Alibaba scraps cloud unit spin-off, market value declines by $20bn
What's the story
Alibaba Group's Hong Kong stock took a 10% dive after the company halted plans to separate its cloud division due to uncertainties stemming from US restrictions on exports to China of semiconductors for use in artificial intelligence (AI) applications. This decline erased approximately $20 billion (approximately Rs. 1.67 lakh crore) from the Chinese tech giant's market value. Nomura analyst Shi Jialong commented, "The cancellation of a full spin-off of AliCloud is a negative surprise."
Details
US export curbs affect Alibaba's strategy
Following the US export restrictions announced in October, Alibaba's apprehensions mirror those of Tencent Holdings, which stated that the limitations would compel it to seek domestically produced alternatives. These export restrictions make it increasingly difficult for Chinese tech firms to obtain essential chip supplies from US companies. Alibaba's market value, which was once $830 billion (Rs. 69.11 lakh crore) in October 2020, has now dwindled to less than a quarter of that amount.
What Next?
Alibaba puts Freshippo listing on hold
Besides scrapping the cloud division spin-off, Alibaba revealed during its quarterly earnings report that it has suspended a listing plan for its Freshippo grocery business. Analysts also noted that the news of Alibaba co-founder Jack Ma's family trust planning to sell one crore American Depository Shares in Alibaba likely affected shares. UBS analyst Kenneth Fong said, "Despite no longer being involved in operations, we believe (Ma's) selling Alibaba at a depressed valuation may hurt sentiment."
Insights
Focus shifts to AI and cloud business growth
Alibaba Chairman Joseph Tsai announced a pivot toward cloud growth and investing in AI drivers. Some analysts think that reversing the spin-off decision could benefit Alibaba's AI push. US Tiger Research analyst Bo Pei stated, "The company believes the chip ban might materially and adversely affect its ability to offer products and services in the longer term. But (it) also points to the increasing importance of retaining the cloud unit given the surging demand for AI computing in China."
Facts
Alibaba reports Q2 revenue of Rs. 2.65 lakh crore
Alibaba posted second-quarter revenue of 224.79 billion yuan (Rs. 2.65 lakh crore), aligning with the 224.32 billion yuan (Rs. 2.64 lakh crore) anticipated by analysts. CEO Eddie Wu detailed the company's future strategy, explaining that each business would face the market more independently and undergo a strategic review to differentiate between "core" and "non-core" businesses. Alibaba intends to proceed with a listing of its logistics subsidiary, Cainiao, and is preparing for external fundraising for its international digital commerce unit.