On May 14, Alibaba Group announced its results for the fourth quarter and full year of fiscal 2024 (April 2023 to the end of March 2024). According to the financial report, Alibaba Group's revenue in the fourth quarter was 221.874 billion yuan, a year-on-year increase of 7%; Adjusted EBITA (earnings before interest, taxes and amortization) decreased 5% year-on-year to $23.969 billion, and adjusted net profit decreased 11% year-on-year to $24.42 billion. After the earnings report, Alibaba's U.S. stock fell pre-market and continued to fall more than 8% after the open.
On the same day, Tencent Holdings announced its financial results for the first quarter of 2024. According to the financial report, in the first quarter of 2024, Tencent achieved revenue of 159.501 billion yuan and gross profit of 83.87 billion yuan, a year-on-year increase of 23%; Net profit (Non-IFRS) was 50.265 billion yuan, a year-on-year increase of 54%. This is the first time that Tencent's net profit has exceeded 50 billion yuan in a single quarter, and the growth rate of operating profit and gross profit has exceeded the growth rate of revenue for six consecutive quarters. After the earnings report, Tencent's U.S. stock closed up nearly 5%.
As two of the largest Internet technology companies in China, Alibaba and Tencent are thinking outside the box, re-examining themselves, and brewing a new round of change. Although they both belong to the Internet technology track, the two companies have gradually stepped out of different styles: one is decisive strategic contraction, and the other is firm and stable fundamentals; One is radical and opens and closes, and the other waits for an opportunity to move.
Business Territory: Significant Contraction VS Solid Fundamentals
Alibaba, which started as an e-commerce business, seems to be experiencing a "battle against the water", with "optimization", "adjustment" and "contraction" becoming the main theme. The fast-rising platforms of Pinduoduo, Douyin, Kuaishou, Xiaohongshu and other platforms have launched a siege on Taotian Group, which has put Alibaba's proud position as the head e-commerce company in jeopardy.
According to the statistics of a number of research institutions, Ali's e-commerce market share has dropped to about 40%. In stark contrast, Pinduoduo's brand GMV (gross merchandise transaction) increased by 48% year-on-year, and its market value once surpassed that of Alibaba. Short video platforms represented by Kuaishou and Douyin saw a year-on-year increase of 32% and 63% in GMV.
Source: Company financial report
The sharp contraction of the core e-commerce business has triggered a deep reflection on Alibaba. Joe Tsai, chairman of Alibaba Group's board of directors, sharply pointed out that Alibaba has "forgotten who the real customers are." Founder Ma Yun directly pointed out the three directions of Taotian Group in the future: return to Taobao, return to users, and return to the Internet, and expressed Ali's determination to "know mistakes and change them" in an internal letter. Taotian Group's position in Alibaba's entire business map has once again been put forward.
At the same time, Alibaba began to shrink its non-e-commerce core related businesses across the board. Hema, Alibaba Cloud, Cainiao and other sectors that were originally planned to be split and listed have all suspended their listings. In addition, Alibaba has frequently reduced its holdings in external companies such as Bilibili, Xiaopeng Motors, Guangguang Media, Huayi Brothers, and SenseTime Technology to reduce its investment layout. According to the financial report data, in fiscal year 2024, Alibaba has completed a cumulative withdrawal of $1.7 billion in non-core assets.
Alibaba, once valued at $266.4 billion and topped Asia, has now fallen to $205.9 billion, ranking seventh among the top 500 listed companies in China by market capitalization (source: wind). However, Hu Qimu, deputy secretary-general of the China Digital and Real Integration 50 Forum and chief researcher of the digital economy think tank, said that after Ali announced the organizational change, the market has given a positive reaction, "Investors may no longer use the valuation framework such as the forward price-earnings ratio, and start to use the 'segment summing' valuation method, which means that Ali has at least 100% upside."
While Alibaba's business territory has shrunk significantly, Tencent has maintained a trend of slow expansion on top of its solid fundamentals. From the perspective of the overall layout, Tencent's business system is relatively fragmented, mainly including value-added services (online games and social networking services), online advertising, financial technology and enterprise services, each of which accounts for between 19% and 30%. This also creates that Tencent's dependence on a single sector is not high, and the revenue structure tends to be balanced.
The huge social network provides Tencent with a stable traffic base, and continuously delivers it to Tencent's various business segments to form a benign interaction. Although its game business has also experienced a "cold winter" due to various uncertainties in the market, after a short period of fluctuations, Tencent's revenue and net profit quickly returned to the growth track.
According to public data, Tencent's market capitalization has returned to HK$3 trillion. In the latest list of "China's Top 500 Listed Enterprises by Market Capitalization" released by Wind in the first quarter of 2024 and the latest list of China's Top 500 Non-state-owned Enterprises released by the Hurun Research Institute, Tencent ranked first. This also gives Tencent the confidence to continue to expand new tracks while other Internet companies have shrunk their business segments.
It is understood that in the past year, Tencent has bet on 4 of the 5 new AIGC unicorns - Zhipu AI, Baichuan Intelligence, Minimax Mingmeng, Zero One Everything, and Light Years Away (merged into Meituan).
However, it is worth mentioning that, according to incomplete statistics, the number of Tencent's outbound investments in 2023 will only be 37, a year-on-year decrease of 60%, reaching the lowest point in nearly a decade. It can be seen that although Tencent is still continuing to expand its business boundaries, it has also become more cautious in its layout.
Cloud Computing: Accelerating Price Cuts vs. Emphasizing Profitability
Cloud computing is seen as the second growth curve by Alibaba and Tencent. As the largest cloud vendor in China, Alibaba Cloud's market share has long occupied the first position. However, in recent years, Alibaba Cloud's development trend has slowed down significantly.
