Chinese regulators fine $ 2.8 billion on cartels vs. Alibaba (BABY) for abusing its market dominance over traders and competitors. The record-breaking penalty comes amid unprecedented investigations into the Chinese e-commerce giant and its founder Jack Ma.
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BABA shares, along with competitors JD.com (JD), Pinduoduo (PDD) and Tencent Holdings (TECHY) has come under heavy pressure over the past few months as Beijing hits the big internet platform. But if the Alibaba antitrust fine is announced, could it be a bid for Alibaba, Tencent, JD.com and PDD?
China’s state administration for market regulation said on Saturday that Alibaba had punished sellers who sold goods on its platforms and those of competitors, a practice known as ‘choose one out of two’.
Alibaba needs to carry out a comprehensive overhaul of its operations and conduct a “self-examination compliance report” for the next three years.
The fine of 18.2 billion yuan ($ 2.8 billion) equals 4% of Alibaba’s domestic sales. Antitrust fines can amount to as much as 10% of annual sales. In 2015, China imposed an antitrust fine of $ 975 million vs. Qualcomm (QCOM).
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Alibaba Fine With Regulator Fine
“Alibaba would not achieve our growth without sound government regulation and service, and the critical oversight, tolerance and support of all our constituencies has been crucial to our development,” the company said in a statement on Saturday.
This is a change in the tone of the past, when Alibaba and especially Jack Ma would reject the regulators.
This eventually brought out the anger of Beijing, which at the end of last year shut down the major IPO of the Alibaba payment subsidiary Ant Group in Hong Kong and Shanghai. China has since forced Ant Group to downsize some of its businesses and focus on payments.
Alibaba said in a statement that it would accept the fine and comply fully. The Chinese giant said it had already made internal changes. It is holding a press conference at 08:00 in Hong Kong, Monday (20:00 Sunday) to discuss the fine.
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Will BABA Stock dive or revive?
Investors expected a record fine against Alibaba. Will they decide that the bad news is priced into the BABY share now that there is clarity? Or start regulators only in Alibaba, Tencent and other major internet companies.
Alibaba shares fell sharply, by 30% below the end of October. The relative strength of BABA shares has fallen to its worst level since mid-2019. The RS line, the blue line in the given chart, reflects the performance of a stock against the S&P 500 index.
JD.com’s share is down 26% from its February high. Tencent share is 20% less and PDD share 35%. Some of the decline reflects the weakness in technology stocks in general, but the Chinese internet giants did not back down.
US investors will get an idea of how BABA shares will react to Alibaba’s record fine as it trades in Hong Kong on Monday. JD.com and PDD shares are also listed in Hong Kong. So do Tencent shares, which actually trade over the counter in the US
Please follow Ed Carson on Twitter @IBD_ECarson for stock market updates and more.
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