Friday, August 19, 2016
The Theory of Financial Relativity
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Thursday, August 11, 2016
Really?.....how silly can these numbers get?
Well, I just finished listening to the Alibaba Investor Call and reviewing the press release & 6K.
What can I say.....It just keeps getting better and better.
Here are the links:
Webcast
http://edge.media-server.com/m/p/wnauw9sh/r/1
Press Release
http://www.alibabagroup.com/en/news/press_pdf/p160811.pdf
Presentation:
http://www.alibabagroup.com/en/ir/presentations/pre160811.pdf
SEC Filing:
https://www.sec.gov/Archives/edgar/data/1577552/000110465916138896/a16-16621_1ex99d1.htm
My history of the Alibaba growth phenomenon is chronicled in "It's Like Deja Vu ....all over Again..." I won't bother rehashing how we got here, but this Investor Call was even more entertaining than the last.....here are the bullets:.
1.) Astounding Revenue Growth (59% year over year for the quarter ended). No other (real) large business or economy on the planet is experiencing this type of growth. Businesses all over the world are generally treading water right now, looking for direction and sanctuary, Global growth, even though supported by extraordinary levels of Central Bank stimulus can best be described as stagnant, yet Alibaba's reported growth story is somehow immune to macro-economic factors.
2.) Even though Alibaba's GMV growth has slowed to just 24% YOY, if we have some fun with ratios, we can extrapolate that Alibaba's GMV this year, with a "conservative" 24% annual growth rate will be just short of US$ 600 Billion (Using this quarter's slowing 24% GMV growth rate applied to the 3/31/16 YE numbers). This extrapolated number now becomes 125% of Walmart's annual sales. If Alibaba's projected GMV were GDP, Alibaba would then be the 34th largest Economy on the planet, right behind the United Arab Emirates. They've somehow accomplished this economic miracle with 35,000 employees, a few computers and an "ecosystem" of undisclosed, odd partnerships that somehow get these goods from point A to point B. Truly amazing.
3.) Share-Based Compensation (Stock Grants & Options) slowed a bit to $556 million for the quarter, but continue through the roof at 11% of FQR (i.e. Fake Quarterly Revenue ). Since FQR increased 59% this naturally drives the SBC ratio lower. Math is a wonderful thing.
4.) The creation of "Questionable Assets" also accelerated dramatically during the quarter. Questionable Assets (as defined in prior posts) increased by US$ 8.4 Billion during the quarter and now comprise 2/3rds of the Balance Sheet.
As an aside, did they really convert US$ 8.4 Billion in cash to financial vapor in just three months? Again, there is no discussion re: the details/components of this gigantic write up/purchase in the Investor Call, Press Release, Presentation or 6K filing. They've increased these same "Questionable Assets" a whopping $30 Billion in just two short years (since the IPO), fueled primarily by increased bank debt, bond issues and the IPO money. How is this even possible? At some point, these investments (aka boondoggles) will have to be written down/off. This is indeed a milestone quarter for Alibaba. It's the the first quarter where "Questionable Assets" have exceeded Shareholder Equity. If I'm indeed directionally correct about the "real" value of all of this intangible fluff, Alibaba is un-officially insolvent as I type.
5.) For the first time the Group has reported Segment data. (pg 7 of the Press release). All of the acquisitions generally since the IPO, described as Cloud Computing, Digital Media & Entertainment and Innovation Initiatives contributed operating losses of US$ 581 million. BABA's share of losses for its' "Equity Investees" (Koubei, Youku Tudou, Cainiao, et al.) came in at US$ 221 Million, more than doubling the loss for the prior quarter. (pg 15 of the 6K) From a purely cash flow perspective, these businesses are providing about as much utility as a steaming turd on a hot August sidewalk.
6.) Costs are skyrocketing. Quarterly Expenses excluding Share Based Compensation (SBC) increased by US$1.29 Billion on an absolute basis, or an additional 7% of Revenue YOY. (pg 11 of the 6K)
7.) Borrowing has also, of course, increased significantly in the quarter. Liabilities are up by US$5 Billion, of which US$ 3 Billion is Non-Current Bank borrowing. (pg 22 of the 6K)
8.) They are burning through cash like drunken sailors. Despite all of that additional borrowing, Cash & Equivalents declined US$ 3.7 Billion. (pg 24 of the 6K). US$ 2 Billion was used to Repurchase (support) BABA shares from Softbank at US$74.00 per share, ostensibly to help Mr. Son, an Alibaba director, out of his own self-inflicted mess.
9.) Again, there is no detail provided for the required Alipay/Ant Financial profit sharing accrual and "processing fee" offset. Presumably, since there is no discussion of the net profit-sharing amount, it stands to reason that there must continue to be no significant profits in Alipay/Ant. Perhaps they have adopted the Lending Club (NYSE:LC) model. (i.e.) Make under-priced loans to un-bankable businesses and hope for the best. It might look good for a while, but as we learn repeatedly, it's hardly sustainable.
