5 ms·

Feels like a slap on the wrist in the grand scheme of things. I expect this to be a catalyst for Alibaba’s stock since the cloud of uncertainty over how severe

by sshah1983 5y ago

Feels like a slap on the wrist in the grand scheme of things. I expect this to be a catalyst for Alibaba’s stock since the cloud of uncertainty over how severe the CCP punishment would be has now been lifted and that’s very much been weighing the stock down the past 5-6 months.

hodder 5y ago
Given the antitrust investigation was ongoing it was clear something would come out of it and a tiny fine is definitely far better than a ton of possible outcomes. I expect the shares to move up on the news but not too materially. Unfortunately it still doesn’t clear up the Ant IPO issue.
- jpgvm 5y ago
  I suspect it will actually result in a big move up in the share price, just not explosively so. The reasoning is basically this. Share price was $320 all time high preceding ANT IPO which ANT being valued approximately $300B. ANT IPO cancellation dropped 10% off BABA market cap, followed by a further tumble on news Jack Ma appeared to be missing/lying low and culminating with a single day drop of 13% when the anti-trust probe was announced. All in all we are talking about a drop of ~30%+ and 100B in market cap. If we can assume that BABA no longer relies on Pick One of Two and it's elimination as a practice doesn't materially affect sales (this is consensus) then there is really only 2 major financial impacts associated with this remaining: The reduction in the value of ANT following restructuring and elimination of it's credit products and the fine itself. The fine isn't material, it's less than 10% free cash flow/5% net cash on hand. ANT IPO was revalued recently at about $200B, so it lost 33% of it's value. BABA holds a stake of 30% in ANT so it's investment value went from $100B to $66B, material but not drastic. So material damage is about ~$70B. However that shouldn't be deducted directly from market cap because the company isn't valued on it's net cash - that would be insane for a growth company. Instead it's generally valued using a method called Discounted Cash Flow. Effectively you estimate future cash flows and discount it by cost of cash. If you reduce net cash by $70B and run the numbers conservatively it still shows that BABA should be valued at $300-400 if trading at similar multiple to it's peers that face similar regulatory pressure, potential credit tightness and US trade relationship issues.
- powerapple 5y ago
  There was a statement after Ant IPO incident that the government ask Ant to have 30% in reserve for all the loans it is making, basically the whole business model of Ant would change. I would think it will never be the same for Ant, the valuation has changed forever now. Ant marketed itself as a technology companies, this regulation however ask Ant to register as a financial company.
jonathannat 5y ago
Actually no, this marks the beginning the decline of power for Alibaba and the rest of the Chinese megatech companies like tencent and baidu. The chinese government goal for the next 5-10 years is stability, control and state companies, not innovation nor private sector growth. They fear the end of CCP. That's why the recently 5 year plan stresses stability, and doesn't set a growth goal That's why they cracked down on Hong Kong and basically gave up a conduit of western capital/talents as well as letting Hong Kong citizen's wealth escape abroad. That's why they are becoming alarmingly nationalistic and lashes out on US/EU politicians and encourages its citizens to boycott foreign brands like H&M. That's why they are building artificial islands in the south asia sea despite Vietnam/Phillipine's angry protests, to shore up their maritime power.
- justicezyx 5y ago
  How can small corps survive when Alibaba and Tencent bullying people around? Why stability is conflicting with innovation? Are you saying that somehow the innovation has to be destabilizing the society? That's never the case in the human history. Any innovation make human more united and more understand and easier get across each other.
  - kolbe 5y ago
    This is not true. Plenty of innovations have destabilized the world. Look at all of WW1’s weaponry. Look at Facebook allowing mass brainwashing to rip the United States apart. But more to the point, even if it were true, the CCP isn’t interested in the stability of humanity. They’re interested in the stability of their own power.
    - justicezyx 5y ago
      Overall FB had helped the world move to more open and more understanding. Citing weaponry is misleading, we are not talking about military here. Alibaba and Tencent do into stifle military innovation.
      - 5y ago
jimmaswell 5y ago
Someone makes this comment every time a fine happens. What number do you want? 10B? 100B? A trillion?
- tgtweak 5y ago
  It's a relatively tiny fine compared to the upside of a monopolistic advantage for several years. People were speculating the ccp would lay down a 10bn+ fine. To give some perspective, alibaba did $80Bn in 2019 alone. We're talking about a monopolistic accusation since 2016. This is less than 1% of revenue earned from then to now.
- Kranar 5y ago
  A fine based on the profitability of the crime weighted by the probability of getting caught. For example, if Alibaba profited 1 billion from this, and the probability of getting caught is 10%, then the compensatory damage would be 10 billion dollars, and the punitive damage would be 2-3x that amount (based on what the Supreme Court has ruled to be constitutional), for a total fine of 30-40 billion dollars. This would ensure no company even considers doing something like this while still keeping the law constitutional [1]. I understand that this fine is from the Chinese government against a Chinese company, so take my comment as what I consider to be a just fine for a U.S. company. [1] https://en.wikipedia.org/wiki/Punitive_damages#United_States https://en.wikipedia.org/wiki/Punitive_damages#United_States
  - _huayra_ 5y ago
    This is very accurate. I always describe fines as "bimodal" in how they're considered by companies a) big enough that they could significantly damage a company's bottom line b) small enough that they are considered to be "the cost of doing business" and factored into the risk of a decision just like supply chain issues, SLA violations, or delivery date violations (e.g. having to pay when one doesn't deliver a product on time) Only fines in category a) actually work. I really wish countries would issue more of these types of fines
  - motoxpro 5y ago
    So interesting that people assume that companies will stay in punative enviroments. If there is a risk that a country is going to fine me 30b instead of 2b, I will just go to another country. Just like everyone does with taxes (Apple to Ireland, etc). You could say, well, everyone should be issuing fines like this, but then all it takes is ONE country to NOT do this and they get all of the worlds corporate taxes. Policy is not so simple. Just go through the downstream consequences of what you're saying.
anonymousab 5y ago
It's just pragmatic. They are a useful global competitor and economic tool, so it's important to keep them in line without necessarily damaging your own useful asset. A public dressing down and slap on the wrist to remind them of their station.
powerapple 5y ago
It is. Given the fact that the illegal practice has been going on for years, and the fine was only applied to 2019. But we have to consider the fact that companies have been behaving badly for years, and there was no enforcement from legal department. It will take a while for Chinese companies to adapt to it.

