Alibaba Group Holding Ltd (NYSE:BABA) continue to face heavy pressure from the Chinese government and the result is the stock is now trading below IPO pricing. The concern is over what the industry calls “brushing.” That involves fake orders being placed and processed and assumed by the company’s financial reports. This is just the latest dilemma the massive Chinese E-commerce provider has been facing over the past few months.
A sale brushing is done to create the appearance that a vendor’s sales volume is stronger than it really is and that allows them to achieve a higher ranking on listings. Vendors pay fake customers the cost of goods for whatever they “fake” order and then ship empty boxes to the recipient. Some Use-commerce vendors such as EBay have faced the same accusations in the past but nothing on the scale of Alibaba’s issue and certainly nothing that crossed Chinese regulators, which can be a poor tactical move in the long run. The system used is called TaoBao and there are many vendors that utilize the brushing practice. It is used to trick the system into thinking the company’s products are in great demand and in turn the system gives the products a higher status. The Alibaba Group Holding Ltd (NYSE:BABA) downplayed the accusations saying it was no different than US e-commerce vendors using SEO to raise their search engine rankings.
Along with the fake order scandal, the Taiwanese government has told Alibaba they have six months to leave the country. This demand is over concerns the company violated investments rules. Alibaba has six months to remove all operations from Taiwan. This also comes as the company’s chief rival, JD.com, released strong earnings that may indicate the slowdown at Alibaba is more substantial than investors realize.
The stock has been on along downtrend and it finally violated support at its IPO pricing of $85. Until it establishes some sort of base and moves above the IPO entry level, there is nothing technically attractive about the stock.