Alibaba flexed its muscles on Tuesday, announcing that it’s splitting along six sharply defined business lines.
What does this mean?
A heavy-handed regulatory crackdown wiped half a trillion from Alibaba’s market value in recent years, but the firm’s fortunes finally seem to be looking up. See, the Chinese government’s warming to tech businesses once again, in what analysts see as a necessary step toward this year’s 5% growth target. And Alibaba's elusive founder Jack Ma – typically a persona non-grata in mainland China – is back after a year-long hiatus, in what might signal a long-awaited olive branch from the government. At any rate, Alibaba’s gearing up for a major transformation, splitting its empire into six distinct business lines. That’ll see the company separate divisions like cloud and logistics from its main e-commerce segment – giving each one more autonomy and paving the way for independent stock market listings down the line.
Why should I care?
For markets: The opposite of synergy.
Investors tend to be skeptical about conglomerates’ ability to juggle unrelated businesses under one roof, and that means multipurpose firms aren’t always as valuable as the sum of their parts. In Alibaba’s case, splitting up its business segments could allow each division to innovate and grow more quickly – while giving investors the option to bet on more “pure-play” firms if they do end up being listed separately. That could be why the announcement went down a treat with investors, who sent shares up 9% when the news broke.
The bigger picture: Wake up and break up.
In some ways, this is a win for the Chinese government too. One main worry for regulators was that concentrated power in the tech industry could stifle broader innovation – and by decentralizing decision-making, Alibaba’s done something to address that. In fact, some pundits think that Alibaba could start a trend among its tech rivals, which have generally steered clear of big shakeups and split-ups to date.
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