Alibaba Group's (BABA) U.S.-listed shares on Tuesday moved lower after the China-based e-commerce giant said Chairman and CEO Daniel Zhang would step down from his dual role to focus on the group's cloud division.
Alibaba's cloud unit, Asia's largest, is likely the most valuable of the six divisions that currently comprise the internet giant. Earlier this year, Alibaba unveiled plans to split each division into a separate company, with plans to pursue individual IPOs "when they are ready."
Zhang, who has lead Alibaba since 2015, will be succeeded at the head of the group by Taobao and Tmall Group Chairman Eddie Yongming Wu. The chairman's role will be taken on by Joseph Tsai, a long-time ally of Co-Founder Jack Ma. The transitions will take place on Sept. 10, Alibaba said.
"From a corporate governance perspective, we also need clear separation between the board and management team as the Cloud Intelligence Group proceeds down the path to becoming an independent public company," Zhang told Alibaba employees in a memo reported by Reuters.
"It would be inappropriate for me to continue serving as chairman and CEO of both companies at the same time during the spinoff process."
Alibaba shares were marked 4.1% lower in early Tuesday trading to change hands at $88.31 each.
Alibaba Cloud Division's Change in Tack
Alibaba's Cloud Intelligence Group contributed around 10% of the company's total revenue last quarter, even as its top line fell 2% from a year earlier to just over $2.7 billion.
Softer corporate spending trends in China, owing in part to its uneven post-Covid recovery, forced a change in tack for the cloud division heading into the summer months. A price-reduction plan, focused on acquiring new users, will likely accelerate its scale expansion while eroding the group's margin expansion.
A full spinoff, paid through a stock dividend to existing Alibaba shareholders once the group is listed, is expected sometime in the next 12 months.
"Cloud intelligence business model, customer profile, and the stage of development are fundamentally different from the other consumer-focused businesses in Alibaba ecosystem," Zhang told investors on a conference call last month. "Full independence will allow cloud intelligence to further sharpen its business strategy and optimize its operations and organization."
The decision to split the broader group into separate business units follows the Chinese authorities' move to loosen their grip on the broader tech and business sectors in the world's second-largest economy, as the country seeks to reignite growth following three years of lockdown orders.
Earlier this year, Guo Shuqing, a Chinese Communist Party secretary of the People's Bank of China, said the country's two-year investigation into the tech sector would be "normalized" over the coming months.
Support will be provided to those companies prepared to play a bigger role in creating domestic jobs as the economy attempts to recover from its long covid-era pullback, the executive said.
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