Alibaba could be a big winner if it pulls off its turnaround plan.
Once an investor darling, Alibaba Group (BABA 0.28%) has fallen from grace. A series of challenges, such as the crackdown by the Chinese government, slower growth, and a massive management shuffle, have left shareholders in confusion and disappointment.
Still, the tech giant has not given up on its turnaround efforts, and the appointment of the new management team could get the company back on track.
Image source: Getty Images.
Recapturing the hearts of its end users
Most investors identify Alibaba as the biggest e-commerce company in China, serving a country of more than 1.4 billion people via its flagship Taobao and Tmall apps. Many also know that the tech giant expanded into other areas like cloud computing, fintech, and logistics.
However, few know that Alibaba began as a cross-border business-to-business platform, helping Chinese merchants sell their manufactured products to overseas customers, who then sell these products in their markets (such as the U.S. and Europe). In fact, Alibaba’s mission to make it easy to do business anywhere originated from this early venture.
Alibaba’s approach to its Chinese e-commerce business, which it set up a few years later, was very similar to its earlier venture — which was to help merchants sell their products online — but this time the focus is local consumers. That approach was successful because it solved supply issues by making a wide selection of goods available online. So, although end consumers benefited from that effort, they weren’t Alibaba’s primary focus then.
Yet Alibaba’s focus on merchants meant that it has not paid enough attention to the needs of end users. That neglect allowed latecomers like Pinduoduo to fill the gap. Besides, the rapid development of the e-commerce industry in China also led to a complete change in the supply and demand equation, where the bottleneck has now shifted to the demand side. That shift was costly to Alibaba as its edge had been in solving the pain points on the supply side.
Fortunately, Alibaba (and its new management team) has recognized these shortcomings and committed to putting end users first to rekindle growth. The team is focused on improving critical aspects such as providing customers with low prices, making Taobao a universal and all-inclusive app and leveraging artificial intelligence (AI) to build the next-generation e-commerce platform. It has also entirely replaced its e-commerce business’s leadership team, which reports directly to Eddie Wu, the new CEO.
In short, Alibaba is shifting its attention to remain a relevant player in the competitive e-commerce industry in China.
Leveraging AI for the future
One of the biggest trends in recent years is the artificial intelligence revolution, which has transformed our world at an unprecedented pace (and will continue to do so for the foreseeable future). For example, the proliferation of generative AI services — the most popular being ChatGPT — has demonstrated how AI could impact businesses and individuals.
There will be winners and losers as companies navigate this new era of change, the former actively embracing the latest technology and the latter being unwilling to adapt. Alibaba aims to be the former group, leveraging AI to redefine its prospects.
Take its cloud computing business, Alibaba Cloud, for example. It is well positioned to benefit from the pent-up demand for computing power and data storage capacity needed for companies to train and operate their AI models. As the most significant player in China with a 39% market share, Alibaba Cloud has the economies of scale to provide these services at low costs.
The cloud provider can provide AI to help companies scale up their AI infrastructure. For example, companies can leverage Alibaba Cloud’s customizable generative AI models to help them build, train, and operate their purposed-built AI tools — such as AI bots, image and text generators. These new services could kick-start Alibaba Cloud’s revenue growth again, which was just 3% in the nine months ending Dec 31, 2023.
Likewise, AI will help Alibaba improve its e-commerce business. For instance, Alibaba can leverage AI to improve customer experience in areas like personalization, which will help it improve the overall shopping experience. On the merchant front, Alibaba can provide AI-enabled tools to help them better serve consumers’ needs and improve their productivity, such as by using AI tools to write product descriptions and generate images.
Alibaba is betting heavily on AI to return to its historical growth trajectory. To this end, it has the resources — massive data sets, plenty of cash, and access to the latest technology — to help it develop an edge in AI in the coming years.
What it means for investors
Like most companies, Alibaba has made mistakes that impacted its competitive edge. However, the tech giant’s management has recognized its shortcomings and is working to get back on track. It also aims to leverage AI to help reach new heights.
Investors should closely monitor the company’s progress across these two fronts in the coming quarters.
