Alibaba's share price to take a hit as AliCloud leadership abruptly changes

As per the official announcement made on 10 September 2023, Alibaba has successfully executed its planned leadership transition. Joseph Tsai has assumed the role of chairman and Eddie Wu has taken on the responsibilities of CEO and director within the company.

What came as a surprise was the decision by Daniel Zhang to step down from his positions as chairman and CEO of Alibaba Cloud. Eddie has temporarily taken over these roles. Looking ahead, Daniel Zhang is poised to establish a technology-focused fund, supported by a substantial investment of USD1 billion from Alibaba. His goal is to foster a more robust ecosystem for Alibaba's technological endeavours.

Abrupt management change reflects badly on Alibaba

The recent change in leadership at AliCloud show signs of instability within Alibaba's organizational structure and its approach to human resources. The suddenness of the change is particularly concerning, given that Daniel Zhang only took on the roles of chairman and CEO of AliCloud three months ago. Additionally, the fact that Eddie Wu has been appointed as interim chairman and CEO suggests that Alibaba has not yet identified a permanent replacement for Daniel. This sudden and significant change in leadership could be a sign of internal disagreements over strategy or financial interests. As a result, Alibaba's stock price is likely to take a hit in the coming weeks.

Long-term thesis still intact

Nonetheless, I anticipate that the adverse effect on the stock price will only be short-lived, as Alibaba remains committed to implementing its organizational restructuring, including the planned AliCloud spin-off.

In the next 1-2 years, Alibaba's stock price will be mostly affected by its competitive position in the domestic e-commerce market. This is because the company's core business is e-commerce, and its ability to maintain or grow its market share in this highly competitive market will be a major driver of its profitability and cash flow.

To a lesser extent, corporate activities aimed at unlocking value, such as spin-offs, buybacks, and dividends, will also have some impact on the stock price. These activities can help to increase shareholder value by returning capital to shareholders or by creating new investment opportunities.

The role of Daniel Zhang, Alibaba's CEO, will have minimal significance in determining the trajectory of the stock price. While Daniel Zhang is a talented executive, his ability to influence the company's stock price is limited by factors such as the overall economic environment and the competitive landscape.

@Daily_Discussion @TigerStars