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spk05: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's December 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 Lin, Head of Investor Relations of Alibaba Group. Please go ahead.
spk08: Thank you. Good day, everyone, and welcome to Alibaba Group's December quarter 2022 results conference call. With us today are Daniel Zhang, Chairman and CEO, Joe Tsai, Executive Vice Chairman, Toby Hsu, CFO. 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 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 undertake 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, 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 reconciliation of GAAP to non-GAAP measure can be found in our earnings press release. Unless otherwise stated, growth rate of all the metrics mentioned on this call refer to year-over-year growth versus the same quarter last year. With that, I will now turn to Daniel.
spk12: Thanks, Rob. Hello, everyone. Thank you for joining our earnings call today. This past quarter, our business and operations experienced significant challenges due to the rapid change in the COVID situation during December. Despite these challenges, we delivered double-digit year-on-year growth in our adjusted EBITDA and the free cash flow through effective business management, cost optimization, and operating efficiency. With the lifting of COVID-related measures at the end of peak wave, everything is now quickly getting back on track. In general, consumer confidence and business confidence are rising. Logistics has resumed normal operations, with the entire supply and manufacturing chains becoming active. Digital transformation across different industries and sectors has accelerated significantly. Against this backdrop, our various businesses are showing positive trends. Recently, the IMF raised the estimated GDP growth for China to 5.2% this year. Given the expectation for economic recovery following the lifting of COVID-related measures and China's reopening. I have chosen progress as a key word internally to set the tone for Alibaba's development this year. We need to respond quickly to the change in the macro environment and the major cycles. The theme of progress represents the need to adapt to the trends in the macro environment and for Alibaba's own development. In China's post-COVID economic development, although different businesses across our complex ecosystem face their own unique circumstances, we remain confident in our three main strategic pillars of consumption, cloud computing, and globalization. Now I will share how our business performed this past quarter in a difficult COVID environment. together with some color on the situation in January and February, and how we plan to capture opportunities across our businesses. During December quarter, the China consumer market was highly impacted by COVID cases. Taobao and Tmall GMV dropped mid single-digit year-on-year, and the consumption demand was quickly suppressed. In terms of category, apparel and other discretionary goods were weak, while healthcare and wellness-related grew strongly. This is consistent with the data trend released by the National Bureau of Statistics of China. From January to early February of this year, overall sales of online physical goods remained weak, and our China commerce continued to be highly impacted due to COVID cases as well as people traveling home or to other places during the spring festival holidays. But as the influence of COVID cases at the spring festival travel subsided in February, especially recovery in categories such as apparel and sports and outdoors, as work and life returned to normal, All of our merchants have also expressed their strong desire to get to business. We expect this recovery will continue. In our operations, we are strengthening the user experience and customer value proposition on Taobao and Tmall to reinforce our market leadership with the following measures. First, enhance user stickiness and time spent. Taobao and Tmall are home to China's most comprehensive population of online shoppers and is the most efficient consumer transaction platform. We are building on our competitive advantage by continuing to introduce a wide variety of consumption-related contents in the form of short-form video, live streaming, and other formats to strengthen consumer stickiness, product discovery, influence, and the user engagement. Second, enhance value for money proposition. Price is always a key factor in consumer purchasing decisions. We will continue to improve competitive pricing of products through the design of marketplace mechanisms, promotional marketing features, and the retail model innovations, such as Powerball deals direct from factory goods and farm-to-table offerings. Third, neighborhood digital retail. We will capture consumers' time-sensitive needs for highly-frequency everyday necessities through our neighborhood digital retail business, such as Tao Xian Da and Tao Cai Cai that fulfill orders from local supply chains using local deliveries. In local consumer services, Erlang's restaurant order volume growth rate picked up towards the end of this quarter due to increased home-based consumption from COVID cases. Notably, non-restaurant order volume growth rate was far higher than what it was for restaurants. The business saw an increase in revenue due to higher average order value. Ongoing improvements in operating efficiency resulted in lower expense ratios in marketing and logistics. Erlema continued to demonstrate positive unit economics, and it will continue to improve. During COVID, Erlema adjusted operating strategies, safeguarded its delivery capabilities, and supported supply recovery. During peak COVID cases, AMAP's user scale and scale of services used were greatly affected. As cases eased, usage of AMAP quickly recovered. Run heading and hotel room booking volume grew very rapidly. AMAP has become a new platform providing various destination-based consumer services. FLEEGIS domestic and outbound travel activity also quickly grow during the spring festival holidays. As a result of our ongoing development of the supply chain and the service capability over the past two years, recovery of FLEEGIS domestic airplane ticket and hotel booking was significantly faster than the overall domestic travel performance reported by the China National Tourism Administration. and a noticeable day better in comparison to 2019 before the COVID outbreak. In international commerce, our various businesses made steady progress. TrendDeal continued to deliver strong growth as overall order volume grew over 50% year-on-year, with local consumer services growing even faster. When Turkey was suddenly hit by earthquakes in early February, we actively organized and delivered support for emergency relief. So far, all our employees in Turkey are safe. Trendio's business operations remain stable, and they have mobilized resources to aid disaster relief. As for Lazada, as the business continues to optimize for order volume growth. They also reduced loss per order by more than 30% year-on-year. We remain firmly committed to continuing to invest in Lazada's region of Southeast Asia. Through close collaboration with Tainiao, AliExpress greatly optimized time-bound order deliveries on key routes. As logistics services quality continues to improve, and the impact of VAT and the foreign exchange rate in Spain and France continue to ease, AliExpress order volume is starting to show positive growth. Our globalization strategy will continue to be firmly focused on Southeast Asia and Europe through a mix of localized retail and cross-border commerce. We will continue to make sustainable long-term investments and build businesses that can withstand economic cycles. China is celebrating its 10th anniversary this year. It has built a robust, comprehensive business covering China and cross-border international logistics, large-mile logistics technology, and more. It is also continuing to make progress in