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Operator
Ladies and gentlemen, thank you for standing by. Welcome to Alibaba Group's June quarter 2023 results conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. I would now like to turn the call over to Rob Lynn, Head of Investor Relations of Alibaba Group. Please go ahead.
Rob Lynn
Thank you. And good day, everyone. Welcome to Alibaba Group's June quarter 2023 results conference call. With us today are Daniel Zhang, Chairman and CEO, Joe Tsai, Executive Vice Chairman, Toby Shih, Chief Financial Officer. We have also invited Trudy Dai, the CEO of Taobao and T-Mobile Group, to join the call. 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. Let me quickly cover the safe harbor. Today's discussion may contain further looking statements, including without limitation statements about the outlook of our businesses and our organization. Further 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 20-S and other documents filed with the U.S. SEC. We are announced on the website of Hong Kong Stock Exchange. Any further written 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. A GAAP result and reconciliations of GAAP to non-GAAP measure can be found in our earnings press release. Unless otherwise stated, growth rate of all stated metrics mentioned during this call refers to year-over-year growth versus the same quarter last year. With that, I will now turn to Daniel.
Daniel Zhang
Thanks, Rob. Hello, everyone. Thank you for joining our earnings call today. We started the fiscal year with a robust quarter. The latest macro data indicates some uncertainties in the pace of post-COVID recovery. But as economic and consumer activities continue to resume, our businesses demonstrated encouraging trends in economics, resilience, confidence in a consumption recovery, and a significant potential from an integrated development of the digital economy and the real economy. The third quarter also showed promising early results of our reorganization, new energy across our businesses. Our revenue reached 234 billion RMB, grew at 14% year-over-year, and the growth was achieved across our different business segments. Our adjusted EBITDA increased 32% year-over-year to 45.4 billion RMB, showing progress in our continued focus on operating efficiency and the quality of operation. Next, I will go through the results of each of our major businesses. First, let me invite Trudy to share the Taobao and Tmall Group updates.
Rob
Greetings, everybody. This is Trudy, and it's my pleasure to speak with you again. In the just-concluded June quarter, under our Putting Users First strategy, the Taobao app's user base has been put on a rapid track of growth. From April of this fiscal year, the average number of DAUs each month has grown by 6% or higher year over year. Last month, July, growth was over 7%. Based on third-party data, Our DAU leadership in the e-commerce space continues to widen. More and more users are choosing to use the Taobao app. At the same time, our building a prosperous ecosystem and realizing technology-driven innovation strategies are also starting to yield results. Since we launched the value for money battle this fiscal year, we've seen a very clear trend of merchant growth on Taobao and Timon. In the June quarter, we onboarded a large number of new merchants a significant portion of whom quickly started contributing to that value for money battle, winning over and converting users. So our value for money battle will continue and will be an area of major investment. We need to give users the experience of good merchandise is not expensive on Taobao and Tmall and we need to guide merchants to enhance value for money in order to achieve business scale growth and long-term stable returns. In fact, we saw initial evidence of this in the June quarter. Merchant confidence in doing business on our platform increased significantly and merchant spending also grew with an increase of over 20% in the daily average number of merchants paying for advertising. This all goes to show that more and more merchants are taking Taba and Tmall as their first choice platform for stable operation of long-term business. As for realizing technology-driven innovation, we've already upgraded merchant tools with AI, enabling merchants to open stores, launch new products, operate their businesses, and conduct marketing campaigns with much greater efficiency, and helping to optimize store display and product descriptions, thereby significantly enhancing the shopping experience for users. As a result of these strategies, the Taobao and Tmall Group recorded close to 80 billion RMB in CMR this quarter, a year-over-year increase of 10%. Within that, we saw very strong willingness to invest among merchants coming to Taobao and Tmall from other platforms. As for the platform itself, we continue to be committed to reducing costs and raising efficiency. We'll spend where it makes sense to, and we'll save where we can. As a result, despite our huge investments in users and the value-for-money battle and in AI, the Taobao and Tmall group recorded a 9.1 year-on-year increase in adjusted EBITDA in the June quarter, slightly lower than CMR growth. Also, during the just-concluded 618 Taobao and Tmall Shopping Festival, we achieved a two-wheel-drive effect of user scale and purchasing power. The data show that within the two factors that drove GMV growth during 618, Growth in number of paid orders and an average order size was remarkably similar, so that means that the contribution of each of those two factors was balanced. On the one hand, the number of 88 VIP members and GMV both grew by double digits year over year. And on the other hand, as part of our value for money battle, during this year's 618, we launched for the first time a Taobao Good Price Festival, marking the first time in the history of 618 that there was a dedicated promotion channel for Taobao merchants. This Taobao Good Price Festival proved effective in promoting value for money offerings and in attracting more users from lower tier cities and young users to visit and also to make purchases. So, if I were to sum up the June quarter in one sentence, I would say our three strategies of putting users first, building a prosperous ecosystem, and realizing technology-driven innovation are starting to yield results. Throughout the remainder of the fiscal year, we will continue to implement these three key strategies. Specifically, first, we will do our utmost to meet the needs of diverse groups of Chinese consumers, and to satisfy their demands around shopping, around consumption, and also around daily life. To do that, we will continue to invest heavily in developing content around shopping, consumption, and daily life. Second, we will also continue to invest heavily in the value for money battle in two different ways. On the one hand, we will continue in line with our mission to support small and medium merchants with targeted programs, such as those for merchants in industrial clusters and for new SME merchants. And in parallel, we will build a more advanced, open and inclusive merchant ecosystem and attract more merchants to engage in the value for money battle. so as to create a virtuous cycle on Taobao and Tmall of merchant ecosystem, revenue growth, stronger profitability, and that is precisely what our mission has always been. Third, we'll continue to invest in AI. It is our conviction that technology creates commercial value. Taobao and Tmall have the largest collection of merchants and of merchandise on the internet, and are the most fertile soil anywhere on the internet to explore AI applications. Hence, in this technological revolution, the Taobao app has the greatest potential to become a one-stop smart portal for life and consumption enabled by AI, satisfying the broadest variety of diverse needs across our huge base of 1 billion users. At Alibaba, we often say seeing is believing. I'm confident as CEO that over this three-year management cycle, with the execution of these three key strategies, the Taobao and Tmall Group will create a virtuous investment cycle from investment in users and user growth, leading to merchant growth, leading to transaction growth, further leading to revenue and profit growth, and feeding back into further investment in users and user growth. Along the way, even though there will likely be occasional months with volatility or setbacks in our operations, under the leadership of the Taobao and Tmall Group's Board of Directors and Management Team, we will remain firmly committed to our three key strategies to continuing to invest in users, providing strong support for merchants, and upgrading our platform with technology for the long term, and we're fully confident in the results we will achieve for the long term. Thank you very much.
