Alibaba co-founder Jack Ma (Photo by Phillip Lopez/AFP via Getty Images)
AFP via Getty Images
Alibaba Group stunned investors when it announced it would suspend listing plans for its cloud computing unit, while also revealing that co-founder Jack Ma intends to sell some of his shares. The news shook confidence in the tech giant and cast doubt on the company’s corporate overhaul unveiled a few months ago.
Shares in the dual-listed company fell 10.4% in Hong Kong on Friday after falling more than 9% overnight in New York, wiping out more than $20 billion in market value. Investors were reacting to Alibaba’s earnings results for the September quarter, which revealed that management had halted plans to spin off its Cloud Intelligence Group. In separate filings with the US Securities and Exchange Commission, Alibaba also disclosed that two private holding vehicles linked to co-founder Jack Ma’s family trust plan to dispose of about $900 million worth of Alibaba shares. . Ma is currently China’s sixth-richest billionaire with a net worth of $25.1 billion, according to forbes Estimate.
An Alibaba spokesperson did not respond to a request for comment. The stalled IPO is a step back from a strategy announced in May, when Cloud Intelligence Group said it would separate from its parent company within the next 12 months, and eventually list independently.
Alibaba blamed US export controls for the reversal, and said the Biden administration’s increased restrictions on selling advanced chips to China had created uncertainties for its cloud computing unit. During a call with analysts on Thursday, executives said the group would continue to invest in its cloud division, which will continue to be managed by its own chief executive and board of directors, as originally announced first in March. Was conceived during the overhaul.
But analysts say the cloud unit faces more pressing issues than US export restrictions, although the latter hurts its ability to provide artificial intelligence-related products because they need chips to crunch data. Is required. While the division is still the largest cloud service provider in mainland China in terms of market share, growth has slowed to single digits.
Restoring its prior trajectory of double-digit revenue growth proved challenging, as competition from rivals such as Huawei and Tencent as well as slowing corporate spending on information technology amid China’s economic slowdown all slowed momentum.
“Alibaba’s cloud computing unit is in a strange situation,” says Ke Yan, head of research at Singapore-based DZT Research. “Growth has slowed to single digits, and it can no longer get as much of a boost from artificial intelligence.”
To reinvigorate the business, Alibaba executives said they are prioritizing public cloud services, which are easier to scale, than the independent projects being pursued by Cloud Intelligence Group. Those projects may involve building specialized cloud services for customers such as local governments, and typically have very low margins, says Wang Xiaoyan, a Shanghai-based analyst at research firm 86Research. He believes this strategy is a step in the right direction.
Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities, says investors are likely to wait for at least several more quarters to reevaluate the cloud unit’s outlook. In the second quarter, the cloud business grew just 2% year-on-year to $3.8 billion, while overall group revenue rose 9% to $30.8 billion.
When and where Cloud Intelligence Group will eventually list remains an open question. Shen Meng, Beijing-based managing director of boutique investment bank Chanson & Co., says China’s strict laws governing data protection could prevent the unit from offering in Hong Kong. In September, Bloomberg reported that a potential launch in the Asian financial hub could value the cloud division at $55 billion.
“I don’t think there’s a big chance of it being listed offshore because of data protection regulations,” Shen says. He added that regulators prefer cloud service providers to be listed on mainland China markets, so that They can remain close. look at the data
Meanwhile, Alibaba said IPO plans for its Freshippo supermarket chain have also been put on hold. However, analysts say the suspension was more or less expected as China’s weak consumer spending means Freshippo’s valuation is unlikely to meet expectations. To reassure investors who were hoping to profit from multiple listings of smaller Alibaba units, the parent company announced its first annual dividend payment, which will total about $2.5 billion.