INTERNET: Jack Ma Still In Charge As Alibaba Changes CEO

Bottom line: Alibaba’s change of CEO shows that founder Jack Ma is still calling the shots at the company, and a rally for its shares will be short-lived before they continue a gradual downward movement back toward their IPO level.

Alibaba shifts course with new CEO

Investors nervously awaiting the release of e-commerce giant Alibaba’s (NYSE: BABA) latest quarterly results were instead greeted with the surprising news that the company has just named its third CEO in 2 years. Alibaba founder Jack Ma is spinning the story as part of a plan to hand over the running of his company to a generation of Internet-savvy youngsters born after 1970. That may be true, though I do find it somewhat ironic that the replacement of former CEO Jonathan Lu with the younger Daniel Zhang shows quite clearly who is still firmly in control at Alibaba, namely Ma himself, who is hardly a post-1970s youngster.

The CEO change comes as Alibaba announced results that were not bad but also not particularly impressive, even though they appeared to please investors who were braced for worse. The company’s stock shot up 7.5 percent after the results came out, bouncing back from lows not seen since its record-breaking $25 billion IPO last September.

We’ll look at the quarterly results shortly, but let’s begin with the surprise CEO announcement that has Jonathan Lu stepping down as CEO to take on what looks like a mostly symbolic position as vice chairman. (company announcement; English article; Chinese article) Lu himself only became Alibaba’s CEO in March 2013, in a move that Ma said at the time marked the start of his own gradual withdrawal from his company to usher in a new generation of younger leaders.

Apparently Lu wasn’t young enough. Zhang certainly has strong credentials, having joined Alibaba in 2007 as CFO of its popular C2C Taobao marketplace and quickly moving up to his current role as chief operating officer. One of his biggest successes was his development of the Singles Day shopping event each year on November 11, which has become a massive success in just a few years to rival the much older Black Friday shopping extravaganza each November in the US.

Ma put out a letter gushing about how the future of his company belongs to people like Zhang who come from a younger generation born in the 1970s and later. (Chinese letter) Of course a cynic like myself would say Lu’s sudden departure is probably for different reasons, and is most likely punishment for a scandal early this year centered on a government report showing a high rate of trafficking in pirated goods on Taobao. If that’s the case, then Zhang’s position may only be secure until the next scandal happens, at which time Ma will once again show who is really the boss at Alibaba.

All that said, we’ll close with a quick look at Alibaba’s actual earnings, which got investors excited after it said its revenue rose 45 percent in the quarter through March to 17.4 billion yuan ($2.8  billion). Profit grew at a much slower rate of 16 percent, and actually tumbled nearly 50 percent if you include a large expense related to share options. Alibaba trumpeted a large increase in mobile revenue, which more than quadrupled to account for 40 percent of the company’s China-based commerce retail revenue for the quarter.

The jump in Alibaba’s share price seems to be more a sigh of relief from investors, who were preparing for bad news after the company announced a headcount freeze last week that seemed to indicate possible trouble. (previous post) I’ll close with my usual refrain that Alibaba is a Chinese Internet leader that is relatively well run, and very good at self promotion under Jack Ma’s leadership. But that said, it still isn’t as well run as more global leaders like Amazon (Nasdaq: AMZN), even though the company is valued higher. Thus its stock is likely to continue coming down over the near term until its market value reaches levels more representative of its true market position.

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