Jack Ma tensions with Beijing over Beijing’s future

Hangzhou, China – NOVEMBER 13: Alibaba founder Jack Ma attends the 5th World Zhejiang Entrepreneur Conference at the Hangzhou International Expo Center on November 13, 2019 in Zhejiang Province, China.

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Guangzhou, China – Jack Ma, Alibaba’s high-profile founder appears on the wrong side of the Chinese government, sparking a series of events that have provoked regulatory scrutiny over the e-commerce giant and cast uncertainty on its future is.

Even after Alibaba’s December-quarter earnings exceeded expectations, analysts and experts have warned that Ma’s friction with Beijing could hurt growth.

Rebecca Fannin, author of “Tech Titans of China”, told CNBC by email, “Investors are looking more closely toward Alibaba after being attracted by the growth story and the global profile of the founder.”

“The current friction is a new reality for investors, who may not have carefully considered how the company’s growth as a powerful technology titan could be a threat to the status quo.”

It began in October when Ma made some negative comments about Chinese financial regulators, the world’s largest, just days before Ant Group’s initial public offering (IPO) in Shanghai and Hong Kong. Ma also founded the Ant Group and owns about a third of the Alibaba company.

There are now two major concerns. First, that the ant group may be forced to regroup and even lend to some of its businesses that have driven its growth. Such steps can seriously inhibit its evaluation. A second concern is whether the regulators can force Alibaba to break or replace parts of the core commerce business, which is its biggest profit driver.

“The biggest risk so far is around investors’ trust in the Alibaba brand and ecosystem,” Neil Campling, head of tech, media and telecom research at Mirabaud Securities, said in an email.

“But if there is tight regulation for the main drivers of the Alibaba platform then it can surely stunt the growth of Alibaba. To bring economies of scale and growth after all the innovation and complex weaving of various aspects of the ecosystem. “

Camping has a long-term buy rating on Alibaba’s stock.

Just ‘noise’ for long-term investors

Fannin believes Ma’s friction with Beijing will “ease”, but will take some agility on behalf of Alibaba to deal with government pressure, changing consumer needs in a digital economy, and investor concerns. “

Alibaba’s US-listed stock has come under pressure since the Ant Group’s IPO pulled, falling from a record closing high of $ 317.14 to close at $ 277.14 on Tuesday, down nearly 20%.

But some analysts and investors remain bullish.

Mizuho on Tuesday raised its price target on the stock from $ 270 to $ 285, noting that “the stock is attractive (with regulatory overhangs, which are mostly priced.”

Matthew Schoeffer, head of research at Infusive, an asset manager who invested in Alibaba, said the recent concern around the tech giant “would prove to be noisy for the long-term investor.”

Schopfer told CNBC via email, “Alibaba is a prime example of China’s technological capabilities and we do not expect the government to permanently damage businesses.

“When we move to the other side of these regulatory headwinds, we feel that the market is again a significant beneficiary of the Chinese consumer’s everyday life on Alibaba and its platforms and a major beneficiary from increased Chinese spending power and a focus on increased digitization Will. Consumption. “