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9/23/2015

FINANCE

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

ALIBABA GROUP INC.

Here's why one hedge fund


manager thinks Alibaba
could be a big fraud
by Jen Wieczner

@jenwieczner

http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

SEPTEMBER 18, 2015, 5:42 PM EDT

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9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

Alibaba founder and chairman Jack Ma, founder and chairman of Alibaba Group, speaks at Beijing Normal University on
September 16, 2015.
Photograph by ChinaFotoPress via Getty Images

Compared to Amazon and UPSs figures, Alibabas


numbers dont add up, he says.
Alibaba has already had a terrible first year since its IPO: Its shares are down 28%. But one
well-known hedge fund manager has a suspicion that, if true, could potentially destroy
Alibabas stock completely.

In a post on his blog this week, Bronte Capital hedge fund manager John Hempton laid out
reasons why the Chinese e-commerce companys delivery figures seemed fishy. The possibility
that Alibaba ( BABA -2.91% ) might be a fraud, he wrote, is a thesis worth testingand plans
to gather evidence, and potentially short the stock, depending on what he finds.

Hempton, an Australia-based investor known recently for making a long bet on Herbalife
( HLF

-1.06% ) opposite hedge fund manager Bill Ackmans famous short, said he got the idea

from fresh-out-of-school candidates whom he interviewed for an entry-level position:

http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

2/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

[Several] suggested that we could not dismiss the idea that Alibaba was faking their
numbers. Most people who suggested that knew what an extraordinary (and
potentially outrageously profitable) suggestion it was. After all some two-bit reverse
merger Chinese company might be a fraud but you can only make a limited profit
from that. The idea that Alibaba a company with half the market cap of Google
( GOOG 0.73% ) might be making its numbers up is well extraordinary.

Heres how they got that idea, by the numbers:

On Alibabas Singles Day shopping event (think of it as Black Friday in America, Hempton
wrote), in November 2014, the company said it received and shipped 278 million orders.
Thats 7.5 times more orders than the 37 million orders Amazon ( AMZN

-0.09% ) received on

Cyber Monday.
Its also more parcels in a single day than Amazon had users [244 million] in a whole year.
Alibaba said its network delivered 8.6 billion packages from its retailers to customers in the
year ended March 31, 2015or about double the 4.6 billion packages UPS ( UPS
delivered in 2014.

-0.64% )

Alibaba reported about 35,000 total full-time employees as of March 31, 2015. Meanwhile, UPS
had more than 12 times as many (435,000) and Amazon had more than four times as many
(150,000)plus robots, Hempton added.
Then Hempton did some math: To truly deliver at a larger intensity than Amazon, Alibaba and
its outsource network would need more staff or capital (or both) than Amazon and UPS
combined.
Alibaba said that Alipay, the online payment processor it divested in 2011, handled 2.85 million
transactions per minute at the peak of Singles Day.
By comparison, Visas ( V 0.70% ) peak transaction volume globally [840,000 transactions
per minute, by Hemptons calculation] is only about 30 percent of Alipays peak minute. This
suggests a level of shopping in China that puts the US, Europe and most of Asia to shame,
Hempton wrote.

Earlier this week, Alibaba responded publicly to a Barrons article that expressed a similar
skepticism about the seeming improbability of some of Alibabas reported figures. Alibaba
stands by our reported financials and operating metrics, the company wrote in its response.
Alibaba further explained that it is flawed to make conventional assumptions about its
customers spending habits because they are a relatively exceptional demographic: Shoppers
that come to Alibabas platforms are early adopters of technology and tend to be urban and
more affluent, the letter continued. And as for its logistics and delivery staff, Alibaba said that
rather than taking on large headcount increases ourselves, it instead partner[s] with other 3/18
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

rather than taking on large headcount increases ourselves, it instead partner[s] with other
companies to leverage their expertise and scale.

Meanwhile, Hempton (who acknowledged in his post that hed read Alibabas response)
concluded his analysis saying: At this point I know the numbers are wonky. But before hell
begin shorting Alibaba, he needs more evidence. As for how to collect that evidence, hes
welcoming suggestions.

