Alibaba Stock Falls after Announcing Leadership Changes: Key Takeaways

Alibaba (NYSE: BABA) stock is trading lower in US premarket price action today after it announced leadership changes. The company had previously reorganized its business into six business units in March.

BABA has now said that Daniel Zhang, who is the current CEO and chairman of Alibaba Holdings – the parent company of the conglomerate – would step down in September.

The company has bifurcated the roles and Joseph C. Tsai, who’s currently Executive Vice Chairman of Alibaba Holdings would become the chairman while Eddie Yongming Wu who’s currently the Chairman of Taobao and Tmall Group would become the CEO.

Alibaba Announces Leadership Changes

Notably, when Alibaba announced the business reorganization in March, Zhang also took over as the CEO of Cloud Intelligence Group along with his position as the CEO and chairman of Alibaba Holdings.

The move highlighted the importance of the Cloud segment for BABA – which also happens to house its AI business.

Alibaba is progressing with its AI efforts and recently unveiled its ChatGPT-like generative AI service for public testing.

Zhang Would Remain the CEO of the Cloud business

Meanwhile, Zhang would remain the CEO of the cloud business. In his prepared remarks, Zhang said, “Looking ahead, I am committed to strengthening Alibaba Cloud Intelligence Group’s market leadership by making cloud computing and artificial intelligence more accessible for businesses of all sizes and industries as they continue their digital transformation.”

The company is pushing for a spinoff of the Cloud group. In an internal employee memo seen by CNBC, Zhang said, “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 added, “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.”

Zhang became Alibaba’s CEO in 2015

Zhang became Alibaba’s CEO in 2015 and took over as the chairman in 2019. The stock’s price action under Zhang has been mixed. It hit an all-time high in 2020 ahead of Ant Financial’s proposed listing.

However, as things stand out, China blocked the IPO which was followed by the dreaded tech crackdown. Alibaba was among the tech giants that China targeted in the tech crackdown. The company eventually paid a record $2.8 billion fine in China to settle the antitrust case.

Last year, BABA stock hit its all-time low amid China’s controversial zero-COVID policy and the rising US-China tensions.

Many US fund managers now find Chinese stocks “uninvestable” after the tech crackdown. Cathie Wood of ARK Invest is among those who sold off Chinese stocks in 2021 amid the tech crackdown.

Alibaba intends to create shareholder value

When Alibaba announced the business reorganization, it said that the move would help “unlock value” for stockholders. Markets reacted positively to the reorganization and BABA stock soared after the announcement.

However, after the initial bump, BABA stock has now pared gains and is almost flat this year. It won’t be prudent to single out the company though as Chinese stocks in general have underperformed markets amid slowing economic recovery.

The Hang Seng Index is in the red this year even as the Nasdaq 100 has gained around 39%.

Analysts on Alibaba management changes

Analysts don’t see the management changes having a major impact on BABA stock. Vey-Sern Ling, managing director at Union Bancaire Privee said, “Alibaba is basically a China proxy so it is dragged down by geopolitics and China’s economy. In addition, it is facing stiff competition from other e-commerce platforms as well as short-videos.”

Ling added, “Until the company can deliver growth again, I think investors won’t give much credit to just a management change.”

Notably, Alibaba’s growth has stalled and in the March quarter, its revenues rose only 2% YoY. The company has also been losing market share in China.

Kenny Wen, head of investment strategy at KGI Asia Ltd said “I don’t think the management change signals a big strategy change” – pointing to the closeness between the new leaders and Jack Ma.

BABA stock is trading lower today

While Ma has quit as the company’s chairman, he is still the largest stockholder. Notably, Ma – who has spent most of the last years overseas – reappeared in China ahead of the business reorganization.

Meanwhile, BABA stock is trading lower in US premarkets today and closed 1.5% lower in Hong Kong price action. The price action is in line with the Hang Seng Index which lost 1.5% – corroborating the view that the management shakeup is a non-event for the markets – at least for now.