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The Reason Why Everyone Who Bought BABA Stock And Held, Is Now Losing Money
Back in September, when it first went public, and when it quickly became the talk of the TV studio currently located on the obsolete NYSE floor in New York, a constant source of China buzz, not to mention making Jack Ma China's richest man, Alibaba's market cap soared as high as $250 billion, making it one of the top 10 most valuable companies by market cap.
... and then the headaches began, following news that China's government may crack down on what was dubbed Alibaba's "illegal operations", which sent its stock sliding to the point where not even one CNBC cheerleader would dare to comment on the same stock that all were previously certain would promptly surge to $120, $130 or higher.... because, you know, momentum.
And then things got even worse, pushing the stock to the lowest level it has seen since its IPO level, and its market cap to under $200 billion for the first time as a market company.
So what is the reason for the latest weakness? Well, according to a report in the WSJ, an unknown amount of Alibaba's "countless" customers - the very basis of the company's ridiculous valuation in the first place - are literally just that: countless. Because they are fake.
From the WSJ:
When Mr. Cui, an entrepreneur in the southeastern Chinese city of Hangzhou, wanted to draw more attention to the hair clips and costume jewelry he sold on the shopping sites of e-commerce giant Alibaba Group Holding Ltd. , he says he turned to fake orders. Faking orders, or “brushing,” as it is called in China, involves paying people to pretend to be customers. It lets vendors pad their sales figures and, in theory, boost their standing on online marketplaces, which often give more prominence to high-volume sellers with good track records.
Typically, vendors pay brushers the cost of the products they are ordering, plus a fee. The brushers place the orders and make payments using that money. The vendors then ship boxes that are empty or full of worthless trinkets, while the brushers write glowing reviews.
The practice is considered a form of false advertising, which is prohibited in the U.S. and China. Chinese sellers found doing so face fines and restrictions on their business. But Mr. Cui, who asked to be identified only by his last name, said he relied on fake orders because he felt there was no other way for his products to be seen.
Brushing puts Alibaba at risk of further regulatory scrutiny following its $25 billion initial public offering in September, and calls into question the volume of transactions actually conducted on its platforms, a metric analysts cite in saying it is the world’s largest e-commerce platform. Alibaba says it doesn’t condone fake transactions and that it scrubs them from reporting on merchandise volume, which amounted to 1.68 trillion yuan ($274 billion) for its two main shopping platforms, Taobao and Tmall, in the fiscal year ended March 2014.
This is how "brushing" looks like visually:
Fake orders, fake customers... And that's just the beginning: completing the bizarro circle, one can now buy classes on Alibaba that teach you how to fake Alibaba customers!
Some brushers even list their services on Alibaba’s sites, while others offer classes on mimicking real shoppers and eluding auditors.
Without fake transactions, “your product will end up at the very back of the search results, and people will never be able to find it,” said Mr. Cui. He took classes on how to avoid getting caught, learning to browse a few stores before placing fake orders. The strategy didn’t pay off: He closed his shop last year because it wasn’t making enough money.
The problem is that now everyone is doing it, so even the fakers can't get real results:
Mr. Cui said with a bit of brushing—at the cost of 5-10 yuan per transaction—he could make it seem as if his products were selling well, encouraging more shoppers to buy. Faking several dozen transactions a day for a week could get his products within the first five pages of search results, he said.
But Mr. Cui, who turned to a group that specializes in fake orders, said competition was too stiff in his particular market segment of supercheap, indistinguishable accessories, for brushing to turn around his store’s fortunes.
But wait there's even more!
Because this being China - the country where everything is fake - it means once you enter the rabbit hole, the bizarroness just grows exponentially!
Sellers can also buy online storefronts complete with high sales volumes and customer-service ratings that normally have to be earned. Alibaba says it doesn’t allow the trading of stores.
Shanghai-based bicycle and cycling goods store Factory Five said it was approached by a salesman in early 2012 who said he could instantly make the bike store one of the most popular on Taobao.
“He was offering a complete store, with a nice, high [customer-feedback] score which means you look like you’ve been trading for a long time and are full of reputation,” said Factory Five co-founder Drew Bates.
And this is what investors dumped their money on, without having a single clues just how pervasive fraud of this caliber is in China.
