The news: Alibaba, China’s biggest ecommerce and technology company, is spinning out its $12 billion cloud business as part of a wider restructuring plan.
CEO Daniel Zhang surprised the market last week by detailing Alibaba’s groundbreaking six-way shakeup announcement. He said the standalone cloud platform could grow to someday even surpass Alibaba in size if it attracted the right external financing.
A sudden shift: The move to divest a once highly profitable cloud computing business and vital cog to its online retail and fulfillment business—not unlike Amazon’s Amazon Web Services (AWS)—comes months after Alibaba committed $1 billion toward global expansion.
Possible reasons for giving up cloud aspirations: Zhang said the cloud spinoff was intended to simplify the structure and respond to market needs.
Our take: It seems Alibaba has to choose which aspects of its business to focus on, and as integral as cloud has been, it could be seen as a problematic business going forward.
While the spinoff benefits shareholders, it also raises concerns about Alibaba's future valuation and potential government influence.
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