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James Malenfant

3 DAYS AGO

I would never think of shopping there. So far Ebay is the best. I find the numbers hard to believe as well,
and I would dump the stock right now. There is no guarantee on any company that fakes their numbers.
Have a great day!
Like

crazytile

Reply

3 DAYS AGO

I have bought things from there.. about 70-85% or so are fake goods. Seriously. Do make some clothing,
bags, etc orders and you will see it yourself when you get it. They will sell items or rename similar names
of opther brand goods. Not just clothing's but almost everything you will never imagine. I know what
happens. Many companies (hardware restoration, Apple, clothings companies, and many others) ask these
companies to manufacture for them but in the long run... these blue prints or designs, and possibly copies
of the actual item are popping up from everywhere in China and they make the items incredibly so real like
the originals. We were in Florence Italy.. there were tons and tons of bags which we paid $1000s of dollars
selling for under $90-120 Euros. You name it they have it.
Like

4555joe

Reply

3 DAYS AGO

I full agreed my company is listed in Alibaba for more than 12 years, we have never make a sale nor do I
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

4/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

know of any one that has buy something in this company. We do received scam letters enquiry mostly
from Africa...This company is a fraud and their stock values in not more than $15.00 dollars at best.
Like

spfortune

Reply

3 DAYS AGO

8.6 billion packages!!!! per year and revenue 12.3 billion? that makes $1.43 per package
Like

Russell

Reply

2 DAYS AGO

@spfortune Revenue is not GMV, or Gross Merchandise Volume.


Revenue is their "Take-Rate" Percentage, 2% to 3% off GMV, (think of Take-Rate as
middleman-commission), so please
DO NOT confuse Revenue with GMV!
Get your numbers (or ducks) lined-up straight, before you shoot-off your precious pearls of
wisdom upon us!!
Besides, since I just gave you the variables, and since you are a genius in simple arithmeticdivision, you should be able to (are you?)
figure out GMV.
Then divide GMV total by number of packages you mentioned, and that will be the CORRECT
(dear genius) $/package!

Happy calculus, my genius-friend!


Like

spfortune

Reply

6 HOURS AGO

@Russell @spfortune
Obviously you cannot read straight. Who cares of GMV? The revenue is $1.43 per
package. This enables one to compare with Amazon or E-bay, their margins and
profit ability.
As to your other 'smart' comments.... it is a matter of civility
Like

yamfun

Reply

3 DAYS AGO

Comparing UBS and Alibaba's headcount shows his ignorance. Alibaba does not deliver themselves,
Taobao users pick their 3rd party delivery method. e.g. SF Express, has 240,000 employees. STO has
200,000. ZTO has 100,000. YTO has 60,000. Yunda has 50,000....etc
1

Samsmith85

Like

Reply

3 DAYS AGO

Exactly. Base of that fact alone, I find that


Like
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

Reply
5/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

Samsmith85

3 DAYS AGO

So ignorant to call Alibaba a fraud without understanding the basics of the company.
Like

Seiryu Box

Reply

4 DAYS AGO

Wasn't "alibaba" become the prince of thieves after thieving from thieves???
Like

dr_Z

Reply

4 DAYS AGO

John Hempton obviously knows nothing about China, Chinese consumers much less their absolute
dependence upon Alibaba. The numbers are very real and will do only one thing -- grow. LONG BABA.
Like

Samsmith85

Reply

4 DAYS AGO

What a dumb comparison between Alibaba and UPS workers. Alibaba is a middleman. They do not
actually handle and ship packages like UPS.
Like

James Danforth

Reply

4 DAYS AGO

in 2013, AMZN had $74 Billion in revenues compared to BABA's $5.5 Billion. Even Amazon's gross Profit
of $21 Billion (perhaps more comparable to BABA, given BABA's outsourced structure) still shows
Amazon is 4X the size of BABA. Who DO WE believe? Jeff Bezos or Jack Ma. Price Waterhouse gave a
clean opinion on BABA's financials. That's Price Waterhouse in Hong Kong, by the way. Not Price
Waterhouse in New York. Given the "outsourced" structure of BABA, PriceWaterhouse cannot audit the
entire business, only the Net business received by BABA in its Times Square Office in HK. ( I have been to
Times Square in HK dozens of times.