According to research reports from several institutions, before 2018, Alibaba Cloud's market share once exceeded 60%. In recent years, this market share has been eroded by many parties. According to Gartner's latest cloud computing market tracker report, Alibaba Cloud will still maintain the first place in the cloud computing IaaS market in the Asia-Pacific region in 2023, but its market share has shrunk to 22.2%.
In order to stimulate growth and increase market share, Alibaba Cloud has cut prices four times in the past year. In the latest round of price cuts announced on April 8, its more than 500 core cloud computing products saw an average reduction of 23% and a maximum reduction of 59%, covering 13 geographical nodes around the world.
There is a view that Alibaba Cloud's price reduction strategy may be effective in attracting price-sensitive customers in the short term, especially small and medium-sized enterprises. Pan Helin, a postdoctoral fellow in applied economics at the Chinese Academy of Fiscal Sciences, said: "Alibaba Cloud needs to reduce prices to improve the reuse rate of cloud services and cloud facilities. So if the price reduction can be incremental, then the price reduction is worth it. ”
Judging from the financial report data, the results brought by Alibaba Cloud's price reduction strategy are obvious. In the fourth quarter of fiscal 2024, Alibaba Cloud's revenue increased by 3% year-on-year to RMB25.595 billion, adjusted EBITA increased by 45% year-on-year to RMB1.432 billion, and core public cloud product revenue achieved double-digit year-over-year growth. Wu Yongming, Chief Executive Officer of Alibaba Group, said, "This quarter's results demonstrate that our strategy is paying off, and Alibaba is getting back on a growth trajectory. ”
However, unlike the situation that other cloud vendors generally followed up in the past, Alibaba Cloud's price cut in April, and many vendors such as Huawei Cloud, Tencent Cloud, and e Cloud did not choose to follow up together for the time being. Due to the obvious trend of pressure on the public cloud market in recent years, at this stage, "scale" and "market share" seem to be ranked behind "profitability" by these vendors.
Source: Company financial report
Tencent's Chairman of the Board of Directors Pony Ma has repeatedly named the Cloud and Smart Industry Group (CSIG) internally, pointing out that it will further focus on profitability, cost reduction and efficiency improvement, and support Tencent Cloud's transformation from the past project turnkey model to a healthy and sustainable business model based on Tencent's self-developed products. Tang Daosheng, senior executive vice president of Tencent Group and CEO of the Cloud and Smart Industry Business Group, also publicly said: "I would rather be strong at 150 pounds than fat at 200 pounds." He said that the market is now more mature, there are fewer players, customers are more rational, and they will not choose simply because of price, but more importantly, the ability to provide high-quality services, "fighting a price war is the lowest level of competition."
Although the cloud computing business has not been separately included in the financial report, Tencent Cloud's share of the domestic public cloud market has been ranked among the top five by major research institutions. Tencent's latest financial report shows that the revenue of its fintech and enterprise services business, including cloud computing, increased by 7% in the first quarter, and gross profit increased by 42% year-on-year. In terms of PaaS and SaaS, Tencent has made a breakthrough in commercial growth.
AI: Actively explore VS low-key layout
In terms of future strategic development, AI is undoubtedly a track that major technology companies are betting heavily on. For Alibaba, whether it is the core e-commerce business or the second growth engine cloud computing business, AI runs through it, so AI is regarded by Alibaba as a key part of the whole chess game.
Alibaba's latest earnings report clearly mentioned that "in the first quarter of 2024, AI-related revenue growth accelerated, and continued to achieve triple-digit year-on-year growth". Wu Yongming said bluntly at the earnings conference: "The revenue growth of the cloud business is mainly driven by new AI products. "In the future, our main growth will basically come from (products) with long-term business value and high gross margins, such as public cloud and AI-related products."
Tencent, on the other hand, has also included AI as a core technology for long-term investment in the future, but it emphasizes "taking a long-term view". At the earnings conference, Tencent executives said that in the short term, the economic benefits of AI will be mainly reflected in the advertising field. On the other hand, Tencent is facing a relatively new market for cloud services and business services customers, which means that while growth in these areas may not be as rapid as the advertising business, there is long-term growth potential and strategic value.
Ma Huateng previously said that Internet companies have a lot of accumulation in the field of AI, and Tencent is also immersed in research and development, but it is not in a hurry to finish it early and show the semi-finished products. "For the Industrial Revolution, getting the light bulb out a month earlier is not so important in the long run," he said. The key is to do a solid job in the underlying algorithms, computing power and data, and more importantly, the implementation of scenarios, which (we) are still doing some thinking. I feel like a lot of companies are in a hurry right now, and I feel like it's about boosting stock prices, and we've never been that style. ”
Compared with its peers in the technology circle who are running wildly on the AI track, Tencent is not only the latest player to enter the BAT, but also a major Internet company that has not released an independent large-scale model APP so far. The application scenarios of Tencent's hybrid model launched in a low-key manner so far are basically still in the internal business.
This also caused it to miss some opportunities. The National Artificial Intelligence Standardization Group announced the list of leaders of the first large-scale model standardization special group in mainland China, and the joint team leaders are Baidu, Alibaba Cloud Intelligence Group, iFLYTEK, 360, Huawei Cloud Computing Co., Ltd., and China Mobile Communications Co., Ltd. Research Institute. Tencent is not listed.
Dr. Luo Rentong, an expert in the application and practice of digital economy, said that for Tencent, it is not only necessary to continuously improve the capabilities of the hybrid model and form differentiated competition with other large models, but also to gradually explore a methodology that is truly suitable for the hybrid model. Under such competitive conditions, whether Tencent's hybrid model can surpass it still needs long-term follow-up observation.
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Author丨Song JingEditor丨Zhao Chenmei Editor丨Maria Producer丨Lian Xiaodong