What happens next when Wall Street's once-darling Alibaba plummets 75% in three years?

It has been a tumultuous 12 months for Alibaba. At a time when artificial intelligence is just getting started, it has cast doubt on the future of the tech giant.

The company's cloud computing unit had been poised to bring AI growth to investors in a public listing, but Alibaba scrapped those plans in November. The group's market capitalization in the U.S. is lower than that of e-commerce rival Pinduoduo. This marks the predicament of the industry, which propelled Alibaba onto the global stage in 2014 with the world's largest IPO.

Alibaba, the quintessential example of China's internet technology companies, was fined a record $2.8 billion in 2021 for alleged monopolistic practices. But the cloud computing IPO plan and management changes that were canceled last year reflect the bigger problems facing the company, which has been a bellwether for foreign investors in China. Alibaba's share price has fallen below $77 per share, down 75% from more than $300 in 2020.

"I think there's some deep-seated internal problems," said Duncan Clark, an early adviser to Alibaba and now chairman of BDA, a Beijing-based investment consultancy. "For me, the core question is their diminishing market position, what they're doing with video and live streaming, and how they're dealing with TikTok, and how they're managing all these different teams and all the management turmoil," Clark said. And now it looks like it's basically a mess. ”

Douyin, the Chinese version of ByteDance's TikTok, has taken off in China as a platform for a booming live-streaming sales industry. Chinese consumers, who are increasingly fond of bargaining, are also starting to bargain on Pinduoduo.

Alibaba, founded in 1999 by Jack Ma, is a company with a much longer history than ByteDance or Pinduoduo.

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

Plans for an initial public offering (IPO) of cloud computing surfaced in March after Alibaba Group announced a massive corporate restructuring overhaul followed by several cloud-related management changes.

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

Clark said Daniel Zhang's departure "illustrates some mismanagement in cloud computing, which is very important because they have always used cloud computing as a sign of restructuring." "The cancellation of the cloud computing IPO plan — as was the case with the abrupt suspension of Alibaba's Ant Financial Group's IPO in 2020 — means employees will not be able to cash out their lucrative shares.

"The whole incentive system collapsed," Clark said. "Are they too big? But now the question is, are they flexible enough, are they capable of competing 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 the research firm predicts that Huawei's market share will gradually increase.

She noted that the telco began to focus on improving engagement with business partners in 2022 by developing a strategy for an ecosystem of experts and developers. In contrast, she said, Alibaba and Tencent's cloud computing divisions didn't begin to adopt a similar strategy until 2023.

Such an approach could pay off in a slowing cloud services market that is "heavily reliant on government and state-owned enterprises to drive growth," Canalys said.

The Chinese business news website 36Kr, citing sources in January last year, said government customers had reached a cloud computing deal with Huawei after almost buying from Alibaba.

Alibaba and Huawei have not requested comment on the matter. In November, Alibaba blamed U.S. restrictions on chip sales in China for its decision to cancel its cloud computing IPO.

Alibaba said its cloud revenue grew just 2% year-on-year in the quarter ended Sept. 30. Since the quarter ended in June, the company has factored in cloud revenue from its business with other divisions of Alibaba Group.

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

"It's probably like a botched go-to-market strategy, or a dealer strategy, because a lot of dealers ...... "they're getting really frustrated, and some of them are now working with other players," Clark said. "They should have been able to focus on smaller companies rather than the big ones that were acquired, but that didn't happen. It's a very tough market. ”

Alibaba still plans to take its logistics business, Cainiao and Hema public, but it's a tough IPO market, especially for Chinese companies looking to list overseas.

In November, The Info quoted sources as saying that an international investment firm was only willing to value Alibaba's cloud business at less than $25 billion, well below the $40 billion it 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 people in the company," said Wong, a former executive. "I think all the raw materials are there, the question is how do they (execute) this at a critical moment," he said, noting that Alibaba is packing up the house and preparing for the next big thing.