategies to globalize, Alibaba has successfully integrated international logistics and payment solutions infrastructure to continue to grow its international business. The company currently has 130 million active consumers outside of China.

Lazada: A dominant : Founded in India, Trendyol: A mobile e- retail e-commerce it is an e-commerce commerce company company operating in company currently based in Turkey that is Southeast Asia including operating in India, the leading platform in Singapore, Indonesia, , , Sri Turkey, the Middle East, and the Philippines. Lanka, , and and North Africa. Nepal.

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` Company Breakdown

CLOUD COMPUTING Alibaba Cloud Services is the third largest Infrastructure-as-a-Service (IaaS) and infrastructure Utility Services provider by revenue during 2019FY. It is also the largest provider of public cloud services in China, offering a complete suite of cloud services to Chinese enterprises. This consists of elastic computing, database, storage, network virtualization services, large scale computing, cybersecurity, management and application services, big data analytics, machine learning, and IoT services. There was 76% year-over- year revenue growth for Cloud Computing in 2019FY and 66% year-over-year revenue growth in the first fiscal quarter of 2019. The company is not focusing on the profitability of cloud computing, but rather the capabilities. It has made acquisitions to better its performance and market share in China. Alibaba is relying on big data, substantial quantities of which aggregated within and using their cloud computing technology, to not only better their business, but outmatch competitors. Cloud Computing Is key to the expansion of the Digital Economy. Alibaba has been anointed by the Chinese government to lead the smart city initiative and hybrid cloud system implementation required to advance the modernization of the state.

Kanbox: A network disk and synchronization tool used for file management and backup. There are no time or place limitations; the only necessity is internet connectivity.

Cloud Computing Progress: The continued expansion of cloud computing services in China and abroad will increase the amount of data hosted by the Alibaba system as well as increase the number of jurisdictions in which they have information technology systems. Big data is a catalyst for the ‘New Retail’ initiative. Alibaba has developed and distributed a data analytics platform to its customers that can handle complex computing tasks of millions of gigabytes of data per day. This provides deep data insights to smaller retailers on the platform that can now use this day to better run their business, increasing their profitability and that of Alibaba. Products include MaxCompute, an offline data storage and computing service useful for customers in low-tier cities, Blink, a real-time data storage and computing platform, and OneData, a data integration and management system.

Alibaba has been called on by the Chinese government to lead to lead its smart city objective. With 120,000 people by square mile, the city of Shanghai desperately wants to maximize its population potential while maintaining peak efficiency. Alibaba has used artificial intelligence algorithms to generate bus services running on optimal routes while allowing users to find their best individual routes through the application. If Alibaba’s initial attempts prove successful, the Chinese government may contract the company to lead the objective in hospitals, energy infrastructure, and education.

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Company Breakdown

Digital Media & Entertainment Alibaba sees digital media and entertainment as a natural extension of the business that will capture consumption outside of their core commerce and cloud computing businesses. The data aggregated via core commerce allows the firm to create and distribute relevant content to users. Original content and licensed shows are seen as a successful way to penetrate both lower-tier cities and new markets throughout Southeast Asia, potentially lowering marketing costs in the long term. The internal infrastructure includes , the third largest online video platform in China in terms of monthly active users, and Damai.cn, an entertainment ticketing platform that provides live performance and show tickets. QuestMobile and UC Browser serve as the distribution platforms for Alibaba digital media and entertainment. There was a 23% year-over-year revenue growth for 2019FY as Alibaba is looking for ways to battle for market share. Alibaba invested in, coproduced, and distributed eight of the top ten best-selling movies in China while following its “small, true, big, and positive” guidelines.

Youku: Youku has noted that its users are showing a strong interest in classic T.V. shows dating back 10-15 years ago. Using data available to the company through Alibaba’s digital economy, it purchased the rights to Friends, and relaunched the show in HD. It is also venturing into reality television as it launched Street Dance of China.

Innovation Initiatives Alibaba has made it their prerogative to develop new services and products that meet the needs of the consumer base, improve efficiency in the daily lives of customers, and strengthening synergies between the businesses within the digital economy. Revenue from innovation initiatives saw a year-over-year increase of 42% in 2019FY. This growth was achieved after the reclassification of Freshippo, previously reported under this segment until its revenue outgrew incubation stage parameters.

Amap.com: Amap is the largest provider of mobile digital application navigation and real-time traffic information in China by monthly active users. It empowers companies within the digital economy, including retail marketplaces and Alipay.

