(Bloomberg) — It took only four weeks for optimism around Alibaba Group Holding Ltd.’s breakup plan to fizzle. Restoring it will likely be an uphill battle.

Alibaba’s American Depositary Receipts are now 2.3% below where they were before the e-commerce firm announced its overhaul plan in late March, wiping out as much as 20% in gains. Investors had originally hoped that a split into six units would boost the empire’s value and increase chances of listing those units publicly, reversing woes faced after the sudden halt of Ant Group’s initial public offering in 2020 amid Beijing’s concerns about influence.

But as US-China geopolitical tensions flare, some are starting to backtrack on their earlier enthusiasm. Concerns about broader weakness in sentiment for Chinese equities, coupled with questions about the potential initial public offering pipeline and a lack of growth catalysts, are also weighing on the stock’s outlook.

“Whatever valuation gains from Alibaba spinning off and separately listing its business units may be tempered by the weak sentiment towards China because those IPOs will be harder to execute and valuations may be lower,” said Vey Sern Ling, managing director at Union Bancaire Privee.

Alibaba’s post-spinoff fizzle in part also reflects a broader concern about the recovery trajectory in China’s economy. As a bellwether for the nation’s consumption patterns, analysts have revised its earnings forecast down by around 5% since March, according to Bloomberg-compiled data. Among concerns are a sky-high unemployment rate and decelerating private investment.

The macro headwinds have made plans for IPO fundraising particularly difficult. Last week, the firm cut prices for its cloud services — a unit it aims to make public. The move suggests the firm is willing to cede more profits this year to keep business away from rivals like Tencent Holdings Ltd. Continued share sales by SoftBank Group Corp., an early and key investor, is also hurting prospects.

There are some potential bright spots. Goldman Sachs Group Inc. said last week that the stock remains its top pick in China’s Internet sector, citing a better product mix at its Taobao platform, artificial intelligence efforts, as well as a valuation recovery story, according to analysts including Ronald Keung. Alibaba now trades at its steepest-ever discount to net asset value, according to Goldman’s estimates.

The stock remains in the red in both Hong Kong and US year-to-date, lagging behind rival Tencent, but still outperforming its e-commerce competitor JD.com Inc. and PDD Holdings Inc. Alibaba’s Hong Kong shares are trading at about 10 times forward one-year earnings, versus 12.3 times for JD.com and 19.3 for Tencent.

Looking forward, analysts say that stronger fundamentals including steady revenue growth will be key to a revival.

“Alibaba will likely struggle to revive its overall revenue growth with cloud alone and there is a limit to how much incremental profit you can get out of cutting costs/headcount,” said Bloomberg Intelligence analyst Catherine Lim. “The firm needs to have a new growth catalyst for each of the other four businesses, excluding cost cutting moves, to support any premium valuation at the point of spinoff or IPO.”

Tech Chart of the Day

Chegg Inc. tumbled as much as 48% on Tuesday, its biggest drop since November 2021, after the online educational services company warned that ChatGPT was threatening growth of its homework-help services. It’s one of the first companies to highlight generative AI’s negative impact on business. Jefferies downgraded the stock to hold from buy, saying the AI overhang is starting to impact fundamentals.

Written by: Jeanny Yu –With assistance from Subrat Patnaik @Bloomberg.com

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