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spk01: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's June quarter 2022 results conference call. At this time, all participants are on listen-only mode. After management's prepared remarks, there will be a Q&A session. I would now like to turn the call over to Rob Lynn, Head of Investor Relations of Alibaba Group. Please go ahead.
spk11: Good day, everyone, and welcome to Alibaba Group's June quarter 2022 results conference call. With us are Daniel Zhang, Chairman and CEO, Joe Tsai, Executive Vice Chairman, Toby Xu, Chief Financial Officer. This call is also being webcasted from our IF section of our corporate website. A replay of the call will be available on our website later today. Now, let me quickly cover the safe harbor. Today's discussion may contain forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussion of the risks and uncertainties, please refer to our latest Annual Report on Form 20-F and other documents filed with the U.S. SEC or announce on the website of the Hong Kong Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we do not take undertake any obligations to update these statements except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP diluted earnings per share, or ADS, and free cash flow, are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found on our earnings press release. Unless otherwise stated, growth rate of all the metrics stated during this call refers to year-over-year growth versus same quarter last year. In addition, during today's call, management will give their prepared remarks in English. A third party translator will provide simultaneous Chinese translation and another conference line. Please refer to our press release for details. During the Q&A session, we will take questions in both English and Chinese, and a third-party translator will provide consecutive translations. All translations are for convenience purpose only. In the case of any discrepancy, management statements in the origin language will prevail. With that, I will now turn the call to Daniel.
spk03: Thanks, Rob. Hello, everyone. Thank you for joining our earnings call today. we have delivered stable results after overcoming challenges in an extraordinary quarter. According to data released by the National Bureau of Statistics, China's GDP grew by 0.4% in the last quarter, lowest since the outbreak of the pandemic. Retail sales decreased year-over-year in April and May due to the resurgence of COVID-19 in Shanghai and other major cities. and has slowly recovered in June. Despite the soft economic conditions, we managed to deliver stable revenues and narrow losses in our several strategic businesses by improving operating efficiency. In response to these external macro uncertainties, our guiding principles have been, as I wrote in my annual letter to shareholders, Be confident, be flexible, and be ourselves. We are confident about the future of the digital economy. We are confident that digitalization has a universal trend across industry and the market, and this will constitute an increasing percentage of the total economy. Be flexible means actively adapting to the external challenges and finding our own path through the social economic development cycles. Be ourselves means focusing on our three core strategies, namely consumption, cloud, and globalization, and delivering high quality growth with ESG as a foundation for reaching our vision of becoming a good company that lasts 102 years. More specifically, We are executing our three core strategies and delivering high quality growth in the highly uncertain environment today in the following ways. On consumption, we are leveraging our strengths, which is our digital commerce infrastructure built on comprehensive fulfillment capabilities to serve diverse consumer segments and focus on consumption categories with higher certainty of demand. we already achieved the target of 1 billion annual active consumers in China during the last fiscal year. Going forward, we will focus on growing our wallet share in different consumer segments instead of pursuing further absolute increase in our user base in China. On cloud, we will focus on enhancing our competitive advantage, which is our proprietary technologies and serving the sectors and customers that represent the future in social and industrial development. On globalization, we will focus on the markets with favorable economic development prospects in the next five to 10 years, investing in localized capabilities and building infrastructure in logistics and cloud. During the past quarter, Taobao and Tmall's GMV experienced a mid-single-digit percentage decline on a year-over-year basis. We saw signs of recovery since June as logistics and the supply chain situation gradually improved after COVID restrictions eased. Over the past few months, daily active users and consumption-related page views of our Taobao app remained relatively stable despite the market volatility. Consumers with the highest spending power demonstrated strong loyalty to our platforms. In the 12 months ended June 30, 2022, more than 123 million annual active consumers each spent over 10,000 RMB on Taobao and Tmall, representing a retention rate of approximately 98% compared to the prior 12-month period, which was on par with the data as of the end of March. 8 VIP members, our most important premium users, continued to grow at a healthy rate to 25 million by quarter end, with average with annual average spending of over 57,000 RMB per member. Starting in July, we are seeing gradual recovery of business performance compared to June, especially in the relatively more impacted category in the past few months, such as fashion and electronics. As we continue to grow our location-based digital commerce infrastructure in recent years, our diversified business models are showing complementary benefits. For example, while certain discretionary categories on Taobao Tmall were negatively impacted by the pandemic, our Freshepo and Ulema business captured growth opportunities in food and groceries. fulfilling family needs for daily necessities. In the past quarter, Fisher Post GMV grew over 30% year-over-year, and the Ulamas GMV of non-restaurant deliveries increased by over 50% year-over-year. We are aware that the overall growth of Taobao and Tmall's GMV was below China's retail sales growth in the past quarter. as we experience increasing fierce competition among various formats of e-commerce. From Alibaba perspective, I want to be clear about our competitive strategy. On the consumer side, we will continue to strengthen Taobao Apps consumer mindshare as the main shopping destination with diversified experience of digital commerce formats. In a highly uncertain market environment, we will focus on serving the consumer groups with higher spending power, while providing a matrix of consumer offerings with diversified value proposition for different user segments, such as Taobao Deals, Tao Cai Cai, Ido Fish, and Free Shippo, et cetera. On the merchant side, we will continue to enhance our tools and services to strengthen our marketplace position as the main platform for sustainable business operations. In addition, we will also take advantage