HomeMarketsUS MarketsAlibaba shares soar after historic overhaul heralds IPO wave

Alibaba shares soar after historic overhaul heralds IPO wave

The US shares of Alibaba Group Holding Ltd. finished 14.3% higher after China’s online commerce giant revealed plans to break its $220 billion empire into six business groups, a dramatic restructure that promises multiple initial public offerings.

The move allows the Chinese company’s key businesses, ranging from e-commerce and media to cloud computing, to operate with significantly more autonomy, laying the groundwork for future spinoffs and market debuts.

The change to a holding company is unusual for a big Chinese internet company, but it could be a good example for Alibaba’s competitors. One of Beijing’s key aims in its broad assault on the technology industry is to decentralise the company’s business divisions and decision-making authority.

Alibaba Shares Surge by Most Since January

The government has decried the dominance of online platforms, notably those operated by Tencent Holdings Ltd., the operator of Alibaba and WeChat. As a result, the restructure is expected to get backing from government authorities, who have been worried that concentrated influence in technology has stifled innovation. Throughout the years, Alibaba and Tencent have invested in hundreds of businesses, often assisting in the development of strategies.

Alibaba’s US-listed shares closed at $98.40 in New York on Tuesday. Tencent’s US shares finished the day 8.03% higher, while Baidu Inc.’s Chinese internet search behemoth ended the day 4.7% higher.

“With China’s strategy to diminish the monopolistic character of the digital giants, it is one step in the right direction,” said Marvin Chen, an analyst with Bloomberg Intelligence. “Although Chinese tech spinoffs are not unusual, the move seems to be more comprehensive, involving key operations, and may serve as a model for the sector in the future.”

The statement came on the same day that Alibaba’s billionaire co-founder Jack Ma returned to China after more than a year overseas.

It is a change from the internet company’s typical predilection for centralising most of its activities, with everything from supermarkets to datacenters operating under the main Alibaba umbrella. It’s also a significant indication that Alibaba is eager to engage investors and the public markets after the Xi Jinping administration’s crackdown on internet companies, which wiped away more than $500 billion of its worth.

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Group Chief Executive Officer Daniel Zhang will supervise the cloud intelligence division, indicating the increasing importance of artificial intelligence in the e-commerce leader’s portfolio in the long term. He will continue to be the CEO of the parent firm.

Jiang Fan, the former head of international commerce, will lead the global digital business unit, while longstanding executive Trudy Dai will lead the major Taobao Tmall online retail section. Local services such as meal delivery, the Cainiao logistics company, and digital media and entertainment are among its other segments.

“At the age of 24, Alibaba welcomes a fresh chance for progress,” Zhang said in a statement. “The market is the finest litmus test, and when they are ready, any business group or corporation may seek autonomous financing and IPOs.”

Alibaba has already had success with spinoffs. It spun out Alipay in 2010, a controversial decision at the time that resulted in the formation of Ant Group Co. Ma’s fintech subsidiary was on the cusp of pulling off the world’s biggest IPO until Beijing pulled the plug, and it has said that it might contemplate a second run at the market.

Despite the addition of a half-dozen new business lines, Alibaba reiterated on Tuesday the cost-cutting measures it had promised to shore up its bottom line. It was a prudent move for a major behemoth that had previously invested aggressively to control large parts of the industry, indicating the slowing of development since Xi’s crackdown in 2020.

For the past two years, China has clamped down on the country’s internet behemoths, requiring significant adjustments in the business models of businesses such as Alibaba. The e-commerce pioneer is also facing rising competition from archrival JD.com Inc. as well as upstarts such as PDD Holdings Inc. and ByteDance Ltd.

We think the unique strategy to divide up its operations has received some form of approval from the authorities,” said Gary Dugan, CEO of the Global CIO Office. “In such a scenario, it will be seen as an elegant approach for unlocking the value inside the firm.”

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