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spk05: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's December quarter 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 Lynn, Head of Investor Relations of Alibaba Group. Please go ahead.
spk15: Good day, everyone, and welcome to Alibaba Group's December quarter 2023 results conference call. With us are Joe Tsai, Chairman, Eddie Wu, Chief Executive Officer, Toby Xu, Chief Financial Officer. We have also invited Jiang Fan, CEO of Alibaba International Digital Commerce Group, ARDC, to join the call. This call is also being webcasted on the IR section of our corporate website. A replay of the call will be available on our website later today. Now, let me cover the safe harbor. Today's discussion may contain forward-looking statements, including without limitation statements about our new organization and governance structure, strategies and business plans, as well as our beliefs and expectations about our business prospects, such as the future growth of our business, revenue, and return on investments. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report on Form 20S and other documents filed with the U.S. SEC. We're announced on the website of the Hong Kong Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligation to update these statements except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow, are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measure can be found in 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 Eddie.
spk11: Hello, everyone. Over this past quarter, We delivered steady growth while making organizational adjustments that align with our strategic focus. At the same time, we took a deep look at our core business operations and the competitive landscape. We concluded that to maintain our competitive edge, we must increase our investment in core capabilities and adopt a more aggressive approach towards competition in order to win growth. Our top priority is to reignite the growth of our two core businesses, e-commerce and cloud computing. During the quarter, the execution of our user-first and competitive pricing strategies in Taobao and Tmall Group, TTG, was effective, resulting in healthy year-over-year GMV growth as the number of active buyers and order volume showed a robust increase. The number of merchants continued to grow at a double-digit rate, and I'll elaborate on the outlook and plans for 2024 in a moment. In cloud computing, we're committed to our strategy of prioritizing public cloud. We have proactively optimized our business structure, reduced revenue from project-based contracts, and increased investment in public cloud products. These structural adjustments are showing results, and Alibaba Cloud's overall profitability capability continues to improve. We've also upgraded Alibaba Cloud's sales operations establishing different sales and service systems to serve different types and sizes of customers. By improving our customer coverage and service capabilities, we will enhance our growth rate. In the international commerce business, we focused on expanding cross-border offerings and enhancing the shopping experience. This quarter, All of AIDC's retail platforms achieved growth, resulting in international digital commerce overall revenues growing at a rapid rate of 44% year-over-year. Tainiao continued to develop its global smart logistics network with cross-border logistics fulfillment solutions contributing to 24% year-over-year revenue growth, as well as realizing strong synergies with the cross-border e-commerce business. Next, I'd like to share the strategic priorities for TTG in investing and capturing growth opportunities. TTG operates in the world's most competitive e-commerce market, which is China. As we carefully evaluate TTG's competitive position within the China e-commerce market, we note that TTG continues to be number one in GMV share and is the leading platform for consumer shopping. Merchants operate on the platform as their primary place of e-commerce business, and TTG has the deepest and most comprehensive selection of products amongst its peers. However, we must still make targeted investments and improvements in price competitiveness, service, and user experience. Given that consumers use multiple platforms, returning to a user-centric approach is at the heart of our strategy. We'll increase investment in core user experiences to enhance the customer shopping experience. I'm confident that by focusing on delivering the incredible Taobao or universal Taobao experience, offering quality products at attractive prices with great service, meeting the different needs of different consumer segments, TTG will earn users' trust and return to growth. Thus, 2024 will be a year of comprehensive capability upgrades for TTG and also a year of significant investment, and we'll be prioritizing investment in the following areas. One, product supply. We'll increase our investments in growing the selection of branded products and direct-for-manufacturer products on TTG's platforms. This will further strengthen our product supply advantages to better address new consumption trends and demands. Two, competitive pricing and efficiency. We'll increase investment into product sourcing capabilities and optimizing business model relationships between merchants and our platform. For different types of suppliers, we'll offer flexible business models that are best suited to improve their operational efficiency and thereby enhance Taobao's value proposition. The competitive pricing we're focused on delivering is attractive prices for quality products. This is a demand that consumers have across cycles and is fundamental to doing business. Three, quality service. We will work with our merchants and logistics partners to invest in improving the entire customer service experience, including pre-sale, in-sale, post-sale, and logistics. For different customer segments on the platform, we will build a consumer service system that accurately identifies and meets the various needs of the different groups. Four, increase purchase frequency. Through the above investments, we will enhance our comprehensive capabilities to offer quality products at attractive prices with great service. We believe that improving the platform's overall shopping experience and service quality will lead to increased purchase frequency and materially improve the efficiency of user growth. Today, Taobao and Tmall remain the most valuable shopping platforms and the main place for merchants to do business. With the comprehensive capability building plan for 2024, we're confident that TTG will return to growth. Next, I'll hand over to Jiang Fan to present on AIDC. Good evening, everybody. Over the past quarter, despite the uncertain international environment and more intense market competition, AIDC achieved rapid growth. Total orders grew by 24% year-on-year, driven by strong growth across all major retail platforms. Growth in our cross-border business was especially significant. Our three major growth drivers are, first, enhanced consumer experience as a result of our business model and supply chain services upgrade. Second, product and technology innovation. And third, our targeted expansion in priority markets. Next, I will present our business results and future development plans around these three drivers. First, is our business model and