Alibaba’s reversal raises concerns for China tech

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Alibaba’s decision to scrap the spinoff of its cloud computing business has not gone down well with investors. The company has blamed US restrictions on advanced chips for the move, which caused a more than 10% fall in the company’s shares. This U-turn has shattered market expectations of stability among technology companies after Beijing’s regulatory crackdown, and it is unlikely the sector has yet hit a bottom. This latest disappointment comes after several others, including the CEO and Chairman’s resignation from the company’s cloud division. Cainiao, Alibaba’s logistics arm, also has a Hong Kong listing application pending before the securities watchdog. The decision to put on hold the IPO for its smaller Freshippo supermarket chain has added to shareholders’ woes. 


Alibaba’s woes are casting a pall over the rest of the beleaguered sector. Chinese tech majors have been struggling since Ant’s IPO was derailed three years ago and are now facing the challenge of rebuilding their businesses while dealing with the impact of the pandemic. The collapse of the country’s housing market, the deepening youth joblessness crisis, and muted consumption are all weakening growth prospects for the world’s second-biggest economy. The fractious state of US-China relations is also adding to investor worries.


The stock is currently trading at 8 times forward earnings, well below its five-year average of 18 times. When the split was announced in March, analysts valued Alibaba at about $130 per share. However, at its current share price of $79, markets appear to have given up on any value creation sparked by the breakup. The announcement of a dividend wasn’t enough to cheer up shareholders. So-so results from Alibaba’s main businesses, also reported on Thursday, make it hard to see a silver lining in the dark clouds gathering over China’s technology sector.

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