Friday, November 17, 2017

The Blob.....

As many of you know, I've been off the grid in rural India for the last few weeks.  As I've also mentioned, I love my trips to India....I get a chance to regroup, reset, meet wonderful people and think about things I rarely take the time to think about.  It's all about perspective.

Anyway, while I was traveling, I had a chance to peruse the Alibaba September Quarter figures, Press Release, 6K, Investor Presentation and of course, took some time to listen to the always entertaining Investor Call.  Shortly thereafter, Alibaba had reported their amazing "Singles Day" sales figure of  $25.3 Billion of fake GMV.

To put this figure in perspective,  this year, "Singles Day" GMV came in at just a few billion more than the annual revenue of Sears/K-Mart (140,000 employees and 1,500 locations world-wide)..... again, I'll repeat that..... Alibaba sold, shipped and delivered the annual, global, sales volume of Sears/K-Mart in just one day!  ....800 Million orders to deliver!  Incredible!  Bravo!.....all those guys on the tuk-tuks, scooters and bicycles must be exhausted......


The Alibaba business model has triumphed once again.  It's now obvious that UPS, FedEx, DHL, et al, have it all wrong.  Why in the world would anyone invest in all of that expensive GPS, scanning, package tracking automation and logistics hardware when you can just dump your packages on the sidewalk and let homeless people figure out how to get them where they are supposed to go?  Again, the wizardry of Alibaba's ecosystem  has rewritten the global-logistics playbook.  Absolute genius....

Photos Courtesy of the NYT & Getty Images

The Investor Call

The Investor Call, with all of its suspense, of course, reminded me of one of the greatest motion picture epics of all time.  Many Cinephiles consider this flick to be the late, great, Steve McQueen's quintessential work. That's right, I am of course referring to that trans-generational, 1958 classic, "The Blob"

From the trailer:

....."It's kinda like a mass that keeps getting bigger and bigger...."
https://www.youtube.com/watch?v=CkOfeSNsWpM 

Like the Blob, Alibaba's financial misrepresentations, as absurd as they are, have grown to the point where its oozing tentacles of slime have crept into every corner the world's financial system. 

I won't bother to dissect the numbers any more than I have in the past, but suffice it to say that the same accounting shenanigans I've discussed herein, every quarter since the IPO in September of 2014 are still alive and well.  (See my last 20F analysis for a little more detail: "Finding Inner Peace in Dharamsala....and thoughts on the Alibaba 20F....")

Everything is steady as she goes.....Gigantic, unbelievable "asset-lite" growth, huge fake efficiencies and synergies abound.  Asset write-ups and inflated carrying values of "Questionable Assets" scattered across the books of more than six hundred (600) un-auditable, consolidated entities are omnipresent.  Alibaba Pictures and Alibaba Health are carried on the books at roughly $3 Billion more than their current, publicly traded market caps would support.  A Billion dollars of loans to insiders (See: Wasu Holdings, Simon Xie & Shi Yuzhu) are outstanding with a good chance that they will be looking for even more Alibaba shareholder money soon.

In the call, management reinforced their philosophy that they never manage a business to a profit/margin or apparently any sort of target/metric so they, of course, never feel compelled to offer any detailed explanation or meaningful guidance on the numbers, product mix or how they make their money....... except that everything will most likely be really good forever.  It's all about delivering nebulously defined "value".  The call was, of course, capped off with the usual, odd, irrelevant, softball questions posed by the religiously devoted cadre of analysts.  Note that the analysts all refer to the business as "our segments" or "our strategy" or "how are we going to expand...."....as though they are part of the Alibaba management team.  Call transcript posted below courtesy of Seeking Alpha.  Using our patented Dick Fuld Banker-Speak Translator (BST), I'll just take a minute to analyze the first analyst's question.  I'm not necessarily picking on Eddie Leung here, he seems like a really nice guy, but he happened to ask the first question.  No need to go deeper into the Q&A unless you are a glutton for punishment, It just gets worse from here:

Eddie Leung - Bank of America Merrill Lynch
Good evening. Thank you for taking my questions. I have two questions. One is on Cainiao. Could you share your thought on the long-term positioning of Cainiao? Again, as the professional logistic service providers in China and globally, how to differentiate and perhaps cooperate in logistics?
And then secondly, on New Retail, have we seen any change in the way that we cooperate with some of our brands and merchants across our multiple channels after we developed our offline channel recently? Thank you.
BST: "First, how the hell are you going to deliver $25 Billion of merchandise using push carts, bicycles and homeless people?  When you dump the packages on the sidewalk, what percentage of the merchandise is stolen?  Second, this is the first full quarter you've consolidated InTime as your "new retail"... the InTime acquisition?.... you know, where you just paid $3 Billion for a bunch of broken down department stores and vacant shopping malls?.... so you can dump fake knock-off merchandise and overstock junk in these stores?....that way photographers from the New York Times won't snap pictures of homeless people picking through the stuff scattered all over the sidewalks?" 
DT Note:  The correct response to this question should have been:  "Regarding Cainiao, I'll refer you to the detailed schedule XX of the 6K (which unfortunately doesn't exist) describing, by region/zone the packages/deliveries, product mix and associated costs by product category.  As for Intime, I'll refer you to the segment P&L's & Balance Sheets in Appendicix XX of the 6K (also doesn't exist) which describe, in detail the breakdown between On-Line and Off-Line GMV, Revenue and cost of operations, showing precisely what we're selling, where we're selling it and how profitable it is compared to our detailed projections. (which also don't exist)"  
This is what we got:
Response: CEO Daniel Yong Zhang - Alibaba Group Holding Ltd.
"Eddie, this is Daniel. I'd like to answer your questions. For the first one, Cainiao. Actually, Cainiao is positioned as a smart logistic platform. Why smart is because this should be a data-driven logistics platform. We truly believe that the data is the most important asset which can generate value for the partners in the Cainiao ecosystem. And so what we do is that we work closely with our partners in not only warehousing, but also delivery network to enable them to optimize their operation. So we will continue this strategy and which is the partnership strategy and continue to work closely with our partners in China and in the world.
And the key thing is that the data-driven logistic network, actually we are – Cainiao is not going to be a logistic company and we are not interested into building another logistics company. Instead, we will work with a lot of logistic companies, delivery companies to build a network across the world.
And for your second question, New Retail, I would say actually, our New Retail strategy is very clear and we will continue to execute our New Retail strategy and to partner with the offline retailers in key categories such as in fashion categories, we work with Intime. In consumer electronics, we work with Sony. In food and FMCG categories, we work with Bailian and Sanjiang. And recently, we invest another regional retailer, which is (29:13) and we will work closely with them to empower them with our prospective (29:19) technology.
Second is about – is a valid New Retail form or format to enable them to operate efficiently. So I think this is our New Retail strategy, but we're still in early stage. And our goal is to help the whole New Retail (29:40) world to be upgraded into a digital operation. So actually we are on our way. Thank you."
BST: "I have no F-ing idea what I'm talking about and I can't give you any detailed information because it doesn't exist, all of these numbers are made up, so I'll just use words like 'partner', 'digital', 'data' and hope that you think I'm brilliant.  We don't need to build a logistics company since our homeless people on bicycles are doing just fine. Our retail strategy is very clear, you should already know what it is, I think, maybe not, but anyway, it's all about data.....data, data, data.  We have lots of smart, logistics data, and on-line, off-line data logistics partners and we are global across the world because of  our data.  We are going to ship things to all sorts of dumpy convenience stores, kiosks and partners for people to pick up.  It's a better model than dumping the stuff on sidewalks. When it rains, packages get soggy and customers bitch.  We're going to ship $25 billion of fake GMV in one day next week, Nicole Kidman will be at the party, we paid her big bucks to show up, ooopsss Jack told me to not to say that, but we are at the beginning stages of helping the world.  Our on-line, off-line data-driven-big-data will allow us to sell more data-driven fake junk to everyone on the planet on mobile apps, which will track everyone so the CCP knows exactly where they are and what they are doing.  Did I mention that we are experts at big data?  Oh....and Amazon sucks.  Thank you."   

So really, what is this gigantic "blob" of "China Commerce" GMV  and the related revenue comprised of?  Who knows?

Alibaba management incessantly references their huge investment in infrastructure that enables them to sell supposedly gigantic volumes of Consumer Electronics, Fast Moving Consumer Goods, Clothing, Grocery, etc. yet they have never disclosed how much of same is sold through their platform(s).  How can they publish a gigantic $25.3 Billion, one day GMV total and not know what its components are?  I thought that Joe, Daniel and Maggie were the ring masters of this big-data circus?  They should know these numbers off the top of their head and disclose them.

For example.....

You can buy a million dollar yacht......just put it on your MasterCard/Visa or Alipay.....it would be nice to know how many yachts they sell on-line.

https://item.taobao.com/item.htm?pm=a230r.1.14.203.2221f271xw1ITD&id=555642734072&ns=1&abbucket=7#detail


Or perhaps you'd like a luxurious Prada hand bag.....apparently sold by authorized and licensed Prada distributors like "wishload flagship store" and "buyfine overseas flagship store".

https://s.taobao.com/search?q=prada&type=p&tmhkh5=&spm=a21wu.241046-us.a2227oh.d100&from=sea_1_searchbutton&catId=100&sort=price-desc



Or maybe you need a few hundred tons of steel pipe......

https://www.alibaba.com/trade/search?fsb=y&IndexArea=product_en&CatId=&SearchText=steel+pipes


...or sheet steel.....
https://www.alibaba.com/trade/search?fsb=y&IndexArea=product_en&CatId=&SearchText=steel+sheet

Perhaps a new building?...put a skyscraper on Visa/Mastercard!
https://www.alibaba.com/trade/search?fsb=y&IndexArea=product_en&CatId=&SearchText=commercial+building



Or land for sale in Estonia or Iran?....note the "smart data" algorithm on the right of the page.....people who liked "land in Estonia" also apparently liked "kitchen cleaners and car wash soap"....and I actually could have "chatted" with the creepy looking guy shown in this listing, but my IT Department advised against it.....

https://www.alibaba.com/trade/search?fsb=y&IndexArea=product_en&CatId=&SearchText=land


None of the above ridiculous transactions have anything to do with consumer goods and never "close" on the platform, yet they are there for a reason.  They are included in GMV.  They are "reported" by the seller (presumably for a fee?).....Think Craig's List....not Amazon.

The SEC correspondence from 2014 was illuminating......everything about this business is a misdirection or a half truth.....See pg 5, where Alibaba management opines that the GMV metric is a critical part of their fake operating/reporting framework and that it's perfectly legitimate for them to report transactions that were never shipped or closed.


We might ask, if GMV is so important, why have they never provided any detail as to its composition/mix, or oddly enough, are only reporting GMV twice a year now. (on "Singles Day" and an annual "Blob" in the 20F)   Is it somehow no longer important?