Daniel Zhang
Now I will share the updates on other major businesses. Alibaba International Digital Commerce Group, AIDC, delivered 41% overall revenue growth this quarter, and its retail business achieved 60% revenue growth year-over-year. This was driven by solid order growth of our international retail year-over-year growth. Advising revenue growth because of enhancement of our monetization and a higher direct sales revenue contribution, as Art Express expects its new choice model. Lazada also delivered a rapid order growth based on its differentiated country strategy, accelerating progress in high-priority markets such as Philippines, and Thailand. In Turkey, Trendio continued to maintain its growth momentum and market leadership. We are starting to see economics of scale in our international retail businesses, as enhancing monetization and operating efficiency reduced just EBITDA loss. AIDC's adjusted EBITDA loss decreased by 17% year-over-year during the quarter. Looking ahead, we will continue to expand the choice model, leverage the capabilities of an integrated cross-border supply chain, and enhance consumer experience with higher certainty in logistics and service level. This plan is to expand the choice model from AliExpress to certain of our other retail platforms. with upgrading our products and services, especially in providing a better localized experience. During the quarter, revenue from local service groups grew 30% year-over-year, driven by strong combined order growth across both ULMA and AMAP. AMAP's daily active users and two destination services expanded due to the strong recovery in commuting and travel demand after the pandemic measures were lifted. With a long-term strategic focus on technology leadership, AMAP released new product features such as traffic light countdown and tunnel navigation during the quarter. which were well received by its users. Its market share in map navigation services continued to expand. During the quarter, Ulema focused on investing in its own service capability enhancement and a more inclusive partnership strategy, which helped sustain healthy order growth while maintaining positive unit economics. China's revenue during the quarter grew 34% year-over-year, primarily driven by the volume increase of international fulfillment solution services, mailing service, Aliexpress, and China domestic consumer logistics services. China's adjusted EBITDA of the quarter was 377 million RMB due to the continued focus on quality of operation and the lower transportation costs as international air cargo price came down. Looking ahead, Tanya will continue to invest in build logistic network for cross-border and domestic parcels and leveraging Alibaba's multiple digital commerce use cases to expand its network effect. Tanya will also share part of its savings from its operating efficiency improvement and transportation cost reduction with its customers through price strategy adjustments and pursue higher economics of scale on a larger revenue base. During the quarter, Alibaba cloud revenue grew 4% year-over-year. The growth rate was negatively impacted by the normalization of CDN demand as usage of video streaming, remote working, and remote learning came down when offline activities resumed after pandemic measures were lifted. The growth rate was also partially impacted by revenue decline from top customers. In the past quarter, we have received strong demand for model training and related AI services on cloud infrastructure. which were only partially fulfilled due to the near-term supply chain constraints globally. We believe the growth opportunity driven by AI services have just begun. We believe that technology evolution brought by AI is not a short-term opportunity, but the beginning of a new era. As one of the world's leading cloud service providers, we will continue to invest in forming a full-stack product and technology leadership across Earth's path and mass layer. This is key for us in capturing AI opportunity and sets a differentiating advantage for AliCloud versus other players in China, which mainly focus on one of the layers. We will leverage and expand this advantage when serving the needs of our customers, including training and service needs for large language startups, as well as industry demands for customized models and vertical models. We believe the high-performance and low-cost computing power required for model training and services will open up brand new opportunities for cloud computing services. Over the long term, Alibaba Cloud will benefit from the application of AI in all industries. In the last layer, we have built ModelScope, a leading open-source online community in China for models and related tools and services, which is very popular among developers. The community hosted over 1,000 AI models, including Mac OS recently released, Lama 2, and our own open source model. The 7 billion parameter version of Tong Yi Qian Run We believe the aggregation and engagement of a model ecosystem will significantly help developers optimize their model and use services on Alibaba Cloud. Since April, we released our own large language model TongYi QianRen, audio-to-text transcription platform TongYi TingWu, and text-to-image model TongYi WanXiang, which together have accumulated millions of users. In this quarter, Alibaba Cloud's adjusted EBITDA reached 387 million RMB, representing year-over-year growth of 106%. This is mainly due to the reduced co-location and bandwidth costs of Bintoc as a result of normalized usage after the pandemic, as well as enhanced product mix and efficiency improvement For example, server utilization in our cloud business. We will continue to focus on quality of operation. And as we continue to scale up, we will work to achieve economics of scale that will deliver long-term operating benefits and contribute to our profitability. Our digital media and entertainment business scope delivers 36% revenue growth year-over-year. and the first-ever quarter of profitability. This was the result of the following factors. Number one, Youku's growth in subscription revenue. Number two, higher revenue contribution from Da Mai and Tao Piao Piao, which both benefited from the recovery of offline shows and cinemas after the pandemic. Number three, Alibaba Pictures launched several blockbusters and robust China box office demand during the quarter. Going forward, we will continue to