Alibaba’s move to spin out its Cloud services is a “no-brainer” that should help to increase the Chinese tech giant’s value, analysts are saying.
The company announced on Thursday its intentions to spin off its cloud business unit and prepare two other units for initial public offerings (IPOs) as part of its ongoing organizational restructuring.
The spinoff should be wrapped up within a year, Alibaba said.
The decision to spin out its cloud business comes after Alibaba's most recent quarterly results highlighted cloud revenue decreasing 2% year-on-year, which CEO Daniel Zhang attributed to changes in the company's revenue structure, external market environments, and customer profiles.
Notably, one of Alibaba's top customers shifted away from the vendor's cloud services to an on-premises infrastructure, resulting in a 41% decline in their contribution to Alibaba's cloud revenue.
According to Zhang, the increasing demand for computing power driven by digitalization and artificial intelligence (AI) has created unique requirements and opportunities in the cloud business. Alibaba's cloud unit, with its established infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) offerings, aims to capitalize on this market by providing stable, secure, high-performance, and cost-efficient computing services.
The CEO emphasized that the cloud business has distinct business models, customer profiles, and development needs compared to other consumer-focused businesses within Alibaba's ecosystem. The spinoff will grant the cloud unit the necessary independence to further refine its business strategy and optimize its operations.
Analyst Dan Ives from Wedbush Securities told CNBC that the spinoff plan is a "no-brainer strategic move" that enhances the valuation of Alibaba as a whole.
The specifics of the IPO plans for the two other units have not yet been disclosed.
Alibaba is planning to spin out several business units in the coming months.
What is Alibaba’s cloud business?
Alibaba's cloud business, known as Alibaba Cloud or Alibaba Cloud Computing, is the biggest cloud services platform in China. It provides a comprehensive suite of cloud services, including infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS).
In addition to its strong presence in China, Alibaba Cloud has operations elsewhere in Asia, Europe, the Middle East, and the Americas. It operates data centers in multiple locations worldwide to ensure reliable and high-performance cloud services.
With its extensive cloud capabilities and technology expertise, Alibaba Cloud has become one of the leading cloud service providers globally, competing with other major players in the industry such as Amazon Web Services (AWS), Microsoft Azure, and Google Cloud.
The divsion is valued at around US$12 billion.
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