Alibaba stock slumps 10% after cloud business spin-off plans scrapped
HONG KONG/SHANGHAI, Nov 17 (Reuters) – Shares of Alibaba Group (9988.HK) plunged by 10% in Hong Kong on Friday after the company announced it was scrapping plans to spin off its cloud business due to uncertainties stemming from U.S. export curbs on Chinese semiconductors used in artificial intelligence applications.
The drop marked potentially the biggest one-day fall in over a year and wiped about $20 billion off the Chinese tech giant’s market value. The company’s U.S. listed securities also closed down 9%.
“The cancellation of a full spin-off of AliCloud is a negative surprise,” said Nomura analyst Shi Jialong in a note.
Alibaba’s concerns over the U.S. export curbs announced by Washington in October come in the wake of similar worries raised this week by Chinese social media and gaming company Tencent Holdings (0700.HK), which said the restrictions would force it to seek domestically produced alternatives.
Alibaba, which was once Asia’s most valuable stock, has faced a significant downturn in recent years as the e-commerce company took center stage in Beijing’s technology sector crackdown and as the Chinese economy slowed. At its peak in October 2020, Alibaba was worth around $830 billion, but it is now valued at less than one fourth of that.
The company’s latest move underscores broader hurdles facing China’s tech companies, with the export curbs making it harder for them to obtain crucial chip supplies from U.S. companies. In March, Alibaba announced plans to carve out the cloud business as part of the biggest restructuring in its 24-year history that broke the company up into six units.
The decision to halt the spin-off also affects Alibaba’s other planned stock listings, including its Freshippo groceries business. Additionally, news that the family trust of Alibaba co-founder and former chief Jack Ma planned to sell 10 million American Depository Shares in the company was also likely impacting shares, according to analysts.
On Thursday, Alibaba Chairman Joseph Tsai expressed the company’s focus on growing the cloud business and providing investment for its artificial intelligence (AI) drivers, indicating that the reversal on the spin-off could assist in Alibaba’s AI push.
Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with analyst expectations, according to LSEG data. The company’s chief executive, Eddie Wu, detailed the company’s future strategy, saying that each of its businesses would face the market more independently and that they would conduct a strategic review to distinguish between “core” and “non-core” businesses.
The company also announced plans to press ahead with a listing of Alibaba’s logistics arm, Cainiao, which applied for a Hong Kong initial public offering in September, as well as preparing for external fundraising for its international digital commerce unit that houses overseas platforms such as Lazada and Alibaba.com.
Reporting By Donny Kwok and Josh Ye in Hong Kong, Casey Hall and Gu Li in Shanghai; Writing by Anne Marie Roantree and Brenda Goh; Editing by Muralikumar Anantharaman
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Author Bio: Casey has reported on China’s consumer culture from her base in Shanghai for more than a decade, covering what Chinese consumers are buying, and the broader social and economic trends driving those consumption trends. The Australian-born journalist has lived in China since 2007.