Alibaba Stock Suffers Amidst New U.S. Export Restrictions

Alibaba stock experienced a second consecutive day of losses as the Chinese tech giant disclosed the detrimental effects of new U.S. export restrictions on its cloud computing business. As a result, Alibaba made the unfortunate decision to cancel its plans for spinning off the division.

In the U.S. premarket trading on Friday, shares in Alibaba (ticker: BABA) retreated by 3.4%, suggesting that the previous day's decline of 9.1% – the largest drop in over a year – is set to continue.

Although Alibaba announced better-than-expected quarterly results on Thursday, the attention was burrowed by the unexpected news of the suspension of the highly-anticipated spinoff of its cloud computing division, which also encompasses its ventures in artificial intelligence.

The U.S. government's expansion of chip export controls in October, implemented to restrict China's access to crucial technologies such as AI, has proven detrimental to Alibaba's Cloud Intelligence Group. The company stated that this development "may materially and adversely affect Cloud Intelligence Group's ability to offer products and services and to perform under existing contracts, thereby negatively affecting our results of operations and financial condition." Consequently, due to the uncertain future of the division, the spinoff of the cloud arm has been put on hold.

This turn of events is disheartening for Alibaba stock for two primary reasons. Firstly, it reveals that their most promising and growth-oriented division is facing an uncontrollable and significant setback. Secondly, the cloud spinoff was a fundamental element of Alibaba's ambitious restructuring plan – introduced earlier this year – aimed at transforming itself from a conglomerate into a holding company, with the intent to unlock shareholder value. Unfortunately, those plans are now obsolete.

Wall Street Analysts Cut Price Targets on Alibaba Shares

Wall Street analysts have rushed to reduce their price targets on Alibaba shares, despite maintaining their Buy ratings on a stock that has faced three years of underperformance. The stock's struggles are mainly attributed to regulatory issues.

Alibaba: An Attractive Turnaround Story

Mizuho analyst James Lee believes that the recent 10% sell-off in Alibaba shares can be attributed to the exit of sum-of-the-parts investors and the market's renewed focus on China's macro recovery. However, Lee still considers Alibaba to be an attractive turnaround story. He lowered the price target on Alibaba shares from $120 to $87.07. The stock closed at $79.11 on Thursday.

Setback to Capital Management Plan

Benchmark analyst Fawne Jiang sees Alibaba's failure to pursue a Cloud spinoff as a setback to its capital management plan. She referred to the recent quarter as disappointing, but she does not perceive a structural fundamental change. Benchmark maintained its Buy rating with a $150 price target.

Analysts Adjust Expectations

Following Thursday's news, a total of 22 analysts surveyed by FactSet have lowered their target prices on Alibaba stock.