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China tech

Five things to know about Alibaba as Jack Ma hands over the reins

Chinese tech giant faces challenges as Daniel Zhang inherits chairman title

When Alibaba Group Holding founder Jack Ma announced his retirement plans a year ago, the former English teacher made it clear that he wanted to devote himself to education.   © Reuters

HONG KONG -- Jack Ma, the entrepreneur who built Alibaba Group Holding into a Chinese e-commerce powerhouse two decades ago in his apartment in Hangzhou, China, will officially hand over his chairman title to CEO Daniel Zhang on Tuesday. New York-listed Alibaba, which now has a market cap of nearly half a trillion dollars, says there will be no public events to mark the departure of the company's legendary founder. Instead, Alibaba will host an internal party to celebrate its 20th anniversary, which falls on the same date as Ma's retirement.

Much is expected in the post-Ma era. At Alibaba's 19th-anniversary celebration last year, Ma delivered his surprising retirement announcement. At the company's 18th-anniversary celebration in 2017, Ma surprised Alibaba employees by coming to the event dressed as Michael Jackson and danced along to the opening notes of his 1983 hit, "Billie Jean." It remains to be seen whether Ma -- or Zhang -- will make another surprise announcement this year, but here are five things to know as investors closely watch Alibaba's leadership transition.

What are Jack Ma's plans after Alibaba?

When the 54-year-old Ma announced his retirement plans last September, the former English teacher made it clear that he wanted to devote himself to education. "This is what I love to do," he wrote in a public letter published online. The self-made billionaire, together with eight other Chinese tycoons, founded Hupan University in Hangzhou in 2015 -- a learning institution that has now grown into one of the most powerful business networks in the country. Ma's students include chief executives from dozens of Chinese tech unicorns and the list is growing.

Meanwhile, Yunfeng Capital, a Shanghai-based private equity firm co-founded by Ma and Target Media CEO David Yu, is also hoping to cultivate the next Alibaba in the sectors of artificial intelligence, health care, logistics and finance. For many in China's tech world, Ma is commonly known as "Ma Lao Shi," or "Teacher Ma."

How has Alibaba performed during the transition period?

Although shares of Alibaba fell nearly 4% on Sept. 10 last year, the day Ma revealed his intention to retire, the company is still the darling of investors. Its stock price is up about 10% over the past 12 months. The e-commerce conglomerate also overcame China's fading growth momentum to generate revenue of 114.92 billion yuan ($16.15 billion) in the April-June quarter, up 42% from a year earlier and higher than the market consensus of 111.73 billion yuan.

"Despite macro concerns, the stronger-than-expected core commerce revenue proved that the Alibaba ecosystem is more resilient than we expected," analysts from Daiwa Capital Markets wrote in a research note on Aug. 15.

Jack Ma, left, and Alibaba Chief Executive Daniel Zhang in 2015. Alibaba's founder officially hands over his chairman title to Zhang on Tuesday   © Reuters

What challenges is the company facing?

Despite Alibaba's recent strong financial performance, concerns loom large over its long-term prosperity. "The biggest challenge facing Alibaba is how to gain more users," said Vicky Wu, an analyst in Hong Kong with brokerage firm ICBC International. While two other leading Chinese e-commerce sites backed by Tencent Holdings -- and Pinduoduo -- can take a ride on Tencent's hugely popular messaging app WeChat to attract new users, Alibaba does not have that leverage, Wu said.

To tap into less-developed regions, Alibaba has integrated its e-commerce services into Douyin, the go-to short video app for rural Chinese people. However, Douyin in recent months has also begun partnering with and other e-commerce operators. Sales from the commerce segment currently contribute to nearly all of Alibaba's revenues.

Are there additional retirements on the horizon?

Maggie Wu, Alibaba's chief financial officer, in June began overseeing strategic investments working alongside Joseph Tsai, the company's vice chairman and Ma's right-hand man. "Maggie Wu certainly appears to have been groomed to take over for Joe Tsai," said Jeffrey Towson, a professor of investment at Peking University who has studied Alibaba for years. Towson and others say the recent management shuffle followed the same pattern of how Wu replaced Tsai to be Alibaba's CFO, indicating that the company is laying the ground work for Tsai's departure.

It is unlikely to be an immediate exit, though, according to a venture capitalist who is familiar with the company's thinking. "If two top guys all leave at the same time, wouldn't investors get worried?" this person said.

What are the company's global plans now that its high-profile ambassador is departing?

Although most of the company's income comes from the domestic market, "globalization has always been Alibaba's long-term strategy," said Zhang in his 2018 letter to shareholders. Indeed, the Hangzhou-headquartered company with some 103,000 employees around the world operates data centers in 10 countries outside China and has expanded its logistics networks to Southeast Asia and Europe. But it remains unclear how Alibaba will navigate through growing trade protectionism and geopolitical tensions at the time when Ma -- its public face and best-known ambassador to the world -- is leaving his post.

While Alibaba has a "very good" team, Ma's retirement will cast a shadow over the company's overseas ambition, said Shaun Rein, a managing director of Shanghai consultancy China Market Research. "He has got the charisma to call the CEO of a big company in America and say, 'Let's sit down and talk.' I'm not sure that people want to meet Daniel Zhang in the same way they want to meet Jack Ma," Rein said.

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