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ALIBABA GROUP HOLDING LIMITED

(BABA)
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Alibaba, Hit by Antitrust Fine, Vows to Help Vendors With Fee Cuts

04/12/2021 | 03:06am EDT

By Stephanie Yang

TAIPEI -- Alibaba Group Holding Ltd. said Monday that it would invest in measures to support merchants on its platform, two days after China's antitrust regulator imposed a record fine against the company founded by Jack Ma for abusing its dominant position over vendors and rivals in the country's e-commerce industry.

In a conference call, Chief Executive Daniel Zhang said the company has reduced service fees and charges for vendors, and invested in improved technology and tools for them on its platform. The initiatives will cut further into profitability for the company, which said it would use existing liquidity to pay a $2.8 billion fine announced Saturday.

China's State Administration for Market Regulation said an investigation into Alibaba found that it punished certain merchants who sold goods both on Alibaba and on rival platforms, a practice dubbed "er xuan yi" -- literally, "choose one out of two."

Alibaba shares, which had lost about a quarter of their value since November, jumped as much as 9% in early trading on Monday morning in Hong Kong before easing slightly to stand about 6% higher, in a sign that investors welcomed the clarity over the company's future after fines were announced.

However, the antitrust investigation outcome raised concerns among analysts about how the company would retain merchants, particularly in an increasingly competitive e-commerce landscape with rivals including JD.com Inc. and Pinduoduo Inc.

"We will incur additional cost, but we don't view this as a one-off cost, " Mr. Zhang said of the company's plan for merchants. "We view this as a necessary investment to enable our merchants to have a better operation on our platform."

The 18.2 billion yuan fine is equivalent to 4% of the company's domestic annual sales. While the fine exceeded any other corporate penalty in China's history in absolute value, analysts said the announcement alleviated much of the uncertainty surrounding Alibaba that had unnerved investors since its financial affiliate Ant Group Co.'s initial public offering was canceled in November.

Danny Law, research analyst at Guotai Junan International Holdings Ltd., said he expects the fine to reduce Alibaba's profitability as a one-time cost by about 10% in the financial year that ended in March. While the fine was announced in April, the company will reflect the cost in last fiscal year's accounting. The company's growth will also likely be hindered by increased regulatory monitoring, he said.

As part of the penalty, regulators required that Alibaba carry out a comprehensive revamp of its operations and submit a self-assessment and compliance report to the SAMR for three consecutive years.

Robin Zhu, an analyst at Sanford C. Bernstein, said in a Monday report that the end of forced exclusivity could prompt merchants to grow their presence on competing e-commerce platforms such as JD.com, Pinduoduo or Douyin. Alibaba is also investing aggressively to try to grow new businesses such as discount sales and grocery shopping, he said.

"Our longer-term concern remains the increasing crowdedness of the e-commerce market in China, and the potential impact this will have on Alibaba's core e-commerce profitability," Mr. Zhu wrote.

Mr. Zhang said he did not expect a material impact on business operations, and that Alibaba's platform still offered merchants the broadest consumer audience and support to grow their business.

Analysts also said continued scrutiny over Alibaba's business practices is still a risk, though Saturday's settlement, which didn't require major restructuring of the company's business model, had eased some of those concerns.

Chinese officials said Beijing was reluctant to come down too severely on Alibaba, a pillar of the Chinese tech sector that is immensely popular among consumers, but wanted it to dissociate from Mr. Ma, The Wall Street Journal previously reported.

Alibaba said Monday that regulators have inquiries into merger and acquisition activity within the broader technology industry, but it wasn't aware of any other antimonopoly investigations following the most recent fine.

"We feel comfortable that there's nothing wrong with the fundamental business model of a platform company," said Executive Vice Chairman Joe Tsai. "We're pleased that we are able to put this matter behind us."

--Joanne Chiu contributed to this article.

Write to Stephanie Yang at stephanie.yang@wsj.com

(END) Dow Jones Newswires

04-12-21 0506ET

Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED 2.51% 200.245 Delayed Quote.-16.13%
DJ INDUSTRIAL 0.49% 35107.79 Delayed Quote.14.14%
GUOTAI JUNAN INTERNATIONAL HOLDINGS LIMITED -2.50% 1.17 End-of-day quote.12.50%
GUOTAI JUNAN SECURITIES CO., LTD. -0.98% 16.23 End-of-day quote.-7.42%
SANFORD LIMITED 1.84% 4.99 End-of-day quote.-4.59%
SUN ART RETAIL GROUP LIMITED -4.55% 4.83 End-of-day quote.-38.71%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.04% 6.4619 Delayed Quote.-0.47%
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Financials
Sales 2022 927 B 143 B 143 B
Net income 2022 132 B 20 466 M 20 466 M
Net cash 2022 459 B 71 078 M 71 078 M
P/E ratio 2022 28,1x
Yield 2022 -
Capitalization 3 428 B 531 B 531 B
EV / Sales 2022 3,20x
EV / Sales 2023 2,54x
Nbr of Employees 251 462
Free-Float 89,8%
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Mean consensus BUY
Number of Analysts 51
Last Close Price 1 261,10 CNY
Average target price 1 858,65 CNY
Spread / Average Target 47,4%
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Managers and Directors
Yong Zhang Executive Chairman & Chief Executive Officer
John Michael Evans President & Director
Wei Wu CFO, Director & Head-Strategic Investments
Li Cheng Chief Technology Officer
Chee Hwa Tung Independent Director
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