Alibaba Group Holding headquarters in Hangzhou, China.
Qilai Shen/Bloomberg
Alibaba stock experienced something of a relief rally on Monday, after a record $2.8 billion fine by Chinese regulators.
Slapping the e-commerce giant with that hefty penalty on Saturday, China’s State Administration for Market Regulation (SAMR) said Alibaba had abused its dominant position over its rivals and those merchants selling on its platforms. Apart from the fine, the company will have to carry out a comprehensive revamp of operations and submit a “self-examination compliance report,” within three years.
But markets sent shares shooting higher in Hong Kong, to the tune of nearly 7%. U.S.-listed stock in Alibaba climbed over 5% in premarket. Just a month ago, regulators fined a dozen Chinese technology companies, sending shares of those companies sliding in Beijing’s ongoing antimonopoly crackdown.
Alibaba’s response was probably what cheered markets the most, said Ipek Ozkardeskaya, senior analyst at Swissquote, in a note to clients. “The curious positive reaction was partly due to a relief that the case is finally over, partly due to Alibaba taking the news with ease and thanking the government,” she said.
In a statement, a contrite Alibaba said it accepted the fine and would strive to ensure complete compliance. “The penalty issued today served to alert and catalyze companies like ours. It reflects the regulators’ thoughtful and normative expectations toward our industry’s development. It is an important action to safeguard fair market competition and quality development of internet platform economies,” the company said.
“The conclusion of investigation and BABA’s decision to waive its right to appeal, or hold a public hearing, suggest that the company wanted to move forward to rebuilding business operation,” said a team of Citi analysts led by Alicia Yap, in a follow-up note to clients.
Yap and the team said a weight has now been lifted on Alibaba. “We believe with the latest development, together with recent earnings revision reset, it could help lift the overhang that has weighed on share price performance the last few months,” she said. Citi rates Alibaba a buy.
Specifically, SAMR said Alibaba stopped some merchants from operating on other online platforms or participating in promotional campaigns elsewhere, along with enforcing specific penalizing measures. Moving forward, Yap and the team see possible lower gross merchandise volume growth for the e-commerce giant, as brands and merchants will be looking to establish storefronts on other platforms.
Yet Alibaba isn’t already without competition. Citi noted that e-commerce group Pinduoduo has more annual active buyers than Alibaba, while retailer JD.com claims leading market share in sectors such as electronics. That is as recent traction of mini stores on short video platforms and on WeChat have lured brands and merchandise to try alternative platforms already. So any potential dilution from forced exclusivity measures may be limited, said the Citi team.
A conference call with Alibaba management on Monday morning revealed that while the company isn’t aware of any other outstanding investigations, regulators are looking at an industrywide mergers and acquisitions review that could affect several internet companies, said Citi.
Separately on Monday, the People’s Bank of China told reporters at a press conference that Ant Group, run by billionaire Jack Ma, will restructure to become a financial holding company. A $34 billion initial public offering was scuttled last year after months of back and forth between Ma, also the co-founder of Alibaba, and regulators. The company has promised to undergo a rectification plan includes fixing unfair competitive behavior in the payments business.
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