The spin-off of Alibaba’s cloud unit cuts $20 billion from its market value

HONG KONG, Nov 17 (Reuters) – Investors lost about $20 billion from the market value of Alibaba Group (9988.HK) on Friday after it scrapped plans to spin off its cloud businesses, citing uncertainty over U.S. restrictions on exports of used chips to China. In artificial intelligence applications.

Alibaba Group shares in Hong Kong closed down 10%, their biggest one-day decline in more than a year.

It was the first market reaction in Asia since the stunning shift in strategy was announced late on Thursday, after which the company’s US-listed securities closed 9% lower.

“The shelves are a surprise and make us wonder if there are issues behind the scenes that we are not aware of,” said John Withhar, head of special situations in Asia at Pictet Asset Management, based in Singapore.

Alibaba’s concerns about US export restrictions announced by Washington in October follow similar concerns raised this week by Chinese social media and gaming company Tencent Holdings (0700.HK), which said the restrictions would force it to look for domestically produced alternatives.

Alibaba, once Asia’s most valuable stock, was valued at about $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 takes center stage in the crackdown on the technology sector in… Beijing With the escalation of tensions in Beijing. The Chinese economy slowed.

Asked if there were any other reasons behind delaying the IPO, Alibaba referred Reuters to comments made by Chairman Joseph Tsai during an earnings call on Thursday about how the company plans to invest in its cloud business.

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Alibaba’s latest news highlights the broader obstacles facing Chinese technology companies, as export restrictions make it difficult for them to obtain biochip supplies from US companies.

In March, Alibaba announced plans to carve out its cloud business as part of a restructuring, the largest in its 24-year history, that split the company into six units.

Analysts estimated at the time that the cloud division could be worth between $41 billion and $60 billion, but warned that its listing could attract scrutiny from Chinese and overseas regulators because of the massive amount of data it manages.

The Hangzhou-based company, when announcing its quarterly earnings on Thursday, also suspended the listing plan for its grocery business Freshippo.

An Alibaba Group sign appears at the World Artificial Intelligence Conference (WAIC) in Shanghai, China on July 6, 2023. REUTERS/Ali Song/File Photo Obtaining licensing rights

Analysts also said news that the family fund of Alibaba co-founder and former Chairman Jack Ma plans to sell 10 million American depositary shares in Alibaba is likely to weigh on the stock.

“Although we are no longer involved in operations, we believe that selling (Ma) to Alibaba at a low price could hurt sentiment,” UBS analyst Kenneth Fung said in a note.

Focus on artificial intelligence

On Thursday, Alibaba Chairman Joseph Tsai said in a post-earnings call that the company will now focus on growing its cloud business and providing investment for artificial intelligence (AI) engines.

Some analysts said retaining the cloud unit could help Alibaba’s AI push.

“The company believes that a chip ban could materially and adversely impact its ability to deliver products and services in the long term. But it also signals the growing importance of retaining cloud unity given the growing demand for AI computing in China.” American Tiger Research analyst Bob Pei said.

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Alibaba reported second-quarter revenue of 224.79 billion yuan ($31.01 billion), in line with the 224.32 billion expected by analysts, LSEG data showed.

Alibaba CEO Eddie Wu detailed the company’s future strategy during the call, saying that each of its companies will face the market more independently and that it will conduct a strategic review to differentiate between “core” and “non-core” companies.

Some analysts said they viewed Wu’s strategy favorably, and said he was expected to reevaluate decisions made by his predecessor, Daniel Zhang, who resigned suddenly in September after just two months focusing on cloud computing.

“Abandoning the cloud business is clearly no longer the best way to enhance shareholder value, given low market valuations and the fact that the stock price has barely moved since the announcement,” said analyst Vey-Sern Ling of Union Bancaire Privée.

The company also said it would go ahead with the listing of Cainiao, Alibaba’s logistics arm, which filed for an IPO in Hong Kong in September.

It is also preparing to raise external funds for its international digital commerce unit, which includes third-party platforms such as Lazada and Alibaba.com.

(Reporting by Donnie Kwok and Josh Yee in Hong Kong and Casey Hall and Joe Li in Shanghai; Preparing by Muhammad for the Arabic Bulletin) Yelin Mo in Beijing; Ankur Banerjee in Singapore; Writing by Anne-Marie Roantree and Brenda Goh. Edited by Muralikumar Anantharaman and Miral Fahmy

Our standards: Thomson Reuters Trust Principles.

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