In fact, back in 2016 under Mary Jo White, the SEC started looking into, among other things, the possibility that there are issues with Alibaba's GMV reporting.  You'll also notice that, on page 60 of the above answers to the SEC correspondence, one of the signor/architects of the aforementioned, dubious Alibaba responses, was a Sullivan & Cromwell Attorney by the name of Jay Clayton, who also now happens to be the newly appointed Chairman of the SEC.  As they say....a fortuitous coincidence indeed.

I'd invite all of my readers to check this out for yourselves.....take a few minutes to browse the Alibaba sites, Tmall, Taobao, Alibaba.com, AliExpress, 1688, and type in luxury brands (Gucci, Prada, Coach, etc.) industrial goods, etc., sort by price (high to low) and see what you get.  It's a hoot....you can buy single malt Scotch and Kentucky bourbon made in China!.....who knew?  Let your eyes be the judge as to whether Mr. Clayton's position, while representing Alibaba, had any merit at all.

My guess is that "real" consumer goods GMV actually delivered is probably less than a third of what they report......yet investors believe these inflated numbers...... I suppose, because it's "China"....and in hindsight, perhaps because Jay Clayton got a (presumably) sizable paycheck to sign off on it.

Show Me The Money!

Finally, with all of this Revenue and activity, all of this purported income and cash flow....a little bird told me that Alibaba will be looking to the US Bond Market for more funding in the very near future, riding the wave of the latest fake numbers.  They'll be looking for something in the range of $5 Billion to $8 Billion.  The big question is, if the business is actually generating dump trucks full of money as they claim, why have they maxed out their bank lines of credit and why do they once again need to go running to the US credit markets for cash ???....in addition, why in the world don't Chinese Banks want a piece of this gold mine?  They should be clamoring to lend money to this national treasure.  There isn't one Chinese Bank materially involved in financing this mess, at least that I can see.  This, to me, is incredible.  Ninety percent (90%) of Alibaba's business is in China, they need RMB....not dollars....what gives?

Perhaps their "Authorized Representative" Don Puglisi would know the answers.  Every foreign company listed on a US Exchange must have an Authorized Representative in the United States and Don is Alibaba's man, per the original F-1.   Per Bloomberg, Don also seems to be a serial "Authorized Representative", collecting checks to represent dozens of foreign businesses in the United States, all run out of his three (3) person office in Newark, Delaware.    Lots of irons in the fire.  I can't imagine how, at his age, he can keep it all straight.  He's a busy man.  If I were him I would have retired long ago, but apparently "80 is the new 50"!  On the other hand, I, for one, think it's absolutely marvelous that a gigantic global enterprise like Alibaba was able to give a "little guy" like Don the chance to become a big time international player.  It must be a dream come true for him. 

Looking at the big picture, perhaps Don's job as an Authorized Representative was just the first of the "Million US Jobs" that Jack told the White House he was going to create!  Only 999,999 to go! Of course, Don's great new Alibaba administrative job pales in comparison to the half dozen or so high paying executive jobs that Jack had already created at his new (2014) Alibaba headquarters in the Caymans.  As our political leaders often say, "it's all about the jobs".  I couldn't agree more.

Anyway, I'm sure that Don is a great old guy and if asked, he could bring some clarity to what Alibaba is up to. Perhaps Mr. Clayton (after waiving attorney/client privilege) could lend some insight as well.  After all, if you are representing someone, I'd think you should have at least some idea as to what's going on with their business.


Additional Reading

Press Release
http://www.alibabagroup.com/en/news/press_pdf/p171102.pdf

6K
https://www.sec.gov/Archives/edgar/data/1577552/000110465917065677/a17-25090_1ex99d1.htm

Webcast
https://edge.media-server.com/m6/p/2r9yjiwq

Presentation
http://www.alibabagroup.com/en/ir/presentations/pre171102.pdf

Alibaba Singles Day
https://www.nytimes.com/2017/11/10/business/alibaba-singles-day.html?_r=0


The SEC correspondence from 2014
https://www.sec.gov/Archives/edgar/data/1577552/000119312514237452/filename1.htm

Lazada - pg 105 12/31/15 EUR 247 Million Revenue & EUR 312 Million loss.
https://www.rocket-internet.com/sites/default/files/investors/Rocket%20Internet_Annual%20Report%202016_English.pdf

Intime Financial Statements
https://www.marketwatch.com/investing/stock/intif/financials

Alibaba buys InTime
https://www.wsj.com/articles/alibaba-seeks-to-take-intime-private-with-founder-1484005494

Selina Wang Interview with Mike Evans
https://www.bloomberg.com/news/videos/2017-11-10/alibaba-s-evans-on-singles-day-strategy-in-u-s-video

Don Puglisi - Bloomberg
https://www.bloomberg.com/research/stocks/private/person.asp?personId=11324972&privcapId=60047155

Jack Ma to Create 1 Million US Jobs.
https://www.cnbc.com/2017/01/09/alibaba-to-discuss-expansion-plans-with-trump-company-aims-to-create-1-million-us-jobs-over-the-next-5-years.html


Alibaba Group Holding (BABA) Q2 2018 Results - Earnings Call Transcript
Investor Call Transcript

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

63 comments:

  1. Thanks for this, very interesting read. Do you have any thoughts on Tencent as well?

    ReplyDelete
    Replies
    1. Thanks....Haven't looked at 'em lately. I did a post in mid 2015 as I recall....the title was something like "Tencent.....about what it's worth..."

