Alibaba’s 20-F Annual Report… Financial Comedy Gold!!

In the best-case scenario, Alibaba is the goofiest, most convoluted, opaque, mismanaged accounting mess and business structure in history.

By Deep Throat IPO:

Well, here we go folks. They’ve done it again. The Alibaba Accounting Department, after a couple of fits and starts and a month delay, at the 11th hour, finally managed to file yet another, laugh-out-loud, gut-buster of a 20-F Annual Report with the SEC. Needless to say, as always, they did not disappoint!

Here are the bullet points:

The Capital Structure (Now you see it…now you don’t…)

1. There are now 920 separate operating entities in the Alibaba ecosystem. 500 in the People’s Republic of China and 420 scattered all over the rest of the planet. Alibaba has created 300 new “legal” entities a year for the last two years.

2. They’ve “Enhanced” their Capital Structure. The lawyers have been busy beavers.

3. Major Business Segments and Operating Entities appear and disappear from the 20-F’s. There is no explanation in the footnotes.

So Who Actually Owns the Ordinary/ADS Shares?

1. ADS Shares (BABA) at US Financial Institutions have ballooned from 196 million four years ago to 1.669 Billion now. Per the 20-F these shares are concentrated in 128 US Financial Institutions held in “street name.”

2. A significant number of the shares in US Institutions are held by Chinese insiders through Offshore Shell Companies. 450 million shares are held by the largest 20 Institutions.

3. The Chinese Communist Party is manipulating the bid/ask through myriad offshore entities on a relatively small population of “arm’s length” trades in order to create the illusion of a market made at a price that defies financial gravity. The risk of collapse grows larger by the day.

Employees and their Office Space!

In the last year, Alibaba has added roughly “Fifteen Pentagons” in office space with only 16,000 additional full-time employees, or roughly 3,400 new square feet per new employee. Real Estate is expensive, yet, overhead stayed about the same. Weird, huh?


1. Alibaba has a retail presence roughly 1.5 x Walmart (WMT) now. Gross merchandise volume, or GMV, is $768 billion vs. Walmart’s piddling $500 billion.

2. BABA has developed a huge new revenue stream, winding down the huge, and rapidly growing supply of China’s Non-Performing Loans, yet, this business segment wasn’t mentioned in the 20-F at all.

3. Based on the value of “real” retail GMV, the market cap of Alibaba should be about the same as Target (TGT) ($ 40 Billion) rather than $470 Billion, the company’s current market cap. I smell a disconnect.

“Investees” (More Prestidigitation!)

1. We examine Footnote 4 of the 20-F where we see that Book Values (Cost Basis plus write-ups) of Investees have increased roughly $22.3 billion in the current year.

2. A number of former “Flagship” businesses (Auto Navi, UC Web, OneTouch, Singapore Post, Weibo, Meizu) are all missing in action. They’ve disappeared without a trace or mention in the 20-F.

3. Consolidating money-losing-dog-shit businesses using all sorts of valuation shenanigans to hide what’s happening, and/or bailing out friends with US Shareholder Money seems to have consumed much of management’s time and resources.

4. We examine the footnotes for Alibaba Pictures, Cainiao, Wanda, OFO, Alibaba Health and Wasu. These are awesome!

Ant Financial 

Even though Alibaba and Ant Financial are joined at the hip, US Investors continue to see only half of the story. In this section we question the economic value of the processing fees charged and the Ant “profit sharing” payments accrued to Alibaba. If Ant Financial/Alipay had charged a market rate for the transaction processing fees and escrow services, Alibaba would most likely be unprofitable, even after taking into account all of the other financial silliness we’ve discussed above.

Audit Fees (Pg 225)

You couldn’t successfully audit a good-sized publicly held, domestic US Car Dealership for the fees that PWC Hong Kong charges to audit a global enterprise like Alibaba

Share-Based Compensation

Last year, if share-based compensation were handed out on a pro-rata basis, Alibaba would have issued the equivalent value of $116,000 to every one of its 66,000 full time employees. (42,565,654 shares at $180/share).

Jay Clayton’s SEC

The SEC, our best and brightest financial regulator, is absolutely, completely OK with everything I’ve described above. Steady as she goes. Don’t want to rock the boat. Jay should be really proud of his trained puppy dogs. “Roll over! Play dead! That’s such a good boy!”


