Alibaba Gets a Rude Welcome in the World of Online Ratings

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alibaba app on iphone
Close-up shot of Apple iPhone 5S with Alibaba online store application on screen.
alibaba app on iphone
Close-up shot of Apple iPhone 5S with Alibaba online store application on screen.

As you probably already know, giant Chinese e-commerce platform Alibaba is under government scrutiny both in China and the United States for the trading activities on its platform. I strongly believe that this is all making a mountain out of a molehill. Just as initial investors suffered a lot of drama with Google due to the possibility of click fraud, there is a lot of unnecessary digital ink being spilled on the topic of fraud on Alibaba (NYSE:BABA) . The reality of e-commerce is that whenever there is reputation involved, there will always be an incentive to cheat. The conversation shouldn’t be whether or not fraud is happening on Alibaba. That goes without saying. The conversation should be focused on whether Alibaba is on notice and whether it is putting into place measures that would prevent such fraud from happening.

Regardless of how you cut it, it appears that the biggest sin Alibaba committed was that its technology wasn’t robust enough to catch this behavior. This is a non-issue. If anything, this should just remind Alibaba to run a tighter ship. It doesn’t call into question the overall value the company brings to the table. Nor does it call into question the wisdom of investing in an otherwise robust Chinese e-commerce platform.

Still, if you are looking to buy into Alibaba, it might be a good time to stand back and wait for the stock to crash further as the drama reaches a fever pitch. Once the company has been punished hard enough due to all these misunderstandings regarding the fundamental nature of fraud in e-commerce platforms, it would be a good time to buy in to the stock. Of course, you shouldn’t throw away all considerations of price-per-earnings ratios and other traditional determinants of stock value. Assuming that the company is producing solid numbers and the drama is finally blowing over, that might be the perfect time to load up on this company’s stock.

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