The Blob? Inside The Murky Mirepresentations Of Alibaba

Via Deep Throat IPO blog,

As many of you know, I’ve been off the grid in rural India for the last few weeks.  As I’ve also mentioned, I love my trips to India….I get a chance to regroup, reset, meet wonderful people and think about things I rarely take the time to think about.  It’s all about perspective.

Anyway, while I was traveling, I had a chance to peruse the Alibaba September Quarter figures, Press Release, 6K, Investor Presentation and of course, took some time to listen to the always entertaining Investor CallShortly thereafter, Alibaba had reported their amazing “Singles Day” sales figure of  $25.3 Billion of fake GMV.

To put this figure in perspective,  this year, “Singles Day” GMV came in at just a few billion more than the annual revenue of Sears/K-Mart (140,000 employees and 1,500 locations world-wide)….. again, I’ll repeat that….. Alibaba sold, shipped and delivered the annual, global, sales volume of Sears/K-Mart in just one day!  ….800 Million orders to deliver!  Incredible!  Bravo!…..all those guys on the tuk-tuks, scooters and bicycles must be exhausted…

The Alibaba business model has triumphed once again.  It’s now obvious that UPS, FedEx, DHL, et al, have it all wrong.  Why in the world would anyone invest in all of that expensive GPS, scanning, package tracking automation and logistics hardware when you can just dump your packages on the sidewalk and let homeless people figure out how to get them where they are supposed to go?  Again, the wizardry of Alibaba’s ecosystem  has rewritten the global-logistics playbook.  Absolute genius…

The Investor Call

The Investor Call, with all of its suspense, of course, reminded me of one of the greatest motion picture epics of all time.  Many Cinephiles consider this flick to be the late, great, Steve McQueen’s quintessential work. That’s right, I am of course referring to that trans-generational, 1958 classic, “The Blob

From the trailer:…“It’s kinda like a mass that keeps getting bigger and bigger….”

Like the Blob, Alibaba’s financial misrepresentations, as absurd as they are, have grown to the point where its oozing tentacles of slime have crept into every corner the world’s financial system.

I won’t bother to dissect the numbers any more than I have in the past, but suffice it to say that the same accounting shenanigans I’ve discussed herein, every quarter since the IPO in September of 2014 are still alive and well.  (See my last 20F analysis for a little more detail: “Finding Inner Peace in Dharamsala….and thoughts on the Alibaba 20F….“)

Everything is steady as she goes…..Gigantic, unbelievable “asset-lite” growth, huge fake efficiencies and synergies abound.  Asset write-ups and inflated carrying values of “Questionable Assets” scattered across the books of more than six hundred (600) un-auditable, consolidated entities are omnipresent.  Alibaba Pictures and Alibaba Health are carried on the books at roughly $3 Billion more than their current, publicly traded market caps would support.  A Billion dollars of loans to insiders (See: Wasu Holdings, Simon Xie & Shi Yuzhu) are outstanding with a good chance that they will be looking for even more Alibaba shareholder money soon.

In the call, management reinforced their philosophy that they never manage a business to a profit/margin or apparently any sort of target/metric so they, of course, never feel compelled to offer any detailed explanation or meaningful guidance on the numbers, product mix or how they make their money……. except that everything will most likely be really good forever.  It’s all about delivering nebulously defined “value”.  The call was, of course, capped off with the usual, odd, irrelevant, softball questions posed by the religiously devoted cadre of analysts.  Note that the analysts all refer to the business as “our segments” or “our strategy” or “how are we going to expand….”….as though they are part of the Alibaba management team.  Call transcript posted below courtesy of Seeking Alpha.  Using our patented Dick Fuld Banker-Speak Translator (BST), I’ll just take a minute to analyze the first analyst’s question.  I’m not necessarily picking on Eddie Leung here, he seems like a really nice guy, but he happened to ask the first question. 

No need to go deeper into the Q&A unless you are a glutton for punishment, It just gets worse from here:

Eddie Leung – Bank of America Merrill Lynch

Good evening. Thank you for taking my questions. I have two questions. One is on Cainiao. Could you share your thought on the long-term positioning of Cainiao? Again, as the professional logistic service providers in China and globally, how to differentiate and perhaps cooperate in logistics?

And then secondly, on New Retail, have we seen any change in the way that we cooperate with some of our brands and merchants across our multiple channels after we developed our offline channel recently? Thank you.

