Zhike | AI Broadens Alibaba's Imagination, and Business Restructuring Enters the Harvest Period
Author | Fan Liang
Editor | Zheng Huaizhou
On the evening of November 15, Alibaba announced its 2024 Q3 results, which is the second quarter report of the company's 2025 fiscal year.
From the financial data, Alibaba achieved an operating income of 236.503 billion yuan in 2024 Q3, with a year-on-year growth of 5%; and a net profit of 43.547 billion yuan, with a year-on-year growth of 63%.
In terms of business segments, Taotian Group achieved an operating income of 98.994 billion yuan in 2024 Q3, with a year-on-year growth of 1%; Cloud Intelligence Group achieved an operating income of 29.61 billion yuan, with a year-on-year growth of 7%; International Business achieved a revenue of 31.672 billion yuan, with a year-on-year growth of 29%; Cainiao achieved a revenue of 24.647 billion yuan, with a year-on-year growth of 8%; Local Life Group achieved an operating income of 17.725 billion yuan, with a year-on-year growth of 14%; Great Entertainment Group achieved 5.694 billion yuan, with a year-on-year decrease of 1%.
Since the announcement of establishing the two strategic focuses of "User First, AI-Driven" in early September last year, Alibaba has carried out a series of major adjustments, including Increasing user experience investment in Taotian, increasing investment in AI infrastructure in the cloud business, and improving efficiency and reducing losses in other businesses. This performance report is undoubtedly a key node to test the strategic results of Alibaba. So, what other detailed highlights are there in this financial report of Alibaba?
The Effect of "User Experience First" Appears
In the past few years, in the face of competition from peers in terms of cost-effective consumption, although Alibaba has launched a series of countermeasures such as the Taote App and the "Price Power" campaign, some industry views believe that under the influence of Alibaba's ToB thinking mode for many years, Alibaba has not focused on the user side.
For example, Zhongtai Securities pointed out that in the era of Alibaba's rise, the richness of online supply is an important competitiveness. Therefore, the company's positioning is to serve merchants, and the traffic distribution rules are not friendly to consumers (the cost performance of goods is insufficient). In the buyer's era of oversupply, consumers have become the core force that determines the future of the platform. Alibaba has finally recognized this key change and made this strategic adjustment of "User First".
From a global perspective, Taotian as a whole follows the strategic path of "Increasing investment in user experience, improving the business environment for merchants - Increasing users, increasing purchase frequency, increasing GMV - Improving commercialization rate".
Regarding how to enhance the user experience, CICC summarizes that it mainly includes three aspects. One is to reallocate traffic to break the original interest pattern, try to introduce new traffic, increase the screening of merchants with traffic distribution as the starting point, and establish a reward and punishment mechanism; the second is to attach importance to user feedback and give users the right to vote and screen; the third is to improve the infrastructure and the pre-sale, in-sale and after-sale experience, and provide value-added services and subsidies for some users.
Figure: The path and choice of e-commerce platforms to serve users and enhance user experience Source: CICC, 36Kr Collation
Specifically, the following several major measures are most worthy of attention:
First, a new store rating system is introduced, which includes "Store Experience Score" and "Product Experience Score (PXI). Among them, the evaluation dimension of the store experience score has established more detailed indicators around the commodity system, logistics system, and evaluation system; the "Product Experience Score" mainly affects the search and recommendation algorithm, and the higher the experience score, the greater the weight.
Second, for the 88VIP members with high user stickiness, more powerful value-added services are launched. For example, providing unlimited return shipping service; exchanging points for cash red envelopes, etc.
In addition, in this strategic adjustment, Alibaba has not favored one over the other, but has placed the user experience and the business operating environment in the same position. For example, this year, the AI-driven full-platform marketing tool "Full Site Promotion" was launched, which can effectively improve the marketing efficiency of merchants.
Of course, the transmission path of increasing investment in user experience, improving the business environment for merchants - business growth (number of users, increasing purchase frequency, GMV) - improving the commercialization rate is not achieved overnight. The current investment in enhancing the user experience will not immediately have a significant effect on the commercialization rate, but A significant effect can already be seen in the link of "increasing users, increasing purchase frequency, and increasing GMV".
