Alibaba had another spectacular singles day, reporting US$25.3 billion of gross merchandise volume settled through Alipay. Business Insider reports that this nearly doubled the $12.8 billion that US retailers sold between Thanksgiving and Cyber Monday last year.
"More than US$25 billion of GMV in one day is not just a sales figure," said Daniel Zhang, Chief Executive Officer of Alibaba Group. "It represents the aspiration for quality consumption of the Chinese consumer, and it reflects how merchants and consumers alike have now fully embraced the integration of online and offline retail."
Actually, Zhang is wrong. GMV is not at all a sales figure (although it may well represent the aspirations of the Chinese consumer). Alibaba does not report GMV as revenue (or sales), Instead Alibaba reports the transaction fees it charges to sellers. In its fiscal year 2017, Alibaba reported 114 billion RMB of revenue on GMV of 3.8 trillion RMB.
Analysts love GMV, which they believe gives a more meaningful view as to the volume of business going through the platform. A major problem is that GMV is not a defined accounting term, and the numbers are unaudited.
After facing criticism over GMV reports, Alibaba has voluntarily limited disclosures of GMV to Singles Day and annual. The SEC is conducting an investigation, reportedly assisted by a whistleblower, into certain matters including GMV reporting.
In the absence of accounting rules, Alibaba is allowed to define GMV as it chooses. This is how it chooses, extracted from its last annual report:
"GMV" are to the value of confirmed orders of products and services on our marketplaces, regardless of how, or whether, the buyer and seller settle the transaction. Unless otherwise stated, GMV in reference to our marketplaces includes only GMV transacted on our China retail marketplaces. GMV generated from traffic through Juhuasuan is recorded as either Taobao Marketplace GMV or Tmall GMV depending on which of these two marketplaces the transaction is completed. Our calculation of GMV for our China retail marketplaces includes shipping charges paid by buyers to sellers. As a prudential matter aimed at eliminating any influence on our GMV of potentially fraudulent transactions, we exclude from our calculation of GMV transactions in certain product categories over certain amounts and transactions by buyers in certain product categories over a certain amount per day;
The last sentence about eliminating potentially fraudulent transactions is interesting, but Alibaba discloses no details about what transactions are excluded from the calculation of GMV. A recent report said that two Boeing 747s were recently sold on Taobao. Were those sales excluded from Alibaba’s calculation of GMV?
I doubt the SEC investigation of Alibaba’s GMV reporting does much more than require expanded disclosure. I could be wrong if the whistleblower has documents that indicate that management had knowingly reported bad numbers. Instead, I think accounting standard setters and the SEC should think about uniform standards for commonly used non-GAAP measures like GMV. Just because the numbers do not end up in the financial statements does not mean they are not important to investors.