hodder 5y ago

Given the antitrust investigation was ongoing it was clear something would come out of it and a tiny fine is definitely far better than a ton of possible outcomes. I expect the shares to move up on the news but not too materially. Unfortunately it still doesn’t clear up the Ant IPO issue.

jpgvm 5y ago
I suspect it will actually result in a big move up in the share price, just not explosively so. The reasoning is basically this. Share price was $320 all time high preceding ANT IPO which ANT being valued approximately $300B. ANT IPO cancellation dropped 10% off BABA market cap, followed by a further tumble on news Jack Ma appeared to be missing/lying low and culminating with a single day drop of 13% when the anti-trust probe was announced. All in all we are talking about a drop of ~30%+ and 100B in market cap. If we can assume that BABA no longer relies on Pick One of Two and it's elimination as a practice doesn't materially affect sales (this is consensus) then there is really only 2 major financial impacts associated with this remaining: The reduction in the value of ANT following restructuring and elimination of it's credit products and the fine itself. The fine isn't material, it's less than 10% free cash flow/5% net cash on hand. ANT IPO was revalued recently at about $200B, so it lost 33% of it's value. BABA holds a stake of 30% in ANT so it's investment value went from $100B to $66B, material but not drastic. So material damage is about ~$70B. However that shouldn't be deducted directly from market cap because the company isn't valued on it's net cash - that would be insane for a growth company. Instead it's generally valued using a method called Discounted Cash Flow. Effectively you estimate future cash flows and discount it by cost of cash. If you reduce net cash by $70B and run the numbers conservatively it still shows that BABA should be valued at $300-400 if trading at similar multiple to it's peers that face similar regulatory pressure, potential credit tightness and US trade relationship issues.
powerapple 5y ago
There was a statement after Ant IPO incident that the government ask Ant to have 30% in reserve for all the loans it is making, basically the whole business model of Ant would change. I would think it will never be the same for Ant, the valuation has changed forever now. Ant marketed itself as a technology companies, this regulation however ask Ant to register as a financial company.