10.) Finally, in my mind the most important figure, the FNI (Fake Net Income) decreased Q over Q from US$ 4.6 Billion in 2015 to US$ 1.1 Billion in the quarter just ended (pg. 26 of the Press Release). It's actually relatively flat after the elimination of the absurd prior year US$ 4 Billion "Gain on deemed disposals/disposals/ revaluation of investments and others" (Authors note: That description still cracks me up whenever I read it. You just can't make this stuff up.) This Net Income number (albeit fake) is shockingly small for a business which purportedly has cornered the e-Commerce market in China, (US$125 Billion GMV in the quarter) shares profits with the preferred payment method of every Chinese Consumer (900 million registered Alipay users) and holds estimates of up to US$ 200 Billion of the Hard-Working-Chinese People's money in related, off the books investment funds. Moreover, Alibaba's demonstrated, unquenchable thirst for cash is far from typical of a business that, by Alibaba's own account has a virtual monopoly on eCommerce, and all that is on-line in the "World's Second Biggest Economy". With reported dominance like this, one would think that Alibaba treasury personnel should be driving to the bank daily with dump trucks full of cash to deposit, rather than scouring the globe for more sucker capital lurking under any remote off-shore rock they are fortunate enough to overturn.
Sarbanes-Oxley
All that said, to jump off on a tangent, some of my readers have been opining that, for some reason, Sarbox doesn't apply to Alibaba since it's an off-shore ADR. I'm not sure where this is coming from and I've addressed it privately via email. Sarbox absolutely applies to Alibaba management. I've also attached a link to the Alibaba Audit Committee Charter spelling out the committee's Sarbox Responsibilities as they apply to the signors, Daniel and Maggie. Again, even though the Sarbox sanctions, penalties and fines apply to them, my assertions that they are "safe in China"would seem reasonable. Like the financial equivalent of the Nuremberg trials, they could only be prosecuted in absentia, as I doubt their lawyers would advise them to get on a plane and defend themselves in an American court room. If you are reading this and have any additional insight, or work in the world of Sarbox, please fill me in, I'd enjoy hearing your thoughts. Fascinating stuff.
Last Words....
Moreover, and again I need to emphasize this, Alibaba's audit work-papers and supporting data for their bizarre, incomplete, fragmented financial statements have never been available for regulatory review. Regulators continue to clamor for access, but oddly, are stymied every step of the way. When domestic businesses refuse to comply, regulators have lots of hammers available and never hesitate to swing them. For whatever reason, with Alibaba, regulators are either reluctant or unable to do their job. Which, of course begs the question, how could a business like this have ever been allowed to list on a US Exchange in the first place?
On the other hand, Mr. Market seems to think all is peachy, driving the Alibaba stock price up another 5% after they reported today.
Finally, given all of the convoluted discussion above, I have to hand it to them. Just when I think Alibaba management couldn't possibly report anything sillier than they already have, they go ahead and do something like what we've seen today.........and totally redeem themselves!
More Relevant Reading
Alibaba Audit Comittee Charter - SARBOX Responsibilities
http://docs.alibabagroup.com/assets2/pdf/Audit_Committee_en.pdf
CIA - World Fact Book
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html
Alibaba WSJ Comments prior to the Earnings Call
http://www.wsj.com/articles/analysts-seek-clarity-on-alibabas-accounting-practices-1470774166
Alibaba - WSJ - Auditor Limitations
http://www.wsj.com/articles/u-s-regulator-expected-to-get-access-to-alibaba-baidu-financials-1470377222
What can I say.....It just keeps getting better and better.
Here are the links:
Webcast
http://edge.media-server.com/m/p/wnauw9sh/r/1
Press Release
http://www.alibabagroup.com/en/news/press_pdf/p160811.pdf
Presentation:
http://www.alibabagroup.com/en/ir/presentations/pre160811.pdf
SEC Filing:
https://www.sec.gov/Archives/edgar/data/1577552/000110465916138896/a16-16621_1ex99d1.htm
My history of the Alibaba growth phenomenon is chronicled in "It's Like Deja Vu ....all over Again..." I won't bother rehashing how we got here, but this Investor Call was even more entertaining than the last.....here are the bullets:.
1.) Astounding Revenue Growth (59% year over year for the quarter ended). No other (real) large business or economy on the planet is experiencing this type of growth. Businesses all over the world are generally treading water right now, looking for direction and sanctuary, Global growth, even though supported by extraordinary levels of Central Bank stimulus can best be described as stagnant, yet Alibaba's reported growth story is somehow immune to macro-economic factors.
2.) Even though Alibaba's GMV growth has slowed to just 24% YOY, if we have some fun with ratios, we can extrapolate that Alibaba's GMV this year, with a "conservative" 24% annual growth rate will be just short of US$ 600 Billion (Using this quarter's slowing 24% GMV growth rate applied to the 3/31/16 YE numbers). This extrapolated number now becomes 125% of Walmart's annual sales. If Alibaba's projected GMV were GDP, Alibaba would then be the 34th largest Economy on the planet, right behind the United Arab Emirates. They've somehow accomplished this economic miracle with 35,000 employees, a few computers and an "ecosystem" of undisclosed, odd partnerships that somehow get these goods from point A to point B. Truly amazing.