green logistics and emergency response logistics. In China, Chineo continues to expand its doorstep delivery services for our Taobao and Tmall customers. During the most recent November 11, more than 18 million orders from Taobao and Tmall were delivered to customers' doorsteps daily at its peak, which includes those delivered directly to doorsteps through or through Chineo post locations in residential communities. Anyo has also built its own international logistics network over the past few years. As of this past quarter, it had more than 15 international sorting centers in operation. Our cloud business overall revenue growth rate this quarter was 3% year-on-year. The growth rate for public cloud was double-digit year-on-year, which was partially offset by a decline in hybrid cloud revenue from project delays due to COVID. In terms of revenue by industry, financial services, education, and automobiles are among the growth drivers. We also announced an important organizational change towards the end of last year. I took on the role of Acting President of Alibaba Cloud in addition to my current role as Chairman and CEO of Alibaba Group. This decision was based on a few considerations. First, cloud computing is one of Alibaba's core strategies for the future. Innovation and other technologies will have an impact not just on Alibaba Cloud, but the entire Alibaba Group. Alibaba Cloud is also the foundation through which Alibaba serves the real economy and will continue to drive physical digital integration. Third, we believe this is a critical period for technological breakthrough and development in the nexus of cloud computing and AI. As one of the leading cloud computing service providers globally, We strongly believe in the vast potential of industrial digitalization and the role of cloud computing as infrastructure to the digital economy. Going forward, we will focus on a few areas to reinforce and strengthen our market leadership position as we look at opportunities ahead. First, enhance the stability and the security of our cloud computing services. while continuing to optimize performance and manage costs through technology advancement. Second, continue to build a dynamic developers and industry ecosystem for cloud computing. Third, collaborate with partners to provide intelligence-based industry solutions to our customers in different industries and sectors. continue to push forward a holistic cloud-based service product that integrates our intelligent online workplace collaboration platform and application development platform. Lastly, in this exciting era of disruptive breakthroughs initiative by generative AI, computer power is essential. On one hand, we will continue building our own large-scale pre-training model. We are also ready to capture the market opportunities to provide the computing power for the various generative AI models and its applications. This year marks Alibaba Group's 24th year, and in Chinese traditional culture, this means we have gone through two complete calendar cycles. We captured two historical opportunities of e-commerce in China for the consumer Internet and start to cloud computing in China for the industrial Internet. We will continue to capture the vast opportunities ahead through the impact of technology on commerce and other facets of our society and environment. Although there are many uncertainties in the journey ahead that are very difficult to evaluate, we remain highly confident in the future of Alibaba and China's development. Thank you, everyone. Let me pass the microphone to Toby, who will share our financial results.
spk02: Thank you, Daniel. Let me start with financial highlights for the quarter. This quarter, our total revenue was RMB 248 billion, an increase of 2% year over year. Income from operations was RMB $35 billion, an increase of RMB $28 billion year-over-year, mainly driven by a RMB $22.4 billion decrease in impairment of goodwill in relation to digital media and entertainment segment, and an RMB $7.2 billion increase in adjusted EBITDA. During December quarter, We have continued to improve operating performance of our loss-making businesses by enhancing operating efficiency and optimizing costs that resulted in 16% year-over-year increase in adjusted EBITDA to RMB $52 billion. Overall adjusted EBITDA margin improved by 3 percentage points to 21%. Now let's look at cost trends as a percentage of revenue, excluding SBC. Cost of revenue ratio remains stable year over year at 60% in December quarter. Our direct sales businesses and logistics services continue to grow, driving up our cost of inventory and logistics. But we were able to keep our cost of revenue ratio stable primarily through optimizing content cost. traffic acquisition, and improving operation efficiency. Product development expenses ratio remains stable during the quarter. Sales and marketing expenses ratio decreased three percentage points year over year to 12% in December quarter, reflecting our continued effort in optimizing user acquisition and user retention spending across businesses. General and administrative expenses ratio remained stable at 3% in December quarter. Non-GAAP net income was RMB 49.9 billion, an increase of RMB 5.3 billion, or 12% year-over-year, mainly due to increase in adjusted EBITDA, partly offset by decrease in equity pick-up of our equity method investee's results. Our gap net income was RMB 45.7 billion, an increase of RMB 26.5 billion year-over-year, primarily due to the increase in non-gap net income and the RMB 22.4 billion decrease in Google internment mentioned earlier. As of December 31, 2022, we continue to maintain a strong net cash position of 379 billion RMB, or $55 billion. Our strong net cash position is supported by healthy cash flow generation. In December 2022 quarter, cash from operating activities was RMB 87 billion, and free cash flow were RMB 82 billion, respectively, which were up by RMB 7 billion and RMB 10 billion versus a year ago. Majority of the difference between operating cash flow and the free cash flow was operating capex at RMB 5.8 billion, down by RMB 3.5 billion versus a year ago. Net cash inflow from investment and acquisition activities including disposals was RMB 1.9 billion compared to an outflow of RMB 4.7 billion in the same period last year. Importantly, we have continued to enhance returns to shareholders through share repurchases given our strong balance sheet and free cash flow generation capability. During the quarter, we repurchased approximately 45.4 million of our ADSs for approximately 3.3 billion U.S. dollars and our share repurchase program. Now let's look at our segment results. Revenue from China commerce segment in December quarter was under 170 billion, a decrease of 1% year over year. Customer management revenue decreased by 9% year over year to RMB 91.3 billion. Taobao and Tmall online physical goods paid GMV declined by mid-single digit. Customer management revenue declined a few percentage points further versus paid GMV, mainly due to higher order cancellation rates as a result of supply chain and logistics disruption caused by COVID-related impacts. Direct sales and others revenue grew 10% to RMB 74 billion, primarily driven by strong growth of our fresh apple and Alibaba Health's direct sales businesses. China commerce segment adjusted EBITDA increased by RMB 749 million to RMB 58.6 billion in December quarter. Segment EBITDA margin remained stable at 34%. This reflected significant loss reductions from Taobao Deal, FreshHippo, and TaoTaiTai, partly offset by decrease in profit from customer management services. Our international commerce segment revenue in December quarter was RMB 19.5 billion, an increase of 18% year-over-year. Revenue from international commerce retail business increased by 26% to RMB 14.6 billion. The increase was primarily driven by accelerated revenue growth of Trendyol as a result of its strong order growth and more efficient use of subsidies. Lazada and AliExpress also saw recovered revenue growth this