Alibaba Cloud Abandons Full Spin-off Plan, Freshippo's IPO Temporarily Suspended
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On November 17th, just six months after Alibaba's high-profile announcement of business spin-offs and listings, the company has changed its plans with major adjustments across multiple divisions.
On November 16th, Alibaba released its Q2 2024 fiscal year financial report, disclosing several key updates. Most notably, the company will no longer pursue the complete spin-off of its Cloud Intelligence Group, and Freshippo's planned IPO has been temporarily suspended.
During the earnings call, Alibaba Group CEO Eddie Wu outlined three strategic priorities for the company's future: technology-driven internet platform businesses, AI-driven technology businesses, and a globalized commercial network.
Consequently, multiple business units are undergoing restructuring. Taobao and Tmall will adopt a "user-first" approach, while Alibaba Cloud remains committed to "AI-driven development with public cloud priority." 1688, Xianyu, DingTalk, and Quark have been designated as Alibaba's first batch of strategic innovation businesses and will operate as independent subsidiaries.
Additionally, SEC Form F144 filings revealed that JC Properties Limited and JSP Investment Limited, wholly owned by Jack Ma's family trust, plan to sell 5 million Alibaba American Depositary Shares (ADS) each on November 21st, totaling $870.7 million in stock value.
Alibaba's U.S. pre-market trading showed continuous declines, dropping nearly 8% at one point. When markets opened on November 16th local time, Alibaba shares fell 8.63% to $79.55, with intraday losses approaching 10%. By market close, the stock had declined 9.14% to $79.11, giving the company a total market capitalization of $201.5 billion.
Alibaba Cloud Abandons Full Spin-off Plan, Freshippo's IPO Temporarily Suspended
In March this year, Alibaba initiated its largest organizational restructuring in history, establishing a "1+6+N" organizational structure. Under Alibaba Group Holding, six business groups were set up: Alibaba Cloud Intelligence, Taobao Tmall Commerce, Local Services, Cainiao, International Digital Commerce, and Digital Media and Entertainment, all with the potential for independent financing and IPOs in the future.
On May 18, Alibaba disclosed the latest progress of its organizational reform plan in its financial report for the fourth quarter and full year of fiscal 2023: Cloud Intelligence would be completely spun off from Alibaba Group for an independent IPO, Cainiao and Freshippo (Hema) would initiate IPO plans, and Alibaba International Digital Commerce Group would begin external financing.
Alibaba also provided a clear IPO timeline. Freshippo is expected to complete its IPO within the next 6 to 12 months; Cainiao aims to complete its IPO plan within the next 12 to 18 months; and Alibaba Cloud plans to complete its full spin-off and IPO within the next 12 months.
Six months later, Alibaba's spin-off and IPO plans have changed.
The latest financial report revealed, "Recent US restrictions on the export of advanced computing chips have created uncertainty for the prospects of the Cloud Intelligence Group. We believe that a full spin-off of the Cloud Intelligence Group may not enhance shareholder value as originally envisioned. Therefore, we have decided not to proceed with the full spin-off of the Cloud Intelligence Group. Instead, we will focus on building a sustainable growth model for the Cloud Intelligence Group in the face of uncertainty."
Alibaba stated that in the AI era, Alibaba Cloud needs long-term strategic investment more than ever. Alibaba will resolutely increase its investment in Alibaba Cloud, allowing it to focus wholeheartedly on the "AI + Cloud Computing" development strategy and minimize the adverse effects of uncertainties on future growth.
During the earnings analyst call, Wu Yongming stated that the Cloud Intelligence Group would continue to operate as an independent company under a CEO-led system authorized by the board of directors.
In the quarter ended September 30, 2023, the Cloud Intelligence Group achieved revenue of 27.648 billion yuan, representing a 2% year-over-year growth. The increase in revenue from public cloud products and services contributed to optimized profitability, with adjusted EBITA growing 44% YoY to 1.409 billion yuan.
The financial report also disclosed that Freshippo's (Hema) IPO plan has been temporarily suspended, as Alibaba is evaluating market conditions and other factors necessary to ensure successful project implementation and enhance shareholder value.
Meanwhile, Alibaba International Digital Commerce Group is preparing for external financing.
As of now, Cainiao has submitted its listing application to the Hong Kong Stock Exchange. In this quarter, Cainiao's revenue reached 22.823 billion yuan, up 25% year-over-year, with adjusted EBITA of 906 million yuan, demonstrating continued profitability improvement.
Additionally, in the three months ended September 30, 2023, Ant Group repurchased approximately 7% of its shares from shareholders, which will be used for Ant Group's employee incentive plan. Legally, Alibaba's shareholding in Ant Group remains unchanged, with Alibaba maintaining a 33% stake in Ant Group on a fully diluted basis.