3.) Share-Based Compensation (Stock Grants & Options) slowed a bit to $556 million for the quarter, but continue through the roof at 11% of FQR (i.e. Fake Quarterly Revenue ). Since FQR increased 59% this naturally drives the SBC ratio lower. Math is a wonderful thing.
4.) The creation of "Questionable Assets" also accelerated dramatically during the quarter. Questionable Assets (as defined in prior posts) increased by US$ 8.4 Billion during the quarter and now comprise 2/3rds of the Balance Sheet.
As an aside, did they really convert US$ 8.4 Billion in cash to financial vapor in just three months? Again, there is no discussion re: the details/components of this gigantic write up/purchase in the Investor Call, Press Release, Presentation or 6K filing. They've increased these same "Questionable Assets" a whopping $30 Billion in just two short years (since the IPO), fueled primarily by increased bank debt, bond issues and the IPO money. How is this even possible? At some point, these investments (aka boondoggles) will have to be written down/off. This is indeed a milestone quarter for Alibaba. It's the the first quarter where "Questionable Assets" have exceeded Shareholder Equity. If I'm indeed directionally correct about the "real" value of all of this intangible fluff, Alibaba is un-officially insolvent as I type.
5.) For the first time the Group has reported Segment data. (pg 7 of the Press release). All of the acquisitions generally since the IPO, described as Cloud Computing, Digital Media & Entertainment and Innovation Initiatives contributed operating losses of US$ 581 million. BABA's share of losses for its' "Equity Investees" (Koubei, Youku Tudou, Cainiao, et al.) came in at US$ 221 Million, more than doubling the loss for the prior quarter. (pg 15 of the 6K) From a purely cash flow perspective, these businesses are providing about as much utility as a steaming turd on a hot August sidewalk.
6.) Costs are skyrocketing. Quarterly Expenses excluding Share Based Compensation (SBC) increased by US$1.29 Billion on an absolute basis, or an additional 7% of Revenue YOY. (pg 11 of the 6K)
7.) Borrowing has also, of course, increased significantly in the quarter. Liabilities are up by US$5 Billion, of which US$ 3 Billion is Non-Current Bank borrowing. (pg 22 of the 6K)
8.) They are burning through cash like drunken sailors. Despite all of that additional borrowing, Cash & Equivalents declined US$ 3.7 Billion. (pg 24 of the 6K). US$ 2 Billion was used to Repurchase (support) BABA shares from Softbank at US$74.00 per share, ostensibly to help Mr. Son, an Alibaba director, out of his own self-inflicted mess.
9.) Again, there is no detail provided for the required Alipay/Ant Financial profit sharing accrual and "processing fee" offset. Presumably, since there is no discussion of the net profit-sharing amount, it stands to reason that there must continue to be no significant profits in Alipay/Ant. Perhaps they have adopted the Lending Club (NYSE:LC) model. (i.e.) Make under-priced loans to un-bankable businesses and hope for the best. It might look good for a while, but as we learn repeatedly, it's hardly sustainable.
10.) Finally, in my mind the most important figure, the FNI (Fake Net Income) decreased Q over Q from US$ 4.6 Billion in 2015 to US$ 1.1 Billion in the quarter just ended (pg. 26 of the Press Release). It's actually relatively flat after the elimination of the absurd prior year US$ 4 Billion "Gain on deemed disposals/disposals/ revaluation of investments and others" (Authors note: That description still cracks me up whenever I read it. You just can't make this stuff up.) This Net Income number (albeit fake) is shockingly small for a business which purportedly has cornered the e-Commerce market in China, (US$125 Billion GMV in the quarter) shares profits with the preferred payment method of every Chinese Consumer (900 million registered Alipay users) and holds estimates of up to US$ 200 Billion of the Hard-Working-Chinese People's money in related, off the books investment funds. Moreover, Alibaba's demonstrated, unquenchable thirst for cash is far from typical of a business that, by Alibaba's own account has a virtual monopoly on eCommerce, and all that is on-line in the "World's Second Biggest Economy". With reported dominance like this, one would think that Alibaba treasury personnel should be driving to the bank daily with dump trucks full of cash to deposit, rather than scouring the globe for more sucker capital lurking under any remote off-shore rock they are fortunate enough to overturn.
