Alibaba anchors AI to restart its entrepreneurship

Author | Liu Baodan

Editor | Zhou Zhiyu

Since 2025, AI has been accelerated by DeepSeek. As one of the earliest tech giants to invest in AI, Alibaba is striving to meet the new demands emerging in the market, leveraging its technological accumulation in cloud computing and large models.

On the evening of May 15, Alibaba released its Q4 financial report for the fiscal year 2025, which actually reflects the first quarter of 2025, marking the first report after DeepSeek ignited the demand for AI.

In this quarter, Alibaba achieved revenue of 236.454 billion yuan, a year-on-year increase of 7%, maintaining the same growth rate as last year, and its performance over the past four quarters has not been particularly outstanding. With the explosive growth in AI demand, the market has high expectations for Alibaba; clearly, the implementation of AI is more challenging than anticipated. However, due to revenue growth and improved operational efficiency, Alibaba's adjusted EBITA reached 32.616 billion yuan, a 36% increase, better than market expectations.

This financial report conveys a positive signal that after three years of a downturn, Alibaba has completely emerged from its darkest moment. In terms of performance, Taotian has stabilized its market competition, and customer management revenue has begun to return to double-digit levels, while Alibaba Cloud's AI growth expectations are also relatively certain. Morale-wise, Alibaba has regained its confidence and is full of vigor.

26 years ago, Alibaba started from a lakeside garden in Hangzhou, creating a vast landscape of Chinese e-commerce step by step with Taobao, Tmall, Alipay, and Cainiao... Now, in pursuit of achieving AGI, Alibaba is trying to regain its entrepreneurial cohesion to create a new business myth in the AI era.

May 10 is Alibaba Day, where Alibaba replicated the lakeside cabin 1:1 and moved it to its global headquarters. The night before, Jack Ma appeared on-site to encourage employees to uphold the spirit of entrepreneurship. Eddie Wu posted on the internal network, stating, "We must adopt a mindset of starting from scratch, think like a startup, and create opportunities from it; otherwise, we will only face risks."

The AI era is roaring in, and Alibaba wants to remind everyone that the company is still in the startup phase and still believes in the power of dreams.

Solidifying the Foundation

For the e-commerce industry, the first quarter is typically a slow season, but Alibaba still delivered a highly valuable financial report.

According to the report, in this quarter, Taotian's CMR (Customer Management Revenue) reached 71.077 billion yuan, a year-on-year increase of 12%, marking a new high in growth rate over the past four quarters and returning to double-digit levels, mainly driven by the year-on-year increase in Take rate (monetization rate), supported by the growth in basic software service fees and "full-site promotion."

This is a significant figure. Over the past few years, Taotian has been investing in user experience and merchant operations to stabilize market share, but the revenue growth during the investment period was not significant. The 12% growth rate approaches Taotian's level in 2021, indicating that Taotian is gradually regaining its former e-commerce advantages.

However, against the backdrop of Alibaba's capital narrative shifting towards AI, Alibaba's progress in AI has been slower than expected.

In this quarter, Alibaba Cloud achieved revenue of 30.127 billion yuan, a year-on-year increase of 18%, with overall revenue (excluding income from Alibaba's consolidated businesses) accelerating to a year-on-year growth of 17%. This growth momentum is mainly driven by faster growth in public cloud business revenue, including an increase in the adoption of AI-related products From the financial report, Alibaba Cloud's AI-related product revenue has achieved triple-digit year-on-year growth for seven consecutive quarters. In terms of overall growth rate, although Alibaba Cloud has reached a new high in nearly a year, the 18% growth rate is below market expectations.

During the conference call, Alibaba's management stated that there is significant new customer demand for Alibaba Cloud in the first quarter, mostly driven by inference applications or inference scenarios. However, their large-scale rollout may not be completed until the next few months. "The growth rate in the coming months may be closer to our forecast of normal operating conditions."