improve our content production capabilities and enhance DME's business operating results through high-quality content creation and distribution. In July, we published our fiscal year 2023 ESG report. Over the past year, we have made progress across the seven strategic dimensions of social responsibility, especially in restoring our green planet. We achieved solid emission reduction under scope one, two, and three. We drove emission reduction across our business ecosystem, which was roughly equivalent to the total annual greenhouse gas emissions of 1 million average households in China. Leveraging our unique position connecting consumers and merchants, our product innovation carbon 88 legend platform enables our customers and merchants to join the carbon saving efforts across our ecosystem. Following the announcement of our 1 plus 6 plus N organization in March, the six business groups have started operating in a new way under the leadership of their respective boards. The past quarter's solid performance was also a reflection of early results of this change and further enhanced our confidence towards the future. As part of the new governance framework, we are also further strengthening the company's capital management, moving ahead with our various programs to improve shareholder return under the leadership of the newly established Capital Management Committee. The capital market projects we announced last quarter are all underway and we have also been continuing share repurchase activities in the market. We will keep you updated on the progress in the future. Lastly, this will be the 36th earnings call I have participated since our IPO in 2014, and the final one as chairman and CEO of Alibaba Group. It truly has been a privilege of a lifetime to lead the company as CEO on our three strategies of consumption, cloud computing, and globalization since 2015, and being a part of Alibaba's high-growth period. As chairman, It was an extraordinary experience to take on the challenges brought on by the pandemic and unprecedented change in the macro environment over the past four years. This has been an incredible, invaluable life experience. I sincerely thank our shareholders and analysts for your trust and support over the years. This quarter is a culmination of my eight-year leadership of Alibaba and the start of my new journey. I hope you continue to support Joe and Eddie and the new management team. As Cloud Intelligence Group moves towards becoming a public company, I look forward to re-engaging with everyone in my new role in the journey ahead. Thank you, everyone. Now I will pass to Toby to go through the financial updates. Thank you, Daniel. Due to the strong business momentum and our focus on operating efficiency across businesses, we achieved a robust financial performance in the past quarter. Total consolidated revenue was RMB 234.2 billion, an increase of 14%. Consolidated adjusted EBITDA increased by RMB 11 billion or 32% to RMB 45.4 billion in the quarter due to improvements across all business segments. Nungap diluted earnings per share was RMB 2.17, an increase of 48%. Additionally, During the quarter, we repurchased the US dollar 3.1 billion worth of our shares, which accounted for 1.4% of total shares outstanding. This is supported by our continuous generation of strong free cash flow. During the quarter, free cash flow was RMB 39.1 billion or US dollar 5.4 billion, an increase of 76% year over year. Our strong free cash flow and balance sheet continue to put us in an excellent position to strengthen our competitiveness and capture new opportunities. Now let's look at cost trends as a percentage of revenue excluding SBC. Cost of revenue ratio excluding SBC decreased one percentage point to 61% during this quarter. Product development expense ratio decreased one percentage point to 4% during this quarter. Sales and marketing expense ratio remained stable at 12% in this quarter. And general administrative expenses ratio remained stable at 4% in this quarter. Our net income was RMB 33 billion, an increase of RMB 12.7 billion compared to the same quarter last year. The increase was primarily attributable to the increase in income from operations and the increase in share of results of equity method investees, partly offset by the net losses arising from the decrease in market prices of our equity investments in publicly traded companies, compared to net gains from these investments in the same quarter last year. As of June 30, 2023, we continue to maintain a strong net cash position of RMB 419.2 billion or USD 57.8 billion. Free cash flow this quarter was RMB 39.1 billion, an increase of 76%. The increase reflected an improvement on profitability and a decrease in capital expenditure. Now let's look at the segment results. Starting this quarter, we have implemented a new organizational and governance structure under which we now have six major business groups and various other businesses. Accordingly, our segment reporting has been updated to reflect our reorganization. Under our updated segment reporting, segment revenue and adjusted EBITDA are presented before consolidation adjustments. We have also provided revenue and adjusted EBITDA trend of each business groups for the last five consecutive quarters in the appendix of earnings presentation for easy reference. Now let's look at the Taobao and Tmall Group. The user-first strategy of Taobao Tmall Group is yielding positive user growth momentum and improving user retention on Taobao APP. which we have supported strong revenue growth and successful June 18th shopping festival during the quarter. Revenue for Taobao and Tmall Group was RMB 115 billion, an increase of 12%. Customer management revenue increased by 10% to RMB 79.7 billion, primarily due to increase in number of paying merchants, increasing merchants' willingness to invest in advertising on our platform and increase in online physical GMV, excluding unpaid orders. Direct sales and others' revenue increased 21% to RMB $30.2 billion, primarily due to strong sales driven by the consumer electronic category. Taobao and Tmall Group adjusted EBITDA increased by 9% to RMB 49.3 billion. The increase was primarily due to the increasing profit from customer management service and the narrowing losses in certain businesses, which was partially offset by Taobao Tmall Group's investments in growing Taobao APP users that has resulted in