February 25, 2024

The Chinese tech giant Alibaba Group witnessed a significant market downturn as its Hong Kong-listed shares plunged by 10% on Friday. This abrupt drop wiped approximately $20 billion off Alibaba’s market value.

Notably, it was a direct consequence of the company’s unexpected decision to abandon plans for the spin-off of its cloud business.

As it announced on Thursday, the decision resulted from uncertainties arising from U.S. restrictions on exports of semiconductor chips utilized in AI applications to China. 

Alibaba Share Prices Fall

The market reaction in Asia was swift, marking one of Alibaba’s most substantial one-day falls in over a year. This decline followed the 9% drop in the company’s U.S.-listed securities on the same day.

Alibaba, once valued at around $830 billion in October 2020, has seen a stark decline in its market valuation, now standing at less than a quarter of that amount.

The company has been grappling with challenges, including its prominent role in Beijing’s technology sector crackdown and the broader economic slowdown in China. Notably, its decision to halt the cloud business spin-off comes as China’s tech companies face increased difficulties obtaining crucial chip supplies from U.S. companies due to export curbs.

In March, Alibaba had initially announced plans to carve out its cloud business as part of a significant restructuring, breaking the company into six units. Analysts had once predicted that the Cloud division’s value would range from $41 billion to $60 billion.

However, the regulatory scrutiny on the sector due to the substantial amount of data it manages raised concerns. This week, Tencent Holdings raised similar worries, stating that the restrictions would force the company to seek domestically produced alternatives.

In addition to the cloud business, Alibaba also put on hold the listing plan for its Freshippo groceries business and reported plans to conduct a Hong Kong IPO for its logistics arm, Cainiao.

The company is also gearing up for external fundraising for its international digital commerce unit and housing platforms such as Lazada and Alibaba.com.

Despite the challenges, Alibaba remains focused on its strategic direction, emphasizing growth in the cloud business and investments in artificial intelligence (AI) drivers.

Alibaba’s Initial Dividend Payout

Beyond these plans, Alibaba is set to make history with its inaugural annual cash dividend payout in 2023. The board of directors has given the green light for a $0.125 per ordinary share or $1 per American depositary share cash dividend for the financial year, totaling an impressive $2.5 billion.

This dividend distribution underscores Alibaba’s commitment to sharing profits with its shareholders. The payout is scheduled for December 21, 2023, at the close of business, aligning with Hong Kong and New York time zones.

Looking ahead, Alibaba emphasized its intention to conduct an annual review to determine future dividend amounts. This evaluation will consider factors such as business fundamentals and capital requirements, ensuring a strategic and well-founded approach.

During the recent earnings call, focus was placed on Cainiao, the division actively pursuing an IPO.

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