Translation: First, how the hell are you going to deliver $25 Billion of merchandise using push carts, bicycles and homeless people?  When you dump the packages on the sidewalk, what percentage of the merchandise is stolen?  Second, this is the first full quarter you’ve consolidated InTime as your “new retail”… the InTime acquisition?…. you know, where you just paid $3 Billion for a bunch of broken down department stores and vacant shopping malls?…. so you can dump fake knock-off merchandise and overstock junk in these stores?….that way photographers from the New York Times won’t snap pictures of homeless people picking through the stuff scattered all over the sidewalks?”

DT Note:  The correct response to this question should have been:  “Regarding Cainiao, I’ll refer you to the detailed schedule XX of the 6K (which unfortunately doesn’t exist) describing, by region/zone the packages/deliveries, product mix and associated costs by product category.  As for Intime, I’ll refer you to the segment P&L’s & Balance Sheets in Appendicix XX of the 6K (also doesn’t exist) which describe, in detail the breakdown between On-Line and Off-Line GMV, Revenue and cost of operations, showing precisely what we’re selling, where we’re selling it and how profitable it is compared to our detailed projections. (which also don’t exist)” 

This is what we got:

Response: CEO Daniel Yong Zhang – Alibaba Group Holding Ltd.

“Eddie, this is Daniel. I’d like to answer your questions. For the first one, Cainiao. Actually, Cainiao is positioned as a smart logistic platform. Why smart is because this should be a data-driven logistics platform. We truly believe that the data is the most important asset which can generate value for the partners in the Cainiao ecosystem. And so what we do is that we work closely with our partners in not only warehousing, but also delivery network to enable them to optimize their operation. So we will continue this strategy and which is the partnership strategy and continue to work closely with our partners in China and in the world.

And the key thing is that the data-driven logistic network, actually we are – Cainiao is not going to be a logistic company and we are not interested into building another logistics company. Instead, we will work with a lot of logistic companies, delivery companies to build a network across the world.

And for your second question, New Retail, I would say actually, our New Retail strategy is very clear and we will continue to execute our New Retail strategy and to partner with the offline retailers in key categories such as in fashion categories, we work with Intime. In consumer electronics, we work with Sony. In food and FMCG categories, we work with Bailian and Sanjiang. And recently, we invest another regional retailer, which is (29:13) and we will work closely with them to empower them with our prospective (29:19) technology.

Second is about – is a valid New Retail form or format to enable them to operate efficiently. So I think this is our New Retail strategy, but we’re still in early stage. And our goal is to help the whole New Retail (29:40) world to be upgraded into a digital operation. So actually we are on our way. Thank you.”

Translation: “I have no F-ing idea what I’m talking about and I can’t give you any detailed information because it doesn’t exist, all of these numbers are made up, so I’ll just use words like ‘partner’, ‘digital’, ‘data’ and hope that you think I’m brilliant.  We don’t need to build a logistics company since our homeless people on bicycles are doing just fine. Our retail strategy is very clear, you should already know what it is, I think, maybe not, but anyway, it’s all about data…, data, data.  We have lots of smart, logistics data, and on-line, off-line data logistics partners and we are global across the world because of  our data.  We are going to ship things to all sorts of dumpy convenience stores, kiosks and partners for people to pick up.  It’s a better model than dumping the stuff on sidewalks. When it rains, packages get soggy and customers bitch.  We’re going to ship $25 billion of fake GMV in one day next week, Nicole Kidman will be at the party, we paid her big bucks to show up, ooopsss Jack told me to not to say that, but we are at the beginning stages of helping the world.  Our on-line, off-line data-driven-big-data will allow us to sell more data-driven fake junk to everyone on the planet on mobile apps, which will track everyone so the CCP knows exactly where they are and what they are doing.  Did I mention that we are experts at big data?  Oh….and Amazon sucks.  Thank you.”  

So really, what is this gigantic “blob” of “China Commerce” GMV  and the related revenue comprised of?  Who knows?

Alibaba management incessantly references their huge investment in infrastructure that enables them to sell supposedly gigantic volumes of Consumer Electronics, Fast Moving Consumer Goods, Clothing, Grocery, etc. yet they have never disclosed how much of same is sold through their platform(s).  How can they publish a gigantic $25.3 Billion, one day GMV total and not know what its components are?  I thought that Joe, Daniel and Maggie were the ring masters of this big-data circus?  They should know these numbers off the top of their head and disclose them.

For example…

You can buy a million dollar yacht.…..just put it on your MasterCard/Visa or Alipay… would be nice to know how many yachts they sell on-line.

Or perhaps you’d like a luxurious Prada hand bag…..apparently sold by authorized and licensed Prada distributors like “wishload flagship store” and “buyfine overseas flagship store”.

Or maybe you need a few hundred tons of steel pipe

…or sheet steel...

