Alibaba stock plummets as former CEO abruptly departs cloud unit just before IPO

Alibaba’s stock on the Hong Kong stock exchange dropped more than 4% on Monday, 11 September 2023, following the unexpected resignation of Daniel Zhang, the former CEO of the Alibaba Group, from his role in the company’s cloud computing division. 

The abrupt resignation has left investors unsettled and raised concerns about its potential impact on the subsidiary’s plans for an initial public offering (IPO) in the coming year.

A mere two months after focusing solely on the cloud division, Zhang’s departure has paved the way for Eddie Wu, the newly appointed CEO of the Alibaba Group, to step in as the acting CEO and chairman of the cloud unit. This change comes at a challenging time for the Cloud Intelligence Group, which has been grappling with sluggish sales growth, which does not augur well for its planned IPO next year.

The Cloud Intelligence Group holds a significant position within Alibaba, being the second-largest revenue source after domestic e-commerce. It contains some crucial assets, such as the generative artificial intelligence model Tongyi Qianwen and the messaging app Dingtalk. 

The unit experienced a 2% drop in revenue in the January–March period due to delayed projects and other factors. Analysts estimate it to be China’s largest cloud provider with a 34% market share.

Despite facing these challenges, the cloud unit is on track for a substantial IPO, with an estimated value ranging from $41 billion to $60 billion. 

Meanwhile, concerns loom that the unit’s extensive data management responsibilities could draw regulatory scrutiny, especially in the light of growing concerns over data security and geopolitics.

Alibaba has stated its commitment to proceeding with the spinoff of the cloud unit under a yet-to-be-named management team. The process is expected to be completed by May 2024. 

Citi analyst Alicia Yap noted that Zhang’s departure could have a temporary impact on Alibaba’s share price until a successor is appointed. She expressed concerns about the timing and process of AliCloud’s spinoff.

Zhang, who succeeded Alibaba co-founder Jack Ma as group CEO in 2015 and chairman in 2019, assumed leadership of the cloud unit in December following a significant service outage. However, his tenure as group head was marked by intense regulatory scrutiny. His departure is seen by some, including Vey-Sern Ling, managing director at Union Bancaire Privee, as an opportunity for the cloud business to reset and start anew.

Alibaba’s stock price fell by as much as 4.4% to HK$86.85, marking its lowest point since August 23. Ling has cautioned investors that the stock remains vulnerable to macroeconomic and geopolitical pressures.

Alibaba made the announcement of Zhang’s departure from the cloud unit in a letter to staff on Sunday without specifying the reasons behind his decision. It was on the same day that Zhang was scheduled to pass on the group CEO role to Wu and the chairmanship to co-founder Joseph Tsai.

Eddie Wu, one of Alibaba’s 18 co-founders, who began as a technology director in 1999 and now holds various key positions within the company, including CEO and chairman of Taobao and Tmall Group, as well as directorships in its Local Service Group and Alibaba International Digital Commerce Group, has been appointed to lead the cloud unit. 

Wu’s appointment is seen as a positive move for Alibaba, as he is closely aligned with Jack Ma and brings fresh energy to the business, according to Union Bancaire’s Ling.