Published - May 19th, 2023 @ 11:00 AM (GMT+2)

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Introduction:
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Alibaba Group Holding Ltd (NYSE:BABA), the leading Chinese e-commerce giant, encountered a 2% quarterly revenue miss, highlighting the hurdles it faces in attracting new users and increased competition in the maturing e-commerce sector. As a strategic move, Alibaba's Cloud Intelligence Group is set for a complete spinoff as a separate entity within the next year, aiming to bolster the company's presence in the cloud computing industry. Let's delve into the details of Alibaba's recent struggles and forward-looking initiatives.
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Alibaba's Q1 Revenue Performance:
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During the first quarter, Alibaba reported revenue of 208.20 billion yuan ($30.12 billion), falling short of the Refinitiv consensus estimate of 210.3 billion yuan. This 2% rise in revenue represents the slowest growth rate since the company went public in 2014. Factors contributing to this setback include a maturing e-commerce market in China and intensifying competition from emerging players like PDD Holdings (NASDAQ:PDD) and Douyin (the Chinese version of TikTok).

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Strategic Spinoff of Cloud Intelligence Group:
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In response to the challenges faced in the e-commerce sector, Alibaba has decided to spin off its Cloud Intelligence Group fully. By listing it as a separate entity within the next year, Alibaba aims to strengthen its foothold in the highly competitive cloud computing industry. The company's board has also approved external financing for Alibaba International Digital Commerce Business Group, while its grocery arm, Freshippo, and logistics unit, Cainiao, explore potential IPOs in the coming months.

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Initiating Restructuring and IPOs:
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Alibaba's plans for restructuring into six units signify its proactive approach to adapting to market dynamics and seeking future growth opportunities. Except for the China-facing e-commerce division, the company expects all other units to seek outside funding and go public. This strategic move reflects Alibaba's ambitions to nurture smaller entities that could become as influential as the group.

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Cloud Computing Sector Challenges:
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Alibaba faces significant challenges in the cloud computing sector, including soft corporate demand and excess capacity. Despite a 2% decline in year-on-year revenue for Alibaba's cloud division, the company remains determined to consolidate its position in this critical sector. To stay competitive, Alibaba and its rival Tencent Holdings (HK:0700) have recently engaged in drastic price cuts for their cloud computing services, sparking a price war in the industry.
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Conclusion:
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Alibaba's recent revenue miss underscores its obstacles in the evolving e-commerce landscape and the need to adapt to new market conditions. The company's commitment to reshaping its business units demonstrates its dedication to fostering innovation and sustaining long-term growth. By approving the spinoff of its Cloud Intelligence Group and exploring potential IPOs, Alibaba is strategically positioning itself to capitalize on emerging opportunities. Nevertheless, challenges persist in the cloud computing sector, where Alibaba aims to stay competitive amidst pricing pressures and excess capacity.

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