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spk02: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March quarter 2023 and full fiscal year 2023 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.
spk01: Thank you, everyone. Welcome to the Alibaba Group's year-round business call meeting in March 2023.
spk06: This call is also being webcasted from the IR section of our corporate website. A replay of the call will be available later today. Now let me quickly go over to Safe Harbor. Today's discussion may contain forward-looking statements, forward-looking statements involving inherent risks and uncertainties that may cause actual results to differ materially from current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest annual report on Form 20F and our documents filed with the U.S. SEC, or announced on the website of 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 margins, 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 measures can be found in the earnings press release. Unless otherwise stated, growth rate of all stated metrics during the call refer to year-over-year growth versus the same quarter last year. With that, I will now turn to Daniel.
spk13: Thank you, Rob. Hello, everyone. Thank you for joining our earnings call today. We closed the March quarter and fiscal year 2023 in a changing and macro environment. As COVID-19 cases waned after the Chinese New Year, business and social activities gradually recovered in China. These changes had impacted some of our businesses in various degrees. During the past quarter, our revenue reached $208 represent a year-over-year growth of 2%. Our adjusted EBITDA was approximately 25.3 billion RMB, representing a year-over-year growth of 60% as a result of our continued efforts in enhancing operating efficiency and optimizing costs. Looking at the macro environment in China and globally, we see both challenges and opportunities amid uncertainties for economic recovery. The international macro environment is highly uncertain. At the same time, we see market opportunities in China's consumption recovery post the pandemic and the rapid development of artificial intelligence. We will continue to execute our three core strategies in consumption, cloud computing, and globalization in response to these opportunities. In the past few months, we have noticed a gradual recovery in China consumption, but consumer confidence and spending power still need further momentum. At the same time, competition among the multiple consumption platforms is still fierce, and everyone is trying to capture the incremental demand with more value for money, products, and services. We will focus on the following areas in such a competitive market. Number one, acquisition and retention of high quality users. Number two, maintaining our platform's differentiated consumer mindset. And number three, most importantly, creation of new demand through supply side innovations. In international commerce, we will focus on building core capabilities to support the sustainable development of our international commerce business. as well as leveraging the unique advantage of China's supply chain to serve global consumers. In cloud computing, progress in industrial digitization and the emergence of AI have created a higher demand for computing power. And the foundation models have expanded AI's application in all aspects of life. Alibaba Cloud will focus on seeding these historical opportunities to maximize its market potential. In March, we announced a major organizational transformation, restructuring Alibaba Group into six business groups and other investments. As a result, we are transforming from operating multiple group business into a holding company that focuses on capital management. Each business group will operate with a high degree of independence. led by its own CEO, who assumed full responsibility for company performance under the supervision by its own board. Today, in our press release, we also announced the list of the board of directors and CEOs of these six business groups, which was recommended by Artifaba Partnership and approved by our board of directors. We believe this transformation will empower all our business to become more agile, enhance decision-making, enable faster responses to market change, and promote innovation to capture opportunities, thereby unlocking shareholder value. Starting from today, we will invite the business group CEOs to join the earnings call in turn and share their business strategies and the thinking behind. At today's call, we have Chu Li-Tai and Jiang Fan, who will later discuss about the business performance and the strategies of Taobao Timor Commerce Group and International Digital Commerce Group, respectively. I will also share my thoughts on Cloud Intelligence Group's business review and outlook. As an important step in our reorganization, we are in the process of establishing a new governance framework under the 1 plus 6 plus n structure. Under the new governance framework, CEO of the business group takes overall responsibility for the operating results and compliance under the leadership of the business group's board. A list of reserved matters will be specified to require approvals from Alibaba Group's board of directors. These reserved matters include annual business plan and budget, business group CEO appointment and evaluation. major capital transactions, business cooperation and data sharing mechanism within Alibaba Group, compliance oversight, et cetera. To ensure the implementation of risk management and compliance requirements under the new governance structure, we have obtained all approval to establish a new compliance and risk committee, which will be responsible for overseeing the group's compliance and risk management in areas other than financial reporting. In addition, in order to adapt to our new role as a holding company, we have also established a capital management committee under Alibaba Group's Board of Directors. With the goal of enhancing shareholder return of the group, the committee oversees major capital management matters across our business groups. With the further progress of the restructuring plan, we have formulated different capital management plans based on the various stage of development, business needs, market environment, and risks that each business group is facing. We are announcing several updates today. Firstly, we plan to fully spin off Cloud Intelligence Group and complete its public listing in the next 12 months as an independent company. Cloud intelligence business model, customer profile, and stage of development are fundamentally different from the other consumer-focused business in Alibaba ecosystem. Full independence will allow cloud intelligence to further sharpen its business strategy and optimize its operations and organization. Yes, established differentiated customer value propositions, stable and well-defined business models, and a clear path to profitability. We believe these two companies are ready to go public. Our board has approved threshold plans to kick off the IPO process and the time now to explore an IPO in the next 12 to 18 months. Alibaba International Digital Commerce Group will explore raising external capital to support the business expansion in the global market. The successful execution of the above transactions is subject to various factors, such as market environment, regulatory approvals, and so on. Next, I will turn over to Toby to discuss the financial performance of the past quarter and the entire fiscal year, as well as our capital allocation strategy.
