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Alibaba has ditched plans to spin off its cloud business and paused the listing of its supermarket unit after investor enthusiasm waned for the Chinese ecommerce giant’s radical restructuring plan.
The group said on Thursday that US export controls had created “uncertainties” for its cloud business and that it had cancelled plans to pursue a separate initial public offering. Freshippo, its grocery chain, has also put its listing plans on hold as Alibaba “evaluate(s) market conditions”.
Alibaba announced its first annual dividend, which would cost $2.5bn, and said it had $15bn remaining for its $25bn share buyback programme.
In March, Alibaba announced its intention to split its empire into six units in a bid to unlock shareholder value and stimulate growth across the businesses.
Investors initially reacted with enthusiasm to the plan, with Alibaba’s share price climbing 20 per cent in the days following the announcement. But analysts say that fading optimism about China’s economy after the end of the controversial zero-Covid policy has damped appetite for the move.
Andy Maynard, head of equities at China Renaissance, said: “When Alibaba launched the restructuring, the market was very different. 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 said.
The announcement on Thursday 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.
Robin Zhu, an analyst at Bernstein, said the cancellation of the Freshippo IPO and cloud business spin-off was a “surprise”. “It puts an end to hopes that the restructuring of Alibaba creates value for shareholders,” he said.
Alibaba disclosed 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.
Alibaba’s US-listed shares fell 8 per cent in pre-market trading on Thursday.
The group saw revenues climb 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.
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”.
In September, Alibaba filed paperwork to list Cainiao in Hong Kong. The logistics unit saw revenues grow 25 per cent year on year in the third quarter to Rmb22.8bn, driven by an increase in cross-border business.
The cloud division unit eked out revenue growth of 2 per cent to Rmb27.6bn as the once-fêted growth driver of the conglomerate struggles amid a broader national slowdown in economic growth.
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”.