Alibaba slides after former CEO abruptly quits cloud unit ahead of IPO

Hong Kong — Alibaba’s stock lost more than 4% in Hong Kong on Monday after former group CEO Daniel Zhang quit just two months after concentrating his focus on cloud computing, raising concern over the unit’s spin-off plan and possibility of discord at the top.

New group CEO Eddie Wu will concurrently become acting CEO and chair of a unit grappling with weak sales growth ahead of an initial public offering (IPO) penned for next year. Zhang had already been scheduled to give up his group CEO and chair titles in September to concentrate on the crucial cloud business before his abrupt departure.

“We have mixed thoughts on this news,” said Morningstar analyst Chelsey Tam 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 number two money spinner.

The Cloud Intelligence Group, valued at $41bn to $60bn earlier this year, 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 in a note said 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.”

Alibaba did not immediately respond to a request for comment over such concerns. Its share price fell as much as 4.4% to HK$86.85 ($11.08), its lowest since August 23, before ending the day 3% lower. New York-listed shares were down 1.1% on Monday.

Revenue source

Alibaba announced Zhang’s decision to exit the cloud unit in a staff letter on Sunday seen by Reuters, without disclosing reasons, and said he would set up a technology fund. The same day, Zhang handed the group CEO role to Wu and chairmanship to co-founder Joseph Tsai, as scheduled.

The cloud unit is Alibaba’s second-biggest revenue source after domestic e-commerce and houses DingTalk and the group’s generative artificial intelligence model Tongyi Qianwen.

Messaging app DingTalk is to be split off into a separate entity, two people close to Alibaba said last month.

The cloud 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.

Zhang, who succeeded leading co-founder Jack Ma as group CEO in 2015 and chair 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 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.

Reuters