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Alibaba’s (BABA) Singles’ Day Success Pales in Comparison to This Major Problem

Alibaba (BABA) just set all sorts of e-commerce records during the annual Chinese shopping holiday Singles’ Day, selling over $14.3 billion worth of goods through its websites.

Alibaba's (BABA) Singles' Day Success Pales in Comparison to This Major ProblemThat’s up a whopping 60% from the $9 billion it sold a year before, and it absolutely dwarfs the online sales generated last year by Black Friday and Cyber Monday, which posted combined sales of just $4.2 billion last year.

Somehow that wasn’t impressive to investors, and BABA stock still managed to lose a little over 2% on Wednesday.

But regardless of whether record-setting Singles’ Day sales failed to tickle investors’ fancy, the elephant in the room is still counterfeiting, an issue Alibaba claims to be combating with vigor and success.

In reality, the company has made little tangible progress in disrupting this problem.

BABA’s $45 Billion in Fake Goods Cannot Be Ignored

VentureBeat recently reported that a leading China news agency, Xinhua, estimated the total value of counterfeit goods sold on Alibaba’s sites at $45 billion last quarter alone.

Counterfeiting isn’t just a problem for Alibaba and BABA stock, but Chinese e-commerce in general. The state-run newspaper also suspects more than 40% of all goods sold online in China were “either counterfeit or of bad quality.”

This is in sharp contrast to CEO Jack Ma’s claims that BABA is spearheading successful efforts to combat counterfeit commerce:

“With the technology we have we can trace who’s selling, who’s buying, who’s manufacturing,” said Ma, in a CNBC interview this week. In dealing with intellectual property violations, Ma claims, “last year, working with the China Ministry of Police, we arrested close to 500 people.”

But he then went on to close the interview by asking for three to five years to combat the problem more effectively.

Perhaps Ma should change the way he himself thinks about counterfeiting. After all, being a publicly traded company requires you to be accountable to your shareholders, and the way Ma is thinking about counterfeit claims right now doesn’t seem to be in the best interest of BABA shareholders.

Ma gave a prime example of this destructive mindset recently when he defiantly spoke about a lawsuit brought against BABA by Kering SA, which represents high-fashion brands like Gucci and Yves Saint Laurent. “I would rather lose the case and lose the money, instead of losing our dignity and respect,” said Ma, vowing never to settle the lawsuit.

Of course, Alibaba is at a much higher risk of losing its dignity and respect if counterfeit claims continue to surface. The issue is drawing increasing scrutiny from the press, and BABA even drew scrutiny from the Wall Street Journal earlier this week:

“Counterfeit merchandise could also hurt AliExpress’s image with consumers. In southern Slovakia, 56-year-old Lubomir Sajbidor said he has successfully bought car accessories, a baseball cap, wheels for a shower door and tomato seeds. But a Huawei Technologies Co. smartphone he bought for $132 turned out to be fake, as he discovered when a case he bought didn’t fit.”

I’m sorry, Ma, but BABA stock holders aren’t going to give you and the company another three- to five-year interim to rein in the rampant counterfeiting. Nor will the press, nor will large brands like Gucci, Yves Saint Laurent or Nike (NKE), if they feel Alibaba is willfully turning a blind eye to counterfeiters.

Investors, however, don’t have to turn a blind eye to these systemic problems … and until they are solved, I’d stay away from BABA stock entirely.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/baba-stock-alibaba-e-commerce/.

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