Alibaba kicks off unit IPOs as revenue growth weakens

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Alibaba plans to list its food and logistics businesses within the next 18 months and spin off its cloud division as the Chinese group begins a massive shakeup of its tech empire.

In its first financial results since the tech giant announced plans to do so divided into six activitiesAlibaba kicked off the breakup of the group by posting a single-digit increase in revenue during the first quarter.

The Chinese group on Thursday said revenues rose 2% in the three months to March to RMB 208 billion ($30 billion), compared with a year earlier.

alibaba it said the board of directors has approved plans to execute an initial public offering for its Freshippo grocery business, which is expected to be completed within the next year. He is also looking to list his Cainiao Smart Logistics in 12-18 months.

“We believe these two companies are ready to go public,” said Daniel Zhang, the group’s chief executive, during an investor call.

Alibaba also revealed plans to spin off its ailing cloud business entirely through a stock dividend to shareholders after completing a private fundraising round for the unit.

But the cloud computing arm’s recent struggles could dampen its valuation in private markets. In the first three months, the unit reported a 2% decline in year-over-year revenue, the first quarterly sales decline on record.

“The cloud business is fundamentally different from other consumer-facing businesses. This will enable the cloud business to sharpen its business strategy and streamline operations,” Zhang said, adding that Alibaba intended to transform the company into an independently listed company.

The announcements come less than two months after Alibaba revealed its plan to split into six business units in a sweeping break following Beijing’s crackdown on Chinese tech giants.

Alibaba on Thursday announced the six new CEOs and board members for the respective new entities.

As part of the restructuring, the Alibaba holding group will retain full ownership of its domestic e-commerce businesses Tmall and Taobao, which generated more profit than the group in its most recent fiscal year.

Alibaba said firms outside of domestic e-commerce will have “a limited amount of time to access Alibaba Group equity” before being cut out of parent company funding.

Analysts said its loss-making local consumer services unit, which includes food delivery and Alibaba’s mapping app, could struggle to survive after being cut off from the cash flow generated by lucrative retail businesses. ecommerce.

Alibaba stock price surged after news of split in March but fell near pre-announcement levels amid investor concerns over tepid consumer spending and a slowdown than expected recovery of Chinese economic activity.

The group said net profit was RMB 23.5 billion in the first quarter, reversing losses from the same period last year due to one-time gains.

Revenue from its domestic e-commerce business was RMB 140 billion, a 3% decrease from the previous year.

Gross merchandise revenues on Tmall and Taobao fell in half of single digits as consumers shunned online shopping in favor of spending on social contacts like dining and going to the movies after China ended its zero- Covid late last year.

“We have seen a gradual recovery in Chinese consumption in recent months, but consumer confidence and spending power still need further momentum,” said Zhang.

Goldman Sachs analysts said in a note to clients that Taobao and Tmall’s high profit margins mean Alibaba “will have the buffer to increase investment to defend its market share” in e-commerce amid ” an intensification of competition”.

They added that China’s reopening could see a “plateauing” of the live stream purchase format popularized by ByteDance’s Douyin during the pandemic.

Alibaba said on Thursday it was testing a new interface for its Taobao app that aimed to increase exposure for its livestream shopping channels, in a direct challenge to Douyin.

The group said it spent more than $1.9 billion to buy back 21.5 million shares during the three-month period, or about 1% of its outstanding share count. The group has about $19.4 billion left to use as part of a previously authorized buyback program.

Additional reporting by Ryan McMorrow in Beijing