Stifel Downgrades Alibaba On Counterfeit Issue, Regulatory Risk & Weak Monetization

January 28, 2015

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Alibaba Group Holding Ltd (NYSE: BABA) was downgraded at Stifel Research from Buy to Hold on Thursday. According to a Barron's Asia blog, the research firm cited “regulatory risk and the weaker-than-expected monetization rates” as two of the main reasons behind the downgrade.

Another factor that worries investors, users and specialists alike is the so-called “counterfeit issue.” The company has been repeatedly accused of selling counterfeit products on its e-commerce sites, and has been acting on this, responding to the allegations and removing of forged items from its sites. However, the same Barrons blog informs that “China’s commerce watchdog State Administration for Industry and Commerce, or SAIC, released [on Wednesday] a ‘closed-door’ document drafted last July, in which the regulator accused Alibaba of lax oversight over fake products on its e-commerce sites.”

In spite of the company’s defense, Stifel's report stated, “the SAIC report puts the effectiveness of these [anti-counterfeit] measures into question.”

Moreover, the monetization issue still lingers: “revenue of $4,219 million was below our estimate of $4,605 million driven by lower total monetization rate (both mobile and PC below our expectations),” the report said. “PC and mobile monetization rates were 2.70% and 1.96% versus our expectations of 3.55% and 2.30%.”

Along with the downgrade, Stifel analysts removed their $115 price target and provided a $101 “fair value estimate.”

Shares of Alibaba traded recently at $89.68, down 8.9 percent.