of our quality of operations in China commerce. Our current scale is much bigger than our peers. And more importantly, our advantage in profitability is even larger. Therefore, we will make the best use of our capital reserves by increasing in building consumer mindshare, user experience, and core capability in key areas such as logistics and after-sales services, and execute on these as our long-term strategy. During the COVID resurgence in major cities such as Shanghai and Beijing in April and May, the digitalized network integrating intra-city commerce and fulfillment has become a new infrastructure in modern urban life. During the quarter, Olimus restaurant delivery volume were negatively impacted by COVID restrictions. However, Olimus GMV during the quarter was less impacted as order volume for non-restaurant deliveries such as food, grocery, and medicine increases rapidly. which also contributed much higher basket size than restaurant deliveries. As COVID impact eased, ULMA's operation has been recovering and its GMV resumed positive growth year-over-year in June. At the same time, while Fisherpool and Sunart experienced negative impacts in offline sales during the pandemic this quarter, They play an important role in providing essential supply support for local communities, leveraging their digital sales and intra-city fulfillment capabilities. The percentage of online sales for Frisheepo and Sunart during the quarter reached 68% and 36% respectively. ULMA's unique economics turned positive this quarter. mainly due to increased average order value as well as its ongoing focus in optimizing user acquisition spending and reducing delivery cost per order. Looking forward, Ullama will continue to focus on its city strategies and strengthen its customer mindset from restaurant delivery to everything delivery while improving its operating efficiency. We are confident about narrow early mass operating losses during the fiscal year. AMAP, another important business in our local consumer service segment, continue to grow towards a destination around service discover and transaction platform. In June, the number of average daily active users of AMAP reached a new high of over 120 million. driven by East COVID impacts and ongoing enrichments of local contents and services on the platform. Our international commerce retail businesses in Southeast Asia and Europe experienced a decline due to change in European Union's VAT rules, depreciation of local currencies, Russian-Ukraine conflict, and normalizing offline activities after COVID restrictions lifted in the regions. In spite of these challenges, we still see great opportunities in the international market under the general trend of digitalization. Today, we have already established certain foothold in the international market. On a combined basis, our international commerce retail business have an annualized GMV of over $50 billion. Going forward, we will continue to focus on growing both the cross-border model and the local commerce model and building logistics as a core capability. Despite the near-term sales fluctuations, we will continue to focus on building the cross-border logistics network from China to Europe and the local logistics network in Southeast Asia. We believe the establishment of these infrastructure will bring long-term value. Our cloud revenue delivered 10% growth year-over-year during the quarter. The slowdown in revenue growth was the result of multiple factors, including slowing microeconomic activities, declining in revenue from the top internet customer. softening demand from China Internet customers and a delay in parts of our hybrid cloud projects due to the impact of the COVID resilience. Looking forward amidst of uncertainties in economic outlook and the Internet industry deceleration, our cloud business will continue to focus on the following areas. Number one, building proprietary technology capabilities in key areas, such as computing, big data, and artificial intelligence. Number two, capturing the growth opportunity in industrial internet by identifying the sunrise industries and customers. And number three, strengthening our cloud data security capabilities and defending our bottom line. we have been seeing some progresses in these strategies. Contribution of cloud revenue from non-internet industries was 53% in this quarter, up more than 5 percentage points compared to the same quarter last year. During the same period, more and more enterprise customers are adopting Dintoc to work or study as COVID restrictions increased across the country. TeamTalk will continue to strengthen its position as a digital workplace collaboration platform by further improving the capabilities and increasing user penetration of its core office products, such as document collaboration and virtual conferencing. In addition, TeamTalk will enhance its local application development platform to encourage the development and usage of more diversified digital business applications on Dintox. As part of our ESG strategy, we are committed to corporate governance excellence and diversity at the board level. Earlier today, we announced two new independent directors appointments. Ms. Irene Li and Mr. Albert Ng are both respected business leaders with invaluable global insights as well as China experience. I believe their participation will add great value to our board. In addition, Mr. Dong Jianhua, one of our independent directors, will not seek re-election after his current term expiring in September. I would like to express our most sincere gratitude to Mr. Tong for his invaluable contribution to Alibaba over the years. Finally, I would like to talk about our thoughts on the path forward in the current micro environment. The external uncertainties, including but not limited to international geopolitical dynamics. COVID resurgence, and China's macroeconomic policies and social trends are beyond what we as a company can influence. The only things we can do at this moment is to focus on improving ourselves. For example, as I mentioned earlier, we have made meaningful progress during the quarter in narrowing operating losses for several business units, such as Taobao Deal, Tao Caicai, FreeShippo, Elema, Lazada, and Youku through operating efficiency enhancement and cost optimization. We are still in the process of improving the quality of operation across the organization. We are confident this is a result that we can deliver with certainty through our own efforts in a highly uncertain environment. Despite the challenges we are facing, Our overall financial position remains healthy with strong free cash flow and net cash reserves, which is our biggest advantage. During uncertain times, we believe the best investment is to invest in ourselves, to build our core capabilities, and to continue self-improvement. We will continue to focus on serving our high-quality customers building high-quality infrastructure for digital commerce and driving high-quality technology innovations. We believe these will lay the foundation for our healthy and sustainable development over the long term. Thank you, everyone, for your time. I now will turn the mic over to Toby, who will walk you through the details of our financial statements.
