Normally, stock prices go up on news of layoffs. It demonstrates a willingness to “make the hard decisions” and cost savings that could boost profitability. But for Chinese stock Alibaba (NASDAQ:BABA), the opposite has happened as it’s down substantially in Tuesday afternoon’s trading.
The cuts by themselves are bad enough, especially for those about to lose jobs. But it’s where they are coming from that is a sign of potentially bigger trouble to come. The cuts all trace back to the cloud division and will feature a 7% workforce reduction. It’s already started offering severance packages to at least some employees.
That’s unsettling. The cloud division, which also includes some of Alibaba’s work in AI, is about to nearly decimate its workforce, and with an IPO waiting in the wings? Something is amiss. Especially when sources inside Alibaba noted that the firm is also working to transfer the dismissed employees to other parts of Alibaba. Given that cloud revenue is on the decline, and it only represents about 9% of the group’s overall revenue, maybe these cost cuts are due and will give the books a hand in looking better for the upcoming IPO spinoff.
Still, analysts are convinced that Alibaba stock is a solid choice as they rate it a Strong Buy based on 17 Buy ratings. Moreover, this comes with a hefty upside potential of 79.39%, thanks to the average price target of $149 per share.