Alibaba, the Chinese e-commerce darling that exploded last year in its public market debut, is getting hammered today after a distressing piece in Barron’s predicted the stock will decline by half.
In early trading, the stock is down 4 percent to trade at $62 a share, which makes it a new all-time low for the company.
The story states multiple reasons for the looming drop, including slowing user growth, economic problems, pressure from competitors, like JD.com, and inflated claims about Alibaba’s prominence in China. The whole article can be read here. In response, Alibaba is asking for a correction, and points out several alleged errors in a letter sent to the Barron’s editor and president. It says the story lacks “integrity, professionalism and fairness,” and “contains factual inaccuracies and selective use of information.”
A central theme of the story is Alibaba’s founder Jack Ma, and his rise to fame and fortune, and whether his ability to lead and manage is legit, or a product of his polished salesmanship. The author Jonathan Laing worries specifically that the stock is overvalued, especially in light of its ability to sustain its current growth.
Just last week, Alibaba disclosed that its transaction volume will be lower than expected for the quarter ending this month. Already, its volume had declined to 34 percent in the June quarter from 50 percent-plus in recent years.
Perhaps most damning is that Laing says that Alibaba’s growth rates are already over-hyped, with its revenues surging yearly at an average of 56 percent. For comparison, it lists Google (20 percent), Amazon (23 percent) and Facebook (49 percent).
He quotes Anne Stevenson-Yang, founder of Chinese research firm JCapital Research, as saying Alibaba’s growth rates are puzzling because they don’t jibe with the Chinese government’s own retail estimates. Specifically, it points out that Alibaba claims to have 367 million users, which is about equal to the same as one government agency’s estimate of China’s entire online-shopping population.
In response, Alibaba says it stands by all of its reported financials and operating metrics and that Laing is comparing Alibaba’s figures for this June with a report from last year. If he used China’s most updated online shopping population figures, it would be 374 million. “Given Alibaba’s leading market position, it is not surprising that the number of active buyers on Alibaba’s online marketplaces approaches the 374 million online shoppers most recently reported by the CNNIC,” Alibaba stated.
To be sure, this will be a story that has not fully been digested by investors or analysts. A vast majority of analysts still have a “buy” rating on the company’s stock.
In recent months, the company’s founder Jack Ma handed over the top seat to Daniel Zhang and said it was cutting back on spending by instituting a hiring freeze. After reporting mixed second-quarter results last month, it appeared investors were shuffling money from the Chinese darling back into Amazon, which suddenly appeared to be a safer bet. According to data compiled by Bloomberg, a handful of funds all reduced their share holdings in Alibaba by an average of 42 percent while increasing their holdings in Amazon by 65 percent.
As part of that transfer, Amazon again became the world’s most valuable e-commerce company, a position it previously had lost to Alibaba last fall after it held a record-breaking IPO.