Alibaba Suspends Plans for Cloud Division Spinoff as Shares Plunge
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Alibaba shares plunged on Friday after the Chinese behemoth made a drastic U-turn on a spinoff for its cloud computing business. The company has attributed the decision to the restrictions imposed by the US on advanced chips.
The development has also created doubt on the stability of technological companies in China. Investors were hopeful of a recovery in this market after Beijing ended its years-long regulatory crackdown on the industry.
Alibaba Halts Spinoff for Cloud Division
Alibaba initially announced a spinoff for its operations in March. This spinoff could have slit Alibaba’s cloud business into six separate businesses as part of a restructuring process. The cloud unit will continue operating as a single business.
The Cloud Intelligence Unit would remain operational as a whole and no longer operate as a separate business. This unit primarily focuses on artificial intelligence (AI) and cloud research.
Alibaba has admitted that these postponed changes will not boost value for shareholders as initially expected. On Friday, Alibaba shares dropped by over 10% in Hong Kong as investors lost faith in an increasing share value.
“The recent expansion of US restrictions on the export of advanced computing chips has created uncertainties for the prospects of Cloud Intelligence Group,” the company said in its earnings report.
The process of selling shares in this cloud division had an estimated value of between $41 billion and $60 billion. If the spinoff were a success, it would have seen the operations under heavy regulations in China and the US.
Alibaba’s US-listed shares have shed around three-quarters of their market capitalization since the late 2020 peak. The shares have now shed around half a trillion dollars in value.
When the business split was announced in March, Alibaba’s shares were worth around $130. The shares currently trade at about $74, with investors appearing to give up on the value creation triggered by the spinoff.
Daniel Zhang Exits Alibaba as CEO
Another recent development in Alibaba’s cloud business is the resignation of CEO Daniel Zhang. This development comes several months after Alibaba reported in June that Zhang would also depart the company as the Chairman and CEO to pay more attention to the cloud intelligence unit.
Eddie Wu, who was slated to take over from Zhang as the CEO and director of Alibaba Group, will now serve as the Chairman and the CEO of the cloud business division on an interim basis. Joseph Tsai, another co-founder, will serve as Chairman.
