(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

 

HONG KONG - Alibaba’s shareholders at first glance seem far too glib about the company’s latest regulatory headache. They barely reacted to a Reuters exclusive on Tuesday that U.S. Commerce Department is examining whether the $350 billion Chinese e-commerce giant’s cloud business poses a risk to national security. They have good reason: They already ascribe almost no value to it.

The company’s data-storage division may only provide around 8% of Alibaba’s overall revenue, but its own top line is growing fast, by some 50% in 2020. That year it also enjoyed a 9.5% share of the global public cloud market, making it the third-largest provider after Amazon.com and Microsoft. And in the final three months of 2020 it turned profitable on an adjusted EBITDA basis. Based on a multiple of 10 times sales for this year, the unit should be worth some $150 billion, JPMorgan analysts reckon.

Yet Alibaba as a whole trades at less than 17 times the U.S. investment bank’s forecast 2022 adjusted earnings for its core e-commerce business alone. That's roughly half of rival JD.com's multiple and also lags American peers like Walmart.

Alibaba executives themselves describe the division, which is the official cloud technology and e-commerce services partner at next month’s Beijing Winter Olympic Games, as the company’s “second pillar of growth”.

A formal U.S. probe could hobble that and its global ambitions, especially if it were to culminate in indictments and reputational damage. That would be bad news for Alibaba’s longer-term growth. But with problems back home already helping to wipe 58% off the stock since its peak 15 months ago, shareholders have little reason to kick up a storm about this latest regulatory issue.

 

CONTEXT NEWS

- The U.S. Commerce Department is reviewing Alibaba's cloud business to determine whether it poses a risk to U.S. national security, Reuters reported on Jan. 18 citing three unnamed sources briefed on the matter.

- The focus of the probe is on how the company stores U.S. clients' data, including personal information and intellectual property, and whether the Chinese government could gain access to it, Reuters reported.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(Editing by Antony Currie and Thomas Shum) ((For previous columns by the author, Reuters customers can click on CHEN/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | yawen.chen@thomsonreuters.com; Reuters Messaging: yawen.chen.thomsonreuters.com@reuters.net))