Alibaba Group (NYSE:BABA) Earnings Model

BABA Consensus-Based Earnings Model.xlsx
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    ​Latest Update: January 24, 2017 (After the December quarter earnings release).
    ​This model needs an update to include the latest results...Feel free to update the model yourself, or sign-up to get an email alert after an update has been posted.
    ​Model Tier: Tier 2, Consensus-based model. 
    Model Summary: This model breaks down Alibaba’s results by segment: China Retail, China Wholesale, International Retail, International Wholesale, Cloud Computing, and Other Revenue. The China Retail Segment is the largest contributor of earnings and is further disaggregated into two categories: Mobile and PC. GMV (an estimate of the value of the total potential sales on the Alibaba network) and monetization rate estimates are used to forecast future period revenue. For the remaining segments we apply a basic quarter-over-quarter growth rate.

Alibaba Modeling Approach

​​Revenue Modeling Approach: This model breaks down Alibaba’s results by segment: China Retail, China Wholesale, International Retail, International Wholesale, Cloud Computing, and Other Revenue. The China Retail Segment is the largest contributor of earnings and is further disaggregated into two categories: Mobile and PC. GMV (an estimate of the value of the total potential sales on the Alibaba network) and monetization rate estimates are used to forecast future period revenue. For the remaining segments we apply a basic quarter-over-quarter growth rate.

Currency Translation: Management primarily discusses operating results in RMB, but we value shares in USD. To overcome this hurdle, we model earnings in RMB terms and translate the results back to USD before calculating the final share valuation.
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Expense Modeling Approach: We use ratios for the three primary operating expense line items (Product Development, Sales & Marketing, and General & Administrative Expenses) as a percentage of revenue. We estimate amortization of intangibles, Interest & Investment Income/(Expense), Other Income, and Equity Investment and Non-Controlling Interest impact based on historic averages. We apply an effective tax rate to the future projected income to forecast the Provision for Income Tax.

Non-GAAP Adjustments: We project future Stock-Based Compensation (SBC) expense based on the historic ratio of SBC-to-Revenue, and allocated it between Cost of Revenue, and the three main operating expense line items based on the historic allocation. We then estimate the remaining non-GAAP line items based on historic averages.

Share Count Forecast: To forecast the future share count we calculate the historic change in share count, after removing the impact of share repurchases. We then make estimates for future share repurchase volume and prices, and deduct the resulting share reduction in our forecast periods.
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Valuation Approach: We utilize a market multiple based valuation approach, specifically a Price-Earnings Multiple which we apply to
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