Alibaba WACC - Weighted Average Cost of Capital
The WACC of Alibaba Group Holding Ltd (BABA) is 7.9%.
| Range | Selected | |
| Cost of equity | 7.4% - 9.5% | 8.45% |
| Tax rate | 20.4% - 22.4% | 21.4% |
| Cost of debt | 4.0% - 4.5% | 4.25% |
| WACC | 6.9% - 8.8% | 7.9% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.76 | 0.82 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.4% | 9.5% |
| Tax rate | 20.4% | 22.4% |
| Debt/Equity ratio | 0.12 | 0.12 |
| Cost of debt | 4.0% | 4.5% |
| After-tax WACC | 6.9% | 8.8% |
| Selected WACC | 7.9% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| BABA | Alibaba Group Holding Ltd | 0.12 | 0.64 | 0.59 |
| EBAY | eBay Inc | 0.22 | 0.49 | 0.42 |
| ETSY | ETSY Inc | 0.45 | 0.61 | 0.45 |
| FLWS | 1-800-Flowers.Com Inc | 0.57 | 1.3 | 0.9 |
| GRPN | Groupon Inc | 0.18 | 1.58 | 1.39 |
| LE | Lands End Inc | 0.73 | 1.03 | 0.66 |
| MELI | Mercadolibre Inc | 0.04 | 0.85 | 0.82 |
| PDD | Pinduoduo Inc | 0.01 | 0.69 | 0.68 |
| QRTEA | Qurate Retail Inc | 46.23 | 0.94 | 0.03 |
| VIPS | Vipshop Holdings Ltd | 0.04 | 0.6 | 0.58 |
| Low | High | |
| Unlevered beta | 0.58 | 0.67 |
| Relevered beta | 0.64 | 0.73 |
| Adjusted relevered beta | 0.76 | 0.82 |
Alibaba's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for Alibaba:
cost_of_equity (8.45%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.76) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.