spk10: Thank you, Daniel. As announced, our Alibaba Groups have formed the Capital Management Committee to undertake a comprehensive capital management plan to enhance shareholder value. During the reorganization process, we will work closely with this newly formed committee to explore and execute all options that could unlock value for Alibaba Group. Under leadership of the Capital Management Committee, we are committed to improve shareholders' return and execute a robust capital allocation framework as a holding company that focuses on three priorities. First, the strength of our balance sheet and our cash position is a competitive advantage in an uncertain environment. While we maintain a prudent approach to our capital structure, we will be focused on improving return on invested capital in managing the assets of the company. Second, we will design, review, and implement EPS accretive activities, including constant share buybacks to reduce our outstanding share count. while maintaining discipline in managing our ESOP programs. Third, we will explore all options to enhance shareholders' return by achieving more transparency in the value of our asset and the returning capital to shareholders, including subsidiary fundraising, IPOs, and spin-offs. Let me share with you in details the actions we will take and we will be taking following today's announcement. Going forward, our main source of funds will be from Taobao and Tmall Business Group, which will continue to be our core holding and 100% owned. The Taobao and Tmall Business Group generates substantial annual free cash flow, which will be made available to the Alibaba Group in fiscal year 2023. We generated the US dollar 25 billion in free cash flow that was mainly contributed by this business, and we believe it will continue to generate strong free cash flow in the future. In the future, as a result of reorganization, our additional source of funds will come from monetization of our consolidated businesses. As Daniel mentioned, our board has approved the following transactions as the initial phase of our capital management planning. First, For Alibaba International Digital Commerce Business Group, or AIDC, we are confident of its opportunities and growth prospects, and we plan to start its external financing process. The capital raise will assist the business group to expand into new geographic markets, invest in new technologies, grow its consumer and supplier base, strengthen its management team, and develop and enhance its products and services to its customers globally. Second, we are starting a process to explore an IPO of China's small logistics group. The group provides supply chain, logistics, and delivery services to customers and merchants that are customers of Taobao and Timo business group and AIDC, as well as third-party customers. Alibaba Group holds a 67% equity interest in the company. We target to complete the IPO in the next 12 to 18 months. Third, we are starting a process to execute an IPO of Fresh Apple, our new retail business, and we expect the IPO will be completed in the next six to 12 months. Importantly, except for Taobao Tmall Business Group, these businesses and other subsidiaries are given a limited time period to assess Alibaba Group's capital, including equity injections and or credit facilities lending that are based on market terms, after which each business should have their own standalone financing capability that may improve raising private equity, issuing debts, and or becoming publicly listed. We believe the successful completion of these transactions will further optimize our capital structure and strengthen our cash position that can be used for shareholders' returns. Second, we are committed to execute EPS accretive activities that improve shareholders' return. During fiscal year 2023, we repurchased $129.9 million of our ADSs for approximately $10.9 billion in our share repurchase program, which represented approximately 44% of our free cash flow. From April 1st to May 17th, we have repurchased another U.S. dollar $2.3 billion in ADSS. Currently, we still have an unutilized amount of approximately U.S. dollar $17.1 billion under the share repurchase program that will continue to execute. Under reorganization, each business group will have their own ESOP program that aligns the interests of their management and employees to their business performance and equity value creation. This in turn means less ESOP insurance at HOCO level in the future. Additionally, as long as the business groups remain majority owned by Alibaba Group, the Capital Management Committee will review their proposed annual ESOP plans with the objective of balancing between the potential dilution to Alibaba Group's shareholders and providing an attractive level of incentives for business groups to attract and retain talent. Lastly, as announced, our board of directors approved a full spin-off of the cloud intelligence group via stock dividend distribution to our shareholders. Prior to the spin-off, we planned to include external strategic investors in cloud intelligence group through private financing. In connection with the spin-off, Cloud Intelligence Group intends to become an independent publicly listed company. The spin-off will be subject to restructuring of certain assets, liabilities, and contracts, implementation of employee equity incentive plans, market conditions, as well as regulatory reviews and approvals in relevant jurisdictions. We intend to structure the spin-off in the most tax-efficient way for our shareholders. Subject to the transaction conditions and approvals described above, we target to complete the spin-off in the next 12 months. We believe the successful execution of this plan will further unlock value for Alibaba's shareholders in the future. Let me provide a brief review of our financials during the March 2023 quarter. For the quarter ended March 31st, 2023, total revenue was RMB 208.2 billion, an increase of 2% that was primarily driven by the revenue growth of international commerce segment by 29% to RMB 18.5 billion, segment by 18% to RMB 13.6 billion, and local consumer services segment by 17% to RMB 12.5 billion. Adjusted EBITDA increased by RMB 9.5 billion to RMB 25.3 billion year-over-year in the quarter. The increase was primarily due to an increase in China commerce adjusted EBITDA as well as narrowed adjusted EBITDA losses of local consumer services and digital media and entertainment. Overall adjusted EBITDA margin improved by 4 percentage points year over year to 12%. Now let's look at cost trends as a percentage of revenue excluding SBC. Cost of revenue ratio excluding SBC decreased 2 percentage points to 66% in the quarter ended March 31st, primarily due to decrease in cost of revenue from direct sales. Product development expenses ratio decreased one percentage point during the quarter. Sales and marketing expenses ratio decreased one percentage point year over year to 12% in March quarter, reflecting our continued efforts in optimizing user acquisition and user retention spending across businesses. General and administrative expenses ratio remained stable at 5% in March quarter. Our gap net income was RMB 22 billion, an increase of RMB 44.4 billion year over year, primarily due to net gains arising from increases in the market prices of our equity investments in publicly traded companies compared to a net losses from these investments in the same quarter last year. Partly offset by the decrease in share of profit of equity method investees, the increase in impairment of investments and the decrease in income from operations. As of March 31st, 2023, we continue to maintain a strong net cash position of 399 billion RMB, or 58 billion U.S. dollar. As mentioned, during fiscal year 2023, our strong net cash position was supported by healthy free cash flow generation of RMB 172 billion, U.S. dollar 25 billion. In addition, we have been disciplined in investments. For the fiscal year ended March 31st, 2023, our net cash used in investment and acquisition activities was RMB 840 million compared to RMB 37 billion in the same quarter last year. Now let's