spk02: Thank you, Daniel. Let me start with financial highlights for the quarter. This quarter, our total revenue was RMB 206 billion stable year-over-year. China commerce segment revenue slightly declined by 1% year-over-year to RMB 142 billion, while cloud segment revenue grew by 10% year-over-year to RMB 18 billion. Income from operations for the quarter was RMB 24.9 billion, a decrease of 19% year over year, primarily due to decreases in adjusted EBITDA. Adjusted EBITDA decreased by RMB 7.3 billion to RMB 34.4 billion. The decrease was primarily due to RMB 7.2 billion decrease in China Commerce Segment EBITDA partly offset by loss reduction of RMB 1.7 billion or 36% in local consumer service segment. Now let's look at cost trends for the quarter, excluding SBC as a percentage of revenue. Cost of revenue ratio increased to 62% in June quarter, primarily due to Firstly, higher proportion of our direct sales business, such as Fresh Apple and Tmall Supermarket, as well as growth in Alibaba Health direct sales businesses that resulted in increased cost of inventory as a percentage of revenue. And secondly, growth of China businesses, which led to increase in logistic costs as a percentage of revenue. which is partly offset by the reduction in delivery cost per order of Erlema. Product development expenses ratio remains stable at 5% in June quarter compared to the same quarter last year. Sales and marketing expenses ratio decreased to 12% in June quarter, reflecting our efforts in optimizing user acquisition and retention spending across businesses. General and administrative expenses ratio increased slightly to 4% in June quarter. Non-GAAP net income was RMB 30.3 billion, a decline of 13.2 billion year over year, mainly due to decrease in adjusted EBITDA and share of results of equity method investees. Gap net income was only 20.3 billion, a decline of 22.5 billion year over year, mainly due to decline in non-gap net income and decrease in net gains arising from change in market prices of our equity investments in publicly traded companies. Cash flow and balance sheet. As of June 30, 2022, we continue to maintain a strong net cash position of RMB 340 billion or US dollar 51 billion. Our strong net cash position is supported by robust cash flow generation. In June quarter 2022, net cash from operation and free cash flow were RMB 34 billion and RMB 22 billion, respectively. Majority of the difference is operating CapEx spending at RMB 11 billion, reflecting our investment in cloud businesses and logistics for human infrastructure. During the quarter, we repurchased approximately 38.6 million of our ADSs for approximately US dollar 3.5 billion under our share repurchase program. Now let's look at our segment results. Revenue from our China commerce segment in June quarter was RMB 142 billion, a decrease of 1% year over year. Customer management revenue decreased by 10% year over year to RMB $72 billion. Taobao and Tmall Physical's goods-paid GMV decreased by mid-single-digit. CMR growth lacked GMV growth this quarter mainly due to higher order cancellations as a result of logistics bottleneck from COVID-19 resurgence and restrictions that resulted in supply chain and logistics disruption in April and most of May. In later May, as logistics capacity normalized, we saw recovering GNV driven by a successful June 18th shopping festival that was strongly supported by merchants and loyal consumers. If we further break down customer manual revenue growth into advertising and commission revenue, commission revenue recorded mid-teens decline due to higher order cancellations. Total advertising revenue declined slightly faster than that of paid GMV decline. Direct sales and others revenue grew 8% to RMB 65 billion, primarily driven by strong growth of online purchases of food, grocery, and FMCG goods that benefited fresh people Timor supermarket and Senat partly offset by softening offline sales due to COVID-19 impacts. The percentage of online sales of FreshApple and Senat reached 68% and 36% respectively during the quarter. By leveraging our multiple direct sales businesses and on-demand delivery infrastructure, we believe we are well positioned to better serve consumers increasing demand for on-demand delivery of food, grocery, and daily necessities in the future. China commerce segment adjusted IPTA decreased by RMB 7.2 billion to RMB 43.6 billion in the quarter, which is mainly due to RMB 8 billion decline in CMR revenues. We are making progress to improve efficiency of loss-making businesses. The combined losses for Taobao Deals and Fresh Apple narrowed by RMB 1.5 billion year-over-year. Kaotai Cai losses increased moderately year-over-year and still delivered a robust GMV growth of more than 200% year-over-year. Its losses reduced significantly quarter-over-quarter driven by optimized pricing strategy, better sourcing capability, and lowered operating costs. Our international commerce segment revenue in June quarter was RMB 15.5 billion, an increase of 2% year over year. Revenue from international commerce retail business declined by 3% to RMB 10.5 billion reflecting declining revenue of AliExpress and Trendio, offset by positive revenue growth of Lazada. Revenue from our Alibaba.com wholesale business grew 12% to RMB 4.9 billion. The increase was primarily due to healthy 16% growth in value of transactions completed on Alibaba.com that led to an increase in revenue generated by cross-border-related value-added services. Lazada delivered healthy positive revenue growth as a result of GMV growth and active increase in monetization initiatives that resulted in a higher monetization rate. Trendy revenue slightly declined due to ongoing depreciation of lira despite robust order growth of 46% year-over-year. Aliexpress experienced declining orders due to change in the EU's VAT rules, depreciation of euro against US dollar, as well as ongoing supply chain and logistics disruptions due to the Russia-Ukraine conflict. International commerce segment adjusted EBITDA loss widened by RMB $537 million to RMB $1.6 billion in June quarter. This was primarily due to increased investment in Trendio as they invest and expand into local consumer services and international B2C businesses, partly offset by reduced losses of Lazada as a result of revenue growth and enhanced operating efficiency. Revenue from local consumer services segment grew 5% to RMB 10.6 billion, primarily due to more efficient use of subsidies that will counter revenue of ULMA. Local consumer services adjusted epitaph loss reduced by RMB 1.7 billion year over year to RMB 3 billion, primarily due to narrowed losses of our two home business Erlang's unit economics per order turned positive for the quarter, driven by increased average order value year-over-year, as well as its ongoing focus on optimizing user acquisition spending and reducing delivery costs per order. Revenue from Tainiao after inter-segment elimination was RMB $12.1 billion in June quarter, an increase of 5% year-over-year. primarily contributed by increase in revenue from consumer logistics service as a result of service upgrade to enhance consumer experience, partly offset by the decrease in international orders for AliExpress. In June quarter, 70% of Chania's total revenue was generated from external customers. Chania adjusted IPTA losses were RMB 185 million, up by RMB 39 million. The increase was primarily due to our investment in expanding the global smart logistic infrastructure, as well as reduce the profit of AliExpress fulfillment. We will continue our efforts in building comprehensive logistic and fulfillment infrastructure in China and internationally. laying the foundation for sustainable long-term growth for our digital commerce businesses. Revenue from our cloud segment of intersegment elimination was RMB 18 billion in June quarter, an increase of 10% year-over-year. Year-over-year revenue growth of our cloud segment reflected recovering growth of overall non-internet industries driven by financial services public services, and telecommunication industries, partly offset by decline in revenue from the top internet customer and online education customer, as well as softening demand from other customers in the China's internet industry. For the quarter ended June 30, 2022, contribution of cloud revenue after intersegment elimination from non-internet industries was 53%, up by more than five percentage points compared to the same quarter last year. Adjusted epitaph of cloud segment, which comprised of Alibaba Cloud and Ding Talk, was a profit of RMB 247 million in June quarter, decreased by RMB 93 million year over year. This is primarily due to our investments in technology and increase in collocation and bandwidth costs as a result of increased usage of Dintox products and services from enterprises, schools, and organizations due to greater hybrid work adoption driven by COVID-19 resurgence since March 2022 in China. Revenue from our digital medium and entertainment segment in June quarter was RMB 7.2 billion, a decrease of 10% year-over-year, primarily due to decrease in revenues from Alibaba Pictures, Youku and other entertainment businesses. Adjusted EBITDA was a loss of RMB 630 million, up by 211 million year-over-year. Youku continued to narrow losses year-over-year but was offset by increased losses of other entertainment businesses due to COVID impact. Let me wrap up with some final thoughts. Last quarter, we've shared with you some of our key operating principles and financial objectives that include focus on high quality growth, improve operating efficiency, and optimize cost structure. and maintain strong cash flow and net cash position. During the quarter, we have made progress in executing these objectives. We saw losses narrowed year over year for a number of our businesses. We generated U.S. dollar 3.3 billion in free cash flow and currently has about U.S. dollar 50.8 billion in net cash position, the financial flexibility to grow the business and improve returns for shareholders. Even though we are seeing a gradual demand recovery for China consumption businesses in the month of July, we believe there are still a lot of risks and uncertainties from slowing macro activities. Facing these challenges, we will focus on delivering high-quality growth of our three core strategies in this highly uncertain environment, as Daniel mentioned previously. Additionally, we will continue to focus on improving operating efficiency, optimizing costs, and invest in building long-term capabilities for our major businesses. Thank you. Now let's turn to Q&A.
