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Source: Time Weekly Author: Yang Lingling

Almost one year after taking over as CEO of Alibaba Group (09988.HK; BABA.NYSE), Wu Yongming has delivered a new performance report.

On the evening of August 15, Alibaba announced its first quarter results for fiscal year 2025 (the natural year is the second quarter of 2024) ending June 30. In this quarter, Alibaba achieved revenue of 243.236 billion yuan, a year-on-year increase of 4%; non-GAAP net profit fell 9% year-on-year to 40.691 billion yuan.

Source: Announcement of listed companies

In June last year, Alibaba announced that Zhang Yong would step down as chairman of the board and CEO of the group in September. The original positions would be handed over to Joseph Tsai and Wu Yongming respectively, and the handover between the old and new leadership teams would be completed in September.

In the following months, Wu Yongming gradually moved into the power center of Alibaba, serving as the director and CEO of Alibaba Group, chairman and CEO of Taotian, and chairman and CEO of Intelligent Cloud Group, and drawing up a strategic blueprint for the next 10 years.

Under the leadership of Wu Yongming, young people born in the 1980s took up important management positions, and Alibaba's various businesses also entered a new operating track: e-commerce and cloud exchanged investment for growth, and they remained the core growth engines of the group; at the same time, cloud no longer promoted a complete split, Hema suspended its IPO plan, and Cainiao also withdrew its listing application.

Today, the transformation is halfway through. After a year of adjustment, Alibaba's six business segments, except for Taobao, Cloud, Cainiao, Alibaba International, Local Life, Big Entertainment and All Others, are rapidly moving towards reducing losses or even making profits.

Wu Yongming commented on the second quarter performance in the earnings call: "This quarter's performance shows that our strategy is working." Wu Yongming believes that Taotian Group's business has returned to the growth track and the cloud computing business revenue has achieved positive growth momentum.

Behind this is the urgent need for Alibaba, which is "starting a new business", to prove the feasibility of its strategy with data and facts, but this is not something that can be achieved immediately. Alibaba's management expects that the situation of "increasing revenue but not increasing profits" will continue for several quarters. "We estimate that most businesses will gradually achieve break-even within 1-2 years and gradually begin to contribute to scale profitability," said Xu Hong, CFO of Alibaba Group.

E-commerce trades investment for growth

The e-commerce business is known as Alibaba’s “money bag” and is also one of the focuses of Wu Yongming’s reform.

In the second quarter, Taotian Group's revenue fell 1% year-on-year to 113.373 billion yuan, accounting for about 47% of total revenue; adjusted EBITA was 48.810 billion yuan, down 1% year-on-year.

"For Taobao and Tmall, the current priority is to enhance users' purchasing experience, thereby driving up users' purchase frequency and GMV. Once the market share is initially stabilized, we will begin to accelerate measures to increase monetization and commercialization starting from this quarter," said Wu Yongming.

At the end of last year, Wu Yongming replaced Dai Shan as the CEO of Taotian Group and quickly made a major change in the core management team. After the adjustment, the new team of Taotian Group was almost entirely composed of people born in the 1980s.

Afterwards, Wu Yongming set the tone for Taotian in the earnings call: 2024 will be a year for Taotian Group to enhance its comprehensive capabilities, and it will also be a big year for investment.

Alibaba founder Jack Ma also made a judgment on the development of e-commerce in an internal letter, "E-commerce in three years will definitely not be the most popular e-commerce today... What is important is not who to catch up with today, but to think about how e-commerce should improve consumer experience tomorrow."

In the past few months, Taotian has increased its investment in user experience, launched pay-later and refund-only functions, increased subsidies by tens of billions, promoted free shipping in Xinjiang and delivery to villages, and was the first to cancel pre-sales on 618.

Image source: Tuchong Creative

After 618, Taotian also took frequent actions.

First, Taobao Live changed its leader. Cheng Daofang was transferred from the head of Taobao Live and Content Division. The Times Weekly reporter learned that in early July, an Alibaba insider received a notice that the Content E-commerce Division would report to Wu Jia, the head of Taobao User Platform Division and Alimama Division. In mid-July, there was news that the Taobao Live and Content Division would be concurrently headed by Jia Luo, the head of Tmall Division.