supply chain services upgrade. Last quarter, AliExpress achieved year-on-year order growth of over 60%. This was mainly driven by the new AE Choice model that we launched in early 2023. The AE Choice model is, in essence, an upgrade that we made to our original pure platform model into a hybrid business model. that combines POP on the one hand with a fully entrusted model on the other, and it's underpinned by supply chain efficiency. It optimizes supply on the platform by balancing experience with richness of offerings. By offering entrusted cross-border logistics, marketing, and other services, we lower the barrier for merchants to engage in cross-border business, bringing more certainty to their operations and more diverse assortment to the platform. At the same time, we continue to enhance the end-to-end consumer experience including by providing more stable product quality and more competitive prices, by continuing to optimize delivery time, and by adding value-added services like local product return. As of January 2024, Choice already made up half of all AliExpress orders. Its high-quality user experience has driven significant user growth and transaction growth on the AliExpress platform and going forward will continue to invest resolutely to further increase choice penetration and provide a better experience to more users. In terms of product and technology innovation, ARDC serves consumers in different countries and regions around the world. We've already optimized products in certain key countries and regions in line with local preferences. These efforts have been highly appreciated and we'll continue to pursue that kind of innovation and upgrading. We're also actively deploying AI to enhance operating efficiency and lower barriers for merchants. Our suite of AI-based digital foreign trade products have been officially launched, enabling real-time language translation, AI, logistics services, rapid generation of images and videos for marketing, et cetera. Third, sustained growth in key markets. In the last quarter, we achieved good growth in different regional markets, and in certain key markets, AE achieved breakthrough rapid growth to become the leading platform locally. In Turkey and neighboring markets, Trendyol continued to achieve robust double-digit order growth, and maintained its leading position in the Turkish market. It also further expanded its business in valuable new markets in the Middle East. In Europe, Alibaba.com completed its acquisition of the well-known European B2B digital trade platform Visible, further expanding its supplier base in the region and further advancing Alibaba.com's global expansion and dual brand strategy. There is huge potential for AIDC to increase user penetration in the majority of overseas markets. Building on our current resources and footprint, we will increase our investment in select regional markets where we see opportunities and value to achieve opportunities for high certainty and healthy growth. Going forward, we'll continue to maintain our rapid growth momentum and provide consumers with improved differentiated services. To that end, we'll continue to increase our investments in enhancing user experience and business competitiveness while expanding our business scale. Thank you.
spk04: Thank you, Zhang Fan. We achieved a healthy financial performance in the past quarter, driven by steady business momentum and improving operating efficiency in several major businesses. Total consolidated revenue was RMB 260.3 billion, an increase of 5%. Consolidated adjusted a bit higher increased by 2% to RMB 52.8 billion. Our non-GAAP net income was RMB 48 billion, a decrease of 4%. Our GAAP net income was RMB 10.7 billion, a decrease of 35 billion. That was primarily attributable to change in investment values and impairments. Firstly, There was a market-to-market change from our equity investments of about RMB $19 billion. Second, amortization impairment of intangible assets was RMB $14.6 billion, of which RMB $12.1 billion was related to Sunnock impairment. Third, impairment of Blue Whale was RMB $8.5 billion related to Yoku. The above three items were excluded from non-GAAP net income. As of December 31, 2023, we continue to maintain a strong net cash position of RMB $487 billion or US$68.6 billion. Free cash flow this quarter was RMB $56.5 billion, a decrease of 31%. The decrease in free cash flow was attributed to increase the capex and several one-time factors, including timing of income tax payments and working capital changes related to several of our businesses. Now let's look at the segment results, starting with Taobao and Tmall Group. Revenue for Taobao and Tmall Group was RMB 129.1 billion, an increase of 2%. During this quarter, we made steady progress to execute our Taobao and Tmall strategies, we observed a few positive trends. As Eddie mentioned, our online GNV achieved healthy growth with order volume growing strongly during the quarter. Notably, the order volume exhibited double digits year-over-year growth during the second half of the quarter. Importantly, we continued our efforts to onboard our wide range of brands and merchants. The number of operating merchants on our platform continue to grow at double digits, and this trend has sustained over the past four quarters. Additionally, we are also seeing strong growth in paying merchants. Customer management revenue was RMB 92.1 billion, relatively flat year over year. The overall take rate decreased slightly year over year, mainly because of the increase in GMV came from Taobao merchants. The mixed shift of GMV towards Taobao merchants provided us with further monetization potential because the take rate from Taobao merchants has been improving while Timor merchants take rate was unchanged during the quarter. Importantly, This trend also reflects increasing consumer demand of price competitive products offered on our platform. Direct sales and others revenue increased 2% to RMB 31.6 billion. China commerce wholesale business revenue increased 23% to RMB 5.3 billion, primarily due to an increase in revenue from value-added services of 160aa.com. Taobao and Tmall Group adjusted EBITDA increased by 1% to RMB 59.9 billion. The increase was primarily due to the narrowing losses in certain businesses, partly offset by the increase in investment in content, user acquisition, and retention of Taobao APP, as well as technological innovation. We are in the process of revitalizing Taobao and Timor Group and positioning it for future growth. We are beginning to see early signs of GMV growth recovery driven in part by investment made since earlier this fiscal year. We still have a lot of work ahead. As Eddie mentioned, we will invest for future growth and strengthen Taobao and Timor Group's market leadership. Our cloud intelligence group revenue quality continues to improve as we proactively reduce revenue from low-margin project-based contracts. Additionally, we recorded healthy growth of our public cloud revenue from external customers. Revenue from cloud intelligence group was RMB 28.1 billion this quarter, an increase of 3%. Cloud's adjusted EBITDA increased by 86% to RMB 2.4 billion. The continuous improvement in our adjusted EBITDA reflected improving product mix through our focus on public cloud and operating efficiency. The enhanced profitability of cloud business gives us confidence to invest in technology