Singapore
This article was added by the user . TheWorldNews is not responsible for the content of the platform.

Breakup of Jack Ma’s Alibaba begins with spinoff of $16 billion cloud arm

HONG KONG - Alibaba Group Holding will explore initial public offerings (IPOs) for its logistics and grocery arms while hiving off its US$12 billion (S$16 billion) cloud business, kicking off the first phase of a much-anticipated breakup to try and revive anemic revenue growth.

Chief executive officer Daniel Zhang outlined the contours of that historic shakeup for the first time, which starts with the listing of its grocery arm Freshippo as early as six months from now, before proceeding to the float of its giant Cainiao logistics arm over the next year to 18 months. Significantly, Alibaba will completely carve out the nation’s biggest cloud services platform as a dividend to shareholders, meaning it could relinquish control of one of its fastest-growing businesses.

Mr Zhang said the cloud spinoff was intended to simplify the structure and respond to market needs. A standalone platform could grow to someday even surpass Alibaba in size if it attracted the right external financing, he said without elaborating. Analysts have in the past argued that private clouds could operate at a disadvantage to state-backed rivals given Beijing’s growing insistence on using government-controlled data storage and internet services.

Investors harboured hopes that Alibaba’s March decision to split itself into six units might galvanize the market, enable the different operations to move more nimbly and fuel a share rebound. Each unit, except for the core Taobao Tmall Commerce Group, was freed to seek independent fundraising and listings.

Still, Mr Zhang unveiled that grand vision after China’s e-commerce leader posted its third consecutive quarter of single-digit revenue growth, reinforcing concerns that a Chinese consumer spending rebound may be farther out than anticipated. Domestic commerce shrank 3 per cent in the March quarter, while the cloud division, the other closely watched business, was down 2 per cent - its first-ever decline on record.

That lacklustre showing underscores how China may be recovering from years of Covid Zero restrictions at a slower pace than projected, hampered by United States sanctions and an uncertain global economic environment. Hopes that Beijing would support private enterprise this year after a blistering crackdown on the internet sector haven’t translated into meaningful policy so far.

As part of the overall restructuring, Alibaba plans to dispatch about half of its investment team to the six different business units that will be created after the breakup. That team has historically been at the vanguard of a nationwide investment spree that helped extend Alibaba’s influence and fend off competition from JD.com and Tencent Holdings.

“This transformation will empower all our businesses to become more agile, enhance decision-making, enable faster responses to market change,” Mr Zhang told analysts on a conference call.

Key points of the breakup blueprint

Alibaba reported sales of 208.2 billion yuan (S$39.9 billion) for the March quarter, lagging an average analyst estimate for 209.2 billion yuan. Net income was 23.5 billion yuan, reversing losses from a year ago thanks to once-off gains.

Investors had bet that consumer spending and the tech sector would rebound after Beijing lifted years of sweeping restrictions that hobbled the world’s No. 2 economy. But economists point to slowing trade and other signs the nascent recovery is losing steam. During the recent Golden Week holiday, an important indicator of broader sentiment, overall spending lagged behind booking volumes.

Despite overall malaise, there’re hints online commerce is at least rounding a corner.

Gross merchandise value growth in China’s e-commerce industry accelerated to 11 per cent in March after slowing to 5 per cent in the first two months of 2023, according to estimates by Goldman Sachs, which cited recovering demand and easing logistics disruptions. Last week, JD said volume growth this quarter was outpacing the previous three months, helping prop up its stock.

Tencent grew revenue at its fastest pace since 2021, while Baidu also posted sales beyond estimates. Both credited a recovery in segments of domestic consumption. Michael Burry, the money manager made famous in The Big Short, boosted his bullish bets on JD and Alibaba even as other hedge funds cooled on the nation’s reopening trades.

For now, Alibaba is pushing cost-cuts to shore up margins and offset anemic domestic growth - a sea-change for a tech deal-maker that once spent aggressively to dominate swaths of the economy.

“In the past few months, we have noticed a gradual recovery in China consumption, but consumer confidence and spending power still need further momentum,” Mr Zhang said. “At the same time, competition among the multiple consumption platforms is still fierce, and everyone is trying to capture the incremental demands with more value-for-money products and services.”

That bottom-line focus is taking on urgency because of fierce competition in its home market from JD, PDD Holdings and up-and-comers such as ByteDance, which have stepped efforts to lure customers and woo merchants.

Overseas, the tech giant is curtailing its global ambitions. Alibaba sold off the last of its shares in Indian fintech giant Paytm this month, accelerating a withdrawal from the world’s fastest-growing mobile and internet arena. BLOOMBERG