SINGAPORE (Reuters Breakingviews) – Restructuring is not good news. Alibaba (9988.HK) has withdrawn plans to spin off its cloud business due to tightening US export regulations in the cutting-edge semiconductor field. The news sent Alibaba shares down more than 10% in Hong Kong. Market hopes that tech companies would stabilize after a years-long crackdown by the Chinese government have been dashed. Due to China’s economic slump and geopolitical issues, this sector has not bottomed out yet.
This “U-turn” further disappointed Alibaba shareholders. In June, a few months after announcing a six-part business split, Alibaba shocked the market by announcing that its CEO and chairman, Daniel Zhang, would step down to focus on its cloud business. Zhang subsequently resigned as head of the cloud business and withdrew from the business. Cai Niao, the logistics division that will be spun off first, has a pending listing application in Hong Kong. On the 16th, Alibaba put on hold plans for an initial public offering (IPO) for its fresh food supermarket business, Huma Fresh.
Although Alibaba’s U.S.-listed shares have recovered from multi-year lows in October 2022, its market capitalization has fallen by about three-quarters since its peak in late 2020, or about $500 billion.
In March, when the business split was announced, analysts valued Alibaba stock at about $130 a share. Currently at $79, the market seems to have given up on creating value through segmentation. According to LSEG data, the forward price/earnings ratio is 8 times, well below the five-year average of 18 times. The dividend announcement wasn’t enough to cheer shareholders.
Alibaba’s misfortune will cast a dark shadow over China’s struggling tech sector. China’s big tech companies have suffered a massive government crackdown since the cancellation of the IPO of Alibaba’s fintech arm Ant. It is also grappling with an anemic economic recovery after the pandemic. China’s economic outlook worsens due to a housing market collapse, youth unemployment crisis, and sluggish consumption. The deterioration in U.S.-China relations is also fueling investor anxiety.
Alibaba reported decent results for its core businesses on Wednesday, but it’s hard to see the light among the dark clouds hanging over China’s tech sector.
*China’s Alibaba withdraws separation of cloud business, explains US semiconductor export restrictions as reason See more
(The author is a columnist for Reuters Breakingviews. This column is written based on the author’s personal views.)
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The author is a columnist for Reuters Breakingviews. This column is written based on the author’s personal opinion.