HANGZHOU, CHINA – NOVEMBER 13: Alibaba founder Jack Ma attends the 5th World Entrepreneurship Convention in Zhejiang at the Hangzhou International Exhibition Center on November 13, 2019 in Hangzhou, Zhejiang Province, China.
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GUANGZHOU, China – Jack Ma, the high-level founder of Alibaba, appears to be on the wrong side of the Chinese government, provoking a chain of events that has supported regulatory control over the e-commerce giant and cast uncertainty over its future.
Even after Alibaba reported earnings in the December quarter above expectations, analysts and experts warned that Ma’s friction with Beijing could affect growth.
“Investors are looking at Alibaba with a much closer eye after being drawn to the growth story and the global profile of the founder,” Rebecca Fannin, author of Tech Titans of China, told CNBC.
“The current friction is a new reality for investors who may not have carefully considered how growing the company as a technologically powerful titanium could be a threat to the status quo.”
It began in October, when Ma made some negative comments about Chinese financial regulators, just days before the initial public offering (IPO) of Ant Group 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 two major concerns now. First, that Ant group could be forced to restructure and even reduce some of its businesses, such as lending, which led to its growth. Such moves could seriously reduce its assessment. The second concern is whether regulators could force Alibaba to break or change parts of its core business, which is the biggest profit factor.
“For now, the biggest risk seems to be around investor confidence in Alibaba’s brand and ecosystem,” Neil Campling, head of technology, media and telecommunications research at Mirabaud Securities, told CNBC.
“But if there is stricter regulation for the core factors of the Alibaba platform, it could certainly hinder Alibaba’s growth. After all, innovation and the complex fabric of different aspects of the ecosystem combine to bring economies of scale and growth. “
Campling has a long-term buy rating on Alibaba shares.
Just “noise” for long-term investors
Fannin believes Ma’s friction with Beijing will be “eased”, but will need some “agility from Alibaba to cope with government pressure, changing consumer needs in a digital economy and investor concerns”.
US-listed shares of Alibaba have come under pressure since the IPO Ant Group was pulled down from a record close of $ 317.14 on October 27 to $ 254.50 at Tuesday’s close, down nearly 20 %.
However, some analysts and investors remain rising.
Mizuho raised its target price per share from $ 270 to $ 285 on Tuesday, saying that “the stock is attractive, with the regulatory surplus at majority prices.”
Matthew Schopfer, head of research at Infusive, an asset manager that is invested in Alibaba, said the recent concern around the technology giant “will prove to be noise for the long-term investor”.
“Alibaba is a leading example of China’s technological capabilities, and we don’t expect the government to permanently affect the business. In addition, increased regulation will further strengthen scale players like Alibaba,” Schopfer told CNBC via email.
“When we get to the other side of these regulatory winds, we believe that the market will once again focus on Alibaba and its platforms as a critical part of the daily lives of Chinese consumers and as a major beneficiary of the increase in Chinese spending power and increasing the digitalisation of consumption. “