HANGZHOU, CHINA – NOV 13: Alibaba founder Jack Ma attends the 5th World Convention of Zhejiang Entrepreneurs at Hangzhou International Expo Center on November 13, 2019 in Hangzhou, China’s Zhejiang Province.
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GUANGZHOU, China – Jack Ma, Alibaba’s high-profile founder, appears to be on the wrong side of the Chinese government, sparking a chain of events that has increased regulatory scrutiny over the e-commerce giant and cast uncertainty about its future.
Even after Alibaba reported higher-than-expected December quarter earnings, 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 drawn to the founder’s growth story and global profile,” Rebecca Fannin, author of “Tech Titans of China,” told CNBC via email.
“The current frictions are a new reality for investors who may not have carefully considered how the company’s rise as a powerful tech titan could be a threat to the status quo.”
It started in October when Ma made some negative comments 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. But he also founded Ant Group and Alibaba owns about a third of the company.
There are two big concerns now. First, the Ant group may be forced to restructure and even downsize some of its businesses such as the loan that has driven its growth. Such moves could seriously reduce his valuation. The second concern is whether regulators could force Alibaba to dismantle or modify parts of its commercial core business, which is its biggest profit factor.
“For now, the biggest risk appears to be tied to investor confidence in the Alibaba brand and ecosystem,” Neil Campling, Mirabaud Securities chief technology, media and telecommunications research, told CNBC via email.
“But if there is tougher regulation for the main drivers of the Alibaba platform, then it could definitely stop Alibaba’s growth. After all, innovation and the intricate texture of the different aspects of the ecosystem combine to bring economies of scale and growth. “
Campling has a long-term buy rating on Alibaba stock.
Just “noise” for long-term investors
Fannin believes that Ma’s friction with Beijing is “easing”, but it will take “some agility on the part of Alibaba to cope with government pressures, changing consumer needs in a digital economy and concerns from investors “.
Alibaba’s shares listed in the United States have been under pressure since Ant Group’s IPO was withdrawn, falling from a record close of $ 317.14 on October 27 to $ 254.50 at close on Tuesday, a drop of almost 20%.
But some analysts and investors remain optimistic.
Mizuho raised its stock price target from $ 270 to $ 285 on Tuesday saying “the stock (is attractive with the mostly priced regulatory overhang”.
Matthew Schopfer, head of research at Infusive, a wealth manager who has invested in Alibaba, said the recent concern around the tech giant “will prove noisy for the long-term investor.”
“Alibaba is a prime example of China’s technological capabilities and we don’t expect the government to permanently damage the business. In addition, tightened regulation will further strengthen players 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 once again focus on Alibaba and its platforms as a key part of Chinese consumer’s daily life and one of the main beneficiaries of China’s growth in purchasing power and of the growing digitalization of consumption. “
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