Alibaba Group Holding Limited

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's September 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.

Thank you and good day everyone. Welcome to Alibaba Group's September quarter 2022 results conference call. With us are Daniel Tsang, Chairman and CEO, Joe Tsai, Executive Vice Chairman, Toby Xu, Chief Financial Officer. This call is also being webcasted from the IR 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 these risks and uncertainties, please refer to our latest annual report on Form 20F and other documents filed with the U.S. SEC or announced on the website of Hong Kong Stock Exchange. Any further looking statements that we make on this call are based on assumptions as of today, and we do not take any obligation 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, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow are expressed on a non-GAAP basis. GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. Unless otherwise noted, growth rates of all stated metrics mentioned during this call refer to year-over-year growth versus the same quarter last year. In addition, during today's call, management will give their prepared remark 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 the third party translator will provide consecutive translation. All translations are for convenience purpose only. In the case of any discrepancy, management statements in the original language will prevail. With that, I will turn the call to Daniel.

Thanks, Rob. Hello, everyone. Thank you for joining our earnings call today. We delivered a solid quarter in a macro environment full of uncertainty. The ongoing resurgence of COVID-19, through political tension, inflation and currency depreciation. The convergence of all these force that created considerable difficulties for business operations. Despite these challenges, Alibaba's non-GAAP EBITDA increased 29% year-over-year as we continue to enhance our operational efficiencies. This is the result of our pursuit of high-quality development, and more importantly, demonstrates the resilience of the Alibaba business ecosystem. In the China domestic consumer market, Taobao Tmall GMV saw a low single-digit young year decline this quarter, but the user traffic remains stable. However, consumption appetite was weak and we saw a drop in purchasing frequency. The resurgence of COVID has affected one area after another, resulting in abnormal or suspended logistics service in different places. This hurt merchant operations and consumer logistics experience. In terms of demand, the decline in categories such as apparel and consumer electronics slowed quarter over quarter. Interest-based categories such as outdoor recreation and pet care and health and wellness-related categories recognized positive growth. In this challenging environment, we have achieved relatively positive results through a committed execution of the following strategies. Number one, we work to ensure our user traffic population remains stable, DAU or MAU by continuing to strengthen our user engagement. After many years of operation, Taobao Tmall is now deeply entrenched in our users' mind as the shopping destination. We are focused on user engagement on our platform by enhancing the customer journey, cross-search, algorithm-driven discovery recommendations, live streaming, and other engagement features. We stimulated consumption interest and drove conversion by highlighting the factors that influence purchase decisions through short-form video, photos, texts, and other means of communication. Number two, we further consolidate the scale and the stickiness of our most valuable consumer group. For the 12 months ended December 30, 2022, the number of consumers who each spent over 10,000 RMB on top 1T more remain around 124 million with a retention rate of 98%. AAVIP membership population held steady at 25 million this quarter with solid membership retention and a growth in GMB contribution. Number three, we improved consumer satisfaction by continually investing in customer service during and after sales, and the logistics service experiences such as doorstep delivery of orders as required. Our latest consumer satisfaction survey showed improvements in NPS scores relating to logistics and poster sales. During our recent 11.11 Global Shopping Festival, Taobao Tmall's total GMV was in line with the performance last year during the same period. Initial fruits of the operation strategies outlined just now were seen during November 11. More than 600 million users engaged with our November 11 related contents. A single digit growth year on year. Although the total number of buyers declined compared to the same period last year, the average GMV per person increased. As for our consumer profile, more than 98 of our AAVIP members bought something during November 11th season. Moreover, the contribution by AAVIP members to the total GMV continued to grow. Regarding product categories, consistent with what we observed during the rest of the quarter, interest-based categories such as outdoor recreations and pets and health and wellness-related categories saw positive growth. Consumer electronics also endured positive growth during November 11 season. However, there are a few factors that negatively impacted our 2011 performance. Number one, average temperature across China was much warmer than usual for that time of year. And the delay in seasonal change weakened the consumption appetite for apparel even more in an environment impacted by COVID. And thus, the apparel category suffered. Number two, starting in October and through the 11-11 campaign period, Nearly 15% of delivery areas across China experienced abnormal or suspended logistics services. This had a significant impact on the merchant's ability to fulfill orders on time and the delivery company's ability to make regular deliveries. But recently, we are seeing improvements. Number three, 11.11 has become an event celebrated and embraced by the entire society. Given the uncertainties relating to the COVID-19, merchants were especially keen to take advantage of this opportunity to capture as much growth as possible across every available channel. Objectively speaking, they offer the consumer more choices, both online and offline. This quarter, the decline in consumer management revenue was higher than the decline in overall GME. I would like to share the reasons. The first is the higher rate of order return because of A, order return due to COVID-related impact on fulfillment and delivery. B, a higher order return rate that accompanied live streaming driven sales. the increasing convenience of making returns and improvements in user experience in returns handling on our platform. These three reasons collectively contribute to the rise in order return rate across the platform. Take rate calculation does not account order returns. If it was accounted for, our take rate