quarter. Revenue from our Alibaba.com wholesale business remains stable year-over-year. International commerce segment adjusted EBITDA loss narrowed by RMB 2.2 billion to RMB 763 million in December quarter. The loss reduction year-over-year was primarily contributed by the reduced losses from Trendio and Lazada. Trendio continues to generate strong revenue growth and have enhanced operating efficiency. Continued narrowing of losses from Lazada was a result of ongoing improvement in monetization rate by offering more value added services as well as enhanced operating efficiency. Our local consumer services segment revenue in December quarter grew 6% to RMB 13 billion, primarily due to positive GMV growth of to-home business driven by higher average order value of ULMA. Local consumer services adjusted EBITDA loss reduced by RMB 1.9 billion year-over-year to RMB 3.1 billion Most of the loss reduction was driven by Erlanga business, while other major businesses within this segment also saw recorded reduced losses. Erlanga continued to improve its unit economics per order by increasing average order value, reducing delivery cost per order. Its UE continued to improve year over year and remained positive this quarter. Revenue from Tainiao after inter-segment elimination grew 27% year-over-year to RMB 16.6 billion, primarily contributed by the increase in revenue from domestic customer logistics service as a result of service model upgrade since later 2021 to enhance consumer experience as well as increase in revenue from international fulfillment solution services. In December quarter, 72% of Tanya's total revenue was generated from external customers. Tanya recorded adjusted EBITDA loss of RMB 12 million in December quarter, loss reduced by RMB 80 million year over year. Revenue from cloud segment after inter-segment elimination was RMB 20.2 billion in December quarter, an increase of 3%, mainly driven by healthy double digit public cloud growth, partially offset by declining hybrid cloud revenue as we continue to drive high quality recurring revenue growth. Revenue growth from non-internet industries was 9% and contributed 53% of overall cloud revenue. The non-Internet revenue growth was mainly driven by solid growth of financial services, education, automobile industries, which was partially offset by the decline in public services industry. Revenue from customers in the Internet industry declined by 4% mainly driven by declining revenue from the top Internet customer that has gradually stopped using our overseas cloud services for its international business. On the other hand, we saw improving demands from Internet customers in December quarter. Adjusted EBITDA of cloud segment, which comprised of Alibaba Cloud and DingTalk, was a profit of RMB $356 million in December quarter, increased by RMB $222 million year-over-year. Revenue from our digital media and entertainment segment in December quarter was RMB $7.6 billion, a decrease of 6%, primarily due to the decrease in revenue from Alibaba Pictures. Adjusted IPTAR, was a loss of RMB 25 million, reduced by RMB 1.3 billion year over year, primarily due to the narrowing of loss from Youku, driven by disciplined investment in content and production capability. Let me wrap up with some final thoughts. Our December earnings results continue to demonstrate our ability to execute and achieve the key operating and financial objectives we have set since the beginning of the fiscal year. Despite another quarter of global macro and COVID uncertainties that waited on our revenue growth, we have continued to focus on higher quality growth supported by consumers and customer-centric initiatives. Improved operating efficiency and cost structure throughout the organization, enhanced the shareholders' return through ongoing share purchases. Consistency and persistence were key factors to our success in delivering these results in a challenging 2022. As Daniel mentioned, we believe 2023 will be a year of progress for Alibaba. It is expected that China's economic activity will recover in 2023, which would catalyze and stimulate a gradual consumption recovery. In 2022, we have strengthened our operational and financial capabilities. We are confident that those enhancements will position us well to benefit from China's recovery. We exited 2022 with a strong financial position of US dollar 55 billion in net cash, allowing us the financial flexibility to grow our businesses and improve returns for key stakeholders, including shareholders. In 2023, we intend to increase investments in major businesses that improve their competitive position and growth prospects while maintaining our mindset of enhanced operating efficiency. Thank you. Now let's turn to Q&A.
spk08: 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 manager will address your question in the language you ask. Please note that the translation is for convenience purpose only. In the case of any discrepancy, a 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. Our management team will answer your questions according to the language provided by you. Translation purposes are easy for everyone to understand. If you have any questions, please use the language provided by our management team. As you cannot hear the Chinese translation, the double language record of this telephone meeting will be provided on our website within a week after the end of the meeting. Now operator, please connect the speaker and SI conference lines. Please start the Q&A session when ready. Thank you.
spk05: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press the star key followed by the number one on your telephone keypad. 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 Alex Yao from JP Morgan. Please go ahead.
spk11: Thank you for giving me the opportunity to ask this question. I want to ask a long-term question and then ask a short-term question. The first long-term question, just like Daniel said, ARRI has been established for 24 years, two rounds in Chinese. In the past 20 years, we have led China's digital flow, digital logistics, and digital computing. In the next three to five years, what are the digital fields that Alibaba plans to be deeply involved in? Or in another way, as you said, in the past 24 years, we have seized two big opportunities in China. One is e-commerce and the other is cloud. Looking forward to the next three to five years, will there be any new, particularly big, and industry that we think will have a great chance of growth? Then the short-term question is, back to this year, we saw the rise of new technologies on the Internet, such as ChatGPT, and we also saw changes in the competitive environment, such as Thank you.
spk07: Thank you very much management for taking my questions. I'd like to start by asking a question that addresses the long term and after that I'll come back to some shorter term questions. But starting with the long term, as you said in your speech Daniel, Alibaba has now been around for 24 years marking the completion of two complete cycles as per Chinese culture. And through these two cycles over the past 20 plus years, Alibaba has captured digitalization, enabled opportunities around commerce, around logistics, and around cloud. So looking forward, what do you think will be the next big area or areas where Alibaba can achieve significant growth? As you yourself said, there have been two major opportunities that Alibaba has seized in the first 24 years. e-commerce and cloud but see in the next three to five years what will be the big opportunities where you think Alibaba can achieve huge growth and then coming back to the short term looking at this year some of the major developments we've seen the very rapid success of chat GPT as well as some important changes in the competitive environment with opportunities and challenges how do you see Alibaba better marshalling its core competitiveness in the short term, and will part of that involve further optimization of costs and driving of operational efficiencies? Thank you.