and customers to strengthen our public cloud leadership in the future. Alibaba International Digital Commerce Group revenue was RMB 28.5 billion, an increase of 44%. Revenue from international commerce retail business increased by 56% to RMB 23.3 billion. The increase in revenue was primarily due to solid revenue growth from AliExpress, especially choice business and trendy oil. Revenue from our international commerce wholesale business increased by 8% to RMB 5.3 billion. The increase was primarily due to an increase in revenue generated by cross-border related value-added services from Alibaba.com. AIDC's adjusted EBITDA was a loss of RMB 3.1 billion. Losses increased primarily because of the increase in investment in AliExpress' choice, Trendio's international business, partly offset by improvement in monetization across all major platforms. Overall, we have seen a very rapid order and revenue growth of our AIDC cross-border e-commerce business over the last few quarters. To sustain this momentum, and provide differentiated services to customers. We increased the investment during this quarter and will step up investments to drive further growth. Total revenue from Tainiao grew 24% to RMB 28.5 billion, primarily contributed by the increase in revenue from cross-border fulfillment solutions. Tainiao adjusted EBITDA with RMB 961 million compared to a loss of RMB 12 million in the same quarter last year. The increase reflected economies of scale that leads to cost optimization as well as optimized operating expenditure spending. In the coming quarters, as a strategic partner of Art Express, we will increase investments in expanding our cross-border logistics capabilities to support AE Choices growth. Local services group revenue in December quarter grew 13% to RMB 15.2 billion, driven by healthy growth of ULMA and the rapid growth of AMAP. Local service group adjusted EBITDA with a loss of RMB 2.1 billion this quarter compared to a loss of RMB 2.9 billion same quarter last year, primarily due to the continued narrowing of loss from our to-home business driven by Elon Musk, improved the unit economics and increasing scale. Revenue from our DME group was RMB 5 billion, an increase of 18%, primarily driven by the strong revenue growth of offline entertainment businesses. Adjusted EBITDA was a loss of RMB 517 million compared to a loss of RMB 391 million same quarter last year. Losses increased primarily due to the increased losses of Youku. Revenue from all other segments decreased 7% to RMB 47 billion, mainly due to the decrease in revenue from Sunart. Adjusted EBITDA from all other segments was a loss of RMB 3.2 billion compared to a loss of RMB 1.7 billion in the same quarter last year, primarily due to increase in year-over-year loss from SunNot due to scale down of certain of businesses. Excluding SunNot, FreshApple, and in-time businesses that have physical retail operations, group revenue would have grown at approximately 8%, and our group consolidated adjusted epitome margin would have been four percentage points higher at approximately 24% this quarter. Lastly, We remain committed to returning cash to shareholders. We have been consistently buying back shares. In the 12 months in December 31, 2023, we have repurchased the US dollar $9.5 billion in shares and have reduced the share account by 3.3% of accounting for shares issued under our ESOP. Additionally, quarter to date, Until February 6th, we have repurchased another US dollar $1.4 billion worth of our shares. Our board of directors has approved the upsize of the share repurchase program by another US dollar $25 billion through March 2027. Upsizing our share repurchase program demonstrates our strong confidence in our business fundamentals and cash flow generation capability. Following the upside, we currently have US dollar $35.3 billion available in our share repurchase program. The upside of the program will allow us to achieve a net reduction in share count and achieve EPS and cash flow per share accretion. Subject to market conditions, we target to achieve at least 3% in annual reduction in total share outstanding for the next three fiscal years. Thank you. That's the end of our prepared remarks. We can open up for Q&A.
spk15: 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 note 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 seven working days after the Chinese New Year holiday. Operator, please connect the speaker and SI conference line now and start the Q&A session when ready. Thank you. Thank you.
spk05: If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. 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 Kyung with Goldman Sachs. Please go ahead.
spk08: Thank you, Joe, Eddie, Fan, Toby and Rob. I want to ask about the Taobao Timor take rate this quarter that we just mentioned is like four in a blended take rate. And you mentioned about the different factors, the makeshift, but also Taobao take rate increase. So I want to hear what is driving the take rate increase on this on the specific, particularly on Taobao. How is the adoption of our sales based and a cost per sales based shift in our ad tech upgrades? And just on the blend of this, when should we expect take rates to stabilize, i.e. the GMV and CMR to stabilize in the same rate? And how should we think about the long-term take rate potential, given that we're still much lower than global peers, and I would say lower than quite a few of our China peers. So the potential there in the near term, when to stabilize, and long-term potential. Thank you.
spk11: Thank you. Okay, thank you, Reno. I will take this question. You know, for this quarter, actually, if you look at it, the overall take rate dropped a little bit.
spk04: As I was explaining in my script, actually, this job was because of the mix shift. As we can see, you know, consumers, you know, appetite for relative price competitive products, you know, grow. So that's why we can see the GM shift towards the Taobao merchant.
spk11: I'm Toby. I'm here to answer your question. This actually is a
spk04: we see the early success of the execution of our strategy because, you know, as we, you know, announced in the early of the year, the strategy for Taobao and Timor is user-centric. So we need to build up the supply for all our consumers, you know, particularly for the price competitive products. So that's why, you know, this is a sort of demonstrates the early success of the execution of our strategies.
spk11: This change in structure should prove that the strategy we announced and started to implement in the beginning of the year has started to work. What we announced in the beginning of the year is a strategy centered on users. What this means is that consumers from all walks of life, especially consumers who pay attention to prices,
spk04: So for the slightly job of the take rate, overall take rate, we are not too concerned because what we believe is, as I said, for Taobao merchants, the take rate is growing. Just like what you said, the overall take rate in our platform is still relatively lower compared with the other platforms, which actually shows the big potential we have in terms of increasing, you know, some of the take rates via, you know, providers. So enhancing the operating efficiency on platform as well as enable the merchants to increasing the operating efficiency, which will help us to increase our take rate.
