Alibaba is facing an investigation by U.S. regulators. (Photo : Reuters)
Facing an investigation by the Securities and Exchange Commission, Alibaba saw its shares tumble 6.8 percent on May 25, Wednesday, the biggest drop since January.
Previously, reports circulated that the e-commerce giant was being probed by U.S. regulators on its accounting practices. Alibaba confirmed the rumors, saying that an investigation was launched by the SEC this year.
"Earlier this year, the SEC informed us that it was initiating an investigation into whether there have been any violations of the federal securities laws," a spokesperson for Alibaba was quoted as saying in a report by the BBC.
"The SEC advised us that the initiation of a request for information should not be construed as an indication by the SEC or its staff that any violation of the federal securities laws has occurred."
Specifically, the U.S. regulators are questioning Alibaba's records for Singles' Day, which beats Black Friday as the world's biggest shopping sale.
The Chinese company is also being assessed for its consolidation methods for Cainiao Network, Alibaba's logistics unit.
In the wake of these events, analysts are saying that investors need to think carefully about their stocks in Alibaba.
"I think it's a really tough one. The flipside of what we're talking about is this is a company that just grew 40 percent and is only trading at 20 times [earnings]," Wedbush Securities' technology analyst Gil Luria told CNBC.
Meanwhile, independent analyst Yin Sheng said in a China Daily report that some investors are already re-evaluating their shares in Internet companies, following China's economic slowdown. An indication of this is the curtailed overseas expansion plan of such firms.
"With the slowing of China's economic growth and limitation on business--most of them haven't expanded outside China--investors seem to have started to re-evaluate such shares," Yin said.
Other market analysts, however, remain optimistic with Alibaba.
Morgan Stanley's Robert Lin said that his group is "positive on Alibaba given its increased transparency and disclosures on Cainiao and other related parties."
