A Thanksgiving Miracle.....

I was looking at the stats on my blog on Wednesday and wondered why my page views skyrocketed.....10x my usual daily volume and accelerating.....I followed the trail of referring sites, really not understanding what was going on, and here's the question I couldn't come to grips with:

What are the odds that three years ago, an Insurance Agent in Cleveland, Ohio (me) would research a Chinese Internet stock (Alibaba) in contemplation of buying some shares.  His (my) research would prove to be so fascinating to him (me) that he (me) would start a blog about this rabbit hole, starting relationships with wonderful, enlightening smart, talented people all over the world.... and eventually (earlier this week), Mark Cuban would read it and cite it as his sole source to begin a dialogue with the White House on global financial/systemic risk.

I'd thought the odds of something like that happening might be roughly zero.....until I confirmed, with Mr.Cuban, that it actually happened.

https://www.bloomberg.com/news/articles/2017-11-22/mark-cuban-asks-trump-if-he-knows-about-alibaba-s-impact-on-u-s

I've also posted Tim Culpan's analysis of the Tweet.  I enjoy Tim's work and he seems to enjoy my take(s).  We've tussled with this before, but Tim, as an investor and an analyst, when I see misrepresentations as silly as Alibaba's, how can we be sure that anything (Revenue, Carrying Values, etc.) are even remotely accurate?  As an Auditor, I've never felt the urge, after quantifying and documenting a significant, material misrepresentation, to say "well...that was just one error......I'm sure the rest of the financial statements are Ok."  I always look further....and nearly always find more issues.   Anyway, food for thought....

https://www.bloomberg.com/gadfly/articles/2017-11-23/mark-cuban-is-right-but-a-tweet-s-not-enough?utm_source=yahoo&utm_medium=bd&utm_campaign=headline&cmpId=yhoo.headline&yptr=yahoo

The Alibaba Response

Apparently, the Alibaba PR machine got wind of this and pumped a ton of effort into making sure that the Bloomberg page on which Mr. Cuban initially made his comment, is now filled with Jack Ma & Alibaba PR videos.  The initial article simply had a the above stock photo of Mr. Cuban sitting in a chair wearing a dark sweater.  That photo from the original  Gerrit De Vynck "Mark Cuban Asks Trump If He Knows About Alibaba's Impact on U.S." piece is long gone.

Going further, the Alibaba PR Department presented their stunning explanation (again through Bloomberg) on Wednesday.  Apparently this GMV hullabaloo is all a huge misunderstanding.  It's all about the definition of  "Fast Moving Consumer Goods" (FMCG).   They provided a link to a Taobao auction which clears things up.  They recently sold two (2) "broken" 747 Jumbo Jets (4 engines included), apparently sight-unseen, for the bargain price of just US$ 24 million each!  To the chagrin of US Aviation enthusiasts, the auction just closed, so if you were in the market for a deeply discounted Boeing 747 Jumbo Jet as one of your Black-Friday stocking stuffers, you are out of luck.

The inescapable logic here is that, Jumbo Jets are  really "fast moving" (600 mph) and they are purchased by a "consumer", so they, of course, by definition, are "Fast Moving Consumer Goods".

The value added by Taobao to this transaction must be enormous......without Taobao how would potential buyers around the world even know that there are not one, but two "broken" 747's for sale?  A "broken" Boeing 747 could be hiding just about anywhere.

The article also mentions how the website has lots of "bad assets" like real estate, industrial equipment and repossessed vehicles.   I really wish they would have explained this a little better in the Investor Call and the filings.  I don't remember them discussing "Broken Jumbo Jets", "Bad Debts" and "Foreclosed Property" at all.  Honest mistake I guess. 

https://www.bloomberg.com/news/articles/2017-11-22/alibaba-s-taobao-just-auctioned-off-two-boeing-747-planes

As an aside, an "un-broken" 2016 747 Cargo Jet, if purchased directly from Boeing would cost about US$500 million depending on options, so $24 million for a "fixer-upper" is quite a deal.  I'm just hoping, based on the way this deal was put together, that neither of these two potential flaming meteorites find their way into US Airspace.

So Let's Dig a Little Further....Oh Look!....There's More.....

If we examine the above we see two (2) more excellent categories for boat-loads (or should I say Jumbo Jet loads) of even more great GMV.   These categories are, of course "Litigation Assets" and "Monetary Assets" (i.e. foreclosures, bad loans, etc.)

