Investor Reactions Vary to Alibaba's Decision on Halting Cloud Business Spinoff

The unexpected termination of plans to turn Alibaba Group Holding Limited's cloud division into a separate entity has garnered a spectrum of reactions from the investment community.

What Happened: Financial analysts are recalibrating their stances following the cancellation. Notably, investment bank Morgan Stanley withdrew its endorsement of Alibaba as the leading choice within the internet space, pointing to the shelved cloud IPO as a significant factor. The analysis team led by Gary Yu reduced their price target for Alibaba from $125 to $110, though they still anticipate a potential increase of 42% in the stock's value.

Bernstein analysts critiqued the company's underwhelming earnings and the IPO's termination, resulting in a decreased price target from $100 to $93. Conversely, Barclays analysts suggested the decision to halt the spinoff might be prudent, given the current regulatory climate. They praised Alibaba's sizeable share buybacks and the introduction of annual dividends, maintaining a $138 price target.

Analysts from JPMorgan expressed concern regarding the growth prospects of Alibaba's cloud business, suggesting that the newly declared dividend might not entirely alleviate investor discontent related to the spinoff's cancellation. JPMorgan currently has a $150 price target on Alibaba's stock.

Why It Matters: This move comes on the heels of Alibaba's announcement that it will not pursue a separate listing for its cloud computing arm, which is competing against behemoths like Amazon.com Inc. and Microsoft Corporation. Stringent U.S. policies regulating chip exports have generated uncertainty for Alibaba's cloud operations, as these regulations impede Chinese firms from obtaining necessary chip technology from American suppliers.

This revelation has precipitated a dramatic $20 billion nosedive in Alibaba's market valuation, with its share price experiencing its most severe single-day decline in over a year. Alibaba's reconsideration echoes similar concerns from Tencent Holdings, another Chinese tech giant, which is also actively seeking domestic solutions in response to U.S. restrictions on exports.

Alibaba, Cloud, Investors