Taotian Group is also re-examining its low-price strategy. It is reported that Taotian Group held a closed-door meeting with important merchants not long ago to clarify a number of strategic adjustments to be implemented in the second half of the year. The most important change is that the system of allocating search weights based on "five-star price power" has been weakened since last year and has been changed back to allocation based on GMV.

Specifically in terms of business indicators, this year Taobao's assessment focus has shifted to GMV (transaction amount) and AAC (average consumption amount), and no longer pursues high DAC (order volume) brought by low prices.

The international business segment, including international retail businesses such as Lazada, AliExpress, Trendyol and Daraz, and international wholesale businesses such as the International Station, saw revenue increase by 32% year-on-year to 29.293 billion yuan, accounting for approximately 12% of total revenue.

Running fast is closely related to spending money madly. Alibaba International's losses widened to 3.706 billion yuan in the second quarter, compared with 420 million yuan in the same period last year. Alibaba said the main reason was the increased investment in user experience (thereby improving consumer retention and purchase frequency) and technological infrastructure.

However, Lazada recorded a positive EBITDA (earnings before interest, taxes, depreciation and amortization) in July and achieved profitability. An analyst asked in the earnings call, "Lazada has already started to make a profit, does AliExpress have a specific time to make a profit?" In response, Jiang Fan, CEO of International Digital Commerce Group, said, "In the next few quarters, we will continue to work hard to improve efficiency, promote high-quality growth, and strive to achieve profitability as soon as possible."

Alibaba CloudIncrease incomeagainIncrease Profit

Cloud business is also one of Wu Yongming's focuses. Now, after a period of slow growth, Alibaba's investment in AI has begun to bear fruit.

According to Alibaba's latest quarterly report, Alibaba Cloud's revenue was 26.549 billion yuan, a year-on-year increase of 6%. Alibaba explained that this was driven by double-digit growth in public cloud business and increased adoption of AI-related products.

Image source: Tuchong Creative

Alibaba Cloud was founded in 2009. The birth of Alibaba Cloud is somewhat similar to that of AWS (Amazon's cloud platform), both of which were born out of huge business empires.

Looking through the cloud computing white papers released by the China Academy of Information and Communications Technology in the past three years, it can be seen that from 2021 to 2023, the market share of Alibaba Cloud and Tencent Cloud in China's public cloud laaS market will drop significantly, especially Alibaba Cloud, which will drop from 34.3% to 21.31%; the share of operator cloud market will soar, with mobile cloud increasing from 8.4% in 2021 to 12.83% in 2023, ranking third.

Alibaba Cloud, which is under pressure, urgently needs to widen the gap with its competitors. After Wu Yongming took office as CEO of Cloud Intelligence Group, he quickly made judgments and choices on the strategic direction, determined that Alibaba Cloud will implement an AI-driven, public cloud-first strategy in the next five years, and made drastic adjustments to the business management team.

In November last year, Alibaba Cloud established a dedicated public cloud business division, headed by Liu Weiguang, and a hybrid cloud business division, headed by Li Jin. Together with the overseas business division previously headed by Yuan Qian, the heads of the above three divisions all report to Wu Yongming.

In February this year, Alibaba Cloud announced its largest price cut in history, with the official website prices of more than 100 products and more than 500 product specifications reduced by an average of 20%, with the highest reduction of 55%. In April, Alibaba Cloud further expanded its price reduction measures to overseas public cloud products.

Wu Yongming made a bold statement in the earnings call in May that Alibaba Cloud's commercial revenue (excluding customers within the group) will return to double-digit growth in the second half of fiscal year 2025 (October 2024 to March 2025).

In June, Alibaba Cloud released the open source model Qwen2-72B, and the number of paying users using Alibaba Cloud's AI platform Bailian increased by more than 200% month-on-month. In addition, at the Paris Olympics, more than two-thirds of the Olympic TV and online live broadcast signals were distributed globally based on Alibaba Cloud.