Sarbanes-Oxley
All that said, to jump off on a tangent, some of my readers have been opining that, for some reason, Sarbox doesn't apply to Alibaba since it's an off-shore ADR. I'm not sure where this is coming from and I've addressed it privately via email. Sarbox absolutely applies to Alibaba management. I've also attached a link to the Alibaba Audit Committee Charter spelling out the committee's Sarbox Responsibilities as they apply to the signors, Daniel and Maggie. Again, even though the Sarbox sanctions, penalties and fines apply to them, my assertions that they are "safe in China"would seem reasonable. Like the financial equivalent of the Nuremberg trials, they could only be prosecuted in absentia, as I doubt their lawyers would advise them to get on a plane and defend themselves in an American court room. If you are reading this and have any additional insight, or work in the world of Sarbox, please fill me in, I'd enjoy hearing your thoughts. Fascinating stuff.
Last Words....
Moreover, and again I need to emphasize this, Alibaba's audit work-papers and supporting data for their bizarre, incomplete, fragmented financial statements have never been available for regulatory review. Regulators continue to clamor for access, but oddly, are stymied every step of the way. When domestic businesses refuse to comply, regulators have lots of hammers available and never hesitate to swing them. For whatever reason, with Alibaba, regulators are either reluctant or unable to do their job. Which, of course begs the question, how could a business like this have ever been allowed to list on a US Exchange in the first place?
On the other hand, Mr. Market seems to think all is peachy, driving the Alibaba stock price up another 5% after they reported today.
Finally, given all of the convoluted discussion above, I have to hand it to them. Just when I think Alibaba management couldn't possibly report anything sillier than they already have, they go ahead and do something like what we've seen today.........and totally redeem themselves!
More Relevant Reading
Alibaba Audit Comittee Charter - SARBOX Responsibilities
http://docs.alibabagroup.com/assets2/pdf/Audit_Committee_en.pdf
CIA - World Fact Book
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2001rank.html
Alibaba WSJ Comments prior to the Earnings Call
http://www.wsj.com/articles/analysts-seek-clarity-on-alibabas-accounting-practices-1470774166
Alibaba - WSJ - Auditor Limitations
http://www.wsj.com/articles/u-s-regulator-expected-to-get-access-to-alibaba-baidu-financials-1470377222
Friday, July 29, 2016
Well...that didn't take long....
Earlier this week,Verizon announced an agreement in-principle to acquire the "core" non-Asian assets of Yahoo! for a piddling $4.8 Billion. A far, sad cry from the $45 Billion Microsoft was willing to pay back in 2008. The deal excludes Yahoo!'s Alibaba (BABA) and Yahoo! Japan (TYO:4689) holdings. These excluded assets have current (inflated/fake) values based on the publicly traded pro-rata Market Caps of $32 Billion & $8 Billion respectively (approximately $4 Billion over the current Market Cap of Yahoo!) The asset sale leaves a $45 Billion "Investment Company" shell in the deal's wake.
Here's a line from my 11/20/2014 post on Laura Logan's CBS News page (and this blog re-posted on 12/13/2105).
When this scheme is discovered, the results will be devastating. BABA stock will be worthless. Yahoo will be out of business.
I'm projecting that Marissa Mayer, and any other executives or board members with first hand knowledge of this mess will resign relatively soon. It's the only logical choice for them to make.
One down (Yahoo! asset sale).....and two (BABA crash & Ms. Mayer's departure) predictions to go.
Not to toot my own horn or anything, but I don't recall any of the main-stream financial media (with the sole exception of Deep Throat IPO) predicting that Yahoo! would be groveling for a buyer and eventually absorbed for a pittance, right after the "Greatest IPO in History" back in the fall of 2014.
Looking forward, Yahoo! assets included in the deal will be combined with AOL content to form a presumably nostalgia-driven portal that we baby boomers will continue to relentlessly visit, much the same way we've clung to our land-lines and fax machines. Or to paraphrase the late Charlton Heston, you'll have to "pry my Yahoo! News from my cold dead hand."
Presumably, in yet another effort for the Yahoo! board to distance themselves from the insider trading issues (17 CFR 240.10b5-1) as discussed previously in this blog. Ms. Mayer has also, most likely, been "sold" along with the Yahoo! assets. Her resignation from the remaining Yahoo! "Investment Company" should be forthcoming. The only remaining question is how large her departure package will be. The aforementioned is most likely part of the "dot the i's & cross the t's" negotiations. As shareholders routinely re-learn, silence can be expensive.
So there you have it.....the first shoe (Yahoo! going "out of business") has just hit the floor. The second shoe (Ms. Mayer's resignation), at least from the remaining Yahoo! Investment Company will follow as the Verizon deal nears completion by Q1 2017.
