Alibaba’s stock saw a decline of over 4% in Hong Kong on Monday following the surprise departure of ex-CEO Daniel Zhang from his role focusing on cloud computing.
Zhang’s abrupt exit, just two months after he concentrated on the cloud unit, has raised concerns about the spin-off plan for the unit and potential discord at the company’s leadership.
Eddie Wu, the new group CEO, will also take on the role of acting CEO and chairman of the cloud unit, which has been grappling with weak sales growth ahead of an initial public offering (IPO) scheduled for next year.
Morningstar analyst Chelsey Tam expressed mixed feelings, stating, “We think this latest change was not planned back in June, and there are concerns of disagreements among Alibaba’s partners.”
In June, Alibaba announced that Zhang would step down from his group CEO role to focus on the cloud unit, one of the company’s major revenue generators.
The Cloud Intelligence Group, valued between $41 billion and $60 billion earlier this year, is among five units Alibaba is spinning off in a major restructuring effort, the largest in its 24-year history.
The company has confirmed its intention to proceed with the cloud unit’s spin-off under a yet-to-be-appointed management team, with completion targeted by May 2024.
Citi analyst Alicia Yap suggested that Zhang’s departure could negatively impact Alibaba’s stock until a successor is named, adding that there may be concerns about the timing and process of AliCloud’s spin-off.
Alibaba’s share price fell as much as 4.4% to HK$86.85 ($11.08), its lowest level since August 23.
The cloud unit, Alibaba’s second-largest revenue source after domestic e-commerce, includes DingTalk and the group’s generative artificial intelligence model, Tongyi Qianwen. DingTalk is set to be spun off into a separate entity.
While the cloud unit experienced a 2% decline in revenue in the first quarter of this year due to delayed projects and other factors, it maintains a dominant position in China’s cloud market with a 34% market share, surpassing competitors like Huawei Technologies, Tencent Holdings, and Baidu.
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Zhang, who succeeded co-founder Jack Ma as group CEO in 2015 and chairman in 2019, assumed leadership of the cloud unit in December after a significant outage.
His decision to focus solely on the cloud unit in June was motivated by the need for clear separation between board and management as the unit pursued a spin-off.
Despite governance concerns surrounding Wu’s appointment as acting cloud CEO, analysts suggest that his alignment with Alibaba’s original co-founders and close ties to Jack Ma could bring fresh energy to the business.
Daniel Zhang’s departure from Alibaba’s cloud unit has created uncertainty in the market, impacting the company’s stock. However, the move may lead to a fresh start for the cloud business as it pursues its spin-off.
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