Alibaba
stock plunged on Thursday as investors ignored better-than-expected September earnings to digest news that U.S.-China tensions have spoiled a key element of the company’s restructuring plan.
Alibaba (ticker: BABA) warned that U.S. export controls on advanced computer chips, expanded in October, “may materially and adversely affect Cloud Intelligence Group’s ability to offer products and services and to perform under existing contracts.” The Chinese tech giant said these controls create uncertainty for the future of its cloud division, which the group revealed it will not spin off as planned.
The spin off of its cloud division, which includes the company’s efforts in artificial intelligence, was at the heart of Alibaba’s plans to split itself up and transition from conglomerate to holding company. Announced earlier this year, the bid to realize value for shareholders after years of underperformance, has been at the heart of the bull case for the stock.
“We have decided to not proceed with a full spin-off, and instead we will focus on developing a sustainable growth model for Cloud Intelligence Group under the fluid circumstances,” the company said in a statement.
The shock news highlights the shortcomings of attempts to revitalize U.S.-China economic relations. President Joe Biden and President Xi Jinping met on Wednesday but failed to make significant progress on that front, sending a chill through China stocks even before Alibaba’s results. Shares in the company were already 3% lower in premarket trading before earnings and the stock was last down 8.1%.
A cancelled cloud spinoff sours the mood for investors, who otherwise might have celebrated a strong September quarter. Alibaba reported earnings of 15.63 Chinese yuan ($2.16) a share on revenue of 224.8 billion ($31 billion) for the three months to the end of September. Analysts surveyed by FactSet had expected earnings at 15.28 yuan a share on revenue of 224.5 billion yuan.
Write to Jack Denton at [email protected]
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