Of course, the third shoe (Alibaba collapse) has been discussed at length throughout the bowels of this blog. It will be interesting to see what impact the collapse of the Alibaba (BABA) stock price might have on the Verizon deal if it occurs prior to the completion of the asset sale. In any case, the clock is ticking for current Yahoo Shareholders to be able to escape unscathed. With the departure of Ms. Mayer and other insiders, along with the expiration of their insider liability, Yahoo! shareholders will finally be free to "unlock their Alibaba value" (i.e. get out) sometime after Q1 2017. They'll be allowed to sell their shares in the remaining "Investment Company" and finally reap the rewards of the Alibaba IPO. For their sake (and the sake of the global financial markets) let's hope that Jack and company can figure out how to keep the stock price propped up long enough for the loyal Yahoos!s, Jeff Smith and other leveraged activist investors to get out. Jack and company will have to spend lots of shape-shifting money somehow laundered/borrowed from Ant Financial, the hard working Chinese people and the related web of offshore shells to do it, but the way I see it, their success in maintaining the current (fake) Alibaba stock price is the only chance Yahoo! shareholders will have to get out. In this particular case, the relentless flow of monopoly money pouring into US assets from China is oddly, at least in the near term, a good thing for Yahoo! shareholders.
Switching topics, I'd like to take a paragraph to thank you, my loyal readers for your support. In June our little blog exceeded 30,000 page views and it looks like it's going to come close to 35,000 page views in July. I'm truly gratified that, by definition, since we do NO advertising (Note the conspicuous absence of "Viagra Pop-Ups", "Buy Gold", "Matchmaking", "Troubled Credit Loans" and "Click Here for a Free Trial" ads.) that we've generated so much interest and enthusiasm for these topics. The people who read my content (aka: you), again by definition, are smart, inquisitive, open-minded people who are curious about the topics I enjoy exploring. Consequently, they/you've found it worthwhile to share my work with other like-minded folks.
I thank you from the bottom of my heart!
Other Reading:
DT Post - December 2015
http://deep-throat-ipo.blogspot.com/2015/12/breaking-news-yahoo-ceo-marissa-mayer.html
The Last Days....
http://www.forbes.com/sites/miguelhelft/2015/11/19/the-last-days-of-marissa-mayer/#669903fd6bff
Marissa Meyer Final Letter to Employees
http://www.forbes.com/sites/briansolomon/2016/07/25/here-is-marissa-mayers-final-letter-to-yahoo-employees/#5900cb3975ba
The Economist - Yahoo!/Verizon Deal Analysis
http://www.economist.com/news/business/21702779-telecoms-giant-has-made-bold-risky-bet-future-advertising-does-it-ad-up?cid1=cust/ednew/n/bl/n/20160728n/owned/n/n/nwl/n/n/NA/n
Marissa Meyer - SEC Form 4
http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001550608&type=&dateb=&owner=include&start=0&count=40
Here's a line from my 11/20/2014 post on Laura Logan's CBS News page (and this blog re-posted on 12/13/2105).
When this scheme is discovered, the results will be devastating. BABA stock will be worthless. Yahoo will be out of business.
I'm projecting that Marissa Mayer, and any other executives or board members with first hand knowledge of this mess will resign relatively soon. It's the only logical choice for them to make.
One down (Yahoo! asset sale).....and two (BABA crash & Ms. Mayer's departure) predictions to go.
Not to toot my own horn or anything, but I don't recall any of the main-stream financial media (with the sole exception of Deep Throat IPO) predicting that Yahoo! would be groveling for a buyer and eventually absorbed for a pittance, right after the "Greatest IPO in History" back in the fall of 2014.
Looking forward, Yahoo! assets included in the deal will be combined with AOL content to form a presumably nostalgia-driven portal that we baby boomers will continue to relentlessly visit, much the same way we've clung to our land-lines and fax machines. Or to paraphrase the late Charlton Heston, you'll have to "pry my Yahoo! News from my cold dead hand."
Presumably, in yet another effort for the Yahoo! board to distance themselves from the insider trading issues (17 CFR 240.10b5-1) as discussed previously in this blog. Ms. Mayer has also, most likely, been "sold" along with the Yahoo! assets. Her resignation from the remaining Yahoo! "Investment Company" should be forthcoming. The only remaining question is how large her departure package will be. The aforementioned is most likely part of the "dot the i's & cross the t's" negotiations. As shareholders routinely re-learn, silence can be expensive.
So there you have it.....the first shoe (Yahoo! going "out of business") has just hit the floor. The second shoe (Ms. Mayer's resignation), at least from the remaining Yahoo! Investment Company will follow as the Verizon deal nears completion by Q1 2017.
Of course, the third shoe (Alibaba collapse) has been discussed at length throughout the bowels of this blog. It will be interesting to see what impact the collapse of the Alibaba (BABA) stock price might have on the Verizon deal if it occurs prior to the completion of the asset sale. In any case, the clock is ticking for current Yahoo Shareholders to be able to escape unscathed. With the departure of Ms. Mayer and other insiders, along with the expiration of their insider liability, Yahoo! shareholders will finally be free to "unlock their Alibaba value" (i.e. get out) sometime after Q1 2017. They'll be allowed to sell their shares in the remaining "Investment Company" and finally reap the rewards of the Alibaba IPO. For their sake (and the sake of the global financial markets) let's hope that Jack and company can figure out how to keep the stock price propped up long enough for the loyal Yahoos!s, Jeff Smith and other leveraged activist investors to get out. Jack and company will have to spend lots of shape-shifting money somehow laundered/borrowed from Ant Financial, the hard working Chinese people and the related web of offshore shells to do it, but the way I see it, their success in maintaining the current (fake) Alibaba stock price is the only chance Yahoo! shareholders will have to get out. In this particular case, the relentless flow of monopoly money pouring into US assets from China is oddly, at least in the near term, a good thing for Yahoo! shareholders.
