New Woes for Alibaba: Giant Accused of Late Reaction to Sexual Assault

And new fears for investors in the company.
Aug. 09, 2021 14:46
New Woes for Alibaba: Giant Accused of Late Reaction to Sexual Assault

Just as investors hoped the worst was over for Alibaba Group (NYSE: BABA; HKEX: 9988), the Chinese tech giant is making headlines again in relation to the worst of possible faults – sexual assault.

The rebound from the 52-week low of $179.67 per share BABA stock hit in late July may be short-lived. On Monday morning, shares in Alibaba slipped 2% lower, to $193.78 apiece, on events that may cause a lasting negative impact.

The tumble came on the news that a manager at Alibaba's grocery delivery unit Neighborhood Retail was fired after the accusation of a sexual assault of a female employee while she was inebriated. The company said the police was investigating the case and that new rules against sexual harassment at Alibaba are to follow. 

Alibaba's CEO Daniel Zhang also said a staff training against sexual harassment will take place and expressed the company's opposition to "the ugly culture of forced drinking," as cited by Reuters.

However, the actions were too little too late, as various media had blasted the company for taking action only when the female employee made her accusations public.

U.S. investors following Chinese stocks would remember a precedent to this case. In late August 2018, Richard Liu, the founder and chief executive of Alibaba's rival, Ltd. (Nasdaq: JD; HKEX: 9618), was briefly arrested in relation to alleged rape while visiting on a study program at the University of Minnesota. Soon after, as the investigation unfolded and new details came to light, lost about a third of its market value.

In the months that followed, JD made all effort to separate the company from the allegations against Liu and focused strictly on its business performance in its statements to the public. Through his lawyers, Liu maintained his innocence throughout the investigation. And in a matter of a half-year, shares in regained their pre-incident level and continued rising.

In Alibaba's case, thankfully, the CEO was not involved. However, Alibaba has been so beaten by the regulatory scrutiny, lasting probes into its operations, multiple fines, and divestiture of certain businesses since November 2020 that the company, previously thought of as "too big to fail," has faced wild sell-offs and lost 15% of its market value this year already.

Last week, Alibaba released its June quarter financial results, showing a return to income as compared to the first three months of 2021. The company reported 34% year-over-year revenue growth and $6.6 billion, or $2.54, in income, as well as a strong increase in annual active customers to 1.18 billion.

Zhang said in a statement today, "This incident is a humiliation for all Alibaba employees. We must rebuild, and we must change."

BABA, Alibaba, Richard Liu, JD, China