Alibaba said it would split into six units - Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics Group, Global Digital Commerce Group and Digital Media and Entertainment Group. The group has been planning to spin off individual business units for a long time, according to two sources familiar with the company's thinking.
"There was a consensus within and outside Alibaba that the stock was trading at a major discount to the inherent value of the businesses," said one of the people, adding that the company had become "too bloated". The person said there would be five initial public offerings from the units, while Taobao and Tmall, Alibaba's core revenue drivers, would remain with the current listed entity. Hong Kong is the most likely venue for these IPOs, said the person, and a separate source familiar with Chinese tech companies' capital markets transactions. The sources declined to be identified as the information was not public. Alibaba did not respond to a request for comment. Alibaba would re-organise into a holding company structure. Daniel Zhang will retain his position as group CEO and will also lead the cloud-focused unit. The other divisions will have their own CEOs and boards. It would not be the first time Alibaba has spun off its business units. In 2011, the company hived off its fast-growing payments arm Alipay, which later evolved into the fintech major Ant Group.
PAIN ENDING?
Bank of America analysts described Alibaba's restructuring as "an important experiment", which would test whether or not China's biggest companies could meet Beijing's demand to "contribute to society". Morgan Stanley said the announcement would step up support for private sectors and platform companies.
"We believe such efforts will help stimulate efficiency and creativity by restoring/improving the business environment," analyst Laura Wang said in a research note.
She added that a recent statement from China's cyberspace
regulator about protecting entrepreneurs from defamation also
signalled a possible end to regulatory pressure on the sector.
Morgan Stanley values the entire group at as much as $530
billion or $200 a share, based on their valuation model of each
business unit.
During the regulatory crackdown, Alibaba faced scrutiny for
engaging in monopolistic behaviour in e-commerce, as well as for
data security practices in its cloud business and labour
practices at its delivery units.
In what many observers viewed as symbolic of the regulatory
chill, Ma left China in late 2021 and was seen travelling to a
number of different countries.
He was spotted on Monday in Hangzhou, home to Alibaba, just
one day before the company announced the restructuring.
Brian Tycangco, who tracks China's tech sector at Stansberry
Research, said that in addition to enabling higher valuations,
the restructuring better protects individual divisions from
future government regulation.
"Any new regulations will likely not affect the whole
company now - just the particular division that that regulation
covers," he said.
The split may pave the way for other Chinese tech giants to
undergo similar restructuring, CMC Markets analyst Tina Teng
said.
In addition to its core gaming and social media businesses,
Tencent Holdings also has cloud and fintech arms.
JD.com , Alibaba's longtime e-commerce rival, has in
recent years made a number of spin-offs, including its JD
Logistics and its cloud and AI-focused arm JD Digits.
Shares in Tencent and JD.com initially surged but later
pared gains to end just under 2% higher. In Japan, SoftBank
Group Corp , which has a 13.7% stake in Alibaba, shot up
6.2%.
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Alibaba's struggles Alibaba's revenue breakdown Alibaba's revenue breakdown ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Josh Horwitz in Shanghai, Kane Wu, Selena Li,
Donny Kwok and Julie Zhu in Hong Kong; Anirban Sen in New York,
Ken Li and Ankur Banerjee in Singapore; Editing by Muralikumar
Anantharaman, Sam Holmes and Edwina Gibbs)
