Alibaba CEO Daniel Zhang Quits Cloud Unit, Raises Concerns Over Spin-Off Plan

Introduction

Alibaba’s stock lost more than 4% in Hong Kong on Monday after ex-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.

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• Alibaba CEO Eddie Wu to take over cloud unit from Daniel Zhang
• Move comes months after Zhang chose to focus solely on cloud
• Analysts raise concerns over potential discord, spin-off impact
• Cloud unit has faced weak sales growth, to IPO next year
• Alibaba says cloud unit spin-off still on track

Concerns Over Discord and Spin-Off Plan

New group CEO Eddie Wu will concurrently become acting CEO and chairman of a unit grappling with weak sales growth ahead of an initial public offering (IPO) penned for next year. Analysts have raised concerns over potential disagreements among Alibaba’s partners.

“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.”

Alibaba’s Plan to Spin Off Cloud Unit

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.”

Cloud Unit as Key Revenue Source

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. 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.

Impact of Wu Taking Over

Wu taking over and Zhang departing could mark a turnaround for a company subjected to about two years of intense regulatory scrutiny during Zhang’s tenure, analysts said. His exit will allow the cloud business to start from a “clean slate”. Wu, being part of the original group of founders and closely aligned to Jack Ma, should bring fresh energy to the business.

Conclusion

Alibaba’s CEO Daniel Zhang quitting the cloud unit has raised concerns over the unit’s spin-off plan and potential discord at the top. However, Alibaba remains committed to spinning off the cloud unit and continuing with its IPO plans. The cloud unit, despite facing weak sales growth, is still China’s largest cloud provider. The appointment of Eddie Wu as acting CEO and chairman may bring fresh energy to the business and help overcome past regulatory challenges.

Reporting by Donny Kowk and Josh Ye in Hong Kong, Yelin Mo in Beijing; Writing by Anne Marie Roantree and Brenda Goh; Editing by Muralikumar Anantharaman and Christopher Cushing

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