One thing that isn't fake: the paper losses for anyone who bought BABA at any point since it went public and held. Those are all too real, and just waiting to be booked.
But the take home message, now that BABA's deception is being exposed, is that the market suddenly believes that BABA's fake orders and customers, valued at under $200 billion (and soon going much lower), are worth less than Facebook's just as many fake users and eyeballs, whose market cap at last check was $220 billion and rising.
Then agan, it is all very fitting: fake customers, fake orders, fake users - all adding up to one fake market, in a world that increasingly seems to have emerged right out of The Onion's worst nightmare...
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Fraud here, fraud there, fraud everywhere.
Just BTFDAX Pullback and be richer tomorrow for it..... Yes, Yes, Yes, We all know it's bullshit and meaningless, but rather than troll about it, why not make a few $$$?
Alibaba IPO was most likely very near the top tick pets.com moment of this latest Mad Money stock bubble (now running on clockwork 7-8 year boom-bust cycles).
Then again, now publicly traded corporations may continue to buy back their own shares until they are closely held entities yet again.
Either way.
Muchas Gracias Tylers. This explains some otherwise inexplicable shit I've seen on ebay lately, and I've asked people who should know, but didn't.
there is more, and it was known, the reason it got investment at all, is that the guys running the 401k , pension, and other investment vehicles are supposed to make their "muppets" into serfs.
(Bloomberg) -- Computers being remotely operated by hackers account for almost one in four views of digital video ads worldwide, according to a study that estimates such fraud will cost advertisers $6.3 billion dollars next year.
The fake views, which also account for 11 percent of other display ads, often take place in the middle of the night when the owners of the hijacked computers are asleep.
The result is retailers, automakers and other companies paying for web advertisements that are never seen by humans, or are seen by fewer people than they are paying for, according to the report released today by the Association of National Advertisers, whose members include Wal-Mart Stores Inc., Ford Motor Co. and Wendy’s Co.
“We’re being robbed,” said Bob Liodice, president and chief executive officer of the New York-based association, which has 640 members that spend more than $250 billion a year in advertising. “This isn’t about system inefficiencies or process sloppiness. This is about criminal activity.”
BULLISH!
this is gonna send BABA thru the fracking ROOF!
My Hindu neighbor and I were talking about stawks and I told him that I decided not to play in that sandbox anymore. But Alibab he said...
This was back in October. I warned him based on what I knew (that knowledge did not include brushing) and told him the only people that make money on these IPOs are the ones that hold the initial stawk that is sold to the market and that a bag of shit is what he will be holding. He insisted he would time it right.
I like Indians, but they're REALLY cheap.
They're buying all the Chinese sourced, formaldehyde laden laminate flooring I can find off my Alibaba site, for .29 cents USD per square foot.
(I purchase 1000 fake customers and 250 fake positive reviews for .35 cents USD)
Now, have I provided answers to your questions in a courteous and prompt fashion? https://www.youtube.com/watch?v=LhFKzJNpLDQ
If Alibaba is fake..then the loss is for the Americans...the entire USD 25bn went straight from NY to China in Hangzhou where it has already been spent....:)
China laughs, while Americans cry foul! Too late for the sour grapes story! Always play with stop loss, if you play these rigged markets - Lesson No 1.
China has gotten the money, now they say they will do the next largest IPO in the world within China itself...no more sharing their growth with others! You are welcome to China...this is how the demand is created for Chinese investments and its currency. Must give A ++ for smartness while slowly freeing their capital account and gradually opening the door into China for all.
After all, USA also was polluted in the 1960's, riddled with gangs in NY and LA in the 1970's and 1980's, and now US is crumbling with infra falling apart (reminds me of deadbeats crying hoarse over losing the last penny). Awesome show here:
Last Week Tonight with John Oliver: Infrastructure (HBO)
China's Postal Savings Bank plans $25 billion IPO: China Daily+ 1000 . MACHA DI BHAI .
Fraud is the only part of the economy that's growing.
Not just Alibaba either, I don't believe any publicly quoted co. figures anymore.
How much money has Wall Street already siphoned off all those unsuspecting "investors" since the IPO? Billions, I imagine.
Where is Jack Ma-off?
