Alibaba has yet to emerge from the throes of transformation.

On August 15, before the US stock market opened, Alibaba announced its financial results for the first quarter of fiscal year 2025 (the second quarter of calendar year 2024). During this quarter, Alibaba's revenue reached RMB 243.236 billion, a 4% YoY increase, slightly below market expectations. Operating profit was affected by equity-based compensation expenses, falling 15% YoY to RMB 35.989 billion. Net profit attributable to ordinary shareholders was RMB 24.269 billion, with a net profit of RMB 24.022 billion, down 27% YoY.

Overall, Alibaba's strategy for this quarter proved effective, but financial pressures remain, and the turning point has yet to arrive. This is why Alibaba has proactively accelerated its commercialization efforts, as it still needs patience to achieve significant profit growth again.

"We have seen a significant improvement in the profitability of various businesses, and this trend will continue. We estimate that most businesses will achieve break-even within 1 to 2 years and gradually begin to contribute to large-scale profitability," said Wu Yongming, CEO of Alibaba Group, during a conference call.

Mixed Results

Currently, Alibaba has six major business groups: Taobao, Cloud Intelligence, Alibaba International Digital Commerce, Cainiao, Local Services, and Digital Media & Entertainment. Among them, Taobao is Alibaba's flagship business and revenue pillar.

In recent years, due to the overall economic environment and the strong rise of competitors, Taobao has struggled to develop new business growth points, dragging down Alibaba's overall revenue performance.

In this quarter, Taobao Group achieved revenue of RMB 113.373 billion, down 1% YoY. Among them, customer management revenue (CMR), its core cash flow business, increased slightly by 1% YoY. However, Tmall Supermarket, Tmall Global, and other direct sales business revenues decreased by 9% YoY to RMB 27.306 billion.

It is worth noting that there is a significant contrast between the growth rate of Taobao's CMR and its GMV (Gross Merchandise Volume). The businesses with faster GMV growth happen to be those with lower commercialization rates.

To change this situation, a notable change this year for Taobao is that it has actively withdrawn from the "low-price war" and refocused on GMV growth, placing more emphasis on profitability.

Recently, Taobao announced that it would start charging merchants a "basic software service fee" of 0.6% from September 1st. At the same time, its second-hand e-commerce platform Xianyu will also charge sellers a service fee ranging from 0.6% to 1% during the same period, aiming to enhance the monetization capabilities of Taobao's e-commerce ecosystem. However, it will take time to see tangible results.

In contrast, the Alibaba International Digital Commerce Group (AIDC) recorded a 32% YoY increase in revenue to RMB 29.293 billion in this quarter, driven by growth in cross-border business, particularly the AliExpress Choice business.

However, AIDC's losses are also expanding. Currently, Alibaba's overseas operations are undergoing a business model upgrade to improve efficiency and user experience, which is still in the investment phase. In this quarter, adjusted EBITA was a loss of RMB 3.706 billion, compared to a loss of RMB 420 million in the same period of 2023.

The Cloud Intelligence Group is one of Alibaba's core business segments and is considered to have the most development potential in the future. At the 2024 Paris Olympics, Alibaba Cloud's technology enabled remote video production and transmission through cloud infrastructure, replacing satellites for the first time in Olympic history as the primary transmission method. Two-thirds of broadcasters used Alibaba Cloud to transmit live Olympic signals globally in real-time, reaching billions of viewers.

In this quarter, the Cloud Intelligence Group generated revenue of RMB 26.549 billion, a 6% YoY increase. Adjusted EBITA increased strongly by 155% YoY, primarily driven by double-digit growth in public cloud services and increased adoption of AI-related products. Revenues from AI-related products continued to record triple-digit YoY growth.

Wu Yongming said that they will continue to optimize the cloud product mix, focusing on competitive, sustainable gross margin, and revenue-scalable public cloud products, while strengthening the synergy of cloud products in the AI era. "We are confident that Alibaba Cloud's revenue from customers outside the Alibaba Group will resume double-digit growth in the second half of the fiscal year and gradually accelerate," he added.

Difficult Transformation

A constantly focused ecosystem and evolving organizational structure.

Alibaba has a broad business layout and has undergone several rounds of organizational restructuring since its inception. On March 28, 2023, Alibaba announced its most significant reform in its 24-year history, known as the "1+6+N" strategy.

This strategy involves setting up six major business groups under the Alibaba Group: Alibaba Cloud Intelligence, Taobao & Tmall Commerce, Local Services, International Digital Commerce, Cainiao, and Digital Media & Entertainment, along with multiple business companies. Each group and company will have its own board of directors, implementing a CEO-led responsibility system under the guidance of their respective boards.

The purpose of this structural adjustment was to enhance organizational agility, shorten decision-making chains, and respond faster to market changes. However, this was accompanied by growing "big company syndrome," characterized by bloated organizations, slow decision-making, and declining innovation capabilities.

As of the end of 2023, Pinduoduo had 17,000 employees and generated revenue of RMB 247.64 billion, with an annual revenue per employee of RMB 14.567 million. In contrast, Alibaba had 205,000 employees and generated revenue of RMB 941.17 billion, with an annual revenue per employee of less than RMB 4.6 million. Pinduoduo's revenue per employee was more than three times that of Alibaba's. In terms of net profit per employee, Pinduoduo was nearly ten times that of Alibaba's.

On November 29, 2023, Pinduoduo's market capitalization surpassed Alibaba's for the first time, dealing a severe blow to Alibaba. Some Alibaba employees posted on the company's internal network, expressing their sleepless nights over the news.

Faced with the aggressive competition from up-and-coming players, it is crucial for Alibaba to prioritize collaboration over separation and individual battles.

In September 2023, Alibaba completed a leadership change. Former Alibaba CFO Joseph Tsai returned to the frontline, replacing former CEO Daniel Zhang as Chairman of the Alibaba Group Board. Alibaba co-founder Wu Yongming assumed the role of CEO, overseeing the daily operations of Alibaba's businesses.

One of the most notable changes was the abandonment of the "1+6+n" strategy. As part of the course correction, Alibaba Cloud will no longer be spun off, the Hema IPO was postponed, and Cainiao withdrew its IPO application.

Among Alibaba's six major business groups under the "1+6+N" reform, Cainiao was considered the most promising candidate for an independent IPO. However, the new leadership believes that Cainiao's greatest advantage lies in its association with Alibaba and that it still needs to leverage Alibaba's resources extensively while delving deeper into the supply chain and service systems to enhance its competitiveness and market share.

"In the past few years, Alibaba has fallen behind. We forgot who our real customers are and failed to truly create value for them," reflected Alibaba co-founder and Chairman Joseph Tsai in a media interview. "Although we felt the pressure of competition, we are back now."

Currently, Alibaba's strategy is clear: returning to core businesses, reducing non-core investments, reevaluating strategic priorities, and adhering to the strategic directions of "customer-first" and "focusing on artificial intelligence." By optimizing capital allocation and choosing to return cash to shareholders, Alibaba seeks dynamic balance and strategic upgrades for long-term development within its constantly focused ecosystem and continuously evolving organizational structure.

As of the end of June, Alibaba's total number of employees fell below 200,000, with just 198,162 employees. This represents a decrease of 6,729 employees in the second quarter, bringing the total reduction for the first half of the year to 21,098 employees.

"Make it easy to do business anywhere" was the slogan put forward by Jack Ma when he founded Alibaba. At that time, he boldly stated, "I can't see any competitors even with a telescope."

Times have changed. Doing business has become increasingly challenging, and competitors have grown stronger. Under the leadership of the new generation, it remains to be seen when Alibaba will return to its peak.