-The three companies' falling EBITDA margins mask the strong growth in retained cash flow, which should rise to RMB40-RMB115 billion in 2019, up 55%-145% from the levels in 2016.
-Their strong cash flow provides funding for investments and limits the need for debt.
Moody's Investors Service has analyzed the credit quality of China's three leading e-commerce companies by revenue - Alibaba Group Holding Limited (A1 stable), Tencent Holdings Limited (A1 stable) and Baidu Inc. (A3 positive) - and concluded that retained cash flow is a more stable and consistent metric than profitability in comparing their credit quality.
"Alibaba, Tencent and Baidu have used the strong cash flow from their core businesses to invest in new online and offline initiatives," says Lina Choi, a Moody's Senior Vice President. "These investments have broadened the companies' revenue sources and increased cash flow for their core businesses."
"But these early-stage investments also weigh on the companies' consolidated EBITDA margin and mask the positive cash flow impact," adds Choi.
Moody's points out that the three companies' revenue should improve to RMB115-RMB375 billion in 2019, up 65%-270% from the levels in 2016, which was the year before they began investing in new businesses.
Re-disseminated by The Asian Banker