2025: Alibaba's AI Boost to E-commerce

The year 2025 has begun with a promising turnaround for AlibabaTraditionally, the Spring Festival marks a slow period for e-commerce sales, but Alibaba has managed to capture the spotlight due to its advances in artificial intelligence (AI). The journey started with the increasing attention on its open-source large model, Tongyi Qwen, especially following the release of the DeepSeek modelOn January 29th, the first day of the new year, Alibaba unveiled its latest model, Qwen 2.5-Max, which outperformed DeepSeek V3 in performance tests, demonstrating significant advancements.

As operations resumed, a significant partnership was announced on February 11th, where Alibaba allied with Apple to bolster AI services, further elevating market enthusiasm surrounding AlibabaAI has been a recurring theme in Jack Ma’s narrative for years, and now Alibaba is finally reaping the benefits of its investments in this technologyInternally, the intelligent cloud group has taken charge of driving profit growth, while externally, AI has helped halt the decline of Alibaba's stock price; since the announcement of the Qwen model, the stock has soared over 36%, closing at 120.9 HKD per share, propelling its market capitalization by 800 billion HKD to an impressive 2.3 trillion HKD.

Since Wu Yongming took the helm as CEO of Alibaba Group in September 2023, there has been a strong push for an "AI-driven" strategy alongside "user-first" initiativesThis strategic direction led to several adjustments within the company throughout 2024. By February 20th, Alibaba's latest financial report served as a testament to the fruits of this year's efforts.

The quarterly report revealed a robust performance for Alibaba in the fourth quarter of 2024, with revenue experiencing an 8% year-on-year growth, totaling 280.15 billion RMBAdditionally, net profit attributed to the parent company rose dramatically by 239.12% to 48.945 billion RMBOver the full year of 2024, Alibaba recorded revenues of 981.767 billion RMB and a net profit of 220.3 billion RMB.

On February 17th, Jack Ma made a noteworthy return at a significant private enterprise symposium, joining prominent figures from the technology, manufacturing, and retail sectors

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This appearance is viewed as a symbolic marker of Alibaba’s renewed direction and proactive stance in the market.

With a renewed focus on e-commerce and following a series of adjustments, Alibaba has ushered in a new era driven by its AI venturesThe question now looms: can Alibaba’s e-commerce division generate substantial growth in 2025, and how will its non-core businesses fare in the coming year? The answers remain to be seen.

Looking at the revenue trends for 2024, it becomes evident that while Alibaba's quarterly earnings have consistently surpassed those of 2023, the growth has been modest, averaging around 5%. The Alibaba ecosystem rests on seven main pillars: domestic commerce, international commerce, local living services, digital entertainment, and others, while two fundamental businesses anchor the infrastructure — Cainiao Logistics and Alibaba CloudNotably, the top three contributors to revenue comprise Taotian Group, international digital commerce, and cloud intelligence.

Analyzing these seven segments reveals three main categoriesThe first includes cloud intelligence and international commerce, both of which are vital growth enginesCloud intelligence has remarkably maintained profitability, with its profit growth rates in 2024 reflecting a robust performance, showcasing increases of 45%, 155%, and 89% year-on-year over the first three quartersEven in the fourth quarter, this segment continued to deliver profits with an adjusted EBITA of 3.138 billion RMB, marking a 33% increase in growth rate.

The financial report indicated that profits may have been impacted by customer growth and rising technological investmentsGiven the significant resources allocated to the latest large model announced during the Spring Festival, the return on investment is anticipatedFurthermore, the international digital commerce group, led by Jiang Fan, exhibited solid revenue growth throughout 2024, driven largely by platforms like AliExpress and the Turkish retail giant, Trendyol.

Meanwhile, Taotian Group, which represents domestic commerce, faces the most considerable pressures and adjustments for 2024. Its year-on-year revenue growth has faltered, with figures hovering near stagnation: 4%, -1%, 1%, and 5%. Previously, Alibaba responded to increased competition with aggressive low-price strategies; however, this move led to stagnation in advertising revenue and commission fees, causing customer management revenue to plummet

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To counter this, Alibaba announced the shift from fixed charges to dynamic GMV-based pricing beginning in September 2024.

