Instructions:

Read the following case. Conduct a thorough analysis with your group members to answer the questions at the end of it$.$ Submit the answers before the deadline.

Alibaba was once a Wall Street darling.

After plunging $75\%$ over three years, what$$s next?

By Evelyn Cheng & Arjun Kharpal

THU, JAN $420249$:$23$ AM EST

gettyimages$-$alibaba$-$sign

KEY POINTS

Scrapped cloud IPO plans and a management shake$-$up in the last year reflect bigger problems for a company that has served as a bellwether for foreign investors in China. As Alibaba's stock price has plunged to below $$77,$ down from more than $$300$ a share in $2020,$ a lot of questions are raised.

BEIJING $$ It$$s been a tumultuous $12$ months for Alibaba, casting doubt on the future of the tech giant just as artificial intelligence is taking off. The company$$s cloud computing unit was poised to capture AI$$s growth for investors in a public listing, until Alibaba pulled those plans in November. The group$$s U$.$S$.$ market value fell below that of e$-$commerce rival PDD Holdings $($Pinduoduo$),$ signaling struggles in the industry that had propelled Alibaba onto the global stage with the world$$s largest IPO in $2014.$

On the political front, Alibaba was a poster child for China$$s crackdown on internet tech companies $$ receiving a record fine of $$2\mathrm{.}8$ billion for alleged monopolistic behavior in $2021.$ Slowing economic growth hasn$$t helped its business either. But the scrapped cloud IPO plans and management shake$-$up in the last year reflect bigger problems for a company that has served as a bellwether for foreign investors in China. Alibaba$$s stock has plunged to below $$77$ a share, down by $75\%$ from more than $$300$ in $2020.$

$$I think there are some deep internal issues. And so there must now be $...$ a clear internal fight between how they$$re going to get out of this because they$$re really slipping,$$ said Duncan Clark, an early advisor to Alibaba and now chairman of Beijing$-$based investment advisor BDA. $$The core to me is their eroding market position, what they are doing in terms of video, livestream and how they respond to Douyin, plus how they manage all these disparate groups and all the management turmoil,$$ Clark said. $$It$$s a mess basically.$$ Douyin, the domestic Chinese version of ByteDance$$s TikTok, has taken off in China as a platform for the surging livestream sales industry. Chinese consumers, who are increasingly hunting for bargains, have also turned to bargain hunting on Pinduoduo.

Founded in $1999$ by Jack Ma$,$ Alibaba is a far older company than ByteDance or PDD$.$Personnel$-$wise there are people that are leaving the company, they may feel the company is so big and bureaucratic, that is a reality,$$ said Brian Wong, former Alibaba Group vice president and author of $$The Tao of Alibaba,$$ published in November $2022.$

Management shake$-$up centered on cloud

Plans for the now$-$scrapped cloud initial public offering emerged after Alibaba Group announced a massive corporate structure overhaul in March, followed by several cloud$-$related management changes.

Eddie Wu became CEO of Alibaba in September, and is also acting head of the cloud business. He succeeded Trudy Dai as head of the Taobao and Tmall e$-$commerce business in December.

Daniel Zhang, the prior CEO of Alibaba Group who became acting head of cloud in December $2022,$ was supposed to stay on to lead the business unit but unexpectedly quit in September last year. Zhang$$s departure $$speaks to some mismanagement on the cloud side, which is very important because they were dangling that as the symbol really of their restructuring,$$ Clark said.

The canceled cloud IPO plans $$ like the abrupt suspension of Alibaba$-$affiliate Ant Group$$s IPO in $2020$ means employees won$$t be able to cash out on lucrative shares. $$The whole mechanism of incentives is broken down,$$ Clark said. $$Are they too big? That was the charge from the government before, but now the question is are they nimble enough, are they able to compete enough in the marketplace?$$ he said. Clark also wrote $$Alibaba: The House That Jack Ma Built,$$ published in $2016.$

Cloud competition from Huawei

Alibaba has been an industry leader in the cloud business. The company remained the largest player in China$$s cloud market in the third quarter, followed by Huawei and Tencent, according to Canalys. But the research firm $($Canalys$)$ predicted that Huawei$$s market share will gradually increase, said analyst Yi Zhang.

She pointed out the telecommunications company started in $2022$ to focus on improving its engagement with business partners $$ via a strategy of developing an ecosystem of experts and developers. In contrast, she said Alibaba$$s and Tencent$$s cloud units only started pursuing a similar strategy in $2023.$

Such an approach can pay off in a slowing cloud services market that Canalys said is $$relying heavily on government and state$-$owned enterprise