Soros Fund Management adds significant position in Alibaba
Market Realist By Samantha Nielson
November 27, 2014 8:00 AM
椽—
Highlights of Soros Fund Management's third quarter 13F (Part 2 of 11)

(Continued from Part 1)

Soros adds Alibaba
In the quarter ending September 30, 2014, Soros Fund Management added a significant new position in hedge fund favorite Alibaba Group Holding (BABA). The position accounts for 2.92% of the fund’s third quarter of 2014 (or 3Q14) portfolio. Plus, Third Point Partners and Viking Global have added stakes in Alibaba, which saw its trading debut in September.


Overview of Alibaba
Alibaba is the largest e-commerce player in China, offering consumer and wholesale marketplaces as well as cloud computing services. According to Alibaba’s latest F-1 filings, as of 2013, it’s the largest online and mobile commerce company in the world in terms of gross merchandise volumes (or GMV). Alibaba’s September initial public offering (or IPO) saw an overwhelming response. The stock ended the first day of trading at $93.89, up 38% from the $68 initial price set by the e-commerce giant.

Some of its major businesses include:

Taobao Marketplace: China’s largest online shopping destination
Alitrip: A leading online travel booking platform
Alibaba.com: China’s largest global online wholesale platform for small businesses
Alibaba Cloud Computing: A provider of cloud computing services to businesses and entrepreneurs
Ant Financial Services Group: A related company of Alibaba Group that operates Alipay, provides payment and/or escrow services on its marketplaces through contractual arrangements
China Smart Logistics, or Zhejiang Cainiao Supply Chain Management Co., Ltd.: A 48%-owned affiliate that operates a central logistics information system, which connects a network of express delivery companies in China
Buys 15% stake in Beijing Shiji Information Technology
In September, Alibaba bought a 15% stake in Chinese hospitality technology provider Beijing Shiji Information Technology Co., Ltd. for $458.66 million. Alibaba plans to use Shiji’s systems to complement its Taobao travel business and strengthen its position in the travel-booking space.

Shares surge on Singles Day sales figures
Shares of China’s e-commerce giant rose recently after the company said Chinese consumers spent $9.3 billion shopping online for goods on the Singles Day holiday, November 11. Reports also cited Jack Ma, Alibaba’s founder and executive chairman, who said that Alipay, the company’s financial services arm, “will definitely go public,” and that it could see a Chinese listing.

The company noted that during peak Singles Day activity, Alipay processed 2.85 million transactions each minute.

China retail marketplaces GMV up 49%
For second-quarter fiscal 2015, Alibaba’s results beat estimates. The company said GMV in its China retail marketplaces increased 49% for the quarter. Also, annual active buyers increased 52% year-over-year. Alibaba saw 217 million monthly active users on its mobile commerce apps in September and $95 billion in mobile GMV for the 12 months ended September 2014.

Revenue grows but margins impacted
Revenue grew 53.7% to $2.74 billion during 2Q15. However, net income fell 39% to $494 million, due to share-based compensation charges and increased amortization expenses.

The company’s non-GAAP EBITDA (earnings before interest, taxes, depreciation, and amortization) margin fell to 50.5%, down from 54.4% the previous quarter. The decline was attributed to the consolidation of newly acquired businesses UCWeb and AutoNavi, planned investments in new business initiatives, and increased tactical marketing spending during the September quarter.

Diluted earnings per share were $0.20, while non-GAAP diluted earnings per share were $0.45.

A Market Realist article noted last month that while Apple Inc.’s (AAPL) Apple Pay service will challenge companies in the mobile commerce space, Alibaba sees intense competition on its home turf, China, from Tencent Holdings ADR (TCEHY).

$8 billion bond offering
Recent news reports said Alibaba saw a high demand for its $8 billion debt offering. It plans to use the net proceeds primarily to refinance its existing credit facilities. On November 20, 2014, Sridhar Natarajan and Katherine Chiglinsky of Bloomberg reported that Alibaba saw $57 billion in orders for the offering (“Alibaba Sells $8 Billion of Bonds in Company’s Debut Sale”).

Soros positions traded in 3Q14
During 3Q14, Soros Fund Management added positions in Alibaba Group Holding Limited (BABA), Yahoo! (YHOO), Travelport Worldwide Ltd. (TVPT), and Netflix, Inc. (NFLX). Top positions that saw an increase were Phillips 66 (PSX), Dow Chemical Company (DOW), and Level 3 Communications, Inc. (LVLT). Soros sold its stakes in Halliburton (HAL) and CONSOL Energy Inc. (CNX), and it significantly reduced its position in Herbalife (HLF).

In the next part of this series, we will highlight the addition of a position in Yahoo.