Time to Invest. Alibaba SEC Probe and Loss of Key Investor SoftBank Have the Bears Pouring In

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Source: Bloomberg, June 2016

Due to the Alibaba SEC probe, Alibaba shares have dropped 6.4 percent to $75.92 since May 25 when the company said that the SEC is looking at data reported from the company’s Singles’ Day promotion, Alibaba’s biggest shopping day, and how the company consolidates results from affiliates, including logistics partner Cainiao Network.

Prominent short sellers including Jim Chanos and John Hempton have been red-flagging Alibaba for months, suggesting that its growth figures might be too good to be true. Bearish bets spiked in the past two weeks after the company disclosed a regulatory probe of its Chinese delivery unit and SoftBank Group Corp. disclosed plans to sell a $10 billion stake. The Alibaba SEC probe is worrying.

“If the SEC was to find Alibaba’s accounting isn’t proper and Alibaba has to restate its results, that’ll be very detrimental. Because Alibaba’s so high profile, it will cast an even greater shadow of Chinese companies listed in U.S,” said Gil Luria, an analyst at Wedbush Securities Inc. in Los Angeles.

While SoftBank’s divestment comes as part of a broader strategy to find new investments in startups and strengthen its debt-heavy balance sheet, the move can be unsettling to investors as the Japanese technology giant first bought into the company 16 years ago, said Henry Guo, a New York-based analyst at M Science.

Alibaba, which claimed more than 75 percent of the e-commerce market share in China last year, made history with a record $25 billion initial public offering in September 2014. Traders in New York clamored for the stock, which was priced at $68 a share, as a way to tap into the potential profits available from the country’s growing middle class.


Read full story on Bloomberg by Elena Popina and Bonnie Cao, here