Alibaba noted that the first quarter included the Spring Festival, which disrupted the supply chain. According to internal sources from Wall Street, Alibaba had purchased GPUs from ByteDance during this period. In the first quarter, Alibaba's capital expenditure was only 24.6 billion yuan, falling short of expectations.

In February of this year, Alibaba CEO Eddie Wu announced an investment of over 380 billion yuan over the next three years to build cloud and AI hardware infrastructure. Calculations show that Alibaba's average quarterly capital expenditure exceeds 30 billion yuan, which is significantly higher than the 24.6 billion yuan level.

Goldman Sachs believes that Alibaba's capital expenditure has decreased to 24 billion yuan quarter by quarter (a year-on-year increase of 2 times, roughly equivalent to Tencent's 27 billion yuan), down from 32 billion yuan in the previous quarter. This is due to overseas chip restrictions and the time needed for domestic chip supply to increase. It is expected that Alibaba's capital expenditure will continue to fall below the company's target of 130 billion yuan per year.

Beyond its core business, Alibaba's other business performances have been more mediocre. In this quarter, Alibaba's International Digital Commerce Group (AIDC) achieved revenue of 33.579 billion yuan, a year-on-year increase of 22%. Cainiao achieved revenue of 21.573 billion yuan, a year-on-year decrease of 12%, which is disappointing for a previously highly synergistic high-growth business.

Relatively good performance was seen in Alibaba's Digital Entertainment segment. In this quarter, the Digital Entertainment Group achieved revenue of 5.55 billion yuan, a year-on-year increase of 12%, with adjusted EBITA profit of 36 million yuan, mainly driven by profitability from Youku. Driven by rapid growth in orders from Ele.me and Amap, the Local Life Group's revenue reached 16.134 billion yuan, a year-on-year increase of 10%.

Emerging from the Low Point

The growth rate of Taotian CMR has returned to four years ago, and the certainty of growth in AI inference demand signals that Alibaba has completely emerged from its lost low point.

This is an important turning point, representing that Alibaba has regained its footing in the e-commerce business and can boldly venture into AGI. For Alibaba, which aims to survive for 102 years, this is destined to be a key turning point in its development history.

When mentioning Alibaba now, people still think of its peak moment in 2019. At that time, Alibaba became the world's first e-commerce company with a GMV exceeding 1 trillion USD, and Jack Ma officially retired with a grand concert. However, just when everyone thought Alibaba would usher in a brighter future, changes quietly began to emerge.

The sudden pandemic, combined with a return to rational consumption, led to a widespread embrace of low-price e-commerce models represented by Pinduoduo, causing Alibaba to begin its decline. Goldman Sachs' global investment research report shows that Taobao and Tmall's market share dropped from 66% in 2019 to about 44% in 2022 Alibaba's stock price has also begun to plummet. According to Tonghuashun iFinD data, Alibaba's market value has declined since its peak of $858.1 billion (approximately RMB 6.2 trillion) in October 2020, with Alibaba's market value evaporating by 80% at its lowest point, lingering at low levels until the recent wave of revaluation of Chinese tech assets.

What truly defeated Alibaba, compared to market share and stock price, was the loss of confidence; over the past three years, Alibaba's morale has been severely impacted.

In December 2020, the State Administration for Market Regulation launched an investigation into Alibaba's abuse of market dominance in the online retail platform service market in China based on antitrust laws. In April 2021, the State Administration for Market Regulation made an administrative penalty decision, ordering Alibaba to cease illegal activities and imposing a fine of 18.228 billion yuan. As a result, Alibaba entered a three-year rectification period.

Alibaba's decline peaked in 2023. On November 30, 2023, Pinduoduo's market value reached $195.887 billion, surpassing Alibaba by a lead of $3.1 billion, becoming the largest Chinese concept stock by market value in the U.S. stock market, overturning Alibaba's status. Alibaba employees were all paying attention to this moment, and many found it hard to understand, "A cut has made them the big brother."