look at segment results. Revenue from our China commerce segment in March quarter was RMB 136 billion, a decrease of 3% year-over-year. For the quarter ended March 31, 2023, online physical goods GMV on Taobao and Tmall, excluding unpaid orders, declined mid-single-digit year-over-year. Customer management revenue decreased by 5% year-over-year to RMB 60.3 billion. The gap between CMR and GMV on Taobao and Tmall has been narrowing. Direct sales and others revenue declined 1% to RMB 71.8 billion, mainly due to decrease in offline store sales. China commerce segment adjusted EBITDA increased by RMB 6.3 billion to RMB 38.5 billion in March quarter. Segment EBITDA margin increased from 23% in the March 2022 quarter to 28%. This reflected significant loss reductions from Taobao deals and TaoTaiTai and the fresh shipping, partly offset by decrease in profit from customer management revenues. Our international commerce segment revenue in March quarter was RMB 18.5 billion, an increase of 29 percent year-over-year. Revenue from international commerce retail business increased by 41 percent to RMB 14 billion. The increase was primarily driven by business growth acceleration of all our major businesses, including AliExpress, Lazada, and Trendio. International commerce segment adjusted EBITDA laws narrowed by RMB $233 million to RMB $2.3 billion in March quarter. The loss reduction year-over-year was primarily contributed by the reduced losses from 2020, partly offset by the increased losses from Lazada. The increased losses from Lazada was primarily due to a one-off early termination expense in connection with renegotiation new service contracts to reduce future operating costs. Excluding this one-off effect, the adjusted EBITDA loss of international commerce segment will be less than RMB 1.5 billion. Our local consumer service segment revenue in March quarter grew 17% to RMB 12.5 billion, primarily due to positive GMV growth of earlier month. driven by order growth and higher average order value. Local consumer service adjusted EBITDA loss reduced by RMB 1.4 billion year over year to RMB 4.2 billion. Most of the loss reduction was driven by Erlema business, while other major business within the segment also recorded losses. Erlema continued to improve its unit economics per order by increased average order value and reduced delivery cost per order. Its UE continued to improve year-over-year and remained positive this quarter. Revenue from China of inter-segment elimination grew 18% year-over-year to RMB $13.6 billion, primarily contributed by the increase in revenue per order from international fulfillment solution services as well as increasing demand for customer logistics. In March quarter, 72% of Tainiao's total revenue was generated from external customers. Tainiao recorded adjusted EBITDA loss of RMB 319 million in March quarter, loss reduced by RMB 593 million year over year. Revenue from our cloud segment after inter-segment elimination was RMB 18.6 billion in March quarter, a decline of 2%. The year-over-year decrease in revenue of our cloud segment reflected delays in delivery of hybrid cloud projects given COVID-19 resurgence in January and normalization of CDN demand compared to same period last year. Adjusted EBITDA of cloud segment was a profit of RMB 385 million in March quarter, increased by RMB 109 million year-over-year. Revenue from our digital media and entertainment segment in March quarter was RMB 8.3 billion, an increase of 3%. Adjusted EBITDA was a loss of RMB 1.1 billion, reduced by RMB 864 million year-over-year. primarily due to the narrowing of losses from Youku driven by disciplined investment in content and production capability. Now let me pass to Trudy who will speak about Taobao and Tmall Business Group.
spk01: Thank you, Toby. This is Trudy and it's a great pleasure for me to have the opportunity to speak with you all today. In this new year, we've all seen positive momentum in China's economy with 4.5% year-on-year growth recorded in first quarter GDP and a moderate recovery in consumption. From our perspective, what we saw following the recurrence in COVID in January and the spring festival travel season following that, was that from February through to April, we achieved year-on-year positive growth in users and GMB on the Tableau app, and EBITDA has been good as well. Apart from those macro factors, an important part of that has been the payoff from our efforts around cost optimization and efficiency improvement, as well as the five battles that we're fighting. Also, we see many positive factors going forward, although in the e-commerce sector, The demographic dividend is waning and there's intensified competition. Nonetheless, many new opportunities are being created by growing consumer demand for more diversified offerings and also by technological advances. So accordingly, in this new fiscal year, we've adjusted our strategy and mapped out new development plans which we're currently implementing. I'm confident that these initiatives will enable us to capitalize on the recovery and consumption to seize the opportunities created by market developments and technological advances to further consolidate our leading market position with both consumers and merchants and to make exciting new breakthroughs in user experience. First, based on our trialing of new interactive formats and content over the past two years, we're even more certain that beyond shopping, consumers want to find a broader range of more diverse content on Taobao, including shopping-related encyclopedic knowledge, lifestyle recommendations, and even interactive entertainment. And this is corroborated by the hundreds of millions of long-tail keyword searches made by users every day. So over the coming few years, Taobao will be making large and sustained investments, to satisfy users' diverse needs around all aspects of life. This will include investments to further enrich and diversify merchandise assortment to create richer and more differentiated content and to introduce new interactive entertainment scenarios. While accelerating growth in user scale and user time spent and consolidating its position as China's most widely used online marketplace, Taobao will be progressively upgraded into a one-stop consumption and lifestyle platform. We will build a prosperous ecosystem by making the supply side more open and inclusive, and also with organizational upgrades that we've made. For example, we've established an SME development center that's devoted to supporting startups and small and medium-sized merchants and helping them contribute more diversified supplies on the platform. Our grocery store business development center works to enable users to buy fresh foods on Taobao faster and with greater savings, and our live streaming and content teams will provide strong support to content creators. Additionally, we will be leveraging technological advancements to make operating costs lower for merchants. Third, leveraging advances in AI and other technologies. The Taobao app will be upgraded to meet a much broader range of user needs. So going forward, we'll be more focused on investing in technology for Taobao, building on the whole group's technology and data capabilities. We will upgrade existing merchant tools and create new tools for merchants as well as new lifestyle scenarios. for users ushering in the next generation paradigm in user experience. So in summary, our strategy is putting users first, building a prosperous ecosystem, and realizing technology-driven innovation. And our core goal is for Taobao to continue to be the number one consumption platform serving the largest number of users while upgrading the platform to serve a broader range of needs. Undoubtedly, that means that over the coming one to two years, we'll be reducing merchants' operating costs and costs increasing our investments in users, merchants, technology, providing good merchandise, good content, and a good experience as well as good service to our users. I trust that with our strong momentum of growth as well as the network and scale effects that we bring coupled with our new approaches