The tension between Jack Ma and Beijing casts a shadow over Alibaba’s future


HANGZHOU, CHINA – NOVEMBER 13: Alibaba founder Jack Ma attends the 5th Zhejiang Global Entrepreneurs Convention at Hangzhou International Expo Center on November 13, 2019 in Hangzhou, Zhejiang Province, China.

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GUANGZHOU, China – Jack Ma, high-profile founder of Alibaba, appears to be on the wrong side of the Chinese government, setting off a chain of events that has stepped up regulatory control over the e-commerce giant and sowed uncertainty over its future .

Even after Alibaba reported better-than-expected December quarter earnings, analysts and pundits warned Ma’s friction with Beijing could hurt growth.

“Investors are watching 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,” said via email to CNBC.

“The current frictions are a new reality for investors who may not have thought carefully about how the company’s rise to power as a powerful tech titan could threaten the status quo. “

It started in October when Ma made negative comments about Chinese financial regulators just days before Ant Group’s initial public offering (IPO) in Shanghai and Hong Kong, which was reportedly the largest in the world. Ma also founded Ant Group, and Alibaba owns about a third of the business.

There are now two major concerns. First, Ant Group may be forced to restructure and even cut back on some of its businesses like lending, which has boosted its growth. Such measures could seriously reduce its valuation. The second concern is whether regulators could force Alibaba to dismantle or change part of its core business activity, which is its primary driver of profit.

“For now, the biggest risk appears to be investor confidence in the Alibaba brand and ecosystem,” Neil Campling, head of technology, media and telecommunications research at Mirabaud, told CNBC. Securities, by email.

“But if there is more stringent regulation for the main drivers of the Alibaba platform, it could certainly hold back Alibaba’s growth. After all innovation and complex weaving of 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 Ma’s friction with Beijing will “subside”, but it will take some “agility on Alibaba’s part to deal with government pressure, changing consumer needs in a digital economy and the concerns of investors “.

Alibaba’s U.S.-listed stock has been under pressure since Ant Group’s IPO withdrawal, rising from a record closing high of $ 317.14 on October 27 to $ 254.50 at the close on Tuesday, a drop of almost 20%.

But some analysts and investors remain optimistic.

Mizuho raised his target price for the stock from $ 270 to $ 285 on Tuesday, saying that “the stock (is attractive with the regulatory overhang mostly built in.”

Matthew Schopfer, head of research at Infusive, an asset manager who is invested in Alibaba, said the recent concern around the tech giant “will prove to be a noise for the long-term investor.”

“Alibaba is a prime example of China’s technological capabilities and we don’t expect the government to permanently harm the business. In addition, stronger regulation will only further strengthen large-scale players like Alibaba. “Schopfer told CNBC via email.

“When we pass to the other side of these regulatory headwinds, we believe the market will once again focus on Alibaba and its platforms as a critical part of the daily life of the Chinese consumer and a major beneficiary of the growth in Chinese purchasing power and increasing consumption digitization. “

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