Subject: Everything has a price
Alibaba has a market cap, in USD, of 233B. It holds a lot of net cash also, about $50B, which it hardly needs given its huge cash flow of about $25 billion.

China is in the midst of being viciously downtrodden in the media by Washington for three core reasons: Firstly it is a region that has for 70 years been run stupendously successfully when you compare its initial conditions to its present conditions. They had to firstly fend off our dirty hands from the late 1940s and then manage their development from dreadful initial conditions that we cannot even contemplate. If you want to make comparisons the closest examples, which we label as democracies, and with similar (in fact somewhat better) initial conditions then two examples shine - India and Indonesia, and their path was exceedingly less successful. Second reason is that the region isn't easy to coerce, such these other larger regions Indonesia and India which we have been able to politically influence far more greatly. And thirdly, because the place simply *exists* in an organised state.

If only one of these three conditions did not hold tomorrow, then the situation would be acceptable to us, and the place would no longer be framed as an enemy. But with all 3 conditions, it is absolutely unacceptable and at least one of the 3 conditions needs to be put to an end. If we cannot coerce the county politically, we will smear it and go to hysterical lengths. We won't acknowledge its ongoing successes at any point. We can also attempt to slow it down - without any regard to the harm and welfare of the public; if its relative prosperity declines then that is an important win.

This sounds ludicrous but it is the essence of Washington's strategy toward China, with London - and Europe a little further behind but sufficient obediently - falling into line.

With that backdrop, let us look at Alibaba as an investment opportunity.

Even with such tech companies hoarding cash without the operational need for amount hoarded, I always like to subtract the cash from the market cap to present the amount a private investor would need to pay for the whole firm. This seems strange given we cannot access the cash but it is important to do because of the mutability of cash - it can be used for purchases of new earnings streams. In this case $183B (market cap $233B minus $50B net cash).

What would you pay for $25B of cash flow growing around 10% pa the next 5 years, these days? The last 5 years Alibaba grew it 15% from $15B to $25B (shares outstanding about the same as 5 years ago). To remind, this is the growth rate *with* the high cooperation with private enterprises such as Alibaba towards state intervention, so we don't need to double count by moderating growth further by our negative view of corporations (and shareholders) holding less political power in China as our corporations command over Washington. Keep in mind that it was China's controls over private capital in the 1950s and 1960s that set the crucial conditions for the country to subsequently flourish, with private capital applied later largely as an important global integration policy to grow into the next phase.

With this enterprise value of $183B private buyer is able to buy Alibaba for 183/25 = 7 times its cash flow.

7 times cash flow, with cash flow having grown 15% the last 5 years: It feels like being back in the 1950s with Ben Graham getting excited nearby.

That is, however, it is only a good deal on the condition (which many will not accept) that you can firstly hold healthy skepticism/proportionality towards the anti-China propaganda aimed squarely at us by Washington, and secondly to treat the Chinese regulators as a far more equal partner than we are accustomed to treating regulators with our US firms.

There is a good future ahead in China. Deals like this do not come around often, and when they do, you invariably will find that only a small minority at that moment believe them to be a deal. This need not be a contrarian observation, but rather that it is the negative consensus, straight forward neglect, or impatience, itself that permits the right quote to make them a deal.

- Manlobbi