will certainly maximize value for merchants. That means that we'll continue to in terms of merchant scale as the number one place to do business. On that basis, we clearly foresee platform ROI growth in the mid to long term, and of this I'm fully confident. So over a three-year horizon, I will be making resolute, sustained, and major investments to realize the above three strategies and achieve sustained growth in users. Thank you very much. And at this point, I'll hand over to Jiang Fan. Thank you very much. This is Chiang Fan, and it's a great pleasure to be able to speak with you during this earnings call. As part of the recent restructuring, we've established the Alibaba International Digital Commerce, or AIDC group, which includes various business models and operates in different countries. In the B2C retail sector, we have a portfolio of digital retail platforms with a local commerce model, including Trendy, Aldarez, and Lazada. Additionally, we operate several cross-border B2C platforms, including AliExpress and Tmall Taba World. We also have Alibaba.com, which is a global B2B trade platform serving the wholesale sector. This past quarter, the international commerce segment has shown rapid growth momentum. AliExpress officially launched a new service called Choice. It's based on the Fulfilled by AliExpress model. It provides consumers with value for money, product choices, and better services, further enhancing the consumer experience. AliExpress has maintained rapid overall growth. Following the earthquake in Turkey in early February 2023, Trendyol and Alibaba Group actively provided relief support. Although our business in Turkey was affected in the short term, it quickly recovered and achieved strong growth, with a number of orders increasing by over 27% year-over-year. In Southeast Asia, Lazada's monetization rate continues to improve, achieving a good balance between business-scale growth and operational efficiency improvement. Overall, after a challenging year, our international commerce business has recovered and is back on a growth track. Looking ahead... We'll continue to invest in the cross-border plus local commerce model in our B2C retail sector. There's still significant potential to grow our cross-border business. With the launch of the Choice service, AliExpress' user experience has significantly improved, and we expect that the business will continue to grow rapidly. In the local commerce business, we'll continue to invest in the Southeast Asian market while actively seeking opportunities in other new regional markets. In the B2B wholesale sector, we've made many upgrades to our existing models, expanding from transaction services to other value-added services, such as finance, logistics, and digital SaaS services. We believe this will enable our wholesale business to maintain healthy growth in the coming several years. Additionally, we will also actively expand our B2B business model into other markets. Next, I will hand over to Daniel to present to you on the cloud business. Thank you very much.
spk13: some updates about our cloud computing business. In the past quarter, our cloud revenue decreased by 2% year over year. This is partially due to our proactive move to adjust our revenue structure and focus on high quality growth, and also a result of external change in market environment as customer composition. The external factors include the impact from a top customer phasing out using our cloud service and switching to self-built infrastructure for its international business, whose revenue contribution to Alibaba Cloud decreased 41% year-over-year. In addition, the resurgence of pandemic in China in January also impacted public cloud consumption and a delayed delivery of certain library cloud projects during the quarter. As the pandemic eased off and remote working and school activities decreased in February and March, demands for services such as CDN also decreased quite significantly. If we zoom out from the short-term fluctuations in cloud revenues and look back at AliCloud's development over the past 14 years and Cloud's vast future with the rapid development of AI. We see massive market potential and remain confident at Cloud's future. We got to where we are today because AliCloud seized two historical opportunities. Number one, rapid development of China's mobile internet and number two, digital transformation of traditional industries. With its industry-leading technology and products, AliCloud established its market leadership in China and globally by supporting the growth of many digital native enterprises and the digitalization of many industry customers. Today, the age of AI brings two new historic opportunities to AliCloud. Firstly, The emergence and the broad application of artificial intelligence, large models, and various vertical models have raised the new requirements for computing power. This is a huge first-move advantage for RdCloud, as we have established sizable paths to provide stable, secure, high-performance, and cost-efficient computing services. that AliCloud services can not only support our self-developed foundation model, but also support the training and services of other large models and vertical models in the market. Today, we are the leading provider of large-scale, high-performance computing services based on public cloud. Leveraging this technology advantage, we are working with enterprise customers and entrepreneurs to support their demand for model training and services. The second opportunity lies in building model as a service, or MAS, on top of our foundation in arts and crafts. We hope to offer our proprietary foundation model to the general public while supporting our customers, partners, and developers to produce vertical models and services they need based on our foundation model. In April, we released a large language pre-trained model, TongYi QianWen. Currently, more than 200,000 customers have applied for trial access, and we have started to work with several industry partners to develop vertical models based on TongYi QianWen. We also plan to launch cloud products and enterprise solutions based on TongYi model. At the same time, the emergence of large models also brings new opportunities to integrate AI with the various business within Alibaba Group. Starting from ThinkTalk, we believe that all of our consumer-facing business can be reinvented with large model to offer a new AI-based service experiences for our users. A large language model is just one member in the family of our TongYi series for pre-trained models. We plan to release some of the other large models in the TongYi series in the near future. As a cloud computing product company, AliCloud is committed to investing in core technology development in cloud computing, big data, and AI to make computing more inclusive and AI more accessible. Recently, we have introduced a series of new product and pricing policies. We believe these measures can further expand the customer base and cloud consumption of our public cloud services and drive the usage of high-performance computing power required for AI model training and related services. This will provide a healthier and more sustainable growth driver for AliCloud's long-term development. Before ending our sharing today, I would like to say a few more words. Looking back at the recent events in the past few months, Alibaba, like the world we are in, is at the beginning of a new era of transformation. The world is standing at the new starting point in the age of AI. The breakthroughs in artificial intelligence will reshape every aspect of our society. how we work and how we live, creating opportunities for disruptive innovations while bringing new problems for mankind to solve together. For Alibaba's own transformation, we expect the progress in group reorganization and capital management efforts to further unlock Alibaba's own productivity and foster more innovation, such as new products and services and new experiences focus on creating value for our customers. Through these efforts, we hope to bring greater and long-term returns to our employees and shareholders. Thank you.
