Alibaba Earnings: The Stock Dividend Distribution of the Cloud Business Is Good for Shareholders

Although Alibaba Group’s adjusted EBITA rose 60% year on year, 15% higher than Refinitiv consensus as of May 18, the share price fell 5% in U.S. trading on May 18. We think the market reacted negatively because the company's investment in users, a robust ecosystem, and technology in the China commerce business is likely to cause year-on-year declines in adjusted EBITA margin during the next three years, and the pace and magnitude of unlocking value missed expectations. The Alibaba international digital commerce group, which contributes 10% to our sum-of-the-parts valuation, will raise external capital instead of going public in the foreseeable future.