“At 24 years of age, Alibaba is welcoming a new opportunity for growth,” said CEO Daniel Zhang.
Alibaba Group Holding (BABAF) shares surged higher Tuesday after the China based e-commerce giant unveiled plans to split into six separate companies.
Alibaba said it will 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 CEO 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.
“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.”
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The decision to split follows a move by Chinese authorities to loosen their grip on the broader tech and business sector, both of which were hit by significant restrictions prior to the Covid pandemic, as 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 will be ‘normalized’ over the coming months, with support 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.
Alibaba may also find itself unfettered by political influence following a move by its founder, Jack Ma, to cede control of subsidiary of subsidiary Ant Financial after the government effectively stepped-in to scrap its planned $37 billion IPO 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 7.75% higher in pre-market trading to indicate an opening bell price of $92.80 each.
One investor that could benefit greatly from the split is billionaire meme-stock legend Ryan Cohen, who built a multi-million stake in Asia’s biggest tech company earlier this year.
Cohen, the founder of Chewy.com (CHWY) – Get Free Report, is reportedly seeking changes within the group as part of his investment, which he began building in August of last year, and has pushed for an increase in its share buyback plans.
Cohen, who has scored big activist wins with stakes in GameStop (GME) – Get Free Report and Bed Bath & Beyond (BBBY) – Get Free Report, 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.