spk11: The rate of conversion of Taobao is rising. As you said, the take rate is lower than other platforms. This shows that the take rate can be improved in the future. We can also improve the efficiency of our own platform. Thank you, Toby. Let me add one more thing. Regarding our overall management, regarding the consumer quality and GMV, and our execution relationship with TakeRate, our current execution,
spk03: In terms of business strategy, we are still in the process of how to improve the user's consumption frequency, and thus drive the growth of GMV. In our products and our plans, we will, based on the obvious growth of our GMV, we will increase our advertising products. Our advertising products will make a great improvement for small and medium-sized businesses. At that stage, we will increase, through our Thank you. This is Eddie. I'd like to add to that answer that Toby just gave.
spk11: talking on an overall strategic level about how we view the relationship between purchase frequency, GMV growth, and take rate and what our strategy is. The strategy that we're executing now is focused on increasing purchase frequency. By increasing purchase frequency, we will achieve GMV growth. On the basis of that GMV growth, And once that has been achieved, then we will be developing more advertising products that are highly optimized for SME merchants. And at that point, we'll be able to leverage those new advertising products to achieve higher monetization. There's a clear strategy and a plan time-wise in terms of how we're going to approach.
spk15: Questions?
spk05: Thank you. Your next question comes from Alicia Yap with Citigroup. Please go ahead.
spk07: Hi, thank you. 我的理解 请管理层看一下我的理解对不对 就是说我们感觉已经想重新强调 这个轻资产平台的这个模式 但后续的话 其实对于桃天集团这个EBTA来讲 其实会有更高的一个利润率 这个理解是否对的 然后另外一个就是说 在这个比较激烈的竞争环境上 What question also relating to the strategy for the Taobao Tmall Group?
spk11: I'm wondering if my understanding is correct and if you could confirm this for me. In my understanding, we're going forward focusing more on a light asset strategy for TTG and as a result of that light asset strategy, we can expect to see an increase in EBITDA. Is that correct? And then my second question is I'd like to know what is the biggest difference that TTG has In terms of its platform model, when compared against other platforms, what's the biggest advantage that we offer to merchants? What's the way that we create more value for merchants than the other platforms do? We know that the short-form video platforms have lots of organic traffic, and they're able successfully to convert that into purchases of goods. So how is TTG going to... traffic and pull back those existing customers.
spk03: Let me explain the two questions you mentioned. I think you mentioned two questions. The first question is about... I think you're asking about our current revenue structure. In the revenue structure of Taotian, there are two main structures. One is our CMR. and the other part is our executive products. I think in our business positioning, our main income and profits are mainly from our CMR part. In the future, in our executive products, we think that in our executive products and platforms, our main purpose in the future is to retain customers and improve the quality of customers, and in some categories, we want to gain a bigger competitive advantage. So overall, I think our income and profits, we pay more attention to e-commerce. The income of the leading platform is the means for us to gain users and retain users. Regarding what you said, we are facing different competitors. Some of the features of our Taotian platform, I think, first of all, for the business, Taotian platform is one of the most comprehensive and powerful platforms. How to explain our comprehensive capacity? Because on Taobao's platform, we have a fast-growing marketing tool like live streaming. At the same time, we also have a very important tool for the business, which is very important for daily marketing or sales, which is a very important tool for purchasing e-commerce platforms. The main focus of the users is still to purchase through our Taobao search platform. At the same time, for the merchants, there is another important business platform, which is their personal desire tool. The personal desire tool of the merchants, in the entire Chinese e-commerce market, for the brand merchants, the ability of Taotian to provide is also one of the strongest capabilities. So as a merchant, in a general, any Zhang Jiayuan's product marketing in various stages, including daily sales, and how to manage his old customers, we think the service capability of Taotian platform is the most comprehensive and complete. How to obtain, in intense competition, how to retain users or improve the quality of users, I have already mentioned in my previous lecture, the most important thing is that How to accurately identify so many users on our platform, and divide the consumption needs, to provide them with better products, better prices, and better services. This is the core experience for consumers in the entire e-commerce retail industry. We believe that by providing better products, better prices, and better services, we can improve users' consumption quality, and retain more
spk11: Thank you. This is Eddie. I'll take that. And I think I heard a couple of different questions in there, if I understood correctly. The first question had to do with the revenue structure of the Taobao and Tmall Group. Revenue comprises two parts, really. CMR, customer management revenue, and then direct sales offering. The way we look at the business, the bulk of our revenue and profits should be contributed by CMR. The purpose of having the direct sales offerings is firstly to retain customers, to help drive increased purchase frequency, and also to achieve an advantage, a competitive advantage in certain categories. But fundamentally, revenue and profits should be mostly contributed by CMR. Secondly, in terms of how Taobao Tmall Group is different from its competitors, I think from the merchant perspective, certainly TTG is the strongest platform with the most robust overall capabilities that it can offer merchants. We have live streaming and other marketing modalities on Taobao that can help to quickly drive purchase volumes for new product launches. Very important for merchants also are the day-to-day marketing operating tools that we offer. And in fact, a lot of purchases, of course, are made via the search function on Taobao. And of course, we also have robust private domain tools as well that are stronger than all of the other competitors. So for merchants, all of these different tools and services make it possible for them to achieve very robust marketing and high efficiency operations. So Tabao T-Ball Group has the most comprehensive and fullest set of capabilities in these respects. The other question as to how to retain customers and drive purchase frequency on the platform, as I said in my opening remarks, this is really about precisely targeting the needs of different tiers of customers and ensuring that we have good products at good prices that we provide to them, coupled with good services, because together that makes up the core experience for customers relative to e-commerce. So that's how we're going to go about driving increased purchase frequency and growing GMB.
