Alibaba's Cloud Business Spinoff - What's Going On With Alibaba Stock Friday

Alibaba Group Holding Limited's BABA move to fully spin out a potentially transformative $12 billion cloud business has fueled speculation of it succumbing to market or political realities.

Analysts value the cloud business at upwards of $30 billion, a prime beneficiary of a post-ChatGPT frenzy mirroring the success of Amazon.Com, Inc's AMZN cloud unit Amazon Web Services, Bloomberg reports.

Alibaba splurged tens of billions over a decade in hosting computing for corporations over the Internet, a business that outstripped rival offerings from Tencent Holdings Ltd TCEHY and Baidu Inc BIDU.

However, China's sweeping technological sector crackdown served as a dampener. The cloud division lately began losing market share to rivals, including Huawei Technologies Co and state-run China Mobile Ltd.

Analyst Vey Sern Ling of Union Bancaire Privee terms the spin-out positive backed by significant capital return. However, the cloud business will no longer add to Alibaba Holding company's valuation once entirely distributed. 

He remains suspicious of the move being government-driven despite Alibaba stating that the cloud business is relatively independent and unrelated to its core e-commerce businesses.

Alibaba Cloud contributed to profit for the first time around late 2020, helping prop up the bottom line just as Covid-era shocks hammered shopping. The division houses the DAMO academy, credited for groundbreaking moonshot projects from chip design to quantum computing. 

In FY22, Alibaba Cloud generated nearly $12 billion of revenue for the company — 8% of turnover. 

Nomura analysts Jialong Shi and Thomas Shen were puzzled by the complete spinoff as they deem it Alibaba's organic business and one of the long-term drivers.

Large-scale businesses like the China Construction Bank and local municipalities in cities such as Nantong were already moving closer to state-backed cloud platforms.

The planned spin-out comes at a challenging time for the Cloud business, which seems to have lost the growth initiative, said Bloomberg analyst Robert Lea.

HSBC analyst Carson Lo maintains Alibaba with a Buy and lowers the price target from $143 to $140.

Citigroup analyst Alicia Yap maintains a Buy and lowers the price target from $154 to $144.

B of A Securities analyst Eddie Leung maintains a Buy and lowers the price target from $144 to $132.

Baird analyst Colin Sebastian maintains an Outperform and lowers the price target from $120 to $115.

Price Action: BABA shares traded lower by 1.95% at $84.10 premarket on the last check Friday.

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