Alibaba shares tumble after cloud unit spinoff shelved

Alibaba's Hong Kong shares slumped 10% on Fri (Nov 17) after it scrapped plans to spin off its cloud business, citing uncertainties fuelled by US curbs on exports to China of chips used in artificial intelligence (AI) applications.

The stock is 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 Thu. The company's US-listed securities closed down 9%.

"The cancellation of a full spinoff of AliCloud is a negative surprise," said Nomura analyst Shi Jialong in a note.

Alibaba's concerns over the US export curbs announced by Washington in Oct come on the heels of similar worries raised this week by Chinese social media and gaming company Tencent which said the restrictions would force it to seek domestically produced alternatives.

Alibaba, once Asia's most valuable stock, was worth around USD830 billion at its peak in Oct 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 US companies.

In Mar, 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 US$41-US$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.

On Thur, 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 AI drivers.

Some analysts said the reversal on the spinoff 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 Thu, also put on hold a listing plan for its Freshippo groceries business.

Alibaba reported second-quarter revenue of 224.79 billion yuan (SGD41.82 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.

Meanwhile, Jack Ma's family trust is set to sell 10 million American Depository Shares of Alibaba Group Holdings for about USD871 million, the e-commerce company said in regulatory filings.

The sale will be done on Nov 21 by JSP Investment and JC Properties, funds that are part of the family trust.

Alibaba and the Jack Ma Foundation, the philanthropic organisation that handles media queries for the billionaire, did not immediately respond to requests for comment.

Ma stepped down as chairman of Alibaba in 2019. The company is currently led by Eddie Wu, one of the co-founders and a long-time lieutenant of Ma.