NEW YORK (Real Money) -- I have been listening and watching and reading for days now about how bad Alibaba (BABA) could be for the markets. I hear it is overvalued. I hear it is too hot. I hear that it will be too expensive, that it has opaque ownership and that this initial public offering is a sign of a top.
So I thought I would put this little primer of salient facts together about why, if you hate Facebook (FB) , Twitter (TWTR) , LinkedIn (LNKD) , Google (GOOGL) , Amazon (AMZN) , VIPshops (VIPS) and JD.com (JD) then you should love -- not hate -- Alibaba. So, without further ado, let me give you all the reasons you don't have to own it, don't have to get in on the deal and can go on your merry way without it.
Watch the video below to get Jim Cramer's take on Alibaba CEO Jack Ma:
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1. First objection: This company, if it is valued at $80 a share, fully $10 above an already-jacked-up $60 initial-low-end starting point, is ridiculously overvalued. Actually, if you stack it up against almost every company I have mentioned above, you would find that it is cheap at $80 per share, maybe even ridiculously cheap vs. every one of those companies mentioned above, given its growth rate and profitability. I think if it can earn $2.50 a share -- something that's well within reason -- the stock has a price-to-earnings ratio of 32 even as the company has about 30% growth in revenue and earnings.
Facebook has a P/E of 38 with only a slightly faster growth rate. But Alibaba's margins on earnings before interest, taxes, depreciation and amortization are 58% vs. 49% for Facebook, according to Wedbush, which has the best-published numbers on the company.
The rest of the compares? Well forget it. Amazon sells at a P/E of 182 with 20% revenue growth and a 5% margin. People are thrilled to own that one. Twitter has faster growth, at 66%, but its shares sell at a P/E of 148 based on next year's earnings estimates, if it can earn anything. Tesla (TSLA) has 56% growth but 2.2% margins, and it sells at a P/E of 88. JD.com, with 48% growth and no earnings to speak of, sells at a P/E of 572, even though the company constitutes the most direct comparison as an e-retailer. LinkedIn has a similar 33% growth rate, but it has less than one-fifth of the gross margin and sells at a P/E of 83.
Only Baidu (BIDU) , the Chinese Google, can give Alibaba a run for the money, selling at a P/E of 25 earnings with 40% revenue growth and a 43% margin -- which is one of the reasons I like the stock so much. Google itself is very cheap on a P/E basis -- its P/E is 22 based on next year's earnings estimates -- but Google's revenue is growing at only 20% with 30% margins.
At $80, Alibaba has the best relative value and is certainly the cheapest of all the large-capitalization stocks that have the holy grail, 30% earnings and sales, that the big-money guys want so badly.
2. Second objection: The ownership is very convoluted with many hidden owners and an opaque structure. Sure, that's true. We know Jack Ma, the major domo of Alibaba, owns about 8% of the company and is selling some stock on the deal. Yahoo! (YHOO) has 22%. The rest? It's not all that clear. But does it matter? They all obviously have skin in the game, so I don't think that's as big an issue.
3. Third objection: Corporate governance. There is a very big board of 30-odd souls, and many of them are Chinese Communists. The Communist Party has the right to pretty much do what it wants, as it controls the executive, legislative and judicial branches of the Chinese government. To which I say, so what? We've tolerated that with the very successful Baidu and JD.com deals. Why can't we tolerate it here?