Joe Tsai and Eddie Wu’s 2024 Letter to Shareholders

From left to right: Alibaba Group Chairman Joe Tsai and CEO Eddie Wu. Photo credit: Alibaba Group

Dear Shareholders,

Our fiscal year ended March 31, 2024 was a landmark one. This was the year that Alibaba made several changes towards strategic transparency. This clarity has helped us define who we are, what our direction is and how we will execute our strategy.

We feel it’s important to share the thought process we went through last year and what it means for Alibaba going forward.

Who we are

Alibaba has two main businesses: e-commerce and cloud computing. As part of China’s consumer economy, we have developed an ecosystem of online platforms to leverage opportunities in local services, communications, search and digital entertainment.

In e-commerce, we operate Taobao and Tmall Group (TTG), which includes platforms for China’s domestic consumer and B2B markets, and Alibaba International Digital Commerce Group (AIDC), which includes platforms for international consumer and enterprise-based business markets.

Other divisions of the company provide strategic value by providing synergies that enhance the value of our e-commerce businesses.

For example, on-demand delivery company Ele.me provides infrastructure for the immediate delivery of fresh and perishable products purchased through our e-commerce platforms; and our logistics subsidiary Cainiao provides the supply chain, transportation and delivery capabilities to provide consumers shopping on the TTG and AIDC platforms with a great experience.

In cloud computing, our goal is to be the leading provider of public cloud infrastructure and platform technologies 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 strategic direction of our business. As company leaders, we must be clear about our direction.

The first strategy is User First.

Users of our various platforms are at the forefront of how we run our business and design our products, from user interface to algorithmic matching to customer service. China has the world’s largest Internet population with 1.1 billion users, and China’s e-commerce penetration is among the highest in the world at approximately 28% of total consumer retail.

Nowadays, you can find all kinds of consumer products on the Internet. If brands and distributors want to stand out, they will increasingly need targeted consumer marketing services provided by online platforms.

Our User First approach will prioritize user experience in business strategy and product design to increase retention and repeat purchases.

This will provide the best value proposition to sellers of goods and services on our platforms such as Taobao, Tmall, Xianyu, Fliggy, Ele.me, Amap and AliExpress, because Alibaba is the place where they can find the most robust and segmented products and user base with the highest frequency of Internet use.

The second strategic direction is to focus on artificial intelligence as the single most powerful element that will transform and accelerate the development of our companies.

No industry will be immune from AI disruption over the next decade.

Instead of protecting the old way of doing things, artificial intelligence has reignited our startup passion and imagination. Each of our companies has a huge number of use cases, all of which can leverage AI applications to unlock powerful value, and the implementation of AI will increase demand for computing and drive the development of Alibaba Cloud.

Artificial intelligence will not be a threat, but it heralds enormous opportunities as a driver of breakthrough user experiences and business models. If we don’t keep up with the constant and amazing improvements that artificial intelligence shows us on a daily basis, we will be driven out.

Principles of operation

In implementing our strategy, we are guided by a number of operating principles.

First, when making difficult decisions, we look at the long-term perspective. We think in 10-year cycles because the rhythm of development of technology companies usually includes phases of investment, growth, harvest, profits and invariable decline.

Our businesses are at different stages and need to be managed in different ways. For example, AIDC is in its infancy and requires upfront investment; Alibaba Cloud invests in future growth while benefiting from economies of scale; and TTG is a mature company that must quickly introduce innovations and fit into the next growth cycle.

Secondly, we place emphasis and purposefulness in everything we do. Focus means we are not distracted by unimportant things, and when determining what is important and what is not, we remain unemotional when faced with difficult choices. Intentionality means that we create solid reasons for why we do what we do.

For example, Alibaba Cloud’s transition to a public cloud strategy reflects the rationale for our structural advantages in technology leadership and economies of scale; At the same time, we made the difficult decision to forgo short-term revenues from low-margin project-based businesses.

Last but not least, we provide clear direction to our teams and strive to align their actions by establishing solid incentive systems. We believe that clarity of strategic direction and a demonstration of purpose from company leaders make employees more productive and happier.

We have developed employee incentive systems that are linked to our medium and long-term strategic goals, so our teams know exactly where they stand financially based on business results.

Capital management

In fiscal 2024, Alibaba generated $21.6 billion in free cash flow. Management has a responsibility to determine how we will use our cash to maximize shareholder value. On the one hand, we are faced with the need to return funds to shareholders and, on the other hand, reinvest them in existing or new enterprises.

Our capital management activities in fiscal year 2024 reflected the company’s focus on our core businesses. We did not invest in new business lines. Instead, we declared and paid a dividend of USD 2.5 billion for the first time in the company’s history and bought back our own shares worth USD 12.5 billion, which resulted in a net reduction of issued shares by 5.1%.

In fiscal year 2024, we delivered value to shareholders by returning cash and increasing earnings.

Investing in the future

Returning cash to shareholders does not mean we will stop investing. Alibaba will continue to invest in two areas:

1. to accelerate the growth of our core businesses, and
2. maintaining leadership in core technologies and innovations, including artificial intelligence

It’s important that you understand our investments in artificial intelligence. The latest developments in generative AI with new iterations of large language models (LLM) from the world’s largest technology companies are important to Alibaba for three reasons.

First, as technology pioneers, we are interested in exploring the potential of machine intelligence for artificial general intelligence (AGI). Ultimately, humanity may be able to achieve AGI based on certain definitions.

The current approach moving towards AGI is LLMs using transformer architecture. As LLM companies become larger and begin to use multimodal solutions, including voice, video and image in addition to text, the level of investment required in infrastructure and development can only be undertaken by large technology companies that generate significant free cash flow from their core businesses.

Alibaba has a market-leading proprietary LLM company, Qwen, and we will continue to invest in LLM and other AI innovations to push the boundaries of machine intelligence.

Second, investment in LLM will drive the growth of our cloud computing business, as training and using LLM in development or inference will require computing resources. We have made open-source versions of our Qwen LLM publicly available, creating additional demand on our proprietary model, resulting in demand for computational resources.

We also have China’s largest open-source LLM community, ModelScope, which includes third-party LLM tools for developers who need access to our computing resources. Therefore, being a leader in the development of artificial intelligence ensures a direct positive development of our cloud computing business.

Third, Alibaba is an integral part of the consumer economy. The user experience in many of our consumer applications can be transformed by AI applications, from shopping recommendations to virtual showrooms and personal assistants. We are excited about the limitless possibilities of artificial intelligence in implementing our User First strategy.

In conclusion, we would like to say this: Alibaba is about the future.

Over the past 25 years, Alibaba has grown steadily, but unfortunately has acquired the characteristics of a “big company”. Over the next ten years, we re-imagine ourselves as a start-up characterized by entrepreneurship, innovation and our mission to “make it easier to do business anywhere.”

By making trade-offs today and investing for tomorrow, we will apply long-term thinking.

May 23, 2024

Discover more content from Alibaba executives in the Alizila AliViews archives