Alibaba has approved a full spin-off of its cloud arm, with the unit set to become an independent publicly listed company. The Chinese tech giant has also approved moves by its logistic unit Cainiao and grocery brand Freshippo (Hema) to explore IPOs in the near future, according to an official announcement as part of its March quarter earnings release on Thursday.
The separation of Alibaba Cloud will be done through a stock dividend distribution to shareholders, the company said, adding that it foresees the process being completed within a year. Alibaba is targeting a public listing for Cainiao in 12 to 18 months, while Freshippo is due to be listed in the next six to 12 months.
Why it matters: The plan to spin off the cloud computing unit into a separate entity and allow the listing of Cainiao and Freshippo follows Alibaba’s announcement in late March that it was splitting the company into six standalone units while maintaining central control. The e-commerce giant said the major reorganization was aimed at making its operations more nimble and effective as it faces heated competition and sluggish revenue growth.
Details: With the spin-off of its core units, Alibaba is transforming from operating multiple group businesses into “a holding company that focuses on capital management,” the company’s CEO Daniel Zhang stated on the Thursday earnings call. Alibaba also announced that it has established a capital management committee at the board level to “undertake a comprehensive capital management” of the overall firm.
- As one of Alibaba’s most important growth engines, Alibaba Cloud is expected to go public within 12 months. In the quarter ending on March 31, the cloud computing unit recorded its first-ever decline in revenue, with a year-on-year decrease of 2% to RMB 18.6 billion, accounting for 9% of the group’s total revenue. The unit is still the group’s second-largest after its core China commerce unit.
- Cainiao, Alibaba’s logistics arm, has not yet achieved profitability. It posted an adjusted EBITA loss of RMB 319 million in the first quarter, though this represented a narrowing of 65% compared to the same period last year.
- Freshippo, which operates a network of supermarkets across the country, has established “well-defined business models, and a clear path to profitability,” Alibaba said in its latest earnings report.
- Alibaba’s board has also approved the Alibaba International Digital Commerce Group, which consists of Lazada, AliExpress, Trendyol, and others, to explore external financing.
- Each of Alibaba’s six major business groups is now independently managed by its own CEO and board of directors. Daniel Zhang does not appear on the board of directors’ list of the six groups other than at the cloud unit. Wang Jian, the founder of Alibaba Cloud, has returned as the chairman of that group. In addition, Alibaba founding member Joe Tsai has been approved as the chairman of the board of directors for Cainiao Group.
Context: Alibaba posted a modest 2% increase in overall revenue to hit RMB 208.2 billion ($30.12 billion) for the January to March period, which fell short of market expectations. The growth rate is the lowest that Alibaba has experienced since it went public in 2014.
- The China commerce division, the biggest contributor to Alibaba’s total revenue, saw its revenue decline 3% year-on-year to RMB 136.1 billion during the first quarter. The earnings report also noted a “mid-single-digit” yearly fall in the GMV of online physical goods on Taobao and Tmall.