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Alibaba Loses $21 Billion In Market Value After Suspending Cloud Unit IPO And Jack Ma Sells Shares



Alibaba Group stunned investors when it announced that it would suspend the listing plan of its cloud computing unit, while also revealing that cofounder Jack Ma intends to sell some of his shares. The news shook confidence in the tech giant and cast doubt over the company’s corporate overhaul unveiled just months ago.

The dual-listed company’s shares plunged as much as 10.4% in Hong Kong on Friday after dropping more than 9% in New York overnight, wiping out more than $20 billion in market value. Investors was reacting to Alibaba’s earnings results for the September quarter, which revealed that management had halted plans to spin off its Cloud Intelligence Group. In separate filings to the U.S. Securities and Exchange Commission, Alibaba also revealed that two private holding vehicles tied to the family trust of cofounder Jack Ma plan to dispose of almost $900 million worth of Alibaba shares. Ma is currently China’s sixth-richest billionaire with a net worth of $25.1 billion, according to Forbes estimates.

An Alibaba spokesperson didn’t respond to a request for comment. The stalled IPO is a walk back from a strategy announced back in May, when the Cloud Intelligence Group said it would spin off from its parent company within the next 12 months, and eventually become independently listed.

Alibaba blamed U.S. export controls for the reversal, and said the Biden administration’s expanding restrictions on selling advanced chips to China have created uncertainties for its cloud computing unit. During a call with analysts on Thursday, executives said the group would keep investing in its cloud division, which will continue to be managed by its own chief executive and board of directors as originally envisioned during a corporate overhaul first announced in March.


But analysts say the cloud unit faces more pressing issues than American export restrictions, although the latter does hurt its ability to provide artificial intelligence-related products because they need the chips to crunch data. While the division is still the largest cloud service provider in mainland China in terms of market share, growth has slowed to single digits.

Restoring its former trajectory of double-digit revenue increases proved to be challenging, as competition from rivals such as Huawei and Tencent, as well as slowing corporate spending on information technology amid China’s economic downturn all sapped momentum.

“Alibaba’s cloud computing unit is in an awkward position,” says Ke Yan, head of research at Singapore-based DZT Research. “Growth has slowed to low single digits, and it can’t get as much of a boost from artificial intelligence now.”

To reinvigorate the business, Alibaba’s executives said they are prioritizing public cloud services, which are easier to scale up than the independent projects the Cloud Intelligence Group had been pursuing. Those projects can involve building specific cloud services for customers, such as local governments, and typically carry a much lower margin, says Wang Xiaoyan, a Shanghai-based analyst at research firm 86Research. She believes the strategy is a move in the right direction.

Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities, says investors are likely to wait at least several more quarters to re-assess the cloud unit’s outlook. In the second quarter, the cloud business grew a mere 2% year-over-year to $3.8 billion, while revenues for the entire group rose 9% to $30.8 billion.

When and where the Cloud Intelligence Group will eventually list remains an open question. Shen Meng, a Beijing-based managing director at boutique investment bank Chanson & Co., says China’s tightening laws governing the protection of data might prevent the unit from pursuing an offering in Hong Kong. In September, Bloomberg reported that the cloud division might be valued at $55 billion in a potential debut in the Asian financial hub.


“I don’t think it has a big chance of being listed offshore due to rules about data security,” says Shen, adding that regulators prefer cloud service providers to be listed on the markets in mainland China, so that they can keep a close eye on the data.

Meanwhile, Alibaba said the IPO plans for its Freshippo supermarket chain have also been put on hold. However, analysts say the suspension had been more or less expected as China’s lackluster consumer spending means Freshippo’s valuation is unlikely to meet expectations. To assuage investors who had been hoping to benefit from multiple listings of the smaller Alibaba units, the parent company announced its first-ever annual dividend payout, which will total around $2.5 billion.

Source: Forbes

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