“With this penalty decision, we’ve received a good guidance on some of the specific issues under the anti-competitive law,” Tsai said on the investor call. “We are pleased we are able to put this matter behind us.” The company has promised to cease the “exclusive dealing” practice.
Tsai said that the penalty comprised less than 20% of Alibaba’s free cash flow in the past 12 months, while CEO Daniel Zhang added that the change in the agreements with merchants would not have a big impact on the company’s business.
Shares in Alibaba rallied more than 6% in Hong Kong on Monday, though the stock is still down more than 20% since last November, when regulators pulled Ant Group’s mega IPO.
The fine removes “a significant overhang” for Alibaba shares, wrote analysts from S&P Global Ratings in a note on Monday.
“The penalty also removes the possibility of more serious consequences,” they added. Under China’s anti-monopoly law, Alibaba could have been fined as much as 10% of its revenue, much more than what was ultimately levied.
Quelling fears about the future
Alibaba executives also sought to assuage concerns. Tsai said that regulators are “affirming” the company’s operations.
“Our business model as a platform is fully endorsed and affirmed by the authorities [that] this kind of model is good for the country’s growth of the economy and also helps promote innovation,” he added. “We feel very comfortable there is nothing wrong with our business, [and with] the fundamental business model of platform companies.”
Tsai also said the regulatory scrutiny marked a “healthy process” that was ultimately good for Alibaba, and allowed the company to get to know how regulators think about these companies. “Every large-scale technology company will face [scrutiny] — in our case, we have experienced this scrutiny, and we’re happy to get the matter behind us,” Tsai said.
Crackdown is not over
Even so, some experts point out that Alibaba’s case still highlights the challenges facing business in China as Beijing continues to probe the private tech sector.
“Alibaba’s fine isn’t a financially crushing blow by any means, and it reflects the company’s progress in negotiating a resolution to its regulatory problems,” said Brock Silvers, managing director of Chinese private equity firm Kaiyuan Capital.
But it was an example of how “opaque policy and private political maneuvering” can suddenly erase shareholder wealth.
“Regulators are now preparing to increase their battle against China’s corporate titans, which should be quite worrisome to global investors who may be increasingly exposed to China risks that have long been unseen and remain unquantifiable,” Silvers added.
The Alibaba fine is a “warning shot across the bow for the entire big tech sector in China,” said Alex Capri, a research fellow at Hinrich Foundation and a visiting senior fellow at National University of Singapore.
“The Chinese Communist Party will continue to exert its will, not only to diminish systemic risk in the financial sector, but to ensure that Big Tech serves the government as a capacity builder around things like digital currency and data harvesting,” he said. “The goal is to exploit the strengths of Big Tech while preventing companies like Alibaba from straying out too far on their own. Therefore, the crackdown we’re seeing on Alibaba and Big Tech, in general, is not over.”
— Mark Thompson contributed to this article.