“Alibaba Stock Takes a Hit as Former CEO Unexpectedly Departs Cloud Unit Just Prior to IPO”

“Alibaba Stock Takes a Hit as Former CEO Unexpectedly Departs Cloud Unit Just Prior to IPO”

In a surprising turn of events, Alibaba Group Holding Ltd. experienced a notable dip in its stock value, losing more than 4% in Hong Kong trading on Monday. The cause behind this abrupt downturn? The unexpected resignation of the company’s ex-CEO, Daniel Zhang, from his role in the cloud computing division. Zhang’s decision to step down came just two months after he had shifted his primary focus towards the cloud computing segment of Alibaba, raising concerns about the unit’s upcoming spin-off and potential discord within the upper echelons of the company.

To manage this sudden leadership vacuum, Eddie Wu, the newly appointed group CEO, will simultaneously take on the responsibilities of acting CEO and chairman for the cloud unit. This transition occurs at a critical juncture for the cloud division, which has been grappling with sluggish sales growth in the lead-up to its scheduled initial public offering (IPO) slated for the next year. Zhang’s original plan was to relinquish his roles as group CEO and chairman in September to concentrate his efforts on the pivotal cloud business, but his unexpected departure has cast a cloud of uncertainty over the organization.

Morningstar analyst Chelsey Tam commented on the situation, stating, “We have mixed thoughts on this news. We think this latest change was not planned back in June, and there are concerns of disagreements among Alibaba’s partners.” In June, Alibaba had announced that Zhang would step down as the group CEO to devote more attention to the cloud unit, which had been identified as the company’s second most significant revenue generator.

The Cloud Intelligence Group, valued at a substantial $41 billion to $60 billion earlier in the year, is among the five units Alibaba plans to spin off in what is considered the most extensive restructuring effort in its 24-year history. Despite Zhang’s exit, Alibaba has indicated that it will proceed with its plan to spin off the cloud unit under a yet-to-be-appointed management team, with the completion of this process expected by May 2024.

Citi analyst Alicia Yap expressed concerns about the impact of Zhang’s departure on Alibaba’s stock, suggesting that it could weigh down the stock value until a successor is officially named. She also raised questions about the potential effect on the timing and process of AliCloud’s spin-off.

Alibaba has not yet responded to inquiries regarding these concerns. The company’s share price experienced a significant decline of up to 4.4% to HK$86.85 ($11.08) during trading, marking its lowest point since August 23. The New York-listed shares were also affected, experiencing a 1.1% decrease on Monday.

Zhang’s decision to exit the cloud unit was communicated through a staff letter issued by Alibaba on Sunday, and the company did not disclose the specific reasons behind this move. On the same day, Zhang officially handed over the group CEO role to Wu and the chairmanship to co-founder Joseph Tsai, as per the pre-arranged plan.

The cloud unit holds a pivotal position within Alibaba, being the company’s second-largest source of revenue after its domestic e-commerce sector. It encompasses DingTalk, a messaging app, and the group’s generative artificial intelligence model, Tongyi Qianwen. DingTalk is set to be separated into a distinct entity, according to sources close to Alibaba.

Although the cloud unit experienced a 2% revenue drop in the first quarter of the year, attributed to delayed projects and other factors, analysts estimate it to be China’s leading cloud service provider, boasting a 34% market share, surpassing competitors like Huawei Technologies, Tencent Holdings, and Baidu.

Zhang’s involvement with the cloud unit began in December after the division faced a major outage described as its “longest major-scale failure” in over a decade. His decision in June to focus entirely on the cloud unit was motivated by the need for clear separation between the board and management as the unit pursued its spin-off. He emphasized that it would have been “inappropriate” for him to continue handling both his group and unit roles.

Despite the concerns surrounding Wu’s appointment as acting cloud CEO, experts believe that this change in leadership could mark a turning point for Alibaba, which had been under intense regulatory scrutiny during Zhang’s tenure. It is believed that Zhang’s exit will provide the cloud business with an opportunity to start afresh, effectively wiping the slate clean.

Eddie Wu, one of Alibaba’s 18 co-founders, initially joined the company in 1999 as a technology director. He now holds several key positions within the organization, including group CEO, chairman of Taobao and Tmall Group, director of Local Service Group, and director of Alibaba International Digital Commerce Group. Given his long-standing association with the company and alignment with Jack Ma, another co-founder, experts are optimistic that Wu’s leadership will infuse fresh energy into the business.

Alibaba faces a period of uncertainty and transition following the sudden departure of ex-CEO Daniel Zhang from the cloud unit. The impact on the company’s stock value and the cloud unit’s spin-off plan remains to be seen as the organization navigates this unexpected change in leadership.


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