increasing DAU of 6.5%. Alibaba International Digital Commerce Group revenue was RMB 22.1 billion, an increase of 41%. Revenue from international commerce retail business increased by 60% to RMB 17.1 billion. The increase was primarily due to solid performance of all major retail platforms and improvements in monetization. Revenue from our international commerce wholesale business remains stable at RMB 5 billion compared to the same quarter last year. AIDC's adjusted EBITDA loss narrowed by RMB 960 million to a loss of RMB 420 million in June quarter. Losses significantly narrowed year over year, primarily because of improved margins of Trendio and Lazada, partly offset by the increase in investments in new businesses, such as Miravir and AliExpress Choice. Trendio continued to deliver strong order growth in both of its e-commerce and local consumer service businesses. Through robust revenue growth, and a continuing improvement in operating efficiency. For the first time, TrendU achieved positive operating results during the quarter. The reduced loss from Lazada is primarily due to improvement in monetization. Local services group revenue in June quarter grew 30% to RMB 14.5 billion, primarily due to robust GMV growth of ULMA and the rapid order growth of AMAP. Local service group adjusted IPTA was a loss of RMB 2 billion this quarter compared to a loss of RMB 2.8 billion in the same quarter last year, reflecting the continued narrowing of losses driven by ULMA's order growth and the positive unit economics per order. as well as rapid order growth of AMAP driven by market demand. Total revenue from Cynia grew 34% to RMB 23.2 billion, primarily contributed by the increase in revenue from international fulfillment solution services and domestic consumer logistics services. Cynia adjusted EBITDA with a profit of RMB 877 million compared to a loss of RMB 185 million in the same quarter last year. Profitability turned positive year over year, primarily because of improved operating results from international fulfillment solution services and domestic consumer logistics services. Revenue from Cloud Intelligence Group was RMB 25.1 billion in June quarter. an increase of 4%. The revenue growth was mainly driven by Alibaba consolidated businesses and the customers within financial services, education, electric power, and automobile industries, partly offset by our proactive efforts to manage revenue from project-based cloud services. Clouds are just the epitaph was increased by 106% to RMB $387 million, primarily due to reduced the co-location and bandwidth cost of Dintoc as a result of normalization of usage as compared to the same quarter last year. Revenue from our DME group was RMB $5.4 billion, an increase of 36%. primarily driven by growth of online entertainment business, as well as a strong recovery of offline entertainment business. Adjusted Epitaph recorded a profit of RMB 63 million, compared to a loss of RMB 907 million. The improved Adjusted Epitaph was mainly due to the increase in revenue from Alibaba Pictures and Da Mai. Revenue from all other segments increased slightly by 1% to RMB 45.5 billion, primarily due to the revenue growth contributed by Alibaba Health, Flickr, FlashApple, and Intelligent Information Platform. partly offset by the decrease in revenue from Sunna due to decrease in ticket size resulted from the decrease in customer stockpiling behavior compared to the same quarter last year. Adjusted EBITDA from all other segments was a loss of RMB 1.2 billion compared to a loss of RMB 2.3 billion in the same quarter last year. primarily due to improved operating results from FreshApple, Linxi Games, and Flicky. Thank you, and that's the end of our prepared remarks. We can open up for Q&A.
Rob Lynn
On this call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretations for the Q&A session. 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, a bilingual transcript of this call will be available on our website within one week after the meeting. Hello, everyone. Today's phone call will be in Chinese or English. We will have a third party staff to provide real-time translation. The purpose of the translation is to make it easy for everyone to understand. If you have any questions, please use the statements made by our management team in the original language. If you cannot hear the Chinese translation, the double language record of this phone call will be provided on our website within a week after the end of the meeting. Operator, please connect the speaker and SI conference line now. Please start a Q&A session already. Thank you.
Operator
Thank you. If you wish to ask a question, please press star then 1 on your telephone keypad. To withdraw your request, please press star then 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 with Goldman Sachs. Please go ahead.
Ronald Kung
Thank you. Thank you, Joe, Daniel, Toby, Trudy, and Rob. Can you share, can management share just how have broader consumption trends been tracking after a pretty strong June 18 shopping festival? And following on that within the Taobao T-Mall group, besides the DAU, DAC metrics that are KPIs, how are we thinking about the balance between Taobao T-Malls, for example, other metric, which is market share, versus our Taobao T-Mall group, say absolute profit level, if we think of it on a three-year horizon? Thank you.
Rob
Thank you. Thank you
Tmall
Back to the question about market share and profit, I still want to say that market share and profit ability actually have to go back to our three strategies, which is to use satellite, ecosystem and technology to drive.
Rob
Thanks for those questions. Let me start with your first question about consumption trends. Indeed, as we've seen, there is a gradual recovery underway in the Chinese economy, and the Chinese government indeed has made many efforts to stimulate economic growth and drive consumption. When it comes to the other KPIs you asked about, market share and profitability, I think that that comes down to the three key strategies we're pursuing around growing user scale, building a prosperous ecosystem, and realizing technology-driven innovation. We're looking at creating a virtuous investment cycle by investing in users and user growth, leading to merchant growth, driving higher revenues and then being able to further reinvest in growing users and user skills. So that's the positive cycle we'll be creating.
