Shares in e-commerce play Alibaba – in many ways China’s answer to Amazon – soared overnight in New York on news of a break-up of the company.
AJ Bell’s Russ Mould said: “Often corporate reshuffles act as a catalyst for the share price on the basis that the individual parts of the business are worth more than the whole company. Breaking up the business could unlock this hidden value.
“As overhauls go this is about as dramatic as you could get and follows damaging crackdowns on the company and the wider sector by the Chinese authorities. It looks like Alibaba is seeking to assuage Beijing’s concerns about monopolistic behaviour.
“It is also worth noting that Alibaba’s e-commerce arm is the most profitable part of the business. Its top Chinese online marketplaces, Taobao and Tmall, do not take on any inventories. Instead, they act as paid listing platforms that link buyers to sellers, with its logistics unit Cainiao fulfilling orders. This keeps the amount of money it has tied up in the business low and supports strong margins.
“Allowing the core commerce operations to stand alone rather than subsidising other growth ventures, in areas like cloud computing, digital media, entertainment and technological innovation, could enable it to achieve a higher price tag on the market.”