Alibaba Group Holding Ltd’s GMV Growth May Cool Amid Crackdown On Fakes

Alibaba Group Holding Ltd’s GMV Growth May Cool Amid Crackdown On Fakes
By Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

After a spat between the State Administration of Industry & Commerce (SAIC) and Alibaba earlier this year, the e-commerce giant assured Chinese regulators that it will leave no stone unturned to crackdown on counterfeit goods. The SAIC had accused Alibaba of not doing enough to curb the sales of fake goods on its Taobao platform.

Manipulating rankings a common practice on Alibaba platforms

On Monday, SAIC chief Zhang Mao pledged to intensify the crackdown on the sales of fake goods online. Mao said he would increase the penalties for selling counterfeit goods, forcing phony traders to discontinue such operations or go bankrupt, reports the South China Morning Post. He said e-commerce platforms should also take the responsibility to maintain the credibility of online shops by strengthening their internal controls.

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According to Gillian Wong of The Wall Street Journal, merchants on Alibaba’s platforms use fake orders to boost their sales figures and improve their standing on the online marketplaces. Manipulating rankings is a common practice among sellers that want to get ahead on the increasingly competitive shopping platforms. Such fake orders also increase Alibaba’s gross merchandise volume (GMV) growth.

Credit Suisse cuts price target for Alibaba stock

The crackdown on fake goods may limit the Hangzhou-based company’s GMV growth, say Credit Suisse analysts Dick Wei, Evan Zhou and Jialong Shi. The crackdown is good for the company in the long-run, but it could affect short-term growth. Strict anti-cheating rules to clean up merchants who use phony tactics will hurt the company’s sales growth.

Credit Suisse said the suspension of online lottery sales following the Chinese government crackdown will affect 1.5% of Alibaba’s mobile GMV this year. Though the research firm maintained its Buy rating on the stock, it has slashed the price target to $112. Credit Suisse also reduced its 2016 and 2017 earnings estimates by 7.1% and 3.7% respectively.

Alibaba shares have declined 18.8% year-to-date to $84.40.

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