Thursday, May 16, 2019

BABA:...an "Earnings Call" without discussing "Earnings"

Today's call was a truly historic moment in the evolution of alleged global financial fraud, both perpetrated by the CPC on US investors and fully supported, through their absurd "analyst" questions, by our industry experts: JP Morgan, Morgan Stanley, Goldman, Merrill, Bank of America, Barclays, Citi, HSBC, RBC Capital, Deutsche Bank, etc.  Here are the materials:

Webcast:
https://edge.media-server.com/m6/p/8zqz2d4o
Presentation:
https://www.alibabagroup.com/en/ir/presentations/pre190515.pdf
Press Release:
https://www.alibabagroup.com/en/news/press_pdf/p190515.pdf
Filing:
https://www.sec.gov/Archives/edgar/data/1577552/000110465919029738/a19-10031_1ex99d1.htm


Alibaba management (Joe, Daniel, Maggie and Robert) and their "analysts" spent much of the hour collectively congratulating themselves on the greatness of their fake 51% revenue growth and their unverifiable, fake, GMV, which has now ballooned to US$853 Billion.  This "ecosystem" GMV, due to these phenomenal, dubious growth rates, is now roughly the same size as the Global GMV of both Amazon ($277 Billion) and Walmart ($625 Billion including estimated Third Party GMV) combined.  Alibaba GMV has increased roughly ten fold since 2012.  They are on pace to Reach $1 Trillion by next year.  Alibaba's GMV sold, according to management, has quickly grown to roughly the same as Switzerland's GDP, with about the same level of opacity.  Miraculous.....perhaps even unbelievable, to say the least.

I don't want to belabor the absurdity of the analyst discussion by repeating the irrelevant, odd, focus-less Q&A (feel free to listen to it on your own if you have the stomach for it.)  To illustrate the madness, it would be easier to discuss what was NOT covered in the presentation....so...here goes:

The Appropriate Earnings Call Questions, which I might expect a real analyst to ask, are highlighted in RED below.

What the "Analysts" didn't ask about....

1.) First, Joe gave a 10 minute dissertation, on the "elephant in the room".  When I first heard that I thought "Finally...Joe is gong to come clean and admit that Alibaba is actually ground zero on the CPC's full frontal assault on the Western Financial System!", but I was wrong, he went into some silliness about how Alibaba was perfectly positioned to survive a trade war, a global recession, a currency war and, like the financial cockroach it is, anything up to and probably including a nuclear winter.  I'm sure specifics will be forthcoming in future "earnings" calls.

2.) Speaking of "earnings" there was not one question, comment or slide in the deck that mentioned earnings.  NOT ONE....an entire hour of fluff..... and "earnings" wasn't discussed, described, commented on or mentioned.   This is odd for an "earnings" call....don't you think?  When we look at the press release, we can understand why.  On page 40 there is a $2.974 Billion accounting "Gain on the revaluation of assets" which was roughly equal to net income for the quarter.  i.e.) If we exclude this gain, the business had no earnings from operations.  I guess that would explain the lack of discussion of same.  Why talk about something that doesn't exist?  Am I right?

There's limited discussion in the documentation (including the 6-K) as to what this gigantic gain was attributable to....here's the language:

Interest and investment income, net in the quarter ended March 31, 2019 was RMB18,665 million (US$2,781 million), which mainly included net gains arising from the change in fair value of listed equity investments and a non-cash gain of RMB5,825 million (US$868 million) arising from the revaluation of our previously held equity interest in Alibaba Pictures when we obtained control in March 2019. The above-mentioned gains were excluded from our non-GAAP net income. 

Note: Alibaba pictures was actually written down by US$2.888 Billion on last years 20-F, so now that they have obtained a whopping 51% control they are writing it back up and booking the gain. There was also no calculation as to the basis and the gain presented.  

Moreover, per the above, there's another $1.913 Billion in valuation gains not described or identified in the filings.  These gains are in addition to the $2.4 Billion write-up they took last quarter (ended 12/31/18).  The total valuation/accounting gains booked for the year amounted to $7.031 Billion, which was included in their Net Income of $11.955 Billion.  i.e.) Most of Alibaba's "income" is generated by unidentified Accounting/Asset write-ups, not from actual "business".

Appropriate Earnings Call Question:  "Could you please provide a detailed schedule of the $7.031 Billion "Revaluation Gain" as well as basis and current carrying value calculations for the related assets?"


