Alibaba plans to list cloud division as quarterly revenue misses expectations

Alibaba announced plans to spin off its cloud division as a separate, publicly-traded company, while the e-commerce titan’s quarterly revenues missed expectations.

“We are taking concrete steps towards unlocking value from our businesses and are pleased to announce that our board has approved a full spin-off of the Cloud Intelligence Group via a stock dividend distribution to shareholders, with intention for it to become an independent publicly listed company,” company CEO Daniel Zhang said.

Alibaba shares were down 1% in U.S. premarket trading as of 12:38 p.m. London time.

Here’s how Alibaba did in the quarter, which ended Mar. 31, 2022, compared with Refinitiv consensus estimates: 

• Revenue: 208.2 billion Chinese yuan ($29.6 billion) vs. 210.2 billion yuan expected, up 2% year on year;
• Non-GAAP diluted earnings per share: 1.34 yuan vs. 2.08 yuan expected, up 35% year-on-year

The report is Alibaba’s first since splitting into six units and is also the first whose numbers reflect China’s reopening. The country in December abruptly ended its strict Covid controls, such as lockdowns and travel restrictions.

In its Thursday report, Alibaba said it plans to spin off its cloud division as a newly listed company, subject to restructuring certain assets, liabilities and contracts, and regulatory approvals.

Alibaba is a major player in cloud computing in its home country and increasingly seeks to compete with established U.S. giants, such as Amazon and Microsoft.

The company also announced plans to raise money from outside investors for its international digital commerce group, which includes the Lazada and AliExpress online shopping platforms.

Alibaba also said it intends to launch an initial public offering for its Cainiao Smart Logistics unit, in which it currently holds a 67% stake. The IPO is slated to complete in the next 12 to 18 months.

Alibaba’s board approved the start of an exploration of listing its Freshippo retail business in the next six to 12 months, the company said.

The year got off to a tepid start, with overall sales of online physical goods staying weak, bosses of major e-commerce platforms suggested in February.

Retail sales in China rose by 18.4% in April, according to recent economic data. China’s economy grew 4.5% in the first quarter, achieving the fastest pace in a year. The performance was expected to boost Alibaba’s sales.

The company operates two of the largest online shopping sites in China: Taobao and Tmall. Despite a rise in competition, Alibaba’s results remain an important indicator of the world’s second-largest economy.

China generates almost 50% of the world’s online shopping transactions.

The Thursday earnings figures are the first since Alibaba announced a substantial overhaul of its organization, splitting the business into several distinct units in a development that several analysts interpreted as signaling an easing in Beijing’s crackdown on tech companies.

The new company structure is broken down into six divisions: Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics, Global Digital Commerce Group, and Digital Media and Entertainment Group.

Meanwhile, China’s regulatory tightening of the past two years on tech has begun to ease, as Beijing’s enforcement of the rules becomes more predictable.

Some investors are betting on a strong recovery for China’s tech giants. On Tuesday, Michael Burry of The Big Short fame boosted his bets on Chinese e-commerce companies Alibaba and JD.com, doubling his stake in Alibaba to $10.2 billion and his JD.com holding to $11 million.

Investors were on the lookout for any commentary Alibaba makes on artificial intelligence. The company has been working on its own ChatGPT-style product, called Tongyi Qianwen.

On Wednesday, Tencent’s President Martin Lau said the company has been “making good progress” in building foundation models, the systems which underpin AI chatbots like ChatGPT, after the company reported a solid bounce in revenue.