Alibaba Group Holding (NYSE:BABA) is expected to suffer a huge decline and will eventually become a takeover target, according to one of the short-sellers raising questions about the accounting practices of the company.
Some of the well-known short-sellers who have a bearish conviction on Alibaba include Jim Chanos, the founder and president of Kynikos Associates and John Hempton, the chief investment officer of Bronte Capital.
The recent disclosure of the Chinese e-commerce giant that the Securities and Exchanges Commission (SEC) has been investigating its accounting practices strengthened short-seller’s position of betting against it.
SEC is investigating Alibaba’s accounting
Alibaba revealed earlier this week that the SEC requested documents and information related to its consolidation policies and accounting of Cainiao Network, its logistic business unit that handles 70% of the express packages in China.
The securities regulator is also looking into the company’s annual Single Day sales event. The company said it is cooperating with the investigation and submitted the requested documents and information voluntarily.
The stock price of Alibaba dropped almost 7% on Wednesday due to the disclosed regulatory investigation.
Alibaba will eventually a takeover target
According to Hempton, Alibaba is a “real company” but it has “questionable accounts.” He said, “The ability to value it from the accounts is, thus tricky.”
He believes that the stock price of the Chinese e-commerce giant will eventually “go down a lot and get a takeover bid.”
Brad Lamensdorf, a portfolio manager at AdvisorShares Ranger Equity Bear ETF shorted Alibaba shares six weeks ago. He is expecting the stock to decline further citing the reason that its business “very convoluted.” He added, “There’s a lot of stuff that has not been disclosed properly, and it trades at a ridiculous multiple.”Lamensdorf is expecting the stock to drop below $60 per share.
Meanwhile, Chanos told CNBC earlier this month that he is still shorting Alibaba shares because he has “real questions” about the company’s cash flow and financial metrics.
Based on the recent bi-monthly data from the New York Stock Exchange (NYSE), the short interest on Alibaba’s stock were 77.5 million shares, which represent 10% of the company’s free float.
The stock price of Alibaba closed $80.99 per share, up by more than 3% on Friday.