Alibaba to cut 7% of workforce in its cloud unit as it pursues IPO

Alibaba is cutting 7% of the workforce in its cloud computing division as the unit gears up for an initial public offering.

The move, confirmed to CNBC by a person familiar with the matter who preferred to remain anonymous because they were not able to speak publicly, will see the Chinese e-commerce giant offer severance packages to those affected. Alibaba has begun informing staff of the layoffs and is also helping them to move to different positions internally if they desire, the same source added.

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This comes after it announced plans in March to split the company into six business units each with their own chief executive and board of directors.

Last week, the company announced plans for a full spin-off of its cloud computing unit and said it intends for the division to become an independent publicly listed company. Alibaba aims to complete the spin off within the next 12 months.

Alibaba’s CEO Daniel Zhang has long-seen cloud computing as a key part of the e-commerce giant’s future but it currently accounts for just 9% of the group’s total revenue. And revenue has been slowing significantly over the last few quarters. In fact, revenue fell 2% year-on-year in the first quarter of the year.

Zhang said on the company’s earnings call last week that this was “partially due to our proactive move to adjust our revenue structure and focus on high-quality growth, and also a result of external changes in market environment and customer composition.”

TikTok owner ByteDance began moving its international operations off of Alibaba’s cloud which continues to weigh on the company’s cloud business.

Still, Alibaba has made some headway with its cloud business over the past few years. It is the number one player by market share in China and number two in Asia-Pacific, just behind Amazon, according to Synergy Research Group. However, on a global level, it still trails giants Amazon, Microsoft and Google.