Alibaba (BABA:NYSE) to split companies into six groups in radical overhaul

Alibaba (BABA:NYSE) stocks soared to close 14.26% higher in extended trading Tuesday after the company announced a significant overhaul to split the tech giant into six business groups.

The decision to split into different units means each will be managed by its own leadership and executive board, and can pursue independent fundraising and IPOs when they’re ready. The company said the move aims to “unlock shareholder value and foster market competitiveness.”

Under the restructuring, Alibaba’s various businesses will be split up into six major areas: cloud computing, Chinese e-commerce, global e-commerce, digital mapping and food delivery, logistics, and media and entertainment.

All of the company’s six business groups had been operating separately for several years and had plans for IPOs in the short term. Each business group would have its own CEO reporting to a board of directors and be fully responsible for the group’s performance. Alibaba Group is set to become a holding company overseen by Alibaba Chairman and CEO Daniel Zhang. Alibaba’s main moneymaking units — its Taobao and Tmall ecommerce platforms — will remain wholly owned by the main company.

“This transformation will empower all our businesses to become more agile, enhance decision-making and enable faster responses to market changes,” Zhang said in a letter to employees

The move echoes previous sweeping reorganizations by Western tech giants such as Google, which created Alphabet Inc. as a holding company while separating its growing cast of businesses.

The reorganization of one of China’s largest private-sector companies, once valued at more than $800 billion but now worth about a quarter of that, comes after amid signs that Beijing is warming back up to technology businesses, as the government seeks to revive economic growth in the world’s second-largest economy.

Alibaba’s split also coincides with the reappearance of its co-founder Jack Mr. Ma in China following more than two years of regulatory clampdowns and Covid-19 restrictions. He returned to mainland China in recent days for the first known time in almost a year, visiting a school in the eastern city of Hangzhou where Alibaba is based.

Mr. Ma, who built Alibaba into one of the world’s biggest e-commerce companies on China’s rising affluence, was once known for his outspoken views. But since China embarked on its campaign to tame internet companies, the billionaire has largely kept a low profile and remained abroad.

Initially, Mr. Ma embarked on a centralization drive in which he sought to bring the company’s subsidiaries and affiliates into closer alignment, part of the so-called Alibaba Economy. The company has grew into a giant that encompasses businesses from e-commerce to cloud computing to streaming and logistics.

However, Alibaba has been facing continued struggles with growth over the past few quarters due to fierce competition in its bread-and-butter domestic e-commerce business. Rivals Inc (JD:NYSE) and Pinduoduo (PDD:NYSE) have continued to bite into Alibaba’s market share.

The company erased roughly $600 billion in value from its peak seen in October 2020 as it continued to grapple with the Chinese government’s crackdown on technology companies. Alibaba’s fintech affiliate Ant Group was forced by regulators to cancel its mega public listing in November 2020. And in 2021, Alibaba was fined $2.6 billion as part of an antitrust probe.

The company is now looking to reinvigorate growth. The restructuring is a culmination of yearslong shift inside the company to make it more nimble after Mr. Ma stepped back from the company’s helm in 2019.

The surge in the company’s shares stock reflect of a sense of relief for investors. The overhaul may set the stage for a more innovative Chinese tech sector and far more competition – so very good for Chinese consumers.

Alibaba shares are up 11.7% so far this year