Alibaba.com Achilles Heel?

Alibaba.com (HKSA:1688) may have shown it’s Achilles heel. They announced stellar results showing that international customers grew much faster than internal Chinese customers. Check out the Ali-Loan program and this quote “The Ali-Loan program continued to gain traction since it was launched in 2008. As of June 30, 2010, the cumulative number of loans issued by our partner banks to our paying members was more than 5,500, totally amounted to RMB13 billion (US$1.9 billion). The program has catered to the financial needs of small businesses while also increasing our member’s stickiness to our platforms. It brings long-term benefit to the company although it does not serve as a revenue driver. “

No explanation of what is being financed and how. Member banks are not captive finance companies so how do you control the flow of credit. Admittedly they are not experiencing revenues from the program directly. But if they act as an acquisitions marketing agent for other banks why are they not being compensated for the referrals? How do they manage who are member banks and who gets the deal flow?

They have hit USD of $1.9 billion over 5,500 loans. That is an average of $345,000 per loan. So what is being financed and how?

Disclosure: No position in any stocks mentioned in this post.