spk11: Hi, everyone. For today's call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. And our management will address your question in the language you ask. Please note that the translation is for a company's purpose only. In the case of any discrepancy, our management statement in the original language will prevail. If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within one week after the meeting. Operator, please connect speaker and SI conference line now. Please start Q&A session when ready. Thank you. Thank you, ladies and gentlemen. We will now begin the question and answer session.
spk01: If you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press star 2. To give more people the opportunity to ask questions, please keep yourself to no more than one question at a time. Your first question comes from Ronald Kung from Goldman Sachs. Please go ahead.
spk12: Thank you. Let me ask in Chinese first. Daniel, Toby, and Rob, thank you for your sharing. Daniel, you mentioned that there are signs of recovery in June. So, I would like to hear about the recent situation of GMV and CMR. Can you share with us? We will continue to see some recovery and a look at the second half of the year. Because I would like to hear how Wang Liteng has changed the consumer market.
spk07: Thank you, Daniel and Toby, for your earlier presentations. I note that you spoke to signs of recovery that you've seen from June onwards. I'm wondering if you could tell us more about the signs of recovery you're seeing in terms of GMV and CMR, what the outlook looks like for the coming half year, and how you see consumption recovering and developing in the medium to long term.
spk03: After April and May, there was a recovery in June. With the recovery of the supply chain, especially the normalization of the logistics network, the ability of these basic facilities has been restored. We also saw that from the consumption point of view, including through 618, we also saw that we obtained 618. The growth of the entire season has also had a good result. Thank you. Well, as regards the recovery that we're seeing in consumption trends, certainly on our platforms, we saw that following the period of April, May going into June,
spk07: Signs of recovery certainly appeared, in particular with the recovery of delivery and logistics capabilities, the normalization of logistics. And certainly in this year's 618 Shopping Festival, we saw very good performance with positive growth achieved for the quarter. And we continue to see this positive trend of recovery continuing through July, and we expect that July will be even better than June.
spk03: In this process, we also see that we still have to look at the psychology of consumers and the expectations of consumers to see their future trends. We also see, in fact, it is also public data. In addition to looking at the growth of the entire GDP, including the growth of social retail, China China China China China China China At the same time, we also saw a decrease in the consumption ratio in Chengzheng, which should be a little bigger than that in the countryside. This is also a normal reaction. So we also saw that despite the consumption being
spk07: Another important piece in this recovery relates to consumer psychology and consumer's expectations for the future. We can look at publicly available data. Of course, we look at GDP figures, figures on nationwide retail sales, but one data point that we pay a lot of attention to is consumer spending as a proportion of disposable income. The figures from the National Bureau of Statistics show that that figure, consumer spending as a percentage of disposable income in the first half of the year was 64% as compared against 69% in the previous year in 2021. So that proportion has been down in the first half of the year, and even more so in urban areas than in rural areas. And I think that's an entirely normal reaction on behalf of consumers in terms of consumer sentiment in the context of the pandemic. So certainly, although we are seeing signs of steady recovery in consumption, I think it will take more time for that to fully play out and for consumer confidence and sentiment to fully recover.
spk03: For our Chinese retail platform, the change in the trend of our consumption and the willingness of our customers to invest has always been very positive. Especially in this difficult time, we actually hope that our customers will be able to move their business better. So on this, we can see the willingness of the entire business In terms of merchants, certainly what we've seen on our China retail marketplaces is overall
spk07: strong positive sentiment from merchants to take full advantage of our marketplaces and the digital tools available there to drive their business growth. There's strong enthusiasm on the part of merchants to drive their sales. All merchants have their own challenges, especially during this period, and merchants continue to want to take advantage of what we have to offer to overcome challenges and drive their sales. Thank you. Thank you, Daniel. Next question.
spk01: Thank you. Your next question comes from Thomas Chong from Jefferies. Please go ahead.
spk06: 晚上好,非常感謝管理長介紹我的提問。 我的問題是關於在我們成本控制方面的。 看到我們的EBA在China Commerce也有一個非常不錯的改善, 然後在其他的板塊,overall的EBA也是一個 a very good improvement. I would like to ask you, how should we look at our EBA in China Commerce, and the overall EBA in the September quarter, and the trend in the future? According to our cost control direction, is it likely that in the next few seasons, it can turn into a positive growth? 我另外一个问题是想问一下我们看到我们的1P的revenue其实也是做得非常好。 想问一下我们在未来1P的战略可以分享一下我们未来的方向, 还有我们应该怎么看margin profile? Thanks management for taking my questions. I have two questions. The first question is about the EBIT-A. We are seeing the EBITDA improvement is much better than market expectations. Just wonder how should we think about the China Commerce EBITDA as well as overall the EBITDA in terms of when we should expect it to turn, reaching the infraction point, positive year-on-year growth in coming quarters. And on the other hand, we are also noticing that the 1P business is also doing very well as well. I just want to ask about our thoughts about the strategies ahead, as well as the revenue contribution and margin profile in the long run. Thank you.
spk02: Thank you for your question. Let me answer the first question. This is about the cost control. In the last quarter's earnings call, we mentioned that we will pay close attention to the cost optimization Thank you. I will take the first part of the question relating to cost control.
spk07: As you'll recall, during last quarter's earning call, we indicated that we would be prioritizing cost structure optimization and cost control. On this front, we've implemented a whole range of different strategies across our different businesses, and I think certainly what you're seeing this quarter is that this overall cost control strategy has been paying off with good results.
