Alibaba has scrapped its plans to list its cloud and grocery businesses separately, citing regulatory and market uncertainties. The Chinese ecommerce giant reported disappointing earnings on Thursday, with revenue missing expectations and net loss widening.

Hong Kong stocks continued to lead declines in Asia-Pacific on Friday, as shares of Alibaba plunged in early trading, while most markets cooled off from a mid-week rally sparked by hopes of easing U.S. inflation.

Hong Kong’s Hang Seng index fell 1.80%, the tech-focused Hang Seng Tech index dropped 2% — dragged lower by heavyweight Alibaba which fell 10%.

Alibaba blamed U.S. chip export restrictions for hampering its cloud division, which saw sluggish growth. Alibaba also said it would delay the IPO of its Freshippo supermarket chain, while still pursuing the listing of its Cainiao logistics arm.

Alibaba’s cloud unit saw revenue growth of just 2 per cent to Rmb27.6bn in the third quarter.

Revenues for the group climbed 9 per cent to Rmb224.8bn ($30.8bn), below the Bloomberg consensus estimate of Rmb272bn. Net profit was Rmb27.7bn this year, compared with a net loss in the same period last year of Rmb20.6bn, due to an increase in the value of its equity investments.

Alibaba reported net income attributable to shareholders of 27.7 billion yuan ($3.8 billion) for the September quarter, below the 29.7 billion yuan expected by analysts.

Nonetheless, the group announced its first annual dividend, which would cost $2.5bn, and said it had $15bn remaining for its $25bn share buyback programme.

Alibaba’s restructuring into six business units, announced in March, was meant to unlock value and boost growth, but analysts say investor sentiment has cooled amid China’s economic slowdown and the end of its zero-Covid policy. Alibaba’s shares dropped 10 per cent in New York.

According to Financial Times: “When Alibaba launched the restructuring, the market was very different,” said Andy Maynard, head of equities at China Renaissance. “People were euphoric about the reopening, but the highs in February and March have completely dissipated.”

“The valuation upside from the break-up is looking smaller and smaller because none of the subsidiaries are in great shape right now . . . but that could change if consumer confidence comes back in China,” he added.

Alibaba’s US-listed shares fell 10 per cent at the open in New York.

Alibaba said U.S. chip export restrictions have made it harder for Chinese firms to get critical chip supplies from U.S. companies. To recall, U.S. barred sales of Nvidia’s advanced artificial intelligence-focused H800 and A800 chips in October.

On Thursday, Alibaba said the restrictions have “created uncertainties for the prospects of Cloud Intelligence Group.”

“We believe that a full spin-off of Cloud Intelligence Group may not achieve the intended effect of shareholder value enhancement,” the company said, adding it would instead focus on developing a sustainable growth model for the unit “under the fluid circumstances.”

According to FT: Robin Zhu, an analyst at Bernstein, called the cancellation of the Freshippo IPO and cloud business spin-off a “surprise”.

One of the bright spots for Alibaba was its annual Singles’ Day shopping festival, which took place from November 1 to November 11.

According to Barrons: From the evening of Oct. 11 to the end of Nov. 11, gross merchandise value, a measure of a platform’s sales volume, grew less than 2.1% from a year earlier, down from 2.9% in 2022, according to Chinese data provider Syntun.

More than 75% of shoppers had planned to spend the same amount or less than in 2022, according to a survey conducted by consulting group Bain

The company did not disclose the exact sales numbers for the second year in a row. Alibaba’s main rival, JD.com, also reported a 28% increase in transaction volume to $54.6 billion during the same period, but did not reveal the final sales tally either4.

The Singles’ Day event, which serves as a barometer for Chinese consumer sentiment, focused on a low-price strategy this year, offering steep discounts and subsidies to attract reluctant shoppers amid the economic slowdown and rising inflation.

Both Alibaba and JD.com said they saw strong demand for imported goods, premium brands, fresh produce and services, indicating that Chinese consumers are still willing to spend on quality and convenience.

However, some analysts warned that the Singles’ Day sales may not reflect the true state of China’s consumption, as they are driven by heavy promotions and marketing, and may not be sustainable in the long run.

They also pointed out that Alibaba and JD.com face increasing challenges from new entrants, such as social e-commerce platforms, short video apps and livestreaming services, which are gaining popularity among younger and lower-tier city consumers.

In conclusion, Alibaba Group’s earnings for the September quarter showed that the company is struggling to maintain its growth momentum and profitability amid the changing regulatory and competitive landscape in China.

While the company achieved record sales during the Singles’ Day festival, it may not be enough to offset the headwinds it faces in its core commerce business and its new ventures.

Alibaba will need to continue to innovate and invest in its digital infrastructure and user experience, while also complying with the government’s policies and social expectations.

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