the unexpected departure of former CEO Daniel Zhang from Alibaba Group’s cloud computing division caused shares of the company, traded on the Hong Kong Stock Exchange, to drop by more than 4%.”
Alibaba shares slide after former CEO quits: In an internal letter to colleagues obtained by Reuters, Alibaba confirmed Zhang’s intention to leave the unit, with co-founder Eddie Wu taking over as interim CEO and chairman.
Wu was officially given the position of group CEO on Sunday by Zhang.
According to research firm Canalys, with a 34% market share, the unit is China’s largest cloud provider.
“As a part of the company’s restructuring, Alibaba intends to spin off DAMO Academy, its research division for chips and artificial intelligence, by May of next year.”
Zhang had previously been running both the group and the cloud intelligence section simultaneously, and the company stated in June that he will step down from those positions to concentrate only on the cloud business.
Li Chengdong, chairman of the e-commerce-focused Haitun think tank in Beijing, said Zhang’s departure appeared to be a personal choice and occurred as Alibaba Cloud deals with tougher regulations, increased competition from state-owned telecom companies, and Huawei Technologies.
“Alibaba Cloud has lost some ground with government and state-owned enterprise clients, which were previously a stronghold for the company,” Li claimed.
“Despite his efforts, Alibaba Cloud’s company did not considerably improve during his leadership tenure. Zhang most likely concluded that as an individual CEO, he had no power or influence over the issues limiting Alibaba Cloud’s sluggish growth.
Li claimed that because Alibaba Cloud’s intentions to go public would ultimately depend on the unit’s financial success, he did not expect Zhang’s departure to have much of an influence.
“Alibaba Announces Spin-Off Plan with New Leadership Amid Share Price Concerns”
Further, “Alibaba announced its intention to proceed with the spin-off plan, selecting a different management group at a later date.”
A positive consequence, according to Vey-Sern Ling, managing director of Union Bancaire Privee, is that it will give Alibaba and the cloud business a “clean slate” to begin with.
He mentioned that macro and geopolitical worries about China also affected the share price.
In its letter, Alibaba claimed that Zhang would continue to support the company by “channelling his expertise differently” and that it would provide $1 billion to a technology fund that Zhang planned to establish.
Zhang received a “emeritus” designation from Alibaba, a first in the company’s history.
According to analysts, the cloud unit is worth between $41 billion and $60 billion, but because of the vast amounts of data it manages, it may come under scrutiny from domestic and foreign regulators.
The stock of Alibaba dropped as much as 4.4% to HK$86.85, its lowest level since August 23.