Dingtalk: Dingtalk is the largest business efficiency application in China by monthly active user. It serves enterprises and organizations of various types and sizes with unified network collaboration services and intelligent mobile workplaces.

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Trade War

Who? United States & China When? January 22nd, 2018 - Present Why? American Trade Deficit Historically, Donald Trump has long been a proponent of taking aggressive measures to decrease the trade deficit between the United States and China. He campaigned on the idea holding the Chinese Government accountable for what he labeled as highly questionable trade practices. The inaugural tariff was announced on January 22nd, 2019, a tariff on solar panels and washing machines. Since then there have been additional tariffs imposed by both countries and others announced for the future.

15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% 1/1/2018 1/22/2018 2/12/2018 3/5/2018 3/26/2018 4/16/2018 5/7/2018 5/28/2018 6/18/2018 7/9/2018 7/30/2018 8/20/2018 9/10/2018 10/1/2018 10/22/2018 11/12/2018 12/3/2018 12/24/2018 1/14/2019 2/4/2019 2/25/2019 3/18/2019 4/8/2019 4/29/2019 5/20/2019 6/10/2019 7/1/2019 7/22/2019 8/12/2019 9/2/2019 9/23/2019

BABA S&P 500 Key Dates:

• January 22nd, 2018 – Tariff announced on solar panels and washing machines. • March 22nd, 2018 – Donald Trump asks the United States Trade Representatives (USTR) to investigate applying $50-60 million in tariffs on Chinese Goods. • July 6th, 2018 – Tariffs on $34 billion worth of Chinese goods goes came into effect. • September 17th, 2018 – The United States announced a 10% tariff on $200 billion worth of Chinese goods, beginning on September 24th, 2018 and increasing to 25% by the end of the year. • May 5th, 2019 - Donald Trump announces the previous 10% tariffs on $200 billion of Chinese goods will be upped to 25% on May 10th. • June 29th, 2019 – Donald Trump says he and Xi Jinping agreed to a “truce” in the trade war after extensive talks. • September 27th, 2019 – The current administration is allegedly considering delisting Chinese companies from American stock exchanges. What does this mean for Alibaba?

The United States-China trade war has put downward pressure on the stock price of Alibaba. The tariffs announced by the current United States administration are not the threat to Alibaba. The geopolitical fallout due to the trade war has sullied investor sentiment towards Chinese companies and that has been most damaging. There are fears that the current administration will take aggressive measures to inhibit the growth of Chinese retailers in the United States, the largest of which being Alibaba. Alibaba sees 88% of its revenues generated domestically and the majority of the other 12% being from other Southeast Asian countries. In the worst case scenario, Alibaba’s ability to operate in the United States is hindered dramatically, the company will still grow its already dominant market share in Asia, the Middle East, and Northern Africa. We expect the trade war to continue into 2020, but no actions to be taken on part of the United States government to hinder operations of Alibaba. Thus, Alibaba is undervalued with no real threat to the health of the company.

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Revenue Breakdown

2019FY 2020FY Core 1.17% Core Commerce Commerce 6.39% 1.24% 5.99% 6.56% Cloud 8.24% Cloud Computing Computing

Digital Media Digital Media and and Entertainment Entertainment Innovation 85.82% 85.29% Innovation Initiatives Initiatives

Core Commerce

Alibaba’s core commerce is mainly driven by user growth. Over 70% of new customers come from less developed areas domestically labeled ‘Low-tier cities’ with Alibaba achieving 50% user penetration of the applicable population in these areas out of an over 800m total population. Alibaba’s user acquisition has been effective against its competitors due to synergies from its ecosystem, leveraging local services and AliPay to acquire new customers across its various businesses. Of core commerce, domestic retail accounted for nearly 77% of revenue. China’s per capita disposable income grew nominally up 8.8% YoY for the first half of 2019.

A higher number of active customers has contributed towards increasing gross merchandise volumes across Number of Active Customers Alibaba’s platforms. On top of that, YoY the booming of China’s middle-class reflects in higher revenues per 1049 customer amid an upgrade of China’s 961 consumer base. Alibaba is extremely 1515% % CAGR CAGR 881 well positioned to expand its market 807 share as we expect e-commerce sales 730 740 to continue to surge in the following 654 years. 552 454 Chinese Wage Growth (CNY) 423

82,461 255 76,121 68,993 63,241 57,361

2014 2015 2016 2017 2018 2015FY 2016FY 2017FY 2018FY 2019FY 2020E 2021F 2022F 2023F 2024F 2025F

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Revenue Breakdown

Gross Merchandise Volume GMV (Billions of USD)

