Alphabet and Amazon want to take note of Alibaba’s new plan

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Alibaba Group Holding

shakes itself up radically, sending stocks higher.

Amazon.com

And

alphabet
,

Google’s parent company may want to take note of the plan and the stock’s reaction.

The Chinese Internet company presented a new organizational structure on Tuesday. The company is organized into six divisions, each with an independent Board of Directors and CEO. The six include: cloud intelligence; internet retail; mapping; transactions; Logistics; and digital media, including

Alibaba

Pictures.

“Each business group will also have the flexibility to raise debt capital and potentially seek its own IPO, with the exception of Taobao Tmall Business Group, which will remain wholly owned by Alibaba Group,” the press release said.

Investors love the idea of ​​Alibaba laying the groundwork for a split. Alibaba’s American Depositary Receipts (ticker: BABA) rose 14% in the afternoon, while the

S&P500
And

Nasdaq Composite
were down 0.5% and 0.8% respectively.

The rise on Tuesday creates a market value of around 30 billion US dollars.

It was a shot in the arm that the stock needed. As of Tuesday’s start of trading, Alibaba shares have been down for the year so far, and have fallen about 25% over the past 12 months. The shares have traded at about 10 times forward calendar-year earnings per share, while the stock has traded at about 20 times next-year forward earnings for the past several years.

Amazon

(AMZN) stock could use a similar shot in the arm. Shares are up about 16% so far this year, but they’re down about 42% since this point in 2022. Shares are trading at about 56 times forward 2023 earnings, compared to the average of about 70 times forward earnings over the past few years.

Amazon’s stores look very similar to Alibaba’s and vice versa. There’s Amazon Web Services, a dominant provider of cloud computing services, as well as a film studio, logistics facilities, internet retail, internet advertising, and third-party retail services.

Alibaba “gives a boost and a positive signal to other big tech companies that they too can explore and consider dividing up their segments to create value,” said Jim Osman, founder of The Edge Research. The Edge specializes in spin-offs and corporate transactions.

“If successful, Alibaba would be a great example of conglomerate value creation,” he said Barrons.

Osman said that Amazon Web Services and the rest of Amazon could bring in about $200 combined in a few years in a resolution scenario. Amazon stock is currently a little under $100 per share, and about 50% down from the record high of nearly $189 set in the summer of 2021.

alphabet

(GOOGL) is also on Osman’s list of potential breakup candidates. It “faces constant antitrust scrutiny because of its role as a dominant player in the advertising market,” Osman said. He believes the company should first consider spinning off YouTube “to create value for shareholders and avoid unnecessary antitrust attention.”

Amazon and Alphabet stocks aren’t getting an Alibaba boost. Amazon shares fell 1.2% in afternoon trade, while Alphabet shares were down about 1.6%.

Taken together, the price action suggests that while the market is happy that Alibaba is reorganizing, investors think its actions alone may not be enough to get Amazon and Alphabet management to consider something more radical to generate shareholder value. However, both should weigh this option.

Neither company immediately responded to a request for comment.

Alphabet stock is up about 14% year-to-date but is down about 29% over the past 12 months. Shares are down about 32% from their February 2022 record of more than $151.

Write to Al Root at allen.root@dowjones.com