HANGZHOU, CHINA – NOVEMBER 13: Alibaba founder Jack Ma attends the 5th World Zhejiang Entrepreneurs Meeting at the Hangzhou International Expo Center on November 13, 2019 in Hangzhou, Zhejiang Province, China.
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GUANGZHOU, China – Jack Ma, the well-known founder of Alibaba, appears to be on the wrong side of the Chinese government, unleashing a series of events that have heightened the e-commerce giant’s regulatory inquiry and raised uncertainty about its future It.
Even after Alibaba reported earnings above the expected December quarter, analysts and experts warned that Ma’s friction with Beijing could hurt growth.
“Investors are looking at Alibaba with a much closer eye after being attracted by the growth story and the founder’s global profile,” Rebecca Fannin, author of “Tech Titans of China”, told CNBC in an email.
“The current friction is a new reality for investors who may not have thoroughly considered how the rise of the company as a powerful technological title could be a threat to the status quo.”
It started in October when Ma made some negative remarks about Chinese financial regulators, just days before 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 now two major concerns. First, Ant Group may be forced to restructure and even downsize some of its businesses, such as loans that have boosted growth. Such moves can significantly reduce its valuation. The second concern is whether regulators could force Alibaba to break or change the core business, which is the biggest profit driver.
“For now, the biggest risk seems to be in investors’ confidence in the Alibaba brand and ecosystem,” Neil Campling, head of technology, media and telecommunications research at Mirabaud Securities, told CNBC in an email. .
“But if there is stricter regulation for the core drivers of the Alibaba platform, it can certainly halt the growth of Alibaba. After all the innovation and complex weaving of the various aspects of the ecosystem, it can create economies of scale and growth.”
Campling has a long-term onslaught on Alibaba’s share.
Only ‘noise’ for long-term investors
Fannin believes that Ma’s friction with Beijing will ‘ease’, but it will require some ‘agility on Alibaba’s to deal with government pressure, the changing consumer needs in a digital economy and investors’ concerns’.
Alibaba’s US listed stock has been under pressure since the listing of the Ant Group, falling from a record high of $ 317.14 on October 27 to $ 254.50 at the end of Tuesday, a drop of almost 20 %.
But some analysts and investors remain clumsy.
Mizuho on Tuesday raised its price target on the share from $ 270 to $ 285, saying that the “share is attractive because the regulatory overhang is mostly priced in.”
Matthew Schopfer, head of research at Infusive, an asset manager invested in Alibaba, said the recent concern surrounding the technology giant “would be a noise for the long-term investor.” ‘
“Alibaba is a leading example of China’s technological capabilities and we do not expect the government to permanently damage the business. In addition, increased regulation will only further strengthen players like Alibaba,” Schopfer told CNBC in an email.
“If we get to the other side of this right-wing wind, we think the market will once again focus on Alibaba and its platforms as a critical part of the everyday life of the Chinese consumer and a major benefit from the growth in Chinese. spending power and the increasing digitization of consumption. “