Switching topics, I'd like to take a paragraph to thank you, my loyal readers for your support. In June our little blog exceeded 30,000 page views and it looks like it's going to come close to 35,000 page views in July. I'm truly gratified that, by definition, since we do NO advertising (Note the conspicuous absence of "Viagra Pop-Ups", "Buy Gold", "Matchmaking", "Troubled Credit Loans" and "Click Here for a Free Trial" ads.) that we've generated so much interest and enthusiasm for these topics. The people who read my content (aka: you), again by definition, are smart, inquisitive, open-minded people who are curious about the topics I enjoy exploring. Consequently, they/you've found it worthwhile to share my work with other like-minded folks.
I thank you from the bottom of my heart!
Other Reading:
DT Post - December 2015
http://deep-throat-ipo.blogspot.com/2015/12/breaking-news-yahoo-ceo-marissa-mayer.html
The Last Days....
http://www.forbes.com/sites/miguelhelft/2015/11/19/the-last-days-of-marissa-mayer/#669903fd6bff
Marissa Meyer Final Letter to Employees
http://www.forbes.com/sites/briansolomon/2016/07/25/here-is-marissa-mayers-final-letter-to-yahoo-employees/#5900cb3975ba
The Economist - Yahoo!/Verizon Deal Analysis
http://www.economist.com/news/business/21702779-telecoms-giant-has-made-bold-risky-bet-future-advertising-does-it-ad-up?cid1=cust/ednew/n/bl/n/20160728n/owned/n/n/nwl/n/n/NA/n
Marissa Meyer - SEC Form 4
http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0001550608&type=&dateb=&owner=include&start=0&count=40
Tuesday, July 19, 2016
More on price support for the Greatest IPO in history
Good to be back from a wonderful July 4th Holiday, spending time with family and friends. Our Cavaliers are the NBA Champs, the town was pretty much shut down for the celebration and the Indians are leading the division. Fireworks over Cleveland were a little foggy, but lots of fun as always.
Even though our town is pretty much on lock-down because of the RNC, we're all looking forward to an action packed, fun-filled Convention! I haven't seen a police presence like this since the Walter Cronkite news reels of post-war Checkpoint Charlie at the Berlin Wall. Fortunately, thanks to our Ohio open carry law, everyone is heavily armed.
What could possibly go wrong?
Anyway, let's get back to work.
I've received a number of e-mails and inquiries from readers asserting that there's a possibility that I could indeed be "full of beans" regarding my suppositions that the Alibaba stock price is artificially supported because of insider intervention. The arguments generally centered around the premise that the market cap is simply too large to be manipulated.
On its face I'd suggest that this would be quite true if it wasn't for one incredible economic force that I'll present for your consideration. That force, of course is:
The hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people.
Alibaba.....The The World's Largest Shadow Bank
In January of 2015 I published a blog post describing how Alibaba was actually a financial firm that ran a dubious "eCommerce" business on the side. I won't recount all of the details in this post, but feel free to reference it for a bit of background.
Let's take a look at some of the Alibaba websites to illustrate the "Worlds Largest Shadow Bank" Thesis.
§ Antsdaq: Crowd-funding site for media and software projects. Roughly 18 million users.
§ Ant Check Later: Short-term lending for online purchases, similar to PayPal credit.
§ MyBank: Small loans to corporations. RMB 613.2 Billion extended to 3 million borrowers, Average loan RMB 2,000, with a 2% NPL rate.
§ Zhima (“Sesame”) Credit: Loans to individuals and “credit” scores for individuals.
§ Ant Fortune: (Includes "Ant Treasure" , "Trick Treasure" , "AntGroup" and "Ant Microfinance" )Sales platform for investment products.
§ Zhaocaibao: Sales platform for investment products.
§ Yuebao: A tool for transferring money to the Tianhong fund.
§ Alipay: Online and mobile wallet.
§ Ant Financial Cloud: Cloud computing platform for financial institutions.
Since all of these businesses are reputed to be controlled by Alibaba and privately held, i.e.) outside the reporting envelope of the Alibaba ADR and NOT included in any of the 300+ related consolidated or equity method entities, there's very little publicly verifiable information on exactly how large these businesses are.
One thing we can be sure of, is that the amount of float these businesses provide is absolutely enormous. Various sources estimate that these funding/banking/investing/P2P & B2B Lending sites provide between US$150 Billion and US$200 Billion of total funding on hand at any point in time.
So what is the most important element of a successful Ponzi Scheme?
