Alibaba, the Chinese e-commerce behemoth, recently announced its first-ever dividend since its 2014 IPO, distributing approximately $2.5 billion to shareholders. This equates to a modest 1.1% yield based on the current stock value. However, the company faces significant challenges, with its plan to spin off its cloud computing division now in jeopardy due to the U.S. expanding export controls on advanced technology. This move, encompassing sales to Chinese subsidiaries and certain chip technologies, could severely impact Alibaba’s cloud unit’s operational capabilities and technological advancements.
The cloud division, once seen as a key growth driver for Alibaba, reported a meager 2% year-over-year revenue increase last quarter. Investor confidence is waning, as reflected in an 8% premarket drop in Alibaba’s New York-listed shares. * This downturn is exacerbated by the unexpected resignation of former chairman Daniel Zhang from leading the cloud unit, combined with the overall slowing growth of the company.
Alibaba's primary e-commerce business is also struggling, with cautious spending by Chinese consumers post the lifting of "zero Covid" policies. Although the company's overall revenue rose by 9% and operating profit increased by 34% in the last quarter, this was primarily driven by reduced costs rather than robust sales, particularly in its key Chinese platforms Taobao and Tmall.
Navigating through a challenging regulatory landscape, both domestically and internationally, Alibaba faces a tough road ahead in 2023. Balancing tensions between U.S. policies and the cautious spending habits of Chinese consumers presents a formidable challenge for the company.
* Past performance is no guarantee of future results.
