Shares of Alibaba Group (BABA) trading in New York jumped after the company was slapped with a $2.8B fine by Chinese antitrust regulators, with analysts saying the decision should remove a major overhang on the shares.
$2.8B FINE: Alibaba Group announced over the weekend that it received the Administrative Penalty Decision issued by the State Administration for Market Regulation, or SAMR, of the People's Republic of China. The penalty amounted to $2.75B for the company abusing its dominant position over rivals and merchants on its e-commerce platforms. "Alibaba accepts the penalty with sincerity and will ensure its compliance with determination. To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation," the company said in a statement.
CEO Daniel Zhang also said Alibaba will introduce new measures to lower the entry barriers and costs for businesses and merchants on the platform. The company will also continue to expand to smaller Chinese cities and rural areas, Zhang said. Joe Tsai, the executive vice chairman of Alibaba, said on Monday he is not aware of any more investigations regarding the anti-monopoly law.
Chinese regulators opened an anti-monopoly probe into Alibaba in December. The main focus was around a practice that forces merchants to list their products on one of two e-commerce platforms, rather than choosing both.
DECISION SHOULD LIFT OVERHANG: Morgan Stanley analyst Gary Yu named Alibaba as a Research Tactical Idea, telling investors that he believes the share price will rise in absolute terms over the next 60 days following the announcement of an anti-monopoly violation fine from China's regulators. He thinks the regulatory decision should lift "a major regulatory overhang" that has persisted on Alibaba since China's SAMR started to seek public opinion on antitrust guidelines in November 2020, said Yu, who added that the company has suggested that the impact on its business from the penalty will be limited. Yu has an Overweight rating and $300 price target on Alibaba shares.
Mizuho analyst James Lee also said the $2.8B antitrust fine by China removes on "overhang" on shares of Alibaba. The amount represents about 4% of Alibaba's 2019 domestic revenues below the maximum of 10% of prior year's revenue, Lee tells investors in a research note. He keeps a Buy rating on the shares with a $285 price target. Raymond James analyst Aaron Kessler lowered the firm's price target on Alibaba to $330 from $350 and keeps a Strong Buy rating on the shares after the company was fined $2.8B and said that the removal of this overhang could be a positive for shares.
Additionally, Citi analyst Alicia Yap views the announcement of a $2.8B fine by China as indication of the closure of a four-month antitrust investigation on Alibaba. While the penalty seems bigger than previously expected, it is reasonable considering China's comments indicating it was looking into the business practices between 2015 and 2019, Yap tells investors in a research note. The conclusion of investigation and Alibaba's decision to waive its right to appeal, or hold a public hearing, suggest that the company wanted to move forward to rebuilding business operation, says the analyst. Yap believes the news "could help lift the overhang that has weighed on share price performance the last few months." The analyst keeps a Buy rating on Alibaba with a $338 price target.
PRICE ACTION: Shares of Alibaba trading in New York jumped 8% to $241.16 in Monday morning trading.