spk06: Thank you, Daniel. And 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. Please know that the translation is for convenience 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 the one week after the meeting. Operator, please connect the speaker and SI conference line now. Please start a Q&A session when ready. Thank you. Thank you. We will now begin the question and answer session.
spk02: 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.
spk07: Thank you, Daniel, Toby, Trudy, Jonathan, Rob. Thank you very much. Thank you. I want to hear about the three-year investment plan you just mentioned. I want to hear if these subsidiaries have the ability to sell financing, and then we can get rid of these losses. Are we going to reinvest in the future? If we go back to the increase in CMR, we should maximize GMV growth in the future, and reinvest some additional profits in CMR, or maintain a more balanced strategy in the past. Especially now, we are still about a generation older than our peers,
spk01: Thank you, management, for those excellent earlier presentations. Both Trudy and Daniel spoke about the reorganization of the group following which the Taobao and Tianmao group will no longer have their profits diverted to supporting the other spun-off subsidiaries of the group. So I'm wondering, going forward, what that will look like with Tao Tai Tai and Taobao Deals narrowing their losses, improving profitability. Will that then be reinvested into CMR? What will be the major goal going forward? Will it be the maximization of GMV, or will it be... going forward, is the key focus on GMB.
spk04: We have always believed that all mid- to short-term investment efforts will depend on where we go. And now the global economic environment is full of uncertainty. Technology innovation and development are changing day by day. As a business owner, we need to have a longer-term plan in the long term. As I mentioned before, in the next three to five years, Taobao will continue to drive users, eco-friendly and technology-driven, from trading to consumption, from consumption to life. Now, in the field of Internet e-commerce, users and business sizes are the top, but the competition is very intense and cruel. Therefore, the direction and strength of investment in the next one or two years are very clear. That is to continue to invest in user demand expansion, user experience optimization,
spk01: Thank you. At Alibaba, we always believe that we should start with the end goal in mind, and therefore, in making any investments, we always look at what the end objective is in planning that out. Today's environment globally, is still highly uncertain. At the same time, there's the rapid development of science and technology. So that needs to be factored into our long-term plan. So in the next, say, three to five years, on Taobao, we'll have a very clear focus on putting users first, on building up a prosperous ecosystem, and driving technology-driven innovation and pursuing our transformation from transaction to consumption and on to life. Of course, pursuing all of this in a very competitive environment, but using all of this to meet broader and more diverse user demand and to optimize user experience and also to increase user time spent.
spk04: So as I said earlier, we will be investing in increasing user growth and in building a prosperous ecosystem. So in the context of my philosophy, I see TakeRate more as an indicator of platform health and
spk01: goods as well as those generating content. As for CMR, this is driven by an interaction of the scale of the platform user activities, including merchants and their confidence in the platform, and will continue to grow the scale of the business, driving it, as I said, with technological innovation and progress.
spk08: Thank you. Next question.
spk02: Thank you. The next question comes from Gary Yu from Morgan Stanley. Please go ahead.
spk12: Thank you. um policy We can't really hear your question very well. 您要不您再把刚刚的第一个问题简化一下,问一下。
spk08: Thank you. The next question is from Alicia Yap from Citi. Please go ahead. Hi.
spk03: Good evening. What kind of results will we get in the end? And until now, what is our customer feedback like? And if we look at it from a long-term perspective, do you think Aliyun can maintain the market share of IaaS in China? Or do you think we will see some changes in this pattern, and there will be more players, and Nio88 may have Thank you.
spk01: Thank you. My question has to do with the cloud business. I'd like to ask, first of all, how have the results been and what customer feedback have you had with your price reduction strategy? Also, in the longer term, I'm wondering if you expect that Alibaba Cloud will be able to continue to maintain its number one market share in the IaaS space in China, or if we can expect to see some changes with perhaps more players entering the IaaS market in China? And more generally, do you think Alibaba Cloud can continue to be the largest player in each of the IaaS, PaaS, SaaS, and AI spaces going forward? And finally, what do you think in the long term will the level of profitability of cloud be? Where will that stabilize? Thank you.
spk13: Thank you, Alicia. I'm Daniel. Let me talk about the first question. Recently, the price strategy has aroused a lot of attention in the market. In fact, it has also received good feedback from customers. In fact, I think that the main adjustment of our entire price strategy is based on one goal, which is to make computing more universal. In fact, we still need to make more small and medium-sized enterprises, especially developers, better use cloud computing. to reduce the threshold of this use. So I think this is the starting point. In the sense of this starting point, we can see that this increases the coverage of small and medium enterprises and the use of more developers and college students. In fact, there is a lot of help. This is not only for us to develop this industry client, focus client, big client, but also for the basic training of clients. I think there is a long-term help.
spk01: Thank you, Alicia. This is Daniel. I'll take that question. Well, yes, certainly our price strategy in cloud has attracted a lot of interest and attention, and it's been very well received by the market. I think a major objective behind that strategy has been our desire to make computing power more accessible, including to small and medium-sized companies as well as to developers. So it's all about making computing power more accessible more accessible. So by increasing our coverage of service provision to these SMEs, by making this infrastructure available to more developers and to university students, we're also developing a source of future demand as they grow. So it's not just about providing service to the large industry players, but also to those smaller startups and indeed to students.