Now lets go back to my discussion re: Bernie Madoff, Frank Gruttadauria, WorldCom, Enron, etc. Although ineffective, incompetent or even complicit Public Accountants, Regulators and Bankers (as discussed throughout this blog) can all play a major part in the metamorphosis of a tiny little fraud into a gigantic, systemic risk, a successful Ponzi scheme can only continue (Sometimes for years or even decades) if the perpetrators have access to adequate funding. Simply put, lots of money (whether it's yours or not) can cover up a lot of malfeasance, silliness and accounting shenanigans. (Note: Jack, before you call your lawyers, I'm not accusing Alibaba management of running a Ponzi Scheme here, I'm just talking about Ponzi schemes in general and exploring possibilities re: the Alibaba capital structure.)
So let's say, hypothetically of course, that Alibaba's financial statements might be, shall we say, suspect? Even with Alibaba's vast amount of capital, mis-deployed on dozens of odd, money-sucking businesses of dubious strategic value, there seems to be minimal imminent risk that the stock price could collapse. The hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people won't let it. They are willing to continue to pour money into these sites/funds, regardless of any formal government guarantee, oblivious to the possibility that they may lose principal.
Moreover, there seems to be little distinction between earnings (company money) and funding (someone else's money) in the Alibaba ecosystem. Funds are funds to be invested (aka "spent"), no matter what the source, with no consideration as to repayment.. All of the above described funds/tools/float (US$150 Billion +) can be deployed or "invested" without limitation to any of the 300+ Alibaba businesses or perhaps even used to buy Alibaba common stock or bonds, as was discussed, in the last couple of posts. US$150 Billion is more than enough to prop up a stock where the daily volume is under a billion dollars a day. If this mess really is a Ponzi scheme (hypothetically), until the hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people stop funding it and/or actually want their principal back, this charade could continue for a long time.
A Seemingly Unrelated Topic.....
Yesterday Softbank announced that it was acquiring ARM, a computer chip designer located in the UK. The $32 Billion deal, at a 40% premium over the company's closing price on Friday is the biggest ever deal involving a European tech company. Masayoshi Son is indeed, one of a kind.
ARM is up +40% since the announcement, so apparently Mr. Son is paying 40% more than the market thinks ARM is worth. The purchase price calculation would yield a P/E of 70x last years earnings. Of course Mr. Son understands things that Mr. Market doesn't. He knows that under his leadership, direction and vision, ARM will morph into something many multiples greater than what it is today. Just like he's done with "Buy.com" and Sprint. He may have to personally take the reins of course, a job he can easily do while also personally redesigning Sprint's networks, in between his bi-annual rounds of effortless, 2-under-par golf.....Henrick & Phil should take note.
July 4th fireworks from our boat....BOOM!
Even though our town is pretty much on lock-down because of the RNC, we're all looking forward to an action packed, fun-filled Convention! I haven't seen a police presence like this since the Walter Cronkite news reels of post-war Checkpoint Charlie at the Berlin Wall. Fortunately, thanks to our Ohio open carry law, everyone is heavily armed.
What could possibly go wrong?
Anyway, let's get back to work.
I've received a number of e-mails and inquiries from readers asserting that there's a possibility that I could indeed be "full of beans" regarding my suppositions that the Alibaba stock price is artificially supported because of insider intervention. The arguments generally centered around the premise that the market cap is simply too large to be manipulated.
On its face I'd suggest that this would be quite true if it wasn't for one incredible economic force that I'll present for your consideration. That force, of course is:
The hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people.
Alibaba.....The The World's Largest Shadow Bank
In January of 2015 I published a blog post describing how Alibaba was actually a financial firm that ran a dubious "eCommerce" business on the side. I won't recount all of the details in this post, but feel free to reference it for a bit of background.
Let's take a look at some of the Alibaba websites to illustrate the "Worlds Largest Shadow Bank" Thesis.
§ Antsdaq: Crowd-funding site for media and software projects. Roughly 18 million users.
§ Ant Check Later: Short-term lending for online purchases, similar to PayPal credit.
§ MyBank: Small loans to corporations. RMB 613.2 Billion extended to 3 million borrowers, Average loan RMB 2,000, with a 2% NPL rate.
§ Zhima (“Sesame”) Credit: Loans to individuals and “credit” scores for individuals.
§ Ant Fortune: (Includes "Ant Treasure" , "Trick Treasure" , "AntGroup" and "Ant Microfinance" )Sales platform for investment products.
§ Zhaocaibao: Sales platform for investment products.
§ Yuebao: A tool for transferring money to the Tianhong fund.
§ Alipay: Online and mobile wallet.
§ Ant Financial Cloud: Cloud computing platform for financial institutions.
Since all of these businesses are reputed to be controlled by Alibaba and privately held, i.e.) outside the reporting envelope of the Alibaba ADR and NOT included in any of the 300+ related consolidated or equity method entities, there's very little publicly verifiable information on exactly how large these businesses are.
