Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Alibaba has ditched plans to spin off its cloud business and paused the listing of its supermarket unit amid waning investor enthusiasm for the Chinese ecommerce giant’s radical restructuring plan.
After reporting lacklustre earnings on Thursday, the group said it had cancelled plans to pursue a separate initial public offering for its cloud business, citing “uncertainties” arising from US export controls on AI chips.
Alibaba also said it had put listing plans for its grocery chain Freshippo on hold as it “evaluate[s] market conditions”.
Alibaba’s US-listed shares fell 10 per cent at the open in New York.
In March the tech giant announced its intention to split its empire into six units in a bid to unlock shareholder value and stimulate growth across the businesses.
The plan was initially welcomed by investors, and the group’s share price climbed 20 per cent in the days following the announcement.
However analysts say appetite for the restructuring has since waned amid fading optimism about China’s economy after the end of Beijing’s controversial zero-Covid policy.
Once a feted driver of growth for the conglomerate, Alibaba’s cloud unit saw revenue growth of just 2 per cent to Rmb27.6bn in the third quarter.
“When Alibaba launched the restructuring, the market was very different,” said Andy Maynard, head of equities at China Renaissance. “People were euphoric about the reopening, but the highs in February and March have completely dissipated.”
“The valuation upside from the break-up is looking smaller and smaller because none of the subsidiaries are in great shape right now . . . but that could change if consumer confidence comes back in China,” he added.
Thursday’s announcement comes as Alibaba’s third-quarter financial results came in below analyst estimates, in a blow to the company’s bid to drum up investor enthusiasm for its upcoming IPO of the logistics business Cainiao.
Revenues for the group climbed 9 per cent to Rmb224.8bn ($30.8bn), below the Bloomberg consensus estimate of Rmb272bn. Net profit was Rmb27.7bn this year, compared with a net loss in the same period last year of Rmb20.6bn, due to an increase in the value of its equity investments.
Nonetheless, the group announced its first annual dividend, which would cost $2.5bn, and said it had $15bn remaining for its $25bn share buyback programme.
Robin Zhu, an analyst at Bernstein, called the cancellation of the Freshippo IPO and cloud business spin-off a “surprise”. “It puts an end to hopes that the restructuring of Alibaba creates value for shareholders,” he said.
In another potential knock to investor confidence, Alibaba disclosed on Thursday that its founder Jack Ma’s family trust was set to sell 10mn Alibaba shares for about $840mn next week. “Jack Ma selling is unhelpful for sentiment,” Zhu added.
Joe Tsai, the group’s chair, struck an optimistic note about growth for the next quarter, saying the group was “entering a more stable operating environment in China”.
Alibaba said Washington’s decision in October to tighten controls on crucial AI chips used in cloud computing “may materially and adversely affect Cloud Intelligence Group’s ability to offer products and services and to perform under existing contracts”.
It added that the restrictions “may also affect our businesses more generally by limiting our ability to upgrade our technological capabilities”.
The cloud business has also been plagued by sudden changes in its leadership team, just as Alibaba initiated the restructuring.
The group had announced that Alibaba’s departing chief executive Daniel Zhang would head the freshly hived-off cloud business group but on the day he was scheduled to take control, he unexpectedly stepped down.
Alibaba has yet to appoint a new management team for the cloud business, one of China’s largest by market share.
In his first investor call, new group chief executive Eddie Yongming Wu said the company was conducting a review of its corporate governance structure to “reawaken our entrepreneurial mindset”.
Read the full article here
