Monday, May 16, 2016 1:28:06 PM
Uh, oh. Famous short seller Jim Chanos is betting against BABA stock
By Dan Burrows, InvestorPlace Feature Writer | May 13, 2016, 2:00 pm EDT
http://investorplace.com/2016/05/alibaba-liar-thief-baba-stock/#.VzoCL5ErKM8
Alibaba Group Holding Ltd (BABA) may have tamped down concerns over the health of the Chinese consumer when it posted surprisingly strong revenue growth last week, but now BABA stock arguably has a bigger problem in Jim Chanos.
Is Alibaba Group Holding Ltd (BABA) a Liar and a Thief?The world’s most famous short seller — courtesy of a little call he made on Enron almost two decades ago — revealed a short position in China’s No. 1 e-commerce company on Thursday, and that’s the last thing long-time laggard BABA stock needs now.
Chanos isn’t the first short seller to come out against Alibaba stock because of the company’s, uh, opaque accounting, but he is the best known, and that makes this more than just another short.
When Chanos’ Kynikos Associates calls shenanigans on your accounting — rightly or wrongly — you’re going to be dogged by headline risk, probably for years.
Think of the way Herbalife Ltd. (HLF) is still dealing with accusations made by hedge fund manager Bill Ackman three years ago. High-profile shorts are a tremendous headache, regardless of how the trades ultimately play out.
A Bad Time for More BABA Problems
Besides, it’s not like BABA stock was trouble-free before Chanos made his case at the SkyBridge Alternatives hedge fund conference in Las Vegas. Stiff fundamental headwinds abound.
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The Chinese economy is slowing down and it feels like only a matter of time before it takes consumer spending with it. At the same time, the Chinese government is cracking down on BABA for allegedly turning a blind eye to counterfeit goods and other malfeasance on the part of merchants.
And now it has perhaps the world’s most famous short seller saying its accounting is bull crap.
Chanos says that Alibaba doesn’t report the costs of its vast delivery operations on its U.S. financial statements. BABA classifies the delivery segment as a separate entity, which wouldn’t be an issue if it didn’t suck up most of the company’s cash flow, as Chanos contends.
If the costs of the affiliated delivery operations are unknown, then it’s impossible to know the truth about BABA’s bottom line. As Chanos put it:
“What the company is really earning we don’t know. My experience with Chinese companies is that what you don’t know is generally not good news … What I like to remind people is that Alibaba was a thief.”
BABA stock has been a big disappointment since it made its debut with the largest initial public offering in history. Alibaba stock closed its first day of trading at $94 a share. Today, BABA trades 17% below that level, and it’s hard to see it recovering all that lost ground in the near future.
Deteriorating fundamentals were already a huge drag on shares. Chanos openly questioning the company’s accounting opens a second front in the bears’ war on Alibaba stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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