Alibaba’s Move Isn’t Just Following ByteDance’s Example

After ByteDance sold Moonton, is Alibaba now following suit by offloading Lingxi Interactive Entertainment?

According to recent reports from Game Insight, Alibaba Group is planning to sell its gaming business unit, Lingxi Interactive Entertainment, with an asking price ranging from RMB 7 to 9 billion (approximately USD 1 to 1.3 billion). Potential buyers include several A-share listed companies, such as 37 Interactive Entertainment, China Ruyi, Shiji Huatong, and Giant Network, as well as private equity firms looking to collaborate on the acquisition.

As the news spread, public opinion quickly attributed Alibaba’s decision to a “lack of confidence in the broader entertainment sector” and “Alibaba giving up on gaming.” Some narratives even framed it as another setback for the broader entertainment sector, following Youku and Alibaba Pictures, with yet another underperforming segment being cleared out.

However, attributing this decision solely to the broader entertainment sector risks misunderstanding both Lingxi Interactive Entertainment’s current position and the deeper strategic logic behind Alibaba’s significant restructuring.

01 A Pre-Announced “Divestiture”

In September 2020, Alibaba upgraded its gaming business into an independent business group, previously part of Alibaba’s “Innovative Businesses” segment, with Zhan Zhonghui at the helm. By this point, Lingxi Interactive Entertainment had already been removed from the direct management structure of the broader entertainment sector in terms of organizational identity.

During this period, Lingxi Interactive Entertainment experienced its heyday. “Romance of the Three Kingdoms: Strategic Edition,” launched in 2019, became a standout success, consistently ranking high on the App Store bestseller list thanks to its polished Three Kingdoms SLG gameplay and aggressive user acquisition strategy.

According to estimates from data platforms like Sensor Tower, the game’s global cumulative revenue exceeded RMB 10 billion within just over a year of its launch, marking Alibaba’s first true gaming blockbuster. Its revenue surpassed that of many established titles from major gaming companies.

The peak was followed by a prolonged bottleneck. After “Romance of the Three Kingdoms: Strategic Edition,” Lingxi released titles such as “Romance of the Three Kingdoms: Fantasy Land,” “Romance of the Three Kingdoms: Tactical Edition,” and “Ruyan.”

Among these, “Romance of the Three Kingdoms: Fantasy Land” amassed over 15 million players in four and a half years, with peak monthly revenue exceeding RMB 800 million. “Ruyan” received over 15 million pre-registrations for its domestic release, with first-month cross-platform revenue approaching RMB 300 million. However, none of these titles replicated the astonishing success of “Romance of the Three Kingdoms: Strategic Edition.”

The “single-core” product structure dilemma represents a business challenge for Lingxi as a gaming company. However, the true determinant of its fate lies in Alibaba Group’s strategic shift.

In March 2023, Alibaba initiated a major organizational overhaul known as “1+6+N,” revealing six major business groups. Lingxi Interactive Entertainment was reassigned to the Greater Entertainment Group.

This time, Fan Luyuan, chairman of the Greater Entertainment sector’s management committee and president of Youku, officially took over the gaming business. In January 2024, Fan Luyuan, in his capacity as CEO of Alibaba Greater Entertainment, also became president of Lingxi Interactive Entertainment, emphasizing “accelerating international expansion.”

A year and a half later, Lingxi Interactive Entertainment’s reporting line shifted from Fan Luyuan’s Orca Entertainment to report directly to Group CFO Xu Hong. The transfer of management authority from the business line to the financial line typically signals that the core business has lost its growth momentum and competitiveness.

To some extent, Lingxi Interactive Entertainment is not a bleeding unit within the broader entertainment sector but rather a rare self-sufficient unit capable of supporting the ecosystem. Attributing the sale motivation solely to the “weakness” of the broader entertainment sector is logically untenable.

So, where is the true driving force behind this decision? It requires stepping back from micro-level entanglements within the entertainment sector and examining the profound restructuring occurring at the Alibaba Group level.

02 Alibaba Streamlines Its Operations

Gaming Is Not the “One”

In September 2023, Joe Tsai and Eddie Wu officially took the helm at Alibaba. Almost immediately, the new leadership outlined a clear direction: return to the core and achieve extreme focus.