actually remained consistent. Second, page views from algorithm-driven discovery recommendations grow, but our monetization of traffic was less efficient, resulting in a lower take rate in the short term. Looking forward, we will adapt to the change in our user traffic composition and introduce better monetization products to ensure the long-term stability of our platform take rate. In our local consumer service segment, Erlema proactively adjusted its business operation strategy to focus on user growth and retention on its mobile app. And it continued to grow its market presence in key cities. At the same time, it continued to enhance operational efficiency and unit economics continued to see improvement. This is primarily due to the rise in average order value, leading to an increase in revenue and a reduction in the logistic costs for order fulfillment. AMAP launched a new version of its maps this quarter, together with a series of new features, including a 3D city map, car lane level map, road navigation, forecasting of traffic light signals, and road navigation for staying in the shade out of the sun, so on and so forth. User population and sickness continue to strengthen in AMAP, and a new historical record of 220 million DAU was registered during the week of the National Day holidays. On top of its map navigation, The services offered by AMAP related to getting to destination, which includes ride hailing, hotel booking, gas station, and the EV recharging station, are all experiencing rapid developments with both service users and all the volume enjoying faster growth. Tanya's various business saw robust growth in this quarter and there are clear improvements in cost efficiency. China Post network grew by 20% year-on-year and now has more than 170,000 locations. It has comprehensive coverage in residential communities, school campuses, and rural villages across China. China Post has become an important touchpoint for serving consumers. For overseas markets, China continues to actively build logistic hubs and nodes for further enhance its global logistic network service capability and efficiencies. In overseas market, the rise in logistic cost due to inflation and the currency depreciation against the U.S. dollar has contributed to all the volume decline of 12% year-on-year in our cross-border export business, Bali Express. In Southeast Asia, Lazada's order volume declined 6% year-on-year as COVID-related restrictions were lifted and offline shopping resumed. TrendView's order volume grew over 65% year-on-year on the strength of its e-commerce business and fast-growing local consumer service. For AliExpress and Lazada, we are taking steps to adjust our business model and investing in creating user value rather than just scaling. We are also continuing to strengthen our capabilities in logistics and supply chain. We believe that developing and investing in these capabilities will be meaningful to ensure the sustainable long-term development of our abilities to serve the overseas consumer market. In our cloud segment, Alibaba Cloud's revenue growth was 4% year-on-year this quarter. Through structural adjustments over the past few quarters, Alibaba Cloud's revenue structure is now healthier and more sustainable. Public cloud revenue grew double-digit year-on-year this quarter, while hybrid cloud declined. In the interest of pursuing high-quality growth We proactively control the development of our business that only resell hosting infrastructure that has been commoditized in the market. Looking at our revenue by industry, non-internet industry revenue grow 28% year over year. Its contribution to total revenue increased from 53% to 58% quarter over quarter. the fastest-growing sectors including financial services, automotive, telecom, and public services. Looking ahead, Alibaba Cloud will leverage its proprietary cloud computing and big data processing capabilities to launch a range of industry solutions with relevant partners for advancing China's industrial digitization. At the APASARA conference in early November, we unveiled many important technological achievements. It included our cloud infrastructure processing unit, i.e. CIPU, and an open source platform under the model as a service named ModelScope. These will serve important purposes in Alibaba's cloud future development. In this environment full of uncertainty, our wide-ranging efforts in cost reduction and efficiency improvement measures are beginning to bear fruit. Businesses such as Taobao Deal, Tao Caicai, Ulema, AMAP, Lazada, and Youku have significantly reduced their losses. We will continue to focus on the steady improvement of business quality and on investing in building capabilities to provide customer core value rather than pursuing short-term business growth or user scale. As China enters an era of high-quality development, we will also enter a stage of high-quality business operations. During the eight years from Alibaba's IPO in September 2014, The quality and the scale of our business has improved significantly. Alibaba's revenue today is 12 times what it was during the same period in 2014. Adjusted EBITDA is 4.5 times what it was during the same period in 2014. Free cash flow is four times that of what it was in 2014. Over the past eight years, China's GDP has almost doubled from 59 trillion RMB in 2013 to 114 trillion RMB in 2021. We are confident about the future and we will continue to execute our SHIPE share buyback program. As of November 16, we have utilized approximately 18 billion US dollars to date towards share repurchase under our existing $25 billion program, with $7 billion more to go. In addition, our board has authorized us to upside our existing share repurchase program by another $15 billion as a tangible action towards enhancing shareholder return. We remain confident about ourselves and even more about the future, no matter the ups and downs. We believe in the prospect of China's economic and social developments. We believe Alibaba's development goals are highly aligned with China's long-term goals. We believe Alibaba can play an important role in the digitalization process in China and around the world. We have taken note of the latest adjustment in China's COVID-related policies and proactive commentary from relevant government regulators about promoting the digital economy and the high-quality development of platform businesses. We believe that COVID will ultimately pass and our society, our economy, and our lives will eventually return to normal. and that the massive potential of China as the world's second largest economy will be further unleashed. Last but not least, we believe that platform economy that Alibaba is part of can make unique and valuable contributions towards serving small and medium businesses, creating employment and the pursuit of better lives. Thank you, everyone. Let me pass the microphone to Toby, who will share the financial result with you.