The past year has seen the scrapping of cloud IPO plans and a management shakeup, hinting at deeper difficulties for a company that has acted as a barometer for overseas investors in China. This has caused the stock price to slump to less than $77, a dramatic fall from the $300 it reached in 2020.
Over the past 12 months, Alibaba has encountered multiple difficulties, even as artificial intelligence technology continues to advance. The company's cloud computing unit was expected to offer investors the opportunity to benefit from the flourishing of AI through a public listing, until it was cancelled in November. This same year, Alibaba's US market value dropped to a level lower than that of its competitor PDD, indicating a competitive rivalry in the same industry that previously saw the largest IPO in history in 2014. Besides these issues, a record anti-monopoly fine of $2.8 billion was imposed on the company in 2021, alongside the arduous economic development.The decision to halt the cloud IPO and the subsequent reshuffling of the management team point to serious problems faced by Alibaba, with its stocks falling to below $77 per share, reflecting a 75% decrease from above $300 in 2020.Duncan Clark, an early Alibaba advisor and chairman of Beijing-based investment consulting firm BDA, stated that the company is facing deep internal issues, from its diminishing market stance, video and livestream experiences in comparison to Douyin, to the mismanagement and leadership disarray. Clark concludes that Alibaba is in a ”mess”.
Douyin, the in-country Chinese adaptation of ByteDance's TikTok, has soared in China as a platform for the growing livestream sales market. Chinese consumers, who are becoming more and more cost-conscious, are now also seeking bargains on Pinduoduo. Established by Jack Ma in 1999, Alibaba is an enterprise much older than either ByteDance or PDD. "There are people who are departing the firm, they may think the corporation is too large and bureaucratic, that is a fact," remarked Brian Wong, previous Alibaba Group VP and writer of the "Tao of Alibaba," out in November 2022.
After Alibaba Group declared a significant corporate restructuring in March, which was followed by a number of cloud-related executive modifications, the concept of a cloud IPO was put aside. Eddie Wu has been CEO of Alibaba since September and is also functioning as head of the cloud department. In December, Wu supplanted Trudy Dai as head of the Taobao and Tmall e-commerce division.
Daniel Zhang, who was set to stay on as CEO of Alibaba Group and lead their cloud business unit after his appointment as acting head in December 2022, surprisingly resigned in September of the previous year. Clark asserted that Zhang's departure is indicative of some miscalculations on the cloud side, as it was being used to demonstrate their restructuring. Furthermore, the halted cloud IPO plans, much like the abrupt cancellation of Ant Group's IPO in 2020, has rendered the employees unable to cash in on the potentially profitable shares. According to Clark, this has led to a collapse in the incentive system.
He queried, "Are they too big? That was the accusation previously, but is the real issue now whether they are agile enough, and can they compete sufficiently in the market?" Clark was also the author of "Alibaba: The House That Jack Ma Built," which was released in 2016.
Alibaba has been a pioneering player in the cloud business. Data from Canalys shows that they stayed as the biggest cloud player in China in the third quarter, followed by Huawei and Tencent. However, analyst Yi Zhang predicts that Huawei's market share will grow over time, thanks to their 2022 strategy of creating an environment of experts and developers. In comparison, Alibaba and Tencent began this approach only in 2023. This could be advantageous in a cloud services market that Canalys states is "heavily dependent on government and state-owned enterprises". 36kr reported last January, according to sources, that government clients are doing business with Huawei instead of Alibaba. Neither Alibaba nor Huawei responded to a query about this story. In November, Alibaba blamed U.S. restrictions on chip imports to China for the stalled cloud IPO.
Learn more about China through CNBC Pro. JPMorgan has identified Chinese stocks to invest in currently, and Alibaba is not included. A portfolio manager has expressed great belief in a particular Chinese technology stock. The Chinese version of Spotify has not been properly recognized, according to Morgan Stanley. Goldman Sachs is very fond of a certain subsection of the Chinese market and has articulated three stocks which are worth buying.
JPMorgan's fund managers have selected a number of Chinese stocks to invest in. Alibaba is not among the chosen few, and the portfolio manager has explained why he has the 'most confidence' in this Chinese tech stock. There is a belief that China's answer to Spotify is 'undervalued,' according to Morgan Stanley, and Goldman Sachs is keen on particular sub-sectors in China and has identified three stocks to buy.
Alibaba reported a mere 2% growth rate year-on-year of its cloud business revenue for the quarter up to September 30. From the quarter before that, the company began incorporating cloud revenue from other areas of Alibaba Group. Clark of BDA relayed that the research done by his firm discovered that Alibaba had attempted to enlarge its cloud business by removing prime customers from third-party sellers. These vendors were companies that had served as representatives or agents for Alibaba cloud and were rewarded with commissions. According to Clark, this effort might have met with a poor response, since the resellers became disgruntled and shifted to other providers. It was anticipated that the resellers would be concentrating on smaller customers instead of the major ones that were taken away, but this did not come to pass. “It’s a very challenging realm,” Clark declared.
Despite a difficult IPO market for Chinese firms, Alibaba is still aiming to list both its Cainiao logistics business and the Freshippo grocery store chain. According to reports in November, an international investment firm was only willing to value Alibaba's cloud unit at under $25 billion, far lower than the $40 billion the company desired.
Former executive Wong commented that given the company's large customer and data base, the "raw material is there" for AI operations; however, the challenge lies in how to effectively execute this in a critical time. In his view, Alibaba is working to organize its operations ahead of the next big thing.
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