Alibaba is currently undergoing a strategic divestment process.

Recently, Sina Finance reported that Alibaba Group is planning to sell its gaming business brand, Lingxi Interactive Entertainment, with the transaction value estimated to be between RMB 7 billion and RMB 9 billion. Alibaba has yet to respond to this news.

Since 2024, Alibaba has been implementing a plan to streamline its non-core assets, raising over RMB 30 billion in total. Many speculate that selling its gaming business could be the next strategic step.

Through this “exit from the gaming sector,” we can discern Alibaba's strategic choices and ambitions.

Billions in AI Infrastructure Investments Drive a “Strategic Shift”

Through a series of divestments, Alibaba is reshaping the landscape of the internet's “second half.”

In the era of artificial intelligence, the core competitiveness of internet companies no longer rests solely on their ability to generate traffic but also on their computational power and model architecture capabilities.

After Alibaba's current CEO, Wu Yongming, assumed office in 2023, he shifted the strategic focus towards AI and cloud infrastructure, planning to invest a cumulative total of over RMB 380 billion. During last November's earnings call, he even hinted that the RMB 380 billion investment “might not suffice,” leaving room for further increases.

Currently, Lingxi Interactive Entertainment serves as a stable cash flow source, with industry insiders estimating its 2024 net profit to range between RMB 1.5 billion and RMB 2 billion. However, it does not align with the group's new strategy of “focusing on AI,” as it fails to provide technical support or practical applications. If this business segment is indeed sold, it would represent a strategic and rational move.

If the rumors hold true, this would exemplify a classic case of “sacrificing the minor for the major,” yielding greater overall benefits.

Based on the aforementioned net profit figures, Alibaba's pricing for selling Lingxi Interactive Entertainment is less than five times its price-to-earnings ratio, likely indicating a discounted sale. While this may create short-term financial pressure, it would secure much-needed liquidity and management focus for the long-term AI competition.

The valuation logic in capital markets has evolved, providing a deeper rationale for Alibaba's “exit from gaming.”

Currently, semiconductor and AI companies are favored in the U.S. and A-share markets. Tech companies like Alibaba, which grew through e-commerce platforms, now have valuation multiples similar to market averages. Since e-commerce shopping has become deeply ingrained in daily life, such companies struggle to create compelling investment narratives.

If Alibaba aims to shed its “old e-commerce” image, it must continue divesting non-core assets and focus on artificial intelligence. This would enable it to align with the new global valuation system and ultimately enhance its return on capital.

The Battle to Optimize Financial Performance Begins

Data from Alibaba's latest financial report reveals that heavy investments in artificial intelligence come with costs, and Alibaba's AI transformation is not as straightforward as many imagine.

From a financial standpoint, Alibaba's decision to sell Lingxi Interactive Entertainment to “recover funds” is a prudent one.

Alibaba recently released its “FY2026 Report,” covering the period from April 1, 2025, to March 31, 2026. Due to the need to align with year-end promotions like “Double 11,” its naming and timeframe differ from those of typical companies.

In Alibaba's latest annual report, full-year revenue exceeded RMB 1 trillion for the first time, reaching RMB 1,023.67 billion, a 3% year-over-year increase. However, net profit attributable to shareholders fell to RMB 105.904 billion, an 18% year-over-year decline, showcasing an overall “contradictory” trend.

The sale of profitable businesses indicates pressure within Alibaba's “All Other Businesses” segment.

Lingxi Interactive Entertainment holds a relatively minor position within Alibaba, categorized under the broad “All Other Businesses” segment. While its profitability is decent, the poor performance of its peers has led to overall losses in the segment.

During FY2026, Alibaba's “All Other Businesses” generated RMB 254.367 billion in revenue, a 25% year-over-year decline. This made it the only segment among Alibaba's six business units to experience a revenue drop, attributed to investment losses from selling shares in Intime and Sun Art Retail (parent company of RT-Mart), as well as declining operating data at Cainiao.

From an overall optimization perspective, selling Lingxi Interactive Entertainment would enhance the financial performance of “All Other Businesses.” This financial maneuver reflects management's keen pursuit of “capital efficiency.”

During the era of internet expansion, inefficient, broad-based investments were commonplace. However, in today's era of stock competition (inventory competition), the industry demands a renewed focus on investment projects and refined project management.