      Delete
  2. Hahahaha thanks for the laugh. Maybe after India you should actually visit China. If you're from the states you'll probably go quiet quite quickly (triple Q, see what I did there? Me neither). Homeless people, sidewalks and tuk tuks, hahaha, honestly man, don't forget the fact that they all look like Confucius with huge beards and how impractical that is to deliver parcels. Also, please go look at the 'ghost' towns for yourself and then report back, thanks. China is undergoing the largest urbanisation in human history, you think every mall, apartment block and government office was going to be built JIT Japan style? Again, just go for a visit. Unlike in India and the US you can even rely on public transport. I know, shocker. Re Alibaba, yeah, probably funky books, but then over the last decades looking at Google's ventures and all the transparency we had on them I wonder tbh (leaving things like the NSA stories and Uber lawsuits aside).

    ReplyDelete
    Replies
    1. i think he brough some valid points but so did you. as a en expat you frequents china often i have seen the expansion but also poverty rise but then again inequality is rising everywhere. im long baba and obviously have done well, i've shaved profit when i hit 40% and then 80% and 100% return, re-invested into other companies so most my initial investment in baba is back in the market via other entities. regardless of the views should be an interesting ride.

      Delete
    2. This blog's analysis was very low quality. I'm out...

      Delete
    3. Thanks so much for commenting "anonymous". I love China, and in fact, most of my info/insight comes from good hard working folks who live there, or have lived there. The Chinese people I know are hard working, caring, honest, industrious people. If you want to send me your address I'll stop by your place next time I'm in country. Maybe you can show me around? I'm glad you at least acknowledged that Alibaba has "funky books".....Glad you got a chuckle out of my work. All the best!

      Delete
  3. I am have no position in BABA. I suggest you speak to atleast a few ex/current employees to get a sense of exhaustive and often exhausting list of KPIs they work towards. To suggest company has none shows your lack of basic DD

    ReplyDelete
    Replies
    1. I've sought these folks out but nobody will talk. I don't think I ever suggested they have "no KPI's"....I think what I'm saying is that the accumulated "big data" is "fake". Do you have a few names of some people I can talk to? I'd love to get some quotes. Email me directly at Deep.Throat.IPO@gmail.com....make sure to use a VPN or email me from outside China.....I'd hate to have you get "a knock at the door". Be careful.

      Delete
  4. wow. let me sumarize this blog ; american does not understand that China is big. I mean big like bee iii ggg. And that capitalism in China is so young and the boom was so fast that its much more concentrated than the Usa. And thinks homeless dog eating kung fu drunken fighters deliver packets. Iam not Chinese btw. Sometimes you have to use your brain instead of screaming China China

    ReplyDelete
    Replies
    1. I'm not sure where "homeless, dog-eating, kung-fu, drunken fighters" is coming from, I have many good Chinese friends, many of whom have given me information and insight on this blog. The Chinese people I know are hard working, industrious and dramatically underpaid. I don't know that I've ever "screamed China, China"...screaming isn't in my nature. So, I know you are not viewing this blog in China, because it's banned by the "Great Firewall"....you are in the US now? You should stop by for a visit. Email me at Deep.Throat.IPO@gmail.com. I'm not trying to be a wise-guy here, but it's obvious from your grammar that English isn't your first language. Where are you from? I admire people who are multi-lingual. Anyway, thanks for reading my work. I truly hope everything works out for you. All the best...

      Delete
  5. I am new to your blog, and I just spent a couple of hours exploring some of your various posts. Thank you VERY much for all that you have written! As a former global economist, equity analyst, fixed-income strategist and portfolio manager--not all at the same time--for a few large, sell- and buy-side institutions, I greatly appreciate the amount of time it takes to gather this information and share it in such a detailed and entertaining way. I am also in full agreement with your take about the insanity of the markets and the dangers of current monetary and fiscal policies. As Charles Kindleberger wrote about in "Manias, Panics and Crashes: A History of Financial Crises" one usually experiences a surge in fraud during bubbles. Did someone say Alibaba?

    ReplyDelete
  6. I didn’t even bother reading the whole article (mostly biased and arrogant craps as reasonable people can tell). The author just had an “enjoyable” trip in the “incredible” India (i.e., about 70% of the population there don’t even have / use toilets and the air quality can be “amazing” as well); and spewed his deeply accumulated disgusts onto Alibaba. How funny is that? The “prestigious” Barron magazine predicted the BABA stock could dive to below $32 back Sep ’15 and as of Nov ‘17 it’s traded at $189. Even the famous billionaire James Chanos stopped shorting the stock. You thought by now most people should have learnt and taken practical actions?

    https://www.pri.org/stories/2016-05-12/india-access-toilets-remains-huge-problem-worst-all-women-and-girls
    https://www.barrons.com/articles/alibaba-why-it-could-fall-50-further-1442036618
    https://www.barrons.com/articles/alibaba-chanos-covers-short-position-1505241473

    The author is obviously very biased towards Alibaba – the photos he posted deliberately show the “low-end / labor intensive” portions of the delivery chain and even called those diligent delivery workers “homeless” – they may not earn much however at least they’re no bums wandering on the 3rd-world alike streets biting off the social welfares. How about take a look at the whole picture from another angle:

    https://www.youtube.com/watch?v=FBl4Y55V2Z4

    China’s progress has been ironically powered by the almighty enormous Indian jealousy so far, seemingly the author has joined them as well.

