Alibaba CEO to step down to focus on cloud business in surprise leadership reshuffle

Alibaba Group said in a surprise announcement Tuesday Eddie Wu will succeed Daniel Zhang as its chief executive, a move that will free Zhang to focus on the company's cloud intelligence business.

This succession plan comes after China's largest e-commerce company said in March it will restructure its company into six business groups in the most significant reorganization in its history, aiming to reinvigorate the company after slowing economic growth in its home market and tougher Beijing regulations combined to hit its bottom line.

"As everyone is well aware, the development of core technologies such as cloud computing, big data and AI will lead to a tremendous transformation of our society and is of utmost strategic significance," Zhang said in an internal memo to Alibaba staff.

"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.

Alibaba shares pared losses after the announcement and were trading down 1% in Hong Kong on Tuesday afternoon.

The company also announced Joe Tsai will take Zhang's place as the group's chairman. Brooklyn Nets owner Tsai is currently Alibaba's executive vice chairman.

Zhang will continue to lead the Alibaba Cloud Intelligence Group as chairman and chief executive after this change, which the company said will take effect Sept. 10.

Alibaba said last month it plans to complete a full spin-off of its cloud computing unit, aiming for the division to become an independent publicly listed company within the next 12 months.

"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," Zhang said in the internal memo.

Other than cloud intelligence, the other five business units include its Taobao Tmall business; its local services arm focusing on food delivery and mapping; the Cainiao Smart logistics business; its global e-commerce business including AliExpress and Lazada; and its digital media and entertainment business.

While Taobao Tmall will remain wholly owned by Alibaba, the company said in March that the reorganization will allow each business group to be nimbler, raise outside funding and go public.

Zhang's successor Wu is one of Alibaba's co-founders and currently chairman of Taobao and Tmall Group.

Wu has held a multitude of roles in his time at the company, including heading technology at Alibaba's inception, as well as chief technology officer at Alipay and Taobao. He was also director of Alibaba Health Information Technology and founded Vision Plus Capital, a venture capital firm focused on investing in advanced technologies, enterprise services and digital health care.

Zhang has been Alibaba's chief executive since 2015 and took over from Jack Ma as chairman in 2019.

The move for Zhang to focus exclusively on the cloud business highlights the division's importance to Alibaba's future.

In an interview with CNBC in November 2018, Zhang told CNBC that cloud would become Alibaba's "main business," underscoring his bullishness on the technology.

At that time, the cloud business brought in quarterly revenue of about $825 million. In the March quarter of this year, the division raked in $2.7 billion. However, revenue growth fell 2% compared to the 90% growth rate seen in 2018.

Alibaba's cloud unit is facing increased competition in China and internationally while macro headwinds continue to hit the business.

Zhang's focus will be two-fold — getting the cloud business back to growth and moving the unit to an initial public offering.

"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," Zhang said in a memo.

Investors said the move made sense to allow Zhang to focus on the cloud strategy.

"Online retail and cloud are two very different businesses, and I don't think one person can do both and claim to be 'focused' at the same time," Tariq Dennison, wealth manager at Hong Kong-based GFM Asset Management, told CNBC via email.

"This seems to be a way for Alibaba to clarify the position of two different leaders to each focus on maximizing each of those two respective businesses."