At the end of last month, BABA (Alibaba) filed a 6-K
(http://is.gd/OHzToL), announcing their financial results for the quarter ended December 31, 2014. BABA started trading on the NYSE on Friday 19 September, 2014.
Let’s take a look at the consolidated income statement. All figures are in million RMB, except for percentages and unless otherwise stated.
Compare revenues for 3 m/e Dec 2013 with 2014. Revenues increased by 39.7%. So far, so good. Cost of revenues to revenues increased from 22.2% to 28.7%. So there’s been some deterioration there. Income from operations only increased by 6.2%. So all that revenue increase did not translate into operating income. Operating income to revenue declined from 47.5% to 35.7%. Frankly, I find those numbers to be too high to be credible.
Carrying on down the income statement, there’s some interest and investment income, and other income, whatever that is. I see that interest expenses have increased from 387 to 1344. So there’s some borrowing going on there. Income tax expenses has gone up, as we might expect. Then we hit the line “Share of results of equity investees”, showing a loss that goes from 160 to 805. It’s a curious item, and I don’t like the look of it. Presumably they’ve invested in a bunch of other stuff, and that other stuff isn’t doing well. A skeptic might say that equity investments is a convenient cabinet to stuff the skeletons in.
So, we eventually get down to Net income attributable to ordinary shareholders. That goes from 8266 to 5936. Oh. It’s going the wrong way. I doubt that can be good.
Now let’s look at the balance sheet.
Cash has ballooned from 17253 to 107050. Seems difficult to believe that the company is paying so much more in interest, doesn’t it? Then we have a bunch of other notworthy items in current assets: short term investments 23691, loan receivables 23679, and investment securities 2570. What gives? Is BABA supposed to be a trading company, or a financial institution?
In long-term liabilities, unsecured senior notes of 48803 has appeared on the books. It seems that the company has repaid US$8b of bank borrowings with these senior notes. Surely I can’t be the only one to think that an $8b loan is rather a lot of money to be loaned to a company that was only founded in 1999 in an apartment.
It will all end in tears.
Needless to say, I have no holding in BABA.
Update 07-Feb-2015: The New York Times reported earlier this month: “Alibaba and Lending Club to Form Financing Partnership” (http://is.gd/PubMWD). The idea is that US manufacturers can buy supplies through Alibaba on unsecured credit, rather than relying on traditional forms of financing. The monthly interest rate starts at 0.5 percent. It doesn’t take much imagination to see how this can all go very wrong. Banking is such a tough business that even banks have trouble doing it right.