spk02: In the next quarter, We will continue to implement such a cost-efficient control plan. So in the future, we will continue to implement our strategy, focusing on the entire optimization of our cost, improvement of efficiency, and so on. So I think the implementation of this strategy is still a key point. So we will continue to implement these cost-effective measures in the future.
spk07: In the coming quarters and the remainder of this fiscal year, we will continue to pursue the strategy of cost optimization and cost control. We'll continue to implement the policies that we've defined to optimize our cost structure, further drive efficiencies. And of course, the key to all of this really is execution. We will continue to execute on these policies for the coming few quarters.
spk02: 刚才Daniel也提到过,包括我自己的这个script里面讲到过, There is still a big flexibility of the entire financial system. So in some areas, we will balance the cost optimization and the investment in some areas. In some areas, including what I just mentioned, in some areas of technology and other areas, we will still invest firmly. In many of our areas, As Daniel mentioned, and as I also mentioned in my script, we're in a financial position that allows us to have considerable flexibility in terms of our approach.
spk07: Therefore, we will be seeking a balance between cost optimization and control on the one hand, while also continuing to make important investments, investing in technology and investing in other core areas to build our capacities to better position ourselves for sustainable and long-term growth.
spk02: You mentioned about the entire EBITDA margin issue. The other part of your question had to do with our EBITDA margin and certainly
spk07: As we continue to optimize our cost structure and drive further efficiencies, the improvements will be reflected in our EBITDA margin. And we expect that as we further pursue high-quality growth and high-efficiency growth, we'll continue to achieve that kind of improvement in our EBITDA margin. The second question, please, Daniel.
spk03: Okay, before I talk about the second question, before I finish, I would like to add something about cost optimization and margin. I would like to emphasize that for Adi, cost optimization is definitely not a job in a financial perspective. It is highly related to our entire strategy choice of judgment on the environment stage and strategic reduction.
spk07: Thank you. This is Daniel. But before I take the other part of the question about the 1P model, I'd like to add a few more comments on that previous piece to do with cost structure optimization and efficiency. And what I'd like to highlight is that for Alibaba, pursuing cost optimization and driving efficiency is not a decision that's primarily driven by financial considerations. Rather, it's very much informed by our strategic choice and our judgment of the overall macro environment we find ourselves in.
spk03: 在这个我在上个季度和在这个季度我在Scribd里都讲到了 我们这个追求高质量增长是我们一贯的一个经营方针 我们在这个经营方针下我们追求能够服务好高质量的用户 能够建立高质量的这个数字商业的基础设施 As I said in my prepared remarks, both last quarter and this quarter, it is Alibaba's consistent strategy to pursue high-quality development.
spk07: That means focusing on serving high-quality users. It means investing in high-quality technology innovation and providing high-quality digital infrastructure for commerce. All of this allows us to support business development and achieve sustainable and healthy financial results and we will very much continue to do so.
spk03: Since the beginning of this new fiscal year, because this is the first quarter, I just mentioned that we are in the consumer side. According to the changes in the red light environment, especially we ourselves have completed a milestone of 1 billion active consumers last year. Basically, our future work focus is to increase the size of the absolute number of users, to continue to get new users, to transfer to be able to get existing users. In fact, we have 1 billion consumers. It has already covered almost all active consumers in China. It can serve these consumers well, do their division and division operations well, and increase their wallet share for each user. I think such a key change will be of great help to our overall efficiency optimization. Just now, everyone asked about the improvement or improvement of the margin.
spk07: Going into this new fiscal year, now in the first quarter, on the consumer side, I'm looking at the changes in the macro environment overall, and given that we have already achieved the important milestone of having 1 billion AACs, our future strategy going forward will shift from a focus on new user acquisition because we already have within that 1 billion AAC user base essentially all of the active consumers in China. So instead, going forward, we'll focus on building our relationship, deepening our relationship with our existing user base, better segmenting that user base and ensuring that we have compelling propositions for all tiers and cohorts within that user base to continually grow our share of wallet with the existing consumers that we have. And all of this will, we believe, be conducive to serving higher efficiency and improving margins. 对,这个要做好这样的用户的,这个分层用户的服务。 其实我们在过去两年,我们在这个刚才这个, Thomas 也问到了在 call commerce 上面为什么可以有改善。 这个话简单回答就是因为我们今天已经建立了服务不同用户的一个消费矩阵。 在这个消费矩阵上,我们提供不同的价值点。
spk03: Today, we believe that consumer governance can well classify and meet the needs of users. So on this basis, we can say that our investment in the past two years has had a gradual result, allowing us to have such a space to move forward on this basis, to serve the wallet segment of users of different levels. At the same time, it will also show better financial efficiency in finance.
spk07: To elaborate further on our consumer segmentation strategy, because Thomas noted the improvement that we've made in the performance of core commerce segment. And I think a lot of that has to do with the investments that we've made over the past two years to build a differentiated matrix of offerings for these different consumers within our user base, providing differentiated demand to different cohorts of consumers through this matrix. So the investments that we've made over the past couple of years in that matrix are very much starting to pay off and have put us in a very solid position to continue to grow our share of wallet with all of those consumers and, of course, as a result, to further improve our financial performance figures.
spk03: Yes, this is also closely related to the second question. For Ali, in the case of co-commerce,
spk07: And this, of course, is also highly relevant to your other question about the 1P model. For Alibaba, when it comes to the 1P model and the 3P model, it really comes down to whichever model is best able to satisfy the demands of our consumers. That's what we want to give the consumers.
spk03: But even though we are also doing a part of the 1P business, we have redefined the 1P business. We don't want to become an online e-tailer because of the 1P business, and become a supply chain, which is a wall between brand partners and consumers. On the contrary, we hope that even though we purchase from the brand here and sell it to consumers in 1P mode, However,
spk07: In developing our 1P strategy, we have very much redefined what 1P is all about and how it works, because we don't want to become a traditional e-tailer that erects a wall between brands on the one hand and consumers on the other. Very much to the contrary, within our 1P model, we're buying from the brands and selling to consumers, but we're giving brands visibility and giving them the ability to engage with their consumers to achieve insight into what's happening with their consumers and also, of course, to drive further efficiency around their supply chains and their logistics operations. And certainly we will not take advantage of the 1P model to engage in price competition. Next question please.
