Text size
Alibaba Group Holding office building in Shanghai, China.
Qilai Shen / Bloomberg
Chinese regulators put
Alibaba Group Holding
(ticker: BABA) and other large technology companies announced last month that they will be subject to control over their business practices.
On Thursday, the Chinese market regulator said it is considering how Alibaba uses exclusivity agreements with traders selling on its e-commerce platform, preventing them from selling through rivals such as
JD.com
(JD).
Investors reacted strongly to the news, pushing Alibaba down to 17.5% in US trading. It’s the largest percentage drop in stock since it went public in 2014. “We think it’s a bit of an exaggerated reaction,” said Raymond James analyst Aaron Kessler. Barron’s.
Alibaba acknowledged the notification from the State Administration for Market Regulation, which stated that China is investigating under antitrust law. Alibaba said it would cooperate with the investigation and that its business operations “remain normal”.
Beijing has also said it will meet with Alibaba’s Ant Group on financial regulations. Last month, Ant postponed his long-awaited initial public offering. In his own statement, Ant said, “We will seriously study and strictly comply with all regulatory requirements and make every effort to carry out all related work.”
The sharp drop could surprise investors. As in the US, Chinese regulators have looked more closely at technology giants like Alibaba because of concerns about their growing power. Google
Alphabet
(GOOGL) and
Facebook
(FB) each face multiple lawsuits over their competitive practices.
Last month, China launched draft antitrust rules aimed at preventing popular digital sites from using their position to push merchants into exclusivity agreements and other monopolistic practices.
Kessler of Raymond James said the difficult part will be quantifying the impact on revenue, if any. And Chinese regulators are likely to go after other companies, he said.
Analysts estimate that Alibaba’s sales for fiscal year 2021, which ends in March, will reach $ 106 billion, according to FactSet. That would be a 49 percent increase from fiscal year 2020. And Kessler said Barron’s that e-commerce sales are growing at a rate of 20% for the industry, estimating a 24% increase for Alibaba in fiscal year 2021. Alibaba’s practices “do not appear to affect competitors,” he said.
Alibaba owns a third of fintech company Ant, which was on deck to raise $ 34 billion in IPOs last month, but canceled its last-minute debut after controlling shareholder Jack Ma was summoned to a meeting with regulators .
Ants’ directors are scheduled to meet again with regulators in the coming days. The People’s Bank of China issued a statement saying the meeting was “guiding the Ant Group to implement financial supervision, fair competition and the protection of consumers’ legitimate rights and interests,” Reuters reported in China.
In a note Thursday, Kessler said that “the IPO schedule remains extremely uncertain.” Ant could be “forced to make concessions to the Chinese government as well as face stricter regulatory scrutiny.”
Write to Liz Moyer at [email protected]