Tmall
And then we will also see that in the future, there will still be uncertainty. In the face of uncertainty and volatility, we also believe that the growth of users and businesses will be the most certain thing to do. I am very firm and optimistic about the future. As long as we maintain the advantage of users and businesses, we will invest in the long term to bring more revenue and profit.
Rob
Looking into the future, there certainly will be uncertainties ahead of us on this road. But I think faced with all these uncertainties and potential volatility, the greatest certainty we have is the need to continue to grow our user scale and our merchant scale. and we are very optimistic that as long as we can maintain our leadership in terms of user and merchant scale, that the mid- to long-term view of profitability and market share will be excellent. Thank you. Next question.
Operator
Thank you. Your next question comes from Alicia Yap with Citigroup. Please go ahead.
Alicia Yap
Hi, good evening, management. Thanks for taking my questions. And thank you, Daniel, and all the best for your new journey. So, my question is about the growth of DAU, 6.5%, and the growth of 88 VIP members. I would like to ask Manager Chen to share more information with us. For example, What channels do we see these new users coming from? Most of them come from low-end cities. Can you share with us the consumption capabilities and health conditions of these new users and our existing users? And for our 88VIP members, this is a very good growth. This is a very good growth. Thank you.
Rob
Good evening, and thank you, management, for taking my question. And thank you to Daniel. Congratulations to you and all the best on your new journey. So, looking at the excellent growth numbers you've reported in DAUs and also in 88 VIP members, double-digit growth there, I'm wondering if management could give us a little more detailed information on what lies behind those numbers. For example, in terms of new users, where are they coming from? How are they being acquired? Are they mostly coming from lower-tier cities? And how do those new users compare with existing users in terms of their willingness to spend and their spending power? And when we look at the 88 VIP members and the growth there, what's primarily driving that? And are we looking more at a higher frequency of purchase that they're making? Or is it more purchases they're making of big ticket items in some categories? And then looking at these trends, do you think they'll continue on into July? And then finally, I'm just wondering, given the weakness that remains in the economy, how accurate do you think our forecasts are of trends going forward and our ability to realize our objectives?
Tmall
好,谢谢。刚才第一个问题就是关于DAU之间来的用户的一个是不是有构成了一个变化的情况。 那从我们来看呢,其实我们的价格力战役其实在我们服务好更多的就是性价比需求的用户上,其实在我们过去是有比较大的一个收益的。
Rob
Thank you. I'll start with your first question on the increase in DAUs and where new users are coming from. And I would firstly say that our value-for-money battle, the way we've been investing in developing value-for-money offerings has very much been paying off. 然后在那个夏威夷技术跳跃会议上,我们也提到了我们的三大战略。 At the last earnings call, we discussed our three key strategies.
Tmall
So there are several reasons underlying the good performance that you've seen in the June quarter, and I will set out a few of them for you below. The first is improvement in the macroeconomic environment and recommencement of consumption, coupled with higher penetration of online purchasing within retail.
Rob
Secondly, we're starting to see payoff from our investments in this value for money battle, bringing to the market an increasing assortment of good items at good prices, developing that supply and attracting users with this proposition, and we are indeed seeing among paying users an increasing proportion of new users coming from lower tier cities or being young people or being older consumers.
Tmall
然后从618的数据来看,我们也看到几个大的消费趋势, 因为刚才有问到88VIP会员的销售是用户和订单之间, 频率之间的关系。
Rob
Looking at the numbers from this year's 618 Shopping Festival, we see several trends there that will also help to answer your question about the 88 VIP members and the proportion of sales to those members. 我们能够看到用户的性价比需求其实越来越高,然后参与程度也越来越高,所以在618其实吸引了很多年轻群体的主动来访和购买。 Again, we've seen a strong interest on the part of users in value for money offerings. And in the 618 Shopping Festival, we've certainly seen a lot of new young consumers coming to take part. Another driver of sales this year has been the launch of new products with 3 million new brands being launched by products on Tmall at this year's 6-18, driving significant sales in consumer electronics, appliances, apparel and other categories.
Tmall
So coming back to the 88 VIP members, what we see certainly is they're attracted by those new products that are being launched as well as by the broadened assortment of quality offerings.
Rob
Okay, next question.
Operator
Thank you. Your next question comes from Gary Yu with Morgan Stanley. Please go ahead.
Gary Yu
Hi. Thank you, management, for the opportunity. I have one question related to cloud and a follow-up on AI. Just wanted to check when do we expect to see cloud revenue grow to kind of further accelerate to a higher level? given there appears to be some reluctancy for corporate to spend on IT spending. And a related question on AI is, given the fast adoptions of our AI offerings that we have launched recently, how should we look at the timeline and roadmap from a regulatory and also monetization standpoint? Thank you.
Rob
Thank you, Mr. Guan. I have a question about cloud and an additional question about AI. I want to know when the revenue of cloud businesses can increase faster. Because we seem to see a lot of big companies that are not particularly willing to spend a lot of money on IT. In addition, we know that the company has recently launched a lot of AI products. So what kind of timetable do you consider to expand this area of business, including this monitoring aspect, including this time table that can transform and gain profit? Can you talk about it?
Daniel Zhang
Yeah, I think if you look at the cloud landscape in China, I think the total cloud infra as percentage of the IT infra still in a lower, actually in a relatively low percentage as compared to the U.S. peers. So we see still a huge potential first in this cloud. cloud infra penetration. Secondly, I think with this AI revolution, I think this brings incremental opportunities. Because today, all the companies want to use AI capabilities to upgrade their services and in their own application. But they need high-performance computing power to support AI. This operation, not only in today's training, but also in the inference services to be provided. So I think these two are, we believe, the primary growth engine for the long term.
