Alibaba Group Holding Ltd. called off an initial public offering for its Cainiao logistics arm in Hong Kong, shelving a US$1 billion ($1.35 billion)-plus deal in a surprise move that underscores its new approach toward rejuvenating a flagging e-commerce empire.
It’s the second time Alibaba has nixed a high-profile debut for one of its main businesses, casting more uncertainty over a restructuring that began last year and has switched tack since the abrupt departure of former Chief Executive Officer Daniel Zhang. From an initial plan of splitting the company into six standalone divisions that could independently raise capital, the objective now is to combine operations to drive the mainstay commerce arm, while selling off non-core assets such as stakes in social media platform Bilibili Inc. and EV maker Xpeng Inc.
China’s e-commerce pioneer scrapped the much-anticipated debut as the country’s economic turmoil and regulatory uncertainty soured investors on Hong Kong IPOs. Chairman Joseph Tsai described the market as “pretty depressed” and said they wouldn’t have afforded Cainiao the kind of “patient capital” it needed to pull off a global expansion. Alibaba, which owns 64% of Cainiao, now plans to buy out all remaining stock held by investors and employees for US$3.75 billion, absorbing the fast-growing entity into its broader online retail operation.
Alibaba decided to “limit the distraction” of taking Cainiao public and instead reinvest in expanding a business that in recent quarters outperformed other divisions thanks to its international footprint. “Given challenging IPO market conditions, it has become clear to us that taking Cainiao public now or in the foreseeable future would not be consistent with our group strategy,” Tsai told analysts Tuesday. “Nor would the achievable valuation be what we believe to be the strategic valuation of Cainiao at this point.”
Alibaba is still grappling with fundamental questions surrounding the internet company Jack Ma founded two decades ago and built into China’s most valuable corporation, before the pandemic and a punishing antitrust crackdown by Beijing wiped out growth. It’s since bled market share to rivals such as PDD Holdings Inc. and ByteDance Ltd. The company posted a lower-than-projected 5% rise in December quarter revenue — well off the pace of previous years.
“This is a surprising pivot as a few months ago, Alibaba was singing a different tune about the strategic importance of Cainiao,” said Ivy Yang, founder of consultancy Wavelet Strategy and a former manager at Alibaba. “The decision to call off Cainiao’s IPO will further erode investor confidence in the Alibaba restructuring efforts, its ability to continue to create shareholder value, and the bigger question on whether an IPO is still an option for Alibaba Cloud.”
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What Bloomberg Intelligence Says
Alibaba’s buyout of the remaining 36.3% stake of its Cainiao subsidiary aids China and international e-commerce growth as the company syncs strategic plans for these three highly integrated businesses. The offer price values Cainiao at a 0.71x price-to-revenue multiple, a 26% discount to the average of logistics companies such as SF Holding, ZTO, JD Logistics and J&T.- Catherine Lim and Trini Tan, analysts
In response, the company is using the capital it’s raising to bankroll a US$25 billion buyback program and invest in technology from the cloud to artificial intelligence. On Tuesday, Tsai said Alibaba will focus on integrating its various businesses and regaining its market dominance, rather than on working through IPOs.
When the Chinese internet firm scrapped a listing of its US$11 billion cloud unit in 2023, executives also argued that they should remain focused on the business rather than what Tsai referred to as “financial engineering.” The most recent decision to scrap a Cainiao offering however may disappoint some investors hoping for a slice of one of Alibaba’s most international divisions.
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Cainiao Smart Logistics Network Ltd., which handles a major chunk of the millions of parcels that Alibaba’s e-commerce business generates daily, was valued at about US$10.3 billion in the minority shareholder buyout. It’s considered a driver of both Alibaba’s Chinese commerce operation as well as a rapidly expanding international division comprising Singapore-based Lazada and the popular bargains site Aliexpress. Cainiao — which means rookie or amateur in Chinese — has a goal of delivering packages in China within 24 hours and anywhere else in the world in 72 hours, according to its website. It operates over 300 international routes partnering with more than 3,000 logistics partners.
Last year, Alibaba also put plans to debut its Freshippo grocery chain on the backburner. Its retreat from capital markets coincides with growing uncertainty as Beijing grapples with a property crisis, loss of foreign investor confidence and the resultant Chinese economic downturn. At the same time, domestically oriented businesses are struggling to grow their topline because of waning consumer confidence.
The Cainiao IPO is being shelved in Hong Kong even as IPOs in other markets including the US and Africa are looking poised for a rebound. Last week, two technology companies Reddit Inc. and Astera Labs Inc. — along with the Swiss skin-care company Galderma Group AG — went public with a rush of investor demand that sent their stock prices soaring. But Alibaba gave no indication on Tuesday that it was interested in reviving its listing attempts elsewhere.
Alibaba — which after years of frenetic investment now controls a vast portfolio of assets — is now actively looking to sell off some of those non-core holdings, Tsai said. It’s exploring ways to offload the InTime department store chain and other retail operations, Bloomberg News has reported.
