Alibaba ex-CEO's cloud unit exit followed by 4% fall in shares

After Daniel Zhang, the former CEO of China's Alibaba Group, abruptly left the company's cloud computing division on Monday, the company's Hong Kong-listed shares dropped more than 4%.

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 part of the restructuring of the company, it also contains DAMO Academy, Alibaba's research division for chips and AI, which is scheduled to be spun off from Alibaba by May of next year.

Zhang had previously been running both the company and the cloud intelligence section simultaneously, and the company stated in June that he would step down from those positions to concentrate only on the cloud business.

Li Chengdong, president 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 rivalry from China's 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 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 believes Zhang's departure will not significantly impact Alibaba Cloud's listing plans, as it will depend on the unit's business performance, and Alibaba will continue to execute the spin-off plan under a separate management team.

Union Bancaire Privee's managing director, Vey-Sern Ling, viewed the move as positive as it would allow Alibaba and the cloud business to start from a "clean slate" and noted macro and geopolitical concerns over China.

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 an "emeritus" title from Alibaba, for the first time 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.