Surprise Shakeup At Alibaba As CEO Steps Down, Moves To Cloud Unit

After a surprise managerial shakeup, Alibaba shares fell in premarket trading in New York. Eight-year veteran CEO and Chairman Daniel Zhang sent a memo to staff on Tuesday explaining his departure. This comes after Zhang unveiled the splitting of Alibaba into six separate units in what was called the "most significant" overhaul of the Chinese e-commerce company in its quarter-century existence. Analysts say the move will support the firm's restructuring, while some must see growth before they can regain confidence amid a growth slowdown in a post-Covid era. 

Zhang, 51, will relinquish the top job at one of China's leading technology conglomerates come September. He will remain CEO of the cloud computing business as it pushes towards a spin-off and future public listing. Alibaba announced plans to spin off its cloud division in May. 

Executive Vice Chairman Joseph Tsai, a longtime friend of co-founder Jack Ma, will succeed Zhang. The reshuffle is a move to put Ma's trusted team back at the helm of the technology company valued at $240 billion. 

Zhang's unexpected departure comes months after the company announced it would split into six independently run entities:

  • Cloud Intelligence Group
  • Taobao Tmall Commerce Group
  • Cainiao Smart Logistics
  • Local Services Group 
  • Global Digital Commerce Group 
  • Digital Media and Entertainment Group

In the internal memo that Zhang sent to staff, which CNBC has obtained, he stated:

"Cloud Intelligence Group is now full speed ahead on its spin-off plans and we are approaching a crucial stage of the process, so it is the right time for me to dedicate my full attention and time to the business." 

He also said:

"From a corporate governance perspective, we also need clear separation between the board and management team as Cloud Intelligence Group proceeds down the path to becoming an independent public company. It would be inappropriate for me to continue serving as Chairman and CEO of both companies at the same time during the spin-off process."

During premarket trading, BABA shares in New York were down 2% on the surprise shakeup. Shares are back to 2016 levels, plunging 80% since late 2020, primarily due to Beijing's crackdown on tech. Shares have yet to rally from depressed levels as the e-commerce giant hemorrhages market share and struggles to revive growth after the world's second-largest economy reopened earlier this year. 

surprise shakeup at alibaba as ceo steps down moves to cloud unit

Here's what Wall Street analysts are saying about the exec shakeup (list courtesy of Bloomberg):

Vey-Sern Ling, managing director at Union Bancaire Privee:

  • The appointments are positive, but "the market is not simply going to give Alibaba the benefit of doubt just because of a change in management. Investors will have to see fundamental improvements to the business." 
  • Alibaba, a proxy for China, is basically getting dragged by geopolitics and slowing economy and stiff competition in e- commerce and short-videos
  •  "Until the company can deliver growth again I think investors won't give much credit to just a management change"

Steven Leung, an executive director at UOB-Kay Hian Holdings Ltd:

  • This may hint at progress in their Group restructuring, one step forward for IPO, Leung said
  • "The cloud business is becoming more important for Alibaba, especially for the development of AI"

Catherine Lim, Bloomberg Intelligence analyst:

  • Market may react positively to the news, as "having a familiar anchor behind the highly dynamic cloud intelligence unit does bring assurance," Lim says
  •  Alibaba's appointment of a new CEO which is linked to the Taobao and Tmall Group makes sense as this unit is likely the only one, out of the six business groups, to remain 100%-owned by the listed holding company ahead

Kenny Wen, head of investment strategy at Kgi Asia Ltd:

  • "The good thing is that the new CEO and chairman are all co- founders of the company and are the closest to Jack Ma. That means Ma remains the spiritual leader of Alibaba," Wen says
  • The top management change should be a market-neutral event as it doesn't look like Alibaba's strategy will have major changes

Willer Chen, senior research analyst at Forsyth Barr Asia:

  • The move brings "old Alibaba management back to stage again," while the cloud unit has a veteran back, Chen said
  •  It's still uncertain whether it is a good thing for Alibaba given the key should now be new growth drivers and the restructuring plan: Chen

While investors are betting on a new tech renaissance because of the proliferation of artificial intelligence, China is continuing its crackdown on its tech giants and spooking management. 

And remember, SoftBank announced plans months ago to sell most of its Alibaba shares. 

Authored by Tyler Durden via ZeroHedge June 20th 2023