From Nasdaq: 2025-02-20 13:45:15

Alibaba Group hosted its Q4 2024 earnings call, highlighting accelerating growth in core businesses of e-commerce and AI plus cloud. Revenue, excluding consolidated subsidiaries, grew 11% year over year, with AI-related product revenue showing triple-digit growth for the sixth consecutive quarter. The company plans to scale up investments in AI infrastructure, foundation models, and transforming existing businesses with AI.

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Alibaba Group’s CEO emphasized the company’s focused strategy on domestic and international e-commerce, AI plus cloud computing, and internet platform businesses. The company aims to achieve sustained solid growth by investing in AI infrastructure, foundation models, and transforming existing businesses with AI technology. Expectations are high for continued profitability and growth in the next fiscal year. Alibaba announces increased investment in AI, R&D, and computing power to capture new growth opportunities. Strong financial results show progress in core businesses. Cloud business revenue grows by 13%, with public cloud revenue accelerating. AI-related product revenue sustains triple-digit growth for sixth consecutive quarter. Amap achieves profitability for the first time. Strategic divestments aim to streamline operations.

Alibaba reports robust momentum in cloud and AI sectors, with revenue growth accelerating by 13%. Strong financial results show progress in core businesses, with a positive EBITDA growth in Taobao and Tmall Group. AIDC maintains rapid growth momentum, primarily driven by strong cross-border business performance. Strategic divestments aim to improve operating efficiency.

Alibaba completes dual currency bond issuance, raising approximately $5 billion. Total consolidated revenue increases by 8% to RMB 280.2 billion. Non-GAAP net income increases by 6% to RMB 51.1 billion. Free cash flow increases by 10% to RMB 70.9 billion. Strong net cash position of RMB 378.5 billion or $51.9 billion maintained as of December 31, 2024.

Taobao and Tmall Group revenue increases by 5% to RMB 136.1 billion. Customer management revenue increases by 9%, reflecting full-quarter impact of software service fee. AIDC revenue grows by 32% to RMB 37.8 billion, driven by strong cross-border business performance. Adjusted EBITDA for Taobao and Tmall Group increases by 2% to RMB 61.1 billion. AIDC’s adjusted EBITDA records a loss of RMB 5 billion. AIDC increased investments during overseas shopping festivals and in European markets in the Gulf region. Revenue from Cloud Intelligence Group grew 13%, driven by public cloud products. Cainiao’s revenue decreased by 1% due to ongoing restructuring. Digital Media and Entertainment Group revenue grew 8%. Alibaba is focusing on enhancing competitiveness and efficiency to establish profitability. Investments in AI infrastructure are planned for future growth opportunities.

During the earnings call, management discussed Alibaba’s strong position in AI and cloud infrastructure services. Capex spend doubled to $31 billion this quarter, with expected investments in capex over the next three years exceeding the past 10 years. Alibaba aims to pursue AGI and continue developing models to extend intelligence boundaries. Management highlighted the company’s leading position in the AI space and the opportunities for industry transformation in the coming years. Alibaba’s primary aim is to push the boundaries of intelligence to create more opportunities, with the pursuit of AGI as a key objective to contribute immense business value. Achieving AGI could potentially replace 80% of human capabilities, impacting 50% of global GDP. The integration of cloud and AI infrastructure is crucial for future advancements.

Alibaba plans to invest more in cloud and AI over the next three years than in the last 10 years combined. The company expects to maintain an open attitude towards integrating AI into its business scenarios to increase efficiency, user value, and user time spend. The capex plans over the next three years will likely impact profitability.

The introduction of DeepSeek large language models has brought high-quality models at an affordable cost to the industry, shifting monetization to compute power. As AI technology advances, future business models and ways to monetize models may not be clear yet. The differentiation between models from different vendors is narrowing, benefiting cloud computing offerings. Alibaba’s monetization pathway is through cloud computing offerings, likened to a power grid for AI. AI applications within the Alibaba ecosystem have great potential to increase consumer engagement and drive transaction efficiency, especially in Taobao. AI features will create more value beyond shopping. Quark and Tongyi Qianwen are 2C AI offerings, with Quark being the largest AI search product in China.

AI is being deployed in Alibaba’s enterprise collaboration app, DingTalk, to redefine the user experience. Amap, primarily a navigation app with 170 million DAUs in China, will integrate AI to extend lifestyle and local services, increasing user engagement. Alibaba’s focus on enhancing user experience and monetization in both domestic and international e-commerce businesses will require continued investment in innovation and optimization.

Alibaba’s strategy for TTG is to invest in achieving stable market share through enhancing user experience and acquiring new users. Investments in 88VIP core user group and new payment methods will continue. While making these investments, Alibaba is exploring ways to increase revenues and drive profitability in the short term. The long-term profitability outlook for the international e-commerce business is clear, with a focus on optimizing business models and increasing unit economics. The software service fee and marketing product QZT are driving higher monetization levels. AI revenue has seen triple-digit growth for six consecutive quarters, with demand for inference products skyrocketing. The company plans to continue investing in enhancing user experience and acquiring new users. Share buybacks have already achieved significant reductions in share count, and the company will consider current share prices for future buyback programs. The capital management committee aims to optimize capital allocation for shareholder returns through dividends, buybacks, and high-growth investments. Alibaba’s management discusses AI’s potential impact on global GDP and cloud infrastructure. They highlight opportunities for AI application in consumer and enterprise sectors, emphasizing the importance of AI agents in future software development. The company plans heavy investment in the next two years, focusing on compatibility with various chips to mitigate potential policy changes.

Following successful divestment of physical retail assets, Alibaba plans to exit non-strategic, minority-owned assets to focus on core businesses. They aim to tap into the business value of remaining assets like Freshippo. In the cloud sector, revenue growth is driven by demand for compute associated with AI uptake, with potential for future monetization beyond compute revenue. Management addresses potential homogeneity in the Chinese AI market, emphasizing the need for differentiation in the future. Freshippo has shown impressive growth, profitability, and innovation through its online and offline retail integration. Alibaba Group has no plans to sell Freshippo but remains open to strategic investments to enhance its value. Cloud revenue growth is driven by high demand for AI products, like the Qianwen model, which developers use to create applications on Alibaba Cloud, presenting cross-selling opportunities. The future of AI in China is evolving rapidly, with potential for post-training customization and market growth in specialized models hosted on cloud platforms. The earnings call concluded with a Q&A session featuring the CEO and CFO, discussing market trends and opportunities in AI and cloud hosting. The Motley Fool produced a transcript of the call, recommending further research and caution in using the content. 1. The stock market surged today with the S&P 500 hitting a record high of 4,200 points. Tech stocks led the way with companies like Apple and Microsoft seeing significant gains. The Dow Jones Industrial Average also saw strong gains, closing up over 300 points.

2. A new study has found that the COVID-19 vaccine is highly effective in preventing hospitalizations and deaths from the virus. The study, conducted by the CDC, showed that the vaccine was 94% effective in preventing hospitalizations among those who were fully vaccinated.

3. In sports news, the Los Angeles Lakers secured a spot in the NBA playoffs with a win over the Golden State Warriors. LeBron James led the team with 25 points, securing their spot in the postseason for the first time since 2013.

4. The Biden administration announced a new plan to invest $2 trillion in infrastructure over the next 8 years. The plan aims to create millions of jobs and improve the country’s roads, bridges, and public transportation systems. The proposal includes funding for clean energy initiatives and broadband expansion.



Read more at Nasdaq: Alibaba Group (BABA) Q4 2024 Earnings Call Transcript