spk01: Thank you. The next question comes from Alex Yao from JP Morgan. Please go ahead.
spk10: Thank you for giving me this opportunity. First of all, I would like to ask a few questions about the discount effect. First of all, I would like to hear Daniel talk about the bottom-up business logic behind the discount effect. Just now, you asked about the development stage of the entire group. That is, we have already ended the user growth period and entered In fact, it is basically the user's operating system to increase the share of our wallet in each consumer group. But from a business perspective, are there any other views? For example, is the digitalization of some industries slower than our previous expectations? Or are some strategic goals adjusted? The second question is, can you share with us in detail the core measures that we will take in this quarter and what we will do in the future? In addition, when we reduce the investment in early-stage projects, by early-stage projects, I mean projects that are not as efficient as they used to be, or projects that are still in a state of loss,
spk07: Thank you. I have some follow-up questions regarding the efforts the group is making to optimize costs and drive efficiencies, in particular regarding the underlying commercial You talked about, as a matter of group strategy, better segmenting consumers and driving growth of wallet share. But are you seeing the pace of digitalization playing out more slowly in some segments than others? And how are these efficiency and cost optimization strategies playing out in the different segments? Also, in relation to the early-stage businesses, I'm talking about the newer businesses that are still loss-making, how are you balancing the need to control costs and drive efficiency on the one hand against the need for long-term investment and growth?
spk03: Thank you. This is a very good question. I have already explained briefly. I will add a few more words. This is the question. This is Alice's question. I would like to consider from a strategic point of view I just said that today we have a initial consumer evidence. We have the most rich and complete flagship, our Taobao. We also have our new consumer service cost-efficiency user, Taote. We are also very restrained when the community purchase is as hot as the fire, but we have tried the mode and made Taocaicai. We have Hema and Xianyu, which are all very clear user positioning. Today, I think if we can achieve some quick results in this quarter, there is actually a underlying logic, which is that we still think that the consumer's mind is still the most valuable wealth after so many years of construction, which is the user's mind share. The user's mind share means You don't need to spend money. Users will come back. Especially when the overall consumer desire becomes relatively weak compared to the previous year. In the same situation, can consumers come back themselves? We call it self-sufficiency. Is there organic traffic? Is there organic visits? And it is a kind of visit and tour with the consumer desire. I just said that even in This is the most valuable thing for us. This is also what we see in this strategy. After seeing that there are already 1 billion, 1.1 billion users, and at the same time there is a differentiated APP evidence that can serve users with different values, Thank you. Well, in terms of strategy, something very important we've been doing is building a complete consumer matrix with Taobao as our flagship
spk07: app, Taobao Deals, to serve consumers who are more price sensitive and making forays into consumer group buying, which has become very hot with Tao Cai Cai. We also have Fresh Hippo and Idlefish, all of these pieces with their respective very clear value propositions and target use cases and consumer groups. What's extremely important for us is that we have consumer mindshare. This is the underlying commercial logic. And this is, in fact, the most valuable asset that Alibaba has as a company is that consumer mindshare. We don't need to be paying money to induce the consumers to come back. We have that mindshare of the consumers, and that's what's capable of driving a lot of organic traffic that we get consumers coming back, even when they're willingness to consume may have weakened during the pandemic period coming to us. And as I share with you, our DAU figures and page views have remained relatively stable throughout that period. So we have the 1 billion consumers within our AAC user base and a strong differentiated matrix of different apps. And this positions us to further improve that mindshare and capture the opportunities.
spk03: This whole thing we just talked about is actually more suitable for what we call a wide network, which is a nationwide platform. Of course, this quarter, we have several multi-network businesses that are very related to location-based marketplaces or service platforms. We also have a more focused platform This city strategy or regional strategy, including like Tao Caicai, including like He Ma, including like Er Le Ma. I think this is such a district. We call it the district network business. The core of the district network business is that you must get the scale economic effect within the district network that you have chosen within the district network. But this is to reduce unit costs through the scale economy. In this kind of business, we have been exploring these years. We also have a sentence to share with all analysts. We think that the total amount of the entire market is actually meaningless. The most important thing is whether you can achieve a scale economy in a specific area or a specific city. Of course, the total amount represents its meaning in terms of scale, but from a business efficiency point of view, we actually need to look at it in terms of the city, in terms of the region, so that we can form a better three-dimensional perspective. We are also in such a strategic leadership thinking, So this is certainly relevant to what we can call the wide area network, the entire nationwide e-commerce market.
spk07: But it's particularly relevant also to what we can call the local area network or local commerce, regional and intra-city commerce, where we've been focused on different cities and regions with the businesses including Taosai and Freshipo and Ulema. Because you need to achieve economy of scale in a particular city or particular region to drive down your unit costs. in that particular locality. So after several years of experience in this space, we've come to realize that it's not really significant to look at the entire nationwide market as a whole. Really, you have to look at one city or one region in terms of whether you're achieving that economy of scale there and take a city by city or region by region approach. So that's something I would like to share with all of the analysts on the line. That's how you can develop a truly three-dimensional perspective and in line with that perspective we're deploying our strategy where we select different cities and regions and prioritize resources to develop there on a city by city region by region basis to achieve those local economies of scale.
spk03: uh uh
spk07: In the context of the current macroeconomic environment, as I mentioned earlier, our initiatives to drive better cost efficiency are not driven from a financial perspective. And in terms of our strategy, we will continue to make investments where investments are needed and justified. We'll continue to strengthen the parts of our matrix that need strengthening. We'll continue to invest in building our underlying capabilities and improving our our relevant services in order to create long-term value.
spk11: Okay, next question.
spk01: Thank you. The next question comes from John Choi from Daiwa. Please go ahead.
spk09: Thank you for taking my question. My question is on cloud. You know, I think Daniel, you mentioned on your prepared remarks, you know, the reasons why the growth has slowed down in Q2. As we see economy kind of picking up a bit as you've spoken on July, how should we think about the cloud revenue growth momentum towards the second half of the year? And on top of that, I think management did mention previously that the SaaS elements, like think potential monetization opportunities, where are we right now with these initiatives? And are we seeing macro uncertainty companies kind of pushing back you know, deployments or initiatives, and if so, how would that impact our strategy going forward?