$900,000 $853,375 700 In fiscal year 2015 Alibaba had 255 million $768,740 $800,000 600 active customers across its platforms $700,000 $547,529 500 transacting over $96 billion dollars of $600,000 gross merchandise volume. $500,000 400 These figures jumped to 654 million active $400,000 300 $300,000 customers transacting over $800 billion of 200 $200,000 GMV in 2019FY. $96,931 $115,208 $100,000 100 Increased levels of user engagement are $0 0 strongly tied to higher levels of mobile 2015FY 2016FY 2017FY 2018FY 2019Q active users. GMV ActiveActive users Customers (millions) (millions)

Mobile Monthly Active Users

MAU (Millions) 721 800 634 700 507 600 427 500 350 400 300 200 100 0

3/1/20155/1/20157/1/20159/1/2015 1/1/20163/1/20165/1/20167/1/20169/1/2016 1/1/20173/1/20175/1/20177/1/20179/1/2017 1/1/20183/1/20185/1/20187/1/20189/1/2018 1/1/20193/1/2019 11/1/2015 11/1/2016 11/1/2017 11/1/2018

Since 2015 Alibaba expanded its number of mobile active users tremendously. The current market penetration of 721 million monthly active users accounts for more than half of the Chinese population. This standalone statistic gives Alibaba ownership of one of the most valuable assets in today’s world which is data. Once the company enjoys high synergies within its businesses, it has leveraged on its business model to direct users to different business and convert them into customers.

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Revenue Breakdown

Core Commerce Breakdown

China retail 5.6% 1.6% 4.6% China Wholesale 2.5% 6.0% International Retail 3.1% International Wholesale

Caianiao

Local Consumer Services 76.6% Others

China Retail saw a 31% year-over-year growth in 2019FY on the back of growing consumer spending fueled by wage growth and an 8.8% year-over-year increase in disposable income reaching $2227 among Chinese citizens. Lower-tier markets had a 2018-2019FY average revenue per user (ARPU) from new customers exceeding $281 annually. Based on the aforementioned disposable of $2227, new customers spend in excess of 10% of their disposable income on Alibaba’s domestic e-commerce platform

China Wholesale saw an increase of 39% year-over-year for the 2019FY due to 910,000 members paying an annual subscription fee to reach customers with the option of additional services such as data analytics, storefront management tools, and customer management services. Further growth will be driven by an increase in average revenue from paying members.

International Retail saw an increase of 38% year-over-year for the 2019FY primarily due to increases in revenue from Lazada, the consolidation of Trendyol, and an increase in revenue from AliExpress.

International Wholesale revenues increased by 23% year-over-year in 2019FY. The growth followed an increase in the amount of users and an increase in the average revenue per user.

Cainiao Logistics Services saw an increase in revenues of 106% year-over-year due to the elimination of inter-company transactions. Logistics revenue is driven by supply chain management solutions as well as on- demand delivery services from Ele.me.

Local Consumer Services generate revenue through fees from the provision of delivery services and other services provided by our on-demand delivery and local services platform Ele.me. Revenues were consolidated in 2019FY, growth rates will be recognized in 2020FY.

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Revenue Breakdown

Cloud Computing Cloud Services Market (China) Standing as the main provider of cloud computing services in Asia, Alibaba Cloud Alibaba 47.30% dominates the market in the region Cloud currently holding 47% of market share in China. Alibaba saw the number of paying Tencent 15.40% customers to increase from 263,000 in 2014 to over 1,400,000 in 2018, while the AWS average revenue per paying customer 8.80% jumped by 237% during the period. Baidu 8.00% Revenues from cloud computing services are primarily generated from enterprise China customers based on the duration and usage 6.80% Telecom of services. Alibaba has enjoyed both longer usage of services by its paying 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% customers as well as higher spending on multiple services including more complex offerings, such as network virtualization and database services.

§ Hanguang 800

In September 2019, the company revealed its proprietary high-performance AR inference chip Hanguang 800. The chip specializes in the acceleration of machine learning tasks, the new technology can cut down computing tasks that would take an hour down to five minutes according to Alibaba. The Hanguang 800 will be used in Alibaba Cloud, this will allow the company to further increase sales of new and better cloud services to customers of its fastest-growing business

Outlook With the global cloud services market expected to grow at a CAGR of 17.6% up until 2020, Alibaba Cloud still have much room to expand its business both in China and internationally. Despite fierce competition from Tencent and , the leading cloud computing services provider in Asia has proven to be the principal choice of customers in the region. Looking forward we see an increased demand for faster, cheaper and accessible data storage services.

