Alibaba Fighting Back Against Barron's '50% Downside' Story

• Alibaba is fighting back against suspect analysis in a recent Barron’s article that suggests another 50 percent downside to Alibaba’s share price
• In an open letter penned by Alibaba Vice President Jim Wilkinson, Alibaba argues that statistics and conclusions made in the article are unfair and misleading
• Alibaba shares are already down 40 percent in 2015

Over the weekend, Barron’s published a story entitled “Alibaba: Why It Could Fall 50% Further” that included some potentially market-rattling commentary by analyst Jonathan Laing. Apparently, Alibaba Group Holding Ltd BABA disagrees with Laing’s conclusions. The company penned a lengthy open letter to Barron’s describing in detail no less than seven objections to Laing’s analysis.

Alibaba vs eBay Inc EBAY
One of the major objections that the letter’s author, Alibaba Senior Vice President Jim Wilkinson, has with the Barron’s piece is the unfair valuation comparisons between Alibaba and eBay, which Wilkinson sees as an apples-to-oranges comparison.
 

“Comparing Alibaba’s PE multiple to eBay’s PE multiple is flawed because eBay does not operate in China. A more relevant comparison would be with our large-cap Chinese Internet peers,” he writes.

Alibaba’s PE of 23.6 is currently much higher than eBay’s PE, but it is in-line with the PEs of Chinese Internet rivals Tencent and Baidu Inc BIDU.

Online vs retail spend
Wilkinson points out that other statistics used in the piece are misleading and overly simplistic.

“The comparison of the average annual online spend of an Alibaba shopper with the average retail spend of Chinese citizens is inappropriate. Shoppers that come to Alibaba’s platforms are early adopters of technology and tend to be urban and more affluent. It is flawed to compare Alibaba’s number to a number derived from simply dividing the size of the Chinese retail economy by 1.3 billion people including 600 million people in the rural villages,” Wilkinson explains in the letter.

Shares respond
Alibaba shares are already down 40 percent in 2015, including a 4.0 percent drop on Monday morning following the Barron’s story.

Alibaba shareholders are bracing for a tough one-year anniversary of the largest IPO of all time. The latest economic data shows continuing weakness in the Chinese economy. In addition lockups of a staggering 1.6 billion shares of Alibaba expire on September 20, leaving the shares free to be sold on the open market for the first time.

Disclosure: the author holds no position in the stocks mentioned.