BABA's Times Square Building is probably 70 stories. But I doubt BABA resides in more than about 10
floors. (thats about 3000 people give or take).

in the Madoff Ponzi Scheme, a huge amount of the fraud resulted from Madoff's use of "Feeder Firms" that
were off the balance sheet of Madoff's company and thus "audit-proof". BABA's outsourced structure is
off-balance sheet too. I find that interesting.

nearly all the shares owned by Ma are held in various entities in the Cayman Islands, British Virgin Islands
and Singapore. These are all well known tax havens for people pushing the limits on their tax planning. So
Ma is clearly a guy who is interested in monetizing his BABA shares via bank loan, and clearly is involved
in aggressive tax strategies in known tax havens. Upon going public Ma and Tsui SOLD billions of dollars
of shares in BABA.

in the 3 years leading up to the IPO (11,12,13) 75 million options were exercised. FYI. Then, as we know,
Ma and Tsui cashed out a gigantic amount of this.

http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

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Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

BABA's F-1 essentially describes BABA as a broker receiving commissions.

I have some investment in Amazon. I think Bezos is great. I never touched BABA. BABA and AMZN have
about the same reported gross cash flow in their latest annual report even though Amazon's gross profit is
more than double BABA's revenues. I find that too good to be true. What really bugs me is why Jack Ma
needs to borrow $2 Billion by using his remaining shares as collateral. Does Jack Ma need to make a
payment to someone, because from what I see in these small notes above is a guy who has no interest in
carrying an investment in the company he built. That's not like Jeff Bezos.

Like

Shawn Burke

Reply

4 DAYS AGO

2015 GDP Growth Rates:

Papua New Guinea19.3


Democratic Republic of the Congo9.2
Turkmenistan9.0
Ethiopia8.6
Myanmar8.3
Cte d'Ivoire7.7
Chad7.6
India7.5
Qatar7.1
China6.8
Egypt4.0
Taiwan Province of China3.8
Israel3.5
Poland3.5
Korea3.3
United Arab Emirates3.2
Turkey3.1
United States3.1
Singapore3.0
Mexico3.0
Saudi Arabia3.0
New Zealand2.9
Australia2.8
Hong Kong SAR2.8
United Kingdom2.7
Sweden2.7
Canada2.2
St.Denmark1.6
Germany1.6
Netherlands1.6
France1.2
Japan1.0
Brazil-1.0
Russia-3.8
Ukraine-5.5
Equatorial Guinea -15.4
Like

Blake Will
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

Reply

4 DAYS AGO
7/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

I have been ATTEMPTING to conduct a business transaction on Alibaba for three months.

The process is slow because of the language barrier and the fact that what most sellers are simply
ADVERTISING their capabilities.

In the end if I do end up purchasing (custom auto parts) in my example the transaction will be 100% OFF
LINE.

You see once you make contact with a seller - you receive an email and then you are off the Alibaba
platform.

Beyond the financial numbers and metrics -- the Alibaba platform does not work like amazon.

Upon consideration there is no functional or practical way their technology platform could produce or
track such financial metrics accurately.

It would be like Craigslist -- reporting $600 Billion in annual sales.

Blake
USC Business School
Like

Deep-Throat-IPO

Reply

4 DAYS AGO

@BlakeWill
Excellent comparison. Alibaba has the economic value of a CraigsList or a Yellow Pages.
Unfortunately for the shareholders, it has an AMZN valuation.
1

lbp15

Like

Reply

4 DAYS AGO

@BlakeWill The Alibaba that you are using to conduct your transaction is not the Alibaba
that the consumers in China are using. Alibaba has a network of websites very similar to
Amazon that you can just shop and buy on like normal.

As for business transactions like you are speaking of the sellers pay to advertise theri goods
there and for making contact with customers. Alibaba does not make their money from the
actual transaction in such cases.

