Shares of Alibaba Group Holding LimitedBABA dipped 2.1% to $83.61 on Friday after hedge fund manager, Jim Chanos, revealed his short position on the Chinese e-Commerce giant.
According to CNBC's Scott Wapner, Chanos cited "accounting concerns" as the reason behind his bearish stance. Instead, Chanos recommended buying Alibaba's competitor, JD.com JD .
Following Chanos' comments, JD.com's shares rose 3.13% to $29.70. On the other hand, Yahoo Inc. YHOO , which owns 384 million Alibaba shares, saw its share price decline 2.6% to $34.20 on Friday.
Jim Chanos' Concerns
According to the famed short-seller, China's growth concerns are too big to dismiss at any point. Chanos believes that the country's debt woes could exceed that of the European countries in the next few years. As Alibaba serves about 80% of the Chinese e-Commerce market, any weakness in the country's economy would hurt its profit.
Moreover, in September, Barron's reported that Alibaba's accounting firm PriceWaterhouseCoopers PWC , Hong Kong, is not being audited by any U.S. regulator. This is because the government of China does not allow such oversight on Chinese companies listed on the U.S. exchanges.
Do We Agree?
Alibaba Group Holding Limited was the largest IPO in history and expectations ran high. Despite soaring initially, shares lost 19.6% of its value year to date. Investors became jittery due to China's economic woes. Also, Alibaba had been scrutinized by companies abroad for facilitating sales of counterfeit goods. The Chinese government itself threatened to take action against Alibaba for this.
But while the company's focus on long-term growth and continued investments in mobile, marketing and other new ventures did take a toll on its results, we consider these investments/expenses necessary to drive continued growth. And sure enough, the company staged a massive comeback with the second-quarter results reported last month.
The company reported 38 cents profit which outpaced the Zacks Consensus Estimate of 32 cents. Also, revenues of $3.49 billion comfortably beat the Zacks Consensus Estimate of $3.37 billion. Shares have gained 5.3% since then.
Alibaba's solid growth in mobile business, continued improvement in the country's commerce retail business, solid Gross Merchandise Value (GMV) as well as strength across other core operating metrics helped it to turn around belying fears of the challenging macro environment.
Though the weakness in China remains a matter of concern, Alibaba doesn't seem overly affected by it. The company's focus on both developing and mature e-Commerce markets outside China will further expand its cross-border commerce and boost profits. Moreover, the company's focus on offering international brands to Chinese customers is quite encouraging. This strategy not only contributes to cross-border commerce growth but also increases take rates. As a result, demand is relatively inelastic and less impacted by macro concerns and GDP growth.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.