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Why Is Alibaba Stock Surging Despite $2.87B Antitrust Fine?

Why Is Alibaba Stock Surging Despite $2.87B Antitrust Fine?

Shares of Alibaba Group Holdings (NYSE: BABA) jumped more than 8% on Monday in Hong Kong as investors cheered the record $2.8 billion fine slapped on China's biggest e-commerce company as a result of an anti-monopoly investigation and hoped it could be the end of the regulatory troubles for ace entrepreneur Jack Ma’s company.

What Happened: Alibaba CEO Daniel Zhang said on Monday he does not expect any material impact due to the change in regulatory exclusivity arrangement and that it will introduce measures to lower entry barriers and business costs faced by vendors on its platforms, Reuters reported.

An anti-monopoly probe on the company that was launched late last year was aimed at a practice that allowed merchants to list their products on only one of the two platforms rather than two.

Alibaba Vice Chairman Joseph Tsai told analysts on Monday that the company is glad that the scrutiny is over now, Bloomberg reported. The landmark probe into China’s e-commerce leader was wrapped in just four months, compared to years of investigations such cases could take in the United States or the European Union, the report noted.

Alibaba on Saturday said it had received China’s State Administration for Market Regulation’s decision for which it was under investigation since December and thanked the regulators for its support. 

See also: How To Buy Alibaba Stock

The size of the penalty was determined after regulators decided to fine Alibaba 4% of its 2019 sales of 455.7 billion yuan. 

The $2.8 billion was based on just 4% of the e-commerce giant’s 2019 domestic revenue. It’s much more than the nearly $1 billion fine paid by the U.S. chipmaker Qualcomm Inc (NASDAQ: QCOM) in 2015 but is far less than the maximum 10% allowed under Chinese law.

Why It Matters: China’s biggest e-commerce company came under the spotlight after its founder and outspoken business leader Ma’s public criticism of the country's banking sector as operating with that of a “pawnshop mentality." Shortly after, the company’s planned blockbuster Ant Group IPO plans were shelved.

Ma's Alibaba Group and other leading tech companies in China have been scrutinized by regulators over their growing influence in the country.  Technology firms in China have been hiring legal experts and setting aside funds for potential fines amid the antitrust and data privacy crackdown by regulators. 

Price Action: Alibaba shares closed 2.16% lower at $223.31 in New York on Friday.

Read Next: Alibaba May Be Seeing Tough Times But, Alongside Tencent, Remains 'The Benchmark' For Chinese Tech Stocks: Analyst

Photo: Courtesy of Alibaba


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