That said, I have no idea why you are having such troubles with the language barrier. I have
conduct about 50 transactions on Alibaba and complete most deals within a few months TOPS,
some as short as a few weeks (if there are only a few customization). I think you maybe do not
know what your doing and this is your first time buying from China.

http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

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9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

That said, I do not doubt for one second that Alibaba difures are skewed. I guarantee you that
they are. No matter how much you trus ANY business person there, they are ALWAYS lying
about SOMETHING, I promise you that. It's not always easy to figure what their lying about
because sometimes it is the stupid things but they always do, about SOMETHING.
Like

James Townsend

Reply

2 DAYS AGO

@lbp15 @BlakeWill
I don't know about the other Alibaba platforms but I have made contact through
them with Chinese manufacturers on 3 transactions without any issues.
All my contacts can converse in English but they aren't always well versed in the
nuance of the English language so there is a bit of a language barrier. Because of that
we usually estimate about a month to get a complete understanding on who, what,
when, where and how much.
Like

Deep-Throat-IPO

Reply

4 DAYS AGO

I had posted similar research, and much more, on Laura Logan's CBS News page, as well as my blog,
Deep-Throat-IPO.blogspot, beginning nearly a year ago. John Laing is also an avid reader of my blog.
Like

InvestmentCents

Reply

4 DAYS AGO

For the first test- go by something there yourself. Have you ever REALLY tried? See it through- it is a
horrible process and one I assure you that NO ONE DOES WITH REGULARITY. The site itself is a HUGE
problem not a solution.
Like

InvestmentCents

Reply

4 DAYS AGO

Jack Ma raised 80MIL before ONE CENT of revenue was raised. That was his career- raising investment
capital. It is nothing but a Ponzi.
Like

InvestmentCents

Reply

4 DAYS AGO

Here's a suggestion- take a SAMPLE of seller's profiles on Alibaba. Take 1000 of them. You have the
time. It SAYS HOW MANY TRANSACTIONS THEY CONDUCT. Most of them say they have completed
10-20. That is a HIGH average. For Alibaba to be doing the numbers they are claiming- each seller would
have to average approximately how many? 10-20 transaction doesn't cut it. It would need to be more like
10,000 each. Alibaba DOES NOT MANUFACTURER PRODUCTS- they only broker them. The fraudulent
information is right there in plain site- everyone is just in denial.
1

stop crying

Like

Reply

4 DAYS AGO

Don't be too surprised. It is China.


Like
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

Reply
9/18

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Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

InvestmentCents

4 DAYS AGO

Alibaba is house of cards being built with a deck that is 49 cards short.
Like

InvestmentCents

Reply

4 DAYS AGO

Jack Ma is an absolute fraud. He even picked the name so that American investors would feel a sense of
calm subconsciously. Jack is a very common American name - and Ma reminds you of your mother.
LOOK UP HIS REAL NAME. THIS MAN IS A CON CON CON.
Like

InvestmentCents

Reply

4 DAYS AGO

The number are FAKE and we have said this for 2 years. We have purchased items "directly from the
manufacturers in China" - the items end up being fake and the transactions are invoiced and paid for
OUTSIDE OF THE WEBSITE. So, these numbers are not even counting towards Alibaba's bottom line.
This happened 4 times and we quit using the site all together. The ONLY thing that protected us and got
us refunds each time- was the fact that we ONLY paid via Paypal. Anyone that believes Alibaba is
generating revenue to this degree- based upon the word of a con-man that professionally raised funds for
hedge fund managers- needs their heads examined.
Like

rbarsom

Reply

4 DAYS AGO

Of course they are fake numbers. What, just because the stock trades on the big board means it's not fake?
China could care less about our securities laws. Prisons here is like the nicest Holiday Inn ever in China.
They simply do not follow the same laws we do and that is to their advantage. The numbers don't add up
because they are fudged and it takes a short sellers like this Hempton guy to expose the truth. The
regulators should be doing this work but they seem to be busy being used as pawns by the power elite to
keep everything status quo. Why not, they are paid well to keep it that way. Trump is right the Chinese are
killing us. My experience with BABA as a trader also adds to my suspicion. It seems like it is being
artificially propped up.
1

Bruce Baker

Like

Reply

4 DAYS AGO

I have spent many years trying to do business with various Chinese companies. In the end, it came down
to trust and there were just too many hidden facts that prevented a positive result. I would not trust the
data being presented by Alibaba without a forensic accounting by a world class firm.
Like

paul williams

Reply

4 DAYS AGO

Absolute rubbish. This guy must have a sister at Barrons


1

Marshall_Placid

Like

Reply

4 DAYS AGO

Time and time again, posters pointed out that the population of China is 5 to 6 times larger than USA.

