Alibaba & coronavirus: mask task

More than 10 cities in China are locked down. Access to public transport is blocked as the country tries to contain a deadly coronavirus outbreak. Most of those still on the move try to protect themselves by wearing surgical masks. Debates on their effectiveness aside, a buying frenzy is under way. Many stores in China are suffering from a shortage. That has given Alibaba an unexpected advantage.

The Chinese ecommerce giant has issued a public warning against profiteering to mask sellers on its online retail platform, Taobao, after some hiked the cost of 3M masks to more than six times normal levels. Additionally, it is offering subsidies to keep prices under control as supply bottlenecks are compounded by mass panic buying.

Global mask manufacturers, both regional rivals and US competitors such as 3M, are profiting. Demand has reached up to 500 times the usual output even as local plants run at maximum capacity. During the 2009 avian flu outbreak, strong mask sales added up to $100m in quarterly revenue for 3M, helping it beat sales expectations and boost full-year profits.

Smaller companies like South Korean peer Mona Lisa and China’s Shanghai Dragon and Tianjin Teda get a much larger portion of revenue from masks. Shares of the latter are up 40 per cent in the past week. Mona Lisa’s are up almost three-quarters since the first case surfaced.

Gains are likely to be short-lived. Rallies after outbreaks over the past two decades, from avian flu to Ebola, have been followed by sharp corrections. When an outbreak went from bad to worse, the rally continued for a couple more weeks. But shares are already at multi-year highs, with some like Tianjin Teda trading at 32 times trailing earnings. They are not worth buying now on the basis of a little-known virus.

The best long-term returns from this situation should be for Alibaba. A small loss of potential sales is a worthy price to pay for a socially responsible image.

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