Alibaba Group Holding’s big investment in artificial intelligence (AI) is already bearing fruit, as the company’s cloud computing business emerged as the shining star in its latest quarterly earnings while e-commerce missed expectations.
AI has been a key driver of cloud growth at Alibaba, owner of the South China Morning Post. In the three months to June, AI-related product revenue continued to see triple-digit year-on-year growth, according to the company.
“Alibaba’s AI-driven, user-first strategy has achieved initial success over the past year,” said Chen Hudong, a researcher at the Chinese e-commerce research institute 100ec.
AI investment has boosted the company’s revenue in search and recommendation scenarios, Chen said, and helped increase the frequency with which shoppers repurchase products on the company’s e-commerce platforms such as Taobao and Tmall.
Alibaba’s June quarter was a mixed bag. The company reported 4 per cent year-on-year revenue growth to 243.2 billion yuan (US$33.5 billion), but it was lower than estimates. It raised questions about the company’s efforts to refocus on e-commerce and stabilise its domestic market share amid intensifying competition.
While Taobao and Tmall Group saw revenue decline 1 per cent to 113.4 billion yuan, missing the estimated 117.6 billion yuan, the Cloud Intelligence Group, which includes Alibaba’s AI business, recorded its fastest growth since the September 2022 quarter, growing 6 per cent year on year to 26.5 billion yuan.
The results signalled that cloud computing remains Alibaba’s main growth engine, despite being briefly outshined by international e-commerce, which surpassed cloud in revenue growth in late 2022. Cloud growth has remained in the single digits for most quarters since then.
“There’s very, very robust demand among our customers for AI and AI-relevant products. And if you look at the pipeline, you can see that demand is still far from being satisfied,” Alibaba CEO Eddie Wu Yongming said in the post-earnings call on Thursday, adding that revenue from external customers will achieve double-digit growth in the second half of the financial year, which ends in March.
“I would say more than half of that expected growth will be driven by AI products,” he added.
Alibaba has been one of the best performers in China’s AI sector. The open-source version of its Tongyi Qianwen family of large language models, Qwen, has topped rankings of open-source models globally.
Chinese e-commerce firms, meanwhile, have come under pressure. Budget-focused PDD Holdings, owner of Pinduoduo and Temu, and ByteDance, which has boosted shopping options on Douyin and TikTok, have been eating up market share both at home and abroad.
Analysts have noted a gap between Taobao and Tmall’s customer management revenue and gross merchandise value (GMV) growth in the past few quarters, signalling challenges in driving up money earned from merchants.
Taobao rolled out an advertising tool called Quanzhantui in April and announced plans to charge a new technology service fee to merchants from September in an effort to step up monetisation, but executives said on Thursday that it could take several months for these measures to bear fruit.
Meanwhile, a weak domestic economy has continued to tamp down consumer sentiment in the world’s second-largest economy.
Compared with the previous earnings call in May, when Alibaba chairman Joe Tsai remarked that there were early signs of recovering consumer confidence, company executives barely mentioned economic headwinds on Thursday.
Bao Yuezhong, chairman of Baomu Consulting, said that the two problems facing Alibaba and its rival JD.com are downward pressure in the market and the impact of diversified e-commerce business models. ByteDance has found success in China with live-streaming e-commerce on Douyin.
While the decline in Taobao and Tmall revenue “looks disappointing”, Alibaba’s domestic e-commerce GMV growth has been “broadly in line with that of the industry for two quarters in a row, demonstrating an initial success of its new investment strategy”, JPMorgan analysts said in a research report on Friday.