jonathannat 5y ago

Actually no, this marks the beginning the decline of power for Alibaba and the rest of the Chinese megatech companies like tencent and baidu. The chinese government goal for the next 5-10 years is stability, control and state companies, not innovation nor private sector growth. They fear the end of CCP. That's why the recently 5 year plan stresses stability, and doesn't set a growth goal That's why they cracked down on Hong Kong and basically gave up a conduit of western capital/talents as well as letting Hong Kong citizen's wealth escape abroad. That's why they are becoming alarmingly nationalistic and lashes out on US/EU politicians and encourages its citizens to boycott foreign brands like H&M. That's why they are building artificial islands in the south asia sea despite Vietnam/Phillipine's angry protests, to shore up their maritime power.

justicezyx 5y ago
How can small corps survive when Alibaba and Tencent bullying people around? Why stability is conflicting with innovation? Are you saying that somehow the innovation has to be destabilizing the society? That's never the case in the human history. Any innovation make human more united and more understand and easier get across each other.
- kolbe 5y ago
  This is not true. Plenty of innovations have destabilized the world. Look at all of WW1’s weaponry. Look at Facebook allowing mass brainwashing to rip the United States apart. But more to the point, even if it were true, the CCP isn’t interested in the stability of humanity. They’re interested in the stability of their own power.
  - justicezyx 5y ago
    Overall FB had helped the world move to more open and more understanding. Citing weaponry is misleading, we are not talking about military here. Alibaba and Tencent do into stifle military innovation.
    - 5y ago

jimmaswell 5y ago

Someone makes this comment every time a fine happens. What number do you want? 10B? 100B? A trillion?

tgtweak 5y ago
It's a relatively tiny fine compared to the upside of a monopolistic advantage for several years. People were speculating the ccp would lay down a 10bn+ fine. To give some perspective, alibaba did $80Bn in 2019 alone. We're talking about a monopolistic accusation since 2016. This is less than 1% of revenue earned from then to now.
Kranar 5y ago
A fine based on the profitability of the crime weighted by the probability of getting caught. For example, if Alibaba profited 1 billion from this, and the probability of getting caught is 10%, then the compensatory damage would be 10 billion dollars, and the punitive damage would be 2-3x that amount (based on what the Supreme Court has ruled to be constitutional), for a total fine of 30-40 billion dollars. This would ensure no company even considers doing something like this while still keeping the law constitutional [1]. I understand that this fine is from the Chinese government against a Chinese company, so take my comment as what I consider to be a just fine for a U.S. company. [1] https://en.wikipedia.org/wiki/Punitive_damages#United_States https://en.wikipedia.org/wiki/Punitive_damages#United_States
- _huayra_ 5y ago
  This is very accurate. I always describe fines as "bimodal" in how they're considered by companies a) big enough that they could significantly damage a company's bottom line b) small enough that they are considered to be "the cost of doing business" and factored into the risk of a decision just like supply chain issues, SLA violations, or delivery date violations (e.g. having to pay when one doesn't deliver a product on time) Only fines in category a) actually work. I really wish countries would issue more of these types of fines
- motoxpro 5y ago
  So interesting that people assume that companies will stay in punative enviroments. If there is a risk that a country is going to fine me 30b instead of 2b, I will just go to another country. Just like everyone does with taxes (Apple to Ireland, etc). You could say, well, everyone should be issuing fines like this, but then all it takes is ONE country to NOT do this and they get all of the worlds corporate taxes. Policy is not so simple. Just go through the downstream consequences of what you're saying.

anonymousab 5y ago

It's just pragmatic. They are a useful global competitor and economic tool, so it's important to keep them in line without necessarily damaging your own useful asset. A public dressing down and slap on the wrist to remind them of their station.

powerapple 5y ago

It is. Given the fact that the illegal practice has been going on for years, and the fine was only applied to 2019. But we have to consider the fact that companies have been behaving badly for years, and there was no enforcement from legal department. It will take a while for Chinese companies to adapt to it.