Wednesday, February 28, 2024

Alibaba Shares Plunge 3% as CEO Daniel Zhang Unexpectedly Resigns From Cloud Unit

HomeStock-MarketAlibaba Shares Plunge 3% as CEO Daniel Zhang Unexpectedly Resigns From Cloud...

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In a surprise leadership shakeup, Alibaba Group announced on Sunday that CEO Daniel Zhang will be stepping down as chairman and CEO of Alibaba Cloud Intelligence, just months after stating he would be leaving his role leading Alibaba to focus on the cloud business.

Alibaba shares plunged over 3.5% on Monday morning following the news, wiping out billions in market value. The abrupt departure of Zhang from Alibaba Cloud deals a blow to the e-commerce giant’s ambitions in the competitive cloud services market.

Zhang, who has led Alibaba Group as CEO since 2015 and as chairman since 2019, was slated to hand over both roles on September 10th to incoming CEO Eddie Wu. According to Alibaba’s announcement in June, Zhang would continue leading the Alibaba Cloud Intelligence unit which he has chaired since its formation in 2022.

But this latest shakeup means Wu will now concurrently serve as interim chairman and CEO of Alibaba Cloud in addition to his new role as Alibaba Group CEO.

“The board of our Company expresses its deepest appreciation to Mr. Zhang for his contributions to Alibaba Group over the past 16 years,” Alibaba said in a statement to the Hong Kong Stock Exchange on Sunday.

Although the reasons behind Zhang’s surprise departure from the cloud unit remain unclear, analysts see it as a setback for Alibaba’s cloud computing goals amid intensifying competition with rivals like Tencent and Huawei.

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“This adds uncertainty to Alibaba’s cloud strategy at a time when the business was just gaining momentum,” said Alex Liu, tech analyst at China Investment Research. “The sudden leadership vacuum at the top of cloud intelligence is likely to slow Alibaba’s progress.”

Rapid Growth in Chinese Cloud Market

The jockeying for position in China’s booming public cloud market has been heating up in recent years. Cloud infrastructure services in China are forecast to grow from $29 billion in 2021 to $64 billion in 2026, according to market research firm Canalys.

Alibaba Cloud held the top spot with a 34% market share in 2021, trailed closely by Huawei Cloud at 20% and Tencent Cloud at 19%. But competitors have been aggressively expanding their cloud offerings in a bid to topple Alibaba from its leading perch.

“The fight for market share between Alibaba, Huawei and Tencent is intense as they build new data centers around the country to meet surging demand,” said Canalys Research Analyst Yi Zhang Wei (no relation).

Alibaba counting on cloud to drive future growth

As e-commerce growth in China slows, Alibaba has been banking on its cloud business to become the company’s main profit engine going forward.

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At a company event in May, Daniel Zhang emphasized the importance of cloud computing in powering Alibaba’s future. “Going forward, cloud computing will be the primary technology infrastructure supporting the digital transformation of businesses across all industries,” Zhang said.

Alibaba has invested heavily in expanding its cloud business in recent years, including spending $1 billion alone in 2022 to open new data centers. But stiff competition from rivals has curtailed Alibaba Cloud’s growth.

In the June quarter, Alibaba Cloud’s revenue rose 10% after posting 29% growth in the March quarter. In comparison, Huawei Cloud saw 28% revenue growth in Q2 while Tencent Cloud saw growth above 30%.

Restructuring Plan and Spin-off

The leadership change at Alibaba Cloud comes amid a major restructuring of the company’s sprawling empire into six distinct business units: China commerce, international commerce, local consumer services, Cainiao logistics, cloud computing and digital entertainment.

Alibaba said in May that it plans to spin off Alibaba Cloud into a separate public company, a move aimed at accelerating growth and attracting more investors. But Daniel Zhang’s departure casts uncertainty over the timing and execution of the proposed spin-off.

“The spin-off plan will likely be pushed back as the company reorganizes cloud leadership,” predicted Wang Xing, senior analyst at Ping An Securities. “But the new structure should allow the cloud business to raise additional capital and make swifter market-driven decisions.”

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What’s Next for Daniel Zhang and Alibaba?

Daniel Zhang, who has worked at Alibaba for over 16 years, is one of the key architects of the company’s meteoric rise into a $300 billion e-commerce behemoth. His next moves will be closely watched by investors and industry observers.

According to a leaked internal memo, Alibaba plans to invest $1 billion into a technology fund that will be led by Zhang. The company said Zhang will “continue to contribute to Alibaba by channeling his expertise differently.”

Meanwhile, Alibaba emphasized that it remains fully committed to growing its cloud business.

“The Company will continue to execute its previously announced plan to spin off Alibaba Cloud Intelligence Group under a separate management team to be appointed,” the statement said.

How incoming CEO Eddie Wu steers the ship and manages the cloud transition will be an early test of his leadership. Wu will have to contend with a slowing Chinese economy, intense competition across business lines and continued regulatory tightening by Beijing as he takes the helm of China’s e-commerce pioneer in a new era.

For more updates on this developing story and related coverage, be sure to follow our business section.

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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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