Rob
Okay, thank you. If we look at the current status of the cloud industry in China, in fact, in China, the total IT expenditure of the cloud is still low, especially compared to the US copper industry. Therefore, we believe that the penetration of the cloud infrastructure still exists. huge potential. Then the second is about the current AI revolution. Uh, this is also an opportunity to increase, that is, all companies in each industry, they all hope to use artificial intelligence to improve their services. But this is inseparable. They have to use a lot of high-performance computing power, not only for training in the current stage model, but also for the support they provide after.
Daniel Zhang
If we look at our own performance, I think right now we are taking some time to digest some impact first from the decline of the demand post-pandemic. As we said in our script, for example, for many services relating to remote work, remote education, as well as the online streaming, the demand obviously is lower post-pandemic, which I think is a very important factor to drag our growth rate. And also, we also have some impact from the decline demand from one top customer, one of the top customers. So I think we still need to some time to digest this. Also, we're also making some proactive measures to make sure we focus on public cloud growth and focus on high-quality cloud service growth. So I think with this right sales structure and customer profile, we are in a better position, will be in a better position to have a long-term sustainable growth.
Rob
Ah. We are also taking active measures to focus on the growth of public cloud and high-quality cloud services. With the appropriate sales performance, For a second question, how to monetize this AI opportunity, I think the answer is very straightforward.
Daniel Zhang
It's like as a cloud service provider, our best monetization model is to have all the AI companies, all the models using Alibaba Cloud Infra, our high-performance, low-cost computing power to do their AI. So I think why we do our foundational model in AliCloud and deploy this on our cloud infra is to not only just run our own model, is to help our cloud industry partners to use this foundational model to do their fine-tuning, to build their own model in their vertical industries and in their own customized applications. So I think for us, I think this is a huge opportunity, and I think we will do everything we can to make sure we provide best-in-class services to help these new generations of innovation to be occurred on our cloud infra. Thank you.
Rob
The second question is about how AI can be transformed from AI to AI. I think this is very clear. As the provider of cloud services, we want all these AI companies and their models to use the low cost that Aliyun can provide. high-performance infrastructure, including the use of our infrastructure model. The infrastructure model is deployed on top of our Aliyun infrastructure. Not only are we using it ourselves, but it can also help our partners to use our infrastructure model to carry out a lot of fine-tuning and adjustment, and then to adapt to their own industry, or to help them do individualized, exclusive, uh just to add one more point which is uh when we talk about this uh
Daniel Zhang
and we strongly believe in this AI new era, there is a new ecosystem is generating, is incubating. So that's why we do a lot to grow our model community, model scope, to make sure all the relevant models, all the good models in the market, not only from Alibaba, vast majority of them are from China, from the ecosystem to make all the models available for the developers, for the industry partners. And we provide tools, applications to help them to use these models. And a lot of them are open source models, as I said in my script. And from our side, we also will continue our efforts to upgrade our model and also continue our open source strategy for the models. And the more people use models, then the more people will use computing power. That's the short answer. Thank you.
Rob
In addition, I would like to add that regarding the ecosystem, we believe that we are entering a new era of AI. A new ecosystem is emerging and flourishing. Therefore, we are doing a lot of work to support and develop such a community. Let all the good models, including Ali's own models But in fact, there are a lot of models that come from this ecosystem Let all these models be used by developers Then we will also provide various tools and applications Help them make good use of these resources Then many of these models are actually open source Then we Ali will continue Next question. Thank you. Your next question comes from Zhiyong Sheng with Barclays.
Operator
Please go ahead.
spk09
谢谢管理层接受我的提问。 我就想跟进问一下这个AI的问题, 刚才Daniel回答的。 我知道这个我们阿里云有同一的模型, 也最近开放了两个open source的模型, 再加上在host的Meta的open source的模型。 那么现在这个市场呢, Thank you.
Rob
Thanks. I have a follow-up question for Daniel regarding AI. We know that Alibaba has launched its Tongyi model and has recently opened up two additional models, and you're also hosting a model from Meta. I'm wondering if we think about the future landscape in China, say three to five years down the road, what that landscape will look like, how many foundational models will have proven successful, what will the mix look like as between proprietary versus open source models at that time, and what will be the factors that will contribute to the success or failure of these different competitors in that period?
Daniel Zhang
This is a very good question. It is also a very difficult question to answer. Because when such a new era comes, it is difficult to predict the future of this three or five years. In fact, everyone in this industry knows that recently everyone is observing and following this change as a unit. So the change is very fast. A lot of new things are happening.
Rob
Well, thanks. That's an excellent set of questions and as difficult to answer as they are excellent. You know, we're standing at the advent of a new era, an unprecedented new era where things are moving so fast that most people look at things in intervals of one month and track changes month by month. So it's extremely difficult to talk about what the future will be like three to five years out.
Daniel Zhang
uh, This is a basic model. But in fact, it still has a focus on some areas. It focuses on some domains. This depends on the size and scale of the data in this area. I think in this case, there will definitely be a batch of AI companies. I think this is a two-way street that can be seen.
