Alibaba’s stock witnessed a decline of over 4% in Hong Kong on Monday following the surprising departure of the former group CEO, Daniel Zhang, from its cloud computing unit. Zhang’s exit has raised concerns among investors and cast uncertainties over the subsidiary’s impending spinoff plans.
Leadership Transition in the Cloud
Just two months after Daniel Zhang chose to relinquish other roles to focus on the cloud, the new group CEO, Eddie Wu, will assume the role of acting CEO and chairman of the cloud unit. This change comes at a crucial time for the unit, which has been grappling with weak sales growth ahead of a planned initial public offering (IPO) scheduled for next year.
The Cloud Intelligence Group stands as Alibaba’s second-largest revenue source, following domestic e-commerce. It encompasses the group’s generative artificial intelligence model, Tongyi Qianwen, and the messaging app Dingtalk.
Challenges in Cloud Growth
The unit experienced a revenue decline of 2% in the first quarter of the year due to delayed projects and other factors. Nevertheless, analysts estimate it retains a substantial 34% market share, positioning it as China’s largest cloud provider.
With a valuation estimated between $41 billion to $60 billion, the unit is heading toward a potentially significant IPO. However, it is worth noting that the vast amounts of data it oversees could draw regulatory scrutiny amid growing concerns about data security and geopolitical factors.
Alibaba has reaffirmed its commitment to proceeding with the spinoff of the cloud unit, although the specifics of the management team are yet to be announced. Earlier this year, the company announced its intention to complete the process by May 2024.
Investor Concerns and Outlook
Citi analyst Alicia Yap noted in a client note that Zhang’s departure could have a short-term impact on Alibaba’s share price until a successor is named. She added, “Investors may be concerned that the timing and process of AliCloud’s spin-off may be affected.”
Daniel Zhang’s tenure as head of the cloud unit followed an outage described as the company’s “longest major-scale failure” in over a decade. His exit is seen by some as an opportunity for the cloud business to start fresh.
Alibaba’s share price experienced a 4.4% decline to HK$86.85, its lowest point since August 23. However, analysts suggest that the stock remains susceptible to macroeconomic and geopolitical pressures.
New Leadership and Future Prospects
Eddie Wu, one of Alibaba’s 18 co-founders, who began his journey with the company as a technology director in 1999, now takes the reins as acting CEO of the cloud unit. He also serves as the group CEO, chairman of Taobao and Tmall Group, and holds director roles in other Alibaba entities.
Alibaba Cloud has faced challenges in maintaining government and state-owned enterprise clients, which were previously strongholds for the company. Some view Zhang’s departure as a personal decision, considering the hurdles the cloud unit faced in achieving robust growth during his leadership.
Union Bancaire Privee’s managing director, Vey-Sern Ling, sees Eddie Wu’s appointment as a positive development for Alibaba. “Eddie Wu, being part of the original group of founders and closely aligned to Jack Ma, should bring fresh energy to the business,” Ling commented.