This series of adjustments appears to have yielded positive effects, as evidenced by the growth in online GMV and take rates amidst a more favorable client management income trajectory, seeing incremental increases from 1% to 9% year-on-year by the end of 2024. Nonetheless, despite this improvement, Taotian Group still ranks near the bottom among the seven business sectors.

Third on the hierarchy is the local life group, which encompasses Amap and Ele.me, tasked with recovering from losses while navigating a competitive landscapeDespite showing consistent revenue growth over several quarters, this segment has yet to achieve profitability and remains under pressure from intense rivalsIn the fourth quarter of 2024, adjusted EBITA reported a loss of 596 million RMB, a significant drop from the 2.1 billion RMB loss incurred in the previous yearHints of potential profitability may emerge in 2025.

This year, the instantaneous retail sector is becoming increasingly competitive, placing additional pressure on local life servicesFrom a broader perspective, Alibaba appears to have regained its footing in 2024: profits rebounded from the downward spiral recorded during the first quarter, with third and fourth quarters setting new profit highsTaotian, intelligent cloud, and Cainiao all posted remarkable quarterly performances.

From a strategic standpoint, Alibaba's global e-commerce expansion and AI innovations are positioned as critical drivers for growth in 2025. The capital market has begun to reevaluate Alibaba’s valuation, shifting from a sole focus on e-commerce to a comprehensive view incorporating technology and commerce.

The most anticipated highlight of the financial report was undoubtedly Alibaba's achievements in AIThe emergence of DeepSeek has spotlighted the competitive landscape for open-source large models and highlighted the underestimated significance of the Tongyi Qwen model within this ecosystem

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Additionally, Apple's decision to partner with Alibaba to develop AI functionalities for its Chinese-based iPhone has further buttressed Alibaba's standing in the industry.

Industry insiders have pointed out that Apple is known for its strict vendor selection and has opted for Alibaba due to its superior cloud-edge hybrid capabilities, customer service proficiency, and multimodal model capabilities, showcasing Alibaba's comprehensive strengthsAs an early adopter of large model strategies, Alibaba's Tongyi Qwen series spans various language models and multimodal solutionsThe newly launched Qwen 2.5-Max has competed robustly against major models like DeepSeek V3, o1-mini, and Claude-3.5-Sonnet across multiple benchmark tests.

Furthermore, the integration of “large models + cloud infrastructure + computing power” empowers Alibaba to implement effective cloud-edge hybrid deployments, backed by an extensive engineering team dedicated to customer service and technical supportWith a vast consumer and payment database stemming from its commerce and local life services, Alibaba possesses numerous competitive advantages.

Having invested significant resources into its infrastructure, Alibaba Cloud has emerged as a core supplier and major investor for various domestic large model companiesAmong the six notable players in the domestic large model sector, companies like Zhipu, MiniMax, Yuezhi Dark Moments, Baichuan Intelligence, and Lingyi Wanshou have all received backing from AlibabaAs Alibaba Cloud aids in training these large models, it transitions through iterative advancements itself.

Years of strategic investments in AI are finally bearing fruitMany industry observers believe Tongyi Qwen's influence and reputation in the mainstream market have lagged behind developer communities, primarily due to the lack of high-traffic AI applicationsHowever, since the beginning of this year, Alibaba has actively ventured into AI-to-consumer businesses, exploring avenues like AI-enabled eyewear.

Alongside AI advancements, Alibaba's international commerce has emerged as another area representing its growth potential

This segment now comprises a hybrid of cross-border resources, including platforms like AliExpress and Lazada, along with localized entities such as Miravia and TrendyolThe emphasis on international commerce stems from Jiang Fan, who initiated considerable investments and restructuring post his appointment in early 2022, transitioning AliExpress from a marketplace model to a centralized retailer format focused on attracting users through optimized logistics and pricing strategies.

In March 2023, AliExpress introduced the Choice service, allowing a 90-day no-reason return policy and delivery assurances to outmatch competitionSubsequently, measures enhancing merchant rights and profitability have been rolled out to draw in more vendorsWhile Alibaba has carved out a rapid growth trajectory in international e-commerce, the path remains fraught with challenges—ensuring low operating costs while offering the best prices and incentivizing consumer engagement amidst stiffer competition from leading players like SHEIN and TikTok, necessitating significant investment in logistics and profitability collaborations.

