On May 23rd, Alibaba released its annual report for the 2024 fiscal year. On the same day, Daniel Zhang and Joe Tsai jointly signed their first letter to shareholders.
The letter outlines who Alibaba is, emphasizing the company's strategic focus on "customer-first" and "AI-driven" approaches. It also discusses Alibaba's development strategy and plans for future investments.
The shareholder letter mentions that in the next decade, no industry will be immune to the disruption brought by AI. AI is not a threat but a driver of breakthrough user experiences and business models, offering tremendous opportunities. Failure to keep pace with the continuous and astonishing progress of AI each day will result in being replaced.
The shareholder letter emphasizes that Alibaba has two core businesses: e-commerce and cloud computing.
In the future, Alibaba will continue to invest in these two areas, accelerating core business growth, maintaining leadership in foundational technologies, and fostering innovation including artificial intelligence.
Jack Ma and Daniel Zhang stated that Alibaba always looks to the future and expressed their determination to actively address the "big company disease" and maintain an entrepreneurial spirit: "In the next 10 years, we will once again see ourselves as a startup, adhering to the original mission of 'making it easy to do business anywhere,' and continuously innovating with an entrepreneurial spirit. We will uphold a long-term perspective, making sacrifices for today and investing for tomorrow."
Dear Investors,
The past fiscal year ending on March 31, 2024, marked a turning point for Alibaba. Throughout this year, we made a series of key adjustments centered around strategic clarity and focus. The clarity and focus of our strategy have helped us define who we are, our direction, and how we will execute our growth strategies. We believe it is important to share our reflections from the past year and what it means for the future of Alibaba.
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 internet platforms aimed at seizing opportunities in local services, communications, search, and digital entertainment.
In the e-commerce sector, we operate Taobao Group (TTG), serving Chinese domestic consumers and the B2B market, as well as Alibaba International Digital Commerce Group (AIDC), serving international consumers and the B2B market. The strategic value of other business units lies in enhancing the value of our e-commerce business through synergies. For example, Ele.me serves as an instant delivery infrastructure catering to the demand for fresh products purchased from our e-commerce platforms; our logistics subsidiary Cainiao leverages supply chain, transportation, and delivery capabilities to create a seamless shopping experience for consumers on Taobao and AIDC platforms.
In the field of cloud computing, our goal is to become a leading public cloud infrastructure and platform technology provider in China, offering a wide range of capabilities to our customers, including elastic computing, storage, network infrastructure, security, big data, and artificial intelligence (AI).
Our Strategic Directions
We have chosen two important paths for the company's strategic direction. As leaders of the company, we must clearly articulate our direction.
The first strategic direction is "User First." For all the platforms we own, users come first, meaning we prioritize "user-first" in our company's business objectives and product processes. With China having the world's largest internet population of 1.1 billion users and being one of the countries with the highest e-commerce penetration rates globally, with e-commerce accounting for about 28% of total consumer retail sales, the supply of consumer goods on the internet is abundant. Brands and merchants increasingly need precise consumer marketing services provided by internet platforms to stand out.
Our "User First" strategy ensures that user experience is the top priority in business strategy and product design. Improving user experience will enhance user retention and repeat purchases, providing the best value proposition for sellers on platforms like Taobao, Tmall, Xianyu, Fliggy, Ele.me, Amap, AliExpress, and more. On the Alibaba platform, merchants can find the most dynamic, segmented, and high-frequency online consumer groups.
The second strategic direction is focusing on artificial intelligence. We see AI as the most powerful variable for changing and accelerating business growth.
In the next decade, no industry will be immune to the disruption brought by AI. AI will not protect old ways of doing things but reignite our entrepreneurial spirit and imagination. Every aspect of our business has numerous applications that can create greater value through artificial intelligence. The deployment of AI will also increase computing demand, thereby driving the growth of Alibaba Cloud. AI is not a threat but a driver of breakthrough user experiences and business models, bringing enormous opportunities. If we fail to keep up with the continuous and astonishing progress brought by AI every day, we will be replaced.
