Alibaba shares slide 4% after former CEO quits cloud unit

Alibaba share price: The Hong Kong-listed shares of China's Alibaba Group (9988.HK) fell more than 4 per cent on Monday after the surprise departure of former CEO Daniel Zhang from the technology giant's cloud computing business. Alibaba announced Zhang's decision to depart the unit in an internal letter to staff seen by Reuters, with co-founder Eddie Wu becoming the unit's acting CEO and chairman. Zhang also handed over the role of group CEO to Wu on Sunday as scheduled.

The unit is China's largest cloud provider with a 34 per cent share of the market, research consultancy Canalys said in June. It also houses DAMO Academy, Alibaba's research arm for chips and artificial intelligence, and is set to be spun off from Alibaba by May next year as part of the group's restructuring. Zhang had previously been concurrently heading the group as well as the cloud intelligence unit, and the company announced in June that he would leave his group roles to wholly focus on the cloud business.

Li Chengdong, head of e-commerce focused, Beijing-based Haitun think tank, said Zhang's departure looked like a personal decision and came as Alibaba Cloud faces growing competition from state-owned telecom companies and Huawei Technologies (HWT.UL), as well as a tighter regulatory environment. "Alibaba Cloud has lost some ground with government and state-owned enterprise clients, which were previously a stronghold for the company," Li said. "During his leadership tenure, Alibaba Cloud's business did not improve significantly despite his efforts. Zhang likely realised that the challenges facing Alibaba Cloud's lacklustre growth were beyond what he could influence or control as an individual executive."

Li said he did not see Zhang's departure as having much impact on Alibaba Cloud's listing plans as it would ultimately depend on the unit's business performance. Alibaba said it would continue to execute the spin-off plan under a separate, to-be-appointed management team. Vey-Sern Ling, managing director at Union Bancaire Privee, said he viewed the development as positive as it would allow Alibaba and the cloud business to start from a "clean slate".

Regarding the share price, he noted that macro and geopolitical concerns over China also weighed. Alibaba said in its letter that Zhang will continue to contribute to Alibaba by "channelling his expertise differently," and that it will invest $1 billion into a technology fund that Zhang would establish. Alibaba also gave Zhang an "emeritus" title, a first in its history.

Analysts have estimated the cloud unit to be worth $41 billion to $60 billion but have said the reams of data it oversees could put it in the crosshairs of regulators at home and abroad. Alibaba's stock fell as much as 4.4 per cent to HK$86.85, its lowest since Aug. 23.