Here are a few of the 561,680 "Litigation Assets" that are out there.  The "asking price" is, presumably included in GMV when it's listed, as per the SEC filings discussed in the prior "Blob" post that started this whole discussion.  The asking price of each of these are millions of US$.
https://zc-paimai.taobao.com/list/0_______56950002_6.htm?spm=a219w.7474998.miniNav.2.dUtufm&st_param=1&auction_start_seg=-1

Let's drill down into the second listing above.  RMB 198.8 Million.  or US$30.6 Million asking price (at RMB 6.5 = US $1.00).  Sadly, it's yet another failed development project.    Unfortunately, this listing also closed a while ago, so if any of you US construction company managers were looking for additional overseas work to keep your crews busy over the holidays, you were too slow on the trigger.  In the new global economy it's important to snap these deals up without even thinking about it.  After all, you'd have the full faith and credit of Alibaba and the Chinese Judicial system behind you.  What could possibly go wrong?

https://sf.taobao.com/sf_item/527253527706.htm?spm=a219w.7474998.paiList.2.iu1Vg2

When we dig into it, this was yet another amazing deal that US Investors missed out on.  The original developer managed to complete 50,000 sft. (82 Residential Units) that were either sold or seized.  The remaining 3.8 Million sq. ft. is just waiting for an enterprising, industrious, well-capitalized developer to jump in, complete and sell off at a huge profit.  It's a shame that the original developer could only complete 1% of his dream before he went bust.....they must have made an error two on those tricky cash flow projections, but hey, that happens.  Here's a snippet from the Court Announcement per Google translator.  The full order/announcement is still available on the site, at least for now......you should probably look at it quickly since once the Alibaba PR department sees this post, I'd imagine that this listing will disappear as quickly as the developers equity did.

Auction notice (real estate)

      Fourth Beijing Intermediate People's Court will be held at 10:00 on March 2016 to at 10:00 on March 2016 8th 9th stop (except for delays) in Beijing Fourth Intermediate People's Court carried out judicial auction network platform Taobao public live auction action, now announced as follows:

      First, the auction target:

      Located in No.77 Wulihe Street, Heping District, Shenyang, No. 81 Wulihe No., No.348 Youth Avenue and construction in progress, it is located in the core of Shenyang City with convenient transportation and complete supporting facilities. This auction excludes the gross floor area that has been sold and seized by other courts. After deducting 82 units sold (with a gross floor area of ​​5131.62 square meters), 6 sets of waiting-to-be-checked building area of ​​409.81 square meters.

      The auction total construction area of ​​429902.57 square meters.

      Among them, the total ground floor construction area is 319,808.57 square meters (including 134968.57 square meters for houses, 183840 square meters for commercial buildings, 1,000 square meters for office buildings, property houses and event rooms).

      Underground total construction area of ​​110094 square meters (including 19300 square meters of underground business, garage, equipment and other space 90,794 square meters); share of construction area of ​​41570.46 square meters.

      Starting price: 1981586800 yuan, margin: 100000000 yuan, price increase: 500000 yuan.

Keep in mind that this is only one (1) of 561,680 listings. I selected it because it was one of the biggest (by dollar value) out there and thought, after reviewing a few of these, that it had a sufficient amount of detail to effectively describe what's really going on here.  Also, it is indeed a holiday weekend, so family events, visits with friends and turkey dinner(s) prevented me from reviewing all 561,680 listings to document the oddities and anomalies that I'm pretty sure I'd find.  As always, I invite all of my readers to "click away".  If you find something interesting feel free to let me know.

I've also received many comments from readers, similar to Tim's take above, that Alibaba is a media and advertising company and GMV just doesn't matter that much.  In other words "So what if it;s overstated?"  My last two posts focused almost exclusively on GMV, primarily because the representations in the Investor Call and the filings are just so outrageous when we compare them to what's actually being sold and reported.  I'd again refer you to my "Finding Inner Peace in Dharamsala..... and thoughts on the Alibaba 20F" where I describe the laundry list of things I'd be digging into if I were the SEC or a PWC auditor.  Again, when I find one cockroach, I don't immediately assume that "that's the only one."

A Final Note

I'd of course like to acknowledge and thank the Alibaba PR Machine (through Bloomberg) for their presumed contribution to this post.

As an aside, and you, my readers, can do this too, I typed "747", "Jumbo Jet", "Litigation Assets" and "Monetary Assets" into the EBay and Amazon search boxes and nothing relevant was returned.  Oddly, you can indeed by a 747 brake drum and lots of books on bankruptcy on Amazon/Ebay, but no "real" planes, failed construction projects or bad loans.  That's so weird!.....how can Amazon and Ebay possibly survive without these huge money making FMCG categories?

Finally, since Mr. Cuban cited my blog, I've been inundated with replies/comments that, to put it mildly, disagree with my analysis.  If you disagree with me, that's fine, I always enjoy hearing alternative points of view.  I'm happy to post any relevant content.  However, based on the amount of work this is causing me, I feel compelled to repeat my rules for posting reader comments:

1,) No profanity.  This is a family friendly site.  i.e.) if your comment is simply "You are a F-ing moron" or something similar, your comment will not get through and you've wasted your (and my) valuable time.

2.) You MUST tell me why you believe I am a moron.  The correct format is: "You are a complete moron, and here's why".....followed by your non-profane take and applicable citations.

HAPPY THANKSGIVING!