spk12: Thank you, Alex. I'd like to talk about this. First of all, as I said earlier, In the past 20 years, digital circulation, digital logistics, and digital computing are the three things that are active. For Alibaba, this also reflects our long-term strategy, which is to consume cloud computing and globalization. In fact, our globalization is also the globalization of consumer cloud computing. So we will still look to the future, and we will continue to move forward under these three major top-level strategies.
spk07: Thank you, Alex, and I will take those questions one by one. First, indeed, over the past 20-plus years, the major opportunities for us that we've seized have been around applying digital technology to commerce, logistics, and cloud computing. And this is indeed the long-term strategy of Alibaba. We remain firmly committed, as always, to our three core strategies around consumption, cloud, and globalization. And when we talk about globalization, it is indeed globalization of our consumption and cloud-based offerings. So we will remain firmly committed to those core strategies.
spk12: Why do we continue to stick to these three strategies based on the past, rather than looking for the so-called new strategic channels? It's because we think the ceiling of these three strategies is high enough, the market is large enough, And today we are still able to find a huge opportunity in this continuous technological advance. I will explain one by one. For example, for the consumer channel, today, if you look at the opportunities for China's growth, for the future development of China's GDP, with this year's RMF estimate, with a 5% rate, if the future persists for 10 years, you can imagine that China's GDP This absolute number will be larger. At the same time, there is one thing that is certain. If we want to achieve such a growth of 5% in 10 consecutive years, China's consumption will definitely be in the middle. The proportion will be more and more large. China's population of more than 4 billion people now must be in the proportion of more than 1.1 billion GDP. In the relative proportion in the next few years, it will definitely be larger. At the same time, in the middle of this, the opportunity of digitalization brought by technology With the development of technology, today we see that the e-commerce of 20 years ago and the e-commerce of 10 years ago and the e-commerce we are doing now are completely different. Especially after the epidemic, in fact, all the sales we said a few years ago will be digitized and have been realized. But in the future, including what you just said, the new generation of technology represented by the digitized AI, In this field of applications, it will definitely bring a new digital form and user experience. Including what we want in the consumer side, it is definitely not just a change in the consumer's change. At the same time, the change in supply chain, because of the digital and intelligent trend, the change in supply chain has just begun. Let me stop here first.
spk07: Why going forward will Alibaba continue to remain focused on those three core strategies and not seek out new arenas in which to compete? Well, very simply it's because we think that in those three areas the ceiling is high enough and the market is big enough. There's more than enough for us to accomplish there, especially as we continue to evolve our technology. We're confident that we can continue to find huge opportunities core areas and we can look at them one by one. Beginning with consumption, if you look at the size of consumption in China today as a percentage of GDP and you think about the latest forecast from the International Monetary Fund, the IMF of 5% economic growth in China, imagine what China's GDP numbers will look like if that can be maintained, 5% per annum growth for a period of 10 years. And if China's economy does grow by 5% a year for 10 years, you can certainly imagine that the proportion or the size of the contribution of consumption in China within GDP, so we're talking about 40 trillion yuan today against 110 trillion yuan, that proportion will certainly be even higher 10 years down the road. Turning to technology, we can look back at the trajectory that we've already traveled through 20 years ago, 10 years ago, e-commerce has taken on a completely different look and continued to evolve. And we said in the past that we would digitalize commerce in China. Well, that's not been completely accomplished. But looking to the future, we now have these exciting new technologies coming to the fore, including generative AI, which you mentioned. And I think that certainly will also be transformative and create new experiences and new formats of consumption. But this digitalization, when it comes to consumption, is not just having an impact on the consumer side. It's also having an impact on supply chains and the way they're organized. And I think that really is just getting started.
spk12: China's IT expenditure accounts for 1% of the GDP, while the U.S. accounts for 5% of the GDP. China's IT expenditure accounts for 15% of the GDP, while the U.S. accounts for 21% of the GDP. These are all IDC data. If the IT expenditure accounts for 1% of the GDP and the IT expenditure accounts for 1% of the GDP, these two variables alone can bring a huge opportunity. Not to mention, With the development of this technology, in fact, this includes the generated AI and other cutting-edge technology that we just talked about, including the VR experience we discussed a while ago. In fact, it will bring a huge demand for computing power. Its growth in the demand for computing power is a growth in integrated technology. As the leading cloud computing manufacturer in the world, we think this game has just begun. So we are still We like to take the two of them. This theme includes the two consumer and the theme of the cloud to go to the global market. I think all the trends I just talked about are actually not only China, but also the trends of the world. And we are in these two channels. We are both consumer and cloud. We are both the leaders of China at the moment. This is the first team leader in the world. We are full of confidence in the future. It is also our insistence. When it comes to cloud computing,
spk07: This is an industry where China is really just getting started, and you can look at a few figures to support that. First of all, if you look at the proportion of IT spending within total GDP in China, it's only 1%. In the U.S., it's as high as 5%. And if you look at the proportion of cloud within IT spending numbers, it's 15% in China today, 21% in the United States. These are figures from ITC. So I think that those two figures represent a huge opportunity for us in China. And of course, as technology continues to develop, as new cutting-edge technologies like generative AI come to the fore, but also VR, virtual reality, which we've discussed before, all of these technologies, as they're deployed, are going to require massive compute power to support them. So we expect to see exponential growth in demand for compute power. So for us as a cloud vendor, I think that story is really just getting started. And of course, these are not just trends in China, but for the world, and we intend to take our offering to the world. We're already the leader in China when it comes to consumption and to cloud computing, and one of the leaders in the world, and we will continue unshakably to be committed to and to pursue those or three strategies that we've adopted while continuing to embrace new technologies and make technological breakthroughs in order to create new and more exciting prospects for Alibaba as a company.
spk12: Let me briefly talk about the second question. With the emergence of new technologies, including new market trends, there are new trends every day. For Alibaba, we have defined 2023 as the year of near progress. we still need to pursue technological and commercial progress, pursue the creation of user value. In the middle, I think we will still actively invest in the new technology field, in the way of combining new technology and business, to create new results, create new value, create new business with new technology, create a new future with new technology. This is our usual method. In fact, the development of Aliexpress for more than 20 years, we have not been using low-cost subsidies, using low-level competition to gain the leading position in the market. We believe that technology creates no end. In fact, the possibility of technology from impossible to possible will bring business from impossible to possible. So I think we will continue our usual practice on this, insist on breaking through the technology to create a new business and a new future.