Therein lies many problems.


http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

10/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

A larger population doesn't automatically translate into 5 to 6 times the # of transactions, sales volumes,
etc.

China's population GDP per capita is $6,807 and USA is $53,041, which is almost 9 times that of China's.

Based on these numbers, USA and China is essentially the same, based on these numbers.

I won't generalize the internet habits or risk adverse behaviours of the Chinese or the Americans.

It's true though that the USA has a much longer period of time to feel comfortable buying things online
with credit cards or bank accounts than China has.

You have to remember that any risk adverse person, of whatever country, would loath to give out sensitive
or payment related information in whatever form, even if it is a pay-by-mobile type of service.

So, with everything being equal, the USA should have a SLIGHT edge when comparing USA e-commerce
companies against China e-commerce companies.

However, the article points out that Alibaba's numbers are MUCH (re: 3 times to 10 times larger than
established USA e-commerce companies or VISA, etc.) higher.
The point is that the hedge fund manager, to an extent, could be correct, but he needs to do extensive duediligence before pointing fingers.

Alibaba, if it's cooking the books, is probably doing it conservatively (as in 20% or 30% more) to "grow"
steadily in order to curb stockholders' expectations.

I don't think it's flagrantly cooking its books (as in 100% or 200% or Enron type cooking).

However, being China, any evidence that points towards Alibaba actually cooking its books (even though
it's conservative), will be a large corporate problem for Alibaba and China in general.
Like

jackyldog13

Reply

4 DAYS AGO

@Marshall_Placid China's population is only about 4.25x that of the USA (info is easily
available online), at 6x China would be close to 2B.
Like

Marshall_Placid

Reply

4 DAYS AGO

@jackyldog13 @Marshall_Placid

http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

11/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

Quote: "Time and time again, posters pointed out" ... Not me.

In ANY case, the exact number is not the point, because the numbers written in the
article are very far apart, not just 20% or 30%, etc.

An approximation was used to support my opinions.


Like

DevChoudhury

Reply

4 DAYS AGO

Well, I am not a financial expert but I think this guy has got it wrong.

1. China's population is 6 times the US; makes sense that transaction volumes are 6-7 times more
2. Alipay's transaction volumes match those indicated for BABA
3. Chinese and indeed most of the companies / e-retailers, in India too (where I am from) have a
strong tendency to keep numbers low, headcount low and focus on current profits vs. potential profits.
Thus most of the non-core task, e.g. delivery is outsourced to e-Delivery companies.
4. People need to visit China, India and other new countries in bandwagon of e-commerce to see the real
scale-up plan - delivery and customer satisfaction are key and thus innovative and in-expensive methods
are invented to deliver in even the remote areas.
5. I am more skeptical of Amazon, which has not yielded a profit yet and presses the 'Innovate ?' button to
keep its stock high.
Like

Wanjun Gao

Reply

5 DAYS AGO

Where does he get the job as fund manager? I should submit my resume too.

Each of the points are common sense mistakes. How could editor pick this silly blog?

Alibaba is ebay like platform, they don't run inventory, nor delivery shipments. So amazon, ups stories go
out of window. That is right, a mistake, so basic.

Nov 11, the craziest ecomm day in China, make it hardly a surprise that peak volume can be generated in
short time. While this "fund manager" conveniently compare apples to oranges.

