Investors Miss The Big Picture On Alibaba Shakeup

Talk about falling out of favor. Alibaba’s news today that its chair and CEO Daniel Zhang would step down so he can focus on the spinoff of Alibaba’s cloud unit—which he will continue to run—sent the company’s shares down 4.5%. That makes little sense on a number of levels. For one thing, as we wrote last year, there have long been questions about whether Zhang was the right person to run Alibaba. The fact that two longtime Alibaba folks, Joe Tsai as chair and Eddie Wu as CEO, have succeeded him should be good news for critics.

At the same time, Zhang’s departure should remind investors that Alibaba is getting broken up—creating a once-in-a-generation investment opportunity. Can you think of a conglomerate that got carved up into its constituent pieces without leaving its shareholders better off as a result? It’s no secret that conglomerates tend to depress value, either because the different pieces can’t perform to their full potential while governed within a bigger company, or because investors can’t grasp the full potential. Or maybe both. And yet Alibaba shares, after today’s sell-off, are now close to where they were trading before the breakup plan was announced in March.