Alibaba Aims for Capital Efficiency: Can the Banma Spin-Off Succeed?

Alibaba BABA is betting big on capital efficiency with its proposal to spin off Banma Network Technology and list it independently in Hong Kong. The move shifts funding for Banma’s fast-scaling auto-software business to public markets, reducing the company’s direct cash burden while preserving upside through a minority stake. Under the plan, Alibaba’s holding will drop from about 44.72% to just over 30%, subject to regulatory approvals, including the CSRC.

The spin-off addresses a key financial priority, redeploying capital toward higher-return areas like cloud, AI and share buybacks. Alibaba reported a robust net cash position of RMB 366.4 billion as of March 31, and generated RMB 73.9 billion in free cash flow in fiscal 2025, while returning nearly $16.5 billion to its shareholders through repurchases and dividends. Freeing itself from Banma’s funding needs ensures that capital can be allocated to this core growth and return initiatives.

This spin-off appears to be a win-win deal for both companies. It unlocks greater valuation potential for Banma as an independent mobility software leader while allowing Alibaba to streamline operations and focus on core businesses.

The spin-off’s success will largely depend on execution, navigating regulatory hurdles, securing an attractive IPO price and converting OEM alliances into consistent revenue growth. Should these efforts succeed, Alibaba could boost capital returns, concentrate on high-growth core operations and unlock significant shareholder value by turning Banma into a tradable asset.

Alibaba Faces Intensifying Cloud Competition

Amazon’s AMZN-owned Amazon Web Services (AWS) leads the global cloud market, especially in North America and Europe, while Alibaba Cloud dominates Asia-Pacific, particularly China and is expanding globally. Amazon’s AWS is known for its mature, feature-rich services, covering compute, storage, databases, networking and analytics. Although Amazon’s pricing is generally higher, it offers flexible models suited for diverse workloads. Amazon’s extensive capabilities and global reach make it a formidable competitor for Alibaba Cloud.

Alphabet GOOGL-owned Google Cloud Platform offers extensive global reach and seamless integration with the Google ecosystem. Google Cloud is highly regarded for its AI and ML strengths, including tools like Vertex AI and TensorFlow. While Alibaba Cloud provides AI services tailored for practical business applications such as recommendation engines and customer service bots, Google Cloud’s superior data storage, management, and advanced AI capabilities give it a competitive edge. Google Cloud continues to expand its influence worldwide.

BABA’s Share Price Performance, Valuation & Estimates

BABA shares have gained 40.9% in the year-to-date period, outperforming the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector’s growth of 11.6% and 8.6%, respectively.

BABA’s YTD Price Performance

From a valuation standpoint, BABA stock is currently trading at a forward 12-month Price/Earnings ratio of 12.75X compared with the industry’s 25.17X. BABA has a Value Score of C.

BABA’s Valuation

The Zacks Consensus Estimate for first-quarter fiscal 2026 earnings is pegged at $2.13 per share, which remains unchanged over the past 30 days, indicating a 5.75% year-over-year decline.

Alibaba currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research