Why The Alibaba IPO Is Dangerous: Revenue and Fraud | Exploring Markets

Why The Alibaba IPO Is Dangerous: Revenue and Fraud

The news has been awash with reports about the Alibaba IPO. Most of it is positive. People keep saying it could be the biggest IPO in history. There are VERY FEW negative reports surfacing about it. So, in return, we would like to take some time to play Devil's advocate.

The mainstream media, and also Alibaba themselves, love to mention total Gross Merchandise Volume. More than $80 billion worth of products and services are shipped and handled through Alibaba. On the surface that sounds incredible, but in reality it means nothing at all.

Just look at these two charts from the WSJ, with our edits. The first shows gross merchandise volume, which looks amazing. But the second shows revenue, and that looks abysmal:



BUT



While Alibaba does indeed do a ton of business in Gross Merchandise Value (GMV), it earns practically nothing on it. GMV is somewhat pointless. If you are pricing Alibaba on its GMV, then just for one second imagine what FedEx or UPS does in GMV. Their values would blow Alibaba away. 

But, perhaps even worse, is the question of what Alibaba is shipping and servicing to get such a high GMV in the first place? 

Take a look around its marketplace and you will see rampant fraud. Perhaps the best search we have seen, and very evident of this, is for the term "Jihad." Alibaba recently removed this search result, but for months users would get this item on their marketplace: