• Zhang was chairman and CEO of the Alibaba Cloud Intelligence Group since 2022, and was also concurrently Alibaba CEO since 2015 and its chairman since 2019.
• Alibaba announced in June that he would step down from his chairman and CEO posts in Alibaba Group in September, and head the cloud business

Shares of Chinese tech giant Alibaba fell 3.5% on Monday, after the company said in a surprise move that outgoing CEO Daniel Zhang will also be stepping down as chairman and CEO of its cloud business.

The move comes months after Alibaba said in June that Zhang was departing as chairman and CEO of Alibaba Group to focus on the cloud intelligence unit.

Eddie Wu, who was set to take over from Zhang as CEO and director of Alibaba Group from September, will now also be chairman and CEO of the cloud business on an interim basis, the company said in a statement to the Hong Kong exchange on Sunday.

In a surprise leadership reshuffle in June, Alibaba announced that Zhang was bowing out as both CEO and chairman on Sept. 10 to focus on the cloud intelligence business.

Co-founder Wu would become CEO and director, while another co-founder, Joseph Tsai, will be chairman from September, the e-commerce giant said at that time.

Zhang was Alibaba Group CEO since 2015 and the group chairman since 2019. He has also been chairman and CEO of the Alibaba Cloud Intelligence Group since 2022.

"The board of our Company expresses its deepest appreciation to Mr. Zhang for his contributions to Alibaba Group over the past 16 years," Alibaba said in the Sunday statement.

What it means for Alibaba Cloud IPO

In May, Alibaba also announced plans to spin off its cloud division as a separate, publicly traded company.

In a major restructuring plan in March, Alibaba split into six business groups in March, paving the way for each unit to raise outside funding and go public.

The surprise announcement will weigh on Alibaba's share price in the near term until a new successor is named, Citi analyst Alicia Yap said in note on Monday.

"Investors may be concerned that the timing and process of AliCloud's spin-off may be affected," she explained. However, she maintained a "buy" rating on Alibaba's stock and a target price of $151 — that's 67% higher that the stock's last close of $90.05 on the New York Stock exchange.

Citi will continue to monitor developments and await any new announcement, she added, citing key downside risks for the company, including a failure in executing its new retail strategy, as well as investment spend and margins pressure become worse than expected.

Zhang will continue to contribute to Alibaba by "channeling his expertise differently," according to an internal letter to staff seen by Reuters, which reportedly said Alibaba will invest $1 billion in a technology fund that Zhang would establish.

"The Company will continue to execute its previously announced plan to spin off Alibaba Cloud Intelligence Group under a separate management team to be appointed," subject to the restructuring plan and relevant approvals, Alibaba has said.

Alibaba has faced slowing economic growth at home and tougher regulation from Beijing, resulting in billions being wiped off its share price.