spk15: Thank you. Next question.
spk05: Thank you. Your next question comes from Xiaoyong Xiao with Barclays. Please go ahead.
spk10: Thank you very much for taking my question. I have a question about shareholder return. It's great you increased the buyback by $25 billion. But in terms of the pace of the buyback, we understand there are constraints and the limitations such as capital control. Could you talk about sort of the the cash you may already have outside of China, what needs to happen for you so you may be able to pick up the pace of the buyback? And related to that, any update on the potential IPOs of Fresh Apple and Tanya? Thank you very much.
spk11: Thank you, Guanli, for answering my question. This time, the company has increased the size of the stock return plan to $250 billion. This is very good. My question is about the speed and rhythm of the stock return. Because it is possible that the stock return process will face some restrictions, including capital control or foreign exchange control. Okay, thank you for your question. I will take the first one and Joe will take the second one. For the share buyback and preparation of the offshore cash,
spk04: I think for us, firstly, as you can see, we really have a very strong balance in terms of cash, and a certain percentage of that cash actually is sitting offshore, which we can use to do the buyback. On the other hand, we also have a a good channel that we can, you know, dividend the cash out to offshore that we can further leverage either to make investments in our offshore, you know, businesses as well as using those sort of cash to do the buyback.
spk11: Bobby, I'll answer the first question. This is about the return on shares and our foreign cash. As a matter of fact, the company has a very strong and sufficient amount of cash, and there is a considerable proportion of cash in foreign currencies. These foreign currencies can be used to perform stock repurchasing. In addition, we also have a very good channel. And secondly, actually, we are sort of like very under-leveraged. If you look at a balance sheet, actually, the data is only a very small amount of data. And we can choose it if we need it.
spk04: we can increase the leverage also to get sufficient cash for us to do the share buyback. So as I said in my script, we're targeting to have a net reduction of share count at least 3% every year in the next three fiscal years.
spk11: In addition, the company's leverage rate is very low, that is to say, our debt level is very low. So if necessary, we can also improve the financial leverage rate to get more cash to buy back the shares. So as I said in the previous speech, our goal is to achieve a reduction of 3% per year in the next three years.
spk12: Okay, I'll address the question about the IPO of He Ma and Cai Niao. So last year when we announced our reorganization, part of the goal was to make sure that we take steps to reflect the intrinsic value of our various business units in the valuation of Alibaba Group, okay? And there are multiple ways we could do it. And we specifically talked about spinning off companies and raising capital in business units like He Ma and Cai Niao so that we could put a valuation mark on these businesses. But the caveat when we made the announcement was that all these transactions were subject to market conditions. And market conditions currently are just not in a state where we believe we can really truly reflect the true intrinsic value of these businesses. So in the last few months, Eddie and his team have taken a very close look at our core business, and we've come to the conclusion that right now, focusing on generating synergies within the companies in our group would be the best way to reflect the value of the entire Alibaba group. We're very excited about the potential for value creation through close collaboration among our businesses. In several areas, we have formed special project teams to ensure synergy creation, and we believe prioritizing synergies to strengthen our core business is the best value-maximizing path today. Having said that, we continue to explore value creation through separate financings of our business units. But given the challenging market conditions, as I said, we're not in a hurry on the timing of these transactions.
spk11: I would like to answer the second question, which is about the HEMA IPO. Last year, we announced that we would re-organize the company. One of the goals of re-organization is to show the true value of each business department on the company's valuation. This can be achieved in many ways. We talked about some businesses that can be split up and listed for financing, such as Hema and Cynion. In this way, we can have a clear estimate. But at that time, we also talked very clearly about whether these transactions were promoted or not. It all depends on the market conditions. The current market conditions, in fact, there is no way to truly reflect the true internal value of these businesses through these methods. uh uh uh uh uh to reflect the real value of these different businesses. We have established a team to seek and promote cooperation between different businesses to promote the realization of this collaborative effect. We believe this is the best way to maximize the value. Of course, we can and will continue Thank you.
spk05: Your next question comes from Kenneth Fong with UBS. Please go ahead.
spk09: Hi. Good evening, management. Thanks for taking my question. I have a question on investment and return. On one hand, we will continue to invest in TTG overseas area for growth. But on the other hand, in our last earning call, we also aim to improve the ROIC for the group from single-digit to double-digit over time. So I want to ask about, let's say, on the numerator front, what are the segments that we see room for improvement in terms of return and then the pace that we should expect? And on the denominator side, Being asset-light, what are the progress and strategy for the disposal of non-core assets? Thank you.
spk11: But at the same time, we also remember that in the last conference, the management level talked about how to gradually increase the return rate of capital to a two-digit level. I want to know which businesses do you think can improve the return rate of capital, and then what kind of speed and rhythm Thank you, Kenneth. I will take the first part of your question.
spk04: As a list company, I think it's important to improve the ROIC to the investors. So that's why during the last quarter's earnings call, we committed that we'll improve our ROIC from a single digit to double digit in the next couple of years.
spk11: Toby, let me answer this question first. As a listed company, we believe that investors and shareholders should show However, the improvement on the ROIC doesn't conflict with the investment we are going to make because making investment exactly is for the growth.
