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Short-seller Jim Chanos laid out his bearish case for Chinese e-commerce giant Alibaba, saying Tuesday that "this is an accounting story."
Chanos, who is famous for his previous bets against once high-flying companies like Enron, explained that his fundamental problem with the company is that "you don't see the entire operation of Alibaba." The founder of Kynikos Associates said there's not enough detail about the individual delivery and warehouse companies that distribute items purchased through Alibaba.
"You see a line item, equity and net income of affiliates, but there's no idea — with the 2 million employees — of what those costs are, what the accounting is there," he said in an interview with CNBC's Scott Wapner on "Halftime Report. "
Chanos said his firm has noticed that some of Alibaba's affiliates have been trying to raise capital. He said investors should ask why the affiliates of a company that has been compared to Amazon have a "voracious need for cash."
"I would want to know if I'm investing in a $280 billion company that's supposedly on the forefront of the digital revolution of China why it's so cash flow negative and we can't good answers," Chanos said.
In a statement to CNBC, Alibaba said Chanos "continues to be wrong and uniformed" about the company and that it has been "cash flow generative every quarter since [its] 2014 IPO." The e-commerce giant also said Chanos' assertion "that Alibaba has 2 million employees shows a lack of understanding of our business model."
"It does not make sense for us to hire, train and manage 2 million delivery people. ... We make full disclosures on this business, including profits, loss, revenues, assets and liabilities. It's all there for anyone to see," the company said.
In September, Joe Tsai, executive vice chairman of Alibaba, invited Chanos to visit the company's campus. On Tuesday, Alibaba said it has had more than 200 investors visit its Hangzhou campus and learn about the business, but Chanos has not been one of them.
Speaking from the Delivering Alpha conference sponsored by CNBC and Institutional Investor, Tsai said, however, that he respects Chanos because of the "pain" he has endured shorting or betting against the Alibaba's stock. The company's shares have gained more than 38 percent in the past 12 months.
"You've got to pay a lot of respect to him to withstand that kind of pain," Tsai said.
Short selling is a form of trading in which traders can bet against a company by selling shares they do not own and buying them back at a lower price.
Chanos chuckled, saying, "First of all, as I've long said, never go to a fight you're invited to, so I'll pass on his invitation to Hangzhou."
After Chanos' appearance Tuesday, the company said that its invitation to the short seller still stands.
"Unfortunately, Jim has refused all invitations to date, but we welcome him anytime so he can better understand our business," Alibaba said in a statement.
Here is Alibaba's full statement:
Jim Chanos continues to be wrong and uninformed about Alibaba. We have been cash flow generative every quarter since our 2014 IPO. In our most recent quarter Alibaba generated almost USD 2 billion in free cash flow. And over the last 12 months, we repurchased USD 5 billion of Alibaba shares, returning real cash to our shareholders.
Second, his assertion that Alibaba has 2 million employees shows a lack of understanding of our business model. We are a platform-based technology company with 46k employees. Sales on our platform generate 40 million packages a day. It does not make sense for us to hire, train and manage 2 million delivery people. Our logistics affiliate Cainiao gives us a scalable delivery network to meet this demand. We make full disclosures on this business, including profits, loss, revenues, assets and liabilities. It's all there for anyone to see.
Finally, we have invited Jim Chanos to come to Alibaba's campus in Hangzhou to learn more about the company. In fact, last June, more than 200 investors spent a full day with our management team, learning about every aspect of the business. Unfortunately, Jim has refused all invitations to date, but we welcome him anytime so he can better understand our business.