1. This financial cancer is everywhere. Western markets are screwed. The outcome is certain and the party is over. At some point in the indeterminable future, the world will be tasked with cleaning up the mess.

2. Oddly enough, you can’t short Alibaba. Yet. The Chinese Communist Party has the other side of your trade.

Alibaba Management is somehow increasing the length and content of their 20-Fs, yet, incredibly, they seem to disclose and communicate an even smaller snippet of “meaningful” financial information every year. In fact, there’s no longer any doubt in my mind, that they actually go out of their way to deliver ever larger bales of content-free financial silliness.

They are not “unfamiliar with Western Financial Reporting Conventions,” nor are they doing things “the way they do it in China,” as some pundits would have us believe. Math is math no matter where you are on the planet. Financial gravity is the same whether you are in London, New York or Beijing. Alibaba Managers are in fact masters of manipulation, bending the truth brilliantly to suit their needs. Perhaps they are banking on the premise that nobody actually reads their filings/drivel anyway. (The SEC staff doesn’t seem all that concerned!)

If, by some strange, impossible happenstance, I’m completely, totally wrong, and Alibaba isn’t actually the tip of the spear for the CCP’s full frontal assault on the Western Financial System, the only other conclusion I can possibly come to is that Alibaba the goofiest, most convoluted, opaque, mismanaged accounting mess and business structure in history. That, unfortunately, is the half-trillion dollar “best-case” scenario. By Deep Throat IPO. For the full analysis and citations feel free to click to my blog-post.

This is so thick it’s hard to believe. It’s far beyond just a Brick & Mortar Retail Meltdown. Read… Mattress Firm Considers Bankruptcy to Get Out of its Real Estate Scams

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  48 comments for “Alibaba’s 20-F Annual Report… Financial Comedy Gold!!

  1. Rob says:

    I always thought there was something off with Ma and Softbank are clueless as well

  2. Timothy J McLean says:

    Great analysis DT IPO! When Alibaba came public it should have raised red flags to any western investor due to their structure. However, Wall Street is so enamored with any stock that is in the tech space, how a company is structured and SEC filings don’t seem to matter. When the pixy dust leaves this bull market, stocks like Alibaba and numerous other unicorns will fall back to earth. All the company executives have already sold billions worth of their shares, so they will be fine.

  3. Jim Graham says:

    With the name of Ali BABA who would expect something other than the 40 thieves???

  4. Jonathan Vause says:

    Re the bit about office space, this is the original text from deep-throat-ipo:

    ‘As of March 31, 2017, we occupied facilities around the world with an aggregate gross floor area of office buildings owned by us totaling 558,080 square meters. (6,007,173 square feet)

    As of March 31, 2018, we occupied facilities around the world with an aggregate gross floor area of office buildings owned by us totaling approximately 5.7 million square meters. (61,354,800 square feet.)

    I’m strongly suspecting a decimal point has been misplaced in translation from Chinese to English (this is a very common mistake as Chinese uses 10,000 as a base rather than 1000)

    • Deep Throat IPO says:

      Well……that was the cut & paste English text posted directly from the 20-F on file with the SEC. It was consistent through the section. Perhaps there are random decimal place typos all over the document?…..on expenses, losses, GMV? That would explain a lot….

  5. vinyl1 says:

    You don’t really discuss the VIE structure that is at the core of the BABA stock that is traded in the west. It is just a Cayman Islands entity to which the real Ali Baba is contractually obliged… do what? Have they actually done it? Or is the Cayman Islands entity just an empty shell like all the other pieces?

    • Deep Throat IPO says:

      Well…..I think I describe it pretty well in the “VIE Enhancement” Section:

      Everyone pretty much understands the structure of the Alibaba ecosystem. In broad brush, general terms, it’s a group of 36 “partners” listed on page 176 of the filing, who are charged with the responsibility of scouring the world for cash.

      Through a convoluted web of dubious financial entities (now 920 in number), designed to meet the legal requirements of Chinese “ownership” and un-auditability, the partners, after careful deliberation, vote to piss away the money raised on kickbacks and political payoffs, in exactly the direction Jack and the CCP tell them to piss it, adjusting for wind, as needed.

      Now, you’d think that this would be a pretty easy (and fun) set of marching orders to follow, but over time, we all know how confusing, off-track and complex financial shenanigans can get. Fortunately, last year, Alibaba’s lawyers finally grabbed the bull by the horns and undertook a massive effort to simplify Alibaba’s capital structure. So let’s see what they did, keeping in mind that there are 920 entities in the BABA ecosystem now, with 420 “offshore”, mostly located (presumably) in Hong Kong, the Caymans and BVI.