spk04: And for the future return of this growth, eventually will also help to improve the ROIC. 但是呢,就是提高ROIC资本回报率和我们现在准备做的这些投资是并不矛盾的, 两者并没有任何的冲突, 因为我们今天做出这些投资也就是为了带来未来的增长, 那么有了未来的增长,自然就可以提高我们的资本回报率。 What we would be doing differently from previously is that we would be more focused on the core businesses as elaborated previously by Eddie. So we will focus on only the e-commerce, which is including the onshore and offshore e-commerce business as well as cloud computing. So those are the areas, as I was emphasizing in my script, we're making investments.
spk11: The biggest difference between us and the past is that we will focus on our core business to make these investments. Just now, Eddie also made it very clear that the core business we are going to invest in is mainly our e-commerce business, including domestic and foreign e-commerce. The second is cloud computing. Just now, in my speech, I also mentioned that these core businesses are the focus of our investment.
spk04: Joe will cover the survival from some of the non-core asset investments.
spk12: Yeah, I'll talk about the sale of non-core assets since this is a major focus of the Capital Management Committee and I chair the Capital Management Committee. We're making very good progress on non-core asset sales. So during fiscal 24... to date, so we're nine months into this fiscal year. We have exited 1.7 billion in non-core investments, all right? And so that's a pretty good pace, and we're very, very active in looking at our listed securities, and we form a special team to execute capital markets, sale transactions, to get out of these listed securities. Now, in addition, Toby has referred to this. We have a number of traditional physical retail businesses on our balance sheet, and these are not our core focus. It would make sense for us to exit these businesses, but this will take time given the challenging market conditions, but we'll continue to work on it.
spk11: Okay, so regarding the sale of non-core assets, let me answer this question. Because this is a key task of our Capital Management Committee, and I am the Chairman of the Capital Management Committee. In this regard, we should say that the progress is very smooth. We have completed the withdrawal of So this speed should be said to be very good At the same time, we are also very active in looking at some of these listed stocks How to quit We have already set up a special team to execute these listed company stocks Then just now, this Toby also mentioned that we still have some Next question. Thank you.
spk05: Your next question comes from Alex Yao with J.P. Morgan. Please go ahead.
spk01: Thank you, Majdan, for taking my question. I have a couple of questions on the value return to shareholder initiatives. So first of all, you guys currently have $35.3 billion available in the buyback program, which average roughly $12 billion per fiscal year. Compared to the 2023 calendar year buyback pace, this is a sizable step up. Do you guys have the real serious intention to step up the buyback? Or put another way, how do you determine the $12 billion buyback per year is the right number to think about? And then holistically, if we add the buyback and dividend together and call it a yield to shareholders, do you have a target yield for the next couple of years? Thank you.
spk11: So if you look at every fiscal year, a fiscal year is about $1.2 billion. Compared to the daily purchase size in 2023, it has grown a lot. So I want to ask, are you really serious? Do you really have the intention to spend so much money on stock repurchase? Or another way to ask, how do we know that $1.2 billion a year is the correct number? In other words, if you add up the return on shares and the distribution of shares, the two add up, what do you think can bring to the shareholders in the past few years? Is there a target return rate?
spk04: Okay, thank you, Alex, for this question. I think a short version of the answer is yes, we are serious, of course. If you look back at our track record, we have been, in the past few years, we have done a few upsizes of the shared biotech program. So if you look at it as sort of like track record, we are actually, if you like, sort of like exceeded the original record. you know, timetable, if you like. So that's why we, the board approved another upsize this time. So that's why, you know, as I said, we are serious.
spk11: So in terms of how we decide this number, of course, we need to take a few factors into consideration, including our cash generating capability and also our
spk04: you know, how much cash we do, we will be able to sort of like generate to get it to offshore. So all these we consider. And of course, as I said previously, that the leveraging capability we have. So together, I think we consider a $12 billion is the right number, around the right number for us to do the buyback.
spk11: Then how do we determine, or how do we decide to carry out such a digital scale? Of course, we have considered many different factors, including our cash survival ability, including how much cash we have in the outside world, including what I just mentioned, which is our financial leverage and debt collection level. So in addition to the buyback, for this upside, the $25 billion, that's only for the buyback. As we announced in the last quarter, we start to pay an annual dividend. So if you like, for the fiscal year 23,
spk04: including the buyback of $9.8 billion and the $2.5 billion dividend. Actually, we're giving back more than $12 billion U.S. dollar back to the shareholders. And, you know, going forward, we are expecting, you know, a continue with our cash generating capability, you know, continue to deliver, to give back the shareholders, you know, the cash as we sort of like commit it.
spk11: Uh, uh, uh, uh, Yeah, I'd just like to supplement what Toby said. I'll do a little bit of math on this question. Toby has said in his prepared remarks that we are targeting
spk12: three percentage points per year of accretion per year over the next three years through our buyback program. And that commitment is pretty real because if you look at the past 12 months, we actually reduced our share count by 3.3%. So that accretion is, you know, we believe is achievable. And if You look at our share count, we bought 2.5 billion shares outstanding, and 3% is 75 million shares. If we are deploying $12 billion a year to buy back our stock, at the current stock price, we actually would be able to buy back even more. But of course, we're anticipating that our stock will increase in price over the last three years. over the next three years so that we can still keep our target of 3% accretion per year. So using the $12 billion a year of buyback with rising stock price, I think it is still reasonable to get to 3% accretion a year. So that's math number one. Math number two is You know, 3% accretion a year plus a dividend of $1 per ADS, the dividend yield is about 1.4%. And so combined with the buyback, accretion, and dividend yield, you're looking at, you know, about 4.4%, 4.5%, which is actually quite close to the 10-year Treasury yield. So if you buy Alibaba stock, it's like you bought a 10-year treasury bond with the upside of stock price appreciation. So that's the math we're looking at.