    As Mark Twain said, “Travel is fatal to prejudice”. Nevertheless, the author probably has a deep emotion about anything China, so even he ever makes a trip there, the trip would be able to dismantle his prejudice at all?

    ReplyDelete
    Replies
    1. Well....where do I start.....I love China. I count the Chinese people I know as good friends. Just like the Indian people I know, and the Italian, Singaporean, English, French, Mexican, Irish, African. etc. Anyway, you get the point. As I just typed for another "Anonymous" a few minutes ago, if you want to send me your address (Deep.Throat.IPO@gmail.com), if at all possible, the next time I'm in country I'll stop by for a visit and you can show me around. The offer is of course, reciprocal. I have nothing against the Chinese and culture, I'm commenting on the accounting issues and fraud that is pervasive through these financial statements. All the best!

      Delete
  7. It's pretty clear from your anonymous blog you have never been to China. Did you know China’s bad loan ratio is 1.7% versus India's which is 9.6%? Did you also know there is 1.4 billion people in China where 80 million are under the poverty line while India has 270 million with a total population of 1.3 billion? Also BBC recently wrote an article titled "Two Boeing 747 jumbo jets sold in China Taobao auction" for USD48 million bought by SF Airlines. The Alibaba platform is different  from Amazon and JD.com. It is asset light because it does not own any asset heavy logistics platforms or inventory which is why the company can be so profitable. On top of this, the Chinese are getting wealthier and spending more, for example there were 135 million Chinese travellers in 2016, spending US$261 billion while overseas. I think it would be smarter for the United States to welcome Chinese tourists and get their tourist dollars instead of losing out to the French and British which have strong tourism programs targeting Chinese tourists. It is easy to catch bees with honey than with a stick. So in quick summary I'd like to comment that you write anonymously because you know what you write is very low quality analysis and I find it funny that Mark Cuban would cite your blog which shows how little he knows as well. If this was an episode of Shark Tank this blog would be an immediate "I'm out".

    ReplyDelete
    Replies
    1. Thanks for reading my work. I'll be brief in my response. I've covered most of what you've quoted in prior posts.

      1.)China's NPL ratio is fake....debts aren't written off they are rolled over. That's why Chinese debt is skyrocketing.
      2.) Your 80 million figure I believe is the World Bank number, which as I recall refers to about a $2/day. Poverty level. I don't have time to look it up, but my recollection is that if you use the equivalent of a US/EU poverty level the number is about 500 million people in China live in poverty.....but you're correct, India is worse. I never said that India was "wealthy". I said that I enjoy my trips and that I get a different perspective when I'm there. Just as you may have if/when you come to the states.
      3.) Selling 747's on a website and passing it off as FMCG is just silly.
      3.) I believe, and you can check it, the top non-Asian destination for Chinese Tourists is the United States. I think HK is #1, Thailand & Japan are ahead of the USA as well. I'm so glad Chinese people are visiting the USA, the exchange students I know (My wife and I sponsor foreign students and try to mentor them) love it here.
      4.) Well.....I thing Mark Cuban has some street cred. More than you or I will ever have.

      Anyway. please stay in touch.....come visit us....Deep.Throat.IPO@gmail.com.....All the best!

      Delete
    2. Holy crap dude the amount of hate for this post...

      You get the most flak when over the target keep at it! Love your work!

      Delete
    3. Thanks MungerFan....Yup....I've got the BABA PR team working OT. Did you see that they are paying big $$ to run "Jack Ma marketing videos"... 24 minute continuous loop...on the original "Cuban tweet piece" on Bloomberg? Amazing....

      Delete
    4. Haha well if there is anything that is real at Alibaba it's their ability to paint a picture (and try to paint over the one you're writing here). Fascinating times we live in eh? You and Anne Stevenson-Yang are a couple of my heroes!

      Delete
  8. The US fakes numbers as well. The supposed trade deficit China has with the US is fake to the least exaggerated. The US counts outsourced products by US corporations and others as well coming from China as products of China. China doesn't profit from those products when sold to consumers yet they're counted as Chinese products. Made in China doesn't mean profited by China but US politicians like it that way because that's how US corporations want it because they profit more from cheap labor overseas and to distract people from the fact that Congress can just pass a law outlawing outsourcing and it's over. But they don't do that because the primary benefactor of outsourcing is the American corporation that outsources not the country jobs are outsourced to. Hence why the US fakes trade numbers.

    ReplyDelete
    Replies
    1. This is a little hard for me to follow, there's a lot going on here, but I think you are saying that Chinese workers are underpaid.....if that's your point I couldn't agree more. For decades the Chinese government and elites have chosen to discount the labor of hard working Chinese citizens on the global stage. Note the number of billionaires in China, growing at the expense of the masses. As we've learned in America, "trickle down" is more of a "drip". The US middle class has suffered because of it. I'd refer you to Ray Dalio's 60/40 "two economies" discussion. There are lots of other factors, currency imbalances, trade policy, productivity gains through automation/science which have eliminated millions of jobs around the globe....1 person can do the work of 10 now thanks to the fork truck, conveyor belt, pneumatic tools & robotics. The net result is that Chinese workers are underpaid and US workers are unemployed. If I were you, I'd storm into Xi's office and demand a raise. Let me know how it goes! If you want to stop by America for a visit let me know & my wife and I will show you around. All the best!

