HANGZHOU, CHINA – NOVEMBER 13: Alibaba founder Jack Ma attends the 5th World Zhejiang Entrepreneurs Convention at Hangzhou International Expo Center on November 13, 2019 in Hangzhou, Zhejiang Province of China.
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GUANGZHOU, China – Jack Ma, the high-profile founder of Alibaba appears to be on the wrong side of the Chinese government, triggering a chain of events that has increased regulatory oversight over the e-commerce giant and its uncertainty future.
Even after Alibaba reported quarterly earnings above expectations, analysts and experts have warned Ma’s friction with Beijing could hurt growth.
“Investors are looking at Alibaba with a much more careful eye after being drawn to its founder’s growth story and global profile,” Rebecca Fannin, author of “Tech Titans of China,” told CNBC by email.
“The current frictions are a new reality for investors who may not have thought hard about how the company’s emergence as a powerful tech titan could threaten the status quo.”
It started in October when Ma made some negative comments about Chinese financial regulators a few days before the initial public offering (IPO) of Ant Group in Shanghai and Hong Kong, the largest in the world. Ma also founded Ant Group, and Alibaba owns about a third of the company.
There are now two major concerns. First, Ant Group may be forced to restructure and even scale back some of its businesses, such as lending, which has boosted growth. Such moves can seriously lower its valuation. The second concern is whether regulators could force Alibaba to split or change parts of its core business, which are the biggest profitable factor.
“For now, the biggest risk appears to be investing confidence in the Alibaba brand and ecosystem,” Neil Campling, director of technology, media and telecom research at Mirabaud Securities, told CNBC by email.
“But stricter regulation of the main drivers of the Alibaba platform could certainly hinder Alibaba’s growth. After all, innovation and intricate weaves of different aspects of the ecosystem combine to deliver economies of scale and growth.”
Campling has a long-term buy rating on Alibaba shares.
Just ‘noise’ for long-term investors
Fannin believes Ma’s friction with Beijing “will lessen”, but it will take some “dexterity on Alibaba’s part to deal with government pressures, evolving consumer needs in a digital economy and investor concerns.”
Alibaba’s US-listed stocks have been under pressure since Ant Group’s IPO, falling from a record high of $ 317.14 on Oct. 27 to $ 254.50 at Tuesday’s close, down nearly 20%.
But some analysts and investors remain optimistic.
On Tuesday, Mizuho raised his target price for the stock from $ 270 to $ 285, saying that “the stock (attractive given the regulatory overhang is usually priced in)”.
Matthew Schopfer, head of research at Infusive, an asset manager that has invested in Alibaba, said the recent concerns surrounding the technology giant “will prove to be noise for the long-term investor.”
“Alibaba is a leading example of China’s technological capabilities and we do not expect the government to cause permanent damage to the company. In addition, tightened regulations will only strengthen larger players like Alibaba,” Schopfer told CNBC by email.
“When we get to the other side of this regulatory headwind, we think the market will return to focus on Alibaba and its platforms as a critical part of the daily life of Chinese consumers and a major beneficiary of growth of China’s purchasing power and the increasing digitization of consumption. “