Jim Chanos, the famed short-selling hedge fund manager who has been bearish on the Chinese economy since 2009, has recommended betting against Alibaba.
According to unnamed sources cited by CNBC, Chanos pitched the trading idea at an exclusive investor conference in Miami, where he reportedly red-flagged “accounting concerns” tied to the Chinese e-commerce giant. To hedge the bet, he reportedly proposed buying shares of JD.com, Alibaba’s prime competitor.
The move casts Alibaba as the next Chinese Miracle piñata. Will candy spill forth? Though it was looking that way earlier—Alibaba’s stock price was down as much as 5% just after the Chanos remarks were first reported—the shares bounced back enough to trim the loss to 2.1% at the session’s end, when they closed at $83.61.
This episode has still tripped up the momentum the stock was building after announcing better-than-expected earnings last week.
Since this is all hearsay, it’s tough to know what it is about Alibaba’s accounting that has Chanos concerned. However, he’s not the only skeptic. In September, Barron’s argued that Alibaba’s reported growth numbers were implausibly high, based on the analysis of Anne Stevenson-Yang, founder of J Capital Research, a bearish-on-China research firm. (In a lengthy rebuttal to the Barron’s article, Alibaba responded that it “stands by our reported financials and operating metrics.”)
Shortly thereafter, John Hempton of Bronte Capital, an Australia-based hedge fund, poked still more holes in the math behind Alibaba’s astonishingly rapid growth, in a series of blog posts.
The takedowns have hinged on gross merchandise volume, the total value of sales on its platforms—specifically, that it’s way too high to be real. Alibaba’s annual GMV—which according to Alibaba founder and chairman Jack Ma recently reached a total of 3 trillion yuan ($470 billion)—implies that the average Alibaba shopper spends $1,200 a year, according to Barron’s calculations. That’s an astonishing amount given that the average US online shopper shells out $1,655 annually. And as Hempton pointed out, China’s household spending averages out to about $2,650 per person—implying that Alibaba customers drop around 45% of their total spending on Alibaba’s platforms.
There are several reasons why these incredible numbers don’t necessarily indicate cooked books. For instance, Alibaba has a rising number of international customers, as well as a large share of business customers.
Of course, there are other possibilities, too. The Barron’s piece also highlighted a slew of shady transactions involving Ma—which it argued could put the company’s balance sheet at risk.