Jack Ma has returned to China after a year’s absence. His arrival coincides with the astute decision to divide Alibaba, the $255bn ecommerce giant he co-founded, into six parts. Alibaba’s share price rose 12 per cent in response. But there is little reason to think the split will make these businesses more competitive with rivals.
The rejig may however placate politicians and regulators intent on cutting Chinese tech giants down to size. Six small poppies make a less tempting target than one large one.
The new units encompass domestic ecommerce, cloud computing, local services such as food delivery, digital entertainment, international ecommerce and logistics. Each will have its own chief executive and the flexibility to raise funding, including via market listings.
Shareholders always hope reorganisations will unlock value. There are hazy promises of greater efficiency. But the split will not yield hidden treasures. Logistics is fast growing but unprofitable. Cloud computing revenue growth was 3 per cent in the last quarter, down from 62 per cent in 2019.
Google’s creation of holding company Alphabet in 2015 offers clues to what may happen next. Google claimed it would support new tech ventures. Yet Alphabet’s main business remains online advertising. A show of greater transparency soothed twitchy US regulators, though.
Alibaba has already accepted heightened oversight. Yet the share price is down almost 70 per cent from its 2020 high. The stock trades at 8 times forecast ebitda, a third below Amazon.
Blame nimble rivals and a sluggish economy. Alibaba has reported three consecutive quarters of negative customer management revenue — money paid by merchants for services.
Tencent also looks like a candidate for a break-up, which could split apart its financial and entertainment businesses. But the danger in aping Alibaba is that it would inspire further cynicism. Defensively creating independent businesses within a familiar wrapper does not count as a radical overhaul.