Alibaba Group’s sign is seen at the World Artificial Intelligence Conference (WAIC) in Shanghai, China, July 6, 2023. Portal/Aly Song/File Photo Acquire License Rights
HONG KONG, Nov 17 (Portal) – Shares of Alibaba Group (9988.HK) in Hong Kong slumped 10% on Friday after the company scrapped plans to spin off its cloud business, citing uncertainty Fueled by US restrictions on exports of semiconductors to China for artificial intelligence applications.
The decline, possibly the biggest one-day drop in more than a year, shaved about $20 billion from the Chinese tech giant’s market value.
It was the first market reaction in Asia since the surprise policy reversal was announced late on Thursday, after which the company’s US-listed securities closed down 9%. Shares in Hong Kong closed 10% lower on Friday.
“The postponement is a surprise and makes us wonder whether there are issues behind the scenes that we are not aware of,” said Jon Withaar, the Singapore-based head of Asia special situations at Pictet Asset Management.
Alibaba’s concerns about U.S. export restrictions announced by Washington in October follow similar fears expressed this week by Chinese social media and gaming company Tencent Holdings (0700.HK), which said the restrictions would force it to to look for domestically produced alternatives.
Alibaba, once Asia’s most valuable stock, was worth around $830 billion at its peak in October 2020, but is now valued at less than a quarter of that amount as the e-commerce company becomes the focus of Beijing’s crackdown on the technology sector. The Chinese economy slowed.
The latest Alibaba news highlights the major hurdles facing China’s tech companies as export restrictions make it difficult for them to secure key chip supplies from U.S. companies.
In March, Alibaba announced plans to spin off its cloud business in a restructuring, the largest in its 24-year history, that saw the company split into six units.
Analysts had estimated at the time that the cloud division could be worth between $41 billion and $60 billion, but had warned that its listing would face scrutiny from both Chinese and foreign regulators because of the reams of data it manages could.
The Hangzhou-based company also put an IPO plan for its Freshippo grocery business on hold when announcing its quarterly results on Thursday.
Analysts also said news that Alibaba co-founder and former boss Jack Ma’s family fund planned to sell 10 million American depository shares to Alibaba would likely impact stocks.
“Although Ma is no longer involved in operations, we believe (Ma’s) sale of Alibaba at a low valuation could hurt sentiment,” UBS analyst Kenneth Fong said in a note.
FOCUS ON AI
On Thursday, Alibaba Chairman Joseph Tsai said in a post-earnings conference call that the company would now focus on growing its cloud business and deploying investments in its artificial intelligence (AI) drivers.
Some analysts said retaining the cloud unit could help Alibaba’s AI push.
“The Company believes that the chip ban could materially and negatively impact its ability to provide products and services in the longer term. “But it also suggests that maintaining cloud unity is becoming increasingly important as demand for AI computing increases in China,” said Bo Pei, an analyst at US Tiger Research.
Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with analysts’ expectations of 224.32 billion, LSEG data showed.
Alibaba Chief Executive Officer Eddie Wu explained the company’s future strategy in the conference call, saying that each of its business units will face the market more independently and conduct a strategic review to distinguish between “core” and “non-core” businesses.
Some analysts said they were positive about Wu’s strategy and said he was expected to reconsider the decisions of his predecessor, Daniel Zhang, who abruptly quit in September, just two months after focusing on cloud computing.
“Given the low market valuations and the fact that the share price has barely moved since the announcement, exiting the cloud business is clearly no longer the best way to increase shareholder value,” said Union Bancaire analyst Vey-Sern Ling Privée.
The company also said it would pursue the listing of Alibaba’s logistics unit Cainiao, which applied for an IPO in Hong Kong in September.
The company is also preparing to raise external funding for its international digital commerce unit, which includes foreign platforms such as Lazada and Alibaba.com.
Reporting by Donny Kwok and Josh Ye in Hong Kong, Casey Hall and Gu Li in Shanghai; Yelin Mo in Beijing; Ankur Banerjee in Singapore; writing by Anne Marie Roantree and Brenda Goh; Edited by Muralikumar Anantharaman and Miral Fahmy
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