Renowned short-seller Jim Chanos, who is often referred to as the “China Bear” for his timely and correctly predicted short bets on the Chinese market, is making another call. In question this time around is China’s biggest e-commerce company, Alibaba Group Holding Limited (NYSE:BABA). Here’s why Alibaba stockholders shouldn’t fall for it and stay put on BABA stock.
Jim Chanos is Wrong on Alibaba Group Holdings Limited
Alibaba is the biggest e-commerce player in the Chinese market and is on its way to becoming the strongest force in the greater Chinese online media industry. The holding company holds some of the biggest brands in its portfolio.In addition to its namesake e-commerce web site, Alibaba also holds Taobao, the Chinese equivalent of eBay and Amazon; Alibaba Pictures, the biggest film company in China; Netflix-like service Tmall Box Office (TBO); and its latest acquisition, Youku Todou, the equivalent of YouTube. BABA stock bears apparently miss the fact that Alibaba is on its way to monopolize the online Chinese media services industry.
With very clichéd reasoning and without providing any specifics, which is rather odd coming from a billionaire hedge fund manager of his stature, Chanos made a short call on Alibaba stock, citing “accounting concerns.” Earlier in September, Barron’s raised similar concerns which were later put to rest after Alibaba’s befitting rebuttal. (Source: “Alibaba Responds to Barron’s Story,” Alizila, September 14, 2015.) Barron’s had speculated that Alibaba stock could rout 50% amid the slowdown of the Chinese economy. Turns out that speculation held little water; Alibaba moved on to report stellar second-quarter results the following month and beat on both earnings and revenues by a margin.
Likewise, Chanos appears to be selectively bearish on China. In the same conference where he made a bearish call on BABA stock, Chanos made a bullish call on another Chinese company, JD.com, Inc. (NASDAQ:JD). JD.com is Alibaba’s competitor and the second-largest e-commerce company in China. What surprises me the most is that he picked a smaller loss-bearing Chinese company over a profit-returning Chinese giant. Bear in mind, his bull call on JD.com comes after the company accused Alibaba of locking in merchants on its web site ahead of the biggest online buying season in China—Singles’ Day.
Even if the JD.com allegations were taken to be true, there’s no way the company could match up to Alibaba’s scale. Because of its bigger logistical scale, access to merchants and volume-driven sales, Alibaba has long been the biggest winner of the massive consumer buying activity that takes place on this day.
The Bottom Line on BABA Stock
BABA stock shorts fail to see what it means to be the biggest. The company has a diverse business model with a stronghold over almost all of China’s online media. At the same time, however, Alibaba must understand that with big power comes bigger responsibility. The company may have effectively responded to the counterfeiting concerns but because of its bigger market presence, the company will continue to face similar allegations. To shed the image of a profiteering monopolist, the company must continue to build a positive image of a customer-focused, ethical company.
With promising growth numbers, expanding market presence and some great projects in the pipeline, I see attractive upside to BABA stock.