Alibaba Group disclosed plans to list its cloud business after lining up external financing, part of its first move to split into six independent units.
In its Q1 earnings release, chairman and CEO Daniel Zhang said the reorganisation aims to boost competitiveness through increased independence.
The company plans to spin off of its Cloud Intelligence Group through a stock dividend distribution to shareholders within six months.
Before the IPO, it plans to include outside investors in the unit through private financing.
CFO Toby Xu stated it set up a committee to develop a capital management plan to enhance shareholder value.
The spin-off is subject to restructuring of certain assets, implementing an employee equity incentive plan, market conditions and regulatory approvals.
It booked a net profit of CNY23.5 billion ($3.4 billion) compared with a CNY16.2 billion loss in Q1 2022.
Revenue was up 2 per cent to CNY208.2 billion.
Cloud services revenue was down 2 per cent to CNY18.6 billion.
Zhang explained on an earnings call the cloud slowdown stemmed from weak macroeconomic activities, declining revenue from top internet customers, softening demand from China internet consumers and a delay in hybrid-cloud projects due to the long-term impact of Covid-19 (coronavirus) restrictions.
Richard Windsor, founder of research blog Radio Free Mobile, noted that by not being part of Alibaba, the idea is to “unlock value being obscured by the soggy e-commerce business”.
“This sounds great except that unlike AWS, Azure and Google Cloud, AliCloud is not growing at 30 per cent but instead declined.”
Windsor branded the unit very unprofitable compared with its global peers, raising questions about whether this segment is ready to be spun out.
Alibaba said it also will explore listing its logistics and grocery units over the next 18 months.