To The Moon

I believe many Tiger investors would have heard that Alibaba revealed plans to divide the company into six separate business groups. These include the cloud intelligence group, Taobao & T-Mall e-commerce group, Cai Niao, local services, global digital business, and digital media and entertainment. Furthermore, all qualified business groups and units will have the opportunity to raise external funds and pursue IPOs.

Under the new organizational structure, current CEO Daniel Zhang will no longer oversee the entire group's operations. Instead, each newly established business group will have its own CEO, who will report to a separate board of directors for that group. This will result in a "1+6+N" organizational structure, consisting of one group-level body, six distinct business groups, and several independent business entities.

Alibaba is also shifting its focus from a "big middle and back office" strategy to a "big front office" strategy to enhance its agility and nimbleness. The current middle and back-office departments at the group level will merge with the newly formed business groups. These departments will either be incorporated into corresponding business groups based on specific business features or operate through a service model to provide commonly required supporting functions.

Creating a nimble and agile BABA!

To increase agility and nimbleness, it is necessary to address the slower decision-making process that has been observed within Alibaba compared to its pure-play peers, which can be attributed to the company's complex organizational structure.

As evidenced by the past losses of Alibaba's incubated units to pure-play vertical leaders, such as Lazada vs. Shopee, there is a need for improvement. Therefore, the reorganization is expected to accelerate the decision-making process and enhance the operational efficiency of each business group.

More efficiency and potential scale increase

With the implementation of the new structure, individual business units will likely become more cost-efficient as they are held accountable for their own performance. This is due to the fact that the newly formed groups and units will have the option to raise external funds and conduct independent IPOs and they cannot expect Alibaba’s core e-commerce business to continue subsidizing their losses.

Also, as a standalone company, each BU would have a wider range of business opportunities beyond just working with Alibaba. For example, rather than relying on just its parent company, Cainiao could now focus on expanding its own business and could potentially provide services to competitors such as PDD or Bytedance! This increased in economies of scale may potentially improve operational efficiency as well.

Hence, the reorganization is expected to drive sustained margin improvement for Alibaba (at the group level) in the future.

More interest alignment with each BU

Previously, there were concerns that compensation for executives within each business line was mainly tied to Alibaba's share performance, which was largely driven by the core e-commerce business. As a result, there was a risk that high-level directors might not have had enough motivation to promote growth within their respective businesses. Now with the new structure, the compensation will be aligned with interests for the executives of each BU.

Rumour on Cainiao IPO: Start of the Unlocking?!

Not too long after the reorganization announcement, another rumour of Cainiao IPO was leaked by a Bloomberg report!

According to Bloomberg News, people familiar with the matter say that Cainiao Network Technology, Alibaba's logistics arm, is preparing with banks for an initial public offering in Hong Kong. The banks involved in the first-time share sale preparations include China International Capital Corp and Citigroup. The logistics unit aims to list by the end of the year, with the IPO size yet to be decided and subject to changes depending on market conditions. The report states that Cainiao is valued at over $20 billion!

Conclusion

I talked about Alibaba a number of times now, so I’ll spare your ears on how cheap Alibaba is. To me, Alibaba now presents a promising opportunity not only as a reflection of China's consumption recovery in 2023, but also as a contender for potential valuation re-rating.

@Daily_Discussion @TigerStars