Alibaba Discloses SEC Probe of Its Accounting Practices
May 25 2016 - 01:40PM
Dow Jones News
BEIJING—Alibaba Group Holding Ltd. disclosed the U.S. Securities
and Exchange Commission is investigating its accounting
practices.
The SEC requested that Alibaba voluntarily provide documents and
information related to its accounting for its logistics network,
operating data for the largest online shopping day of the year, and
other "related party transactions in general," it said in a
regulatory filing.
China's biggest e-commerce company said in the filing that it is
cooperating with the SEC, and that the commission told it the
request for information shouldn't be taken as an indication of any
violation of federal securities law.
Investors are already concerned about the e-commerce giant's
growth prospects amid a slowdown in China's economy. After a
meteoric rise following its blockbuster $25 billion initial public
offering in 2014, Alibaba's stock price fell below its $68 IPO
price on concerns about its outlook. Analysts said the probe's
outcome could open doors for further investigations or potential
lawsuits.
Alibaba shares fell about 4% to $77.76 at noon Wednesday in New
York trading.
Some analysts and investors have long-questioned the
transparency of Alibaba's financial statements, particularly the
way it self-reports gross merchandise volume for Singles' Day. The
Nov. 11 Chinese holiday is a major online shopping day akin to
Cyber Monday in the U.S. Last year, the company reported sales of
more than $14 billion on that day alone.
The numbers could be overstated, analysts say, as Alibaba
includes transactions that have been placed, but not completed,
including returns.
Alibaba also has grappled with online merchants faking sales on
e-commerce platforms to increase their place in search rankings.
Alibaba has said in the past that it increases its efforts on
Singles' Day to eliminate the practice, known as "brushing."
Related to accounting for its logistics network, a spokeswoman
for the company pointed to a detailed description of Alibaba's
Cainiao logistics network in its annual filing, which shows a net
loss from the network of 90 million yuan and 295 million yuan in
fiscal years 2015 and 2016, respectively. The filing said the
logistics service costs paid to Cainiao accounted for approximately
60% of its revenue for 2015. In last year's annual filing, Alibaba
didn't disclose costs paid to Cainiao.
In a statement, the spokeswoman said these disclosures are
"exactly the kind of robust and transparent information that will
address the underlying issues in the SEC's inquiry."
Some analysts said Alibaba may fight to avoid formal disclosures
regarding Cainiao, in which it has a 47% stake.
"They would have to share with investors more details of the
operation, for example how many partners the company has, the
volume shipped each quarter, and how much was paid to logistics
partners for each parcel," said an analyst at a Hong Kong research
firm. "More disclosures could expose the company to more questions,
which is not an ideal situation."
Such disclosures would allow investors to better compare costs
with JD.com, Alibaba's e-commerce rival. JD.com's numbers, by
contrast, are consolidated for logistics, which gives investors a
better sense of real costs incurred by a company, analysts say.
Alibaba said it takes an asset-light approach to logistics by
partnering with local delivery companies instead of directly owning
trucks and employing delivery personnel. But such an approach can
make it difficult for specific information to be gathered, since
each local delivery company operates as a franchise.
On Alibaba's most recent earnings call, Chief Financial Officer
Maggie Wu said the company would begin to provide greater
transparency on its businesses by introducing annual revenue
guidance and releasing new business cost structures and
margins.
Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com
(END) Dow Jones Newswires
May 25, 2016 13:25 ET (17:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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