Alibaba settles for 3 billion yuan

Author | Liu Baodan

Editor | Zhou Zhiyu

Alibaba, which is embarking on a new journey, is clearing obstacles in its path.

On October 25th, local time in the United States, Alibaba announced that it had agreed to pay $433.5 million (approximately RMB 3.089 billion) to settle a class action lawsuit filed by investors in the United States.

In the announcement, Alibaba denied any allegations of wrongdoing, liability, misconduct, or harm. "The purpose of reaching the above settlement is to avoid the cost and disruption of further litigation."

This means that in order to reduce the long-term impact of litigation on the capital market, Alibaba has decided to "cut losses" in a timely manner.

Since December 2020, the State Administration for Market Regulation has been investigating Alibaba for suspected abuse of market dominance. On April 6, 2021, the Administration served Alibaba with an "Administrative Penalty Notice," ordering it to cease illegal activities and imposing a fine of RMB 18.228 billion.

Based on this, some American investors filed a class action lawsuit against Alibaba in the Southern District Court of New York, accusing it of monopolistic "exclusionary conduct." The plaintiffs believe that due to Alibaba's false and misleading statements, the Alibaba stock price was artificially inflated, ultimately causing economic losses to investors.

The plaintiffs' lawyers stated in court documents that if the litigation continues, Alibaba's investors could potentially receive up to $11.63 billion (approximately RMB 82.899 billion) in compensation. This makes this lawsuit one of the fifty largest securities class action settlements in the United States since the enactment of the PSLRA (Private Securities Litigation Reform Act) in 1995.

This is not Alibaba's first settlement. Back in 2019, Alibaba settled a U.S. class action lawsuit for $250 million, where the plaintiffs alleged that Alibaba had concealed warnings from regulators about its counterfeiting capabilities before its 2014 IPO.

In fact, class action lawsuits are not uncommon for Chinese concept stocks, including companies like JD.com, Baidu, Pinduoduo, etc., which have faced class action lawsuits from overseas shareholders. Essentially, class action lawsuits serve as a protective mechanism for investors, with most cases often ending in settlements.

For Alibaba, this is a "high-priced" settlement. The settlement amount it paid accounts for 3.7% of the compensation. From 2021 to 2023, the average settlement amount for securities class actions is 1.8%, making Alibaba's compensation ratio double the industry average.

Behind the high compensation is Alibaba's hope to quickly extricate itself from this class action lawsuit, reduce the impact of litigation on the capital market, and focus its energy on business development.

Currently, Alibaba is facing an unprecedented market environment. In its core businesses, whether in e-commerce or cloud services, it is in a fierce competitive state. Alibaba's immediate priority is to address the challenges from a business perspective.

In terms of e-commerce, with the rapid rise of new players like Pinduoduo and Douyin e-commerce, Alibaba's market share has been pushed below 50%. Although it has initially stabilized its market share, improving monetization capabilities is a pressing challenge for Alibaba.

In the cloud services sector, Alibaba is the company among domestic internet giants with the highest investment in AI. It has layouts from models, cloud computing to business scenarios, and has invested in AI unicorns including Moon's Dark Side. However, at the current stage, AI large models are still catching up technologically, and Alibaba needs to continue burning money E-commerce represents Alibaba's glorious past, while AI is the key to Alibaba's future. Alibaba hopes to spend more time on its business rather than on lengthy litigation battles. This is the battlefield that Alibaba must conquer