http://www.marketwatch.com/story/incoming-alibabacom-ceo-lu-wins-praise-2011-02-22
Feb. 22, 2011, 7:16 a.m. EST Incoming Alibaba.com CEO Lu wins praise By Chris Oliver, MarketWatch HONG KONG (MarketWatch) —
Alibaba.com won approval from analysts on Tuesday who said the selection of a 41-year-old with more than a decade of experience could help the company rebound from a damaging sales-fraud scandal. Alibaba.com said in a statement Monday it had appointed Jonathan Lu, chief executive of Taobao — an unlisted sister unit — to succeed David Wei, who is leaving the company to take responsibility for shortcomings after sellers committed fraud on the e-commerce site by posing as legitimate shopkeepers.
Here’s how it works. Lu’s appointment will help distance the company from the doomed strategy — unveiled in the wake of the global economic downturn in 2008 — of using lower subscription fees to attract online shopkeepers to its trading platform, J.P.Morgan said. Changes dating from that period helped set in motion events that led to more than 2,300 fraudulent online shopkeepers, as uncovered by an internal company investigation that was disclosed Monday. “The situation also reminds us of Baidu’s lack on internal controls over [its] sales force back in 2008. Baidu eventually put proper checks and balances in place and continues to enjoy solid growth,” J.P. Morgan analysts said in a note Tuesday. Baidu in 2008 allegedly accepted payments to tailor its web searches for commercial purchases.
Alibaba.com’s (THE:HK:1688) (PINK:ALBIY) shares ended 8.6% lower in Hong Kong on Tuesday, adding to the more than 3% drop Monday.
Alibaba.com said in a conference call with analysts on Monday some of the fraud cases appear related to salesmen who signed off on dubious accounts in order to meet their monthly sales targets. Changes to the salesmen’s commission structure were part of a strategy switch in 2008 overseen by Wei in the wake of the global financial crisis. The allegedly fraudulent online shops that appeared on Alibaba.com were set up 2009 and 2010. Some of the incidents are believed to have involved the sale of consumer electronics at attractive prices and low minimum-order requirements. Alibaba.com said it has closed down all the shopfronts in question and will operate a fraud-detection model as part of more robust security measures. Wei, along with Chief Operating Officer Elvis Lee, both resigned on Monday to take responsibility for the “systemic breakdown in our company’s culture of integrity,” Alibaba.com said. It’s believed some of the problem shopfronts were set up with the help of Alibaba.com sales staff who assisted in getting around the website’s verification checks. Neither Wei nor Lee were linked to activities that led to buyer complaints.
Standard Chartered said in note on Tuesday that Lu’s appointment could eventually lead to Taobao’s assets being gifted to Alibaba.com as a part of strategy to tap synergies between the companies’ various units. J.P. Morgan and Standard Chartered both have a 16 Hong Kong dollar ($2.05) target price on Alibaba.com’s shares. J.P.Morgan says it has a neutral outlook on the company but advises investors to buy the shares on a significant pullback in prices. Standard Chartered said in note on Tuesday that Lu’s appointment could eventually lead to Taobao’s assets being gifted to Alibaba.com as a part of strategy to tap synergies between the companies’ various units. J.P. Morgan and Standard Chartered both have a 16 Hong Kong dollar ($2.05) target price on Alibaba.com’s shares. J.P.Morgan says it has a neutral outlook on the company but advises investors to buy the shares on a significant pullback in prices.