spk11: Let me add to that. We can calculate some numbers. Just now, Toby mentioned that our goal is to reduce the share price by 3% every year. This will lead to a corresponding increase in the stock price. This is what actually happened. We can see that in the past year, we have brought 3.3% of such a change. Now, when we look at the market, the share of floating stocks is 250 million. 3% means that there are 75 million stocks. So if we do a buyback of $1.2 billion per year, of course, we can buy back more shares according to the current stock price. But we will definitely think that in the next three years, our stock price will definitely rise. So if we continue to follow this 3%, which is $1.2 billion per year, we think this is still very reasonable, even considering the rise of this stock price. So you mentioned the interest rate problem. We can calculate it like this. What I just mentioned is that the return on shares can bring an increase of 3% every year. Then there is the U.S. dollar per share of ADS. The interest rate of the stock market itself is 1.4%. So if the two add up, it can reach about 4.4% or 4.5%. Next question. Thank you.
spk05: Your next question comes from Gary Yu with Morgan Stanley. Please go ahead.
spk02: Hi. Thank you for the opportunity to ask questions. I have a question for Jiang Gan on international business. Just wanted to see if there is any kind of particular market that you are focusing on. And specifically, I want to ask about our strategy in the U.S. regarding cross-border e-commerce businesses. given the geopolitical risk ahead of elections. And we also talked about potentially stepping up the investment on international business. How should we look at the level of investment loss in the couple of quarters and how are we going to fund the investment? Are we more individual financing at the AIDC level or are we going to tap into more of the kind of offshore financing capabilities at the group level? Thank you.
spk15: Gary, because your background is quite noisy, can you repeat a few questions?
spk02: Hi, can you hear me better?
spk15: Yes, please, go ahead.
spk02: Okay, I apologize for that. I'm in the middle of a Chinese New Year dinner. So my question regarding international business, and first one is any particular focus in terms of markets for the next couple of quarters and specifically what is our strategy in the U.S. market given the geopolitical risks ahead of elections. And the second question also on international is we talk about stepping up the investment. How should we look at the settlement loss in the coming quarters and how are we going to fund the investment between individual financing at the ARDC level versus tapping into the group offshore financing at the group level. Thank you.
spk11: 然後包括你們 在美國的這個戰略如何考慮到現在是就選舉前可能有些地緣政治的緊張 那麼第二個問題就是關於你們未來的這個投資 多少會是aidc本身去融資的 然後多少會是從集團層面這樣來提供資金
spk14: Okay, let me answer the first question. First of all, I would like to talk about the cross-border business and local business. Our local business, in fact, in the past few seasons, including the future few seasons, our efficiency is also rapidly improving, including some losses in local business, and also rapidly narrowing down. So back to the cross-border business, because the cross-border business is essentially a relatively low threshold that can enter many countries. Uh, uh, uh, uh, uh, uh, uh, uh, Thank you. So this is Jiang Fan, and I'll take...
spk11: the first part of your question, and we can break this out and look at the business in terms of cross-border versus local. So in terms of the local business, over the past several quarters, we've seen very rapid improvement in efficiency and rapid narrowing of losses. We expect that to continue. The cross-border business, of course, addresses all markets everywhere. It's a generic business model. And so in determining how we will allocate investments going forward, basically we look at return on investment, we look at the efficiency of the investments we've made to plan our future investments. In terms of the U.S., we actually do have a business foundation there in 2C and 2B. On Alibaba.com, in fact, lots of customers are U.S. customers. So we certainly attach importance to the U.S. market. And we will evaluate whether we will be increasing our investment in the U.S. on the basis I described, looking at the value that we can bring, the innovation that we can bring. And of course, in that process, we will also take into consider the various risks that you've outlined.
spk04: I would take on a second question. Basically, you're asking how we are going to arrange the financing for AIDC to get sufficient funding for its investments. So generally, as actually Joe was explaining previously, AIDC is going to do financing. However, we are not rushed to do a financing. So really, depending on the market conditions, we will find the right moment to do a financing. So before that moment is coming, actually what we will be doing is, as I said, we have sufficient offshore cash. We can use those cash to finance the business, finance the growth of our businesses offshore.
spk11: I'm Toby. I'll answer the second question. It's about how we arrange the funds for AIDC investment. In fact, as Joe said, AIDC will definitely seek foreign financing at a certain time. But we are not in a hurry. We need to look at the market conditions and find the right time to make such financing. Before that, we have sufficient foreign cash to provide funds for AIDC's investment.
spk09: Thank you. Next question.
spk05: Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.
spk16: Hi, good evening. Thanks, management, for taking my questions. I have a question on the cloud side. Given that Eddie is now leading a TTG and cloud, what should we expect in terms of the synergies in coming quarters? And should we expect AI to be a driver to CML? And on that front, given we have a very good Margin profile in the December quarter. Any color about the long-term margin assumption that we should expect? Thank you.
spk11: 好了,我这个问题是关于云的。 现在就是Eddie是直接在管理桃天集团以及阿里云这两个业务。 Will there be more co-efficient effects between these two groups in the short term? Will AI be used to drive the growth of CMR? In the December quarter, we saw a very good performance. How will the long-term profits be?
