Alibaba (NYSE:BABA) Group Holding Ltd. (HKG:9988) has decided to postpone the potential Hong Kong initial public offering (IPO) of its Freshippo grocery chain due to a lackluster market for consumer stocks. This decision comes after preliminary discussions with potential investors led the Chinese tech giant to estimate a likely valuation of around $4 billion for Freshippo, falling short of its initial expectations. This valuation is significantly lower than the $6 billion to $10 billion target the firm was aiming for during considerations of a private funding round last year.
The capital management committee of Alibaba, which is managing the breakup of the expansive company, has chosen to await more favorable market conditions before proceeding with the Freshippo IPO. In the meantime, it will prioritize listings of other units. On Friday, Alibaba’s American depositary shares experienced a 1.4% drop in New York trading, reaching their lowest intraday level in two weeks.
While this delay could mean Alibaba fails to meet its stated goal of floating Freshippo by May 2024, there is still potential for the listing plan to progress once China's broader retail environment and economy begin to recover, thereby enhancing investor sentiment around the sector. The company is prepared to submit a preliminary prospectus at any moment, according to sources close to the matter.
Freshippo, established in 2016 and headquartered in Shanghai, offers a Sam’s Club-like supermarket experience that includes a dine-in restaurant and 30-minute home delivery service. With more than 270 self-operated stores across China as of March last year, it uses high-tech automatic order picking that transports goods via conveyors attached to the store's roof and employs robots for delivering food to dine-in customers.
The Freshippo unit was slated to be among the first Alibaba units to go public after the tech giant announced in March that it would split up its business. The cloud division, one of the six main units resulting from the breakup, is considering a private round to raise funds from Chinese state-owned enterprises ahead of its listing by introduction in Hong Kong.
Hema Xiansheng, Freshippo's main grocery brand, became profitable in 2022. This was confirmed by an internal memo from Hema Chief Executive Officer Hou Yi, which was cited on the company's website. Representatives for Alibaba and Freshippo declined to comment on the matter.
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