This weekend, Barron’s published a pessimistic take on Chinese ecommerce giant Alibaba’s financial future entitled “Alibaba: Why it could fall 50% further.” Not only has the stock price declined since the company’s massive New York IPO but, Barron’s alleges, it may soon collapse to half its value.
The article did not go unnoticed by the folks at Alibaba, and they have fired back in response.
The Barron’s piece “lacks three key ingredients – integrity, professionalism, and fair play,” writes Alibaba’s senior vice president for international corporate affairs, Jim Wilkinson, in an open letter to Barron’s. Wilkinson goes on to outline what Alibaba sees as “factual inaccuracies and selective use of information” in the article.
The inaccuracies get technical very quickly. Picking apart whether “the year ahead” means one year from now, or means 2016; evaluating whether comparing Alibaba to eBay is fair; specific issues of methodology in reading statistics.
A few of the key, easily-digestible assertions in the Barron’s piece are:
- Wall Street is overly optimistic about Alibaba’s financial future and popular Chinese IPOs have a tendency to “flame out like supernovas”
- Alibaba has manipulated its user statistics
- The line between Alibaba and Jack Ma’s personal investments is too blurry
- The company has not been straightforward with its investors about financial matters
- Typical gripes about intellectual property being violated by the site
Real consequences
One thing that is for certain is that the Barron’s piece seems to have become a self-fulfilling prophesy. The article came out on Saturday, and when markets opened on Monday, Alibaba’s stock saw a sharp drop, although it has since seen a small rebound.
That’s why Wilkinson’s rebuttal piece is important – if investors believe Alibaba’s stock is about to collapse, then they may sell the stock en masse, which could make it collapse.
As for the veracity of the Barron’s claims, the jury is still out.
Hedgeye, an investment research company, published a piece yesterday alleging that they spoke with Barron’s earlier this year about Alibaba, and that their analysis was “twisted” in this weekend’s Alibaba piece. Their critique matches some of Alibaba’s complaints with the article – namely, that Barron’s incorrectly interpreted some of Alibaba’s financial data, which led them to make a more dire prediction than they should have.
According to CNN Money, one analyst thought the general pessimism about Alibaba’s future was correct, but “the comparison to eBay was ‘silly,’ and [the analyst] also disagreed with Barron’s claims that Alibaba may not be accurately reporting how many users it has and how much money it spends annually.”
CNBC is hardly more optimistic: it urges investors to “stay away from Alibaba” following the Barron’s piece, and predicts slow growth for the company in the immediate future.
Alibaba denies that any of its figures have been inflated and urges Barron’s to issue a correction – they have not yet done so.
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