Alibaba shares surge 15% in Hong Kong on news of a major overhaul

Shares listed in Hong Kong Alibaba Soared 15% at Wednesday’s opening after the company announced a major overhaul to split the tech giant into six business groups.

On Wall Street, Alibaba shares surged overnight to close 14.26% higher. They were up 0.71% in after-hours trading.

The decision to split into different entities means each is managed by its own leadership and board and can conduct independent fundraising and IPOs when they are ready.

The company said the move aims to “unlock shareholder value.”

The six corporate groups are:

• Cloud Intelligence Group: includes the company’s cloud and artificial intelligence activities;
• Taobao Tmall Trading Group: online shopping platforms such as Taobao and Tmall;
• Local Service Group: covers Alibaba’s grocery delivery service Ele.me as well as its mapping;
• Cainiao Intelligent Logistics: houses Alibaba’s logistics service;
• Global Digital Commerce Group: includes Alibaba’s international e-commerce businesses, including AliExpress and Lazada;
• Digital Media and Entertainment Group: comprises Alibaba’s streaming and film business.

The Chinese tech giant’s restructuring comes as the company has faced ongoing struggles to grow in recent quarters – the company has shed around $600 billion from its October 2020 peak as it continues to grapple with the Chinese crackdown Government-vs-technology companies grappled.

The stock moves reflect a sense of relief rather than investor hopes for the business, value investor and Warren Buffett alumnus Guy Spier told CNBC’s Tanvir Gill.

“The stock rally is less because the market expects higher profitability and more because of relief that tensions with the regulator appear to have been resolved,” Spier said, adding that the company will face less pressure going forward .

He added that Chinese consumers – not investors – would benefit from Alibaba’s overhaul.

“This sets the stage for a more innovative Chinese tech sector and far more competition — so very good for Chinese consumers,” he said, adding that it “reduces the concentration and power of a company in China — which made Chinese regulators uneasy.” “

Hong Kong tech stocks higher in morning trade: shares of Tencent increased by 3%, JD.com gained almost 5%, and baidu increased by more than 3%. The Hang Seng Tech Index rose 3.3% in its first hour of trading, leading gains in the Asia-Pacific region.

Movements in the share prices of Alibaba’s Wall Street competitors suggested other Chinese tech companies might take similar action for their businesses.

“I think investors are saying what we’ve seen at Alibaba, really the leading Chinese tech company, that their plans could be leveraged by others,” said KraneShares CIO Brendan Ahern, pointing to Tencent, JD’s ADR actions. com, there. and Baidu.

He noted that the company’s announcement shows that Alibaba founder Jack Ma, who was recently spotted in China after spending months abroad, was involved in the process.

“It’s very clear that he has played a role in this new structure, which is really about what the company said in the press release, it’s about unlocking shareholder value,” Ahern said.

– CNBC’s Arjun Kharpal contributed to this report.

Correction: This story has been updated to reflect that Alibaba shares were up sharply in Hong Kong on Wednesday.