One of the biggest news stories on Monday had to do with the Chinese e-commerce giant Alibaba (NYSE: ABAB). There’s been a lot of confusion surrounding the company and the recent trouble it’s gotten in with the Chinese government. For a while, billionaire founder Jack Ma himself went strangely quiet for a while after he made some critical comments about Chinese financial regulators. This strange silence only further heightened the sense of concern about what was going on. However, just recently, investors finally got the news that Alibaba would face a $2.8 billion fine from Chinese antitrust regulators.
According to these antitrust regulators, Alibaba has abused its position as the dominant e-commerce player in the country, pushing around smaller vendors and rivals in the country. In a conference call, Alibaba CEO Daniel Zhang said that it would be reducing fees for all vendors, as well as doing its best to overhaul the platform to make it easier for third-party users. All of this would eat away at the e-commerce giant’s profit margins, especially considering this $2.8 billion fine, but management shrugged off the financial impact as a necessary step to moving forward.
“We will incur additional cost, but we don’t view this as a one-off cost,” Zhang said in a recent statement regarding the company’s future plan for merchants. “We view this as a necessary investment to enable our merchants to have a better operation on our platform.”
Additionally, Jack Ma’s other company, a fintech giant called Ant Group, was also facing regulatory scrutiny from Chinese financial regulators around the same time. The company agreed to be overseen by China’s central bank in what would amount to a major overhaul.
This entire situation started back in November when the Chinese government overruled the company’s planned Initial Public Offering (IPO), which could have been worth hundreds of billions of dollars. However, a speech from Jack Ma, in which he was somewhat critical of financial regulators, seems to have kicked off this entire debacle with the Chinese government.
Despite this being bad news for the company, shareholders were relieved to at least know what was going on. For this reason, shares of Alibaba shot up by around 9.6% over the course of the day. While finally knowing what’s going on helped reassure investors, Alibaba’s market cap has declined by over 25% since November. While these regulatory shakeups haven’t impacted the company’s long-term prospects, the next quarter will be a bit tighter for the business.
Alibiba Company Profile
Alibaba is the world’s largest online and mobile commerce company, measured by GMV (CNY 5.7 trillion/$846 billion for the fiscal year ended March 2019). It operates China’s most-visited online marketplaces, including Taobao (consumer-to-consumer) and Tmall (business-to-consumer). Alibaba’s China marketplaces accounted for 68% of revenue in fiscal 2019, with Taobao generating revenue through advertising and other merchant data services and Tmall deriving revenue from commission fees. Additional revenue sources include international retail/wholesale marketplaces (7%), cloud computing (7%), digital media and entertainment platforms (6%), Cainiao logistics services (4%), and innovation initiatives/other (1%). Mobile GMV accounted for roughly 85% of consolidated GMV in fiscal 2019. – Warrior Trading News