Whoever has money in this fund, need to get out now.

http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

12/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

Like

webtelly

Reply

5 DAYS AGO

Wait, a website that is basically a Craigslist for questionable resellers of goods mass-produced by child and
slave labor around the world is suspected of being a fraud? I'm shocked!
Like

gtafunmuscle416

Reply

5 DAYS AGO

you need to live in china for a few years and experience alibaba first...people in china buy everything on
taobao
Like

Walter Xu

Reply

5 DAYS AGO

So, in the end he even failed to convince himself, yet is confident enough to share his views on Fortune?
Comparing Amazon to BABA is comparing apples with iPads. The business models are different, BABA
doesn't manage physical inventories like Amazon, everything else is taken care of by 3rd party merchants.
They are merely a platform for people to trade goods/services.
Like

Cristiano Vinattieri

Reply

5 DAYS AGO

Interesting assumptions, but only as speculative as generally assumptions are. BABA's potential exists
beyond his numbers. And the whole Chinese market is a proof of that. The recent Chinese's slow down is
unrelevant compared to the level of growth of the developed countries. China's GDP growth 7% vs US 2%
or little less than that
Like

3506Dodge

Reply

5 DAYS AGO

@CristianoVinattieri Without any valid data, how can you know any of this?
Like

Cristiano Vinattieri

Reply

5 DAYS AGO

@3506Dodge @CristianoVinattieri That is exactly what I said about the Hedge


Fund's assumption. The only number I am looking at is the Chinese GDP and
transition to consumer economy.
Like

2BContinued

Reply

4 DAYS AGO

@CristianoVinattieri @3506Dodge China's GDP number itself is a


cooked up statistic. No one in their right mind will believe what the
opaque, communist dictatorship spits out.
Like

Cristiano Vinattieri
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

Reply

4 DAYS AGO
13/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

@2BContinued @CristianoVinattieri @3506Dodge If we can't


trust the Chinese government then let's just look at other companies (like
AAPL) that do business in China. Their sales portray the change in trend
of the Chinese population to a consumer economy. Right now it is still at
its initial phases and a contraction is preferable to avoid an economic
shock. What I'm saying is pick a couple of Chinese stocks you like, and
look at your portfolio in 20yr.
Like

Shawn Burke

Reply

4 DAYS AGO

@CristianoVinattieri Everything in China is a house of cards. You know just enough about
China and economics to be dangerous! Stable western nations that achieve economic success
have an annual GDP growth rate of 2-3%. That's normal. Event UAE is only growing at a rate
of 3.5%. Developing nations in Africa and Asia are seeing growth rates of 6-9%. As they
develop and grow, that annual growth tapers off and stabilizes. A GDP growth rate of 7-15% is
not normal for a developed nation, nor is it sustainable! The Chinese have been building and
producing - often just for the sake of - to fuel their "growth". Their growth is not sustainable.
Also, don't forget that almost 40% of China's population earns less than $1.25 a day!!! So,
while they may have over 1 Billion people, nearly half are living below the poverty line
($1.25/day).

The only reason that investors and lay people believe the ridiculous China growth phenomenon,
is population. As the author point out, just because China has a large population, does not
mean that they consume and spend in the same way as Europeans and Americans. Alibaba is a
total fraud, and its been blatantly obvious for quite a while. I've used them myself, and I was
appalled by the unscrupulous vendors and shoddy online infrastructure of the site. It's a
complete joke!

If you believe that China's "slowdown" (which is nothing short of a disaster waiting to happen)
is not relevant or serious, then you need to take a macroeconomics class.
Like

DSangiovanni

Reply

5 DAYS AGO

Amazon & Ebay couldn't compete in China against Alibaba. Alibaba won. Alibaba has 35,000 employee
against Amazon 15,000. Alibaba doesn't deliver the way Amazon & UPS do, and China is no USA.
Like

3506Dodge

Reply

5 DAYS AGO

@DSangiovanni Because the Chinese government made sure of it.


2

2BContinued

Like

Reply

4 DAYS AGO

@3506Dodge @DSangiovanni 3506Dodge I agree. The communist government


has blatantly rigged the system in Chinese companies favour. But not for long. The
system will crumble under it's own fraudulent weight in a few years.
Like
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

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14/18

9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

Alien

5 DAYS AGO

Alibaba faked their numbers when it was listed in Hong Kong decade ago. They bought the shares back at
a deep discount from investors. In China, if you are convicted of fraud, it is death sentence. I don't think
they will buy back any shares this time if the numbers are found to be fraudulent. US white collar crime is
too lenient. When lock up expires, they will sell everything and go to hiding. Well, you have heard CEO
went on hiding and companies lock their door in the news before, haven't you?
Like

Sandeep Mohil

Reply

5 DAYS AGO

Not a finance major but doesnt China's huge population(User Base) contribute to this ?
Also the mindset of the people where people of one country are more inclined towards online shopping
than others.

