Alibaba Group has scrapped plans to spin off its cloud business, citing uncertainties created by US export restrictions on chips used in artificial intelligence applications.
Last month’s US decision to ban the export to China of more chips used in artificial intelligence (AI) has created major uncertainties for the country’s major technology companies.
Tencent Holdings said on Wednesday that the restrictions were impacting its cloud services.
Thursday’s announcement came alongside inline second-quarter sales for the Chinese e-commerce group, which in March unveiled plans to expand its cloud business as part of the biggest restructuring in its 24-year history.
The company has also shelved plans for an initial public offering of its Freshippo grocery business, but said it would prepare external fundraising for its international digital commerce group.
Alibaba’s logistics division, Cainiao, applied for a Hong Kong stock exchange listing in September.
Alibaba’s US-listed shares fell 8.5% at market open.
“The market doesn’t like surprises,” said Thomas Hayes, chairman of hedge fund Great Hill Capital, on the social media platform X.
“Investors had hoped to receive individual shares of the cloud business in the hope that the segment could achieve a higher multiple in the public markets due to its growth potential.” Analysts had estimated in March that the cloud division could be worth between $41 billion and $60 billion, but warned its listing could draw criticism from both Chinese and foreign regulators because of the vast amount of data it manages.
In September, former Alibaba CEO Daniel Zhang abruptly quit just two months after focusing on cloud computing.
The company then named Eddie Wu, one of the co-founders of Alibaba Group and longtime lieutenant to former chief Jack Ma, as CEO of Alibaba and its cloud business. Zhang also handed over the group chairmanship to another co-founder, Joseph Tsai.
“Alibaba will not pursue a full spinoff of Cloud Intelligence Group in light of the uncertainties created by recent US export restrictions on advanced computer chips,” Tsai told analysts on a post-earnings call.
Instead, the group would focus on growing its cloud business and providing investment for its AI drivers, he said.
The cloud unit will continue to maintain its independent operation, Wu added.
Regulatory filings also showed on Thursday that Ma’s family trust plans to sell 10 million American Depository Shares of Alibaba Group Holdings for about $871 million.
DEVELOPMENT STRATEGY
Presenting Alibaba’s earnings for the first time during the call, Wu also explained its future strategy, saying that each of its companies would approach the market more independently and that they would conduct a strategic review to distinguish between “core” and ‘non-core activities’. companies.
“Core activities are where we will maintain our long-term focus, invest intensively in resources, pursue research and development and improve the user experience,” he said. Alibaba’s restructuring saw it split into six units, which were managed by the group as a holding company.
“As for non-core businesses, we will realize the value of these assets by making them profitable as quickly as possible or through other means of capitalization.” They will also invest in and incubate innovative businesses for the future, he added, naming four units, including work communications and collaboration platform DingTalk and second-hand goods platform Xianyu, that will be allowed to operate as independent subsidiaries.
In September, he told staff that the tech giant’s two main strategic focuses going forward will be “user first” and “AI-driven.”
PROFIT IN LINE
Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with the 224.32 billion expected by analysts, LSEG data showed.
China’s economic recovery has been uneven. Although the industrial and retail sectors have performed better than expected, the crisis-hit real estate sector has weighed on consumer confidence.
Alibaba’s retail customer management revenue, which tracks how much money sellers provide to Alibaba for placements and promotions, rose 3% year over year.
Alibaba asked merchants to price aggressively during the country’s Singles Day festival, pitting it against competitors like PDD Holdings’ Douyin and Pinduoduo, which sell cheaper products year-round.
However, Alibaba International Digital Commerce, a company that includes platforms such as Lazada and AliExpress, reported a 53% increase in sales, while retail sales rose 73% year-on-year. Analysts had predicted that strong international growth could help Alibaba offset the tepid domestic market.
The cross-border platform environment has become more intensely competitive with the rise of Temu, owned by PDD Holdings.