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Revenue Breakdown

Digital Media and Entertainment

Digital Media and Entertainment saw a 15.04% year-over-year increase in revenues for the 2019FY. Based on our projection through 2020FY, we predict that Digital Media and Entertainment will continue to increase its revenues year-over-year but decrease as a percentage of total revenues due to the rapid growth of Alibaba Cloud Services. The main drivers for revenue are customer management services fees and membership subscription fees usually generated from business and advertising agencies. Both of which are directly correlated to the amount of active users on the Alibaba platform. $9,000.00 Revenue ($ Millions) $8,000 $8,000.00 $7,208 $7,000.00 $6,435 $5,695 $6,000.00 $4,996 $5,000.00 $4,270 $4,000.00 $3,588 $3,119 $3,000.00 $2,141 $2,000.00

$1,000.00

$- 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Innovation Initiatives

Since inception, Alibaba has taken market share by presenting the Chinese consumer with new, innovative ideas that have “made it easier to do business everywhere”. Alibaba is developing new service offerings and products that meet the needs and improve efficiency in the daily lives of their customers. Innovation Initiatives saw a 32.63% year-over-year increase in revenue. Alibaba incubates these companies, such as Dingtalk and Amap.com, and shapes them in a way that creates and maintains synergies within the digital economy. Freshippo was originally an Innovation Initiative, but was moved to core commerce after its revenues surpassed Innovation Initiative parameters. Revenue ($ Millions) $2,000 $1,797 $1,800 $1,576 $1,600 $1,359 $1,400 $1,161 $1,200 $992 $1,000 $834 $800 $695 $524 $600 $435 $400 $200 $0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

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ValuationRevenue Breakdown

Intrinsic Value Calculations

5-Year Discounted Cash Flow 2020F 2021F 2022F 2023F 2024F 2025F EBIT 13,243 15,536 18,109 20,906 23,669 26,641 Tax Rate 19.2% 19.2% 19.2% 19.2% 19.2% 19.2% EBIT( 1- Tax ) 10,705 12,558 14,638 16,898 19,132 21,534 (+) Depreciation & Amortization 5,914 6,385 6,852 7,447 8,230 9,084 (+) Change in Net Working Capital 13,237 9,541 10,495 11,544 12,699 13,968 (+) Stock Comp 5,793 6,438 7,140 8,398 9,921 11,157 (-) CapEx (4,886) (5,501) (6,454) (6,170) (6,735) (5,753) Unlev ered FCF 30,764 29,421 32,671 38,117 43,247 49,992

Discount Period - Year 0.5 1.5 2.5 3.5 4.5 5.5 PV of UFCF 29,213 25,192 27,975 26,538 27,150 28,299

Assumpitons Terminal Value Calculation Terminal Grow th Rate 3.75% Terminal Value of Ufcf: $410,634 Beta 1.23 Sum of PV of Ufcf $164,365 CA PM 8.32% PV of Ter minal Uf c f $394,660 Tax Assumption 19.17% WACC 10.90% Enter pr is e V alue $559,026 EV Today $ 414,038 (-) Debt $20,011 Shares Outstanding 2,646 (+) Cash $28,308 Equity V alue $567,323 Intrins ic V alue $214.40

Undervaluation

The United States-China trade war has increased geopolitical tension between both countries and exerted downward pressure on Alibaba’s stock price. Investor sentiment towards Chinese companies has become negative, preventing the stock price of Alibaba to rise in relation to its impressive financial performance through the trade war thus far. This has created a unique buy opportunity; the fund could see a 29% return from our calculated intrinsic value.

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Catalysts

User Growth While Alibaba expands into the lower-tier cities in China and throughout the rest of Southeast Asia it will be focusing on user acquisition. Stronger than expected market penetration paired with the adoption local businesses into the digital economy will boost revenue growth and exposure for the rest of Alibaba’s platform. Alibaba has acquired e-commerce companies spanning Southeast Asia, the Middle East, and North Africa. The quicker Alibaba can grow its user base in these areas the fast it can acquire market share. Between India, Pakistan, Bangladesh, Turkey, and Indonesia Alibaba will have the potential to reach over 1.97 billion people. With current monthly active users (MAU) sitting at 960 million, after the 33% stake acquired in Ant Financial, it is a strong possibility that Alibaba could obtain over 1.5 billion MAU.

