Alibaba and The Forbidding Fines

In the folk tale Ali Baba and the Forty Thieves, Ali Baba outsmarts forty thieves who have stored their treasure in a cave with a door that only opens when the magic words “open sesame” are used.

And words are more powerful than for just opening doors.

Because just as “open sesame” unlocked the door to untold riches for the folk tale’s Ali Baba, the words “close sesame” closed that same door as has been the case for China’s ecommerce giant Alibaba.

Following the utterances of its unapologetic founder Jack Ma, who criticized the Chinese banking system, Alibaba’s fortunes have looked increasingly dicey.

“Close sesame” it is as Chinese regulators have fined Alibaba a record US$2.8 billion after finding that the ecommerce group had abused its market dominance.

Set at 4% of Alibaba’s 2019 revenues, market regulators said that since 2015, Alibaba had forced merchants to sell exclusively on its Tmall and Taobao online shopping platforms, alleging that Alibaba used its “market position, platform rules and data, and algorithmic methods” to put in place rewards and punishments for its “choose one of two” policy.

The penalty marks the end of Beijing’s antirust scrutiny of Alibaba (a fine is much better than a breakup) and Alibaba’s investors can breathe slightly more easily.

If nothing else, a 4% fine is on the lower end of the spectrum, with China’s antitrust fines going to as high as 10%.

With some US$48 billion of cash on its balance sheet at the end of 2020 and net profit of US$24 billion last year, the fine is more of a scratch than a wound for Alibaba.

But where Alibaba could come under pressure is that since it’s been found guilty of serious abuses, it may yield more readily to authorities over tax issues and counterfeit goods allegedly sold on its site.

Alibaba is also facing stiffer competition from fast growing rivals, with upstart Pinduoduo (-1.84%)overtaking its annual shopper count last year – 788 million people buying on its platform, versus Alibaba’s 779 million.

But perhaps where Alibaba’s future is even less certain is in the abortive listing of Ant Financial – long a cash cow for the ecommerce giant.

Should the Ant Financial IPO go ahead, albeit with some restructuring, then Alibaba’s cave of treasures may once again be “open sesame.”