3.) "Questionable Assets" (Investment Securities, Investees, Intangibles and Goodwill) increased to $85 Billion or 60% of the Balance Sheet, up from $59 Billion or 51% of the Balance Sheet in FY2018. (...and most importantly, up from 0% in FY2015).  To be blunt, most of this valuation has come from improper use and interpretation of accounting conventions which allow unscrupulous managers to write up the value of money-losing-dog-shit businesses without regard to economic reality.

Appropriate Earnings Call Question:  "I see that your balance has evolved over the years, primarily comprised of intangibles and 'investees'.  Could you provide a schedule, by acquisition date, of these assets, carrying value and associated write ups?"


4.) Property and Equipment continues to increase with no explanation.  Property & Equipment (net of depreciation of $2.227 Billion) purchases were $5.342 Billion during the year.  (There was no mention of what it might be comprised of.)  That would make property acquisitions during the year the rough equivalent of the cost to build four (4) Burj Khalifas. (i.e. the tallest building in the world) during the year.  That's right, not one (1), not two (2)....etc.  But four (4) of them.  If I were a BABA investor or analyst, I might have to ask, what exactly is all of this Real Estate and equipment?   I'd like a few street addresses and perhaps a valuation and description, or two or three, of the biggest property acquisitions.  Perhaps they bought 300,000 company cars instead of the four Burj Khalifas? 














....or maybe they bought 800 buildings like their Caymans Corporate Headquarters? (below)....anyway....it would be nice to know...



Appropriate Earnings Call Question:  "Could you please provide a detailed schedule of the $5 Billion spent on 'property' this year?"

5.) At least there was some improvement with the Ant Financial business.  As of the 12/31/18 6-K Ant Financial was actually losing money (There was no "profit-sharing" money accrued).  Here's the language in the Press Release for the 3/31/19 Quarter:

Ant Financial Alipay - Royalty fees and software technology service fees under our profit sharing arrangement with Ant Financial amounted to RMB517 million (US$77 million) in the quarter ended March 31, 2019. In the current quarter, Ant Financial continued its strategic investments to acquire new users and capture growth opportunities in the offline payment market. Currently, Alipay and its local ewallet partners have over 1 billion annual active users globally.

I think that's great!  A gigantic monopoly, with a self described market value of $150 Billion has finally made a little bit of money in a quarter!...after years of apparently undercharging its 1 billion+ customers.  Even though Alipay/Ant is joined at the hip with Alibaba (and US Shareholders by default) there has never been any meaningful, verifiable financial information disclosed for this beast.  Could it be that payment systems are indeed a "state secret" as the CPC would have us believe, or is it more likely that this business is simply yet another cesspool of CPC money, stolen from Chinese citizens, soon to be used to facilitate the destruction of US Dollar hegemony.....but I digress. 

Appropriate Earnings Call Question:  "Could you please provide full audited financial statements for Ant/Alipay?"

6.) Employees - "As of March 31, 2019, we had a total of 101,958 employees, compared to 101,550 as of December 31, 2018."  (pg 18.)  Interestingly, in their 20-F last year they had only 66,421 employees (pg. 121).

Here's the language: As of March 31, 2016, 2017 and 2018, we had a total of 36,446, 50,097 and 66,421 full-time employees, respectively.

They've gained 36,000 employees since  last year, a 55% growth rate.  Perhaps they are getting away from that "asset/people light" business model.   

Appropriate Earnings Call Question:  "Could you please provide a detailed head count by business unit/location?"

7.) Alibaba settled a class action lawsuit for $250 million during the quarter (pg. 1).  The only thing shocking about this figure is that they actually settled it.  Most Chinese ADRs just ignore the suits and eventually "go dark" with no penalty, since US Law enforcement would be hard pressed to actually get on a plane to Beijing and put anyone in handcuffs.  CPC backed "entrepreneurs" understand this all too well.

Appropriate Earnings Call Question:  "Could you please provide and discuss a summary of the settlement, agreements, concessions and terms?" 

8.)Revenue is up 51% YOY, GMV up 19% (GMV is up $137 Billion from FY2018) all with only 36,000 more employees (according to this years filing/presser) (pg 18). Again, when you do the math BABA GMV of $853 Billion is about the same as global GMV (store sales + third party) for Walmart and Amazon combined, and up 10x from the fake $80 Billion in FY2012.   The other ratio I find fascinating is GMV per employee.  Walmart's GMV per employee is $284,000.  Amazon's is $428,000.  Alibaba's is $8,366,000 per employee.  They are truly masters at doing more with less.