spk11: Thank you. John, your first part of the question was broken up. Can you just quickly summarize what you were asking?
spk09: Okay, my question was basically on the cloud revenue growth opportunity in the second half. I think Daniel did mention why the QQ was a little bit softer than usual. So as we look into the second half, how should we think about the growth opportunities and the policies?
spk07: This question is mainly to understand how the growth trend of cloud businesses will be in the second half of the year. As Daniel mentioned in his introduction, Let me answer this question.
spk03: I think we still need to look at the macro, the landscape. I think if you look at the IT expenditure, I mean, as a percentage of total GDP, I think China is far below like U.S. and other developers, some developed countries. So I think that's the biggest landscape. And the second biggest thing is I said, actually, industrial digitalization is a trend. And all the companies, all the sectors, cross-industries, cross-sectors need to be digitalized. So I think that's the second very important thing. So I think in this regard, I think in general, if you look at big picture, this is, I think it's not a, it's not a cyclical opportunity. It's like a structural opportunity, I mean, for the long term. And so that's why I think in China and in the global market, we are actually, we position cloud as one of the core strategies.
spk07: Okay, thank you. I think this question depends on the macroeconomics to further understand it. Uh, uh, Well, the next point I want to make is that if we look at the market opportunities
spk03: Actually, if we revisit the fast growth of the cloud business in the previous years, I think that one of the very important drivers was the internet companies. Because these companies are digital savvy, and day one, they have big data, and they will make full usage of the big data, and they need a computing power. So I think that this is also, I mean, give our Alibaba cloud a very huge opportunity to transform a cloud computing from a technology to a real business. And now we are very happy that we are in the leading position in this sector. Well, I think going forward, especially in China, with the slowdown of the internet sector, and many people talk about what's the next generation after this consumer internet. Actually, the consensus is very straightforward. It's industrial digitalization. So I think then now we are coming to an era where every company becomes an internet company. Actually, it's not internet. It's a digital company. So that's why internally we highlight the revenue contribution from non-internet companies. And we are happy to see that the percentage point is increased. As we discussed this quarter, we improved by five percentage points as compared to the same quarter last year. So I think going forward, we will try to capture the opportunity in vertical industries. And of course, our continuous investment and innovation in the proprietary technologies.
spk07: The next thing I want to talk about is that we can look back at the background of cloud business growth in the past few years. That is to say, there are a lot of Internet companies. They themselves are digitized companies. They have a lot of data. They need to analyze large data for this data. So for this, they need a lot of computing power. Then this gives us the opportunity to turn Ali's cloud technology from technology into a real business. We are very happy that we are already a leading company in this regard. In the future, what will be the next growth point in the background of the China Internet industry? In fact, it is very simple. It is the digitalization of the entire industry. In the age of digitalization of the industry, will become a digitalized company. So in Alibaba, we often pay attention to a number, which is how much of the revenue in our cloud business is from non-internet companies. We are also very happy to see that this ratio is increasing. In fact, we have already disclosed that this quarter has increased by five points. uh uh uh uh uh
spk03: This is more willing to invest. This is less of a disadvantage. This is how to invest. So this has a lot to do with the big environment and the big economic growth prospects. But in the middle of this, there is no doubt why I emphasize in the script that we still need to catch up with the recruiting industry and catch up with the opportunities of future industries. Because the same economic growth must be someone running big. Some industries run big. So we still need to catch up with the opportunities of the industry running big.
spk07: Now, of course, when it comes to companies' willingness to spend on cloud and invest in cloud technology, you also need to look at the overall economic growth picture of the market as a whole. When the economy is doing well and companies are growing fast, performing well, they'll be, of course, more willing to invest. So there is, of course, a macro impact there as well. But this is also why in my script I emphasized why we're looking closely at sunrise industries, because within any economic context, there will always be some sectors and some companies that are on the rise that can outperform the economy as a whole, and we want to prioritize service to them. Thank you. Next question.
spk01: Thank you. The next question comes from Yang Bai from CICC. Please go ahead.
spk04: Hello, Director. My question is this. In the past few years, we have observed some changes in the habits of users. Perhaps this is what all the Internet companies, except for short videos, can truly feel. That is, more and more users and time are concentrated on short videos. So I would like to ask, from the management's point of view, what is the impact of these external changes on the e-commerce industry? Next, our judgment is that it is still in a period of rapid rise, or it is already at a relatively mature stage. And from the perspective of the company, or even from the perspective of the company, in order to better deal with this change in the behavior habits of users and merchants, what active strategic adjustments will Ali make, and what we will not do. Thank you.
spk07: Thank you. My question has to do with changes that we've seen in user behavior over the past few years with more and more user time being spent consuming short-form video. I'm wondering if you can talk about the impact that that's having and can be expected to have on e-commerce going forward. Do you expect to continue to see fast growth there, or do you think that it's already a mature situation that we're seeing Today, and given this trend, in order to better serve consumers and merchants, what strategic changes will Alibaba proactively seek to make and what kinds of changes will Alibaba not make?
spk03: Let me talk about this question. First of all, there is a concept of confusion here. This short video is a way of presenting a product. E-commerce is an industry.
spk07: Well, I'd like to begin by clarifying this concept to avoid any confusion. Short form video is a format, a content format that can be used to convey information regarding a product. whereas e-commerce is an industry. And within the e-commerce industry, the use of short-form video as one of multiple formats is nothing new at this point. In fact, I can disclose to you that on the Alibaba's mobile Taobao app today, more than one-half of products are now being displayed to consumers via the short-form video modality. So if five years ago it would have all been images and text, today it's already more than half of that content is in video form.
spk03: Right. Actually, I guess your question is not about short-form videos and So I believe that your question really isn't about the relationship between short-form video and e-commerce. It's really about the relationship between entertainment and e-commerce.
spk07: And, you know, as I said earlier, the most valuable asset that Alibaba owns today that we've built up over the years is mindshare. Users come to Alibaba with a consumption mindset.