By the end of 2023, JD.com announced that the Beijing High People's Court made a first-instance judgment on Alibaba's "choose one from two" case, ruling that it constituted monopolistic behavior by abusing market dominance and ordered Alibaba to compensate JD.com 1 billion yuan.

For Alibaba, 2023 was an absolute low point and also the beginning of a rebound.

In August 2024, the State Administration for Market Regulation announced that Alibaba Group had completed its three-year rectification with good results. In February of this year, the government held a symposium for private enterprises again after seven years, inviting Jack Ma to attend alongside entrepreneurs like Ren Zhengfei and Pony Ma.

After DeepSeek became a global sensation overnight, Alibaba, as an AI infrastructure service provider, became a beneficiary. In the first quarter, Alibaba successively collaborated with Apple, BMW, China Mobile, and China Unicom in the AI field.

Now, Alibaba's counterattack in the e-commerce market has begun to reflect in performance growth; however, facing the rapidly growing AI market, Alibaba clearly needs to grasp the market rhythm well.

The capital market has begun to reassess Alibaba's value. On May 15, Alibaba's U.S. stock price closed at $123.90, up 46% since the beginning of the year. Alibaba is gradually reclaiming lost ground.

Exploring New Growth Paths

E-commerce is the support for Alibaba as a tech giant and also a ladder to the AI era.

However, facing the red ocean of e-commerce, Alibaba's growth has become increasingly difficult. Currently, Alibaba's growth strategy mainly reflects on two levels: user growth and expanding new markets, with the latter primarily referring to instant retail.

Against the backdrop of peak internet user growth, to achieve user growth, Alibaba has set its sights on the user base of its competitors and has become a party actively breaking down barriers between giants.

In September 2023, Alibaba and Tencent joined hands, staging a historic reconciliation. Alibaba Mama and Tencent Advertising reached a deep cooperation, with quality advertising traffic from WeChat video accounts and Moments being delivered through Alibaba Mama's UD effect. In September 2024, Taobao gradually opened WeChat Pay to merchants, allowing consumers to use WeChat Pay directly while browsing Taobao Soon, the WeChat app will support ordering from Taobao.

According to QuestMobile data, in September last year, Taobao added 18.67 million monthly active users, reaching a total of 944 million monthly active users, a record high. The agency analyzed that WeChat's exclusive user base relative to Taobao is 245 million, of which high-frequency e-commerce users exceed 80 million. This group is expected to convert into long-term incremental users for Taobao.

On May 7 of this year, Taobao Tmall signed a strategic cooperation agreement with Xiaohongshu to create the "Red Cat Plan," connecting the entire chain from planting grass to purchasing. The two parties will cooperate in terms of advertising budgets and effectiveness, especially as Xiaohongshu's advertising notes can directly link to Taobao.

Liao Yuan, chief analyst of the internet industry at CITIC Securities, believes that following the integration of WeChat Pay, Weibo, Zhihu, Bilibili, and other channels, the access of Xiaohongshu is expected to further enrich the sources of external traffic for Taobao, expand the conversion field for content-based consumers, and further strengthen the construction of the e-commerce ecosystem and transaction completion.

While increasing the user base, Taobao is also focusing on instant retail. On April 30 of this year, Taobao's "Hourly Delivery" officially upgraded to "Taobao Flash Purchase," with Ele.me focusing on ensuring delivery services. It launched in 50 cities on the first day and went nationwide on May 2. At the same time, Taobao Flash Purchase and Ele.me jointly invested 10 billion in subsidies.

This move by Taobao is more defensive. In February, JD.com officially entered the takeaway market, directly competing with Meituan, leading to an escalation of the takeaway war. As an e-commerce platform, Alibaba also needs high-frequency business to drive traffic. According to Wall Street News, just six days after the official launch of Taobao Flash Purchase, daily orders had already exceeded 10 million.