spk13: The second point is about the design of the entire price policy. In fact, it is based on our cloud computing, especially the characteristics of the scale effect of public cloud. Through this, because we are in the field of cloud computing, Alibaba is undoubtedly a leading enterprise. As a market leader, we need to fully play our technical advantages, reduce the cost of technology, and better return to customers. I think this is a business strategy we have set up. The second thing I would add in relation to our price policy is that Alibaba is clearly the leader and the trailblazer.
spk01: in China when it comes to public cloud, and this is a business where we can achieve strong economies of scale. So as the leader in the market, it's possible for us to leverage that economy of scale to pass on the dividend of our technological advantage to our customers. So that's basically the business strategy, is passing on those economies of scale to create real value for our customers.
spk13: For the second question you asked, today, whether it is in the ARS layer or in the ARS plus PaaS, we are in the leading position in China. We also see a lot of statistics in the industry, including different players, and everyone is entering the cloud market. But we still insist on public cloud for AliYun, insist on public cloud. We are committed to providing cloud services in the middle. In terms of our current total revenue, the share of our public cloud is very high. It should be said that it is significantly higher than that of the industry. At the same time, we are in the middle of the 20-layer and 20-layer core products. We have brought a high-quality revenue ratio. We also made various adjustments and efforts to make it even higher. On your second question, certainly Alibaba Cloud is in the leading position in China with respect to IaaS and IaaS.
spk01: plus PaaS and we have seen various reports presenting different numbers and there are indeed some different players entering the market but Alibaba Cloud is very focused on public cloud, the proportion that public cloud takes up within our revenues is significantly higher than that for our various other competitors and we've made a lot of efforts to grow high quality revenue from our core products in IaaS and SaaS, and again leveraging the economies of scale that we have achieved to pass on those dividends to benefit our customers.
spk13: Of course, the latest development of AI, as I mentioned in the script, has also provided us as cloud computing manufacturers with a new opportunity, because with the development of AI, the demand for computing will increase exponentially. Finally, when it comes to AI, and this is something I've spoken about before,
spk01: development of AI technology presents a huge new opportunity for the cloud business, because artificial intelligence applications will result in an exponential increase in demand for computing power, and this kind of computing power needs to be provided as a kind of public service or infrastructure. So this is a huge opportunity for us going forward.
spk13: Of course, AI and the big model, the technical big model as well, So for cloud, it's an improvement in computing power and the expansion of product lines.
spk01: Of course, with the development of AI models, including foundational models, but also industry models, there'll be many opportunities to develop and launch new products for different use cases in different industries. So the development of AI really represents two opportunities. One, that growing demand for computing power, and secondly, the opportunity to develop these new products.
spk13: As for the profit rate, I think today the entire cloud is still in a Compared to the early days of IT, especially with the huge opportunity of AI development, we see that compared to the leading cloud manufacturers around the world, our profitability is still very different. But we believe that this gap is our opportunity. As our scale grows, especially the improvement of core technology,
spk01: Finally, as to profitability, again, I think we are still in the early days of the development of cloud, especially as viewed as a proportion of overall IT expenditure here. So in terms of where we're at today, certainly there are there does remain a considerable gap in our level of profitability as compared against other leading cloud ventures internationally. But I see that gap really as our opportunity as we continue to grow and scale and achieve more economies of scale. And in particular, as we develop our core technologies, we see a definite opportunity and are confident in our ability to increase that level of profitability. Thank you.
spk06: Thank you. Next question.
spk02: Thank you. The next question is from Alex Yao from JP Morgan. Please go ahead.
spk00: 谢谢管理层接受我的问题。 我想这个问题的影子就是我们关于这个云的分拆上面, 我看这个release里面用词是 a full spin-off via a stock dividend distribution. This means that we will return all the shares of Aliyun to our current shareholders in the form of dividends. Then we will no longer hold Aliyun's shares. This is a shadow. A related question is that we should have a lot of assets that will be disbanded and listed in the future. In this process, including the long term, Thank you.
spk01: Thank you. So by way of intro to my question, I noticed when you spoke about the spin-off of the cloud business in the release earlier, the wording was it'll be a full spin-off by way of dividend distribution. I'm just wondering what that means in practice. Does it mean that all of the equity that the group owns in the cloud business will be returned to existing shareholders by way of a dividend? And Secondly, various other assets under the group will be spun off and IPO'd. I'm wondering in the mid to long term, what are the factors you'll be considering? How will you make those decisions as to which assets you'll continue to retain a majority control over with over 50% of the equity, which assets you'll hold on to, say, 30% to 50% of the equity, and which other assets you might reduce your holding to 10% or even to, decision process.
spk10: Thank you, Alex, for your question. I'm Toby, and I'll answer your first part of the question. I think what you just said is correct. That is, our current overall plan is a full spin-off. I want to come back to this before, whether it's in Daniel's script or in my script, we talked about from the board level of the entire group, we established a capital management committee. The purpose of this committee is to see how we can improve our shareholder return. So, among the points we just talked about, it is the final decision after the discussion of the entire CMC level, and it has also been approved by our board. Daniel just mentioned in his script why from the perspective of cloud, because in his entire business, with our other 2C business, a relative independence and so on, is the overall consideration of why we consider to spin off the cloud. Daniel will answer your second question.