Despite this rapid expansion, the international e-commerce arm has become one of the most cost-intensive and loss-heavy segments within Alibaba’s portfolioHowever, losses narrowed down as the company learned to optimize operations efficientlyThe revenue growth rate for Cainiao Logistics has faced a decline in 2024, with an alarming dip from 30% in Q1 to negative growth of 1% by Q4.

Across 2024, Alibaba has implemented sweeping reforms in domestic retail businesses, including e-commerce and new retail initiatives, with a focus on integrating online and offline strategiesTo stabilize online retail, Taotian Group has taken steps to escape the vicious cycle of low pricing to stabilize revenuesThis includes implementing a 0.6% service fee on every completed order, relying on “experience scores” for traffic allocation, and easing refund policies to elevate merchant service levels

Additionally, Taobao has integrated payment methods such as WeChat Pay and JD Logistics.

Following a comprehensive reshuffling over the past year, Wu Yongming consolidated domestic and international e-commerce operations under Jiang Fan’s leadership, reflecting a focused effort to enhance Alibaba’s e-commerce efficiency and streamline operationsReports allege that Jiang Fan's goal for 2025 is to provide more openness that aids brands, especially small and medium-sized enterprises, in growing their presence across various platforms, thereby enhancing Alibaba's revenue spectrum.

Participants in this transformation express a shared sentiment that the new direction is a promising step toward unifying and binding merchants more closely with Alibaba, thus promoting overall GMV growthCurrently, Alibaba's e-commerce ecosystem encompasses various models: B2B, B2C, and C2CStakeholders note that a combination of AI-enhanced efficiency alongside integrated domestic and international trade will become the defining theme for Alibaba in 2025. However, increased expectations also come with heightened pressures.

Simultaneously with its online restructuring, Alibaba has divested from several non-core assets, particularly in the offline retail sector, to enhance its focus on the burgeoning rapid retail segmentThe “new retail” initiative, which previously signaled Alibaba's ambitious vision for retail, had led to substantial investments in various physical retail assets, including the likes of InTime and HemaHowever, the performance of these sectors has been disappointing, leading to significant ongoing losses, second only to international e-commerce, exacerbating the overarching cost burdens.

In efforts to streamline profitability, Alibaba has offloaded positions in several extensive retail businesses, retaining only the Hema grocery chain as a cornerstone assetRecently, Jack Ma's appearance at a Hema location has been interpreted as a strategic move to galvanize internal morale

Reports indicate that in 2024, Hema launched 72 new stores, nearly a third of which are located in second- and third-tier citiesMoreover, Hema's new CEO revealed that the chain has achieved profitable status for nine consecutive months alongside registering double-digit growthThe forthcoming performance of Hema in 2025 will largely hinge on its strategies for penetrating lower-tier cities and converting initial successes into ongoing profitability through repeat consumer purchases.

The contraction of the new retail business does not imply abandoning the exploration of integrated online and offline retail channelsThe recent expansion of JD’s same-day delivery services into food delivery signifies a resurgence of competition within the instantaneous retail domain, with Ele.me required to validate its position once againHowever, the competitive landscape for rapid retail remains particularly challenging, given the necessity for significant user adoption and app engagement to ensure stable delivery performance while also maintaining a diverse SKU offering and strong management capabilities among offline retailers.

In February, Ele.me underwent another reorganization, with its chair Wu Zemming also taking on the CEO role, a clear indication that delivery capabilities remain a crucial focus for the rapid retail sectorEle.me’s merchant relationships, user base, and established logistics capacity have contributed to the platform's ongoing growth trajectoryNevertheless, increasing expenses due to competitive pressures from Meituan and Douyin, driven by aggressive pricing strategies, have led Ele.me to rethink its operational efficiencies and cost-management practices.

Following Alibaba's refocusing on its core businesses, the competitive pressures have been redistributed amongst its various business units, where producing positive outcomes without missteps in such a high-stakes environment can be quite challengingIndustry experts have observed a consistent pattern in Alibaba's operations, generally shifting defensive during downturns and becoming aggressive in times of prosperity

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