      Delete
    2. I wouldn't "storm" into Xi Jinping's office to "demand" anything! Underpaid and alive is better than working in a labor reeducation camp for no pay or being executed straightway. Also, I sort of remember some students tried to demand something from the CCP some years ago and I don't recall they got very far with their demands.

      Delete
    3. Good point R.T., perhaps my judgement was a bit faulty....my bad. Anonymous...please DO NOT storm into Xi's office.....see R.T.'s advice above.

      Delete
  9. This comment has been removed by the author.

    ReplyDelete
  10. The US main street people are well known to have little knowledge about the outside world. Even today is almost 2018 many still hold that "A City upon a Hill" attitude, and a lowest quality article like this certainly shows. People with that kind of attitude / mindset would rather enjoy the illusion that Alibaba is a new Enron / WorldCom than learn to understand the reality that Alibaba’s phenomenal success comes from China’s developing prosperity and Chinese waking spending power (they do save a lot and don’t debt BTW).

    Alibaba has very different business models than Amazon and many of them are so much more advanced. As a matter of fact, Amazon is copycatting some of Alibaba’s business models recently such as affiliating with Whole Foods Market which is exactly the online-offline model invented by Alibaba a few years back. So wake up and smell the coffee:

    https://www.reuters.com/article/us-alibaba-suning-appliance/alibaba-to-invest-4-6-billion-in-china-electronics-retailer-suning-idUSKCN0QF0VP20150811

    ReplyDelete
    Replies
    1. Hmmmm.....I didn't even know I was a "US main street person" and I always thought I was pretty knowledgeable about the "outside world" as I've been to many corners of it. But thanks for pointing out my foibles.

      The term "lowest quality", used out of context, seems to be in the script you folks were handed since I've received hundreds of emails and comments referencing my "low quality" work. Your post was one of the more intelligent that I've received, so I thank you for commenting and omitting the profanity.

      Yes, I am well aware of how "different" Alibaba is. That's why I've been reviewing every investor call, 6K & 20F since 2014. Thank you for pointing that out as well.

      As I've said throughout this blog, most of the information I get comes directly from Chinese people/friends, expats or in most cases, the nonsensical Alibaba PR machine and financial statements themselves. I just interpret it.

      If you could email me at Deep.Throat.IPO@gmail.com I'd love to can catch up and exchange insights. Unfortunately, my blog is blocked by the "great firewall" so, unless you are on a VPN or you are outside China, you may not be able to contact me very easily. Finally, since I'm getting so many of these "you ignorant American" posts, I'm guessing that you are somehow employed by the Alibaba PR department? Am I right?

      Anyway, in my little, ignorant, "shining city on a hill" we have the freedom to give our opinion and ask direct questions. When we get nonsensical answers we ask more questions. That's the process. Really, all the best to you.....wherever your career as a Baba booster takes you.

      Delete
  11. This comment has been removed by the author.

    ReplyDelete
  12. From my knowledge of China all of what is described above is "normal"...
    I can even tell more funny stories��

    ReplyDelete
    Replies
    1. People like you are "normally funny". Grown-ups may tend to fool themselves sometime however sane parents have the propensity of being honest with their children's future. So we can image it'll be extremely hard for funny people like you to figure out why Jim Rogers, Ivanka Trump put down so much efforts on their children's Chinese skills. They're no funny losers right? So why?! Go figure yourself if you can at all.

      https://www.youtube.com/watch?v=scbkNFAUjss
      https://www.youtube.com/results?search_query=jim+rogers+daughter+chinese
      https://www.youtube.com/results?search_query=trump%27s+granddaughter+chinese

      Delete
    2. I had a friend help me translate this response. Chinese is a very difficult language for me. I admire anyone who is multilingual. I wish I had the time to devote to it. I hope I/we got this translation close. Can you respond with your translation and confirm what I said? Thanks for reading my work.

      我不確定吉姆·羅傑斯(Jim Rogers)女兒與財務欺詐有什麼關係......但是感謝你的投入。 跟吉姆·羅傑斯(Jim Rogers)問好。

      Delete
    3. You act so funny by pretending you don't get it. You even try to taint the discussion by projecting fraud into the picture. How pathetic.

      Delete
  13. You seem to assume people with different opinions must be working for Alibaba? I know I’m not also I've lived in the US for decades. How about you show some appreciations for different opinions / the freedom of speech? The reason I used the “lowest quality” verbiage is that I read and would concur the opinion in a previous post since I don’t see any solid data / figures / reasoning in your original post.

    Also, the aforementioned “lighthouse” attitude twinkles in your last post. You even tried to politicize the discussion which is so typical. Before even try to seek solace via that avenue, why don’t you do a reality self-check first?

    ReplyDelete
    Replies
    1. Well.....if you saw my inbox right now you might come to the same conclusion. I have received dozens, maybe a hundred by now, of emails all referencing the "low quality" 低質量 of my work. I can only presume there is some sort of coordinated effort afoot. As far as my work, there are hundreds of pages citing reams of "data" which you could not possibly have read and absorbed unless you've been following me since 2014.

      Re: "free speech" I think this blog and the commentary is illustrative of same, it's alive and well.

      Re: Your last "lighthouse" paragraph, I'm not even sure what that means....can you elaborate? Although I'm an avid sailor, I have never talked about "lighthouses" or politics....I'm lost.

