From Breakingviews - Google giggles at China tech’s shrinking act
and Alphabet, are worth $8 trillion today. Breaking up conglomerates like Alibaba should boost valuations and help ringfence regulatory risk: Bernstein analysts estimate the sum of Alibaba’s parts could be worth an aggregate $392 billion, compared to $228 billion before the deal was announced. The cost, though, will be economies of scale.
The American tech giants already generate three times more revenue and nearly five times more free cash flow than their aspirant Chinese challengers, Refinitiv Eikon data shows. Sitting on massive cash piles, Alphabet and Meta Platforms are moving into Southeast Asia – Facebook’s fastest growing market - where Chinese rivals once hoped they would gain share to offset slowing growth at home.
Scale can also support innovation. Much hard science comes out of corporate labs because conglomerates can easily skim profit from stable businesses and put it into expensive long shots on artificial intelligence, nano-computers and batmobiles. Alphabet’s R&D budget, for example, was $40 billion in 2022, 11 times higher than China’s search monopoly Baidu, which is also trying to turn itself into an AI powerhouse.
Xi may be pleased to cut his country’s dotcom empires down to size. Their American rivals will enjoy watching him.
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