Alibaba replaces CEO as Jack Ma confronts China slowdown

[HONG KONG] Alibaba Group Holding Ltd. named a new chief executive officer, nine months after a record initial public offering, as China's biggest e-commerce operator posted a 45 per cent increase in revenue.

Daniel Zhang will become CEO on May 10, replacing Jonathan Lu, who will remain on the board as vice chairman, the company said on Thursday. The change was announced as Alibaba's sales rose to 17.4 billion yuan (US$2.8 billion) in the three months ended March, beating analyst estimates. The stock surged pre-market.

Alibaba's market value had plunged as much as US$90 billion from a November peak amid concern about slowing economic growth and criticism from the Chinese government about its business practices. Billionaire Chairman Jack Ma elevated Zhang after the chief operating officer helped turn the Nov 11 "Singles' Day" shopping promotion into the company's biggest sales day.

"No matter how you look at it, it's not a positive thing that Jonathan had to be taken out," said Mike Clendenin, managing director of RedTech Advisors. "Perhaps Jack is sending a signal to the capital markets and the regulator that he's willing to make changes." Shares of Alibaba closed at US$80 in New York Wednesday and the stock has slumped 23 per cent this year. Shares in the September IPO were sold at US$68 apiece, raising a record US$25 billion.

"Daniel is a proven international business leader and innovator with a strong track record of delivering results," Mr Ma said in the statement. "Today's announcement reflects our commitment to continuing to develop strong leadership from within." Net income fell 49 per cent to 2.9 billion yuan, the company said.

Mr Zhang first joined Alibaba as chief financial officer of Taobao Marketplace in Aug 2007 and has been COO since since Sept 2013.

Mr Lu has been CEO for the past two years, when he replaced Mr Ma in the role, after joining Alibaba in 2000.

Alibaba is trying to diversify its businesses while simultaneously tapping more of the 557 million Chinese who access the Internet from their smartphones and tablets. Alibaba announced at least US$2.4 billion in investments the past 12 months, including a Chinese soccer team, smartphone maker and mobile application for hailing taxis.

The company's overseas strategy has seen it start e- commerce sales in Russia, Brazil and India through its AliExpress service.

Mr Ma has set a goal of getting 50 percent of sales from outside China as it expands beyond the country's urban areas.

China accounted for 80 per cent of revenue in the March quarter, rising 39 per cent from a year earlier. International sales were just 9 per cent of the company's total, Alibaba said.

As it deals with the slowing Chinese economy, Alibaba has also been battling criticism from the government. In January, a report by the State Administration for Industry & Commerce accused Alibaba of allowing merchants to operate without required business licenses, to run unauthorized stores that co- opt famous brands and to sell fake wine and handbags.

"Internally Jack Ma may think Jonathan wasn't being aggressive enough with regard to fakes and maybe Daniel will be more aggressive," Mr Clendenin said.

BLOOMBERG