spk07: And then moving on to your second question about new technologies and developments in the market. And of course, there are always new market developments on a daily basis. But as I said, Alibaba has identified progress as our keyword, as our overarching theme for 2023. We'll be seeking progress in technology, in our business, and also in the ways that we create user value. We will be investing therefore to drive progress in new technology and to integrate new technology with business to create new value and new kinds of business with tremendous prospects going into the future. And in fact, that's what Alibaba has always done over the past 20 years. We haven't been a low price competitor. We haven't been relying on heavy subsidies. We haven't been engaged in low quality, low level competition. Rather, we've always invested in technology and the belief that technology can make the impossible become possible And that can also make business that had been impossible also become possible. So we will continue to seek and drive new technology breakthroughs to open up new frontiers in commerce and in business. Thank you. Next question.
spk05: Thank you. The next question is from Ronald Kung from Goldman Sachs. Please go ahead.
spk03: Hey, thank you, Daniel, Toby, Rob. In 2022, The whole year has been on the rise. In 2023, we haven't seen any changes from the consumption of GMB. Can we see some recovery? When do we expect this recovery to happen? We can see the whole GMB or CMO transition. In this environment, how should we balance this this year? We know that in 2022, a major theme for Alibaba was optimizing
spk07: cost structure and driving operational efficiencies. Going into 2023, as we've talked about, we can expect to see a pickup in the macroeconomic situation, potentially hopefully leading to GMV turning positive, GMV growth turning positive again. I'm wondering when you expect to see that happening, at what point can we expect to GMV numbers? And also, how are we going to achieve balance between growth and investment in this new year? Because we know there are people who are engaging in a lot of subsidization behavior in the market. So how are we going to achieve that balance between growth and investment?
spk12: Let me talk about this. The first thing I want to talk about China China China China China China China China After that, the whole situation began. As life and work returned to normal, we saw that the obvious consumer sentiment through the active consumer behavior of users showed obvious changes. We also saw some changes in categories. As I mentioned, such as clothing, sports, and outdoor, these categories, including the health category, continued to be very popular. On the other hand, after three years of uncertainty, the business desire of the business owners is that all business owners and all Chinese companies want to work hard in the new year. They want to recover their reputation as soon as possible and get back what they lost in the past three years. I think this is everyone's common wish. So the business power and initiative of the business owners can be seen to be improved. Based on these changes, of course, as of now, China China China China In a short time, some people will take the initiative to make some price subsidies, hoping to be able to change the situation and win the opportunity, or turn around. But as long as you see, if you look at history, since it is not a new thing, you can see that in history, no family can turn around or change the situation by their own continuous price subsidies. In fact, the final change of the situation still depends on technology. I just talked about technological innovation, including the innovation of commercial mechanisms, in order to truly change the situation and truly make the business willing to give its best products and best prices to its consumers. Because it is impossible for a person to supply the whole platform. Only let the business be willing to pay the bill for its consumers and pay for its consumers, and this payment is long-term and sustainable. This is a positive cycle. For ARRI, we definitely have our experience in this area. We will make full use of it. First, the price is definitely a very important user experience. But how do we make good use of platform mechanisms in the middle of this? Of course, how to use our market resources well, including our deep pocket. As we just talked about, we have 550 billion US dollars of net cash. In fact, this is not a matter of money. This is a business. Well, starting with the part of your question that had to do with the pickup and
spk07: following the end of COVID measures in China, obviously we're following that situation very closely, just like all of you, just like everybody else. But in my script earlier, I did lay out as detailed and comprehensive a picture as I could. January certainly was still a challenging time through the Spring Festival, especially with people traveling widely in large numbers across the country. Life and work however began to normalize around the time of the Lantern Festival and thereafter with improvement in consumption sentiment indeed as expressed in consumption behavior and I also shared with you the impact that that had in different categories including apparel, sports, outdoor and health. Certainly, what we see across all merchants is a strong desire to get back to business. They want to have a bumper year in 2023 to make up for everything they lost over the past three years. That's certainly a shared hope across the board for all merchants. Of course, since the resumption of normalcy, if you like, it's only been a short time. on how that ongoing picture continues to develop. But certainly we are optimistic about continued improvement in the situation. The other part of the question had to do with market competition and price subsidies. Look, price subsidies are nothing new. Every couple of days somebody out there comes up with a bright idea to try to engage in heavy price subsidies in order to win more opportunities and turn around the business. But I think if you take a clear-eyed look at history, nobody, no player ever has managed to achieve that kind of turnaround by relying on price subsidies. What it takes really is technology innovation, which in turn empowers a business model innovation. At the end of the day, it's really about merchants being able to provide to consumers the best products at the best prices. in a way that is sustainable in the long term so that the merchant can make a return and continue to invest in a sustainable cycle. So Alibaba has a lot of experience in empowering merchants to do that. We also have experience in utilizing platform mechanisms to enable sustainable growth. And as Toby said in his script, we have deep pockets with $55 billion in cash. So we can continue to leverage these approaches to create value for users and maintain our leadership position in the market.
spk08: Thank you. Next question.
spk05: Thank you. The next question is from Eddie Leung from Bank of America, Merrill Lynch. Please go ahead.
