Disaster for Chinese company as investors pull out of expansion after share drop

A major company in China is in a state of disaster after its shares dropped while investors pulled out of a major expansion project.

Chinese e-commerce giant Alibaba has decided to abandon its plans to separate its cloud business and has halted the listing of its supermarket unit due to a decline in investor interest in the company’s restructuring efforts.

The decision comes after the company reported lower-than-expected earnings, leading to a 10 percent drop in its US-listed shares.

The company, based in China, initially announced in March that it would divide its operations into six units to boost shareholder value and spur growth. This move was initially well-received by investors, resulting in a 20 percent increase in the share price. However, the enthusiasm has since faded, partly due to diminished optimism about China’s economy following the end of Beijing’s controversial zero-Covid policy.

Alibaba’s cloud unit, once a significant driver of growth, experienced only a 2 percent revenue growth to Rmb27.6bn in the third quarter.

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Analysts attribute the waning interest in the restructuring to changes in the market environment and concerns about the subsidiaries’ current performance.

The decision to abandon the IPO for the cloud business is also influenced by uncertainties arising from US export controls on AI chips. Alibaba, a Chinese company, expressed concerns that these controls could adversely affect the Cloud Intelligence Group’s ability to offer products and services and upgrade technological capabilities.

Additionally, the company’s third-quarter financial results fell below analyst estimates, with revenues reaching Rmb224.8bn ($30.8bn), below the Bloomberg consensus estimate of Rmb272bn.

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Despite this, Alibaba, headquartered in China, announced its first annual dividend of $2.5bn and revealed $15bn remaining for its $25bn share buyback program.

The cloud business, valued at $41bn by Goldman Sachs in March, has faced challenges, including sudden changes in leadership during the restructuring. Alibaba’s departing CEO, Daniel Zhang, was initially set to lead the cloud business but unexpectedly stepped down on the scheduled day. The company, based in China, is yet to appoint a new management team for one of China’s largest cloud businesses by market share.

In response to these developments, Alibaba’s new CEO, Eddie Yongming Wu, mentioned that the company, headquartered in China, is conducting a review of its corporate governance structure to “reawaken our entrepreneurial mindset,” as it navigates challenges and seeks to regain investor confidence.

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