Chinese e-commerce giant, Alibaba, has announced its plans to spin off its cloud division into a separate publicly traded company. This comes after the Alibaba’s extensive restructuring which reorganised the company into six divisions earlier this year.
Alibaba said the move is subject to restructuring certain assets, liabilities and contracts, and regulatory approvals. The company aims to complete the listing within the next 12 months.
Alibaba is a major player in cloud computing within China and increasingly seeks to compete with established US companies including Amazon and Microsoft.
Daniel Zhang, Alibaba CEO said: “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.”
This news comes after Alibaba released their first quarterly earnings report since its restructuring and China’s reopening after Covid-19 restrictions. Alibaba’s first quarterly earnings report saw revenue increasing by 2% year-on-year to hit 208.2 billion Chinese yuan ($29.6 billion). However, Alibaba shares were down 2.4% in early US trading, as investors reacted to the company’s results and spinoff plans.
Dan Ives, an analyst at Wedbush Securities, told CNBC that Alibaba’s cloud spinoff plan was a “no brainer strategic move that we believe adds to the sum of the parts valuation on BABA.”
Alibaba also said it intends to launch an initial public offering for its Cainiao Smart Logistics unit, a logistics management company, in which it currently holds a 67% stake. The IPO is slated to complete in the next 12 to 18 months.
The company has also developed a generative AI tool, Tongyi Qianwen, earlier this year, and said that the system could help accelerate customer adoption of its cloud computing service.
Previous cloud computing proved efforts to be a weak spot for the company in the March quarter, with sales dropping 3% year-over-year to 24.6 billion yuan. This was caused in part by delays in delivery of hybrid cloud projects due to a resurgence of Covid in January, as well as a top customer phasing out use of Alibaba’s cloud services overseas, Alibaba said.
Earlier this year Alibaba sold its $126 million stake in Indian payments firm Paytm.
Other major cloud players including Amazon Web Services have reported a slowdown for cloud growth, as business customers reduce spending amid market uncertainty.