spk09: Good evening. I would like to ask a question about local life. We also heard that Erlenmo's UEE is also expecting a change. But we also know that there are some short video platforms for local life or regular customers. Taiwan Taiwan Taiwan
spk07: Yes, thank you for taking my question management. My question has to do with local services. We understand that there's been a turnaround in unit economics and Ulema now has positive UE continuing to improve. But at the same time we understand that there are various short form video platforms that are also now investing heavily in local services and this could lead to further changes in the competitive landscape. So I'm wondering if you could talk to us please about your strategy for local services going forward to continue to make
spk12: Good idea. This question is like this. In local life, we simply divide it into two categories. One category is a to-home business. One is to-store or to-destination. Store is a kind of destination. In fact, our connection is very clear. For the whole to-destination, in fact, any media, including the current short-form video, as a media, it is actually for a destination. to a shop, to a service, a service in a place on the ground, it has a promotion function. This promotion function, of course, can be a purchase, can be a purchase, can be an appointment, these, but in essence, it is a media ad. This is just on the media ad, in the end, you can say, in the end, to complete this purchase. But no matter how you purchase on short videos, in the end, the appointment still has to go to the store. This is certain. So in essence, it is still an advertising business. So from this perspective, we think To go to the store to go to business ah this from This any media has influence of the media has users of the media will go to the store of business to find his opportunity Ah this and in the case of Ali, we are actually going to the store to go to the destination, we are doing it in a different direction. We are putting the high virtue Ah, I just talked about it. We are actually the whole high virtue of this this ah these years of transformation is still very This progress is still very smooth. We have already succeeded from just a map tool to a map-based search, to discovery, to contract, to contract, to complete, to the destination, to such a service platform. Now, our main services, such as taxiing, hotel reservation, including gas, charging, and other services related to car service, have been very popularized by users. So we are doing it in this way. And this method, I think, is difficult for any other type of media. The second area of local life is to-home. This is also the area of Ulema that you just asked about. Indeed, we Ulema have worked hard in the past few years. We are now, I think, on the right track. Not only are we hesitating This has continued to turn around and continue to improve. At the same time, our order volume, number of users, and the annuality of users are all getting better. But we think that this to-home business is essentially a local e-commerce. E-commerce is a category of e-commerce, retail, medicine, fast-food, The food is one of the categories. What it needs is local supply, local demand, and local contractability. These three are completely unified over a certain period of time. In this matter, only the media can play any leading role. This must be, on this, I think, whether it's Erema or other players, I think on this, we all need to build any kind of local home business companies must integrate local supply, how to operate local demand, how to build local contract capacity. And these three must be on a time-space intersection. In space, local time, at a certain time point, it must complete this interaction to form a chemical reaction. At this point, I think any pure media, relying on media to promote is very difficult to achieve. So this is also a huge confidence of ours. So today, in the cities that we mainly operate in, we are all achieving good progress. Because it has a localization feature, operating in 50 cities and operating in 100 cities, its focus is completely different. We still focus on the cities that we mainly operate in, doing our job well, gaining the trust of the users, and gaining the long-term growth of the business. Thank you.
spk07: Well, when it comes to local services, as you know, there are really two different kinds of services, to home and to store or to destination, because a store is one kind of destination. So starting with to destination, any media platform, be it short form video or other kind of media, can find ways to develop to destination business in the context of local services. They can promote a local destination, be it a store or something else, through their media offering. They can allow consumers to place an order, but when it comes to fulfillment, you still have to physically go to the store to fulfill your order. So certainly any media that has any kind of influence with an audience can find opportunities to do that, to drive traffic to a physical location like a store but Alibaba has opened up a whole new paradigm on the two destination front with the important transformation and very successful transformation of a map that we've succeeded in realizing over the past few years taking it from a simple map tool to a map and location enabled offering that spans search, discovery and fulfillment. And today AMAP has achieved very high penetration in a whole range of categories that we've talked about from ride hailing through to hotel reservations through to gas stations and indeed finding electric charging facilities for new energy vehicles. And I don't think that's something that any other kind of media platform, any media platform could accomplish. Now the other piece when we talk about local services is to home and Ulema is part of that section of local services. You mentioned Ulema in your question. And indeed following several years of hard work, I think Ulema very much is on the right track. Unit economics are positive and continue to improve. things continue to move in the right direction in terms of the number of orders, the number of users, as well as the unit economics. So when we talk about to-home, this is local or neighborhood e-commerce. So deliveries from restaurant to home are one example of that, but it's not just restaurant food orders. It could also include things like medicine. It could include groceries or other kinds of daily essentials. But to succeed in this space, You need to be able to successfully integrate local neighborhood supply, neighborhood demand, and neighborhood level fulfillment all in one place at the same time. And again, this is something that certainly no media outlet could ever possibly hope to achieve. And this is where Ulema has been a great success because you need to be able to integrate in real time that local supply, the local demand, and the local fulfillment capabilities. They all need to intersect in the space-time continuum in a single coordinate in a way that achieves chemical synergy. So that's far beyond the capabilities of any media-oriented player. We continue to successfully grow our local services business in the priority cities we've identified. And of course, your business will look very different if you're going after 50 cities versus 100 cities. We continue to focus on the key cities that we've identified, continuing to improve the service to win and build confidence with consumers and drive long-term growth.
spk08: Thank you. Next question.
spk05: Thank you. The next question is from Jiang Xiao from Barclays. Please go ahead.
spk10: 谢谢管理层接受我的问题。 刚才这个Toby也提到我们一个季度这个free cash flow 是超过了11个billion US dollars. 我们也留心到最近公司在 divest和monetize 一些investments such as into the PTM Thank you.
spk07: Thank you, management. Toby, you said that in the past quarter free cash flow exceeded 11 billion U.S. dollars, and we know that there are other initiatives underway within Alibaba to monetize on certain investments. And in the last quarter, you conducted 3.3 billion U.S. dollars of share buybacks under the buyback program. But I'm wondering, what other initiatives potential methods could be available for Alibaba to increase shareholder value, to increase returns to shareholders. Are there any other things you can be doing, for example, considering distributing dividends or further expanding the scale of the share buyback program?
spk02: Thank you for your question. Let me answer it. You just mentioned two points. The first one, we may see from the media that we will to divest some of our investments. I want to answer this question first. This is actually a... As a corporate, I think it's normal. On one hand, we will make a lot of strategic investments, and we will make certain withdrawals at the right time. I think this is actually related to the overall strategy of our investment. So I think this is quite normal. We will make certain withdrawals while investing. When you talk about share buyback, I think overall, when we were in the last quarter, we also mentioned that we have upsized our entire share buyback program from the original $25 billion to $15 billion. Now, we have a share buyback program of $40 billion. In the last quarter, in the December quarter, We also made a buyback of about $3.3 billion. Overall, we still consider this share buyback to be a better way to give the shareholder a return. At the same time, we still have a share buyback quote of about $2.1 billion that we can continue to use. So I think at this stage, Thank you for your question. You touched on a couple of things.