Alibaba's 24Q3 financial report data shows that The 88VIP group has maintained double-digit growth for several consecutive quarters, and the current scale has reached 46 million. From the perspective of the ordinary user group, QM data shows that the scale of new installations of the Taobao APP in September increased by 55% year-on-year, reaching the highest value in the past four years. In terms of monthly active user scale, Taobao added 18.67 million new users in September, and the total monthly active user scale reached 944 million, setting a new historical high. In addition, Taotian's GMV also achieved healthy growth in this quarter. When broken down, the order volume achieved double-digit growth. In the just-ended Double 11, Taotian's GMV grew strongly, and the number of buyers reached a record high.
In terms of commercialization, Taotian has also made initial progress. The financial report discloses that Taotian achieved a customer management income of 70.364 billion yuan in 24Q3, with a year-on-year growth of 2%, accelerating compared to the previous quarter, and the Takerate also remained stable year-on-year.
AI Reshaping Alibaba Cloud
Since last year, the main line of Alibaba Cloud is Gradually reducing project-based contracts with low profit margins, focusing on the public cloud business, and at the same time increasing investment in AI infrastructure.
Under the influence of the adjustment of the income structure, Alibaba Cloud's income has maintained a single-digit growth state since the 2024 fiscal year. Although the absolute growth rate is not eye-catching, there are many highlights in the细分 directions. First, the public cloud has achieved double-digit growth for several consecutive quarters; the income of AI-related products has achieved triple-digit year-on-year growth for five consecutive quarters.
In addition, in terms of profitability, after reducing non-high-quality project businesses, Alibaba Cloud's adjusted EBITA has achieved a significant year-on-year growth in multiple quarters, Reaching 2.661 billion yuan in 24Q3, with a year-on-year growth of 89%.
In terms of AI, Alibaba Cloud has been clearly recognized as the preferred service provider in China for public cloud and AI training and applications. From the positioning point of view, Alibaba Cloud is taking AI as the center, comprehensively reconstructing the underlying hardware, computing, storage, network, database, and big data, and organically adapting and integrating with the AI scene to accelerate the development and application of the model and build AI infrastructure. Alibaba Cloud also previously disclosed that more than 50% of large model companies in China run on Alibaba Cloud, and 80% of technology companies run on Alibaba Cloud.
At this year's Yunqi Conference in September, Alibaba Cloud also released the Tongyi Qianwen Open Source Model 2.5 series, which has become one of the leading models in the global open source ecosystem. Since the first open source in 2023 until September 30, 2024, more than 70,000 derivative models have been developed based on the Tongyi family on HuggingFace.
For the future profit outlook, Alibaba said in the performance briefing that although facing the pressure of price decline, the company attracts new users by reducing the prices of API and Token. When these new users use other products of the cloud platform, they will bring more income. Thanks to the technical advantages and scale effects, the profitability of the cloud service business is expected to continue to improve.
Significant Reduction in Business Losses and Emphasis on Shareholder Returns
Alibaba's net profit recorded a significant growth in this quarter. A very important reason is that the local life and great entertainment business segments have significantly reduced losses.
From the specific financial data, the adjusted EBITA of the Local Life Group has reduced losses by 85%, which is close to the break-even point. The great entertainment has reduced losses by 11%, which is also close to the break-even line. With the reduction of losses being promoted in a rhythmic and planned manner, Alibaba's net profit is expected to continue to maintain a strong growth momentum.
In the financial report, Alibaba also disclosed the latest progress of the share buyback. In the single quarter of the third quarter of 2024, the company has cumulatively repurchased 4.1 billion US dollars, repurchasing a total of 414 million ordinary shares (equivalent to 52 million American Depositary Shares). The outstanding shares have further decreased by 2.1% net compared to the end of June. Generally, the capital market treats share buybacks and dividends equally, which means that Alibaba's dividend rate in the single quarter of 24Q3 has reached 2%, which is a relatively high level. Alibaba disclosed that the company still has a remaining buyback quota of 22 billion US dollars, valid until the first quarter of 2027. The huge buyback quota will not only bring丰厚的 cash returns to shareholders, but also strongly support the company's stock price.
In general, this financial report of Alibaba has the following highlights: Taotian insists on investing in the supply of "Good Products, Good Prices, and Good Services", which has begun to show results on the user side and has achieved initial results in transaction data; Alibaba Cloud is expected to re-enter double-digit growth in the fiscal year benefiting from the AI wave; the other businesses' rhythmic reduction in losses continues to drive profits upward. Although the effect of financial data may be somewhat lagging, operationally, Alibaba is undoubtedly at an inflection point at this time.
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