Alibaba Group Holding (BABA) shares surged higher Tuesday after the China-based e-commerce giant unveiled plans to split into six separate companies.
Alibaba said it would separate into larger units focused on e-commerce, cloud computing and media, with each division possibly pursuing individual IPOs or funding "when they are ready," group Chief Executive Daniel Zhang said in a statement.
Alibaba will create a new Cloud Intelligence Group as well as a Taobao T-mall Commerce unit, a Cainiao Smart Logistics business, a Local Services group and Global Digital Commerce and Digital Media and Entertainment groups.
Zhang is expected to lead the cloud division, Alibaba's fastest-growing business, while maintaining control of the broader holding company.
'The Market Is the Best Litmus Test': Alibaba CEO
“At 24 years of age, Alibaba is welcoming a new opportunity for growth,” Zhang said. “The market is the best litmus test, and each business group and company can pursue independent fundraising and IPOs when they are ready.”
The decision to split follows a move by Chinese authorities to loosen their grip on the broader tech and business sectors.
Both had been hit by significant restrictions prior to the covid pandemic; now, the world's second-largest economy seeks to reignite growth following three years of lockdown orders.
Earlier this year, Guo Shuqing, a Chinese Communist Party secretary of the People's Bank of China, said the country's two-year investigation into the tech sector would be "normalized" over the coming months. Support will be provided to those companies prepared to play a bigger role in domestic job creation as the economy attempts to recover from its long covid-era pullback, the executive said.
Alibaba may also find itself unfettered by political influence following a move by its founder, Jack Ma, to cede control of the Ant Financial subsidiary after the government effectively stepped in to scrap its planned $37 billion initial public offering in late 2020.
Ma, in fact, made his first appearance in mainland China in nearly two years yesterday, when he was seen at a primary school in the northeast city of Hangzhou.
Alibaba's U.S.-listed shares were marked 9.75% higher in early Tuesday trading to change hands at $94.50 each.
'Quicker Market Response' in New Structure: Analyst
"Setting up individual [business groups] will enable quicker market response amid intensifying competition," said Daiwa analyst John Choi. "This organizational change is unlikely to bring disruption to the operations, as management change has been in place for some time."
"The interests of staff will be better aligned with the relevant [business groups] under the individual stock option plans; this will create greater ownership, improving employee morale and retention," he added.
One investor that could benefit greatly from the split is the billionaire meme-stock legend Ryan Cohen, who earlier this year built a multimillion-dollar stake in Asia's biggest tech company.
The founder of pet-products provider Chewy.com (CHWY), Cohen is reportedly seeking changes within the group as part of his investment, which he began building in August of last year. He also has pushed for an increase in its share-buyback plans.
Cohen, who has scored big activist wins with stakes in GameStop (GME) and Bed Bath & Beyond (BBBY), has told Alibaba it can grow its overall digital sales by double-digits, while generating free cash flow growth of 20% over the next five years, according to multiple media reports.