During the Q3 earnings call in November of the same year, Eddie Wu comprehensively explained the new strategy, anchoring Alibaba’s future in three directions: “technology-driven internet platform businesses, AI-driven technology businesses, and a globalized commercial network.” Regarding non-core businesses, he stated, “We will realize value through early profitability or sales.”

This statement set the tone for the subsequent series of asset reallocations. From Intime Retail to Sun Art Retail, from partial stakes in Bilibili to various small and medium-sized investments, Alibaba began frequently playing the role of seller in secondary and M&A markets.

Alibaba’s full-year revenue for FY2026 exceeded RMB 1 trillion for the first time, while Lingxi Interactive Entertainment’s annual revenue, estimated based on product revenue data from Sensor Tower, was approximately RMB 3 to 4 billion, accounting for less than 2% of Alibaba’s total revenue.

In financial reports, Lingxi Interactive Entertainment is grouped with Hema, DingTalk, and others under Alibaba’s “All Other” business segment, with only aggregated data disclosed. The last time it was mentioned individually was in the Q1 FY2025 earnings report, stating only that “Lingxi Interactive Entertainment’s operating performance has significantly improved.”

As a content industry, the gaming business not only involves long development cycles and high uncertainty in creating blockbusters but also struggles to generate direct synergies with Alibaba’s strong e-commerce transaction mindset and cloud service technology foundation. Inevitably, it falls within the scope of “non-core businesses.”

In early 2025, Alibaba announced that the group would invest RMB 380 billion over the next three years in AI-related technologies and industrial layout. During the latest earnings call, CEO Eddie Wu stated that annual revenue from cloud and AI commercialization would exceed USD 100 billion within the next five years.

Given the limited resource pool, selling Lingxi Interactive Entertainment to unlock asset value and reallocate funds and manpower to core battlefields such as AI, cloud computing, and e-commerce is a commercially logical choice.

More importantly, China’s gaming industry has entered an era of stock competition, with a significant winner-takes-all effect. Tencent and NetEase together account for over 70% of the market share, with the remaining players competing for scraps.

ByteDance’s retreat from the gaming sector serves as a clear mirror.

In March 2026, ByteDance sold Moonton Technology to Savvy Games Group, a subsidiary of Saudi Arabia’s sovereign wealth fund PIF, for over USD 6 billion. Moonton’s “Mobile Legends: Bang Bang” is a leading MOBA mobile game in Southeast Asia, with stable cash flow and global influence.

ByteDance spent USD 4 billion to acquire Moonton in 2021. This sale not only realized a paper gain but also sent a clear signal: even competitive gaming assets, with limited synergy with the short video main business, will be decisively divested.

The similar decisions made by two internet giants within a similar timeframe are difficult to explain as a “strategic mistake” by one company. Instead, it appears to be a collective choice by China’s internet industry entering a “strategic contraction phase,” shifting from diversified expansion to in-depth cultivation of core capabilities.

In fact, the broader entertainment sector itself is also seeking a balance between hemostasis and transformation.

After years of losses, Youku turned to profitability by strictly controlling content costs and focusing on revenue-sharing dramas. The film segment improved profitability through adjustments in investment and distribution strategies. Damai became an important gateway to offline entertainment amid the recovery of the performance market. In November 2025, Orca Entertainment achieved profitability for three consecutive quarters.

The broader entertainment sector still faces many challenges, but it has transformed from a bottomless “entertainment empire dream” into a more pragmatic “content plus services” business.

The sale of Lingxi Interactive Entertainment, on the other hand, may represent the maximization of its value as an asset.

In the hands of a suitable buyer, Lingxi’s R&D team and IP reserves may find firmer ground for growth. For Alibaba, it would only repeatedly weigh: Is spending money on gaming truly more promising than investing in AI large models?

If Lingxi Interactive Entertainment is indeed sold, it further illustrates that non-core businesses once seen as “gateways,” “ecosystems,” or “closed loops” must ultimately undergo value reassessment amid significant contractions.

In this reassessment, there is little room for emotion—only the cold direction of capital, traffic, and the tides of the times.

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