Jack Ma, founder of Alibaba, smiles during the company’s IPO at the New York Stock Exchange
Chinese e-commerce giant Alibaba wowed investors when it went public in the U.S. in September 2014, and its profits have bucked Wall Street expectations amid the Chinese economy’s slowdown. Yet its unorthodox business structure has raised eyebrows, it’s been suspended from an anti-counterfeiting group, and now U.S. regulators are investigating its accounting practices.
Alibaba disclosed in a regulatory filing that the Securities and Exchange Commission has requested documents and information related to the way it adds together earnings from its various divisions, and how it reports transactions with other companies it has a stake in, among other things.
“I think it’s a moment of truth for the company,” said Anant Sundaram, a finance professor at Tuck School of Business at Dartmouth College. “If I’m buying into that stock, what am I buying into?”
U.S.-traded shares in Alibaba tumbled almost 7 percent in heavy trading yesterday after news surfaced of the SEC probe. They are down 20 percent in the past year.
The company said it is cooperating with the investigation. Alibaba is the world’s biggest e-commerce platform, with more than 420 million people buying USD485 billion worth of goods last year on its sites. Its digital platforms, including Taobao and Tmall, make up 80 percent of Chinese e-commerce.
Disclosure of the SEC probe comes less than two weeks after the company’s membership in the International Anti-Counterfeiting Coalition was suspended.
Some U.S. retailers that are members of the group, which lobbies U.S. officials and testifies before Congress, view Alibaba as a huge marketplace for fakes. Michael Kors, Gucci America and Tiffany quit the group in protest after Alibaba was made a member in April.
The SEC probe raises the possibility that the stellar results the company has reported may have been too good to be true, experts say.
A question is whether Alibaba or its suppliers may have falsified orders to pad sales volumes, suggests Jay Ritter, a finance professor at the University of Florida. Cancelled orders may not have been recorded until Alibaba’s next quarter, to inflate the immediate sales figures, for example.
That could ultimately mislead investors about the level of Alibaba’s sales and how fast they’re growing, Ritter said. Marcy Gordon, Washington, AP
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