spk03: Thank you. That's a good question. Right now, in Aliyun and in Taotian, we do see a lot of potential, especially in terms of AI. Aliyun is trying to develop a large model that we can all agree on. Based on this, we have seen a lot of potential in our search and advertising business. 我们做了一些研究和测试, 发现这里面还是有非常大的可提升空间, 无论是对于我们搜索的成交转化力, 以及广告的匹配和变现效率, 但是这些我们都还是在一个 产品研究测试的一个早期阶段, 我们相信这一部分的, 对于AI的深入的研究和投入, 我们相信会对朝天未来的 Thank you, and that's a really great question. Certainly, I see very strong potential for greater synergy between Alibaba Cloud and the Taobao Tmall Group, especially driven by AI. As you know, we've
spk11: developing our own large language model called Tong Yi Qian Wen. And we're currently testing ways to leverage this model, to leverage the AI capability to enhance search and to enhance advertising as well. This initiative is still in the early testing phase, but we see very strong potential to leverage AI to significantly enhance search conversion and add monetization So, as I say, that's still in early testing, but we see excellent potential there.
spk15: Next question, please.
spk05: Thank you. Your next question comes from Ellie Jang with Macquarie. Please go ahead.
spk06: Thank you so much, Matt and Fran, for taking my question. I just have a follow-up question on the AIDC international unit. The management earlier shared some exciting developments in the overseas market, but it seems like this quarter the international unit basically saw a very big widened loss to around 3 billion RMB. So just wondering, how do we anticipate the investment pace onwards considering certain of the key kind of growing markets such as Aliexpress Choice, the hybrid model, as well as the trend deal seems to be still in the very early development stage. So, you know, going forward, how do we really evaluate the economics as well as the competitive landscape? Thank you.
spk11: 对,我想后续就AIDC来提问, 因为管理层是介绍了很多 AIDC So I would like to know the speed and rhythm of your future investments. We know that the new mix of Aliexpress Choice and Trendio are all early stages of development. Can you talk about the future rhythm of these investments? Yes, I would like to say that the main losses of this quarter are caused by three aspects.
spk14: Our Aliexpress Choice model has greatly improved the proportion of our entire cross-border. Because this model is still in an early stage, and this model has a very obvious scale effect. So at the beginning, we will increase the scale through investment, and then pursue a long-term advantageous collection. The second reason is also because we spent a lot of money on marketing compared to other teams. The third reason is that we spent a lot of money on marketing compared to other teams. The third reason is that we spent a lot of money on marketing compared to other teams. The third reason is that we spent a lot of money on marketing compared to other teams. This choice model of user experience and user storage compared to the previous model has a more obvious rise. So we also believe that in a longer period of time, our investment can have a better recovery. So we will continue to put this growth scale as the first priority.
spk11: Thank you. Well, the loss in AIDC's business this quarter really came from three different areas. The first is that the new model, the AliExpress Choice model, has grown very rapidly and now accounts for a very significant percentage of the business overall. At the same time, it's an early stage business still being developed. It's a business that has very strong scale effects, so our priority is to invest in in scaling up the business, uh, and when the business has achieved scale, then, uh, as it grows, the, uh, the, the loss will, will narrow and the business will become profitable. Uh, the second thing that contributed to the losses this quarter was significant spending on, on marketing and some major promotions that we did. Uh, and thirdly, some investments that we made in the Middle East and other, uh, key markets. Um, going forward, I think that, uh, We'll continue to be making large investments in this business, in particular around choice. We see very clearly that choice is delivering a better user experience and resulting in much better user retention than the previous model. So over a longer period of time, we're certain that choice will produce very positive investment returns. But the priority right now, the number one priority, is to continue to invest in scaling up the business.
spk05: Thank you. Your next question comes from Jialong Shi with Nomura. Please go ahead.
spk13: Thanks, management, for taking my question. Thank you, management, for taking my question. My question, I have two quick questions. The first question is, I want to ask you, management, there have been some media reports saying that BAPA may consider selling ELEMA. Can you please comment on this media report? The second question is also about AIDC. I would like to ask, in Southeast Asia, how big is the AIDC in the English market compared to the AIDC in Tanzania? The question is related to the cooperation between TikTok and Tokopedia and
spk11: Thank you. So a couple of quick questions for management, if I may. First of all, I'm wondering if you could respond to a recent media report saying that the Alibaba Group would be considering Selling Ulama, if you could respond to that, please. Second question has to do with AIDC. Can you tell us how big Lazada's business is in Southeast Asia and the impact that you've seen in Indonesia from the team up between TikTok and its local partner?
spk04: Let me answer the first question. In fact, we have already made a rumor about the market. So I don't need to talk much about it. At the same time, I also want to talk about the fact that from the perspective of EMA, it is a very important asset for us to enter the market. Thanks. This is Toby.
spk11: I'll take that first question. I don't think there's any need for us to make further comment because we've already addressed that rumor and have stated that that's not true. As far as Alibaba is concerned, Ulema is a very important asset for us in the hyperlocal segment.
spk14: So, in Southeast Asia, we will continue to invest on a controllable scale. Regarding the cross-border restrictions in Indonesia, we have always followed the rules of local supervision, so our influence is relatively limited.
spk11: Thank you. Well, Southeast Asia continues to be a very important market for us and there remains significant potential for us to deepen our penetration in Southeast Asia. Our approach is to continue to balance efficiency against growth, to continue to work to narrow the losses in the business while maintaining growth. So going forward, our strategy will be to continue to make investments at an appropriate scale to grow in Southeast Asia. As far as the restrictions imposed by the Indonesian authorities, the impact on us is relatively limited because we always abide by regulatory requirements.
spk15: Okay, everyone, thank you for joining today's earnings call. That concludes our earnings for today. Please reach out to us if you have any questions, and we'll see you next quarter. Thank you.
spk05: That does conclude our conference for today. Thank you for participating. You may now disconnect.
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