Author | Han

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Three years later, Alibaba is no longer the same as before. On Friday, August 30, the State Administration for Market Regulation announced that Alibaba Group (NYSE: BABA/09988.HK) had completed its three-year rectification with significant positive results.

The announcement praised Alibaba's compliance rectification efforts, acknowledging the company's strict self-regulation, implementation of platform responsibilities, improvement of compliance management systems, and enhancement of service levels for merchants and consumers. The Administration also pledged continued support for Alibaba's journey towards becoming a world-class enterprise with enhanced international competitiveness.

In response to the announcement, Alibaba stated, "This marks a new starting point for our development." After three years of navigating a significant turn, Alibaba has finally completed its adjustment. Meanwhile, after hovering around the Hong Kong Stock Exchange for nearly two years, Alibaba has finally achieved a significant milestone. On August 28, Alibaba Group announced the completion of its dual primary listing on both the Hong Kong Stock Exchange and the New York Stock Exchange, ushering in a new era for the company's development. Back in November 2019, Alibaba completed its secondary listing on the Hong Kong Stock Exchange, allowing shares traded on the New York Stock Exchange to be bought and sold in Hong Kong. This recent dual primary listing represents the culmination of Alibaba's long-term strategic planning. Despite the challenges faced, Alibaba appears to be on an upward trajectory towards regaining its former glory. What has Alibaba been through in these three years? 1

A Three-Year Turnaround

It's more accurate to say that the entire Chinese internet industry has been adjusting its direction over the past three years, rather than just Alibaba. The ultimate goal of these adjustments is to achieve greater compliance and more manageable risks. Three years ago, with the rapid development of the internet platform economy, various issues emerged, including antitrust concerns, protection of merchant and consumer interests, and fostering a fairer and clearer market environment. These challenges are not unique to China but are faced by the global internet industry as well. From Europe to North America, antitrust storms have swept across technology giants like Apple, Google, Meta, and Amazon. China's internet platform antitrust efforts began to gain momentum in 2019. According to China News Service, 2019 marked the first year after the reform of China's antitrust enforcement agencies. Against the backdrop of economic globalization and international competition, antitrust regulation has become increasingly market-oriented, rule-of-law-based, and internationalized. In 2020, the antitrust hammer fell heavily on Alibaba. In December of that year, the State Administration for Market Regulation announced an investigation into Alibaba for alleged monopolistic practices, including the "either-or" choice. Several months later, in April 2021, the Administration imposed a fine equivalent to 4% of Alibaba's 2019 domestic sales revenue, totaling RMB 18.228 billion, the highest antitrust penalty in China to date. As part of the settlement, Alibaba was required to submit self-inspection reports to the Administration for three consecutive years, marking the beginning of its three-year rectification period. The Administration's focus was not limited to Alibaba but extended to the entire industry. In recent years, the Administration has also imposed penalties on companies like Tencent, Bilibili, and JD.com for violating antitrust laws. Concurrently, regulatory frameworks have continued to improve, keeping pace with global developments. Key regulatory documents, such as the "Antitrust Guidelines for the Platform Economy Sector" issued by the State Council Antitrust Committee and the "Opinions of the CPC Central Committee and the State Council on Accelerating the Construction of a Unified National Market," were released in 2021 and 2022, respectively. Financial institutions are optimistic about the outcome of Alibaba's antitrust rectification. In a September 1 commentary, Wuzhou Securities expressed optimism that the regulatory actions would positively impact Alibaba's fundamentals and drive up its valuation. With its successful completion of the three-year rectification, Alibaba has cleared its risks and set an example for the industry. The market anticipates that both regulatory oversight and corporate corrections will become more normalized, ensuring the healthy and sustainable development of the internet platform industry. Beyond antitrust concerns, recent years have also witnessed issues like "low-price competition" and supply chain challenges for companies expanding overseas. These new challenges will continue to emerge but will gradually be addressed. Alibaba's successful rectification serves as a model, illustrating that problem identification and resolution will be an ongoing process. Timely regulatory intervention and corporate rectification are crucial for ensuring the healthy development of the business world and creating more value for consumers. 2

Opportunities Lurk in the Shift of Listing Attributes

On August 28, Alibaba completed another significant transformation: voluntarily changing its secondary listing status on the Hong Kong Stock Exchange to a dual primary listing, effective from August 28, 2024. During the wave of Chinese concept stocks returning to Hong Kong in 2022, the differences between secondary and dual primary listings were widely discussed. There are notable legal distinctions between the two. According to Jincheng Tongda Law Firm, shares in a secondary listing primarily take the form of depositary receipts, traded concurrently on foreign exchanges and the Hong Kong Stock Exchange through international custodians and securities firms, with relatively relaxed compliance requirements compared to a primary listing. In contrast, a dual primary listing involves direct listing of shares on the Hong Kong Stock Exchange without a primary or secondary distinction. While this requires more complex auditing processes and higher compliance costs, it helps broaden the shareholder base and enhances liquidity. A direct benefit of the shift to a dual primary listing is that Alibaba will become eligible for inclusion in the Stock Connect program, allowing mainland investors to invest directly in Alibaba shares. According to The Beijing Business Daily, Morgan Stanley predicts that Alibaba could be included in the Stock Connect program as early as September 2023, potentially attracting an additional US$12 billion in fund inflows. Over time, southbound funds' shareholding in Alibaba may stabilize at over 10%. Given the recent suppression of Chinese concept stock valuations and market volatility, Alibaba's dual primary listing and potential inclusion in the Stock Connect program represent a significant milestone for the company's valuation and stability. 3

