Alibaba, the former darling of Wall Street, has plummeted 75% in three years. What will happen next?

It's been a tumultuous 12 months for Alibaba. This casts doubt on the future of the tech giant at a time when artificial intelligence is just taking off. The company's cloud computing unit had been poised to bring investors a boost in artificial intelligence in a public listing, but Alibaba scrapped those plans in November. The group's U.S. market capitalization is lower than that of e-commerce rival Pinduoduo. It's a sign of trouble for an industry that propelled Alibaba onto the global stage in 2014 with the world's largest IPO.

Alibaba is a typical representative of Chinese Internet technology companies. In 2021, it was fined a record US$2.8 billion for suspected monopolistic behavior. But the cancellation of the cloud computing IPO plan and management changes last year reflect the larger problems faced by the company that has always served as a bellwether for foreign investors in China. Alibaba's stock price has fallen below $77 per share, down 75% from more than $300 in 2020.

"I think there are some deep internal issues," said Duncan Clark, an early adviser to Alibaba and now chairman of Beijing-based investment advisory firm BDA. "It's an obvious internal struggle over how they're going to get out of this because they're really going down the road." "The core issue for me is their weakening market position and what they're doing with video and live streaming and how they're managing all these different teams and all the management turmoil," Clark said.

Douyin, the Chinese version of TikTok owned by ByteDance, has taken off in China as a platform for the booming live-streaming sales industry. Chinese consumers who are increasingly fond of hunting for bargains have also begun to hunt for bargains on Pinduoduo.

Founded by Jack Ma in 1999, Alibaba is a much older company than ByteDance or Pinduoduo.

Brian Wong, former vice president of Alibaba Group and author of the book The Tao of Alibaba, said: "In terms of personnel, some people are leaving the company. They may feel that the company is too big and too bureaucratic. This is a reality."

Plans for a cloud computing initial public offering surfaced after Alibaba Group announced a massive corporate structural overhaul in March, followed by several cloud computing-related management changes.

In September last year, Wu Yongming became Alibaba's CEO and the acting head of its cloud business. In December last year, he succeeded Dai Shan as the head of Taobao and Tmall e-commerce business. Daniel Zhang, the former CEO of Alibaba Group, became the acting head of the cloud business in December 2022 and was supposed to continue to lead the business unit, but unexpectedly resigned in September last year.

Clark said Zhang's departure "illustrated some mismanagement on the cloud side, which is important because they've been using cloud as a sign of their restructuring." Canceled cloud IPO plans — like the abrupt halt to an IPO of Alibaba's Ant Financial Group in 2020 — mean employees won't be able to cash in their lucrative shares.

"The whole incentive system is broken," Clark said. "Are they too big? But now the question is, are they nimble enough and do they have the ability to compete in the market?"

Alibaba has always been an industry leader in the cloud business. In the third quarter, the company remained the largest player in China's cloud market, followed by Huawei and Tencent. But research firms predict Huawei's market share will gradually increase.

She noted that the telco started 2022 with a strategy to focus on improving engagement with business partners through the development of an ecosystem of experts and developers. In contrast, Alibaba and Tencent's cloud computing units won't start pursuing similar strategies until 2023, she said.

Canalys said such an approach could pay off in a slowing cloud services market that "heavily relies on the government and state-owned enterprises to drive growth."

Chinese business news website 36Kr cited sources in January last year as saying government customers had struck cloud computing deals with Huawei after nearly buying from Alibaba.

Alibaba and Huawei declined to comment. In November, Alibaba blamed U.S. restrictions on Chinese chip sales for its decision to cancel its cloud computing IPO.

Alibaba said its cloud business revenue grew just 2% year over year in the quarter ended Sept. 30. The company has included cloud revenue from its business with other parts of Alibaba Group since the quarter ended in June.

Clark said his company's research found that Alibaba was trying to grow its cloud business by taking away large customers from third-party resellers. These resellers are other companies that act as distributors or agents for Alibaba Cloud and receive commissions.

“It was probably like a poor go-to-market strategy, or a reseller strategy, because a lot of the resellers... “They became very frustrated and some of them are now going to work with other players,” Clark said. “They were supposed to be able to focus on the smaller companies rather than the big ones that were acquired, but that didn’t happen. This is a very tough market. "

Alibaba still plans to list its logistics businesses Cainiao and Hema, but it is a tough IPO market, especially for Chinese companies looking to list overseas.

In November last year, "Information" quoted sources as saying that an international investment company was only willing to value Alibaba's cloud business at less than US$25 billion, far lower than the US$40 billion the company wanted.

Alibaba "has a huge base in terms of customers and data, which is a treasure trove for any AI operation. There are still some amazing talents in the company," said Wong, a former executive. "I think all the raw materials are there, the question is how they (execute) at this critical moment," he said, noting that Alibaba is packing house to prepare for the next big thing.