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In late March, Alibaba (BABA) announced a game-changing reorganization plan that would break the company up into individual business groups, each with its own IPO, in BABA's mission to unlock the value of its various operating segments. This morning, the company seemingly took the next step forward in executing that initiative after announcing a major shake-up at the top that will see Joseph Tsai, Executive Chairman, succeed Daniel Zhang as Chairman of the company. Additionally, Eddie Wu, who currently serves as Chairman of Taobao and Tmall Group, will replace Mr. Zhang as CEO, who will stay on board to lead BABA's Cloud Intelligence segment.

• This reconfiguration may indirectly increase the influence of BABA co-founder and former CEO Jack Ma, who stepped down as executive chairman in 2019 after drawing the ire of Chinese regulators while his company became the primary target in President Xi's crackdown on anti-competitive practices.
  • Tsai's and Ma's history together goes all the way back to earliest days of BABA when they co-founded the company in 1999. Likewise, Mr. Wu also helped launch BABA and initially acted as the company's technology director.
• The elevation of Tsai and Wu signal that Ma's plan to split up the company into individual businesses could be accelerating. Once the spin-offs are complete -- which BABA estimates will occur within the next twelve months -- there will be six separate companies: Cloud Intelligence Group, Taobao Tmall Business Group, Local Services Business Group, Global Digital, Cainiao Smart Logistics, and Digital Media and Entertainment.
• Ever since the PRC government began its regulatory crackdown, BABA's growth and financial results have greatly suffered. As BABA's dominance in the Chinese e-commerce market eroded, the door was opened for smaller competitors to grab market share.
  • Companies like JD.com (JD) and PDD Holdings (PDD) flourished as BABA's struggles intensified.
  • Over the past three quarters, BABA's top-line growth has slipped to low-single-digit levels, while its e-commerce gross merchandise volume has declined for four consecutive quarters. Even the company's Cloud business, which was growing rapidly a couple of years ago, is experiencing a huge slowdown in growth with 4Q23 revenue down by 3%.
• By splitting the company up, the hope is that each business will be able to focus more intently on its specific growth opportunities. Furthermore, the regulatory overhangs should be removed after BABA completes the spin-offs, potentially enabling the businesses to be more fairly valued.

The main takeaway is that the leadership transition may be a precursor to BABA carrying out its reorganization plan, but the announcement isn't helping to brighten the gloomy sentiment on the stock as the company's market share losses and sliding growth rates are still the driving force at this point.