Chinese Regulators Penalize Alibaba for Past Deal

Chinese market regulators have fined Alibaba (BABA), Baidu (BIDU) and JD.com (JD) on November 20 for failing to declare 43 deals, according to CNBC.

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Shares of Alibaba, the Chinese company that operates online and mobile marketplaces for retail and wholesale trade, have lost 48% over the past year.

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The Deals

Dating to 2012, the 43 deals have violated anti-monopoly legislation, and the companies involved will be fined 500,000 yuan ($78,000) each, as per China’s 2008 Anti-Monopoly Law.

However, the regulator stated that these deals did not eliminate or restrict competition.

Alibaba has come under the scanner for 2 deals: the 2014 acquisition of Chinese digital mapping and navigation firm AutoNavi, and the 2018 buyout of a 44% stake in the food delivery service company Ele.me, making Alibaba its largest shareholder.

This is not the first time BABA, and other companies have faced the brunt of the Chinese regulators. Earlier, in December 2020, Alibaba, Tencent-backed China Literature, and Shenzhen Hive Box were fined 500,000 yuan each, for not reporting past deals properly for antitrust reviews.

Wall Street’s Take

Following the recent Q2 results and updated outlook, Morgan Stanley analyst Gary Yu decreased the price target on BABA to $180 (28.3% upside potential) from $220, and reiterated a Buy rating.

YU slashed his profit forecasts for the next three years based on demand headwinds, competition, and investments outlook. However, the analyst believes the stock price is undervalued and does not consider the valuation of Alibaba’s cloud and international businesses.

Overall, the stock has a Strong Buy consensus rating based on 20 Buys and 1 Hold. The average Alibaba price target of $221.68 implies 57.96% upside potential.

Bloggers Weigh In

TipRanks data shows that financial blogger opinions are 86% Bullish on BABA against a sector average of 70%.