HANGZHOU, CHINA – NOVEMBER 13: Alibaba founder Jack Ma attends the 5th Zhejiang World Entrepreneurs Convention at the Hangzhou International Expo Center on November 13, 2019 in Hangzhou, China’s Zhejiang province.
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GUANGZHOU, China – Jack Ma, the founder of Alibaba, appears to be on the wrong side of the Chinese government, triggering a chain of events that has increased regulatory scrutiny about the e-commerce giant and has cast uncertainty about its future.
Even after Alibaba reported earnings for the December quarter above expectations, analysts and experts warned that Ma’s friction with Beijing could hamper growth.
“Investors are looking at Alibaba with a much more careful eye after being drawn to the founder’s growth history and global profile,” Rebecca Fannin, author of “Tech Titans of China”, told CNBC via email.
“Current friction is a new reality for investors who may not have carefully considered how the company’s rise as a powerful titan of technology could be a threat to the status quo.”
It all started in October, when Ma made some negative comments about Chinese financial regulators just days before the Ant Group’s initial public offering (IPO) in Shanghai and Hong Kong, which would have been the largest in the world. Ma also founded Ant Group and Alibaba owns about a third of the company.
There are two major concerns now. First, the Ant Group could be forced to restructure and even reduce some of its businesses, such as loans, which spurred its growth. These movements can seriously reduce your assessment. The second concern is whether regulators can force Alibaba to break up or change parts of its main trading business, which is its biggest profit generator.
“For now, the biggest risk appears to be around investor confidence in Alibaba’s brand and ecosystem,” Neil Campling, head of technology, media and telecommunications research at Mirabaud Securities, told CNBC via email.
“But if there is stricter regulation for the main drivers of the Alibaba platform, it could certainly hinder Alibaba’s growth. After all, innovation and the intricate weave of different aspects of the ecosystem combine to generate economies of scale and growth.”
Campling has a long-term purchase rating for Alibaba’s shares.
Just ‘noise’ for long-term investors
Fannin believes Ma’s friction with Beijing will “lessen” but will require some “agility on Alibaba’s part to deal with government pressure, changing consumer needs in a digital economy and investor concerns”.
Alibaba shares listed in the US have been under pressure since the Ant Group IPO was withdrawn, falling from a record closing high of $ 317.14 on October 27 to $ 254.50 at Tuesday’s close, a fall of almost 20%.
But some analysts and investors remain optimistic.
Mizuho raised its target price for the shares from $ 270 to $ 285 on Tuesday, saying that “the shares (are attractive with mainly over-priced regulatory excess”).
Matthew Schopfer, head of research at Infusive, an asset manager who invests in Alibaba, said the recent concern about the tech giant “will be a noise for the long-term investor”.
“Alibaba is an important example of China’s technological capabilities and we do not expect the government to permanently damage business. Furthermore, the tightened regulation will only further strengthen actors of scale like Alibaba,” Schopfer told CNBC via email. .
“When we get to the other side of these regulatory headwinds, we think the market will again focus on Alibaba and its platforms as a critical part of the daily life of Chinese consumers and a major beneficiary of the growth in Chinese purchasing power and the increasing digitization of consumption.”