      On pg. 116 of the filing, management describes the “VIE Structure Enhancement”. This is the summary (in actual English “words”) of what they were doing….followed by a “simple” diagram.

      • vinyl1 says:

        I finally figured it out: you are referring to the original article published on your web site, not the abridged version that is appearing on Wolf Street. Those who are really interested might want to go there.

  6. Rates says:

    Wolf should cover the ongoing collapse happening in the P2P space in China.

    If people are interested, they should go to South China Morning Post.

    • Drango says:

      I read SCMP every morning. It’s a great counter-indicator. For example, when a Chinese official says that the banking system is sound, get ready for trouble.

      • Rates says:

        I don’t know about that. I am sure there’s real trouble over there, but for whom?

    • MCH says:

      Isn’t it a bit weird that I read the SCMP for objective coverage without bias.

      • Rates says:

        It’s even more strange considering Alibaba owns SCMP.

        Before anyone starts saying that there’s been zero censorship, let me tell you a story about a past SCMP contributor:

        Let’s just say she WAS a must read until her articles rubbed certain people the wrong way and she was forced to stop contributing. Very very sharp lady.

  7. raxadian says:

    You think that’s bad? Take a look at Spain and Italian banks…

    • valuationguy says:

      Take a look at Spanish banks? How?

      Spanish banks only have ~$60B in exposure to Turkey or in aggregate around 5% of their assets there (In terms of local exposure, Spanish banks own about 10% of the Turkisk banking market) …whose currency is dropping like a rock.

      The Rajoy gov’t was active in covering up the many accounting and problem loan issues in the Spanish banks but now that he is gone and the ECB is trying to tapper, all these issues will rear their head again…..with the added problems of Turkish (and possibly Brazilian) currency issues.

  8. Lou Mannheim says:

    Wow, it sounds like they run the parent company like a hedge fund. With less disclosure.

  9. Wisdom Seeker says:

    Not a hedge fund. A slush fund.

  10. Unamused says:

    Oh well, it’s only money. Fortunately none of it is MY money. Who knew that Chinese accountancy would turn out to be such a fast-track career path for epileptic pirates.

    I hope that when Wall St. sold off the US economy to communist China that they at least got a good price for it.

    • ewmayer says:

      “Fortunately none of it is MY money”

      Just wait until the Ponzi collapses and all the iBanks and hedge funds left holding the bag come crying to Uncle FedSucker, “bail us out or we take dwon the financial system!”

  11. RepubAnon says:

    Sounds to me as though the Chinese have constructed a major weapon to threaten the West – and are making money at it!

    • MC01 says:

      Alibaba is only threatening one category: minority shareholders.

      What Jack Ma’s been doing on the New York Stock Exchange (NYSE) is what Asian godfathers have been doing for a long time in Hong Kong, Singapore and stock markets around the Pacific Rim: they are abusing their minority shareholders with shady accounting, hazy reporting and dubious financials while they maintain complete control of the listed business with risible shares (sometimes as little as 10%) thanks to their skills at using the system called “boîte à secret”.

      What’s different is Asian financial institutions know what’s up, and when they hold shares in these companies it’s invariably because of a business relationship with the tycoon owner, because of short-term high profits or because the tycoon himself controls said financial institutions.
      American financial institutions instead think they are buying into an Asian success story, oblivious to the fact the relationship between Alibaba in China and the Cayman Island vehicle which issued these shares is hazy at best.

      If something bad happens, Jack Ma and his henchmen will be safely ensconced (with their billions of dollars) in China, protected by the local government, and all these “sophisticated investors” will have left is a PO box in George Town.
      And the weather there is too hot for me…

      • Sid Finster says:

        This is the correct [motorcycle].

        The general assumption in Asia is that any non-insider dumb enough to put his money in a publicly listed company with a controlling shareholder deserves whatever abuse the dummy gets.

  12. Wisdom Seeker says:

    If you have a pension or a global-stock fund in your 401K, especially an emerging-markets fund, you most likely own some BABA in there somewhere, so it IS your money. And if your funds own any AABA then you have BABA too! (see below)

    Shares are held by Blackrock, T. Rowe Price, Vanguard, you name it.

