Why Alibaba’s Cloud Ambitions Fell to Earth

Several months ago, executives at Alibaba tried to persuade some big investors to take a stake in its cloud unit—which Alibaba was then planning to spin off as a separate company—at a $40 billion valuation. Alibaba’s idea was that the outside investments could signal to the stock market the appeal of the cloud unit ahead of its public debut.

The plan flopped. Investors balked at the valuation Alibaba sought. They were conscious that the cloud business—though the biggest of its kind in China—was barely growing and was also losing money. One international investment firm, for example, was only willing to offer a valuation of less than $25 billion for the unit, according to a person with knowledge of the discussions. The episode underlined for Alibaba executives the fact that the spun-off cloud unit would not be well received by the market, contributing to the company’s decision announced last week to cancel the move.