Alibaba's next hurdle is profit growth

Author | Liu Baodan

Editor | Huang Yu

The e-commerce battle is in full swing, and Alibaba is at a critical moment of counterattack against new e-commerce forces such as Pinduoduo and Douyin. At present, Alibaba's battle is not easy.

On the evening of August 15th, Alibaba released its financial report for the first quarter of the 2025 fiscal year, with a revenue of 243.236 billion RMB, a year-on-year increase of 4%, hitting a new low in the past four quarters.

As the core business, Taobao's revenue this quarter was 113.373 billion RMB, a year-on-year decrease of 1%, the only business among all Alibaba's businesses with negative growth, mainly due to Alibaba's adjustment of the domestic e-commerce business structure.

This quarter, Alibaba scaled back its direct-operated businesses including Tmall Supermarket and Tmall International, with this segment generating a revenue of 27.306 billion RMB, contributing nearly a quarter of the revenue for Taobao, but with a 9% year-on-year decrease in growth rate.

At the same time, Taobao's core merchant advertising revenue is also facing a growth bottleneck. This quarter, Taobao's customer management revenue growth rate was only 1%, still not recovering to previous levels.

Another core business, Alibaba Cloud Intelligence Group, achieved a revenue of 26.549 billion RMB, a 6% year-on-year increase. This is Alibaba's bet on the future, but currently, it is difficult for both scale and growth rate to drive performance.

As for overseas expansion, Alibaba International Digital Business Group and Cainiao achieved growth rates of 32% and 16% respectively, still the most promising businesses for Alibaba; local life and entertainment saw growth rates of 12% and 4% respectively, showing stable performance.

Alibaba's profits mainly come from Taobao. According to the financial report, Alibaba's adjusted EBITA for this quarter decreased by 1% year-on-year to 45.035 billion RMB, with Taobao contributing 48.81 billion RMB, while Alibaba International, local life, and entertainment are all in a loss-making state.

However, Taobao's adjusted EBITA growth rate decreased by 1% year-on-year, implying a potential signal that, while most other businesses are in a loss-making situation, Taobao urgently needs to improve its profit performance.

Currently, in the domestic e-commerce market, Taobao is facing a situation where although it has stabilized its market share, its profitability significantly lags behind revenue growth.

According to the financial report, this quarter Taobao's online GMV saw high single-digit growth year-on-year and order volume saw double-digit growth year-on-year, mainly driven by the growth in the number of buyers and purchase frequency, especially during the 618 promotion in the second quarter, where Taobao's online GMV achieved strong growth year-on-year.

Alibaba Group CEO Eddie Wu believes that Alibaba's strategy has been effective, Taobao Group has stabilized its market share, and the business has returned to a growth trajectory.

It can be said that in the face of the rapid rise of competitors such as Pinduoduo and Douyin, Alibaba's first-stage counterattack has been effective, but to a large extent, this strategy has been exchanging profits for market share. Next, whether Alibaba can improve its profitability will be the highlight of the competition in the second half of e-commerce.

The challenges are also evident, with a sluggish consumer environment compounded by competition between e-commerce platforms, Alibaba's e-commerce business will face difficulties in achieving profit growth.

Recently, Morgan Stanley pointed out in a research report that Taobao and Tmall Group's high single-digit GMV growth in Q1 indicates that market share is stabilizing from loss, but the growth in customer management revenue (CMR) is only 1%, still highlighting a trend of declining commission rates Alibaba has also realized this. In the performance conference call, Eddie Wu stated that after the preliminary stabilization of market share, projects aimed at increasing take rate and commercialization measures will accelerate starting this quarter.

On August 15th, Wall Street News learned that Alibaba's new tool "Full-Site Promotion" has been fully opened to all Taobao and Tmall merchants. At the same time, Alibaba plans to start charging technical service fees to Taobao and Xianyu merchants from September, with a rate of about 0.6%.

Eddie Wu mentioned that after the launch of the full-site promotion product in April, some significant effects and progress will be seen within 6 to 12 months after the launch. However, the perfect integration of the advertising system may take up to 12 months after the product is launched.

In addition, Alibaba's live streaming, billion-yuan subsidies, and various key new product forms have brought high user retention and repurchase rates. The monetization and commercialization of these new products and merchants also require some time to drive.

Goldman Sachs believes that the multiple currency uplift drivers from the launch of the new advertising product in April 2024, as well as the upcoming software service fees starting in September 2024, will drive a turning point in the monetization rate of Taobao and Tmall from the September quarter.

Furthermore, Alibaba's comprehensive reinvestment in AI will soon be reflected in its performance. In the performance conference call, Alibaba stated that there is a strong demand from Alibaba Cloud customers for AI-related products, and this demand has far from been met.

Alibaba expects that external customer revenue from Alibaba Cloud will return to double-digit growth in the second half of the fiscal year, a forecast that is quite clear.

In addition to core businesses such as Taobao, Alibaba Cloud, and international expansion, Alibaba has also raised profit requirements for other businesses.

Eddie Wu mentioned that other businesses will significantly improve efficiency, vigorously promote commercialization, and thus reduce losses. "It is expected to achieve a balance between revenue and expenses in about one to two years. After achieving this balance, it can gradually contribute to the group's profitability on a large scale."

From initiating the largest organizational restructuring in history to a major change in management, Alibaba has restructured its combat effectiveness in a start-up manner in a short period of time, initiating the largest counterattack in over 20 years.

After regaining users and initially stabilizing the market, the more brutal profit battle in the second half of e-commerce has begun