What happened
Shares of Alibaba Group (NYSE: BABA) were up 4.8% as of 11:21 a.m. ET on Friday. The stock was moving higher on a Bloomberg report that the tech giant could file an initial public offering (IPO) in Hong Kong for its Cainiao logistics business as early as next week. Alibaba is reportedly hoping to raise $1 billion in the share sale.
So what
Alibaba stock is 73% off its previous highs. Weak revenue performance across its commerce marketplaces and cloud unit have weighed on the stock's performance. The company has experienced setbacks over the last year from slowing economic growth and closer government scrutiny on the tech sector.
In March, Alibaba said it was planning to split itself up into six business units. This would include separate business groups for cloud services, commerce, logistics services, and media segments. These moves are intended to place a brighter spotlight on the value of the tech giant's sprawling business and therefore lift the share price.
Now what
Alibaba stock is currently trading at a cheap valuation of just 10 times forward earnings estimates. A spinoff of Alibaba's logistics network, which posted revenue growth of 34% in the last quarter, could set in motion more spinoffs over the next year.
An IPO of Cainiao is coming just as the business turned last year's operating loss into a profit in the most recent quarter. Investors are anticipating a spinoff of the cloud services business, which could unlock even more cash for Alibaba.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