spk01: Thank you, Alex. This is Toby. I'll take the first part of that question. So, yeah, essentially your understanding is correct. We're talking about a full spinoff. As was mentioned in Daniel's script and also in my script, we've established at the board level a new body, the Capital Management Committee, whose primary purpose is that has been proposed by that Capital Management Committee and approved by the board. And as Daniel said, the reason for starting with cloud is because the cloud business is relatively independent and different in terms of its characteristics versus those of the consumer-facing businesses. So that's the reason why the decision was made to do a full spin-off. And I'll hand over to Daniel for the other part of your question.
spk13: Okay, my first question is to add two more things. Regarding the full spin-off of Yuying, we will not only consider the business characteristics and needs of Yuying. From this point of view, we think that it is still very different from the many consumer businesses of Ali Group. At the same time, in this regard, we also hope to use this spin-off opportunity to adjust the shareholder structure and be able to introduce Yeah, this is Daniel. I'll just add a couple of thoughts on that first question first. So the idea behind doing a full spinoff
spk01: is certainly partly due to that consideration that we talked about of there being very different business characteristics around the cloud business versus Alibaba's other consumer-facing businesses. But another part of that consideration is to take this opportunity to make adjustments to the shareholder structure to bring on board strategic investors who can help grow the business in the market. That was also an important consideration.
spk13: Of course, we've given and will give full consideration to how to guarantee and maximize the interests of the existing
spk01: shareholders in terms of how to proceed with that spin-off, including giving consideration to tax issues.
spk13: Okay, Alex, your second question. I think for Paris, what kind of business will we continue to maintain the status of a majority shareholder? What kind of deconsolidation or even what kind of disposal will become a I think it's very simple. We still follow our three major strategies. I think our consumption, cloud computing, globalization, these three major strategies, including globalization, are also around business, digital business, logistics, and cloud computing globalization. I think these three points have already told us clearly, and can clearly express to the market where our strategic assets are, where our strategic business is.
spk01: And then, Alex, on the second part of your question as to which of the assets or which of the businesses will continue to be a majority controlling shareholder, which will be reducing our shareholding and perhaps ultimately disposing of those businesses, I think the clearest answer to your question is that it comes down to our three core strategies, namely consumption, cloud, and globalization. And when we talk about globalization, that is of digital commerce, logistics, and of cloud, and I think that really is the clearest possible expression of which of the businesses we consider to be strategic.
spk13: I think the biggest difference is that Xu Feng still has a clear market, a clear target market, a clear customer type, a clear customer group, and a clear business model. Thank you.
spk01: When it comes to engaging in financing and capital markets, there are different approaches that could be taken. Some companies we could retain a majority controlling interest in, others we can reduce our shareholding. You know, I think the decision really comes down to what is best for that particular business in terms of its ability to grow and succeed as a business. Those businesses that can do better on an individual or standalone basis should be encouraged to independently face the market. And we would love nothing more than to see one of these little Alibabas spinning off from Alibaba becoming another big Alibaba, as big as the group company is right now. So I think what you have to look at in respect of each business is whether it has a very clearly defined target market, whether it has clearly defined customers, whether it has a robust business model, and does it have core competence that's strong enough. And in the case of a business that has those four things, and cloud certainly does, I think it can succeed independently in the market. So going forward, we would be happy to see and indeed would expect to see Alibaba Cloud as an independent company growing to be as big as and perhaps even bigger than the Alibaba Group is today.
spk13: I think from the resumption in March, the major change in our strategy is that Alibaba Group, which has diversified its business, I think that the major difference going forward, following the restructuring we announced in March,
spk01: is that we'll be going from being a very diversified group to having individual companies that are each more focused on their own business, a strong focus on their own strategy and on developing their own core competences. This will be good for their customers, for their employees, and ultimately will maximize shareholder value. Thank you. Next question.
spk02: Thank you. The next question comes from Gary Yu from Morgan Stanley. Please go ahead.
spk08: 好,谢谢管理层。现在请问听得到吗? 喂,听得到吗? 可以。 哦,好的。其实我刚才问题已经有提问了,所以我想follow up一下。 第一个是关于阿里云那个complete spin-off的。 刚才提到用Dividend的方法,那如果是先有阿里巴巴 的股东呢?
spk12: direct ownership of AliYun's shares, the change in the shareholder structure will include IPO listing, which can make it easier for AliYun's shareholder to own AliYun. The second question is also about capital management. Will dividends be one of the ideas? I don't know if it's because of some tax reasons, we prefer to buy back than dividends. And the last one is also about capital management. I would like to ask, when we mentioned a few companies in the market, which companies will have the opportunity to raise capital to pay their losses? In these transactions, for example, will the He Ma Group from this transaction be able to use equity, for example, to sell old stocks in the process of IPO, and can there be a cash return to the 88 Group? Thank you.
spk01: So the question I was hoping to ask earlier I think has been partially asked already. So by way of follow-up, cloud will be completely spun off, fully spun off by way of a dividend distribution. Could you tell us further about how that will work in terms of cloud then pursuing an IPO and will that result in liquidity for the Alibaba group? And then a couple of questions on capital management. I assume that this dividend payout approach is basically out of tax considerations. You believe that, or pardon me, that buybacks will be more favorable than dividends from the tax perspective. And then there was a third question about freshable that the interpreter did not hear very clearly.
spk10: Okay, Gary, thank you for your question. I think I'll answer it. Because I think you asked some very detailed technical questions. I think today, just like we announced, we started from March and did a complete re-announcement. I think we are all making such plans, including some detailed plans. So, at this stage, I think, first of all, from the perspective of the market, you may also see a lot of examples. And then in our own cloud spin-off, there will be various actual and special situations that we need to consider. So, I think what we can tell you is that we will carefully consider the overall plan. Thank you. This is the first question.
spk01: Okay, thank you very much. Those questions got into a considerable level of detail that I don't know I can answer here. Following our announcement of the restructuring back in March, we've certainly been working on the overall planning and mapping out the details of these transactions. and certainly in respect of the spin-off of the cloud business, looking at ways to accomplish that transaction in a way that will maximize the benefit to the shareholders and ensure a very good shareholder return. But I don't know that at this point I can share with you the specific details of how all of this will take place.
