Alibaba’s stock took a hit in Hong Kong on Monday, losing more than 4%, after former CEO Daniel Zhang stepped down just two months after shifting his focus to cloud computing. The sudden departure raises concerns about the spin-off plan for the cloud unit and the potential for discord within the company. Eddie Wu, the new group CEO, will also take over as acting CEO and chairman of the struggling unit, which is facing weak sales growth ahead of an IPO scheduled for next year. Analysts have mixed thoughts on the news, with some expressing concerns about disagreements among Alibaba’s partners.
Alibaba had previously announced in June that Zhang would step down as group CEO in order to concentrate on the cloud unit, which is the company’s second-largest source of revenue. The Cloud Intelligence Group, valued between $41 billion and $60 billion earlier this year, is one of five units that Alibaba plans to spin off as part of its largest restructuring in its 24-year history. Despite Zhang’s departure, Alibaba says it will proceed with its plan to spin off the cloud unit under a yet-to-be-appointed management team, with the process expected to be completed by May 2024.
However, analysts are concerned that Zhang’s exit could impact Alibaba’s stock until a successor is named. There are worries that the timing and process of the cloud unit’s spin-off may be affected. Alibaba’s share price fell as much as 4.4% following the news of Zhang’s departure.
The cloud unit has faced challenges, including weak sales growth and a major outage in December. Its revenue declined for the first time in the first quarter of this year, falling by 2%, due to delayed projects and other factors. Despite this, analysts estimate that it is currently China’s largest cloud provider with a 34% market share.
Zhang’s decision to leave the cloud unit was announced in a staff letter on Sunday, with Alibaba stating that he would set up a technology fund. Zhang handed the group CEO role to Eddie Wu, as planned, and the chairmanship to co-founder Joseph Tsai. Wu’s appointment as acting cloud CEO has raised some governance concerns and could invalidate potential benefits from having separate CEOs.
Despite the concerns, Wu’s takeover and Zhang’s departure could mark a turning point for Alibaba after two years of intense regulatory scrutiny. Wu, who is one of the company’s co-founders, is closely aligned with Jack Ma and is expected to bring fresh energy to the business.