Operating Principles
We follow the following operating principles when executing our strategy.
First, when making difficult decisions, we adhere to long-term thinking. We consider strategies over a 10-year period because the development pace of technology companies typically goes through investment, growth, harvest, profitability, and inevitable decline stages. Our businesses are at different stages of development and must be managed differently. For example, AIDC is just starting and requires initial investment; Alibaba Cloud is investing for future growth while reaping the benefits of economies of scale; Taobao Group, as a mature business, must innovate quickly to seize the next growth cycle.
Second, we approach everything with extreme focus and clear purpose. Focus means we do not let trivial matters distract us, maintain focus on what is important or unimportant when making decisions, and avoid being emotional when facing difficult choices. Clear purpose means we must have solid reasons for decision-making. For example, Alibaba Cloud's shift to public cloud first reflects our structural advantages in technology and scale; at the same time, we made a tough choice to forego short-term revenue from low-profit project businesses.
Lastly, we communicate a clear direction to the team and maintain alignment with them through establishing sound incentive mechanisms. We believe that transparency in strategic direction and clear goals from company leaders make teams more efficient and happier. We have established employee incentive systems aligned with medium to long-term strategic goals, ensuring that individual wealth in our team is highly matched to business performance.
Capital Management
In the 2024 fiscal year, Alibaba Group generated $21.6 billion in free cash flow. Management is responsible for deciding how to allocate cash to maximize shareholder value, facing the trade-off between returning cash to shareholders and reinvesting in existing or new businesses. In capital management for the 2024 fiscal year, we reflected the company's focus on core businesses. We did not use funds to invest in developing entirely new business segments. For the first time in company history, we announced and distributed a $25 billion dividend and repurchased $12.5 billion in stock, reducing outstanding shares by 5.1%. In the 2024 fiscal year, we created value for shareholders through cash returns and profit growth.
Thank you. Investing in the Future
Returning cash to shareholders does not mean we will stop investing. Alibaba will continue to invest in two key areas: (1) accelerating core business growth; (2) maintaining leadership in foundational technologies, including innovations in artificial intelligence.
For shareholders, understanding our investments in AI is crucial. Major global tech companies are closely linked to Alibaba in three aspects of generative AI development around large models.
Firstly, as pioneers in technology, we aspire to explore the potential of achieving Artificial General Intelligence (AGI) through machine intelligence. Ultimately, humans may achieve AGI at some level. The current prevailing approach to driving AGI involves using large models based on the Transformer architecture. These large models are becoming increasingly massive and multimodal, encompassing not just text but also speech, video, and images. The investments required for infrastructure and development can only be borne by large tech companies generating significant free cash flow from core businesses. Alibaba possesses a market-leading proprietary foundational model—Tongyicq, and we will continue to invest in foundational models and other AI innovations to push the boundaries of machine intelligence.
Secondly, investing in large models contributes to the development of our cloud computing business, as training and using large models in the development or inference process will require computational resources. We have already open-sourced various versions of Tongyicq to the public, leading to incremental demand for our proprietary models and computational resources. We also own MoDa, China's largest AI open-source model community, which includes third-party large models for developers to access our computing resources. Therefore, becoming a leader in AI development will directly drive positive growth for our cloud computing business.
Thirdly, Alibaba is an integral part of the consumer economy. Countless scenarios and applications for consumer segmentation—from consumer recommendations and virtual fitting rooms to personal assistants—can be transformed through AI. We are excited about the infinite possibilities of AI-driven strategies that put users first.
In conclusion, we want to emphasize: Alibaba always focuses on the future. Over the past 25 years, Alibaba has experienced continuous growth and encountered some "big company diseases." In the next 10 years, we will once again see ourselves as a startup, adhering to our original mission of "making it easy to do business anywhere," and continuously innovating with an entrepreneurial spirit. We will uphold a long-term perspective, making choices for today and investing for tomorrow.
Daniel Zhang
Chairman of the Board
Jonathan Lu
Chief Executive Officer
May 23, 2024
