Alibaba calls off cloud spin-off in major blow to overhaul effort
Decision marks a dramatic reversal on a signature move
Alibaba Group Holding Ltd. has called off a spin-off of its giant cloud business, a major hitch in an overhaul announced just months ago that was intended to streamline and revive China’s e-commerce leader.
The company announced its decision along with quarterly earnings. It posted sales of 224.79 billion yuan ($31 billion) in the September quarter, versus the 224.1 billion yuan average projection. Net income was 27.7 billion yuan, compared with a year-ago loss.
“The recent expansion of US restrictions on export of advanced computing chips has created uncertainties for the prospects of Cloud Intelligence Group. We believe that a full spin-off of Cloud Intelligence Group may not achieve the intended effect of shareholder value enhancement,” it said in a statement. “Accordingly, we have decided to not proceed with a full spin-off, and instead we will focus on developing a sustainable growth model for Cloud Intelligence Group under the fluid circumstances.”
The decision comes as Alibaba tries to stage a comeback from Covid and a tech-sector crackdown. China’s online shopping leader is trying to win back merchants and shoppers that gravitated toward PDD Holdings Inc. and newer entrants such as ByteDance Ltd. ’s Douyin, and corporate users that shifted to state-backed cloud services.
In a worrying sign for the Chinese consumer economy, Alibaba and traditional rival JD.com Inc. are coming off a disappointing Singles’ Day campaign. China’s twin e-commerce leaders likely managed only single-digit percentage growth during their signature annual shopping festival, outpaced by smaller but more innovative social media rivals like Douyin and Kuaishou Technology.
A mixed bag
Against that backdrop, some companies have managed to perform better than feared. Social media leader Tencent Holdings Ltd., which has been investing heavily in video, and JD both reported better-than-projected results on Wednesday.
Alibaba itself has taken aggressive measures to boost its e-commerce business. Its Taobao and Tmall have been focusing on content creation to ward off competition from social media platforms, and launched artificial intelligence-powered tools for merchants. It also cut tens of thousands of staff in past quarters to reduce expenses.
Taobao’s owner is making inroads into gaining back merchants and shoppers from rivals to its platforms. Such wins are crucial for Alibaba to secure more e-commerce market share in the December quarter, including capturing sales during China’s largest shopping festival, Singles’ Day. An increase in perks from Taobao and Tmall to merchants and shoppers probably widened, lowering the unit’s 2Q adjusted Ebitda margin from a year earlier.
Alibaba’s effort to rejuvenate its core consumer business has been complicated by the most radical corporate overhaul in its history. The Hangzhou-based company is navigating a break-up of the company into six main units, most of which will eventually go public and gain more autonomy. The split, however, will likely reduce Alibaba’s heft and erode its position as one of the leaders of the Chinese digital economy.
The effort has hit a few bumps. The company is putting a potential Hong Kong initial public offering of its Freshippo grocery chain on the back burner amid weak sentiment for consumer stocks. Former CEO Daniel Zhang quit just months after agreeing to lead its cloud division. Logistics arm Cainiao filed for a Hong Kong IPO in late September but it remains unclear what sort of valuation it could command.
With Zhang’s exit, two of Jack Ma’s longest-standing confidants — Joseph Tsai and Eddie Wu — are now tasked with orchestrating the spin-offs and revitalising the company as a whole.
One of their big bets is in AI, joining major Chinese tech peers and a host of up-and-coming start-ups. The company has released its own large language model, Tongyi Qianwen, and is also investing in high-flying start-ups like Zhipu AI and Baichuan. Tsai said last month the cloud unit now hosts half of China’s generative AI firms and serves about 80 per cent of the country’s technology companies.