Alibaba Group Holding Ltd’s cloud unit has started a round of downsizing that will impact 7 per cent of the staff as it streamlines its business in preparation for an IPO, a source familiar with the matter said on Tuesday.

The cloud unit has started to offer severance to employees, the source said. Alibaba did not immediately respond to a Reuters request for comment.

Earlier this month, the Chinese tech giant laid out listing and fund-raising plans for four of its business units, including its logistics unit Cainiao. As part of the plans, China’s largest cloud service is slated to be listed next year

The development is part of Alibaba’s announcement earlier this year of plans to restructure into six units, following a two-year regulatory crackdown on China’s tech sector. Alibaba’s cloud division reported a revenue of 18.6 billion yuan ($2.69 billion) in the recent quarter, down 2 per cent year-on-year.

Revenue up 2%

Alibaba Group Holding Ltd posted a 2 per cent rise in quarterly revenue that missed expectations and said its board has approved a spinoff of its cloud-computing business.

The company logged revenue of 208.20 billion yuan ($30.12 billion) for the three months ended in March, compared with a Refinitiv consensus estimate of 210.3 billion yuan drawn from 26 analysts.

Chinese consumer spending has gained some momentum since the country abandoned zero-Covid policies late last year, but it still remains relatively muted amid a wobbly economic recovery.

Earlier this year, Alibaba announced plans to restructure into six units, a move that followed a two-year regulatory crackdown on China’s tech sector. It expects all of its units except for its China-facing e-commerce division to seek outside funding and go public.

Alibaba has approved a full spinoff of the Cloud Intelligence Group via a stock dividend distribution to shareholders. It aims to complete the spinoff in the next 12 months.

Finance chief Toby Xu also said Alibaba’s board has approved the process to start external financing for Alibaba International Digital Commerce Business Group and initial public offering (IPO) explorations for Cainiao Smart Logistics Group and the execution of the IPO for Freshippo.

Net income attributable to ordinary shareholders was 23.52 billion yuan, compared with a loss of 16.24 billion yuan.

Alibaba has also been struggling to attract new users as China’s e-commerce sector matures and it grapples with inroads made by new competitors such as PDD Holdings and Douyin, the Chinese version of TikTok that is also owned by ByteDance.

Revenue for the full year climbed 2 per cent to 868.69 billion yuan, marking its slowest rate of growth since the company went public in 2014.