Jim Chanos, a well-known short-seller and the hedge fund manager of Kynikos Associates, presented his short position in Alibaba Group Holding during a conference hosted by Morgan Stanley in Miami, Florida. According to CNBC, Chanos made his bearish recommendation on Alibaba due to “accounting concerns.”
ValueWalk’s editor first heard the rumor about the short earlier today
— ValueWalk (@valuewalk) November 6, 2015
In September, Barron’s published an article stating that the stock price of Alibaba will likely decline by as much as 50% citing the reason that the company is confronting challenges including its failure to prevent the sale of counterfeit products on its platform.
Barron’s questioned Alibaba’s financial reports citing the fact that the company’s accounting firm, PriceWaterhouseCoopers (PWC), Hong Kong hasn’t been inspected by US regulators for audit quality.
Last year, the company’s entertainment business, Alibaba Pictures was found to have committed accounting errors—misstated tax payments and financial impact of convertible bonds.
When Alibaba set a record for the largest-ever initial public offering (IPO) in the United States, Chanos warned, “quick little thought about Ali Baba: everyone forgets that he was a thief.” He also commented that the true margins of Alibaba may be “hard to know.”
Alibaba stock performance
The stock price of Alibaba declined more than 3% to $82.23 at the time of this writing, around 2:13 in the afternoon in New York.
Over the past 52-weeks, Alibaba’s stock traded between $57.20 and $120 per share. The Chinese e-commerce giant lost more than 20% of stock value year-to-date.
Market observer believed that the sale of fake and counterfeit goods on Alibaba’s online market places is a serious issue, which could hinder the company’s growth. US regulators and trade agencies are pressuring Alibaba to resolve the problem.
Chanos other bearish positions
Aside from Alibaba, Chanos has short positions in SolarCity and Tesla Motors. Last month, Chanos said the stock price of Tesla is “overpriced” and it needs a lot of capital investment to compete with other players in the auto industry.
According to him, Tesla needs to transform itself from being a small, boutique and elite car manufacturer to a mass-market auto manufacturing company. A transition that its “very difficult” to achieve.
Chanos described SolarCity as a “subprime” finance company. According to him, the company’s customers will become unhappy with their existing leases when the price of solar panels decline further.
Chanos previously stated, “SolarCity is burning an awful lot of cash, hundreds of millions of dollars every quarter, has a lot of debt and has negative EBITDA. And in this kind of environment that is a very scary proposition. I mean, they are going to have to raise a lot of money in a model that I think has been passed over in terms of the more institutionalized and distributed model of solar.”