Tencent and Alibaba Defensive Growth Strategies: How They're Navigating 2024
Tencent's defensive growth strategy in 2024 focuses on sustainability and profitability. Discover how Tencent and Alibaba are adapting their approaches amid economic uncertainty.
- Reading City Studio | Li Hang
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As businesses strive for growth, not all forms of growth are desirable. Tencent and Alibaba, two of China’s largest tech giants, are focusing on a new strategy for 2024: defensive growth. This approach emphasizes stability and sustainability over rapid expansion, reflecting the current economic climate.
Tencent's Steady Progress
While some critics attribute these results to cost-cutting measures, it’s important to recognize that not all cost reductions are created equal. Tencent has been on a significant recovery trajectory since Q4 2022, with gross profit growing by over 20% year-over-year for four consecutive quarters. The 54% net profit growth in Q1 2024 was the highest in a decade.
Tencent has found its rhythm. In Q2 2024, the company reported an 8% year-over-year revenue increase, reaching RMB 161.1 billion. This follows a 6% growth in Q1, signaling a steady upward trend. Meanwhile, Tencent’s Non-IFRS net profit surged by 53% to RMB 57.3 billion, maintaining a 50% growth rate for two consecutive quarters—a remarkable achievement in today’s challenging environment.
Critics often overlook the fact that cost-cutting can be an effective strategy when done right. Tencent’s performance indicates that the company is achieving high-quality growth, not just cutting costs indiscriminately.
Tencent’s growth is not limited to its financials. The company’s value-added services, online advertising, and fintech and business services segments all saw revenue increases of 6%, 19%, and 4%, respectively. Online advertising remains the primary driver of revenue growth, thanks to the dual engines of long-form video content and short video content via the Video Accounts platform.
Tencent Video now boasts 117 million paid subscribers, a 13% year-over-year increase, indicating strong user engagement. The rise in advertising revenue also suggests growing confidence from advertisers. Tencent has successfully created a virtuous cycle of brand and IP interaction, generating a flywheel effect that drives sustained growth.
The Video Accounts platform is another bright spot, showing significant year-over-year growth in user engagement and contributing to both advertising revenue and gross profit growth. Although Tencent hasn’t disclosed specific data for Video Accounts, its rapid growth is evident. By 2023, the platform’s monthly active users (MAUs) had reached 900 million, with daily active users (DAUs) at 450 million.
Alibaba's Strategic Shift
Alibaba, too, is embracing defensive growth, albeit with a different approach. The company recently announced a shift away from its “Five-Star Price Power” model, focusing instead on gross merchandise value (GMV) and average annual consumption (AAC), rather than chasing low prices to drive high order volumes.
This shift is a response to Alibaba’s realization that it cannot outcompete rivals like Pinduoduo on price alone. Instead, Alibaba is doubling down on its strengths in categories like women’s fashion, personal accessories, home decor, and beauty products.
In Q2 2024, Alibaba Group reported revenue of RMB 1133.73 billion, down 1% year-over-year. While its retail division struggled, other segments like cloud computing, local services, and international commerce saw growth. Alibaba Cloud, in particular, posted impressive results, with a 6% revenue increase and a 23.37 billion EBITA profit, driven by strong demand for AI-related products.
Despite engaging in price wars, Alibaba Cloud managed to grow without sacrificing profitability. This was made possible by the company’s technological prowess and ability to scale efficiently.
In today’s uncertain economic environment, both Tencent and Alibaba are opting for a more measured approach to growth. Rather than chasing every market opportunity, these companies are focusing on their core strengths and ensuring sustainable, long-term success. As they navigate the challenges of 2024, their defensive growth strategies may well set the standard for other tech giants to follow.
