Alibaba plans to spin off its Cloud Intelligence Group within 12 months

By Larry Dignan

Alibaba Group said it will spin off its Cloud Intelligence Group within the next 12 months as a stock dividend distribution to shareholders.

Daniel Zhang, CEO of Alibaba, said the intention for its cloud unit is "to become an independently publicly listed company." Alibaba had previously announced plans to form a series of companies that will become independent companies. Other spinoffs will include its international commerce unit as well as its logistics group among others.

The company's cloud unit, which includes Alibaba Cloud and DingTalk, a productivity and collaboration suite, delivered fiscal first quarter revenue of $3.58 billion, down 3% from a year ago. Stripping out intersegment revenue at Alibaba, the cloud unit had revenue of $2.71 billion, down 2%, with adjusted EBITA of $56 million.

Overall, Alibaba reported fiscal first quarter net income of $3.2 billion on revenue of $30.3 billion, up 2% from a year ago.

Alibaba Cloud said the decline in revenue "reflected delays in delivery of hybrid cloud projects given the COVID-19 resurgence in January, normalization of CDN demand compared to the same period last year, as well as the impact from a top customer phasing out using our overseas cloud services for its international business due to non-product related reasons."

Alibaba said it is working to diversify cloud revenue from non-Internet industries such as financial services, retail, media and automotive. As of March 31, Alibaba Cloud derived 55% of its revenue from non-Internet based companies.

The plan for Alibaba Cloud going forward is to continue to diversify its revenue and deliver compute for machine learning and generative AI. In April, Alibaba Cloud outlined its latest large language learning model (LLM) and plans to use its generative AI throughout its product suite. The Alibaba Cloud LLM, Tongyi Qianwen, will be similar to other generative AI services where there's a base model that can be customized for business use cases.

So far, Tongyi Qianwen has received more than 200,000 beta testing requests from enterprise users. Alibaba has also used Tongyi Qianwen in its DingTalk suite.

It remains to be seen how Alibaba's cloud unit fares as an independent company. Alibaba Cloud has recently cut prices on multiple instances by as much as 50%. The goal is to increase public cloud adoption in China and gain share.

Alibaba said it is currently seeking external strategic investors in the Cloud Intelligent Group before the spinoff. In addition, the cloud spinoff will be subject to restructuring of assets and liabilities, contracts and incentive plans.