Chinese regulators imposed a $2.8 billion antitrust fine vs. Alibaba (BABA) for abusing its market dominance over merchants and rivals. The record penalty comes amid unprecedented scrutiny vs. the Chinese e-commerce giant and its founder Jack Ma.
BABA stock, along with rivals JD.com (JD), Pinduoduo (PDD) and Tencent Holdings (TECHY) have come under heavy pressure in recent months as Beijing cracks down on big internet platform. But with the Alibaba antitrust fine announced, could this mark a bottom for Alibaba, Tencent, JD.com and PDD stock?
China’s State Administration for Market Regulation said Saturday that Alibaba punished sellers that sold goods on its platforms and those of rivals, a practice known as “choose one out of two.”
Alibaba must implement a comprehensive revamp of its operations and conduct a “self-examination compliance report” for the next three years.
The 18.2 billion yuan ($2.8 billion) fine is equal to 4% of Alibaba’s domestic sales. Antitrust fines can go as high as 10% of annual sales. In 2015, China imposed a $975 million antitrust fine vs. Qualcomm (QCOM).
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Alibaba Fine With Regulators’ Fine
“Alibaba would not have achieved our growth without sound government regulation and service, and the critical oversight, tolerance and support from all of our constituencies have been crucial to our development,” the company said in a Saturday statement.
That’s a change in tone from years past, when Alibaba and especially Jack Ma would be dismissive of regulators.
That eventually drew the ire of Beijing, which late last year called off the huge IPO of Alibaba payments affiliate Ant Group in Hong Kong and Shanghai. China has since forced Ant Group to curtail some of its businesses and refocus on payments.
Alibaba said in a statement that it accepted the penalty and will fully comply. The Chinese giant said it’s already made internal changes. It will hold a press conference at 8 a.m. Hong Kong time Monday (8 p.m. ET Sunday) to discuss the fine.
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Will BABA Stock Dive Or Revive?
Investors were expecting a record fine vs. Alibaba. Will they decide the bad news in BABA stock has been priced in now that there’s some clarity. Or are regulators just getting started reining in Alibaba, Tencent and other big internet firms.
Alibaba stock has fallen a lot, down 30% from its late October peak. The relative strength line for BABA stock has tumbled to its worst level since mid-2019. The RS line, the blue line in the chart provided, reflects a stock’s performance vs. the S&P 500 index.
JD.com stock is down 26% from its February peak. Tencent stock is off 20% and PDD stock 35%. Some of that decline reflects the weakness in tech stocks generally, but the Chinese internet giants haven’t bounced back.
U.S. investors will get an idea of how BABA stock will react to the record Alibaba fine as it trades in Hong Kong Monday. JD.com and PDD stock also are listed in Hong Kong. So is Tencent stock, which actually trades over the counter in the U.S.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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