E-Commerce Giant Alibaba Halts Logistics Unit IPO As Valuation Slides

Alibaba Group is further retreating from a corporate overhaul announced a year ago by calling off an initial public offering for logistics unit Cainiao, as investors seem unlikely to cough up as much as the company expected.

The e-commerce behemoth announced in a late Tuesday filing its decision to withdraw Cainiao’s planned IPO in Hong Kong, which was once widely reported to be seeking funding of at least $1 billion. During an analyst call yesterday, chairman Joe Tsai cited a number of reasons including “challenging IPO market conditions” and the need for further infrastructure investment as the company expands abroad.

“As a result, we decided that we should eliminate the distractions of Cainiao becoming a public company and empower Cainiao’s management to focus on achieving synergies with our e-commerce businesses and executing Cainiao’s long-term global expansion plan,” the billionaire said, adding that “any achievable valuation” in an IPO wouldn’t reflect what management believes to be the real value of Cainiao.

Just a year ago, the e-commerce giant unveiled a major overhaul to split itself into six smaller units that would include cloud computing, local services and logistics. Alibaba said at the time that each unit would pursue independent financing or IPOs, exciting investors with the prospect of multiple blockbuster listings.

But the overhaul hasn’t panned out. A listing of the cloud computing unit has already been suspended as sales growth slowed to single digits. Leadership at its Freshippo supermarket chain has been shaken up amid rumors of a planned sale. And while withdrawing Cainiao’s IPO application, Alibaba is also offering to buy back the 36.3% stake it didn’t already own from employees and outside investors for $3.75 billion — a price that implies a valuation of $10.3 billion for the unit.

That marks an almost 50% fall from a previously touted valuation of $20 billion. The precipitous slump comes as Cainiao faces a plethora of problems, analysts say. Although the unit reported 24% growth in revenues to $4 billion in the final three months of 2023, much faster than Alibaba’s overall 5% sales increase during the same period, investors are concerned about its relationship with the parent company and how it can attract external customers, says Eric Wen, a Hong Kong-based founder of research firm Blue Lotus Capital Advisors. Plus, the logistics market at home is showing signs of stress amid a weak economy, while expansion abroad has faced fierce competition from rivals such as Shein and PDD Holdings’s Temu platform.

“I think they [management] might have been overly optimistic about market conditions in the past,” said Ke Yan, Singapore-based head of research at DZT Research. “As the overall industry slows down, the previous valuation definitely can’t be used anymore.”

In the meantime, Alibaba is turning to frontier technologies like generative AI to rejuvenate growth. After cofounder Jack Ma, who stepped down from the helm in 2019 but continues to derive part of his $24.3 billion wealth from a company stake, called for change late last year, the e-commerce giant has offloaded stakes worth hundreds of millions of dollars in streaming platform Bilibili and electric car maker Xpeng.

Capital, instead, has been directed to AI startups. Earlier this month, Alibaba became the lead investor in AI startup MiniMax’s $600 million financing round, after leading in February the $1 billion funding round for year-old AI company Moonshot AI, which has developed a ChatGPT-like service called Kimi. Eddie Wu, who took over as CEO of the core e-commerce business late last year, has repeatedly highlighted AI’s potential to invent new services such as revamped product recommendations and innovative ways for merchants to interact with shoppers.