Alibaba Group’s Market Value Takes a Hit as it Abandons Cloud Business Spin-off
Alibaba Group Holding Ltd., China’s e-commerce giant, witnessed a significant drop in market value on Thursday as it announced the suspension of its plans to spin off its cloud business. The decision is primarily due to uncertainties over U.S. restrictions on exporting artificial intelligence (AI) chips to China. The market value plunged by a staggering $20 billion, with Hong Kong shares of Alibaba closing down 10%, marking the largest single-day drop in over a year.
This move by Alibaba comes hot on the heels of similar concerns raised earlier in the week by Tencent Holdings, adding to the growing unease over U.S. export curbs. Alibaba’s market value has been on a steady decline since reaching its peak in October 2020, largely due to Beijing’s crackdown on the technology sector and a spurring Chinese economy.
The decision to shelve the cloud business spin-off has raised questions about potential undisclosed issues within Alibaba. Jon Withaar, a representative of Pictet Asset Management, commented that this move was unexpected, suggesting potential internal problems within the company. Moreover, Alibaba’s listing plan for its Freshippo groceries business has also been put on hold, compounding the uncertainty.
Analysts have attributed Alibaba’s recent stock fluctuations to additional factors as well. The news of the family trust of Jack Ma, co-founder of Alibaba, planning to sell shares has undoubtedly impacted investor confidence. The selling of shares by such a significant figure within the company may have contributed to the company’s plummeting stock prices.
Chairman Joseph Tsai, however, remains optimistic about Alibaba’s future prospects. Tsai emphasized that the company will now focus on growing its cloud business and investing in AI drivers. This decision to retain the cloud unit is crucial in order to meet the increasing demand for AI computing in China.
In terms of financial performance, Alibaba reported revenue of 224.79 billion yuan ($31.01 billion) for the second quarter, aligning with analyst expectations. The company’s CEO, Eddie Wu, outlined a future strategy of conducting a strategic review to differentiate between “core” and “non-core” businesses. Analysts view Wu’s strategy positively and anticipate significant reassessment of decisions made by the former CEO, Daniel Zhang.
Despite the setbacks in the cloud business spin-off, Alibaba remains determined to proceed with the listing of Cainiao, its logistics arm, and prepare for external fundraising for its international digital commerce unit. These steps demonstrate the company’s commitment to capitalizing on other profit-generating avenues amidst challenging circumstances.
As Alibaba navigates through uncertainty and charts its path forward, market observers will closely monitor its actions to evaluate its resilience and adaptability in an ever-changing global landscape.
