Change at's helm seen as positive, but share price tumbles

PUBLISHED : Wednesday, 23 February, 2011, 12:00am
UPDATED : Wednesday, 23 February, 2011, 12:00am

While analysts saw's appointment of a new chief executive as a fresh start, the company's shares fell sharply yesterday following the discovery of fraudulent activities by sales staff of the company.

Alibaba's shares fell 8.63 per cent, the most since September 15, 2009, to close at HK$15.24, a day after chief executive David Wei Zhe and chief operating officer Elvis Lee Shi-huei resigned to take responsibility for the lapse.

Jonathan Lu Zhaoxi, the chief executive at mainland internet shopping giant Taobao, was handed additional responsibility as the new chief of the world's largest business-to-business e-commerce company. He will retain his post at Taobao.

The internal probe was related to Alibaba's termination of about 1,200 premium-paying China Gold Supplier members who had either committed fraud or were potential fraudsters, which the company disclosed in its third-quarter earnings report in November last year.

It found 100 sales personnel - out of a total 5,000 - and some sales supervisors to have negligently or intentionally allowed fraud in the company's authentication and verification measures, which led buyers who used the Alibaba site to suffer losses from trading with these fraudulent sellers.

The company identified 2,325 Gold Supplier members, who signed up in 2009 and last year, had engaged in fraud.

According to various market analysts' reports published yesterday, the resignations may signal temporary disruption, but Lu is expected to help mend Alibaba's reputation and improve the quality of its management.

'We think Mr Lu brings to solid 'Alibaba culture', execution experience, and potentially closer ties with Taobao,' JPMorgan Asia-Pacific Equity Research analyst Dick Wei said in a report. and privately held Taobao are the two flagship companies of Hangzhou-based internet conglomerate Alibaba Group, founded by its chairman and chief executive, Jack Ma Yun.

Analysts at the Royal Bank of Scotland Group in Hong Kong said in a report that Lu's ascendancy to augured well for the company's strategic initiatives this year.

'For a long time, we have been concerned with the frequent change of strategies and inconsistent execution from Alibaba's management,' the report said. 'In 2011, we see several important developments from the company, including the launch of new platforms, revenue model transition and growing synergies with Taobao. With a great plan [drawn up], it boils down to how well execution will be.'

A Goldman Sachs report said that with Lu at the helm, ' could be moving into a structure more like [parent] Alibaba Group, in which the chief executive sets broad directions and the team under him is responsible for execution'.

In a conference call with analysts on Monday, said 'there are no significant hurdles' for Lu to manage the company and Taobao together.