May 25, 2016 1:01 p.m. ET
The SEC requested that Alibaba voluntarily provide documents and information related to its accounting for its logistics network, operating data for the largest online shopping day of the year, and other “related party transactions in general,” it said in a regulatory filing.
China’s biggest e-commerce company said in the filing that it is cooperating with the SEC, and that the commission told it the request for information shouldn’t be taken as an indication of any violation of federal securities law.
Investors are already concerned about the e-commerce giant’s growth prospects amid a slowdown in China’s economy. After a meteoric rise following its blockbuster $25 billion initial public offering in 2014, Alibaba’s stock price fell below its $68 IPO price on concerns about its outlook. Analysts said the probe’s outcome could open doors for further investigations or potential lawsuits.
Alibaba shares fell about 4% to $77.76 at noon Wednesday in New York trading.
Some analysts and investors have long-questioned the transparency of Alibaba’s financial statements, particularly the way it self-reports gross merchandise volume for Singles’ Day. The Nov. 11 Chinese holiday is a major online shopping day akin to Cyber Monday in the U.S. Last year, the company reported sales of more than $14 billion on that day alone.
The numbers could be overstated, analysts say, as Alibaba includes transactions that have been placed, but not completed, including returns.
Alibaba also has grappled with online merchants faking sales on e-commerce platforms to increase their place in search rankings. Alibaba has said in the past that it increases its efforts on Singles’ Day to eliminate the practice, known as “brushing.”
Related to accounting for its logistics network, a spokeswoman for the company pointed to a detailed description of Alibaba’s Cainiao logistics network in its annual filing, which shows a net loss from the network of 90 million yuan and 295 million yuan in fiscal years 2015 and 2016, respectively. The filing said the logistics service costs paid to Cainiao accounted for approximately 60% of its revenue for 2015. In last year’s annual filing, Alibaba didn’t disclose costs paid to Cainiao.
In a statement, the spokeswoman said these disclosures are “exactly the kind of robust and transparent information that will address the underlying issues in the SEC’s inquiry.”
Some analysts said Alibaba may fight to avoid formal disclosures regarding Cainiao, in which it has a 47% stake.
“They would have to share with investors more details of the operation, for example how many partners the company has, the volume shipped each quarter, and how much was paid to logistics partners for each parcel,” said an analyst at a Hong Kong research firm. “More disclosures could expose the company to more questions, which is not an ideal situation.”
Such disclosures would allow investors to better compare costs with JD.com, Alibaba’s e-commerce rival. JD.com’s numbers, by contrast, are consolidated for logistics, which gives investors a better sense of real costs incurred by a company, analysts say.
Alibaba said it takes an asset-light approach to logistics by partnering with local delivery companies instead of directly owning trucks and employing delivery personnel. But such an approach can make it difficult for specific information to be gathered, since each local delivery company operates as a franchise.
On Alibaba’s most recent earnings call, Chief Financial Officer Maggie Wu said the company would begin to provide greater transparency on its businesses by introducing annual revenue guidance and releasing new business cost structures and margins.
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