Perhaps a new building?…put a skyscraper on Visa/Mastercard!

Or land for sale in Estonia or Iran?….note the “smart data” algorithm on the right of the page…..people who liked “land in Estonia” also apparently liked “kitchen cleaners and car wash soap”….and I actually could have “chatted” with the creepy looking guy shown in this listing, but my IT Department advised against it…..

None of the above ridiculous transactions have anything to do with consumer goods and never “close” on the platform, yet they are there for a reason.  They are included in GMV.  They are “reported” by the seller (presumably for a fee?)…..Think Craig’s List….not Amazon.

The SEC correspondence from 2014 was illuminating…

…everything about this business is a misdirection or a half truth…

...See pg 5, where Alibaba management opines that the GMV metric is a critical part of their fake operating/reporting framework and that it’s perfectly legitimate for them to report transactions that were never shipped or closed.

We might ask, if GMV is so important, why have they never provided any detail as to its composition/mix, or oddly enough, are only reporting GMV twice a year now. (on “Singles Day” and an annual “Blob” in the 20F)   Is it somehow no longer important?

In fact, back in 2016 under Mary Jo White, the SEC started looking into, among other things, the possibility that there are issues with Alibaba’s GMV reporting.  You’ll also notice that, on page 60 of the above answers to the SEC correspondence, one of the signor/architects of the aforementioned, dubious Alibaba responses, was a Sullivan & Cromwell Attorney by the name of Jay Clayton, who also now happens to be the newly appointed Chairman of the SEC.  As they say….a fortuitous coincidence indeed.

I’d invite all of my readers to check this out for yourselves…..take a few minutes to browse the Alibaba sites, Tmall, Taobao,, AliExpress, 1688, and type in luxury brands (Gucci, Prada, Coach, etc.) industrial goods, etc., sort by price (high to low) and see what you get.  It’s a hoot….you can buy single malt Scotch and Kentucky bourbon made in China!…..who knew?  Let your eyes be the judge as to whether Mr. Clayton’s position, while representing Alibaba, had any merit at all.

My guess is that “real” consumer goods GMV actually delivered is probably less than a third of what they report……yet investors believe these inflated numbers.….. I suppose, because it’s “China”….and in hindsight, perhaps because Jay Clayton got a (presumably) sizable paycheck to sign off on it.

Show Me The Money!

Finally, with all of this Revenue and activity, all of this purported income and cash flow….a little bird told me that Alibaba will be looking to the US Bond Market for more funding in the very near future, riding the wave of the latest fake numbers. 

They’ll be looking for something in the range of $5 Billion to $8 Billion.  The big question is, if the business is actually generating dump trucks full of money as they claim, why have they maxed out their bank lines of credit and why do they once again need to go running to the US credit markets for cash ???….in addition, why in the world don’t Chinese Banks want a piece of this gold mine?  They should be clamoring to lend money to this national treasure.  There isn’t one Chinese Bank materially involved in financing this mess, at least that I can see.  This, to me, is incredible.  Ninety percent (90%) of Alibaba’s business is in China, they need RMB….not dollars….what gives?

Perhaps their “Authorized Representative” Don Puglisi would know the answers.  Every foreign company listed on a US Exchange must have an Authorized Representative in the United States and Don is Alibaba’s man, per the original F-1.  

Per Bloomberg, Don also seems to be a serial “Authorized Representative“, collecting checks to represent dozens of foreign businesses in the United States, all run out of his three (3) person office in Newark, Delaware.    Lots of irons in the fire.  I can’t imagine how, at his age, he can keep it all straight.  He’s a busy man.  If I were him I would have retired long ago, but apparently “80 is the new 50”!  On the other hand, I, for one, think it’s absolutely marvelous that a gigantic global enterprise like Alibaba was able to give a “little guy” like Don the chance to become a big time international player.  It must be a dream come true for him.

Looking at the big picture, perhaps Don’s job as an Authorized Representative was just the first of the “Million US Jobs” that Jack told the White House he was going to create!  Only 999,999 to go! Of course, Don’s great new Alibaba administrative job pales in comparison to the half dozen or so high paying executive jobs that Jack had already created at his new (2014) Alibaba headquarters in the Caymans.  As our political leaders often say, “it’s all about the jobs”.  I couldn’t agree more.

Anyway, I’m sure that Don is a great old guy and if asked, he could bring some clarity to what Alibaba is up to. Perhaps Mr. Clayton (after waiving attorney/client privilege) could lend some insight as well. 

After all, if you are representing someone, I’d think you should have at least some idea as to what’s going on with their business.

This post originally appeared on Zero Hedge


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