Source: Finance Association

5/23,$BABA-SW (09988.HK)$/$Alibaba (BABA.US)$Published the 2024 annual report. It is the first anniversary of Alibaba's self-transformation. In the first jointly signed letter to shareholders, Cai Chongxin and Wu Yongming explained “who is Alibaba” in the new stage of development, why they have made “user-first, AI-driven” strategic trade-offs, and shared Ali's development strategy and how to invest in the future.

“Alibaba will always focus on the future.” Cai Chongxin and Wu Yongming frankly wrote in their shareholder letter that in the past 25 years, Alibaba has experienced continuous growth and has also shown some symptoms of “big company disease.” They also expressed their determination to actively tackle the “big company disease” and maintain an entrepreneurial spirit: “In the next 10 years, we will once again regard ourselves as a startup, stick to the original mission of 'making the world a business that is not difficult to do. ' We will uphold the long-term principle, making trade-offs for today and investing for tomorrow.”

Attachment: Full text of FY2024 letter to shareholders

Dear investors,

The past fiscal year ending March 31, 2024 was a watershed for Alibaba. This year, we made a series of key adjustments around strategic clarity and focus. The clarity and focus of our strategy has helped us define who we are, our direction, and how we will execute our development strategy. We think it's necessary to share our thought process over the past year and what this means for Alibaba's future.

Who we are

Alibaba has two core businesses: e-commerce and cloud computing. As part of China's consumer economy, we have built an ecosystem based on an internet platform to seize opportunities in local services, communications, search, and digital entertainment.

In the e-commerce sector, we operate Taotian Group (TTG), which includes platforms serving Chinese domestic consumers and B2B markets, and Ali International Digital Commerce Group (AIDC), which includes platforms serving international consumers and B2B markets. The strategic value of other business divisions is to make our e-commerce business more valuable by leveraging synergies. For example, as an instant delivery infrastructure, Hungry serves consumers' needs to buy fresh products from our e-commerce platform; our logistics subsidiary Cainiao relies on supply chain, transportation and distribution capabilities to create a good user experience for consumers to shop on Taotian and AIDC platforms.

In the field of cloud computing, we aim to become the leading provider of public cloud infrastructure and platform technology in China, providing our customers with a wide range of capabilities, including elastic computing, storage, network infrastructure, security, big data, and artificial intelligence (AI).

Our strategic direction

We have chosen two important paths for the company's strategic direction. As company leaders, we must clearly state our direction.

The first strategy is “putting users first.” For every platform we have, users come first, which means we design our company's business goals and product processes with a “user first” priority, from our business purpose to our product concept. China has the world's largest Internet population — 1.1 billion users. China has one of the highest e-commerce penetration rates in the world. E-commerce accounts for about 28% of total consumer retail sales. Today, the supply of consumer goods on the Internet is very rich. If brands and merchants want to stand out, they increasingly need accurate consumer marketing services provided by Internet platforms.

Our “customer first” strategy will ensure that user experience is the first priority in business strategy and product design. Improving user experience will increase user retention and repurchase. This will provide the best value proposition for sellers of goods and services on platforms such as Taobao, Tmall, Leisure Fish, Flying Pig, Are You Hungry, Gaode Map, and AliExpress. Because on the Alibaba platform, merchants can find the most dynamic, segmented, and most frequent online consumer groups.

The second strategic direction is to focus on artificial intelligence. We use AI as the most powerful variable to transform and accelerate business growth.

In the next ten years, no industry will be immune to disruptions brought about by AI. Instead of protecting old ways of doing things, AI reignites our entrepreneurial passion and imagination. Each of our businesses has a large number of application scenarios, and all scenarios can create greater value through artificial intelligence. At the same time, the deployment of artificial intelligence will increase computing demand, which will also drive Alibaba Cloud's growth. AI will not be a threat, but will present huge opportunities as a driving force for breakthrough user experiences and business models. If we can't keep up with the continuous and amazing advancements AI brings every day, we'll be replaced.

