Alibaba to rotate the cloud unit. Stocks decline despite earnings beat.

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Ali Baba

It said it would spin off its high-value cloud computing division by paying dividends to shareholders — news that sent shares of the Chinese tech giant lower, despite its earnings and revenue for the March quarter that beat expectations.

Alibaba (stock symbol: BABA) reported earnings of $1.56 per share on sales of $30.32 billion in the first three months of 2023, the group’s fourth fiscal quarter. Analysts surveyed by FactSet expected earnings of $1.36 per share on sales of $29.97 billion.

US-listed Alibaba shares fell 1.4 percent on Thursday, before previously trading as high as less than 1 percent.

“We are taking concrete steps toward unlocking value from our business and are pleased to announce that our Board of Directors has approved the full spin-off of the Cloud Intelligence Group via a dividend distribution to shareholders, with the intention of becoming an independent, publicly listed company,” said Daniel Chang, Chairman and CEO. Alibaba, in a statement.The group earlier this year announced plans to split itself, opening the door for five new units to go public.

This is breaking news. Read a preview of Alibaba earnings below and check back for more analysis soon.

Ali Baba
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Earnings due Thursday may get more attention than usual, because the latest update from the Chinese tech giant could contain more details about its plans to split itself — as well as macro trends that could move the stock market.

First, the numbers: Analysts polled by FactSet expect Alibaba (stock ticker: BABA) to report earnings of $1.36 per share on sales of $29.97 billion in the first three months of 2023, the company’s fourth fiscal quarter. It would represent earnings growth from $1.18 in earnings per share in the March quarter of 2022, with sales down from $30.28 billion a year earlier. This is another quarter of revenue contraction, which Alibaba first saw last year amid Covid-19 lockdowns.

As always, some units of Alibaba — a sprawling tech conglomerate with interests from domestic online retail in China to an artificial intelligence (AI) arm with a rival to ChatGPT — will come under more scrutiny from investors than others. In focus will be the group’s cloud computing division, which includes its AI efforts and is expected to grow 1% quarter-over-quarter after a contraction in the fourth quarter of 2022.

There is also the possibility that other news, likely to be found in the earnings release, may overshadow the results themselves, before the market opens on Thursday.

In particular, Alibaba announced plans in March to split itself into six units and open the door for six of its subsidiaries to go public on their own. Marking a transformation from conglomerate to holding company, it’s an effort to unlock shareholder value and boost market competitiveness — a clear signal to regulators who have battered China’s tech sector over competition fears since 2020.

Other than a few minuscule details on the company’s conference call after the split was announced, investors have been waiting for details. The most recent earnings release may be an opportunity to signal the next move.

More broadly, Alibaba’s core Chinese e-commerce business will be in the spotlight, and not just because it’s the largest single shareholder in the group’s top line.

Consumer powerhouses in China, the world’s second-largest economy, have received renewed attention in recent weeks amid mounting global growth concerns. These concerns, which have weighed on commodity prices and dampened sentiment among investors in Asia and around the world, were triggered in part by Chinese data showing a weak domestic picture as well as waning foreign demand for commodities.

Alibaba’s results, as well as any outlook offered by the company’s management, have the potential to add color to China’s economic picture. The viability of China’s recovery in 2023 after the slowdown in 2022 caused by the Covid lockdown remains a major theme in global markets. Any trends highlighted in Alibaba’s financials offer something of a front row seat.

Write to Jack Denton at [email protected]