The market may not have known about the SEC’s investigation of Alibaba Group Holding Ltd BABA 3.65% until the company’s recent disclosure, but the market may very well have priced in the issues a long time ago. According to Oppenheimer analyst Jason Helfstein, the elements of Alibaba’s business that the SEC is looking into have long been points of uncertainty for investors, and may have been holding back Alibaba’s stock for quite some time.
The SEC investigation is reportedly focused on three elements: 1) consolidation practices for minority holdings, 2) related-party transactions and 3) non-GAAP Singles Day reporting metrics such as gross merchandise volume (GMV). Helfstein expects Alibaba to provide some clarity on the first two elements during the company’s Investor Day period starting on June 13.
Helfstein notes that, while Alibaba’s GMV metric may not have accounted for “fake” orders that sellers use to improve their rankings on Alibaba’s platform, Alibaba’s definition of GMV doesn’t impact on the company’s bottom line.
“While it is possible that 20-30% of transactions on BABA’s retail platform could be sellers ‘buying their own product’ to inflate their product rank higher, this would hae no impact on revenue, as it would mean the take rate is closer to 4% vs. last year’s 2.6% (but still well below AMZN at ~13%),” Helfstein explains.
“With the stock trading at 24x/17x F17/F18 P/E multiples and growing at 30% CAGR, we believe…
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