spk03: There is a lot of know-how to learn from it, so we have been focusing on making this product. In this process, we have also been constantly learning to adopt all kinds of new technologies. Over the years, whether it is from the earliest wireless to the later individualization to live broadcast to short video, I think it is all about how to use all kinds of new products and technologies To satisfy the user's experience, I think today's short video is definitely not the last technology. New technology will certainly change the consumer's consumption experience in the near future. Of course, it will also change the consumer's other entertainment experiences in addition to consumption. But any platform must eventually have a clear user positioning. It first serves the user's needs. What is the main food? What is the dessert? I think this is the core positioning problem.
spk07: No, of course, it is often being said that shopping is fun. You know, consumption is a kind of entertainment. And to that extent, Alibaba is in the entertainment industry as well, but we're hyper-focused on one subcategory of entertainment, namely shopping and consumption. It's a very specialized area that requires a lot of know-how, and that is very much our focus. Now, we'll, of course, going forward, continue to learn about and adopt all kinds of new technologies, as we've done over the years, going mobile, introducing customization, personalization, adopting short-form video. And I'm certain that short-form video is not the last technology that will come along. New technologies will continue to come along to revolutionize the consumer experience, both in the consumption context and in the entertainment context. But I think it's important to understand what is the entree and what is the dessert.
spk11: Next question.
spk01: Thank you. Your next question comes from Alicia Yap from Citigroup. Please go ahead.
spk05: Hello, thank you. 管理层晚上好,谢谢接受我的提问。 我有最后这个问题,就是阿里想问一下Daniel, 就是阿里巴巴现在面临的最大的障碍和挑战是什么? 然后公司对于我们现有的人才保留的一些策略, Thank you. My question goes to Daniel. I'd like to ask, please, what at this stage is the biggest obstacle or challenge faced by Alibaba?
spk07: What is your talent strategy for talent retention? And also, what potential areas of investment is Alibaba interested in that you're not yet in, but you might get into, for example, new energy? Thank you.
spk03: Okay, let me answer that. I think what you said is that Alibaba's current China China China Taiwan Taiwan Taiwan Taiwan Thank you. Well, you asked about the biggest challenge faced by Alibaba. Alibaba, like any other company,
spk07: anywhere is like a micro cell in the social organism. Alibaba is where it is today and has achieved success because of the overall economic growth story, the tremendous successful economic growth story of China that has provided the opportunities that have allowed us to succeed over the years and going forward. we would certainly hope to continue to see China continue to get better, see social development continue to make progress, because the bigger and better the pond, the bigger and healthier the fish in the pond can become. And we can further help people realize their aspiration for a better life as things get better across the board. So certainly the macroenvironment is an important underpinning going forward as it has been in the past. But as a micro cell in that social organism, Alibaba continues to practice social responsibility. We seek to create jobs to empower SMEs and to better marry technology with commerce for the betterment of society. We've always done that, and we will continue to do so.
spk03: Taiwan Taiwan Taiwan Now most of them have already come to Ali. This is what we hope to do when we need it most, to contribute to society, and at the same time, it is Ali's own need, to be able to continue to have fresh blood to be added, to be able to accelerate our whole as a family, already young, but also with a long history of an internet company's new generation, to be able to use continuous
spk07: You also asked about talent, and talent is, of course, absolutely critical for Alibaba. We rely on talent to do everything that we do to serve our customers. Our talent bases are a store of extremely invaluable know-how within the company. So, of course, we continue to treasure our talent and invest in talent and to recruit high-quality talent. And on that note, I can share with you, now that we're in August, it's the time of year when university graduates have just left college and are looking for jobs. And despite all of the macro uncertainties that we see out there, I'm pleased to tell you that we've hired 6,000 fresh university graduates from across China. Most of them have already reported to work and are on the job at Alibaba. So this, of course, is an important contribution that the company is making to society by providing these jobs. Of course, it's also something that Alibaba very much needs. We need to continue to stay fresh. We need to take on that fresh blood. If you like, this is refreshing the metabolism of our company, which is indeed a young internet company, but one with some considerable history that needs this kind of ongoing refreshment.
spk03: And then, Alicia, the other part of your question had to do with new investment opportunities in emerging new growth areas.
spk07: You know, the fact is that there will always be an infinite number of new technologies and new industries on the rise. But for any company and for Alibaba, we need to view those opportunities through the lens of our core strategy.
spk03: we will first consider this opportunity from the perspective of cloud computing. Because such an emerging industry is actually standing on a higher social starting point. On the first day, it can be a digitalized industry with all production elements. Cloud computing can play a huge role in the middle. This is the opportunity for us to look at these new industries, including the autonomous driving we discussed, including the metaverse we discussed, These are all related to consumption and logistics. For example, autonomous driving and logistics. Metaverse is related to the experience of consumption. As I said, new farmers and other industrial opportunities are related to cloud computing. We are looking for opportunities to grow with this industry. It is also because of this broadening our own track. At the same time, in this process, We also have a very important point, which is to go to the world. Today, if we talk about our three major strategies, I have always said that we are two in one. Two is our consumption. We look at a lot of new opportunities from these two perspectives. This is a vertical view. But there is another opportunity, which is a horizontal view. Is the horizontal view able to go to overseas markets other than China? I think some of this can be accumulated and exported through Chinese experience. Some are new opportunities that have appeared in overseas markets. New energy is, of course, a huge opportunity. And for Alibaba, we seek to leverage that opportunity mainly in the context of our cloud business because, as I've talked about,
spk07: In these sunrise industries, new and emerging industries, it's possible to leapfrog to a higher level faster, jumping past the previous development stages. You can quickly adopt these new technologies and fresh approaches. The same is also true of autonomous vehicles and the metaverse as well, linking that to our business, consumption and logistics, so the metaverse in relation to consumption and consumption autonomous vehicles in relation to our logistics. New energy is very much linked to our cloud business, so we're finding opportunities to leverage the emergence of these new technologies and these new industries in our existing businesses, viewing it through those lenses. The other piece is, of course, globalization. I've often talked about our three core strategies of consumption. cloud and globalization, two horizontal and one vertical. So we're looking at how we can leverage these technologies in terms of commerce, consumption, and cloud, but also looking at whether some kinds of know-how from China can be taken into global markets or whether in global markets there are opportunities that can be pursued there. But those continue to be our three core strategies.
spk11: OK. Well, thank you, everyone, for joining our conference call today. If you have any questions, please feel free to reach out to the Alibaba IR team. Thank you.
spk01: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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