A new report indicates Alibaba faces an uncertain future and must turn to other growth drivers rather than rely on its cloud business alone.
Alibaba has been in the news a lot in recent weeks, with highly-publicized rumors the company was going to spin off its divisions, boosting its stock price. According to Bloomberg, however, much of the enthusiasm for the company’s plans has cooled, and Alibaba needs to look for other ways to generate growth.
“Alibaba will likely struggle to revive its overall revenue growth with cloud alone and there is a limit to how much incremental profit you can get out of cutting costs/headcount,” said Bloomberg Intelligence analyst Catherine Lim. “The firm needs to have a new growth catalyst for each of the other four businesses, excluding cost cutting moves, to support any premium valuation at the point of spinoff or IPO.”
Many of Alibaba’s problems can be traced back to geopolitical tensions, especially between the US and China. Another issue is China’s love-hate relationship with its tech industry. Beijing has notoriously vacillated between promoting its tech companies and cracking down on them.
“Whatever valuation gains from Alibaba spinning off and separately listing its business units may be tempered by the weak sentiment towards China because those IPOs will be harder to execute and valuations may be lower,” Vey Sern Ling, managing director at Union Bancaire Privee, told Bloomberg.