    But interestingly, the largest single fund holding BABA is “Altaba” (the rump of Yahoo after Verizon took over most of it, now run as a closed-end fund), with 383 million shares, roughly 16% of AliBaba. Altaba not being an “emerging market” stock, it is owned by all sorts of funds that I suspect might not otherwise be allowed to invest in emerging markets.

    “Altaba is an independent, publicly traded, non-diversified, closed-end management investment company registered under the 1940 Act. The Fund’s assets primarily—but not entirely—comprise two investments: the first a substantial position in Alibaba, which has become one of the world’s largest online retailers, and the second in Yahoo Japan Corporation, now a leading Japanese internet company.”

    What a tangled web…

    • Deep Throat IPO says:

      Well said……by my count there are roughly 400 Chinese ADRs still trading on US Exchanges. When you add those market caps including Alibaba (and Altaba & Softbank by proxy) as well as all of the underlying direct debt/bonds… AND the leverage associated with the CCP Offshore/Caymans/BVI entities….AND throw in Tencent (HK) and their monkey business for good measure…….best guess….we’re looking at somewhere North of US$3 Trillion in global (mostly US) financial exposure……

      All of the above makes Enron, Lehman, Bear, etc. look like rank amateurs…. courtesy of the US Investment Banker’s version of “globalization”….

  13. Keeper Hill says:

    Pretty obvious you own nothing as an investor. Essentially its like a a low covenant loan. So if you want to trade it, just realize its musical chairs and someone gets the hose again.

  14. Escierto says:

    Just curious but are the books any better at Amazon or any of the othere high flyers?

  15. Harvey Darrow Cotton says:

    And F.A.A.N.G. + B.A.T. is one of the most crowded long trades on the planet.

    • MCH says:

      Bats do have Faangs… very logical. Fortunately, these acronyms are full of entertainment, we can all laugh as this wonderful financial engineering sinks the world. But worry not, ten more years at least before a major depression of any type, may be twenty years, to be punctuated shortly thereafter by a major shooting war of some type.

      I wonder if I can buy puts that are twenty years out.

  16. Mean Chicken says:

    Chinese arithmetic is creative. ;) PWC – There’s that troublesome name again….

  17. Laughing Eagle says:

    Investing in paper for the future. Keep dreaming.
    I think land is the only investment for the future.

    • Unamused says:

      ->I think land is the only investment for the future.

      Any investment is an investment for the future. Otherwise it is an expense.

      I tried investing for the past once and my yield calculations made no sense at all, and besides, no matter how I try, everything I do is in the present.

      My guess is that Chinese stock prices are about as rigged as everybody else’s, and that they just don’t put any effort into making it look good, whereas western companies are all hung up on style. Also, if you’re relying on the SEC for anything other than snarky finance humor you shouldn’t be investing at all and ought to just stick to the craps tables.

      As for real estate, it’s like Lex Luthor’s father said: “Son, stocks may rise and fall, utilities and transportation systems may collapse. People are no damn good, but they will always need land and they’ll pay through the nose to get it.”

      One thing’s for sure, they won’t be printing up any more of it, except maybe in Hawaii.

      • MD says:

        Yes they’re rigged by the state – which is why it’s laughable when you see people people who desribe themselves as ‘free market capitalists’ or ‘libertarians’ extolling the virtues of investing in Chinese business.

        No courage of conviction, clearly.

      • roddy6667 says:

        The local government can tax land at a rate that makes ownership just an exercise on paper. The landowner ends up having only the “right” to pay more taxes and obey the crippling feudal system of local laws and regulations.

        • Jim Graham says:

          “”The local government can tax land at a rate that makes ownership just an exercise on paper.””

          THAT is the major problem with owning raw land. It is ALL NEGATIVE CASH FLOW until you sell or “improve” it to generate some income.

          Believe me when I say that MOST “investments” in raw land are a foolish play. Over time the “losers” eat up all of the profits from the winners.

          The WORST PART is when you do the buying with BORROWED money.

    • Mean Chicken says:

      FWIW, Land is taxed at whatever price local authorities deem fit. Chances are good more next, than this year.

  18. andy says:

    Is Alibaba Enron times 10, or Enron x 100, that is the question.
    With market cap close to half Trillion dollars it may as well be 1000 Enrons.

