Key Takeaways
- Alibaba’s Cloud Intelligence Group has returned to profitability, with its focus on high-margin public cloud and AI products driving a significant turnaround in EBITA.
- The core e-commerce segment (Taobao and Tmall Group) is showing signs of stabilisation with modest revenue growth, but this is being overshadowed by intense investment and losses in the Local Services Group due to price wars.
- Management’s strategy has pivoted towards enhancing shareholder value through a substantial share buyback programme, alongside a renewed focus on its core e-commerce and cloud businesses.
- While competitive pressures are real, the market may be underappreciating the strategic shift towards profitable growth in the cloud and the long-term value of its integrated logistics network, Cainiao.
Alibaba Group finds itself at a fascinating inflection point, where a robust recovery in its cloud computing division is set against a backdrop of fierce domestic competition in e-commerce. Some observers, such as the analyst Natan, suggest the strength in the cloud is sufficient cause to hold firm against the noise of price wars. This view warrants a closer look, as the company’s recent performance reveals a deliberate and painful strategic repositioning: sacrificing short-term margin in certain segments to defend its core, while simultaneously cultivating its next major growth engine. The narrative is no longer one of untethered expansion, but of disciplined capital allocation and a fight for profitable market share.
The Cloud’s Silver Lining Becomes Golden
For several quarters, Alibaba’s Cloud Intelligence Group was a source of concern, grappling with slowing growth and margin pressure. However, the latest financial results indicate a significant operational turnaround. The division has pivoted away from low-margin, project-based contracts to concentrate on higher-value public cloud services and AI-related products. This strategic refinement is now bearing fruit.
In the quarter ending March 2024, the Cloud Intelligence Group’s revenue grew 3% year-over-year to RMB25.6 billion. While modest, the critical development was in its profitability. The segment’s adjusted EBITA saw a remarkable increase of 45% to RMB1.4 billion, driven by improved product mix and operational efficiency. This return to profitable growth is not merely a cyclical uptick; it reflects a conscious decision to prioritise sustainable earnings over revenue at any cost, a sign of increasing maturity in its business strategy.
Alibaba Group Segment Performance (Quarter Ended March 31, 2024)
| Segment | Revenue (RMB millions) | Year-over-Year Growth | Adjusted EBITA (RMB millions) |
|---|---|---|---|
| Taobao and Tmall Group | 93,216 | 4% | 22,485 |
| Cloud Intelligence Group | 25,595 | 3% | 1,432 |
| Cainiao Smart Logistics | 24,557 | 30% | (1,342) |
| Local Services Group | 14,628 | 19% | (3,196) |
Source: Alibaba Group March Quarter and Fiscal Year 2024 Results.
E-Commerce: A War of Attrition
While the cloud division offers a clear growth narrative, the domestic commerce landscape is considerably more complex. The Taobao and Tmall Group, Alibaba’s traditional powerhouse, posted a respectable 4% revenue increase, with online Gross Merchandise Volume (GMV) recording double-digit growth year-over-year. This indicates that the core platform remains resilient, likely benefiting from a renewed focus on user experience and retaining high-value customers.
However, the real battle is being waged in adjacent sectors, particularly within the Local Services Group, which includes the Ele.me food delivery platform. This segment saw revenue climb 19% but posted an adjusted EBITA loss of RMB3.2 billion. This loss is not an accident but a direct consequence of a deliberate strategy to compete in an aggressive price war against rivals like Meituan. The company is investing heavily in subsidies and promotions to maintain and grow its market share in the on-demand delivery space, viewing it as a critical component of its broader ecosystem. This is a classic, if painful, cash-burning exercise to secure long-term strategic ground. For investors, it transforms the segment from a near-term profit contributor into a significant capital drain, with the timeline for profitability remaining decidedly uncertain.
A New Focus on Shareholder Returns
Perhaps the most significant, yet often overlooked, shift in Alibaba’s strategy is its approach to capital allocation. Faced with a depressed share price and a complex macroeconomic environment, the company has become far more aggressive in returning capital to shareholders. During the fiscal year 2024, Alibaba repurchased a total of US$12.5 billion of its shares. Furthermore, the board has approved a substantial dividend for the fiscal year.
This pivot towards shareholder returns serves two purposes. First, it signals management’s confidence in the company’s intrinsic value and its ability to generate strong free cash flow, even amidst competitive pressures. Second, it provides a tangible return to investors, offering a degree of support for the share price independent of near-term growth narratives. This strategy tacitly acknowledges that the days of hyper-growth are over, replaced by an era that calls for more disciplined financial management and a balanced approach to investment and returns.
Conclusion: Redefining the Win
Alibaba is navigating a multi-front campaign. The revitalised cloud business provides a credible, high-margin growth vector that aligns with global trends in AI and digitalisation. Simultaneously, the company is engaged in a costly war of attrition in local commerce, a necessary evil to defend its ecosystem’s perimeter. The overarching strategy appears to be one of stabilising the core, investing selectively in high-potential areas, and returning excess capital to shareholders.
As a closing hypothesis, the market may be mispricing the endgame. The current focus is on whether Alibaba can ‘win’ the delivery price war. A more insightful question is whether it can successfully integrate its revitalised cloud capabilities, its vast e-commerce data, and its Cainiao logistics network into a unified, AI-driven retail infrastructure. If it can leverage its technology stack to create efficiencies and user experiences that competitors cannot replicate through subsidies alone, the short-term margin erosion in local services will be remembered as a shrewd, long-term investment rather than a strategic misstep.
References
Natan. (@nataninvesting). (2024, May 5). [Summary of view on Alibaba’s cloud segment and e-commerce growth]. Retrieved from https://x.com/nataninvesting/status/1786113882735493540
