A giant, flaming pile of fraud

Reading the blogger Deep Throat IPO’s commentary on the matter, one gets the impression that Alibaba is the dark heart of the dysfunctional global economy. Bear in mind that the Chinese e-commerce firm is listed on the New York Stock Exchange and that the author is commenting on the company’s own SEC filing and earnings call, i.e. all of this information is out in the open:

Alibaba management (Joe, Daniel, Maggie and Robert) and their “analysts” spent much of the hour collectively congratulating themselves on the greatness of their fake 51% revenue growth and their unverifiable, fake, GMV [gross merchandise volume], which has now ballooned to US$853 Billion. This “ecosystem” GMV, due to these phenomenal, dubious growth rates, is now roughly the same size as the Global GMV of both Amazon ($277 Billion) and Walmart ($625 Billion including estimated Third Party GMV) combined. Alibaba GMV has increased roughly ten fold since 2012. They are on pace to Reach $1 Trillion by next year. Alibaba’s GMV sold, according to management, has quickly grown to roughly the same as Switzerland’s GDP, with about the same level of opacity. Miraculous…..perhaps even unbelievable, to say the least. […]

2.) Speaking of “earnings” there was not one question, comment or slide in the deck that mentioned earnings. NOT ONE….an entire hour of fluff….. and “earnings” wasn’t discussed, described, commented on or mentioned. This is odd for an “earnings” call….don’t you think? When we look at the press release, we can understand why. On page 40 there is a $2.974 Billion accounting “Gain on the revaluation of assets” which was roughly equal to net income for the quarter. i.e.) If we exclude this gain, the business had no earnings from operations. […]

They’ve gained 36,000 employees since last year, a 55% growth rate. Perhaps they are getting away from that “asset/people light” business model.

To put this in perspective, Alibaba’s e-commerce rival, JD.com, announced in March it would hire 10,000 people for its JD Logistics arm “as couriers, warehouse staff, and entry-level managers.” Alibaba claims to have hired 4 times that amount of people in a year. STO Express, the logistics giant in which Alibaba proposed to take a 14% stake in March, has over 14,000 employees, so Alibaba’s employee growth in one year would be roughly 2.5 times the entire headcount of STO Express. Does this make any sense?

[Ed: I would also note that Lazada, the Singapore-based e-commerce firm in which Alibaba bought a controlling stake in 2016, has an estimated 8,000 employees according to Wikipedia.]

The other ratio I find fascinating is GMV per employee. Walmart’s GMV per employee is $284,000. Amazon’s is $428,000. Alibaba’s is $8,366,000 per employee. They are truly masters at doing more with less.

The author doesn’t mince words in his conclusion:

My crystal clear message to the analysts who were on the call is, when this eventually blows up, and there’s no question that it will, you have to understand that the “Sorry I’m just a dumb-ass” defense won’t work anymore. The times, they are a changin’.

You analysts (yes I’m speaking directly to you now) are all highly educated, smart, professional people. You are experts, or at least you are supposed to be, and you, and your respective employers are held to a much higher standard than the rest of the investing world and blogosphere. It’s assumed by naive American Investors that you know exactly what you are doing. Your endorsement means everything. Unfortunately, in this particular case, and many others, it looks like you are accepting a nice paycheck to do exactly what you are told by the Chinese Communist Party. You are also committing, aiding and abetting securities fraud. When you see the accounting travesties and inconsistencies described above, your job is to investigate them, ask tough questions, and if you find the explanations provided by management to be unsatisfactory, you must resign from the account. Your inaction, congratulatory “we” tone and your tacit endorsement of this charade makes you an accessory, not an unwitting pawn. You and your employers have significant legal and political liability for what’s about to happen. There will be no escaping it this time.

A reckoning is coming. Where is the American business press on this? You’d think this would be a top story.

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