Alibaba misses revenue estimate, agrees to offer cloud unit

May 18 (Reuters) – China’s Alibaba Group Holding Ltd (9988.HK) posted a 2% increase in quarterly revenue that missed expectations on Thursday and said it will list its cloud computing business next year.

The company has struggled to attract new users as China’s e-commerce sector matures and has struggled with successes made by new rivals such as PDD Holdings (PDD.O) and Douyin, the Chinese version of TikTok also owned by ByteDance.

Shares of the US-listed Chinese tech giant fell 4.9% to $86.20 in early trade.

Earlier this year, Alibaba announced plans to restructure into six units after a two-year regulatory crackdown on China’s technology sector. It expects all units except for the China-facing e-commerce division to seek external funding and go public.

On Thursday, it approved a full spin-off of the Cloud Intelligence Group through a dividend distribution to shareholders, with the goal of completing the public listing within the next 12 months.

Chief Financial Officer Toby Xu said that the Alibaba board of directors has also approved the process of initiating external financing for Alibaba’s international digital trade business group. He added that Freshippo, its grocery arm, will begin the IPO process and Cainiao’s logistics unit will explore an IPO within the next 12-18 months.

“We’d love nothing more than to see one of these small Alibaba companies… Alibaba become another big one, about the size of the group company right now,” Alibaba Group Chairman Daniel Zhang said on the earnings call.

Chinese consumer spending has gained some momentum since the country abandoned its strict anti-coronavirus policies late last year, but it remains relatively muted amid a shaky economic recovery.

Alibaba reported revenue of 208.20 billion yuan ($30.12 billion) for the three months ending in March, compared to a Refinitiv estimate of 210.3 billion yuan. Full-year revenue rose 2% to 868.69 billion yuan, the slowest growth rate since the company’s IPO in 2014.

Net income attributable to common shareholders was 23.52 billion yuan in the quarter, reversing last year’s loss of 16.24 billion yuan.

Amid weak corporate demand and excess capacity, both Alibaba and rival Tencent Holdings Ltd (0700.HK) recently announced deep price cuts for cloud computing services, plunging the sector into a price war.

Alibaba’s cloud division revenue in the fourth quarter was 18.6 billion yuan, down 2% year on year.

Last month, Alibaba demonstrated Tongyi Qianwen, a generative AI model similar to OpenAI’s ChatGPT-enabled model. The company has opened registration to test the technology for Alibaba Cloud customers.

A number of other Chinese companies, including search giant Baidu, have released similar AI models.

($1 = 6.9121 CNY)

Additional reporting by Shafi Mehta in Bengaluru and Josh Horowitz in Shanghai; Editing by Edwina Gibbs and Devika Syamnath

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