Rob
Perhaps I can share with you my own observation and thinking about some of those larger issues. Certainly, there are quite a lot of companies in China already today that are working on large language models. I think there are basically two development pathways available to these companies, broadly speaking. One is the one that Alibaba has chosen because we are a cloud provider. So we've developed these large language models, and as we evolve them, we continue to open them up, make them available, even go open source for them to get more people to use them. So we're providing foundational models that are intended to be of universal application to benefit the broadest swath of the community, making them available to developers to develop applications, building on them. But at the same time, there will also be some players in this market who, although they're starting out developing foundational models, will very quickly start to focus on a few particular domains where they have expertise. Of course, these will be domains where to succeed, they'll need to have a lot of high-quality data as well as deep insight into that data. But some companies will start by developing those foundational models but quickly move into developing specific applications. So that's foreseeable.
Daniel Zhang
Yes, but the second case is not a big model company. It is not a big model. It is a hammer model. So today, it is difficult to make a distinction in this industry. There are different people who say that they all make big models, but in fact, most of them will go to a real deep-rooted model in a certain field. But what I want to add is that besides these two, there is another very important thing. This AI itself is not just a single AI opportunity. It will bring a new upgrade opportunity to all the current application services, whether it is to B or to C. So in this regard, it is related to all the industries today, including all kinds of Internet applications and services. Just like what we talked about before, in this era, Alibaba... Of course, those in that second category I spoke about might
Rob
say today that they're working on big models or large language models, but in point of fact, they'll end up working on vertical models. But it's difficult to know today and to distinguish between the two. But another important point I would add on is that AI is not valuable just by virtue of of being AI. In fact, it has tremendous potential to revolutionize all the existing applications and services that are out there across industries and sectors, including both 2C and 2B. So, you know, if you look at all the different applications and services that exist today on the Internet, all of them can be rethought and revitalized and upgraded with AI. So we say this within Alibaba, everything we're doing, all the services we have can be rethought and redone, leveraging AI. And I think the same could be said for all players across all different industries and sectors. Next question.
Operator
Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.
Thomas Chong
Hi. Thanks, management, for taking my questions. I have a question regarding the international business. Given that the strong performance that we are seeing across different countries, I just want to get the thoughts from management regarding the competitive landscape in different regions. and our growth strategies. And then a follow-up question on that one is really about the logistics side. Given the strong performance of China, how should we think about the synergies between China and our international business to enhance the use experience? Thank you.
Rob
Thank you very much, Director. I would like to ask another question about our international digital business group. Because we see that the performance of different countries is very strong, we would like to know how our performance and strategy are thinking in different regions. Actually, we reported a very good quarter for our AIDC, our overseas digital commerce business, and we are happy to see that our
Daniel Zhang
our strategies after a couple of quarters of efforts as we see a strong sign of success. And we strongly believe this is a sustainable trend. And as you ask, I think we are trying to find our unique position in the global market. And when we talk of global market, we have very clear target by market, by region, not only by region, also by country, because consumption is highly relevant to the culture and highly relevant to the local retail landscape. So we need to find our unique strength to create the real value to the customers in the destination country. Our unique advantage, of course, one of the unique advantages is the supply from China. I think a choice model just to unlock the advantage by a consolidated integrated supply chain from end to end. So going forward, we'll continue to scale up this model and together with the growth of the platform model and in different markets. And we have differentiated our market strategy in some businesses. We focus on cross-border. This could be a main cause for some businesses. But for some other market, we focus on local-to-local as a main cause, plus cross-border from China as a desert. And also, today we cross-border from China, maybe tomorrow cross-border from other countries. And also we are trying to leverage our strong coverage in China with our B2B business because we have very successful B2B business, which basically have a very strong connection with many Chinese exporters. They are all SMEs. Some of them sell industrial products, but we have many of our exporters sell consumer products. So this could be a huge, I mean, flying wheel to connect the integrated supply chain from B2B to B2C. So for your second, for your question about Tainiao and AIDC, I think this quarter is a very good example, show a very good example of how the synergies we can create between the, among the different business groups in Alibaba. So I think the strong goals of AIDC is one of the main reasons is our improved logistic and service experience together with strong performance of our logistic network. So, for example, right now we are providing five-day global delivery, which means a global delivery within five days. If you can give the customers thousands of miles away, tens of thousands of miles away from China, a high certainty of the logistics experience, this could be the best user acquisition tool, user acquisition model. So if we combine these two together and see very strong synergies, And we'll continue to do that. And on one hand is to enhance the assortment strategies to make sure we have the right supply. Second, to enhance the logistics and service standard and capability and to make sure customers can have their good experience. If they have a good experience in their first few tries, they will be with us. I think they have... With a good experience, the price point from China's supply has a unique strength in the world.
B2C.
确实本季度国际数字商业集团的AIDC业绩表现是非常好。
Rob
We are also very happy to see that the efforts and strategies we have made in the past few seasons are now working well. And we believe that this system can continue. It is not wrong that we are trying to find our own unique positioning in different markets around the world. And not only in different regions, but also in different countries. Because the consumer industry is closely related to local culture and local sales. Therefore, we need to find our own unique advantage to provide a unique value to local consumers. Of course, as Ali, we have a very important unique advantage, which is China's supply. The choice model that we have launched now means that we have released... uh uh Another opportunity is that in some countries, we focus on cross-border business. This is the main dish. In some other countries, we have a local-to-local model as the main dish. This is China's cross-border as a dessert. Tomorrow, it may come from other countries, not just China. Many of them are industrial products, but some of them are consumer products. This can also form a very good flying wheel effect, which is to increase our international logistics capacity. We can expand from B2B to B2C. uh uh One of the major reasons is that the experience of our logistics service and customers is constantly improving. We can now provide a five-day service commitment anywhere in the world. If we can provide consumers on the other side of the world, which is tens of thousands of miles away, with high-certainty logistics experience, So this is the best model for customers. These consumers only need to use it a few times. As long as their experience is good, they will definitely continue to use it. On the one hand, we will continue to do our job of stocking and freezing. On the other hand, we will constantly improve our logistics standards and experience to ensure that customers have a very good experience. Next question, please. Thank you. Your next question comes from James Lee with Mizuho. Please go ahead. Thanks for taking my questions here. I just want to follow up questions on
Ali
you know, cloud computing specifically. And Daniel, can you comment about, obviously comment about technology that's super helpful. Can you talk about maybe from a marketing perspective, you know, what verticals are important for you to pursue in the near term to drive the growth of the business and why? Thanks.
