Shares of Chinese technology giant Alibaba slipped more than 4% on Monday after group CEO Daniel Zhang abruptly stepped down from the company’s cloud business.
Hong Kong-listed Alibaba stock closed down 3% after paring some early losses amid concerns that Zhang’s exit, just two months after concentrating his focus on cloud computing, signalled possible discord within the company’s top management.
New group CEO Eddie Wu will now concurrently become acting CEO and chairman of the unit, which is grappling with weak sales growth ahead of an initial public offering (IPO) penned for next year.
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“We have mixed thoughts on this news,” Morningstar analyst Chelsey Tam said in a client note. “We think this latest change was not planned back in June and there are concerns of disagreements among Alibaba’s partners.”
In June, Alibaba said Zhang would relinquish his group CEO role to focus on the cloud unit, the firm’s second-biggest money spinner. The Cloud Intelligence Group was valued at $41 billion to $60 billion earlier this year.
The unit’s revenue fell for the first time in January-March, by 2%, due to delayed projects and other factors. Still, analysts estimate it is China’s largest cloud provider with a 34% market share, ahead of Huawei Technologies, Tencent Holdings and Baidu.
The cloud unit is among five units Alibaba is spinning off as part of the biggest restructuring of its 24-year history.
Alibaba said it will continue with its plan to spin off the cloud unit under a yet-to-be-appointed management team. Earlier this year, it said it would complete the process by May 2024.
Citi analyst Alicia Yap said in a note Zhang’s departure could drag on Alibaba stock until a successor is named.
“Investors may be concerned that the timing and process of AliCloud’s spin-off may be affected.”
Governance concerns
Zhang, who succeeded leading co-founder Jack Ma as group CEO in 2015 and chairman in 2019, took charge of the cloud unit in December after an outage it described as its “longest major-scale failure” in over a decade.
In June, when Alibaba announced that Zhang would wholly focus on the cloud unit, he said he was doing so due to a need for clear separation between board and management as the unit pursued a spin-off. He said it would be “inappropriate” for him to continue in his group and unit roles.
Morningstar’s Tam said Eddie Wu’s appointment to acting cloud CEO could raise governance concerns and invalidate benefits that would have arisen from having different CEOs.
“For example, Alibaba Cloud’s potential customers may worry about the sharing of their data with Alibaba,” she said. Analysts have said the unit oversees reams of data that could put it in the crosshairs of regulators at home and abroad.
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Still, Wu taking over and Zhang departing could mark a turnaround for a company subjected to about two years of intense regulatory scrutiny during Zhang’s tenure, analysts said.
His exit will allow the cloud business to start from a “clean slate”, said Vey-Sern Ling, managing director at Union Bancaire Privee.
“Eddie Wu, being part of the original group of founders and closely aligned to Jack Ma, should bring fresh energy to the business,” Ling added.
Wu is one of 18 Alibaba co-founders, starting out in 1999 as technology director. He is now group CEO, chairman of Taobao and Tmall Group, a director of Local Service Group, and a director of Alibaba International Digital Commerce Group.
Zhang to set up ‘tech fund’
Alibaba announced Zhang’s decision to exit the cloud unit in a staff letter on Sunday, without disclosing reasons. Zhang had previously been concurrently serving in three roles, heading the group as well as the cloud intelligence unit.
“The board of our company expresses its deepest appreciation to Mr Zhang for his contributions to Alibaba Group over the past 16 years,” Alibaba said in a statement that simply announced that Wu would succeed Zhang in his roles at the cloud unit.
A former accountant, Zhang joined Alibaba in 2007 and is known for being the architect behind the company’s annual flagship “Singles Day” shopping festival.
“Daniel has expressed his wish to transition away from his role as chairman and CEO of Cloud Intelligence Group,” the company said in the letter that was signed by Joseph Tsai, an Alibaba co-founder who also took over the chairman role from Zhang as planned on Sunday.
“Following careful consideration, the Alibaba board respected and accepted Daniel’s decision and appointed Eddie as acting chairman and CEO of Cloud Intelligence Group, effectively immediately.”
Zhang will continue to contribute to Alibaba by “channeling his expertise differently,” the letter added, saying that Alibaba will invest $1 billion in a technology fund that Zhang would establish. The company has also gave Zhang an “emeritus” title, a first in its history.
“The fund will support Alibaba’s strategy of investing for future growth and continuing to develop our technology ecosystem.”
- Reuters with additional editing by Vishakha Saxena
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