Consumer Spending Increased Chinese consumer spending in combination with rapidly developing consumerism in a growing Chinese middle class presents great domestic growth opportunity for Alibaba. Since the initial public offering (IPO) of Alibaba, Chinese consumer spending has averaged an 8.01% year-over-year increase. The increase in consumer spending is directly correlated to wage growth which has seen an average year-over-year growth rate of 9.50% since IPO. Chinese citizens, especially the middle class, are making more money and are willing to spend a larger percent of it on retail.

Cloud Services Alibaba Cloud Services will consistently be the fastest growing business within the Alibaba platform. Management has focused on growth and less on profitability. They see cloud services as an avenue to exploit untouched revenue streams not available to any retail platform. Fixed-Asset Investment continues to rise as businesses are looking to take advantage of growth opportunities. Even without an emphasis on profitability, the margin for Alibaba Cloud Computing services was -5% in 2019FY, a profit margin increase of 20% year-over-year.

Risks

Chinese Macroeconomic Conditions If macroeconomic markers signal a downtrend in the Chinese economy the negative sentiment will spread and consumer spending will see a sharp decline. Both merchants and consumers will minimize their spending and this will hurt Alibaba on both fronts as they do business with other enterprises and individual consumers.

Weak Market Penetration If Alibaba fails in its attempt to penetrate new markets during its expansion throughout Southeast Asia it will see slower than anticipated growth. The cost of client acquisition will increase on the back of failed expansion attempts, hurting margins.

Government Regulation An unfavorable turn in government regulations could result in a significant on Alibaba’s operations. Over 80% of Alibaba’s domestic retail is transacted through Alipay. Increased regulation could negatively impact Alibaba’s mobile plans.

Competitors The main competitors of Alibaba are Jd.com, Baidu, and Tencent. The most significant threat to the continued success of Alibaba’s e-commerce and local services businesses is JD.com. They specializes in specific products and markets potentially resulting in decreased growth or increased margin pressures.

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Management

Daniel , Chief Executive Officer

Daniel Zhang joined Alibaba in August 2007 as Chief Financial Officer of Marketplace. Prior to joining Alibaba, he received a bachelor’s degree in finance from Shanghai University of Finance and Economics. He is currently a member of Ant Financial’s investment committee and the chairman of Sun Art.

Maggie Wu, Chief Financial Officer

Maggie Wu joined Alibaba in July 2007 as the Chief Financial Officer of Alibaba.com. After three years in this role she was voted best CFO in FinanceAsia’s annual poll for best managed companies. In 2018, she was named on the Forbes 100 Most Powerful Women List. She has her ACCA designation and a bachelor’s degree in accounting from Capital University of Economics and Business.

Jeff Zhang, Chief Technology Officer

Jeff Zhang has served as the Chief Technology Officer since April 2016 and president of Alibaba Cloud Intelligence since November 2018. He joined Alibaba in July 2004 and has held multiple management positions, leading Taobao Marketplaces’s technology teams. Zhang studied computer science at Zhejiang University.

Jessie Zhang, Chief Risk Officer

Jessie Zhang has been the Chief Risk Officer since December 2017 and is responsible for data and information security across all Alibaba platforms. She took over as Chief Platform Governance Officer in December 2015. She served as the deputy chief financial officer from November 2013 to June 2016. Zhang received her bachelor’s degree in accounting from Northeastern University in China.

Chris Tung, Chief Marketing Officer

Chris Tung joined Alibaba as Chief Marketing Officer in January j2016. He was the president of Alimama for a year, between November 2017 and November 2018. He is currently a director of Ruhn Holding Limited and received a bachelor’s degree in electrical engineering from National Taiwan University and a master’s degree in industrial engineering from the University of Michigan, Ann Arbor.

