In “Alibaba: Why It Could Fall 50% Further,” Jonathan Laing wrote in Barron’s about many alleged problems with the Chinese ecommerce giant, including financial irregularities, potential conflicts of interests, slowing growth, and sales of counterfeit goods.
Laing concludes, “In the end, gaudy financial reports can only work for so long before reality intrudes. This hard lesson figures to be driven home to [founder Jack] Ma and his trusting investors in the coming years, and it won’t be pretty.”
Following up on this story is Francine McKenna in a MarketWatch piece titled “Can we trust Alibaba’s numbers? Auditor has never faced U.S. regulatory scrutiny.” As McKenna correctly points out, “[i]nvestors should care who signs a company’s audit report.” It remains to be seen whether Alibaba has actually committed accounting fraud.
If you’re looking to buy an Internet business, whether by private acquisition or shares in a publicly traded ecommerce company, financial fundamentals, transparency, and honesty matter. When in doubt, walk away from a potential deal.
Disclaimer: No claim is made to Alibaba’s intellectual property. All references to the company and its marks are made under fair use for commentary.