Full name: Jack Madoff
Always wondered how a company based in China could grow so large without accounting fraud at its core. Now we know it was no different than the others. But the other commenters are spot-on: American corporate accounting isn't one bit more honest these days.
Even MSNBC hosts stunned by Hillary's email scandal:
http://tinyurl.com/qzw3rln
MSNBC hosts
MSNBC parasites
adjusted it
Butt wait, who did the dilligence?
You own me a new keyboard and monitor bitchez!
A face only a mother could love...,
if she has really poor vision.
lovely wig
just another morsel proving this whole g'dam stock market illusion is really just a giant f'cking ponzi scheme. FREE CORZINE NOW!!
Of course more bag holders are needed.
Plenty of those 100 million dollar toasted cheese sandwich truck IPO stocks for them to buy.
You heggies and Fund managers more wothless IPOs on their way for you to purchase.
Well that worked out well, but not to worry, there are more magic IPO's to come.....
I wonder what the market cap would be for a $10 million sales volume service company with no debt and a 22% profit margin would be in an IPO when compared to TacoTrucksBaba valuations?
You would have a hard job pricing the stock at more than 20X earnings. Now if you had no earnings at all the sky would be the limit.
So the first thing to do is get rid of those pesky earnings. And get into some business where noone has ever made a dime so there is nothing to compare you to.
I wish I was kidding.
I am not sure this is very different from how any other companies do accounting these days.
This BABA stuff is very crude. Where are the trucks loaded with product doing 24-hour idles until quarter-end close? USA USA USA
Does this fall under the tale of the 40 thieves parable...?
oblig...
https://www.youtube.com/watch?v=U7M7d8u40I4
Simple, if people like BABA cannot explain in 30 sec how their corporate structure works do not spend money on it. Second rule never invest in people that look like if they are aliens.
I greened you farmboy, but I'm not sure aliens are that fuggly.
Depends on what "World" they are from....
wait till people figure out Apple is a hedge fund and the market to the moon scam ends
They will have to change their name to Road-Apple.
Their new logo will be a horse-turd silhouette with a bite taken out of it.
Reminds me of an interview with Al Lowe (a former Sierra programmer) about illegal software distribution. He jokes that Sierra invented piracy. How did he know? Well, they sold more game manuals than actual games. If they were smart, he remarks, they would've gone straight to printing manuals and skipped making games all together.
I think that in real terms, taking into consideration added value and new technology, there is no more room for significant feathers on the peacock. What else is there they can do? I'm not interested in brain implant chips. The new Apple car? Only an advancement if it is truly affordable to the masses. I'm not sure it can happen that way. And wiith NSA under the hood, I'm thinking the enthusiasm factor may be dampened considerably.
Who would have thought that this might happen....
What I want to know is why ANYONE INVESTED IN THEM after reading their prospectus where they admit they do not hold the title to any of the companies they claim to "own" and that you're only investing in the shell company they setup in the Bahamas... pfffft, so shocked not-shocked they're as fake as the shell they admitted they are.
That's the epitome of a blue-chip in the current in the current "market".
How could we have this story and not have a picture of that goofy looking dude, Ma, laughing his ass off?
I trusted you bug boy. You ried to me!
Does this mean those 1oz Pamp Suisse gold bars, in sealed Pamp Suise assay cards, for sale on Alibaba for $36 are fake too? Oh dear god!!!!!! What is tungsten going for per troy oz these days? Jeebus, I hope it's more than $36.
Yeap - baba is indeed over valued and has way too many $$$ pits stores. With regards to the whole thing being shite, its far from it. Valuation is way way too high just like the NASDAQ.
I'm not at all surprised on how they can scam the balances and checks. Thats what happened with Ebay etc.
Overall, let it get a cold water bucket and it will be attractive at some price.
laughing like Yue Minjun
Uhhmm, because it is ove-rpriced over-hyped dog shit?
Edit: BTW, the Chinese sellers do this on Ebay all the time. You can tell it's bullshit because the majority of buyers all bought the same low cost trinkets. When you look at the seller's store t usually consists of higher cost items.
You forgot fake money...
It's all about finding bag holders.
eh, that's taobao. yes it happens, but consumer protections are now in place and if you get ripped off it's really easy to get your money back. calling it "brushing" is just an attempt to pretend that amazon is not full of the same behavior.