During the earnings call, Wu Yongming further stated that customers have a strong demand for AI and related products, and this demand is still far from being met.

"Judging from the order situation, the trend of double-digit growth in external customer revenue in the second half of the fiscal year is already very clear. Specifically in terms of the contribution of AI product revenue, most of the growth is expected to be driven by AI products. At present, the demand for traditional CPU-based cloud computing is relatively limited, while the development of GPU-based AI products is growing rapidly. Therefore, more than half of the future revenue growth may come from the promotion of AI products." Wu Yongming said.

In this quarter, Alibaba Cloud's adjusted EBITA was 2.337 billion yuan, an increase of 155% from 916 million yuan in the same period of 2023, mainly due to Alibaba Cloud's focus on public cloud, improved product structure and enhanced operational efficiency.

Recently, when answering questions from analysts, Wu Yongming once again mentioned that although macroeconomic conditions may lead to a slowdown in corporate demand in some industries, Alibaba has not seen this in its cloud business. "On the contrary, our cloud customers, especially those that rely on digitalization, have significantly increased their AI budgets this year."

Where will Alibaba go?

The past year has been a turning point for Ali.

In March last year, Alibaba launched its largest organizational change in its 24 years of existence, splitting the Alibaba Group into “1+6+N”: 1 holding group, 6 business groups and N business companies.

With the implementation of the reform, retired veterans such as Joseph Tsai, Wu Yongming, Tong Wenhong, Peng Lei, and Wang Jian returned to the business group. By September 2023, power will be further concentrated in the hands of Alibaba's "Eighteen Arhats", with Joseph Tsai taking over as chairman of the board of directors of Alibaba Group and Wu Yongming as CEO. At the same time, Wu Yongming will also serve as chairman and CEO of Cloud Intelligence Group.

When Wu Yongming first took office, he clearly defined the two major focuses of "user first, AI-driven". Immediately afterwards, Wu Yongming disclosed the new strategic blueprint to the outside world, defining Alibaba's important priorities for the next 10 years as three directions: technology-driven Internet platform business, AI-driven technology business, and global business network.

At the end of November last year, Alibaba's market value was surpassed by Pinduoduo for the first time. The management learned from the pain and took a series of counter-measures internally. By the end of the year, the power center of Alibaba moved closer to Wu Yongming, who took over the position of CEO of Taotian Group and shouldered the responsibility of CEO of Alibaba Group, Taotian Group and Alibaba Cloud Intelligence Group.

In this process, the number of Alibaba employees continued to shrink. A reporter from the Times Weekly found that by the end of September 2023, Alibaba had 224,955 employees. By the end of June 2024, the number of Alibaba employees had dropped to 198,162, a reduction of 26,793 employees in just one year.

Image source: Tuchong Creative

After a series of cost reduction and efficiency improvement and reform adjustments, Alibaba's performance has also rebounded. According to the financial report, from the third quarter of 2023 to the second quarter of 2024, Alibaba's revenue was 224.791 billion yuan, 260.348 billion yuan, 221.874 billion yuan, and 243.236 billion yuan, respectively, up 9%, 5%, 7%, and 4% year-on-year.

The latest financial report shows that in this quarter, except for Taobao, the six major business segments including Cloud, Cainiao, Alibaba International, Local Life, Big Entertainment and All Others all achieved positive growth.

In the earnings call, Xu Hong said, "It is expected that capital expenditures will continue to remain at a high level in the next few quarters." Alibaba is still in the process of turning around, with the focus on defending the e-commerce base, competing in the cloud market, and expanding overseas business, in exchange for strategic growth with high investment.

"Ali today is facing rapidly developing new technologies and new changes and new expectations in the market. No matter how successful we have been in the past, we must turn the page and start from scratch to awaken the mentality of starting a business again," Wu Yongming once said.

Today, Alibaba has taken a small step towards "re-entrepreneurship". In the future, whether Wu Yongming can lead Alibaba to create another Alibaba remains to be seen.