In a strategic shift, Alibaba Group has canceled its plans to spin off its cloud business, citing uncertainties arising from recent U.S. export restrictions on chips utilized in artificial intelligence (AI) applications. This decision follows the U.S. ban on exporting specific chips to China, creating challenges not only for Alibaba but also impacting Tencent Holdings’ cloud services.
The announcement coincided with Alibaba’s second-quarter results, reporting revenue in line with expectations. Originally unveiled in March as part of a significant restructuring, this move was among Alibaba’s most extensive overhauls in its 24-year history.
Alongside abandoning the cloud spin-off, Alibaba has deferred the initial public offering (IPO) of its Freshippo groceries business, opting for external fundraising for its international digital commerce group arm. Additionally, Alibaba’s logistics division, Cainiao, applied for a listing in Hong Kong in September.
Following this news, Alibaba’s U.S.-listed shares experienced an 8.5% decline at market open, surprising investors who anticipated separate shares for the cloud business, given its potential for higher valuation due to robust growth.
Despite challenges, Alibaba reiterates its commitment to growing the cloud business and investing in artificial intelligence initiatives. Regulatory filings revealed that Jack Ma’s family trust plans to sell 10 million American Depository Shares of Alibaba for approximately $871 million.
CEO Eddie Wu presented Alibaba’s future strategy, emphasizing a more independent approach for each business unit. The company will conduct a strategic review to distinguish between «core» and «non-core» businesses. Core businesses will receive long-term focus and intensive investment, while non-core businesses will strive for profitability or alternative capitalization methods.
In its second-quarter earnings report, Alibaba reported revenue of 224.79 billion yuan ($31.01 billion), aligning with analyst expectations. The economic recovery’s uneven nature in China has impacted consumer confidence, prompting Alibaba to encourage merchants to adopt aggressive pricing strategies, especially during events like the Singles Day festival.
Despite challenges in the domestic market, Alibaba’s international growth prospects appear positive. The company’s international digital commerce unit, encompassing platforms such as Lazada and AliExpress, reported a 53% rise in revenues. This underscores Alibaba’s resilience and potential for international expansion amidst a subdued domestic economic landscape.
