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(Bloomberg) -- Alibaba Group Holding Ltd.’s cloud division has begun a round of job cuts that could reduce its staff by about 7%, part of an overhaul aimed at preparing the once fast-growing unit for a spinoff and eventual IPO.
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China’s largest cloud service has begun informing affected staff, people familiar with the matter said. It’s offering severance to employees or transfers to other parts of the Alibaba empire, though those aren’t guaranteed, one of the people said. The moves are intended to streamline the business, which Alibaba aims to fully carve out into a separate company within a year, the person said, asking to remain anonymous discussing internal plans.
Alibaba’s shares slid 3.7% in New York. Alibaba Cloud is one of the biggest companies that will be created in a six-way split of the parent, joining other units such as the Cainiao logistics division and international commerce in pursuing independent fundraising and potential listings. The group, which doesn’t detail staffing at separate units, employed more than 235,000 people as of March.
Chief Executive Officer Daniel Zhang last week outlined details of the historic shakeup for the first time. That included a plan to fully relinquish control of the business known as Alibaba Cloud, a once-thriving operation that harbored the potential to supercharge the company the way Amazon Web Services grew to signify Amazon.com Inc. The division this year cut prices in an effort to spur growth, triggering similar moves from rivals such as Tencent Holdings Ltd.
What Bloomberg Intelligence Says
Alibaba’s savings from a 7% cut in its cloud workforce, Bloomberg reported on May 23, may not be enough to offset the segment’s profit drag from price cuts and fee waivers and meet consensus of 51% year-over-year growth in fiscal 2024 adjusted Ebita, we calculate. This is despite a 15% decline in the cloud profit estimate in the three weeks ended May 23. We believe a rise in cloud revenue of at least 15% vs. a year ago after the layoffs may help the segment meet profit expectations.
- Catherine Lim and Trini Tan, analysts
Click here for the research.
Read more: Alibaba to Exit Cloud Business After Beijing Undercuts Potential
Some analysts valued the business at upwards of $30 billion, a prime beneficiary of a post-ChatGPT upswell that depends on cloud resources to train next-generation AI models. Representatives of the unit didn’t immediately respond to a request for comment.