      Delete
    2. Also, since you are in the states, if you are ever in the area look me up. Email me at deep.throat.ipo@gmail.com

      Delete
    3. Your original article inundates with biased tones - as I pointed out earlier, you deliberately skipped the high-tech parts of the delivery chains and even called those delivery people "homeless". They look normally dressed, clean, feed themselves by working hard, and still you dare to insult them as bums. People don’t need to be a financial analyst to see through this simple example that the author has an attitude. Any research paper of good quality needs to stay unbiased and objective which yours failed miserably. I'm not going to bother reading through anything like this. Simply untrustworthy.

      I'm using "Lighthouse" as a concise synonym to "A City upon a Hill". Just as a reminder, Google was pretending it’ll defend civil rights at all cost, and we now all know it's just a scandal. One simple fact for your reality self-check.

      Delete
    4. Agreed...I've said this many times....the Chinese people very industrious, hard working people. I'm not "insulting" the working people, I'm insulting Alibaba's crooked financial reporting. Unfortunately, most of the Chinese working class have been taken advantage of for years....many are underpaid and, by any reasonable standard, are impoverished and "homeless" because of it. They toil endlessly so that China's elite can fill their bank accounts in the Cayman Islands. So why in the world do you think that China's Elite (Including Baba & Tencent Management) have stashed Trillions of $$ in the Caymans? Why do the Cayman Islands banks and law firms all have Chinese versions of their websites? My point is, the Chinese working people need a raise. Food for thought....

      Re: Your google reference, please send me the citation on the scandal you reference. I need to get up to speed on that.

      I'm sorry you'll no longer be reading my work. All the best....

      Delete
    5. You insulted those delivery workers as homeless simply due to your attitude. Now you try to cover yourself up by diverting the attention to their pay levels – as I said earlier, they may not earn much, but they are at least no bums wandering on the 3rd-world alike streets biting off the social welfare. Any reasonable human beings won’t call them homeless. It’s so funny you even bring Grand Cayman in to the discussion. Before you do that, have you done your homework on the reality self-check? To start with your homework, check how harshly Amazon treats its workers and how egregious the income inequality in this country has become:

      https://www.quora.com/Why-does-Amazon-treat-its-warehouse-employees-so-badly
      http://www.pewresearch.org/fact-tank/2013/12/05/u-s-income-inequality-on-rise-for-decades-is-now-highest-since-1928/

      You don’t know the Google scandal? You are being cute.

      Delete
    6. I'll check out the links. Thanks! So you work at Amazon? Are you homeless? When I was a younger man I lived in my '68 Ford Fairlane, and another guy's trailer for a summer when I was out of work, you're right, it was a bitch. So really, what do you do for a living? Tell me more....

      Delete
    7. I’m not with Amazon or homeless, and it's funny you throw out these two questions together. When you start to get personal during a debate, or even to use scurrilous languages, people know you're losing it.

      For the income equality, this link is better:

      https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States

      Delete
    8. Nothing personal, just trying to find common ground. I was between jobs and homeless for a while and I didn't much care for it. Thanks for the income equality link. I'd refer you to Ray Dalio's "Two Economies" research...his work suggests that 60% of Americans have next to nothing and are getting poorer, while the 40% are getting wealthier. Much like China except the Chinese ratio is more like 80/20. So again, we are in agreement....see? Common Ground!....so, one more time, what do you do for a living? Just curious....

      Delete
    9. I'd be quite surprised you indeed need the link I shared to have a real sense of the egregious income equality in this country. For the number about China, I'm not sure where you get it and how valid they are. Still why would you compare the "A City upon a Hill" USA with a country just at its early capitalism stage? Isn't this comparison sarcastically funny? How about you compare with Switzerland, or even Germany?

      As I said, I don't work for Alibaba. I'm not getting paid for my posts here either. Other than these, my profession is irrelevant for this discussion.

      Delete
    10. Thanks, it's clear that I can't say anything that you agree with. So you're saying the Chinese economy is a "third world" country? Not comparable with the US, Germany or Switzerland?

      The Chinese economy is the 2nd biggest on the planet, it's construction boom, cities and infrastructure investment, by capital expenditure are unsurpassed in history. That is a fact. The only economy on the planet that is close to the equivalent of China's is the US. To compare the mass and girth of either the US or Chinese economy to Switzerland or Germany, I'm sorry to say, makes no sense. The other thing I'm curious about is why you keep using a 30+ year old Reagan era reference to describe America? Why do you do that? Were you in this country during the Reagan years? Were you a Mondale backer? Help me out here....

      Delete
    11. The US has been a well-industrialized country for more than a century. China on the other hand missed the industrial revolutions between late 1700 and 19xx. Now China has been able to rejuvenate to a degree and just starts to become an industrialized country. In addition, China has triple the population of that of the US.

      We understand there’s no well-industrialized country with a similar size to the US, so it’s not easy to do a fair comparison on this matter.

      I suggest we focus on the discussion itself instead of being intrigued on the personal aspects.

      Delete
    12. So you don't want to grab a beer sometime?...my treat....btw...who is the "we" in "we understand there's no industrialized country...."...if you want to invite them along I'll buy them a beer too!

      I think you'll really enjoy my next post!....been working on it for a couple of days now.... This comment board has been truly inspiring...

      Delete
    13. "We" refers to you and myself - I use it to imply that there're some agreements between us.

      Delete
    14. Excellent!.....common ground! I knew we could find something we agree on....Thanks!

      Delete
  14. I think those luxury Gucci/LV/etc bags are actually counterfeit products. You have to message the seller and ask them the real price. The price listed on Taobao etc are to ensure that these stores can bypass the counterfeit screeners =).

