Alibaba Group Holding Limited

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.

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.

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.