Even before the company announced an investigation into fraudulent suppliers, shares in Alibaba.com (1688.HK) were performing weakly: They fell 22% in 2010 based on reasonable concerns about an anemic export recovery.
Nevertheless, an unsubstantiated rumor that parent Alibaba Group was considering joining Baidu (BIDU.NASDAQ) to invest in Sina’s (SINA.NASDAQ) Weibo micro-blogging project helped push Alibaba.com shares to a six-month high in January. Fiona Zhou, an analyst at Pacific Epoch, pointed out that the reaction made little sense.
“It’s not the listed company they say is trying to acquire Weibo,” she said. “I also feel curious about why [the group] would try to invest in Weibo at all.”
On the other hand, when the group – not Alibaba.com – announced plans to invest US$3-4.5 billion in warehouse development, Alibaba.com shares dipped 2.6% the next day. For an e-commerce company, the parlous state of Chinese logistics is a significant risk, so the investment made sense. But some investors clearly preferred the group to wander into micro-blogging.
In an interview prior to his resignation, Alibaba.com CEO David Wei acknowledged the difficulty: “I think the key challenge is, unfortunately Alibaba.com is unique. We don’t copy from anybody, and we have no other copycats. Even three years after our IPO, investors are still struggling to understand our business model.”
He was not alone. Numerous managers complained of being miscategorized. “These are investors who want to put Alibaba in a box: ‘This is a dot.com, it’s got dot-com characteristics’,” said Brian Wong, head of global sales for Alibaba.com. “I can tell you dot-com is the tool of today. Tomorrow it might be something we’ve never imagined.”
“We never said we are a dot-com company,” said Zeng Ming, head of strategy for the Alibaba Group, during a separate interview. “From day one we said we are a service company. We will do whatever is necessary to keep e-commerce in China moving forward.”
Wei insisted he had no plans to change his approach just because the stock market is impatient. “I’m happy with the strategy toward our customers. I want to make our strategy more transparent. I’m not concerned about hedge funds dumping our stock.”
New CEO Jonathan Lu may be less blithe about his stock getting dumped – the company’s shares fell 8.27% the day after the news of fraud broke. But Alibaba.com’s price-to-earnings ratio is still more than twice Google’s (GOOG.NASDAQ). It’s fine to be a service company, as long as you’re priced like one.