Nasdaq BABA Alibaba

It’s unlikely Jack Ma will be criticizing the Chinese authorities anytime again soon. When, in October, the tech entrepreneur and Alibaba (BABA) founder publicly castigated the manner in which the Chinese financial system stifles innovation, it set off a chain of events that has resulted in a record fine.  

Last Friday, the Chinese State Administration for Market Regulation (SAMR) penalized Alibaba to the tune of $2.8 billion, after it accused the e-commerce giant of violating Chinese antitrust law. More specifically, Alibaba was indulging in anticompetitive behavior by abusing its dominant position in the Chinese market and foisting “choose one of two" tactics on merchants.

The record fine equals 4% of BABA’s domestic CY2019 sales and will be paid out of the company’s current liquidity. Alibaba saw out 2020 with roughly $70 billion (456 billion RMB) of cash in the coffers. The fine is anticipated to impact its GAAP net income in the March quarter but will not hit non-GAAP net income.

Alibaba has said that the anticipated changes to its operations are unlikely to materially affect its financial results, as the merchant exclusivity arrangements were limited to a relatively small number of TMall flagship stores.

In any case, Truist analyst Youssef Squali (rated 5-star by TipRanks) does not expect merchants to sever ties with the company.

“We believe that merchants often prefer to work with Alibaba, not because of restrictive exclusivity clauses (the vast majority do not have such clauses), but because it's the largest ecommerce platform in China, offering more value and greater distribution to merchants than any other competing platform,” Squali commented.

In an effort to maximize merchant retention, Alibaba intends to invest “billions of RMB" to improve its value-added services and will also waive various merchant services fees.

“Short-term,” Squali noted, “This move is likely to pressure margins but longer-term, it should increase merchant satisfaction and retention.”

Overall, there’s no change to Squali’s rating or price target, which stays a Buy and $330, respectively. There’s upside of ~35%, should the figure be met over the next 12 months. (To watch Squali’s track record, click here)

The Street is just as effusive; the analyst consensus rates BABA stock a Strong Buy, based on 1 Hold vs. a resounding 19 Buys. Shares are anticipated to add 30% over the next 12 months, given the average price target currently stands at $317.82. (See BABA stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.