Appropriate Earnings Call Question:  "Could you please provide a schedule of GMV by NBS category?  You report these figures to the NBS on a monthly basis, correct?"

9.) Alibaba continues to be the most benevolent employer in history with regard to Share-Based-Compensation.  This year they gave share awards and kickbacks to employees, cronies, friends, family and apparently just about anyone with a pulse, to the tune of $5.586 Billion (10% of Revenue) of US Shareholder money.  This expense was up 87% from the last year.  Again, the generosity of US Shareholders can never be underestimated, but I'm sure it's greatly appreciated by the Communist Party Officials in charge of this project.

Appropriate Earnings Call Question:  "Could you provide a schedule of the recipients of SBC in excess of US$25,000 for the current year as well as the metrics used by the incentive plan to determine who is entitled to receive SBC?" 

Going Forward....

Let me be absolutely crystal clear here.  I've listened to this particular "earnings call" twice now.  Although I have to admit I found myself dozing off occasionally, none of the really questionable, odd,  disconcerting, accounting nightmares described above were even brought up, mentioned or apparently considered by any analyst during the Q&A on the call.

Something I mentioned in my prior post "Our Inevitable Monetary Journey" comes to mind again.  I've been thinking about my Dad a lot lately.  Don't know why.  My late father, a tough-old-crotchety lawyer once told me that, and I'm paraphrasing here:

"Sometimes my clients get involved in things where it could look like they are criminals.... 
...alternatively, it could be that they were just really incompetent and stupid.  

It's my job to convince a jury that they were just really incompetent and stupid." 


My crystal clear message to the analysts who were on the call is, when this eventually blows up, and there's no question that it will, you have to understand that the "Sorry I'm just a dumb-ass" defense won't work anymore.  The times, they are a changin'.  

You analysts (yes I'm speaking directly to you now) are all highly educated, smart, professional people.  You  are experts, or at least you are supposed to be, and you, and your respective employers are held to a much higher standard than the rest of the investing world and blogosphere.  It's assumed by naive American Investors that you know exactly what you are doing.  Your endorsement means everything.  Unfortunately, in this particular case, and many others, it looks like you are accepting a nice paycheck to do exactly what you are told by the Chinese Communist Party.  You are also committing, aiding and abetting securities fraud.  When you see the accounting travesties and inconsistencies described above, your job is to investigate them, ask tough questions, and if you find the explanations provided by management to be unsatisfactory, you must resign from the account.  Your inaction, congratulatory "we" tone and your tacit endorsement of this charade makes you an accessory, not an unwitting pawn.  You and your employers have significant legal and political liability for what's about to happen.  There will be no escaping it this time.  

To your probable surprise and eventual chagrin, once this implodes, the political environment in America will be such that you will be hunted down, like the sweet, smiling, CPC controlled puppy-dogs you are and brought to justice for your complicity.  This time, no expense will be spared and no stones will be left un-turned.  This time it is indeed different.  Bankers, analysts and anyone perceived to have been responsible for this destruction will be figuratively hung in the public square.  Your nice, sweet, friendly, cheery dispositions and professional demeanor, popularity and Facebook friends won't save you this time.  You won't be passing go.  You won't be collecting $200. You will be going to jail, directly to jail.  Your families and friends will  miss you, but yours is the price that must be paid to put an end to this madness.

You and your employers are indeed responsible and culpable:

Alex Yao – J.P. Morgan
Grace Chen – Morgan Stanley
Piyush Mubayi – Goldman Sachs
Eddie Leung – Bank of America Merrill Lynch
Gregory Zhao – Barclays
Alicia Yap – Citigroup
Binnie Wong – HSBC
Zachary Schwartzman – RBC Capital Markets
Han Joon Kim – Deutsche Bank

Also, I forgot to ask, have you met my good friend RICO?  He's fair, honest and bipartisan, but he can get a little cranky, so you might want to be careful around him. 

My advice would be, if you'd like to avoid getting into a full blown fist-fight with RICO, make sure you keep detailed, careful notes (recordings are better) on exactly who is giving you instructions, telling you what to say, who to say it to and/or when to say it.  As a matter of principle, you never want to have the chain of evidence terminate on your desk.  


Feel free to call the NYC office of the FBI to get some advice.  (212) 384-1000  They should be very helpful.  Ask for the Agent in Charge/White Collar Crime.  They can take your statements and set you up with a wire. 

Best of luck to you wherever your life takes you....



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