After taking over as CEO of Alibaba Group (09988.HK; BABA. NYSE) for over a year, Wu Yongming has delivered a new performance report.
On the evening of August 15th, Alibaba announced its performance for the first quarter of fiscal year 2025 (the second quarter of 2024) as of June 30th. In this quarter, Alibaba achieved a revenue of 243.236 billion yuan, a year-on-year increase of 4%; Non GAAP net profit decreased by 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 and CEO of the Group in September, and his original positions would be taken over by Cai Chongxin and Wu Yongming respectively. The handover of the new and old leadership teams was completed in September.
In the following months, Wu Yongming gradually entered the power center of Alibaba, serving as a director and CEO of Alibaba Group, chairman and CEO of Taotian, and chairman and CEO of Intelligent Cloud Group, and mapping out a strategic plan for the next 10 years.
Under the leadership of Wu Yongming, young people born in the 1980s have taken up important management positions, and Alibaba's various businesses have entered a new operating track: e-commerce and cloud are still the core growth engines of the group, exchanging investment for growth; At the same time, Cloud is no longer pushing for a complete spin off, Hema has suspended its IPO plan, and Cainiao has withdrawn its listing application.
Now, the transformation has reached the midfield. After a year of adjustment, in addition to Taobao, Alibaba's six major business segments including Cloud, Cainiao, Alibaba International, Local Life, Big Entertainment, and others are rapidly moving towards reducing losses or even making profits.
Wu Yongming commented on the second quarter performance during the earnings conference call: "This quarter's performance demonstrates the effectiveness of our strategy." Wu Yongming believes that Taotian Group's business has returned to the growth track, and cloud computing revenue has achieved positive growth momentum.
Behind this, Alibaba, which is "re starting", urgently needs to prove the feasibility of its strategy with data and facts, but this is not an immediate solution. In the preset of Alibaba's management, the situation of "increasing revenue without increasing profits" will continue for several quarters. We assess that most of our businesses will gradually achieve breakeven within 1-2 years and begin to contribute to the scale of 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 key areas of transformation for Wu Yongming.
In the second quarter, Taotian Group's revenue decreased by 1% year-on-year to 113.373 billion yuan, accounting for about 47% of the overall revenue; After adjustment, EBITA was 48.81 billion yuan, a year-on-year decrease of 1%.
For Taobao and Tmall, the current priority is to improve users' purchasing experience, thereby driving their purchase frequency and GMV. After the market share stabilizes initially, starting from this quarter, our measures to increase monetization rate and commercialization will begin to accelerate, "said Wu Yongming.
At the end of last year, Wu Yongming replaced Dai Shan as the CEO of Taotian Group and quickly launched a major overhaul of the core management team. After the adjustment, the new team of Taotian Group is almost entirely composed of people born in the 1980s.
Subsequently, Wu Yongming set the tone for Taotian during the earnings conference call: 2024 will be a year of comprehensive capability improvement for Taotian Group and also a year of investment.
Alibaba founder Jack Ma also made a judgment on the development of e-commerce in an internal letter, saying, "E-commerce in 3 years will definitely not be the hottest e-commerce today... The important thing is not who to catch up with today, but how to improve the consumer experience in tomorrow's e-commerce.
In the past few months, Taobao has increased investment in user experience, launched a first use, pay later, refund only function, increased subsidies by billions, promoted Xinjiang free shipping and delivery to villages, and even cancelled pre-sales during the 618 shopping festival.
After 618, Taotian also made frequent movements.
Firstly, Taobao Live changed its style. Cheng Daofang has been transferred from the head of Taobao Live and Content Business Unit. A reporter from Time Weekly learned that in early July, an insider from Alibaba received a notice that the content e-commerce business unit had reported to Wu Jia, the head of the Taobao User Platform business unit and Alibaba Mama business unit. In mid July, it was also reported that the Taobao Live and Content business unit would be concurrently managed by the head of the Tmall business unit, Ren Jialuo.
Taotian Group is still reviewing its low price strategy. According to reports, recently Taotian Group held a closed door meeting for important merchants, clarifying multiple strategic adjustments to be implemented in the second half of the year. The most important change is that since last year, the search weight allocation system based on "five-star price power" has been weakened and changed back to GMV allocation.
Specifically in terms of business indicators, the focus of Taobao's assessment this year has shifted to GMV (transaction amount) and AAC (average consumption amount), rather than pursuing high DAC (order volume) brought by low prices.
The international business sector, including international retail businesses such as Lazada, AliExpress, Trendyol, and Daraz, as well as international wholesale businesses such as international websites, saw a year-on-year increase in revenue of 32% to 29.293 billion yuan, accounting for approximately 12% of the overall revenue.
Running fast is not unrelated to spending money recklessly. Alibaba International's second quarter loss expanded to 3.706 billion yuan, compared to a loss of 420 million yuan in the same period last year. Alibaba stated that the main reason was the increase in investment in user experience (thereby improving consumer retention and purchase frequency) and technology infrastructure.
However, Lazada recorded a positive EBITDA (earnings before interest, tax, depreciation, and amortization) in July, achieving profitability. During the earnings conference call, an analyst asked, "Lazada has already started to make profits. Does AliExpress have a specific time for profitability?" In response, Jiang Fan, CEO of the International Digital Business Group, said, "In the coming quarters, we will continue to work hard to improve efficiency, promote high-quality growth, and strive to achieve our profit goals as soon as possible
Alibaba Cloud increases revenue and profits
Cloud business is also one of Wu Yongming's key focuses. Now, after a period of slow growth, Alibaba's investment in AI has begun to show results.
