SHANGHAI -- With China cracking down on the country's tech giants, Alibaba Group Holding has extended an olive branch to longtime rival Tencent Holdings in a shift away from exclusionary platforms long at the heart of its business strategy.
The leading e-commerce provider has long enjoyed strong earnings buoyed by its grip on the massive Chinese market. But antitrust pressures and its struggle to diversify have cast doubt over its ability to continue growing long term, especially as the company grapples with its first-ever quarterly loss since going public in 2014.
Alibaba announced Thursday that it logged a 5.4 billion yuan ($839 million) net loss attributable to shareholders in January-March, largely due to a more than 18.2 billion yuan anti-monopoly fine levied by Chinese authorities.
"We have stated that we accept the penalty with sincerity and will ensure our compliance with determination," Chairman and CEO Daniel Zhang said in an earnings call that day.
For the full year ended March, Alibaba reported a record 150.3 billion yuan net profit. "In fiscal 2022, we plan to invest all of our incremental profits and additional capital into supporting our merchants and developing new businesses and the key strategic areas that will help us increase consumer wallet share and penetrate into new addressable markets," Chief Financial Maggie Wu said Thursday, highlighting Alibaba's focus on creating long-term value.
Still, the tech giant has struggled to keep up with rivals outside of its core operations in recent years.
Alibaba on Thursday named Taobao Deals as one of its engines for future growth. The bargain e-commerce app is aimed primarily at small cities and rural villages, where the company has a limited presence.
The app's monthly active users reached 130 million in a year, "so I think that's a good start," Zhang said. But Alibaba remains far behind its rivals in bargain apps, a field originally pioneered by China's No. 3 e-commerce company, Pinduoduo.
Alibaba has also invested heavily in cloud services over the last few years as part of its efforts to curb its reliance on e-commerce. But that business' operating loss increased nearly 30% in the fiscal year through March to 9 billion yuan, and it remains unclear when it will escape the red.
China's regulatory crackdown poses yet another roadblock for Alibaba. Pressure to alter its existing business model "will squeeze its earnings power," an industry insider said.
The company's tie-up with Tencent Holdings, which became public this spring, highlights how regulatory pressures are forcing China's tech giants to reevaluate their strategies.
Tencent and Alibaba, which was founded by outspoken billionaire Jack Ma, have led China's tech industry since its early days. Though Alibaba originally rose to prominence in e-commerce and Tencent in games and social media, the groups have aggressively snapped up various internet-based businesses and expanded into a range of customer-facing operations.
Both Alibaba and Tencent's efforts are centered around creating unique online ecosystems, which grant members access to their extensive resources in smartphone-based payments, big data and social media but shut out others.
For example, most Alibaba-affiliated services do not take payments through Tencent's WeChat messaging app. Meanwhile, Tencent blocks most Alibaba services from WeChat mini-programs.
But their notorious rivalry began to thaw this spring, when Alibaba Vice President Wang Hai signaled an interest in cooperating with Tencent. The companies are now working together on certain services, and WeChat began offering a mini-program for Alibaba's delivery app.
The move comes as Chinese authorities crack down on tech platforms with massive market shares, like Alibaba and Tencent. The pressure is pushing the groups to shift away from their ecosystem model designed to freeze out rivals, though it is unclear whether their new cooperation would help or hinder growth in the long run.
Alibaba and Tencent are only expected to face greater pressure to open up their platforms to emerging rivals, which have been frustrated by the giants' iron grip on their services. TikTok operator ByteDance sued Tencent in February for alleged antitrust violations.
Concerns about Alibaba's future have seeped into the market as well, with the stock falling over 6% at one point in Hong Kong on Friday. The issue has fallen over 30% from its recent high, and Morgan Stanley in an April report warned of continued uncertainties surrounding Chinese internet regulations.