Internet giants are shifting their focus from gaming: They're making a major push into AI infrastructure. Could Lingxi Huyu, which doesn't have the "Alibaba DNA," be sold off?

Summary of Key Points

Alibaba is planning to sell its gaming brand, Lingxi Huyu, for an estimated value of 7-9 billion yuan. It has already approached five gaming companies, including Century Huatong and 37Huyu, as well as two private equity firms. This decision is not due to the poor performance of Lingxi’s business (which generates annual revenue of 3-4 billion yuan and includes hit games), but rather because of Alibaba’s current strategic shift towards AI and instant retail, which requires substantial funding. The gaming industry has limited synergy with Alibaba’s core businesses (e-commerce and cloud services) and represents a cultural mismatch (e-commerce seeks predictability, while gaming relies on creativity). As such, Lingxi is being divested as a non-core asset. This is a common challenge for large tech companies entering the gaming sector— ByteDance acquired Mutoon in 2021 but sold it in 2026 due to the same reason.

Detailed Analysis

1. Alibaba Selling Its Gaming Business: Not Because of Lack of Profit, But Because Money Needs to Be Spent on More Important Areas

Alibaba’s top priorities are AI and instant retail, both of which are highly capital-intensive.

• AI Investment: Alibaba has announced plans to invest over 380 billion yuan in AI infrastructure over the next five years, amounting to more than 200 million yuan per day.
• Instant Retail Competition: Alibaba is competing with Meituan and JD.com in food delivery subsidies and is also considering spending $1.5 billion on Pupu Supermarket, demonstrating its ongoing investment in this area.
• Cash Flow Pressure: In the fiscal year 2026, Alibaba had a net outflow of 46.6 billion yuan in free cash flow (compared to a net inflow of 73.9 billion yuan the previous year), indicating a shortage of funds.

Although Lingxi Huyu generates annual revenue of 3-4 billion yuan, this is a small portion of Alibaba’s trillion-dollar turnover. Additionally, game development has a long cycle (3-5 years for a major title) and the success of hit games is uncertain; moreover, gaming does not directly contribute to e-commerce sales or cloud business growth. Selling Lingxi for a good price (7-9 billion yuan) allows Alibaba to reallocate resources to its more critical areas.

2. Lingxi Huyu: Successful with Hit Games, but Not “Alibaba’s Own”

Lingxi Huyu’s core team was acquired in 2017 for 1 billion yuan from Guangzhou Jianyue, founded by former NetEase COO Zhan Zhonghui, who brings a strong gaming background and creative expertise.

• Past Success: In 2019, the game “Romance of the Three Kingdoms: Strategic Edition” topped free app charts on day one of release and generated over $1 billion in global sales, remaining in the top 20 best-selling games for six years.
• Cultural Mismatch: Alibaba’s culture emphasizes predictability and efficiency (e.g., during Double 11 sales events), while gaming relies on creativity and emotional engagement with players.
• Management Disagreements: After Zhan Zhonghui left in 2024, Alibaba’s CEO of Entertainment Business, Fan Luyuan, criticized Lingxi for not aligning with Alibaba’s corporate culture, suggesting that the team was treated as an independent entity.
• Strategic Uncertainty: Lingxi’s reporting structure has changed multiple times, affecting resource allocation and hindering the development of new hit games.

3. Why Do Large Tech Companies Struggle in Gaming?

This is not unique to Alibaba; ByteDance also faced similar challenges with Mutoon. Although it invested 4 billion yuan in 2021, it sold the company in 2026, declaring the failure of its self-developed overseas gaming efforts.

• Lack of Synergy: Gaming does not complement Alibaba’s core businesses (e-commerce and cloud).
• Need for Predictability: Large companies prefer replicable models (e.g.,抖音’s algorithmic recommendations), but game success is often unpredictable (e.g., the sudden popularity of “Genshin Impact”).
• Team Independence: Gaming teams need autonomy, which large companies often struggle to provide.

4. Is the Sale a Win-Win Situation for Both Parties?

For Alibaba, selling Lingxi allows it to free up funds and focus on AI and instant retail. For Lingxi, a new owner with a stronger gaming background could provide stable resources and a more suitable management approach.

• Lingxi’s Potential: The game “Zongshi Zhi Shang” topped download charts in May 2026, and the Japanese version of “Shinchan no Yoou: Gekitou” set a new revenue record, indicating the team’s capabilities.
• Industry Trends: Large companies are reducing their investment in gaming, suggesting that the industry may become dominated by specialized firms rather than tech giants.

Conclusion

Alibaba’s decision to sell Lingxi reflects its strategic focus on AI and instant retail. For Lingxi, a new owner in the gaming sector could offer better opportunities for growth. This transition is both a natural outcome of corporate strategy and a reflection of the specialization of the gaming industry.