Alibaba’s cloud spin-off can serve as a good yardstick to evaluate other major players

by The Insights

Chinese tech giant Alibaba is shaking up its corporate structure in a series of moves that will allow large parts of its business to raise capital and potentially even go public.

That might not be a bad idea, considering the conglomerate’s revenue grew 2% in the first quarter of 2023 and its profitability is trending down (operating profit fell 9% ) compared to the previous year.

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Big companies like Alibaba often don’t have many ways to make shareholders happy when growth is hard to come by. But a surefire way is to break the business into smaller pieces and assess each part individually. So if a company has a fast-growing business with good margins under the umbrella of a slower-growing segment with low margins, it can “unlock” value by letting the market decide the value of items. most attractive in the business.

Alibaba’s plan to deconstruct itself has a few phases. First, at the end of March, the company divided its operations into six major branches, which, except for its Taobao and Tmall e-commerce businesses, will be able to chart their own financial paths. The company is in the process of divesting its cloud business, while the logistics unit, Cainiao, and its grocery effort, Freshippo, are on track for IPOs.

Of these, the cloud spin-off is worth spending some time on, so we’ll take a look at its first quarter results, compare its performance with other public cloud companies, and make some educated guesses about what it might be worth on its own. .

To work!

Cloudy with possible silver linings

Alibaba’s cloud business, comprising its public cloud (Alibaba Cloud) and enterprise chat platform products (DingTalk), recorded revenue of $2.71 billion in the first quarter of 2023, or 9% of Alibaba’s total revenue. It’s a lot!

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