The story by Barron’s magazine titled “Alibaba: Why It Could Fall 50% Further” was widely picked up across the mainstream press.
But before most of the publications even got out their aggregated version of Barron’s knock on the eCommerce giant, Alibaba fought back with a detailed letter explaining why the story got the facts wrong and what the report should have included.
In a letter dated Sept. 13, Jim Wilkinson, Senior Vice President of International Corporate Affairs for Alibaba Group, he wrote that the article “lacks three key ingredients – integrity, professionalism and fair play. We take strong issue with the reporting about the state of our company, and we feel compelled to set the record straight. Jonathan Laing’s story contains factual inaccuracies and selective use of information, and the conclusions he draws are misleading.”
Wilkinson suggests that Laing was misleading in his calculation about the stock price projections in the year ahead. Laing’s rationale was based on his calculation that Alibaba’s “consensus forward PE multiple is 25x consensus earnings ‘for the year ahead,’ compared with eBay’s 15x.”
Well, Wilkinson shoots that comparison down, saying that the year ahead would be 2016, but the comparison drawn refers to analysts’ 2015 consensus earnings. Furthermore, he reminds readers that eBay does not operate in China, which suggests that is not a relevant comparison.
“A more relevant comparison would be with our large-cap Chinese Internet peers. The PE multiples of Tencent and Baidu on consensus 2015 earnings are 31x and 24x, respectively,” Wilkinson wrote in his letter.
He goes on the say that the Barron’s author fails to consider “several important facts” about Alibaba’s history of its publicly traded B2B subsidiary — ignoring the fact that Alibaba’s B2B subsidiary grew revenues during the global financial crisis of 2008, Wilkinson wrote. He also goes on to negate claims made about Alibaba’s competition.
“Laing suggests that competitors are ‘eating into the market shares of’ Alibaba’s position as the leader in eCommerce in China. The sole proof Mr. Laing provided for this assertion was ‘a study by a Financial Times research service’ of online shoppers,” he wrote, claiming that the survey was based on limited respondents and was not representative.
“Our Taobao and Tmall marketplaces combined have an unrivaled leadership position in eCommerce in China. In the Tmall B2C segment, our market share according to iResearch is more than twice the share of the next closest player,” he added.
Wilkinson also took issue with the way in which Laing reported some of the company’s key metrics, stating that “Alibaba’s leading market position” made it unsurprising that the company’s alleged number of active buyers would approach the bulk of the Chinese online shopping population. The average annual online spend per U.S. online shopper was also misreported, he claimed, by 73 percent.
“The miscalculation of Alibaba’s ‘average annual spend per user’ and the gross under-reporting of average annual spend of U.S. shoppers by Mr. Laing entirely undermine his conclusions,” Wilkinson wrote, adding that “the comparison of the average annual online spend of an Alibaba shopper with the average retail spend of Chinese citizens is inappropriate. Shoppers that come to Alibaba’s platforms are early adopters of technology and tend to be urban and more affluent.”
The letter continues to negate claims from the Barron’s article, including facts about Alibaba’s business model, where it fits into the overall online marketplace ecosystem, and the claims about its shareholders’ role in Alibaba group. Wilkinson’s lengthy letter concludes with a long-winded list of specifics about Alibaba and Jack Ma’s business relationship, and further weighs in on recent accusations Alibaba has faced, including those regarding the selling of counterfeit goods on the platform.
“Mr. Laing’s comments on Alibaba’s strategy shows his lack of understanding of eCommerce and Alibaba’s strengths and strategies as we clearly and transparently communicated during our IPO as well as in our annual report and our quarterly earnings updates. He wrote ‘many of Alibaba’s investments beyond online shopping — in areas like media, entertainment, logistics, and cloud computing — seem aimed more at beguiling investors than improving earnings,'” Wilkinson wrote.
“Mr. Laing misses the fundamental point that logistics is a critical component of online commerce,” Wilkinson rebutted. “Alibaba is committed to the overall customer experience so we will continue to invest in improving the delivery experience.”