Alibaba CEO Exit Casts Shadow on Cloud Unit's Future, Stock Performance

Quincy Jon, Tech Times 11 September 2023, 12:09 pm

The abrupt departure of Alibaba Group Holding Ltd. ex-CEO Daniel Zhang resulted in a substantial stock loss of more than 4% on Monday in Hong Kong.

Concerns have been expressed regarding the company's cloud unit's planned spin-off and probable strife within the company's leadership as a result of Zhang's unexpected exit, which took place only two months after he moved his concentration to cloud computing.

Leadership Reshuffle

Eddie Wu, the new group CEO, will also operate as the unit's CEO and chairman as he struggles with slow sales growth in advance of an initial public offering (IPO) planned for the following year.

In a staff memo on Sunday, Alibaba revealed Zhang's plan to leave the cloud division. On that same day, Zhang formally gave co-founder Joseph Tsai the chairmanship and Eddie Wu the position of group CEO.

Chelsey Tam, a Morningstar analyst, had conflicting opinions about this development and said that it may not have been in the original plan from back in June "and there are concerns of disagreements among Alibaba's partners," as reported by Reuters.

Alibaba had stated in June that Daniel Zhang would step down from his position as group CEO to concentrate on the cloud business, the organization's second-largest source of income. The company planned to spin off five companies, including the $41 billion to $60 billion Cloud Intelligence Group, as part of its massive restructuring—the largest in its 24-year history.

Although the management team for this business has not yet been chosen, Alibaba is still dedicated to the plan to spin off the cloud segment. By May 2024, the procedure is anticipated to be finished.

Since investors are especially concerned about the timing and procedure of AliCloud's spin-off, Citi analyst Alicia Yap voiced fears that Zhang's exit might affect Alibaba's shares until a replacement is found.

Zhang has served as the CEO since 2015 and served as chairman of the Alibaba Group since 2019. Since 2022, he has also held the positions of chairman and CEO of the Alibaba Cloud Intelligence Group.

Alibaba announced a major restructuring in March, dividing it into cloud, e-commerce, logistics, media, and entertainment, per CNN. The majority of the units would be free to engage in independent listing or fundraising efforts, and each would have its own CEO and board of directors in charge. The reorganization was seen as a move to support Beijing's goals of dismantling monopolies and limiting the power of Internet companies.

Alibaba's Performance Remains Strong

According to a CNBC report, Yap retains a "buy" rating on Alibaba's stock with a target price of $151, much higher than the tech firm's most recent closing price of $90.05 on the New York Stock Exchange. However, this surprise shift may momentarily influence Alibaba's share price.

By creating a technology fund with a $1 billion investment from the firm, Zhang will continue to support Alibaba. The money will assist Alibaba's growth and ecosystem development plans.

Alibaba's most recent quarterly profits were strong despite the complications and adjustments, with total sales up 14% from the prior year and domestic e-commerce revenue up 12%. As Alibaba navigates shifting market dynamics and legislative developments, this unexpected leadership move opens a new chapter.