U.S. shares of Alibaba Group Holding Ltd. dropped Tuesday following a surprise management shake-up, but analysts view the development as a positive overall ahead of the planned spinoff of its cloud business.
Alibaba ADRs dropped as much as 5.2% to an intraday low of $87.32 in Tuesday trading. The Chinese e-commerce giant said Joseph Tsai would take over as chairman, and that Eddie Yongming Wu will become chief executive on Sept. 10. In comparison, the S&P 500 index
SPX,
was down 0.4%, and the tech-heavy Nasdaq Composite Index
COMP,
was down 0.2%
Benchmark analyst Fawne Jiang, who has a buy rating and a $180 price target on Alibaba, said that the separation of Chairman Daniel Zhang’s “role from Alibaba Group will enhance the independence” of Alibaba Cloud Intelligence Group (ACIG) from a business perspective as well as improve corporate governance.
From May: Alibaba to spin out cloud business, but stock falls after earnings report
“His exclusive focus on ACIG comes in at a critical time as Alibaba Cloud gears to revamp its growth by leveraging and riding on the global ACIG development,” Jiang noted.
Also, Loop Capital analyst Rob Sanderson, who maintained his buy rating, raised his price target to $135 from $130 on Tuesday, and said he expected “near-term choppiness” in the stock but saw the development as “a highly positive set-up as Alibaba Cloud becomes a public company within the next 12-mos.”
Alibaba announced plans to spin off its public cloud unit into its own company back in May.
“We are bullish on the Alibaba Cloud spin,” Sanderson said. “We think mechanics of the 100% distribution are highly favorable for shareholders. This is positive for realization of value from the cloud business and the likelihood of favorable structure for the other spincos.”
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