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Alibaba announced plans earlier this year to split itself up into separate units that could go public.
Greg Baker/AFP via Getty Images
Alibaba
said it would spin off its highly prized cloud computing division via a stock dividend to shareholders—news that has sent shares in the Chinese tech giant lower, despite its earnings and revenue for the March quarter beating expectations.
Alibaba (ticker: BABA) reported earnings of $1.56 a share on sales of $30.32 billion in the first three months of 2023, which is the group’s fourth fiscal quarter. Analysts surveyed by FactSet expected earnings of $1.36 a share on sales of $29.97 billion.
Alibaba’s U.S.-listed stock fell 1.4% in the Thursday premarket, having previously traded less than 1% higher.
“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,” Daniel Zhang, Alibaba’s chairman and CEO, said in a statement. The group announced plans earlier this year to split itself up, opening the door for five new units to go public.
This is breaking news. Read a preview of Alibaba’s earnings below and check back for more analysis soon.
Alibaba
’s
earnings due Thursday may get more attention than usual, because the latest update from the Chinese tech giant could hold further details about its plans to split itself up—as well as macroeconomic trends that could move the stock market.
First, the numbers: analysts surveyed by FactSet expect Alibaba (ticker: BABA) to report earnings of $1.36 a share on sales of $29.97 billion in the first three months of 2023, which is the company’s fourth fiscal quarter. It would represent profit growth from $1.18 in per-share earnings in the March quarter of 2022, with sales down from $30.28 billion a year ago. That’s another quarter of revenue contraction, which Alibaba saw for the first time last year amid Covid-19 lockdowns.
As always, some units of Alibaba—a sprawling tech conglomerate with interests from domestic online retail in China to an artificial intelligence (AI) arm with a rival to ChatGPT—will be under more investor scrutiny than others. In focus will be the group’s cloud computing division, which includes its AI efforts and is expected to eke out sub-1% quarterly revenue growth after a contraction in the last quarter of 2022.
There is also the potential that other news, possibly contained in an earnings release, could overshadow the results themselves, due before the market opens on Thursday.
In particular, Alibaba announced plans in March to split itself into six units and open the door for six of its subsidiary businesses to go public on their own. Marking a shift from conglomerate to holding company, it’s a bid to unlock shareholder value and foster market competitiveness—an apparent nod to regulators who have hammered the Chinese tech sector over competition concerns since 2020.
Other than some scant details in a company conference call following the split-up announcement, investors have been kept waiting for details. The latest earnings release could be an opportunity to communicate the next move.
More broadly, Alibaba’s core Chinese e-commerce business will be in the spotlight, and not just because it’s the single-largest contributor to the group’s top line.
The strength of consumers in China, the world’s second-largest economy, has come under renewed attention in recent weeks amid mounting global growth concerns. These worries, which have weighed on commodity prices and damped sentiment among investors in Asia and around the world, were sparked in part by Chinese data showing a weakening domestic picture as well as waning foreign demand for goods.
Alibaba’s results, as well as any outlook provided by the company’s management, have the potential to add color to the Chinese economic picture. The viability of China’s rebound in 2023 after a 2022 slowdown induced by the Covid lockdown remains a key theme in global markets. Any trends highlighted in Alibaba’s financials offer something of a front-row seat.
Write to Jack Denton at jack.denton@barrons.com