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 is driven by double-digit growth in public cloud services and increased adoption of AI related products.
In 2009, Alibaba Cloud was established. The birth of Alibaba Cloud is somewhat similar to AWS (a cloud platform under Amazon), both of which originated from large business empires.
According to the cloud computing white papers released by the China Academy of Information and Communications Technology in the past three years, from 2021 to 2023, the market share of Alibaba Cloud and Tencent Cloud in China's public cloud LaaS market has significantly decreased, especially Alibaba Cloud, which has dropped from 34.3% to 21.31%; The market share of operator cloud has surged, with mobile cloud increasing from 8.4% in 2021 to 12.83% in 2023, firmly ranking third.
Under pressure, Alibaba Cloud urgently needs to widen its gap with its competitors. After becoming the CEO of Cloud Intelligence Group, Wu Yongming quickly made judgments and choices on the strategic direction, determining that Alibaba Cloud will implement an AI driven and public cloud priority strategy in the next five years, and make significant adjustments to the business management team.
Last November, Alibaba Cloud established a dedicated Public Cloud Business Unit, led by Liu Weiguang; Establish a hybrid cloud business unit, led by Li Jin. In addition, the heads of the overseas business units previously led by Yuan Qian all reported to Wu Yongming.
In February of this year, Alibaba Cloud announced its largest ever price reduction, with an average price reduction of 20% for over 100 products and 500 product specifications on its official website, with the highest reduction being 55%; In April, Alibaba Cloud further expanded its price reduction measures to overseas public cloud products.
Wu Yongming made a bold statement during the May earnings call that Alibaba Cloud's commercial revenue (excluding group customers) can return to double-digit growth in the second half of the 2025 fiscal year (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 AI platform Bailian increased by over 200% month on month. In addition, over two-thirds of the Olympic television and online live broadcast signals at the Paris Olympics were distributed globally through 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.
From the perspective of order situation, the trend of double-digit growth in external customer revenue in the second half of the fiscal year is very clear. Specifically, the contribution of AI product revenue is expected to be driven by AI products. Currently, the demand for traditional CPU based cloud computing is relatively limited, while GPU based AI product development is rapidly growing. Therefore, more than half of the future revenue growth may come from the promotion of AI products, "said Wu Yongming.
In this quarter, Alibaba Cloud's adjusted EBITA was 2.337 billion yuan, an increase of 155% compared to 916 million yuan in the same period of 2023, mainly due to Alibaba Cloud's focus on public cloud, improved product structure, and increased operational efficiency.
Recently, in response to analysts' questions, Wu Yongming once again mentioned that although macroeconomic conditions may lead to a slowdown in enterprise demand in some industries, Alibaba has not seen this situation in its cloud business. On the contrary, our cloud customers, especially those enterprises that rely on digitization, have significantly increased their AI budgets this year
Where will Alibaba go?
The past year has been the year when Alibaba's elephant turned around.
Last March, Alibaba launched its largest organizational change in 24 years, splitting an Alibaba group into "1+6+N": one holding group, six business groups, and N business companies.
With the implementation of the reform, retired veterans such as Cai Chongxin, 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 Ali's "Eighteen Arhat". Cai Chongxin will take over as the chairman of the board of directors of Alibaba Group, and Wu Yongming will be the CEO. Meanwhile, Wu Yongming also serves as the Chairman and CEO of Cloud Intelligence Group.
At the beginning of his tenure, Wu Yongming clearly defined the two main focuses as "user first and AI driven". Immediately, Wu Yongming disclosed the new strategic map to the outside world, and defined Ali's 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 team learned from the pain and took a series of counterattacks internally. By the end of the year, Alibaba's power center had further moved closer to Wu Yongming, who took over the position of CEO of Taotian Group and shouldered the responsibilities of three CEOs: Alibaba Group, Taotian Group, and Alibaba Cloud Intelligent Group.
During this process, the number of Alibaba employees continued to shrink. A reporter from Time Weekly reviewed the financial report and found that as of the end of September 2023, the number of Alibaba employees was 224955. As of the end of June 2024, the number of Alibaba employees had dropped to 198162, resulting in a reduction of 26793 employees in just one year.
After a series of cost reduction, 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 achieved revenues of 224.791 billion yuan, 260.348 billion yuan, 221.874 billion yuan, and 243.236 billion yuan, respectively, with year-on-year growth of 9%, 5%, 7%, and 4%.
The latest financial report shows that in this quarter, in addition to Taobao, six major business segments including Cloud, Cainiao, Alibaba International, Local Life, Big Culture and Entertainment, and all others achieved positive growth.
During the earnings conference call, Xu Hong stated that he expects to maintain a high level of capital expenditure in the coming quarters. Alibaba is still in the process of turning around like an elephant, with a focus on defending its e-commerce foundation, fiercely competing in the cloud market, and expanding overseas business, in exchange for strategic growth with high investment.
Today's Alibaba is facing rapidly developing new technologies and new changes and expectations in the market. No matter how successful it has been in the past, it must turn over and awaken the mentality of starting a new business, "said Wu Yongming.
Now, Alibaba has taken a small step towards "re entrepreneurship". In the future, whether Wu Yongming can lead Alibaba to create another Alibaba still needs time to write the answer.
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