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Alibaba Group has decided to cancel the initial public offering of its logistics unit Cainiao due to challenging IPO market conditions and the need for further infrastructure investment as the company expands abroad. The decision to withdraw the planned IPO, which was expected to raise at least $1 billion, was announced in a late Tuesday filing. The move is part of a broader retreat from a corporate overhaul announced a year ago, which aimed to split the e-commerce giant into six smaller units including cloud computing, local services, and logistics.

Alibaba Chairman Joe Tsai cited the challenging IPO market conditions and the company’s need to focus on achieving synergies with its e-commerce businesses and executing Cainiao’s long-term global expansion plan as reasons for withdrawing the IPO. The decision comes as the company faces various challenges, including a slowdown in sales growth for its cloud computing unit, leadership changes at its Freshippo supermarket chain, and increased competition in the logistics market at home and abroad. Alibaba is also offering to buy back the 36.3% stake in Cainiao that it doesn’t already own for $3.75 billion, implying a valuation of $10.3 billion for the unit, a significant drop from the previously touted $20 billion valuation.

Despite reporting 24% revenue growth for Cainiao in the final three months of 2023, Alibaba is facing concerns about the unit’s relationship with the parent company and its ability to attract external customers. Analysts believe that Alibaba’s management may have been overly optimistic about market conditions in the past, and the previously touted valuation for Cainiao is no longer realistic. In response to these challenges, Alibaba is shifting its focus to frontier technologies like generative AI to rejuvenate growth. The company has offloaded stakes in streaming platform Bilibili and electric car maker Xpeng, directing capital towards AI startups.

Alibaba has become the lead investor in AI startup MiniMax’s $600 million financing round and led a $1 billion funding round for AI company Moonshot AI, which has developed a service similar to ChatGPT called Kimi. The new CEO of Alibaba’s core e-commerce business, Eddie Wu, has highlighted AI’s potential to invent new services, such as revamped product recommendations and innovative ways for merchants to interact with shoppers. The company’s cofounder Jack Ma, who stepped down from the helm in 2019 but continues to derive wealth from a company stake, called for change late last year, prompting Alibaba to focus on AI technologies. The decision to cancel Cainiao’s IPO reflects Alibaba’s strategic shift towards investing in cutting-edge technologies to drive future growth.

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