Alibaba's decision to withdraw funds from the gaming business and invest in the high-growth potential AI sector is an inevitable strategic choice.

Governance Challenges Amid Business Contraction

As Alibaba contracts its business, its internal organizational culture is also undergoing profound reforms. Taking this “exit from gaming” as an opportunity, Alibaba can address its internal governance challenges, particularly the hidden risks of its “1+6+N” organizational structure.

In 2023, Alibaba launched the “1+6+N” organizational structure, granting greater operational autonomy to each business unit. The intention was to stimulate organizational vitality, allowing each business to operate flexibly like a startup.

However, after decentralization, new issues emerged: some business units, driven by high-pressure KPIs, began to distort their management practices. When managers become mere “indicator allocation machines,” Alibaba's core cultural values of “customers first, employees second” risk becoming empty slogans.

Although the “1+6+N” structure has only been in place for about two years, and Alibaba has now shifted to a “Four Collectives” structure, the issue of values drift persists. The recent viral long-form article “Inside DingTalk” is a prime example of this problem.

At this juncture, a break-from-the-past approach is necessary. Alibaba's top leadership has begun taking corrective action against its “big company disease.”

In response to “Inside DingTalk,” Alibaba's highest decision-making body, the “Partnership Committee,” issued a rare internal statement criticizing the high-pressure management style of some teams, stating, “This is not what Alibaba's culture should look like,” and made personnel changes in the executive leadership of the companies involved.

Institutional changes are underway. Through reforms such as eliminating disparities between new and old employees in the use of aliases, optimizing cross-business talent mobility mechanisms, and promoting younger management, the top leadership is attempting to address organizational rigidity at its roots and return the company to a track of valuing employees and fostering creativity.

Against this backdrop, Alibaba's sale of Lingxi Interactive Entertainment takes on a new strategic intention: reducing the burden on its organizational structure.

Contraction of the gaming business necessitates streamlining the corresponding management structure. Therefore, Alibaba's sale of Lingxi Interactive Entertainment is not merely a financial decision but also a “decluttering” of its management structure. Why? Because fewer business units mean fewer KPI systems, fewer reporting chains, and fewer “stakeholders.”

From a long-term perspective, the organizational benefits Alibaba gains from this move may be more valuable than the tens of billions in cash recovered.

Rice Planting in Paddy Fields: A Metaphor for the AI Marathon?

Recently, Alibaba announced plans to invest RMB 380 billion in AI-related projects, with rumors of selling its gaming business swirling. Around this time, the company's senior leadership made a symbolic public appearance:

In rural Zhejiang, Jack Ma led Alibaba's core management team in a rice-planting activity in paddy fields. After the media reported on this event, various interpretations emerged, with some calling it a lifestyle experience and others accusing it of being a publicity stunt.

The author believes this was an internal mobilization meeting. Using simple agricultural principles, Ma illustrated Alibaba's long-termism in the AI era. The three core actions of rice planting precisely correspond to Alibaba's current strategic choices.

The first step is seed selection: determining which seedlings are worth planting and which should be discarded.

Alibaba's divestment of non-core businesses like Lingxi Interactive Entertainment reflects this “seed selection” mindset. Many internal businesses that do not align with the AI-centric strategy must be removed, regardless of their current performance. This “sacrificing the minor for the major” is not short-sighted but a rational agricultural practice.

The second step is soil preparation: whether crops grow well depends on the fertility of the soil.

Alibaba's RMB 380 billion investment in AI infrastructure is essentially about laying the groundwork. Without accumulating underlying computational power and cloud infrastructure, even the best AI application “seeds” will struggle to thrive in the future. These investments may not yield immediate profits but serve as the foundational soil for future technological harvests.

The final step is patience: farming must follow seasonal rhythms and cannot be rushed.

The proactive mindset required for AI research is precisely one of doing one's utmost while accepting fate. The purpose of this field lesson was to cool down the entire company. Ma may have wanted everyone to take a longer view and not fixate on short-term metrics. Alibaba's future AI transformation is, in fact, a marathon.

In conclusion, Alibaba's “exit from gaming” is not a strategic defeat but an active strategic contraction and focus. The rice-planting activity by Alibaba's senior leadership in the fields sows the long-term beliefs of a tech giant. Only time will tell how much they will ultimately harvest.