Alibaba’s Hong Kong shares tumble 10% after cloud unit spin-off shelved

HONG KONG – Alibaba Group’s Hong Kong shares slumped 10% on Friday after it scrapped plans to spin off its cloud business, citing uncertainties fuelled by U.S. curbs on exports to China of chips used in artificial intelligence applications.

The stock opened down 7.8% and then deepened its loss to 10.3% by mid-morning, heading for its biggest one-day drop in more than a year.

It was the first reaction in Asia since the stunning strategy reversal was announced late on Thursday. The company’s U.S. listed securities BABA.N 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 on the heels 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, once Asia’s most valuable stock, was worth around $830 billion at its peak in October 2020 but is now valued at less than one fourth, as the e-commerce company took centre-stage in Beijing’s technology sector crackdown and as the Chinese economy slowed.

The latest Alibaba news underscores broader hurdles facing China’s big tech companies as the export curbs make it harder for them to get 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.

Analysts had estimated then the cloud division could be worth $41-$60 billion but had warned that its listing could attract scrutiny from both Chinese and overseas regulators due to the reams of data it manages.

 

FOCUS ON AI

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

Some analysts said the reversal on the spin–off would assist Alibaba’s AI push.

“The company believes the chip ban might materially and adversely affect its ability to offer products and services in the longer term. But (it) also points to the increasing importance of retaining the cloud unit given the surging demand for AI computing in China,” said US Tiger Research analyst Bo Pei.

The Hangzhou-based company, in announcing its quarterly earnings on Thursday, also put on hold a listing plan for its Freshippo groceries business.

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.

Eddie Wu, chief executive of Alibaba, detailed the company’s future strategy on the call, 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. – Reuters