The reason it's a red herring is because it literally does not matter. Alibaba does not make money from listings or even volume. The more you sell, the more money flows through alipay, and once it hits monthly caps, it charges a small fee. For Taobao and Tmall, it earns money from advertising and fees on LARGE storefronts. That's the game, it's pretty damned simple.
If you want to know the REAL scandal, it's the proxy buying.
A few years back it became a thing where overseas Chinese could make some walking around money by purchasing things, charging a markup and sending them to China. That markup could be anywhere from 10% to 100% with them seeing greater profits by using member cards or hitting sales. So you buy a pair of sneakers that for whatever reason costs $200 here versus $60 in the US and pay $120 plus another $10 for shipping. Seller sees $60 profit, consumer sees $70 savings and has piece of mind that it's not fake.
NOW however, people have realized they can simply buy fake shoes in China in bulk at $7 a pair, tack on another $3 for shipping to the US. Sell them as "proxy buy, direct shipping from the US" for the $120 and pocket $110 profit. The consumers are generally morons who have no idea what's fake and what's real anyways as they have usually never seen the genuine article. They just see it's being shipped from the US complete with USPS labels and fake sales receipts and are all happy and proud. Something around 60~80% of all proxy buying is fake now.
The other thing sellers are doing (because this "brushing" thing is long since played out), is giving cash back for perfect reviews. For negative reviews, the standard tactic is to negotiate and pay off the buyer.
For the alibaba side that you're all familiar with, none of any of this applies, as these are two entirely different sides of the business.
Good thing BABA got those bonds sold when they did. Cash in the bank, never to return to investors.
Bunch of stock going to be releassed from the lockup soon.
Look out below.
We baba'ed some folks - Jack Ma Off
NEVER buy anything off this site -- in addition to the fraud metioned above it is littered with knock offs and companies that dont deliver
Sending empty boxes sounds like a pain in the ass.
Facebook's Indonesian click farms sound way more efficient.
This "BABA" thing reminds me of the FED/US Treasury scam and we got $18 trillion of debt to prove there are fools and money parting.
ahahah LOLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL
half the reviews on amazon are also fake . . . so what?
Fake orders? What a surprise...have you ever visited that site?
Fake orders for fake goods...although I'm sure enough real orders will go through to keep us flush in counterfeit "Gold" coins for years to come...
This is actually not news. I knew about the fake orders on Alibaba before the stock went public. I don't remember the source right now or I'd post a link, but I didn't have to look far to find this info.
Of course everyone wants a get rich quick stock and ignored it.
Like said in a previous post, I’m loving watching BABA breaking bad to new lows again.
It’s The Silencing Of The LamBaaBaas - Part Deux
In this sequel, Hannibal is played by Jack Ma who eats the livers of an entire mob of Sheeple Investors with fava beans and a bottle of chianti. He had planned to eat them with 10,000 bottles of rice wine, but, the supplier he bought it from on Alibaba never fulfilled the order.
Meanwhile Clarise Starling, played by Marissa Mayer, spends the entire film this time scared shitless, lost, and wandering aimlessly in pitch black darkness in the basement of Yahoo Headquarters trying to find her way out and answer the question, “Why did my Directors put me in this position?”.
P.S. I am aware that sheep herders most often refer to their livestock as a flock, or possibly frock if they happento be Chinese sheep herders. However, I heard that herd and mob are also acceptable names for a large group of sheep, the latter being the best choice for a herd of Sheeple reacting to the price of their BABA stock tanking before having their livers eaten.
Welcome to the Fake Economy.
I love a good scam.
How are Google search results different than Alibaba "brushing" -- other than not having to fake the payments?
Jack Ma does not look of the tribe. I'm short.
But this only happens in China, right?
LOL Expecting these companies to have ethical standards and the domestic markets really have regulations. Same as US/Euro, the only difference is that they are more crude in their fraud operations. Also, the People have adjusted with limited recourse to the law and themselves do not see value in ethics in a harsh survival game.
Many more muppets to stink when they drink the snake oils of their financial advisors on the emergence of a great consumer society blah, blah and go for this fake gold rush.