Alibaba stock rises despite US$2.8 billion fine

Investors have shrugged off a US$2.8 billion fine imposed on Chinese internet giant Alibaba by government authorities, sending the stock surging by up to 10% in early trading on the Hong Kong exchange.

China's anti-monopoly regulator,  the State Administration for Market Regulation (SAMR), announced the record fine Saturday, saying the company had "abused its dominant market position in China’s online retail platform service market since 2015 by forcing online merchants to open stores or take part in promotions on its platforms".

The fine, which culminates an investigation that started in December, amounts to 4% of Alibaba's 2019 domestic revenue.

Alibaba issued a contrite statement Saturday morning. "We accept the penalty with sincerity and will ensure our compliance with determination," the statement read.

Alibaba pladged to "further strengthen our focus on customer value creation and customer experience" while introducing "measures to lower entry barriers and business costs of operating on our platforms".

"We are committed to ensuring an operating environment for our merchants and partners that is more open, more equitable, more efficient and more inclusive in sharing the fruits of growth," the open letter stated.

The SAMR said it decided the level of fine after factoring in the “duration and degree” of the misconduct, as well as Alibaba’s “in-depth self-examination” and “proactive rectification”. 

A commentary in the government mouthpiece China Daily said the case was a lesson for other companies. "Monopoly chokes the healthy development of a market economy causing it to stagnate," the commentary said. While the government strongly supports the development of the platform-based internet economy, it will not hesitate to regulate. "Free competition does not mean the big fish can eat the small fry, and the market economy is not a jungle where the strong can use their strength to exclude their competitors," the editorial stated.

While the market has reacted positively so far, atleast one analyst sounded a note of caution about how the ruling will impact Alibaba's future growth.

“The antitrust penalty is credit negative for Alibaba, but the company’s strong financial profile and good access to funding provide a buffer to withstand these challenges,” said Lina Choi, senior vice president at Moody’s Investors Service. “The required corrective measures will likely limit Alibaba’s revenue growth as a further expansion in market share will be constrained. Investments to retain merchants and upgrade products and services will also reduce its profit margins.”  

The previous largest fine issued in an anti-monopoly ruling in China was a US$975 million penalty issued to US-based chipmaker Qualcomm in 2015.