Concerns Over Performance, Yet Market Confidence Remains Strong

Alibaba's second-quarter results for fiscal year 2024, announced in mid-August, bolstered market confidence in the company's prospects. On August 15, Alibaba released its first-quarter results for fiscal year 2025 (covering April to June 2024), reporting revenue of RMB 243.236 billion, up 4% year-on-year, and adjusted EBITA (Earnings Before Interest, Taxes, Amortization) of RMB 45.035 billion, exceeding market expectations. Among Alibaba's core businesses, e-commerce monetization rates faced some pressure. Since the third quarter of 2021, Alibaba's e-commerce GMV (Gross Merchandise Volume) has grown at a low single-digit rate or even declined. However, this trend reversed in the first quarter of 2024 and continued into the second quarter. There is still room for improvement in monetization rates. According to Futu Securities, cited by The Economic Observer, Alibaba's CMR (Customer Management Revenue) grew by just 1% year-on-year in the second quarter, indicating significant room for improvement in monetization. Alibaba's overseas e-commerce business is still in its investment phase, with the entire industry focusing on growth. Positively, Alibaba International Digital Commerce Group and Cainiao's cross-border fulfillment services achieved high revenue growth, though the former's losses widened while the latter's profits declined. Alibaba Cloud, another core business, demonstrated stable growth amidst the AI wave. Revenue grew 6% to RMB 26.549 billion, with AI-related products achieving triple-digit growth and public cloud services also showing impressive gains. The cloud intelligence group's quarterly EBITA profit reached RMB 2.337 billion, a significant year-on-year increase. Behind the stable revenue growth and significant profit increase lies Alibaba's strategic adjustments. According to the financial report, Alibaba Cloud's profit growth was driven by its focus on public cloud strategies, resulting in improved operational efficiency. After adopting the "AI-driven, public cloud priority" strategy, Alibaba Cloud proactively reduced low-margin project-based orders. In the AI era, Alibaba Cloud is also making its mark. The financial report revealed that Alibaba Cloud's external revenue, excluding revenue from Alibaba-affiliated companies, grew 6% year-on-year, with the paid user base of its AI platform Bailian experiencing rapid quarter-on-quarter growth. During the earnings call, Alibaba CEO Daniel Zhang highlighted these external businesses, predicting that revenue from non-affiliated companies would return to double-digit growth in the second half of fiscal year 2025. Following the earnings announcement, Alibaba's share price surged, reflecting positive market sentiment. China International Capital Corporation maintained its "Outperform" rating on Alibaba, noting that the company's organizational reforms and strategic adjustments have stabilized its core business market share. Beyond core operations, loss reduction in other segments also exceeded expectations, with factors such as shareholder returns and inclusion in the Stock Connect program expected to catalyze future growth. 4

From Incremental Growth to Refined Operations

After years of rapid development, the competition in the internet platform economy has entered its second half, shifting from land grabbing to refined operations. Alibaba's refined operations are evident in both organizational restructuring and detailed improvements across various business units. At this pivotal juncture, for a giant like Alibaba, adjusting its pace and streamlining operations are more crucial than pursuing growth. While navigating its significant turn over the past three years, Alibaba has also invested heavily in internal streamlining. A research report by China Merchants Securities published on July 29 noted that Alibaba's strategic focus on "user-centricity" and increased investment in core businesses has started to bear fruit, stabilizing its market share. "The strategic adjustment of organizational structure and user-centricity will fundamentally drive Alibaba's main business recovery," the report stated. After streamlining its various business groups, each unit has embarked on its refined operations, gradually unleashing performance momentum. Taobao and Tmall Group continue to invest heavily in price-competitive products, customer service, membership benefits, and technology, leading to higher customer retention and purchase frequency. A research report by TF Securities published on August 23 noted that through investments in recommendation and matching algorithms, Taobao and Tmall are enhancing traffic conversion into purchasing power. Additionally, the AI-driven "Omni-channel Promotion" tool launched in April is expected to boost merchants' marketing investments and improve marketing efficiency. Loss reduction in the cloud business exceeded market expectations. Beyond growth highlights like public cloud services, Alibaba's Tongyi Qianwen second-generation open-source model demonstrated significant performance improvements in reasoning, code generation, and mathematics. In the International Digital Commerce Group (AIDC) segment, platforms like AliExpress and Trendyol have increased investments in potential markets like Europe, gaining visibility through sponsorships at global sports events like the UEFA Euro 2024, thereby boosting consumer confidence. The TF Securities report also noted that AliExpress is expanding its supplier base to include local merchants and partnering with leading retailers in markets like Brazil to establish and operate stores, fostering Refined development . Meanwhile, Cainiao's revenue grew 16% year-on-year, capitalizing on opportunities in cross-border logistics fulfillment solutions. The local services segment, driven by order growth at Amap and Ele.me, has improved operational efficiency and business scale, significantly narrowing losses year-on-year. The entertainment group has also benefited from the booming online ticketing market. Behind these positive signs are both opportunities presented by the times and Alibaba's timely organizational restructuring and refined operations in key areas. Competition in the domestic e-commerce industry remains fierce, and the journey overseas will undoubtedly present new challenges. Nevertheless, after three years of navigating a significant turn, Alibaba has emerged with a renewed posture. Committed to enhancing operational and investment efficiency in the long term, Alibaba is poised for renewed growth. The views expressed in this article are solely those of the author. For any questions or feedback, please leave a comment below.