(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.
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 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.
Alibaba’s shares slid more than 1% in pre-market trading in New York.
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.
Alibaba picked the cloud unit as an early IPO candidate because of its more developed business model and customer profile. Zhang has said the spinoff was intended to simplify the overall structure and respond to market needs. A standalone cloud platform could grow to some day even surpass Alibaba in size if it attracted the right external financing, he told analysts last week.
China’s most valuable online commerce firm invested tens of billions over more than a decade in the business of hosting computing for corporations over the internet. For years, it was among Alibaba’s proudest and most often-touted accomplishments, a business that outstripped rival offerings from Tencent Holdings Ltd. and Baidu Inc., grew more global in flavor than any other division, and spearheaded important inhouse initiatives.
But government scrutiny of cloud services operated by private firms intensified around 2020, when Beijing grew suspicious of privately owned repositories of sensitive and valuable data, triggering a now-infamous sweeping crackdown on the internet sphere.
Alibaba Cloud itself drew regulatory ire in 2021 for discovering then sharing a major software flaw before informing authorities, and was then investigated in 2022 for its role in China’s largest known cybersecurity data leak. The cloud division in recent years began to bleed market share to rivals including Huawei Technologies Co. and state-run China Mobile Ltd.
In fiscal 2022, it generated nearly $12 billion of revenue for the company — 8% of turnover. It was so important that in March, when Alibaba first unveiled its six-way breakup, Zhang personally took the helm of what he called the Cloud Intelligence division — seemingly signaling it was destined for greater things.
The “cloud business is relatively independent and different from other consumer facing business,” Jefferies analyst Thomas Chong wrote Friday. They want to “introduce strategical investors who can help to grow the business.”
Key Points of the Breakup
(Updates with shares and analyst’s comments from the fifth paragraph)