"The company has been laying out instant retail for many years, from acquiring Ele.me to investing in Hema, entering this market is a very natural thing." On a conference call, Alibaba stated that the instant retail track is large, potentially accommodating the needs of 1 billion users, and is growing very rapidly. Taobao already has a broad user base and will incorporate instant retail as a new service or new category on the Taobao platform.

Taobao's advantage lies in its existing merchant system, while Ele.me has been deeply involved in the takeaway market for many years and has a mature logistics system. Based on these advantages, Taobao can quickly achieve a good user experience and maintain a good balance in commercial efficiency.

Alibaba further revealed that in the near future, the company's focus is on actively investing to convert more Taobao users into instant retail users. In the long run, Alibaba hopes to upgrade its business model based on this new instant retail business, making the Taobao app more active.

However, instant retail has a higher threshold compared to e-commerce, and competition is equally fierce. For Taobao to capture a larger market share, it will also depend on the counterattacks from Meituan and JD.com, which will be a fierce battle.

AI Begins to Take the Lead

From its founding to the birth of Taobao, Alibaba took four years. Now, Alibaba has locked in its AGI strategy in just over two years.

In September 2023, Alibaba completed the second institutional handover of company management positions, with Eddie Wu appointed as the Group CEO. After taking office, he established the two strategic focuses of "user first, AI-driven." He believes that the traditional internet model has become severely homogenized and has entered a phase of stock competition, with new technologies represented by AI becoming the new driving force for global business development Two months later, Eddie Wu disclosed Alibaba's new strategic blueprint for the first time at the earnings conference, proposing an "AI-driven, public cloud-first" strategy for Alibaba Cloud. The former represents Alibaba Cloud's goal to provide AI infrastructure and build an AI ecosystem, while the latter signifies a shift in business structure towards public cloud.

The iteration speed of AI large models is accelerating. After more than two years of exploration, Alibaba first proposed in February this year that the primary goal of its AI strategy is to pursue the realization of AGI. The company believes that AGI could potentially impact or replace about 50% of the current GDP composition, and Alibaba Cloud aims to become one of the largest cloud computing networks for AI intelligence output.

To this end, Alibaba has determined its investment direction for the next three years around the AI strategy, focusing on three areas: AI infrastructure, foundational model platforms and AI-native applications, and the AI transformation of existing businesses. In particular, for cloud and AI hardware infrastructure, Alibaba will invest over 380 billion yuan, exceeding the total of the past decade.

An internal employee at Alibaba revealed that once the infrastructure is stable, the most important task for Alibaba is to achieve "AI transformation across various industries" on the application side. Only by solving complex problems in real scenarios can AI generate value, and the markets for cloud and AI can expand further.

At the press conference, Eddie Wu shared two major trends in the AI field: first, in large and medium-sized enterprises, AI applications are beginning to penetrate from internal systems to user-side scenarios; second, customers actively using AI products are extending from large and medium-sized enterprises to a large number of small and medium-sized enterprises.

"In this quarter, our industry penetration of AI products is rapidly expanding," Eddie Wu said. "In addition to the internet, smart vehicles, finance, and online education, which are relatively quick to adopt AI products, many traditional industries, such as aquaculture and traditional manufacturing, are also actively exploring AI applications, with significant growth in demand."

Alibaba disclosed its growth targets for AI for the first time. Eddie Wu stated, "In the fiscal year 2026, we will continue to focus on the core business growth of e-commerce and AI + cloud, shaping a second growth curve driven by technology in the medium to long term."

From AGI to AI investment direction, and then to implementation, it is a process from theory to practice, and Alibaba will encounter more problems and challenges.

Unlike e-commerce, Alibaba faces a more brutal global technological paradigm competition in the AI era, which will test Alibaba's technological judgment and global service capabilities. In addition, international trade barriers and policy compliance risks are also challenges that Alibaba needs to address.