Operating principles

We are guided by the following operating principles in implementing our strategy.

First, be long-term when making difficult decisions. We consider strategies on a 10-year cycle, because the pace of development of technology companies usually goes through phases of investment, growth, return, profit, and inevitable decline. Our business is at various stages of development and must be managed in different ways. For example, AIDC has just started and requires upfront investment; Alibaba Cloud is investing for future growth while reaping the benefits of scale; as a mature enterprise, Taotian Group must innovate rapidly to seize the next growth cycle.

Second, we must be extremely focused and have a clear purpose in everything we do. Being focused means we're not distracted by irrelevant things, stay focused when deciding what's important or unimportant, and don't get emotional when faced with difficult choices. Clarity of purpose means that we must have strong enough reasons when making decisions. For example, Alibaba Cloud's shift to a public cloud priority reflects our structural advantages in technology and scale; at the same time, we made a difficult choice and gave up short-term revenue from a low-profit project business.

Finally, we conveyed a clear direction to the team and kept them in line with their goals by establishing sound incentives. We believe that transparency in strategic direction and clear goals from company leaders will make teams more efficient and happier. We have developed an employee incentive system that is consistent with medium- to long-term strategic goals, so that our team's personal wealth can be highly matched according to business performance.

capital management

In fiscal year 2024, Alibaba Group generated $21.6 billion in free cash flow. Management is responsible for deciding how to allocate cash to maximize shareholder value, and we are faced with a trade-off between returning cash to shareholders and reinvesting it into an existing or new business. In terms of capital management for FY2024, we reflect the company's focus on core business. We didn't invest our capital in developing a new business segment, and for the first time in history, the company announced and paid back $2.5 billion in dividends and bought back $12.5 billion in shares, reducing tradable shares by a net of 5.1%. In fiscal year 2024, we created value for shareholders by returning cash and increasing profits.

Invest in the future

Returning cash to shareholders doesn't mean we'll stop investing. Alibaba will continue to invest in two major areas: (1) accelerate the growth of its core business; and (2) maintain leadership in basic technology and innovation, including artificial intelligence.

It's important for shareholders to understand our investments in AI. The world's major technology companies are closely related to Alibaba in three aspects of the latest developments in the field of generative AI around big models.

First, as technology explorers, we are interested in exploring the potential of machine intelligence to achieve general artificial intelligence (AGI). Ultimately, it is possible for humans to achieve AGI at some level. Currently, the common way to promote AGI is to use the big model of the Transformer architecture. Large models are getting larger and more multi-modal, including voice, video, and images in addition to text. Investments required for infrastructure and development can only be borne by large technology companies that generate significant free cash flow from their core business. Alibaba has a market-leading proprietary basic model — Tongyi Qianwen, and we will continue to invest in the basic model and other AI innovations to break through the limits of machine intelligence.

Second, investing in big models helps grow our cloud computing business because training and using big models during development or inference will require computing power resources. We have opened the multi-parameter scale version of Tongyi Qianwen to the whole community, which has brought incremental demand for our proprietary models and computing power requirements. We also have the largest AI open source model community in China, including big models from third parties for use by developers who have access to our computing resources. As a result, becoming a leader in AI development will bring direct positive growth to our cloud computing business.

Third, Alibaba is an inseparable part of the consumer economy. Countless scenarios and applications for our tiered consumers — from consumer recommendations, virtual fitting rooms, to personal assistants — can be dramatically transformed through AI. We're excited about the endless possibilities of AI to drive a “user first” strategy.

Finally, we would like to say: Alibaba will always focus on the future. Over the past 25 years, Alibaba has experienced continuous growth, and some “big company diseases” have also appeared. Over the next 10 years, we will once again regard ourselves as a startup, stick to the original mission of “make the world have no difficult business to do”, and continue to innovate with an entrepreneurial spirit. We will uphold a long-term approach, making trade-offs for today and investing for tomorrow.

Cai Chongxin

Group Chairman

Wu Yongming

CEOs

May 23, 2024

editor/tolk