One thing we can be sure of, is that the amount of float these businesses provide is absolutely enormous. Various sources estimate that these funding/banking/investing/P2P & B2B Lending sites provide between US$150 Billion and US$200 Billion of total funding on hand at any point in time.
So what is the most important element of a successful Ponzi Scheme?
Now lets go back to my discussion re: Bernie Madoff, Frank Gruttadauria, WorldCom, Enron, etc. Although ineffective, incompetent or even complicit Public Accountants, Regulators and Bankers (as discussed throughout this blog) can all play a major part in the metamorphosis of a tiny little fraud into a gigantic, systemic risk, a successful Ponzi scheme can only continue (Sometimes for years or even decades) if the perpetrators have access to adequate funding. Simply put, lots of money (whether it's yours or not) can cover up a lot of malfeasance, silliness and accounting shenanigans. (Note: Jack, before you call your lawyers, I'm not accusing Alibaba management of running a Ponzi Scheme here, I'm just talking about Ponzi schemes in general and exploring possibilities re: the Alibaba capital structure.)
So let's say, hypothetically of course, that Alibaba's financial statements might be, shall we say, suspect? Even with Alibaba's vast amount of capital, mis-deployed on dozens of odd, money-sucking businesses of dubious strategic value, there seems to be minimal imminent risk that the stock price could collapse. The hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people won't let it. They are willing to continue to pour money into these sites/funds, regardless of any formal government guarantee, oblivious to the possibility that they may lose principal.
Moreover, there seems to be little distinction between earnings (company money) and funding (someone else's money) in the Alibaba ecosystem. Funds are funds to be invested (aka "spent"), no matter what the source, with no consideration as to repayment.. All of the above described funds/tools/float (US$150 Billion +) can be deployed or "invested" without limitation to any of the 300+ Alibaba businesses or perhaps even used to buy Alibaba common stock or bonds, as was discussed, in the last couple of posts. US$150 Billion is more than enough to prop up a stock where the daily volume is under a billion dollars a day. If this mess really is a Ponzi scheme (hypothetically), until the hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people stop funding it and/or actually want their principal back, this charade could continue for a long time.
A Seemingly Unrelated Topic.....
Yesterday Softbank announced that it was acquiring ARM, a computer chip designer located in the UK. The $32 Billion deal, at a 40% premium over the company's closing price on Friday is the biggest ever deal involving a European tech company. Masayoshi Son is indeed, one of a kind.
ARM is up +40% since the announcement, so apparently Mr. Son is paying 40% more than the market thinks ARM is worth. The purchase price calculation would yield a P/E of 70x last years earnings. Of course Mr. Son understands things that Mr. Market doesn't. He knows that under his leadership, direction and vision, ARM will morph into something many multiples greater than what it is today. Just like he's done with "Buy.com" and Sprint. He may have to personally take the reins of course, a job he can easily do while also personally redesigning Sprint's networks, in between his bi-annual rounds of effortless, 2-under-par golf.....Henrick & Phil should take note.
Here's a Summary of what I thought of Softbank back in September 2015, as a refresher, complete with citations re: Mr. Son's efforts to "alleviate sadness and increase everyone's happiness to the greatest extent possible".
Apparently Tokyo shareholders think a bit less of the "all cash" deal than Mr. Son, sending Softbank shares down 10% overnight. Shareholders have been clamoring for Mr. Son to clean up his balance sheet and he's responded by committing the $17 Billion tranche from the sale of BABA and Supercell shares, presumably along with an additional $15 Billion he'll scrape together somehow. Interestingly, Softbank only had cash & equivalents of $24 Billion as of 3/31/16 so Mr. Son is seemingly betting the farm on this acquisition. We all recall how Mr. Son fared when the dot.com bubble burst (destroying $70 billion of his personal net worth) with a hubris reminiscent of a Fourth of July skyrocket "oooohhhh", and a very public explosion "ahhhhh". Like Melania Trump's speech last night, this episode seems strangely familiar. Mr. Son's modus operandi hasn't changed.
So how is this mess related to Alibaba and the the hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people?
It's becoming clearer by the day that the the hard working, industrious, conscientious, trusting and unfortunately, naive Chinese people are funding this (alleged) Ponzi scheme. Their good faith IOU's were and will continue to be happily extended to Messrs. Ma and Son, through their spider web of related shadow-bank enterprises. This money, absent of regulatory oversight is available to use for any and every imaginable boondoggle, without restriction, fueled by the trust that these legendary financiers would work their absurd financial alchemy and continue to turn lead into gold. The deeper we get into this, the closer we get to reality being painfully exposed. The Chinese people believe that their money is safe and they are achieving risk-free, out-sized returns through this magic. Like Bernie Madoff, Frank Gruttadauria, WorldCom and Enron, this charade can continue for a long time, but when the end eventually comes, it will be shockingly swift, and investors all over the globe will be hurt by it.
Sunday, June 12, 2016
Follow up thoughts on "I would never say...(Part Deux)....."
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