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Appendix

DuPont Analysis 2015FY 2016FY 2017FY 2018FY 2019FY 2020F Net Income 3,923 11,056 5,989 9,791 11,955 13,176 Revenues 12,293 15,686 22,994 39,898 56,152 71,228 Net Profit Margin 31.9% 70.5% 26.0% 24.5% 21.3% 18.5% Average total Assets 48,864 65,076 93,978 129,064 157,310 Turnover 0.32 0.35 0.42 0.44 0.45 Average Equity 32,047 42,677 58,116 80,130 96,770 Equity Multiplier 1.62 1.46 1.58 1.64 1.59 1.60 ROE 33.05% 14.52% 17.12% 14.69% 13.38% Key Ratios 2015FY 2016FY 2017FY 2018FY 2019FY 2020F Profitability % Gross Margin` 68.72% 66.03% 62.42% 57.23% 45.09% 47.30% SG&A to Sales 38.36% 37.26% 32.06% 29.53% 29.94% 28.84% Operating Margin 30.36% 28.77% 30.36% 27.70% 15.15% 18.46% ROA 9.52% 19.56% 8.13% 8.56% 8.31% 7.71% Valuation 2015FY 2016FY 2017FY 2018FY 2019FY 2020F Enterprise Value 189,325 186,575 263,808 444,998 462,424 414,038 EBIT 3,732 4,513 6,981 11,050 8,506 13,152 EBITDA 4,444 5,552 9,058 14,560 14,030 19,054 EV/EBIT 50.73 41.34 37.79 40.27 54.36 31.48 EV/EBITDA 42.60 33.61 29.12 30.56 32.96 21.73 EV/SALES 15.40 11.89 11.47 11.15 8.24 5.81 EV/GMV 1.95 1.62 0.48 0.58 0.54 0.41 P/E 50.81 17.52 42.69 44.73 36.06 29.37 Price (year end) $ 84.85 $ 79.00 $ 108.85 $ 178.91 $ 182.45 $ 166.00 EPS $ 1.67 $ 4.51 $ 2.55 $ 4.00 $ 5.06 $ 5.65 Liquidity 2015FY 2016FY 2017FY 2018FY 2019FY 2020F Current Ratio 3.56 2.58 1.95 1.89 1.30 1.45 Cash Ratio 2.73 2.05 1.53 1.47 0.91 1.11 Cash & ST Inv/Current Assets 3.08 2.14 1.56 1.51 0.93 1.11 CFO/Current Liabilities 1.04 1.09 0.86 0.92 0.73 0.76 Leverage 2015FY 2016FY 2017FY 2018FY 2019FY 2020F LT Debt/Total Equity 32.15% 21.43% 23.93% 27.39% 18.38% 12.95% LT Debt/Total Capital 24.10% 17.40% 18.61% 21.27% 15.05% 11.14% LT Debt/Total Assets 19.81% 14.67% 15.16% 16.67% 11.59% 7.80% Debt/Total Assets 20.59% 15.85% 18.10% 17.51% 13.92% 9.76% Debt/Total Equity 33.41% 23.15% 28.57% 28.77% 22.07% 16.20% Debt/Total Capital 25.04% 18.80% 22.22% 22.34% 18.08% 13.94%