spk07: You all will have seen from various media reports, we have been divesting some of our investments. I think that's normal for any corporate. Any company that's making a lot of strategic investments is also at some point going to make a timely exit from those investments. And that's indeed part of the original plan. When you make those kinds of strategic investments, you are planning on exiting at a certain point. You also talked about our share buyback program. In fact, it had already been upsized as previously announced. It had been a 25 billion U.S. dollar program, and as we spoke about last time, that was increased by 15 billion to a total of 40 billion U.S. dollars. In the December quarter, we announced bought back another 3.3 billion U.S. dollars of shares. And we do think that pursuing the share buyback program is a good way to return value to our shareholders. Now, under the existing already enlarged share buyback programs, we still have a remaining quota of 21 billion U.S. dollars to be deployed. So at this point in time, No, we are not considering further expanding that quota. Rather, what's on our minds at this point in time is how we can best make use of that remaining quota of 21 billion U.S. dollars, how to deploy it and when to deploy it in line with the authorization given to us by the Board of Directors in order to further enhance shareholder value. Okay, next question.
spk05: Thank you. The next question is from Alicia Yap from Citigroup. Please go ahead.
spk01: Thank you. 谢谢管理层接受我的提问。 我想跟进一下Daniel刚刚说的一个就是我们会把更多的精力投资在一些技术的创新来引入更好的一些新的商业模式。 想请Daniel再跟我们量化一下比如说 In this year, we will see which businesses will make some more obvious improvements. For example, this will reflect, for example, there will be an acceleration of growth in CMR, or it will reflect on cloud technology, which will make us take some better Thank you
spk07: Thank you. I'd like to follow up on Daniel's earlier remark about how Alibaba intends to continue to focus on and invest in technological innovation as a means to create new business models and new opportunities for the businesses. I'm just wondering if you could break that down for us a little bit and explain which of the businesses this year we can expect to see adopting new technological innovations that lead to new business models and new opportunities that will, for example, result in accelerated CMR growth or boost cloud revenue. or will it perhaps be in local services where these breakthroughs will be made? But I'd appreciate it if Daniel could give us some more color on a segment-by-segment basis.
spk12: Okay, Alicia. I'll just talk about it. I think this technology has been a driving force for the growth of the business. It's been a part of ARI's history. I think you can In the future, I think we mainly see several big opportunities. First, I think the development of AI technology, especially the development of deep AI technology, is becoming a hot topic all over the world. Among these hot topics, I think the most important thing is not that everyone can have a conversational robot, but how to integrate it I think in terms of our own business scenarios, in terms of Ali, we are in terms of consumption, we are in terms of user experience, in terms of content generation and understanding, in terms of advertising efficiency improvement. In these aspects, I think this wide range of AI is actually able to play a huge role. In fact, I think for this part, it has always been our focus, the direction of investment. At the same time, in this process, Not only does it increase the efficiency of supply and demand matching, but it can also improve the efficiency of business promotion. I think in this respect, as a platform, as a business, the customer service efficiency and experience, I think these aspects can be applied to all aspects of AI. Then for cloud, I think our other big strategy is cloud. In fact, it is even more so, that is, The whole cloud computing includes the development of cloud computing big data. In fact, for the improvement of the ability to deal with big data, today's Aliyun has established a wide range of ARS and PaaS products. It is also based on the big data platform. Over the past few years, we have also been actively building pre-training models. In these aspects, we are also happy to see that our judgment is completely consistent with the big trend of the world. How to use our big data and cloud computing capabilities to serve such a new trend in the middle of this? In fact, it is to find our own opportunities under the rapid growth of computing power. So I think this is also the goal of our efforts. I would like to add a little more to AI. Maybe you were in the question just now, and you were more concerned about the efficiency of advertisements and platforms. In fact, today, the logistics supply chain, including what I said just now, How can local living areas make the demand in a time window, in a place, for the organization of demand, the match of the user's attack and the match of the travel ability, and the navigation. This is actually a new scene for AI. So in these aspects, we are all actively working to make it a new business ability.
spk07: Well, driving business growth with technology has been a constant theme for Alibaba throughout its history. But looking to the future, there are certainly several big opportunities for us that we can already see clearly. The first is around AI, and lately generative AI has become a hot topic around the world. But we're not talking about having a chatbot for the sake of a chatbot. Rather, we're talking about integrating that capability deeply into the business around consumption, around user experience, for content generation to drive higher advertising effectiveness. AI can play a huge role in all of those different areas and we have been working on that and continue to do so. Also, when it comes to how to match supply and demand more effectively, how to achieve higher effectiveness in terms of marketing and promotion, how to achieve higher efficiency and better user experience around different services. All of those are places where we can leverage AI to make huge improvements. So that's the first part of the answer. But beyond that, when we talk about cloud computing and big data, Alibaba has substantial capabilities in terms of providing processing power. We have IaaS and PaaS offerings. But when we look at the future, and we also have of course a large pre-training model for AI, and what we're seeing today with recent developments is that the view that we took on the future has panned out and proven to be consistent with what's happening in the market. But going forward there's going to be exponential growth in demand for computing power to support these kinds of AI applications and Alibaba is ready to provide precisely that kind of computing power. So that is a big opportunity for us as well. And then just to add another word because I think implicit in your question was a concern around advertising revenue. AI can be leveraged in the ways that we talked about earlier when we talked about supply chains and local services to better match local demand with fulfillment capabilities and local supply in a certain time window and to make that whole local or neighborhood-based digital commerce scenario run much more efficiently. And we will continue to be working in those directions to grow our business. These are opportunities.
spk08: Thank you. Next question.
spk05: Thank you. The next question is from Jerry Lu from UBS. Please go ahead.
