Alibaba’s Stock Stumbles as CEO Resigns from Cloud Leadership, Cloud Division’s IPO Future Uncertain

Losses on Chinese technology company Alibaba’s stock reached about 4% on Monday, following the company’s surprise announcement that its outgoing CEO, Daniel Zhang, will step down from his position as Chairman of the Board and CEO of its cloud business.

This move comes after Alibaba announced in June that Zhang would leave his positions to focus on the cloud intelligence unit.

According to analysis by “Al Arabiya Net,” the company lost approximately $10 billion of its market value as the stock dropped by 4% in the first hours of trading on the Hong Kong Stock Exchange, reaching its lowest level since August 23.

The stock recovered some of those losses during the session, dropping to 3%, the company stated in a Sunday statement to the Hong Kong Stock Exchange that Eddie Wu, who was scheduled to assume the role of CEO and director of Alibaba Group as of September, will also temporarily become Chairman of the Board and CEO of the cloud business.

Alibaba said on Sunday, “Our Board of Directors expresses deep appreciation to Mr. Zhang for his contributions to Alibaba Group over the past 16 years.”

What does this news mean for the initial public offering (IPO) of Alibaba Cloud?

In May, Alibaba also announced plans to spin off its cloud division as a separate publicly traded company.

In a major restructuring plan in March, Alibaba divided into six business units, paving the way for each unit to raise external financing and go public.

Analyst Alicia Yap of Citigroup, in a memo on Monday according to CNBC, stated that the unexpected announcement will impact Alibaba’s stock price in the short term until a new successor is named.

She noted, “Investors may be concerned about the timing and process of AliCloud’s separation.” However, Citigroup maintained a “buy” rating for Alibaba’s stock with a target price of $151, which is more than 60% higher than its current levels on the New York Stock Exchange.

She added that Citigroup will continue to monitor developments and await any new announcements, highlighting the key downside risks for the company, including the failure to execute its new strategy, as well as investment spending and margin pressures that have worsened beyond expectations.

Zhang will continue to contribute to Alibaba by “guiding his expertise differently,” according to an internal message to employees seen by Reuters, which also mentioned that Alibaba will invest $1 billion in a technology fund to be established by Zhang.

The group said, “The company will continue to execute its previously announced plan to separate Alibaba Cloud Intelligence into a separate management team to be appointed,” in accordance with the restructuring plan and related approvals.

The group is grappling with economic growth slowdown in China and stricter regulations from Beijing, leading to a loss in billions of its market value.