INTERNATIONAL BUSINESS

Alibaba Names New Chief Executive and Reports Revenue Rise

By PAUL MOZUR
Alibaba’s chief executive, Jonathan Lu, left, will be succeeded by its chief operating officer, Daniel Zhang, on Sunday. The company founder, Jack Ma, has expressed concern about inefficiency. Aly Song/Reuters 
HONG KONG — Before Alibaba raised $25 billion in an initial public offering last year, its founder, Jack Ma, said he did not care much about share prices.
On Thursday, Mr. Ma made it clear he was not too worried about shaking things up, either, replacing the company’s chief executive just days after airing concerns about efficiency.
In the surprise leadership change, Mr. Ma picked Daniel Zhang, who has been at Alibaba for eight years, to lead one of the world’s largest Internet companies. Mr. Ma, in a letter to employees, portrayed the replacement of the chief executive, Jonathan Lu, as a sort of changing of the guard.
”Alibaba Group is ready to completely hand over management leadership to those of you who were born in the ’70s,” Mr. Ma wrote, adding that several other experienced Alibaba leaders would give up some day-to-day control to allow younger executives to rise.
When Mr. Ma stepped aside from the chief executive role two years ago, he emphasized that he had grown too old to run a technology company. In his letter, he said the company’s recent efforts had helped a new generation shine. More than 95 percent of the management team was born in the ’70s and ’80s, he noted.
Mr. Zhang, who was born in 1972, has become well known among employees at Alibaba for his public speaking and charisma. Leading Alibaba’s investment call on Thursday, Mr. Zhang’s polished English underlined the divide between himself and Mr. Ma, who, though once an English teacher, speaks a more unorthodox, self-taught brand of the language. Within Alibaba, there is admiration for Mr. Zhang’s cosmopolitan management style, in part honed during stints early in his career at Arthur Andersen and PricewaterhouseCoopers.
Mr. Lu, who is only a few years older than his replacement, is scheduled to step down as chief executive on Sunday, exactly two years after he took over from Mr. Ma. At the time of his ascent, he was portrayed as a utility player who would help the ballooning start-up manage its rapid growth. Mr. Lu will remain on the board.
To many Alibaba employees, Mr. Zhang, who led the rise of the company’s Tmall shopping site, is known as one of the most capable of the new generation of leaders.
Mr. Zhang will need all the youthful energy he can manage to steer an e-commerce goliath that employs more than 30,000 people across the globe. He will very likely move quickly to address company inefficiencies that Mr. Ma identified last week in a speech to employees in Beijing.
During the speech, Mr. Ma said the company would strive not to have a net growth in employees over the coming year. Instead, he said, Alibaba will work to transfer employees between departments and use technology to smooth operations.
Alibaba’s shares fell in recent months as Alibaba became involved in a public spat with a Chinese regulator over fake items on its shopping sites. It also missed revenue targets last quarter.
But on Thursday, the company’s stock rose after the news of the leadership shake-up and the release of the retailer’s earnings.
In an earnings statement, Alibaba said that in the quarter that ended March 31, its net profit was $463 million, down 49 percent from the same period a year earlier and below analyst forecasts. Alibaba’s revenue rose to $2.8 billion, compared with a year earlier, roughly in line with the consensus analyst estimate.
Though analysts generally agree that Alibaba’s long-term growth potential still lives up to the hopes that surrounded its listing last year, many have become more cautious about how much the company can increase earnings in the coming months. One issue, they say, is that Alibaba makes less money from advertising on smartphones than it does on computers, yet more of its traffic comes via phones.
Alibaba also reported a net profit of $1.2 billion using figures derived from nonstandard accounting rules, a rise of 16 percent from a year earlier. The figures leave out items like special payments to employees after its offering in September, and are meant to be a closer approximation of future profits.
Since then, Alibaba’s e-commerce business has continued to add revenue. But it has struggled with the less straightforward business of keeping investors happy. Shares have steadily receded from a November peak of $119.15 toward the company’s listing price of $68. The shares closed Thursday at $86.
In part, Alibaba is suffering from the huge expectations of such a prominent and successful listing, experts say.
”The I.P.O. was clearly very fully priced; it was high but not unreasonable. But by the end of the first day of trading, a lot of the future upside was already priced into the stock,” said Bill Bishop, an independent technology investor and editor of the Sinocism China Newsletter.
For all the emphasis on the company’s share price, Alibaba’s leaders are unlikely to act like most executives, who may view their primary job as maximizing shareholder value. In his speech last week, Mr. Ma made it clear that he planned to stick to his long-held philosophy of putting shareholders behind the company’s customers and employees.
”We can’t make every analyst happy; we have to build the future,” he said. “If we were a traditional company, we would have to follow closely our stock price and what investors want. However we handle it, we would be exhausted. We need to think clearly about our first love, making it easier to do business across the world.”
Though Mr. Ma has stepped away from the day-to-day operations of Alibaba, his letter to employees and his recent speech show that he has a big hand in managing the strategic direction of the company.
Even as Alibaba focuses on managing its rapid growth, Mr. Ma will probably be watching the company’s biggest rival, Tencent. Though Alibaba’s smartphone applications attract hundreds of millions of users, Tencent’s WeChat messaging app dominates the time that people in China spend on their mobile phones.
With social networking and chat features alongside an e-commerce platform run by China’s second-largest e-commerce company, JD.com, Tencent may be able to take sales that would otherwise have gone to Alibaba, analysts say.
Mr. Zhang said on Thursday that merchants who sell on Alibaba’s platforms were likely to spend more on mobile advertising down the line. Fifty-one percent of transactions on the company’s e-commerce sites now take place on smartphones.
The CLSA analyst Elinor Leung said that even if Alibaba did lose ground to competitors, she expected e-commerce sales and Alibaba’s revenue to continue to rise as more Chinese gain access to speedier smartphones.
”I don’t see the mobile transition as a hurdle, but it is a transition,” she said. “You have to promote the Taobao and Tmall applications and spend more money on advertising, and on big data to support targeted advertising.”
Some employees at Alibaba seemed pleased by the sudden announcement of Mr. Zhang’s ascension. Several posted messages on social media accounts welcoming the shift and proclaiming that young people could have great accomplishments.
For his part, Mr. Ma welcomed the new chief executive with a joke about Mr. Zhang’s financial and accounting background.
”I am embarrassed that I used to say: ‘There’s nothing to fear but a C.F.O. pretending to be C.E.O.,’” Mr. Ma wrote, referring to a chief financial officer. “Alas, Daniel’s background was of a C.F.O., but he’s much much more.”

Reaction on Wall Street 

Graphic: Jack & Company