Alibaba Group Holding Ltd (NYSE:BABA)’s Employee Pay Raises Eyebrows

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The way Alibaba Group Holding Ltd (NYSE:BABA) pays its employees or sweetens employ pay has been called to question. But that is just one of the many explanations Alibaba has to do to calm investors who are starting to worry about its accounting practices. It turns out the Chinese e-commerce giant pays workers an outrageous amount that is difficult to justify.

Taking on Alibaba Group Holding Ltd (NYSE:BABA) on its accounting practice in the latest case is Bob Wittbrot, a well-known critic of the company. Wittbrot runs a blog called Deep Throat, which reports Alibaba investigations. This time around, Wittbrot is highlighting how Alibaba’s employee compensation raises more questions than answers.

Shocking rise of wage bill

It turns out that Alibaba’s wage bill is rising faster than revenue and new hires. In the last three quarters of 2015, Wittbrot has discovered that Alibaba’s stock compensation to employees rose more than 37% compared to a similar period in the prior year to hit $1.78 billion in the latest case. During the same period, Alibaba’s headcount only increased 6% to 36,465 workers and revenue grew only 31% to $11.9 billion.

Nearly 15% of Alibaba Group Holding Ltd (NYSE:BABA)’s $11.9 billion in the last three quarters of 2015 went to employee stock compensation.

Contrasting Alibaba with Amazon

Alibaba and Amazon.com, Inc. (NASDAQ:AMZN) are essentially in the same business, which means that one doesn’t expect their model of compensation and other accounting practices to be far apart. But in this case they are, which further brings doubt Alibaba’s accounts reporting.

In the case of Amazon, the company channeled less than 2% or $2.1 billion of its 2015 revenue of $107 billion to employee stock compensation. In the year, Amazon’s workforce rose 50% to 230,800 employees and compensation expenses grew 42%. If you adjust Amazon’s figures to bring them in-line with Alibaba’s cited numbers, you find that Amazon’s headcount rose 40%and stock compensation increased 46% in the last three quarters of 2015.

Going deeper

Looking deeper into Alibaba Group Holding Ltd (NYSE:BABA)’s numbers, you find that the company’s stock-based compensation expenses increased 28% YoY to $49,000 per employee in the last quarter. That is incredible. Further complicating the matter for investors is that Alibaba’s share price declined 22% in 2015 while Amazon’s rose 118%.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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