spk10: Okay. Your second question is about whether to use buyback or dividend. Of course, we just talked about the form of spin-off. We will use the form of dividend. Of course, in general, is buyback better or dividend better? I think there may be different voices in the market. But just like what I just introduced, our capital management committee Your second question had to do with the relative merits of buybacks versus dividends. So in the case of the cloud business, we've opted to go with the dividend
spk01: approach. But if you ask more generally what's better, buybacks versus dividend distributions, I think there will be different opinions, different voices out there in the market. What I can tell you is we have this capital management committee that will, I'm sure, give full consideration to all of these different factors and make a solid decision at the end of the day as to what makes the most sense and is in the best interest of shareholders and stakeholders to ensure a good return to our shareholders.
spk10: Your third question is about Hema's entire IPO plan. In this process, of course, I think we are still, what we announced today is that in the next 6 to 12 months, we hope to complete Hema's IPO. In the entire process of Hema's IPO, including the entire capital raising plan, including all the details in this process, at present, it is still in the entire plan process. So today, I may not be able to give you too much
spk01: Your third question had to do with FreshHippo and the IPO plan for FreshHippo. I can't really share with you much more than what we announced earlier today, that we aim to complete that process within, say, 6 to 12 months. We're working out the details of that process. these capital raising plans right now, but at this point in time, we're not in a position to share any further details.
spk13: Yes, I would like to add one thing. Regarding the financing of these companies, including the listing competition, AGH will carry out some of these old stock sets or some of these recovery investments. I think we still need to monitor the first one, Thank you.
spk01: This is Daniel. Just to add a further point, as we go through these capital-raising processes, as the group holding company exits certain of these businesses, it will be recovering investments and gaining liquidity. But we need to ensure that we work through these processes in a way that makes the best sense for each of the businesses concerned, that it instills confidence in the market, and that there is sufficient liquidity. Thank you. Next question.
spk02: Thank you. The next question is from Jerry Lu from UBS. Please go ahead.
spk09: and investors are very concerned about the recent figures. It sounds like GNV has turned around. I hope the company can share a little more about this short-term view. At the same time, I also mentioned this year that the competition on the electricity is very fierce. But we also saw that the profit rate, the profit rate of China Commerce has also increased. So I also want to hear, although the competition is intense, do we have a chance to continue to see the profit rate of China Commerce increase this year? And then the second question is, I want to ask about the AIDC, the international business. Because compared to Yunhe and China Commerce, Thank you.
spk08: Thank you.
spk01: I have a few questions relating to e-commerce. So starting with Taobao and Tmall, we understand that there's been a return to positive growth in the business in the past few months. I'm wondering if you can tell us more about that return to positive growth, the positive growth trend in GMV. Also, we understand that this year there's been very fierce competition in the e-commerce space But at the same time, in the China commerce segment, profitability is improving. Can you talk to us about that? And do you expect to see further improvement in profitability this year? And then on the Alibaba International Digital Commerce, AIDC front, this is a business that's still loss-making at this time and will require further investment going forward. I'm wondering if you could tell us a bit about your plans there. and whether you'll be looking primarily at driving growth with those investments, or you'll be looking more to balance growth with profitability.
spk04: Thank you for the question. Indeed, in China, in Taotian's entire business, the results in March and April were not bad, especially the growth of user growth and low volume growth. There are several reasons. I think the first one is that Thank you. So this is Trudy regarding your question on Taobao and Tmall. Yes, definitely.
spk01: We have been seeing some pretty good numbers, good results in March and April, especially in terms of growth in users and growth in orders. And I think there are several reasons for that. First, of course, is the overall recovery, a moderate or a slow recovery, but in quarter one that's been unfolding. And secondly, I think it's the long-term effects of our efforts around cost optimizations. that are starting to pay off.
spk04: And then thirdly, as I shared with you earlier, our core strategies for this year and going forward
spk01: ecosystem and driving a technology-driven business. So these investments that we're making now in users, merchants, and technology are really just getting started.
spk04: Now, as I said before, I'm using a three-year period to do my overall planning and management. Under the three-year planning goal, the most important goal this year is still user, business, and technology investment. I believe that
spk01: So as I shared earlier, I am planning the business over a three-year horizon and implementing a three-year plan. In the context of that three-year plan, the most important thing this year, the priority is investing in users, merchants, and technology, and we're certain that those investments and users and merchants this year will pay off in terms of growth and scale.
spk04: Okay, thank you.
spk11: Thank you. Let me answer the second question. What I just said is that AIDC has a lot of different business models in different regions this year. Today, we have a lot of businesses that already have a very good profit. Of course, there are some businesses that are still in an investment period. The second is that overseas, such as retail or B2B, such as digital trade, it still has a very big potential. We will definitely continue to invest in some opportunity markets and some opportunity business models. Of course, we will continue to optimize and improve the efficiency of our current business. I believe that we are also a very long-term partner
spk01: So thank you. This is Jiang Fan on Alibaba International Digital Commerce. As I said in my earlier remarks, this business comprises a lot of different business models across a lot of different So some of those components of the business are profitable and doing well profit-wise. Others are still in the early investment phase. But in general terms, we see great potential in international markets for the business, both on the retail side and on the B2B or wholesale side. So in markets where we see strong potential, we will be investing to develop the business, while at the same time, in respect of our existing or the more established businesses, we will be looking at ways to further enhance operating efficiency. So we're looking at each market differently and taking a dynamic approach.
spk06: Well, thank you everyone for joining today's call. If you have further questions, feel free to reach out to me and my RR team. We look forward to having you again next quarter. Thank you.
spk02: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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