    • MD says:

      Neither, because you’ve got the backing of a communist dictatorship which can – literally – do anything it likes to prevent companies such as this getting into trouble. State-sponsored fraud is not a problem, if that’s what it takes to continue the march onward to global financial dominion.

      • Deep Throat IPO says:

        Actually, that’s the thesis about to be tested…..

      • Wisdom Seeker says:

        No, at some point the accumulated bezzle gets so large that it brings down the national economy and/or the government.

        China took a huge step backwards when it made their top guy leader-for-life instead of sticking to the term limits that had served them so well.

        Toss in the need to save face and avoid public fiascoes, and you know the messes will be swept under the rug until the stink gets so great no one can ignore it. This will not end well over there.

        China is now a huge economy, so maybe they will be able to sort things out at someone’s expense (like the US in 2008-2009), but the financial damage will be just as extensive.

        And thanks to ADRs and all the cross-connections, the damage will be just as global as the 2008 carnage.

  19. Mean Chicken says:

    Hmm, any minute now, Jack Ma should be making an Elon Musk tweet about how great things are…

  20. nick kelly says:

    Deep: see any thing in common with Sino-Forest?
    That one took Canadians for billions.

    Chinese company marketing assets in China?
    (In the case of Sino, non- existent Chinese forests)

    Chinese auditor?

    But following the referral to the RCMP (true) , the latter have been to China and brought back the perps in cuffs. (Sarc)

    Don’t walk. Run

    PS: re: ‘stop loss’ orders. One guy had a stop- loss on Sino at 16 $ thinking it was some kind of option? If it goes up fine, if it goes down I’m safe?

    When the OSC halted trading he got out at 6.25.

    Which was 6.25 more than where it ended.

    In a market that can gap down a thousand points in a second due to robo-selling, the stop- loss is a fantasy beckoning the retail client further out on the most overpriced market since October 1929.

    • fajensen says:

      Apart from that, the traders make their bar-money by sniping stop losses on the opening of the market.

  21. Sneaky Pete says:

    Normally I’d say I don’t care. But history has shown that the taxpayers will be made to care.

  22. illumined says:

    I don’t think this a “full frontal assault” on the Western financial system so much as them just lying to save face. In China this type of shady accounting is the norm, not the exception. It’s very common for businesses to have multiple sets of ledgers, each one saying something different depending on who the owner’s intended audience is.

    And then of course there’s the face factor, the Chinese are notoriously superficial and often will do anything to keep up appearances. If you ask one in the street for directions and they don’t know, they’ll lie to you instead of telling you they don’t know and I’ve personally had this happen multiple times. Alibaba is just a case of “Too Big To Fail” taken to epic proportions.

    • Rates says:

      I really enjoyed reading this and DeepThroat’s other Alibaba related articles, but I am currently reading another post from the website that pertains to Amazon, Walmart, etc and I can’t help thinking about conspiracy theories taken too far especially when it comes to China.

      DeepThroat claims in his blog post that China has been assaulting the US retailing system through Walmart and Amazon. Heck he thinks Paul Volcker (in addition to Ronald Reagan) sold out America especially when the later implemented a strong dollar policy. There’s no mention of the crazy inflation that we had in the 80s. He mentioned the negative effects of ultra low interest rates but that wasn’t the main driver of how Amazon (and a bunch of other dot coms) was able to float so long with no profits whatsoever. Really, the main driver was that the CCP, certain elements in the US government, etc created the monsters of Walmart and Amazon.

      I mean this is the same CCP that misread how the Tiananmen crisis would fold out and for whatever reason, they were able to concoct an operation in another country that destroys mom and pops shops etc.

      I can write a whole lot more about how ridiculous this is, but isn’t the real explanation easy i.e. greed? And when I say greed, it’s not just the corporates but from Americans as well i.e. they are too willing to throw people under the bus for cheap goods? The CCP can concoct all sorts of Mission Impossible conspiracies, but the horse will still need to drink the water on its own. Before reading this article, I had the highest respect for the blog, but now it’s like the CCP is behind everything. I mean if they control Amazon, why not just hand over all Amazon tech? Why do they still need to steal stuff? Why can’t China make their own processors, etc, because they could just have Amazon hire the best and brightest from Intel, etc and just hand those designs over.

      The whole thing is preposterous.

  23. Tim says:

    Was their accounts guys’ previous job compiling Ireland’s GDP?

    (Brilliant article, BTW)

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