Alibaba’s profits take a backseat to the breakup. What you plan to rotate.

Alibaba presents its grand plan to transform from a sprawling conglomerate into a holding company.

The Chinese tech giant confirmed Thursday that it is spinning off its prized cloud division and detailed plans to bring other units to market.

Alibaba (stock ticker: BABA) said its board had agreed to spin off the company’s cloud unit — which includes its artificial intelligence (AI) arm — via a dividend payment to shareholders, with the goal of becoming an independent publicly-listed group.

The group added that it will begin the process of external financing for its global e-commerce arm, is exploring an initial public offering (IPO) for its smart logistics division, and the IPO will serve as the grocery arm of its core China business.

“We are taking concrete steps toward unlocking value from our business,” Daniel Zhang, Chairman and CEO of Alibaba, said in a statement. Alibaba announced the largest restructuring in its history earlier this year, in a bid to unlock shareholder value by splitting it into six units. It also aims to boost market competitiveness, a reference to regulators hitting the Chinese tech sector since late 2020.

Announcement – scroll to continue

In the shift to a holding company structure, Alibaba has also set up a board-level capital management committee, with a mandate to enhance shareholder value through a capital management plan. “Alibaba is committed to improving shareholder return by implementing a robust capital allocation framework,” said Toby Xu, Group Chief Financial Officer.

Thursday’s news — which also included details of the directors and CEOs of the new business groups — represents a major update on Alibaba’s turnaround. It also released quarterly results that revealed disappointing sales amid a difficult macroeconomic backdrop in China.

Alibaba reported earnings of $1.56 per share on sales of $30.32 billion in the first three months of 2023, the group’s fourth fiscal quarter. Analysts polled by FactSet expected earnings of $1.36 per share on sales, which were higher.

Announcement – scroll to continue

Alibaba shares rose 2.5% in US pre-market trading as investors digested news of the split and the latest quarterly numbers.

Revenue in the cloud division — which, in artificial intelligence, has built a competitor to Chat GPT — disappointed in the March quarter, falling 2% year over year to $2.71 billion, less than the $2.83 billion expected by analysts.

Still, investors in Alibaba are optimistic about the future of the cloud business, especially the prospect of achieving higher market value when the division is eventually listed independently.

Announcement – scroll to continue

“This is huge shareholder value,” said Thomas Hayes, chairman of Great Hill Capital, which owns a stake in Alibaba. “In a few years, this turnover will be worth more than the entire market value today.”

Hayes said owning Alibaba’s cloud business would be akin to (AMZN) owning Amazon Web Services (AWS) — also a cloud computing powerhouse — on a standalone basis in 2016, before its growth. “This is what is happening with Alicloud with this ad,” he added.

The broader earnings news was not optimistic. Revenue at China’s core e-commerce business fell 3% year-on-year to $19.81 billion and was short of Wall Street’s forecast — the latest sign of waning domestic demand in the world’s second-largest economy.

Announcement – scroll to continue

China’s consumer strength has received renewed attention in recent weeks amid mounting global growth concerns. These concerns, which have affected commodity prices and dampened sentiment among investors in Asia and around the world, were triggered in part by Chinese data showing a weak domestic picture as well as waning foreign demand for commodities.

The viability of China’s recovery in 2023 after the slowdown caused by the Covid-lockdown in 2022 remains a major topic in global markets, and Alibaba’s financial trends rank first. But, on Thursday at least, all attention seemed to be on the latest news of Alibaba’s breakup — and perhaps for good reason.

Write to Jack Denton at [email protected]

#Alibabas #profits #backseat #breakup #plan #rotate

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top