Not sure why some people have a tendency to put dirt on famous person to get noticed.
Like

Shawn Burke

Reply

4 DAYS AGO

@SandeepMohil 40% of their population lives below the poverty line ($1.25/day in China).
So I doubt they're online buying electronics and other items. And those that are technically
above the poverty line, they aren't any better. The middle class in China is MUCH smaller than
reported.
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FORTUNE INSIDER

STARBUCKS

http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

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9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

Does the Starbucks


Rewards Program
shortchange customers?
COMMENTARY by S. Kumar

@skumarus

SEPTEMBER 23, 2015, 1:10 PM EDT

Courtesy of Starbucks

The coffee chain offers generous rewards to its


customers, but the program is not as rewarding as it could
be.
Earning rewards at coffee giant Starbucks is easy. The company offers a star for each purchase
made through its popular app and automatically generates a reward after a fixed number of
stars. For avid coffee drinkers, its an attractive program. There is, however, one feature that I
feel shortchanges customers yet few people seem to catch on.
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9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

This is how the program works: each star is awarded based on a single transaction, regardless
of the number of items purchased or the aggregate dollar value. So even if you buy a Venti
Frapuccino, a bagel, and four other items for a total of $30, you only receive one star if you pay
for everything at the same time. You could have earned the same star just by buying a Tall
coffee for $1.95 instead at New York prices.

The math behind this glitch is easily illustrated by considering a single item such as a 12 oz. bag
of ground coffee, which goes for about $12 for simple blends and higher amounts for more
exotic blends. Even though the packet of ground coffee costs six times as much as a Tall cup of
brewed coffee, you receive just one star. If you had bought six cups instead, you would have
received six stars. That means by offering only one star for the ground coffee, Starbucks is
shortchanging its customers by five stars at least (this number is even higher for more
expensive ground coffee blends).

How much are these lost stars worth? Under the program, customers who earns 30 stars within
a year attains Gold status, which then entitles them to a free beverage or single food item for
every 12 stars earned. Assuming a customer chooses one of the highest priced coffee or food
items on the menu, usually around $5.65, for his free treat, each star is then worth 47 cents. So
the 5 stars in the example above can cost a consumer $2.35 in lost rewards.

This computation varies depending on which items a customer buys or picks to receive for free,
but even with conservative assumptions, the lost stars could still cost him 80 cents. On the
other extreme, customers can lose many more stars than five if they purchase multiple items in
one shot. For the $30 purchase mentioned above, for example, the customer is potentially
losing up to 14 stars, worth anywhere from $2.28 to $6.60 in real money.

There are, of course, workarounds such as asking the barista to ring up each item in a separate
transaction, but this is unrealistic in a busy store and wouldnt work anyway for a bag of ground
coffee since its still one discrete item. So the problem with offering rewards based on the
number of transactions instead of actual dollars spent still remains.

To be fair, Starbucks ( SBUX

) rewards can still be generous but it depends a lot on what you

buy. If youre a regular coffee drinker and purchase a dozen cups of coffee, the 13th coffee is
free, which translates to an 8% or higher return on your money. Contrast this with the Balance
Rewards program at Duane Reade, a subsidiary of Walgreens ( WAG ), which awards
customers 10 points for every dollar spent. After 5,000 points, the customer gets a rebate of $5.
Its a seemingly fairer system since it awards points based on the amount you spent but only
http://fortune.com/2015/09/18/alibaba-faking-numbers-hedge-fund/

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9/23/2015

Alibaba Numbers Could Be Fake, Bronte Capital Hedge Fund Manager Says - Fortune

offers you a 1% return on that money.

Given Starbucks immense popularity and widespread presence, its unlikely that customers
will stop shopping there because of a flaw in its rewards program, but it would be nice if the
company made some changes to it voluntarily and came up with a better system to correlate
the amount of money consumers spend and the rewards they receive.

S. Kumar is a tech and business commentator. He has worked in technology, media, and telecom
investment banking. He does not own any shares of Starbucks or other companies mentioned in
this article.

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