It’s been just over a year since Chinese e-commerce behemoth Alibaba became a public company in the US.
In that time, it has weathered slowing growth in the Chinese economy, questions from the media about its accounting practices, and, most recently, a suggestion to short the stock from hedge fund billionaire Jim Chanos.
All this makes Wednesday the biggest day of the year for Jack Ma’s company, and its performance could silence critics — or add fuel to the fire.
Wednesday is huge
Wednesday in China is what’s known as Singles’ Day. It’s a celebration for those who are not in a relationship, a sort of anti-Valentine’s Day. It’s also the biggest day of the year for Chinese retailers.
According to a release last year, the amount of money exchanged over Alibaba’s network on Singles’ Day was about $US9.3 billion. In comparison, the amount — also called gross merchandise volume (GMV) — that went through all US ecommerce sites on last year’s Cyber Monday was just over $US2 billion.
Additionally, an Alibaba spokesman told Business Insider that the company typically processes and delivers about 30 million packages a day, but on Singles’ Day last year that jumped to 286 million.
There’s no doubt that Wednesday is a huge indicator of Alibaba’s strength, but for some a good performance isn’t the biggest issue.
‘The number is just made up’
A major concern about Alibaba is that the company is fudging its numbers and inflating users and GMV to make itself look better.
This was the focus of a 3,000-word takedown of the company in Barron’s magazine in September. Chanos pointed to it as a main concern for the company as well.
The representative for Alibaba declined to comment on any issue specifically, but told Business Insider that the company was focused on growing and globalizing Singles’ Day, not on any recent volatility surrounding the company.
John Hempton, manager of the Australian hedge fund Bronte Capital, said the concern over Alibaba’s numbers extends to its Singles’ Day figures.
“The numbers are less reliable than the average Chinese statistic,” said Hempton in an email to Business Insider.
“The numbers are silly in the sense that, if I said that a tree grew to 275 meters in my back yard, you would know I was making the numbers up. You may know for certain that there is a tree in my back yard — but my statement that it is 275 meters tall does not help you in any way determine how tall the tree is. The number is just made up.”
Hempton published a long blog post detailing his issues with the logistics behind such a massive undertaking as processing 300 million packages. He wrote that the number of packages Alibaba supposedly deals with on Singles’ Day is larger than the number of packages delivered by UPS and FedEx in a year — with a less sophisticated distribution network.
The Alibaba spokesman said that the company employs 15 partner companies with over 1 million employees to focus on deliveries, and that for Singles’ Day they “scale up” efforts to deliver packages.
Robert Peck, who covers Alibaba for SunTrust Robinson Humphrey, didn’t think the issues were as big a deal. Peck told Business Insider that while there are always concerns over the authenticity of the products being shipped, this happens to US companies such as eBay as well.
Also, Peck said it was telling that the Chinese government, which has been a critic of fraud on Alibaba’s platforms, wished Alibaba good luck for Singles’ Day.
Up until Chanos’ short call, investors had mostly ignored the accounting concerns, with the stock rising from a trough of $US57.39 on September 28 to right around $US85.40 on November 4.
Hempton doesn’t see that changing.
“Investors are clearly not sceptical. There are many numbers here that simply fail the common-sense test,” he wrote to Business Insider.
“I have no idea what breaks it. The delusion of crowds is strange and long-lasting.”
Growth is the key
Setting aside reporting concerns, for most investors the biggest thing Alibaba has to show is growth.
The stock-price decline over the summer — before those other issues gained widespread consideration — was mostly because of Alibaba reporting slowing earnings growth and user adoption.
After a strong quarterly-earnings report, a big growth in the Singles’ Day number could do a lot for Alibaba.
According to Peck, Alibaba should see a 29% rise in Singles’ Day GMV.
“We project Alibaba could generate ~$US12B in GMV this year with >300M packages being delivered,” said Peck in a note to clients Monday. “This is in comparison to Amazon’s inaugural ‘Prime Day’ July 15, which accounted for 34M ordered items and an est. ~$US2B in sales.”
Talking to Business Insider, Peck also said that the day will be a good test of how the company’s expansion plans are going as it pushes into markets outside China.
“The real importance is this is the first time they have had a lot of international brands on the platforms,” said Peck. “This is their chance to introduce Chinese consumers to these international brands.”
Brands such as Macy’s, the giant US retailer, will make their Singles’ Day debut on Alibaba’s Tmall platform this year.
A number of that size could assuage fears that the company has passed its peak growth, and could prove it is still making inroads to the 50% of the Chinese population that does not have an internet connection.
The spokesman for Alibaba said the company does not release official guidance for Singles’ Day, but it hopes to use the day to further the globalization goals of the company.
In the eye of the beholder
There’s no doubt that Singles’ Day is huge for Alibaba. The single biggest shopping day could help quiet fears that the e-commerce giant is slowing and that its biggest growth years are behind it.
On the other hand, for those who are sceptical, it is unlikely to quiet fears of false reporting, and a huge number could even add fuel to that fire.
It’s all about what investors are looking for on November 11 that will determine how successful it is.
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