Alibaba Vows to Invest in E-Commerce and Cloud While Betting on AI to Boost ...

BEIJING, February 9 (TMTPost)-- Alibaba Group Holding Ltd.’s management vowed to reinforce focus on two major businesses e-commerce and cloud while betting on artificial intelligence (AI) technology to boost engines of growth.

Credit：Visual China

Compared with the past, the biggest difference that Alibaba will do is that it would focus more on the core businesses, namely, the e-commerce at homeand abroad and the cloud computing, Chief Financial Officer Toby Xu answered a question about how Alibaba can ramp up investments in overseas operation of Taobao and Tmall Group, its key business segment, while seeking to improve the company’s Return on Invested Capital (ROIC) from single digit to double digit over time. At an earnings call on Wednesday, Xu told analysts he improvement of ROIC doesn't conflict with the investment Alibaba is going to make because making investments is exactly for the growth and for the future return of this growth eventually will also help improve the ROIC.

The analyst who asked the aforementioned question also wanted to the the progress of Alibaba’s disposal of non-core assets as it aims to turn into asset-light model. Alibaba Chairman Joseph Tsai responded his company has exited US$1.7 billion in non-core investments during the first nine months of its fiscal year 2024 ended in March 2024, calling its action at “a pretty good pace”. Tsai said Alibaba is very active in looking at its listed securities and formed special team to execute sales transactions at the capital market to get out of these assets. Tsai suggested the company also weighed sales of traditional physical retail businesses as he noted a number of such businesses on its balance sheet are not the core focus, so it makes sense for it to exit. While he said it will take time for Alibaba to offload these businesses given the challenging market conditions, it will continue to work on the move.

Taobao and Tmall Group, which includes two online marketplaces, remains Alibaba’s top business segment to the date. The latest financial results for the quarter ended December 2023 showed Taobao and Tmall Group, generated RMB129.07 billion (US$18.18 billion) with a 2% year-over-year (YoY) increase, and adjusted EBITA edged up 1% to RMB59.93billion. Alibaba said increase in EBITA mainly resulted from narrowing losses in certain businesses, partially offset by an increase in investments in content, user acquisition and retention of Taobao app, as well as technological innovation.

Cloud Intelligence Group that quarter posted revenue of RMB28.07 billion with a 3% YoY increase. While revenue from Alibaba’s public cloud products and services experienced healthy growth, businesses excluding Alibaba-consolidated ones decreased YoY, primarily due to the decrease in revenue from low-margin project-based contracts as a result of continued effort to improve revenue quality.

Tsai and Alibaba current CEO Eddie Wu took their roles from the former Chairman and CEO Daniel Zhang in September 2023, more than four months after Alibaba said Zhang would step down to focus on Alibaba Cloud Intelligence Group. However, Tsai unexpectedly said in September that Zhang was also resigned as head of the cloud unit, and Wu, the Chairman of Taobao and Tmall, was named as the acting chairman and CEO the cloud unit. In his first letter to the whole employees as Alibaba CEO, Wu said the company will focus on two strategies----one is to go user-first and another is to be AI-driven, and will recalibrate its operations around these strategies and reshape its business priorities.

At the earnings call Wednesday, Wu was asked what should people expect in terms of the synergies of Taobao and Tmall Group and Cloud Intelligence Group since Wu now leads both of the major segments. Wu replied he sees very strong potential for greater synergy between these segments, especially driven by AI. The executive disclosed Alibaba is currently testing ways to leverage its in-house large language model (LLM) Tonyiqianwen to improve operation of Taobao and Tmall, and found there are very strong potential to leverage AI to significantly enhance search conversion and advertising monetization. While the test and development of related offerings are still at an early stage, Alibaba sees excellent potential there, Wu said. He streesed AI will play a very active role in future search and ad offerings of Taobao and Tmall with further investments in the technology and in-depth research on it, though the research and development (R&D) of the offerings are at an early stage.