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BTDA EBIT s shares of r e ber ld num o h e average ar h Weighted s y ar in d r o o t le ab t u ib r t at /ADS e ar h s r e p s g in n Ear (%) Margin Profit shareholders ordinary to attributable income Net income Net investees equity of results of share and tax income before Income Operating Magin (%) Operating income Operating Expenses: Gross Margin (%) Gross Profit Growth (%) Revenue CONSOLIDATEDSTATEMENT INCOME Diluted Basic hare) s (per | Diluted share) |(per Basic Shares e erenc Pref ertible Conv on rued c ac idends Div Limited Holding Group Accretion libaba A of to Convertible ts interes Preference attributable ome inc Shares ontrolling Net nonc to attributable ome inc Net investees equity of results of Share es pens ex tax ome Inc net income, Other e pens ex t net ome, Interes inc tment es inv and t Interes ets s as intangible and ill goodw of Impairment Amortization of intangibleexpenses administrative assetsand General es expenses marketing pens and Sales ex elopment dev t oduc Pr Sold Goods of t Cos 2015FY $12,293 (1,035) (1,258) (1,373) (1,720) (3,845) $4,444 $3,896 $3,923 $5,215 $3,732 68.7% 2,500 2,337 31.7% 3,914 1,525 8,448 $1.56 $1.67 (257) (443) (337) 30% 401 (16) (28) (2) (9) 2016FY $11,083 $11,056 $12,635 $15,686 11,083 10,358 (1,310) (1,428) (1,753) (2,138) (5,328) $5,552 $4,513 66.0% 2,562 2,458 70.7% 8,104 $4.33 $4.51 (269) (301) (455) 29% 28% 319 (71) 27 - - 2017FY $22,994 14,352 (2,002) (1,778) (2,370) (2,479) (8,642) $9,058 $6,345 $5,989 $8,721 $6,981 62.4% 2,573 2,493 27.6% 6,345 1,244 $2.47 $2.55 (730) (388) (744) 30% 47% 356 884 - - 2018FY (17,065) $14,560 $10,201 $16,007 $11,050 $39,898 10,218 22,833 (3,315) (2,901) (1,135) (2,589) (4,352) (3,628) $9,791 57.2% 2,610 2,553 25.6% 4,862 $3.91 $4.00 (568) 28% 74% 427 663 (17) (79) - 2019FY (30,833) $14,030 $13,053 $11,955 $14,337 $56,152 13,095 25,319 (2,466) (1,599) (3,708) (5,928) (5,578) $8,506 45.1% 2,623 2,580 23.2% 1,140 6,572 $4.97 $5.06 (773) 15% 41% (42) 84 32 - 2020E (37,794) $19,157 $14,684 $13,250 $16,392 $13,243 $71,721 14,684 33,928 (3,142) (1,793) (4,333) (7,715) (6,717) 47.3% 2,623 2,584 20.5% 1,434 3,800 $5.60 $5.68 (651) (126) 18% 28% - - - - 2021F (47,602) $21,921 $17,288 $15,498 $19,174 $15,536 $89,486 17,288 41,884 (3,675) (2,058) (5,764) (9,805) (8,604) 46.8% 2,605 2,566 19.3% 1,790 4,175 $6.64 $6.74 (537) (116) 17% 25% - - - - 2022F $109,932 (12,265) (10,845) (59,028) $24,962 $20,181 $17,982 $22,247 $18,109 20,181 50,904 (4,264) (2,309) (7,293) 46.3% 2,628 2,589 18.4% 2,199 4,588 $7.68 $7.80 (451) 16% 23% (82) - - - - 2023F $133,824 (15,198) (13,537) (72,526) $28,353 $23,377 $20,700 $25,609 $20,906 23,377 61,298 (4,909) (2,676) (8,845) 45.8% 2,651 2,612 17.5% 2,676 5,043 $8.82 $8.95 (339) (135) 16% 22% - - - - 2024F $161,041 (10,643) (18,612) (16,692) (88,082) $31,899 $26,670 $23,449 $29,010 $23,669 26,670 72,959 (5,561) (3,221) $10.12 45.3% 2,674 2,635 16.6% 3,221 5,543 $9.97 (202) (123) 15% 20% - - - - (105,542) 2025F $191,216 (12,245) (22,481) (20,298) $35,725 $30,155 $26,331 $32,575 $26,641 30,155 85,674 (6,244) (3,824) $11.18 $11.34 44.8% 2,698 2,658 15.8% 3,824 6,094 (160) (184) 14% 19%

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Total liabilities, mezzanine equity and mezzanine liabilities, Total shareholders'Total equity equity: Shareholders' liabilities Total current liabilities Total liabilities: Current assetsTotal current assetsTotal assets: Current Millions in $ CONSOLIDATEDSHEETS BALANCE Total equity Total ts interes ontrolling Nonc earnings Retained Accumulated other comprehensivereceivables Subscription income (loss) es erv Res Additional paid-in capital less Treasury Sharesequity anine z Mez ies ontingenc c and Commitments liabilities Other Long-termdebt liabilities tax erred Def enue rev erred Def es anc adv tomer us c and enue rev erred Def its depos hant c Mer able Accruedpay expenses, money accounts payable ow r c andEs other liabilities able pay tax ome Inc debt Short-Term ill Goodw & Intangibles net rights use Land equipment, and ets s ty tees as es oper inv Pr other equity and in tments ables es Inv eiv ec r , ments epay Pr urities ec s ets s tment as es Inv other and ables eiv ec r , ments epay Pr ables urities eiv ec s rec tment es row c Inv es and h as c ted tric Res investments Short-term alents equiv h as c and h Cas

2015FY $41,206 $23,462 $15,707 $41,206 $17,453 25,393 18,897 22,790 1,931 4,007 8,163 6,400 1,277 1,162 3,199 7,825 1,474 5,465 2,357 2,094 2,282 $106 372 252 347 725 441 321 501 659 590 371 (66) 72 2016FY $56,521 $33,652 $17,767 $56,521 $16,566 38,700 12,213 20,504 13,495 14,184 20,792 5,048 8,292 1,004 8,071 1,597 1,134 4,240 2,114 4,558 2,640 597 365 335 433 667 446 932 648 209 729 (27) $54 65

2017FY $73,630 $40,504 $26,542 $73,630 $20,882 46,654 15,772 23,501 11,163 13,623 20,271 17,487 26,516 6,150 1,475 2,187 1,190 6,855 2,164 2,936 1,169 4,569 4,222 $434 738 502 188 337 890 682 589 386 437 93 (9)

