Chinese technology 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 possibly even go public.
That might not be a bad idea, considering the conglomerate sales increased by an average of 2% in the first quarter of 2023 and profitability is on a downward trend (operating income down 9%) from a year earlier.
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Big companies like Alibaba often don’t have many ways to make shareholders happy when growth is hard to achieve. But a surefire way is to break the business down into smaller pieces and value each part individually. So if a company has a high-growth business with good margins under the auspices of a slower-growing, low-margin segment, it can “unlock” value by letting the market decide how much the more attractive parts of the business are worth.
Alibaba’s plan to deconstruct itself has a number of phases. First, at the end of March, the company divided its operations into six major branches, all of which, apart from e-commerce companies Taobao and Tmall, will have the opportunity to chart their own financial paths. The company is spun off its cloud business, while its logistics division, Cainiao, and its grocery business, Freshippo, are on track for IPOs.
Of these, the cloud spinoff is worth spending some time on, so we’re going to examine Q1 results, compare its performance to other public cloud companies, and make some educated guesses about what it’s worth on its own could be .
Cloudy with a chance of silver linings
Alibaba’s cloud business, consisting of its public cloud products (Alibaba Cloud) and business chat platform (DingTalk), achieved revenues of $2.71 billion in Q1 2023, accounting for 9% of its total revenue. alibaba. That’s a lot!