    ReplyDelete
    Replies
    1. Agreed.....also note that all of these items look nothing like the products currently for sale on the Gucci/Prada/LV/etc. sites. So if you don't call, you pay the "real" price for knock-off goods? Ouch....

      Delete
    2. "In Fight Against Fakes, Alibaba and Owner of Gucci Go From Adversaries to Partners"

      https://www.nytimes.com/2017/08/03/business/alibaba-kering-fakes-luxury.html

      Delete
    3. Yes....Like OJ, Alibaba is always relentlessly "searching for the real killers". Yes, Gucci dropped the lawsuit. In my business, I have lots of lawyer friends. The main reason, they tell me, that they will drop a Civil suit is that there is a low probability of getting paid. I wouldn't be surprised if Alibaba paid Gucci to go away, but there's always a confidentiality order on those settlements. Out of curiosity, have you ever tried to sue a Chinese company? How did it go for you? All the best....

      Delete
    4. Those Fake News Networks folks talk exactly like you everyday.

      Delete
    5. Don, is that you? I need a T-time at Mara Lago over the holidays.....can you hook me up?

      Delete
    6. I'm not Don. Meanwhile Don is a good person who follows common-sense. He is the best President this country has in decades.

      Delete
    7. Vlad!....So the T-time ain't happening?

      Delete
  15. Have you seen this article? thoughts?
    https://www.forbes.com/sites/wadeshepard/2017/11/27/americans-are-receiving-unordered-parcels-from-chinese-e-criminals-and-cant-do-anything-about-it/#4f8c48f973da

    ReplyDelete
    Replies
    1. I hadn't seen that particular piece, but it's pretty good. "Brushing" has been going on for years....more common to ship empty boxes and write positive reviews. Thanks for sharing!....

      Delete
    2. How many positive reviews on Amazon are trustworthy nowadays? Most generic positive comments were fabricated by scam companies in India – they do sell their fabrications as packages. I know buyers have developed the skills to rely on negative reviews instead.

      Delete
    3. Can you post some links to the fake reviews posted by Indian trolls? If "most" are fabricated they should be easy to spot.....I spent 20 minutes looking and I didn't see any that were obvious. Please post them and I'll take a look. Thanks for the info.

      Delete
  16. Replies
    1. I believe you mean "idiotic"....thanks for taking the time to read my work!

      Delete
  17. I think there are some valid points here but they are tainted by some over dramatizations (and quality funny writing) as well.

    My understanding is that Alibaba should be viewed more like ebay when it comes to GMV. Furthermore, I suspect a good chunk of the $25b transacted on singles day (am guessing $5-10b) was pre sales over the previous month. Given that ebay's GMV in the last quarter was $21.5 billion, it makes Singles Day seem plausible.

    The logisitcs thing is not fully clear to me given Alibaba's ownership of Cainiao and am unsure what percentage of orders were fulfilled by Alibaba and those that were fulfilled by the merchants directly. Here is a video that looks better than some homeless dudes sorting through packages, but it is a marketing video so should not necessarily be trusted as being representative of the whole system:
    https://www.youtube.com/watch?v=h6SEc9vizSI
    At the same time, an order fulfilled by a merchant with poor systems is not representative of Alibaba's logisitcs. Not sure how profitable/unprofitable Cainiao is either.

    Total speculation on my part, but the bond sale could be seen as a way to finance US acquisitions or even buy Altaba shares or some other tax scheme. I have NFI what it is for - this is just complete a guess - but I would prefer if they were funded from cash. Will be interesting what they do with this money. If it just gets burnt up or spent on crony entities at inflated prices it will not be a good sign.

    Disclosure - I hold a small position in Alibaba (bought at circa $180) but don't fully trust the numbers either ... actually I do not trust anyone's numbers. It is definitely one of my speculative investments.

    ReplyDelete
  18. I just came across your post while looking into Baba as a potential investment...interesting and entertaining stuff! I can live with some fakery of GMV and logistics & data capabilities....the only thing I really care about for now is if the numbers in the the financial statements reported in their SEC docs are valid. Actually I only really care about the cash flow numbers. Are those real or lies? Do they really have the free cash flow they claim to have?

    ReplyDelete
    Replies
    1. Well....I'm not sure I fully understand your logic. You're fine with some "fakery" but there's apparently an unacceptable level of fakery?

      Do they have what they claim to have? In any aspect of their financial statements? Who knows?

      As always, I'm not specifically accusing anyone of anything here, but as an auditor, with the plethora of related entities, nooks, crannies and arrangements that they have.....Alipay, Ant, YueBao, 630 consolidated entities, all of the "indentured merchants", etc. It would be relatively simple to "fake" cash flow....the mechanism, simply put, is to claim "someone elses" cash as your own, and fail to record the corresponding liability.

      My personal observation, with a business structure like this, if they were doing anything unsavory, it would be unlikely, for a number of reasons, that any auditor or regulator could figure it out.

      Again, looking back on all of the great schemes, Madoff, WorldCon, Enron & my personal favorite Frank Gruttadauria.... auditors or regulators never catch it. The scheme only ends when the money runs out.

      In the case of Alibaba, the money may never run out. The group has indirect support from the CCP, PBOC & US Investment Banks. Most importantly, they have direct support, from the hard working, underpaid Chinese people, who continue to shovel their life savings into this mess.

      As I said in my post, that's why this isn't a short.....at least not yet.

      All the best....

      DT-IPO

      Delete