Don't Buy Alibaba


Shawn Tully ran the numbers, and if you weren’t one of the insiders buying shares at the IPO price, then you’re screwed:

It’s unlikely that Alibaba will pay a dividend anytime soon. So all of our gains will need to come in the form of stock appreciation. Using those metrics, Alibaba will need to grow its market cap from $231 billion to $777 billion by 2024. Keep in mind that the market currently awards only one company on the planet a valuation over $600 billion, and that’s Apple.

To get us there, how much will Alibaba need to earn? In the four quarters ended June 30, Alibaba posted net earnings of $4.9 billion. If its P/E (price-to-earnings) multiple of 47 falls to 20 over those 10 years—and 20 is still a premium P/E—it will need to show $39 billion in net earnings. That means earnings must grow by well over 20% a year. Other than government-owned Fannie Mae and Freddie Mac, only one superstar makes that kind of money: once again, it’s Apple. To put this challenge in perspective, consider that Microsoft earned $22 billion in 2013.

Repeat after me: There is no bubble.