Alibaba shares slumped today following a weekend article from Jonathan R. Laing of Barron’s, who suggested that the Chinese company’s stock will fall 50% over the next year. Alibaba had a lengthy rebuttal in which it claimed that the article contained some inaccuracies and was misleading in some areas.
Alibaba: don’t compare us to eBay
One of the biggest problems Alibaba management had with Laing’s article was that it compared their company to eBay. This, from conversations I’ve had with some of the folks at Alibaba, is highly profane to them. Certainly the response posted on Alizila, a news website operated by Alibaba, makes it appear like management loathes this comparison, and it’s easy to see why.
Alibaba markets itself as a “platform company” rather than just an e-commerce company. Indeed, it does have some elements of eBay and Amazon, and in the U.S., drawing comparisons there is an attempt to package Alibaba in a way U.S. investors can understand. However, Alibaba is more than just an e-commerce company. It also has its Alipay digital payment platform, offers some cloud services and invests in a broad range of different business types. It would seem more like Alibaba seeks to have its fingers in just about every type of online business.
In their response, the company’s management offers what they find to be more palatable comparisons: Tencent and Baidu, both of which are also Chinese companies. Although they did not argue for the “platform” part of their marketing message, they did give a much simpler reason why their company should not be compared to eBay, and that’s that eBay does not operate in China.
Problems with Alibaba’s P/E multiple
One issue they see with the eBay comparisons also relates to another problem they saw in the Barron’s article, and that’s the P/E multiple the author used. Laing states that the multiple “for the year ahead” is 25 times consensus estimates, while eBay’s multiple is 15 times. However, when looking at next year’s estimates, Alibaba’s multiple is 20 times
And when looking at the company’s multiple of 25 times 2015 earnings, the company is in line with its peers, as Tencent has a multiple of 31 times, while Baidu’s 2015 multiple is 24 times.
Diving into Alibaba’s financials
Laing also calls into question Alibaba’s financial reporting, including metrics like the number of active buyers and the annual spend per user. He compares Alibaba’s published use metrics with numbers published by the CNNIC about the total number of online shoppers in China and the total amount of retail spend by those shoppers.
Alibaba argues that it has a significant portion of the Chinese e-commerce market with 367 million active buyers over the last 12 months. In July the CNNIC reported that there were 374 million online buyers, making Alibaba the clear leader in terms of the number of shoppers.
Read Alibaba’s full response to the Barron’s article here. As of this writing, shares of Alibaba were down 4.02% at $62.03 per share. Wall Street undoubtedly became concerned by the Barron’s article, which only added fuel to the fire as investors were already worried about the Chinese economy right now.