Rob
Thank you very much. I would like to add to Yun's question. Daniel has already introduced technology. This answer is very helpful to us. I would like to ask further questions. In terms of the market, which vertical industries do you prioritize to develop your applications? Which vertical industries do you think need your short-term implementation to promote business growth?
Daniel Zhang
Well, actually, cloud is relevant to all the industries. But if you ask me which industries we prioritize, I would say, actually, first of all, I think the Internet companies. I think because all the Internet companies are digital native companies, and they're supposed to grow their business on cloud. And so from this part, I think if you look at the history of Alibaba Cloud, we will grow together with the internet company, especially the mobile internet companies in China together. So I think in this part, I think we still have a big space to penetrate, to help all the internet companies. Today, not all of them are purely digital native, data-driven. And even though everybody have a mobile app and have a web page, but I think the level of digitization and the complexity of their digitization is quite different. So I think in this regard, we can still work closely with them, starting with the penetration of the cloud infra and also with more penetration with the PaaS products. I think PaaS service and AI service So I think internet obviously is a very important sector. And also financial services, because financial services is a very big industry. And there are many companies, many type of subsectors in this industry. So I think we also spend a lot of our resources on these and also we are also develop our services and product services to serve the industries like automobile because if you look at the EV companies and all the EV companies no matter their new EV or a new EV or the existing ones I think Pretty soon, all of them, they are purely digital-driven companies. They are data-driven companies. So I think we will, generally speaking, I'll just give you a few examples, but generally speaking, we will focus on the industries with a higher level of digitization, and we will prioritize the industry digital native, or data. have a very successful digital transformation, or they are on birth, from day one, they are digital native. So this is our focus and strategy. Thank you. 其实说到云,各行各业都将会需要利用云的服务。
Rob
If we ask which are our priorities, I think first of all, it should be Internet companies. Many of these Internet companies in China are so-called digital originators. They will basically rely on cloud to grow their business. If we look back at the development history of Alibaba, we can see that we follow these Chinese Internet companies, especially mobile Internet companies, who have grown up together. Although this is said, there is still a lot of room for further infiltration, because not all of these companies are digital originators, although they all have this kind of digital application. In fact, each company has a different level of digitalization. Then we can further use our cloud infrastructure and our PaaS products, including our AI services, to further infiltrate this industry. In addition, another great opportunity is financial services, which also includes a lot of asset industries. Uh, uh, uh, uh, uh, Let's invest the last question.
Operator
Thank you. Your next question comes from Zhai Long Shi with Nomira. Please go ahead.
Zhai Long Shi
Thank you for accepting my question. I would like to ask about the e-commerce business. I would like to ask the management team how they see the growth of the e-commerce business of Taobao Tianmao in September, including the growth of the revenue. This is the first small question. The second small question is that we see that this June quarter, it seems that Taobao Tianmao's near-need ratio is a bit down. And then I also saw that in our Taobao Tianmao, the near-need ratio is relatively low. The ratio of this cat super and Tianmao International is rising, so it may lead to Thank you.
Rob
Thank you. My question has to do with e-commerce. And I'm wondering if you could talk to us about where you see things heading for the September quarter for both Tmall and Taobao in terms of DAUs and revenues. And then coming back to the June quarter, we saw a decline in margin year on year. Tmall supermarket and on Tmall and Taobao. Thank you.
Tmall
Thank you. So on Tmall Supermarket, this is...
Rob
A 1P business that we're operating ourselves in profit continues to improve. This year, we've invested very heavily in improving user experience on Tmall Supermarket. As part of that, rolling out half-day delivery service in 20 cities across China. And in those cities with half-day delivery, we're seeing very, very significant improvements and growth in user scale orders and user satisfaction.
Tmall
E-commerce in general as a kind of commerce or business is affected by a variety of different factors, of course, including the macroeconomic environment and competition. So rather than focusing on short-term competitive dynamics and growth numbers, we're much more preoccupied with ensuring the long-term development of the company, of the business, and in constantly surpassing ourselves. And as I said earlier, given the uncertainties and volatility that may lie ahead on the path to the future, it's all the more important to be investing today in building our own capabilities.
Rob
That's why in the next three-year period, we'll continue to invest resolutely in growing user scale, in optimizing user experience, in helping merchants grow their businesses, and in improving our services that we provide to merchants. We have over two decades of strong experience and insight in the e-commerce space, and based on that, I have extremely strong confidence in our ability to continue to maintain our dual leadership position, leadership in terms of user scale and merchant scale going forward. Thank you. The investments that we're making today will certainly pay off in the future in terms of driving revenue and profit growth. Thanks.
Rob Lynn
Thank you, everyone. And that's the end of our earnings call today. If you have any further questions, feel free to reach out to me and my team. And thank you. We'll see you next quarter.
Operator
That does conclude our conference for today. Thank you for participating. You may now disconnect.
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