Alibaba Discloses SEC Probe of Its Accounting Practices
China’s biggest e-commerce company says it is cooperating with the SEC
The company disclosed Tuesday that the Securities and Exchange Commission asked Alibaba to provide details of its accounting for a delivery affiliate, its operating data for the largest online shopping day of the year, and “related party transactions in general.”
Alibaba shares fell nearly 7% to $75.59 at 4 p.m. in trading Wednesday in New York.
Alibaba and its executive chairman, Jack Ma, are prized as partners and investors around the world. The company’s affiliates are involved in mobile payments, financial services and television and film production. In the U.S., it holds stakes in car-sharing service Lyft Inc., e-commerce logistics provider ShopRunner Inc. and discount shopping website operator Jet.com Inc.
Alibaba has drawn the SEC’s attention in the past over alleged sales of fake goods on its Chinese website, and analysts have raised concerns about its use of financial measures that don’t comply with generally accepted accounting principles, or GAAP, and because it doesn’t consolidate results of some affiliates. Alibaba has said it cooperated with the past request, and has provided greater financial information in its latest annual report.
The SEC doesn’t comment on individual investigations.
Earlier this month, Chief Financial Officer Maggie Wu said the company would begin to provide greater transparency on its businesses by introducing annual revenue guidance and releasing new business cost structures and margins.
Still, Tuesday’s regulatory disclosure follows investor complaints about the prior lack of financial information on affiliate companies, including its Cainiao delivery and fulfillment provider. Alibaba doesn’t count losses at Cainiao as part of its own results, making it difficult for investors to determine how the company is performing, research firm Pacific Square Research said last October.
An Alibaba spokeswoman said the company offered detailed results of Cainiao in Tuesday’s regulatory filing. It showed a net loss from the affiliate of 90 million yuan ($13.7 million) and 295 million yuan in fiscal years 2015 and 2016, respectively.
The filing noted Alibaba accounted for approximately 60% of Cainiao’s revenue for 2015. In last year’s annual filing, Alibaba didn’t disclose costs paid to Cainiao.
Some analysts said Alibaba may balk at more detailed disclosures involving Cainiao, in which it has a 47% stake. For example, sharing details such as how many partners the company has, the volume shipped each quarter, and how much was paid to logistics partners for each parcel, could expose them to more questions.
‘A problem with GMV reporting is no two companies seem to define it the same way’
The SEC’s interest in China’s biggest online shopping day, called Singles’ Day, reflects a continuing focus over companies’ use of unorthodox accounting methods.
The Nov. 11 Chinese holiday is a major online commerce event akin to Cyber Monday in the U.S. Last year, Alibaba disclosed what it called gross merchandise volume of $14.4 billion on that day.
One of the SEC’s concerns about use of non-GAAP measures is that they may not be comparable among companies, said Paul Gillis, a professor at Peking University’s Guanghua School of Management, in an email.
“A problem with GMV reporting is no two companies seem to define it the same way,” he said, referring to gross merchandise volume.
The SEC has stepped up efforts to target accounting fraud, creating an enforcement division unit focused on the area.
The agency has brought cases against companies alleging poor internal controls, even without alleging any underlying fraud. The number of accounting-related cases reached 134 in the year ended Sept. 30, compared with 98 the previous year and 68 the year before that.