spk04: Thank you, Ms. Wang. Hello, Mr. Wang. Yes, I have two questions. The first one is to ask about the take rate issue, which is the GMV compared to CMR. In the past two seasons, there have been some losses The reason for this is that the CMR rate is lower than the GMV. I was thinking that if we see a recovery in consumption recently, will we see any changes in the rate gap between this quarter or these few quarters? Is the CMR rate even higher than the GMV? And then the second question, I would like to go back to what you mentioned earlier, Thank you. I have a couple of questions. My first has to do with
spk07: take rates. Looking at GMV and CMR growth on Tavao and Tmall over the past few quarters, we understand that there have been special circumstances that have changed the relationship between the two. But looking forward to this quarter or even the few quarters to follow, do you think we will expect to see any change in the relationship between the growth rate of GMV in the next few quarters. Second question to Daniel has to do with your assuming the position of interim or acting head of Alibaba Cloud Intelligence. I'm wondering since you've taken up that role, what new strategies or new initiatives have you put in place for the cloud business? What changes have you made to the strategies and initiatives of that cloud business?
spk02: Thank you, Jerry, for your question. Let me answer the first question and then leave the second question to Daniel. The first question is about the ratio of CMR to GMV. Do you understand this? We have also disclosed that the main difference is that the return rate is relatively high. I will explain it very quickly here, because the GNV we disclosed is a payment GNV. After payment, when it has the influence of logistics, etc., Maybe from the consumer's point of view, it will have to withdraw. So the entire growth of the withdrawal GNV, when you have a big problem with the existing logistics, its withdrawal rate is relatively high, so its withdrawal GNV growth or decline will be higher than the entire payment GNV. If you look at it from the year-over-year situation, Recently, the whole logistics, Daniel mentioned in his story that the whole logistics has been restored. When we come back, we can also see that the restoration of the whole logistics will lead to a decline in the entire return rate. We indeed began to see such a trend, that is, in the whole PGMV, a change in a ratio with our entire CMR, a gap between the ratio of change, Well, on your first question regarding the relationship or the ratio between CMR and GMV, we discussed this issue previously and just to recap briefly, the issue of late really has been the high
spk07: high rate of order returns due to, among other things, logistics disruptions. Because when we talk about GMV, we're talking about paid GMV, but after the consumer has made payment and after logistics and fulfillment, the consumer, well, if logistics don't work out, there's a logistics problem, the consumer will return the good. So overall, what we're seeing now is, of course, recovery in logistics and declining return rates. So I think what we're seeing now, it's fair to say that the ratio or the gap between paid GMV and the CMR is narrowing.
spk12: Let me talk about the second question. Indeed, for industrial development, the cloud industry is a historical opportunity both in China and around the world. At the same time, for Ali, it is also an extreme strategic importance. Based on these two points, as you know, I am now the CEO of the cloud. I am also very passionate about this matter. I think such a historical opportunity We have to seize this historical opportunity. Now, I would like to talk about the cloud. Today, we are in Bali. Bali has been built for more than ten years by the previous and post-pandemic efforts of the previous and post-pandemic leaders. It is already the first in China, the first in the world, and the first in the world to be recognized as a cloud computing manufacturer. We have a very good market position and a solid foundation. Now, based on this, I think facing the future, I think today, we still need to, first of all, we still need to return to the basics of cloud. The basic problem of cloud is that we, as a customer's digitized basic facilities, this calculated basic facilities, still need to maintain our consistent high-use high standards, high safety standards. In high-use, stable security, we can surpass the expectations of customers, meet the expectations of customers. I think this is our Foreign This is the technology breakthrough of the core product of the cloud. In terms of performance, in terms of cost, it can do not only lead China, but also lead the world. Because the cloud is a business with a scale economy. No scale, no economy. But where does the economy come from? It comes from the technology. So I think technology breakthrough is still important. And only in this case, I think it can really make customers use the cloud. Not only use the cloud, but also be able to use the cloud China China China China China China China China China China China I think this is also something that we must actively strive for. Finally, I think this new industrial hotbed is not poor. New technology is not poor. I have already talked about it several times. I will not repeat it here. How can we catch up with high-performance computing now? This is based on high-performance computing. Such an opportunity of Generative AI. Because any large model like this Deployment and operation are inseparable from the support of computing. The support of computing, the network, the chip, the deployment, and the solution are actually a complete set of things. I also see that other manufacturers in the world are also talking about this issue. For Ali, we also highly value such an opportunity and hope to turn it into a computing growth, a real achievement. Thank you.
spk07: Secondly, on the question about cloud, we see the development of this industry not only in China but worldwide as an absolutely historic opportunity. And this is an opportunity of extreme strategic importance to Alibaba. So I'm extremely excited to take up the helm and be personally in charge of Alibaba Cloud at this important juncture. This is something I'm extremely passionate about and we absolutely must not fail to seize and capitalize on this crucially important historic opportunity. We have an excellent foundation in Alibaba Cloud today thanks to the hard work of the previous presidents of that business unit over the past 10 years or so. We're already now number one in China and one of the top cloud vendors indeed in the world with an excellent market position and a strong foundation to build on. Building on that foundation going forward, I think one of the first things we have to do is get back, if you like, to the essence of the cloud, the fundamentals of the cloud, which is leveraging cloud to make available computing power. We need to ensure that we're doing that with extremely high availability, high security, make sure that we're consistently exceeding customer expectations around stability and security. So that's point one. Point two, I think we need to place emphasis on public cloud and offerings. When we talk about cloud, it's not often clear that we're all necessarily even talking about the same thing. There are so many different definitions of cloud out there. What is cloud computing? Well, I think for Alibaba, we need to be firmly rooted in China but also have a global vision. and ensure that we are making breakthroughs in fundamental core capabilities around IaaS and PaaS so that we will not only be a leader in China but be a leader worldwide. Cloud computing is an industry that is built on scales of economy. If you have no scale then you have no economy. So we need technology breakthroughs to achieve those economies of scale. We need to be able to enable our users not just to use cloud, but to use cloud well and to achieve demonstrable economic benefit from leveraging those cloud offerings. We need to be paying a lot of attention to public cloud and further drive scale there. This is a very important part of serving the digitalization of industry and providing cloud-based compute power, especially for data-intensive And then I know I've already touched on this quite a few times already, but another very important point is with generative AI and its more broad-based application in the near future, we can expect to see very rapid growth in demand for high performance computing power. You need infrastructure to be able to power that. And the infrastructure needs to be integrated from chip through network through to compute power. And all the global vendors are talking about that, but we in Alibaba see this as an extremely important opportunity and we intend to fully capture it.
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