Returning to an Alibaba

Last year, Alibaba was still reflecting on itself. In April 2024, Joseph Tsai stated in an interview with the Norwegian sovereign wealth fund that Alibaba had fallen behind in recent years, and the problem with the Taotian Group was neglecting user experience, leading to a reorganization of the entire group. "We shot ourselves in the foot; Alibaba has neglected user experience in the past."

Now, Alibaba is striving to regain its entrepreneurial spirit and reuniting its employees.

On May 7, Alibaba unveiled a 1:1 replica of the Lakeside Cabin at the Xixi campus. In 1999, Alibaba was born in this residential house, where many innovative businesses such as Taobao, Alibaba Mama, and DingTalk were also incubated. The Lakeside Cabin is considered Alibaba's "feng shui treasure land." "26 years ago, 18 people started their entrepreneurial journey in this small house, ultimately changing the lifestyles of millions of Chinese people. The power of dreams is great." After visiting the Lakeside Cabin, an Alibaba employee felt deeply moved and re-experienced Alibaba's glorious past.

It was the entrepreneurial spirit during the Lakeside Cabin period that shaped Alibaba, representing a successful narrative of Chinese business on a global scale. A widely circulated story is that Joseph Tsai chose to join Alibaba not only because of Jack Ma's personal charm but also due to the team's cohesion.

On the evening of May 9, Eddie Wu stated on the internal network that the Lakeside Cabin is the starting point of Alibaba's entrepreneurship, representing Alibaba's unceasing entrepreneurial spirit and eternal pursuit of innovation. Moving it to the global headquarters is meant to remind everyone that Alibaba is still in a state of entrepreneurship today.

Jack Ma has also been frequently appearing to support Alibaba. On April 10, he delivered a speech at the Alibaba Cloud new fiscal year launch, stating that high technology is not just about conquering the stars and the sea, but should also nurture the warmth of human life. "The significance of technology is to enable humanity to live better and more meaningfully, allowing all ordinary people to benefit from it." On May 9, Jack Ma appeared at the "Lakeside Cabin," encouraging employees to uphold the entrepreneurial spirit and continue innovating.

Joseph Tsai appeared at the 510 Alibaba Day gathering with friends and family, sharing personal stories of entrepreneurship with Alibaba and emphasizing Alibaba's strategic focus. "AI must be integrated into every business; in the next three to five years, all businesses need to be driven by AI."

From the Lakeside Cabin to the appearances of Jack Ma and Joseph Tsai, Alibaba is attempting to convey a message that it is re-aggregating. Two years ago, Alibaba underwent the largest restructuring in its history, requiring each business to operate independently in the market. Now, facing the AI era, Alibaba hopes that each business can collaborate effectively.

On May 8, Alibaba reopened internal forum permissions after two years, reuniting employees from Taotian, Alibaba Cloud, Alibaba International, Cainiao, Alibaba Entertainment, and other businesses on the internal network. An internal employee revealed that Alibaba will also initiate cross-group job transfers, allowing employees to transfer with their stock options, which will help retain talent better.

In the post, Eddie Wu stated that the group will adopt a saturated investment approach, focusing on several core battles. These key battles will involve multiple business units, leveraging their respective strengths and advantages. "We will choose long-term and overall value rather than short-term localized value, and formulate collaborative strategies for the group's various businesses based on overall value optimization."

The year 2025 will be a critical juncture in the history of AI development, as AI begins to truly scale up. For Alibaba, the medium to long-term goal in e-commerce is to stabilize its market position and enhance profitability in a fiercely competitive market, with AI taking on the role of a growth engine.

As Eddie Wu stated, the AI technological revolution will bring profound and complex changes to human society, with risks and opportunities coexisting. The technology, talent, and resources accumulated by Alibaba are advantages for the new era, but the intergenerational innovation of AI could instantly turn past advantages into disadvantages or even shackles.

For Alibaba, returning to an entrepreneurial state is essential to maintain creativity, which is the most important prerequisite for winning the AI battle. However, for a tech giant, regaining the entrepreneurial spirit itself is a challenge