2018FY $114,326 $114,326 $58,320 $44,270 $31,775 69,578 11,258 27,477 29,419 19,055 21,651 12,940 30,228 10,600 22,271 40,949 3,079 3,555 1,527 2,181 1,495 2,694 6,089 6,891 $478 810 640 327 158 487 961 768 545 970 (26)

2019FY $143,801 $143,801 $73,348 $52,104 $28,308 90,681 17,333 38,426 34,537 16,664 30,944 17,540 49,650 13,713 12,584 23,407 40,272 $1,016 3,355 4,589 1,604 1,229 2,635 3,347 4,175 8,730 1,479 1,269 (348) 740 922 219 486 (7) 0 2020F $171,379 $171,379 103,089 $86,056 $33,633 $67,257 $49,483 17,033 51,676 13,318 44,584 28,331 48,368 14,477 12,469 27,034 64,646 12,199 $1,033 4,393 4,648 6,765 2,053 1,165 2,923 3,346 4,386 1,351 1,385 748 314 228 - - - 2021F $195,409 $100,521 $195,409 117,554 $32,599 $76,822 $65,419 17,033 67,174 11,693 53,227 35,684 48,252 15,651 12,470 29,737 83,827 15,220 $1,033 5,711 5,800 8,441 2,376 1,454 3,647 1,625 5,472 1,486 1,485 748 392 217 - - - 2022F $228,979 $121,699 $228,979 138,732 111,344 $35,795 $89,214 $88,817 17,033 85,156 68,504 10,369 44,249 48,169 17,562 12,471 32,711 18,698 $1,033 6,282 6,823 7,125 2,748 1,786 4,480 4,870 6,722 1,634 1,989 748 482 206 - - - 2023F $264,723 $145,877 $100,781 $264,723 $113,921 162,910 105,856 141,091 $39,272 17,033 80,125 12,623 54,368 48,035 18,961 12,472 35,982 22,762 $1,033 6,910 4,487 8,673 3,170 2,175 5,454 2,336 8,183 1,798 2,414 748 586 195 - - - 2024F $309,244 $173,897 $117,281 $309,244 $146,107 190,930 129,305 178,745 $43,843 17,033 10,437 94,134 15,190 66,029 47,912 20,686 12,473 39,580 27,391 $1,033 7,601 4,404 3,652 2,617 6,563 9,847 1,978 3,084 748 706 186 83 - - - 2025F $361,419 $205,100 $138,253 $361,419 $186,489 222,133 155,636 113,089 224,808 $48,716 17,033 12,393 18,037 79,118 47,728 21,179 12,474 11,692 43,538 32,524 $1,033 8,361 3,573 4,203 3,107 7,793 2,175 3,443 748 838 831 176

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Analyst Team

Jonathan Ebberhart

Jonathan Ebberhart is pursuing a degree in Finance, concentrating in Asset Management, accompanied by minors in both Political Science and Economics. He grew up playing football and applied the characteristics that underpinned athletic success to his academic pursuits. Prior to joining the Applied Securities Analysis program, Jonathan spent a summer as an Operations Associate Intern with Anchor Wealth Management and this last summer as a Wealth Management Summer Analyst with the J.P. Morgan private Bank. He sees himself enjoying a successful career in corporate finance before starting his own private equity firm. Jonathan is passionate about spreading financial literacy to rid communities of cyclical poverty. After his graduation in May 2020, he plans to pursue his CFA designation.

Cristiano Fernandes Filho

Cristiano Fernandes Filho is a finance major with an economics minor currently pursuing his CFA designation. Originally from São Paulo, Brazil,

Fernandes is the president of the Brazilian Student Association at USF and a first-generation college student who holds a USF GPA of 3.97. He previously served as a finance and economics tutor, helping students to succeed in five different courses offered at USF. After spending a summer in a Financial Planning & Analysis internship with Citi, he joined the Applied Securities Analysis program to gain experience with Equities. After college, Cristiano plans to pursue a career in Investment Banking.

Timothy Davis

Timothy Davis is a first-generation American born and raised in Tampa Bay. Exposed at a young age to market movements through his father’s real estate investing after the 2008 recession, he has developed a passion for studying financial markets and investments and is an avid speculator. Timothy is pursuing a finance major and has a background in applied statistics, upper-

level mathematics, and information technology. He currently works at Morgan Stanley as a Wealth Management Intern analyzing client portfolios, performing market research, and assisting in the development of portfolio management models. In joining the Applied Securities Analysis Program, he plans to further challenge and develop his research and fundamental \ analytical skills. Timothy aspires to enter the field of private equity and is currently pursuing his CFA designation. 17