Taobao Tmall Prioritizes User-Centric Strategy
China Commerce segment remains Alibaba's core business. Wu Yongming mentioned that in the three-year strategic cycle ahead, Taobao Tmall's top business priority is "user first."
Centered around this user-first approach, Taobao has three commitments: maintaining its position as the "Everything Store," implementing consumer segmentation and price competitiveness strategies, and making product decisions based on user value.
Taobao's "universality" lies in providing users with a vast and rich supply of goods and services. Dai Shan, CEO of Taotian Group, disclosed in the earnings call that Q2 saw high-speed growth in Taobao's DAU and active DAU openings. Over a million new merchants were added in Q2 compared to Q1, with a continuous increase in actively operating merchants and their business investments.
In terms of consumption segmentation and price competitiveness, Taobao categorizes its product offerings into three types, strengthening price competitiveness across each price range to drive business growth and operational certainty for merchants with supply chain advantages and competitive pricing. Q2 saw synchronized growth in transacting users and order volume, with 88VIP transactions achieving double-digit year-on-year growth, surpassing 30 million members. The purchase conversion rate among low-consumption groups improved, and during the Double 11 period, over 20 million new buyers from tier-three and below markets contributed more than 140 million new orders.
Wu Yongming emphasized that Taobao will adhere to its positioning as an internet consumption platform rather than a retail company. As a consumption platform, user purchase frequency will take precedence over GMV as the most critical goal.
The financial report shows that as Alibaba's "cash cow" business, Taotian Group's core performance metrics maintained growth this quarter: revenue reached 97.654 billion yuan, a 4% year-on-year increase, with client management revenue growing 3% to 68.661 billion yuan. Adjusted EBITA was 47.077 billion yuan, a 3% increase compared to 45.635 billion yuan in the same period in 2022, in line with market expectations.
First Batch of Strategic Innovation Businesses: 1688, Xianyu, DingTalk, Quark
Alibaba has stated that it will continue to invest in and incubate strategic innovation businesses for the future. During the earnings call, Wu Yongming officially announced Alibaba's first batch of strategic innovation businesses—1688, Xianyu, DingTalk, and Quark—selected based on criteria such as sufficiently large market space, unique market positioning, alignment with user demand trends, and the group's "AI-driven" strategy.
Wu Yongming stated that 1688 is Alibaba's longest-standing business, serving mainstream manufacturers in China's manufacturing industry. It has a solid foundation for secondary entrepreneurship and significant potential to expand from B2B to SME and consumer procurement, while also possessing cross-border transaction service capabilities. Xianyu will serve as a lifestyle platform catering to the interests and enjoyment of young consumers.
DingTalk and Quark have gained unprecedented possibilities due to the advent of the AI era. "Every individual and enterprise will have personalized intelligent assistants, and DingTalk is poised to become the best AI assistant platform. In the era of large models, Quark has tremendous opportunities to create revolutionary search products for young people."
These strategic innovation businesses will operate as independent subsidiaries organizationally, breaking free from previous positioning constraints within the group. Alibaba will commit to continuous investment over a 3-5 year cycle.
Ma's Family Trust Plans to Reduce Holdings, Alibaba's Stock Price Drops 9%
According to the F144 filing disclosed on the U.S. Securities and Exchange Commission (SEC) website, Ma's family trusts, JC Properties Limited and JSP Investment Limited, plan to sell 5 million shares each of Alibaba founder stock on November 21.
Based on Alibaba's stock price of $87.07 per share on November 15 (U.S. Eastern Time), the total value of the shares involved in this sale is approximately $870.7 million.
Alibaba has not yet responded to the news of this share sale.
On November 16 (local time), Alibaba's U.S. stock opened with an 8.63% drop, trading at $79.55, and at one point fell nearly 10%. By the close of trading, Alibaba's stock price had declined by 9.14%, settling at $79.11, with a total market capitalization of $201.5 billion.
Alibaba Continues Workforce Reduction with 3,720 Employees Cut in a Single Quarter
Financial reports show that Alibaba's total number of employees continues to decline.
As of September 30, 2023, Alibaba had a total of 224,955 employees, compared to 228,675 as of June 30, 2023, marking a reduction of 3,720 employees in a single quarter.
Additionally, Alibaba reduced its workforce by 4,375 employees in Q1 2022, 9,241 in Q2 2022, 1,797 in Q3 2022, and 4,163 in Q4 2022. In 2023, the company cut 4,524 employees in Q1 and 6,541 in Q2.
This means that over the past seven quarters, Alibaba's workforce has decreased by more than 34,000 employees.