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Alibaba Group Holding office building in Shanghai, China.
Qilai Shen / Bloomberg
Chinese regulators put
Alibaba Group Holding
(ticker: BABA) and other major technology companies warned last month that they would be under scrutiny for their business practices.
On Thursday, China’s top market regulator said it was studying the use of Alibaba’s exclusive deals with merchants who sell on its e-commerce platform, preventing them from selling through rivals like
JD.com
(JD).
Investors reacted strongly to the news, pushing Alibaba down by up to 17.5% in US trade. It is the biggest percentage reduction for stocks since it went public in 2014. “We think it’s a bit of an overreaction,” said Aaron Kessler, an analyst at Raymond James Barron’s.
Alibaba acknowledged the warning from the State Administration of Market Regulation, which said that China is investigating under the antimonopoly law. Alibaba said it would cooperate with the investigation and that its business operations “would remain normal”.
Beijing also said it would meet with the Alibaba Ant Group unit to discuss financial regulations. Last month, Ant postponed its highly anticipated initial public offering. In his own statement, Ant said “We will seriously study and strictly comply with all regulatory requirements and will do our utmost to do all related work”.
The strong sale may surprise investors. As in the United States, Chinese regulators have been taking a closer look at giant tech companies like Alibaba, concerned about their growing power. Of google
Alphabet
(Google
Facebook
(FB) each faces several lawsuits over their competitive practices.
Last month, China launched a draft antitrust rules designed to prevent popular digital sites from using their position to force traders into exclusive deals and other monopoly practices.
Raymond James’s Kessler said the tricky part would be quantifying the impact on revenue, if any. And China’s regulators are likely to go after other companies, he said.
Analysts estimate Alibaba’s sales in fiscal year 2021, which ended in March, will reach $ 106 billion, according to FactSet. That would be a 49% increase over fiscal year 2020. And Kessler said Barron’s that e-commerce sales are growing at a rate of 20% for the industry, estimating a 24% growth for Alibaba in fiscal year 2021. Alibaba’s practices “don’t appear to be hurting competitors,” he said.
Alibaba owns a third of the fintech firm Ant, which was ready to raise $ 34 billion in its IPO last month, but canceled its debut at the last minute after controlling shareholder Jack Ma was summoned to a meeting with regulators .
Ant executives are expected to meet with regulators again in the next few days. The People’s Bank of China issued a statement saying the meeting was to “guide Ant Group to implement financial supervision, fair competition and protect the legitimate rights and interests of consumers,” reported Reuters in China.
In a note on Thursday, Kessler said that “the timing of the IPO remains highly uncertain”. Formiga could be “forced to make concessions to the Chinese government, in addition to facing stricter regulatory control”.
Write to Liz Moyer at [email protected]