Alibaba Group Holding Limited

Good day, everyone, and welcome to Alibaba Group's September quarter 2024 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, Co-Chairman and CEO of Alibaba International Digital Commerce 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. Now let me quickly cover the Safe Harbor. As usual, we would like to remind everyone that today's discussions may contain forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the Safe Harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures that we use on this call are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures 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 Eddie.

Greetings and welcome to our quarterly earnings call. This quarter, our core business segments maintain steady growth guided by our user-first, AI-driven strategy. Purchase frequency continued to drive GMV growth on our platform with interoperability initiatives, adding new growth impetus. Recently, Monthly active consumers on Taobao and Tmall reached a new all-time high. Alibaba international digital commerce revenue growth remained strong. Cloud revenue, excluding Alibaba consolidated subsidiaries, grew steadily with AI products contributing an increasing share. Across segments, we progressively enhanced operational efficiency and monetization capabilities and further improved the performance of loss-making businesses. For Taobao and Tmall Group, we stick to our user-first strategy. During this quarter, purchase frequency continued to drive GMV growth with continued improvement in overall user experience. Our loyal customers represented by 88 VIP members continued to increase, reaching 46 million by quarter end. In terms of monetization progress, we implemented an industry standard 0.6% software service fee this quarter while providing certain rebates to SME merchants. Merchant adoption of Alimama's Chuanjia and Tui marketing tool continued to rise contributing to marketing revenue growth. We concluded a successful Double 11 Global Shopping Festival during which Taobao and Tmall achieved robust growth in GMV with the number of monthly active consumers back to growth and achieving a record high. We believe that the growth of purchasers will continue and user growth and retention will subsequently bring more consumption upside in the future. We're optimistic about the government's macro stimulus policies and are confident in their positive long-term economic impact. While e-commerce competition remains intense, we'll continue to invest in core user groups and product categories, increase investment in new users and improve user retention. Implementation of these initiatives will drive sustainable growth of our platform. In our cloud segment, we continue to optimize revenue mix while advancing our integrated cloud plus AI development strategy. Alibaba cloud revenue, excluding Alibaba consolidated subsidiaries, grew 7% this quarter, a steady improvement from the June quarter. The revenue growth was driven by double-digit public cloud growth, and in particular, revenue from AI-related products maintained triple-digit growth for the fifth consecutive quarter, increasing its share in public cloud revenue. During this quarter, Alibaba Cloud held the 16th Apsara Conference and launched a suite of competitive technologies and products. We believe the AI era is just beginning, and we're just still in the early stage of HEI transformation. Looking ahead, AI's potential extends beyond mobile screens. It's poised to reshape the digital world and ultimately transform all industries in the physical world. As a leading cloud service provider for AI in China, We will continue to invest in advanced technology and AI infrastructure while optimizing operational efficiency. This will enable us to deliver more reliable and cost-effective AI technologies and products across industries. We believe that as AI penetration grows, Alibaba Cloud's cloud computing and AI-related products will become the foundational infrastructure that supports development across industries. In international e-commerce, AIDC achieved 29% revenue growth this quarter, maintaining strong growth momentum, and Cheng Fan will be sharing more details shortly. This quarter, Zainiao further strengthened synergies with other businesses in our group and significantly advanced its highly digitalized global logistics network. We'll continue to invest in core capabilities and promote front and back-end synergies. This quarter, we also narrowed losses in both local services and digital media entertainment, demonstrating steady and progressive improvement in operational efficiency. Despite intensifying e-commerce competition in recent months, Tableau and team all achieved breakthroughs in core user retention and in new user growth. Our cloud business maintained rapid growth in AI-related products. Other businesses continued to improve their operating efficiency as planned while achieving business growth. We'll continue investing in core businesses and improve quality of operations, and we are fully confident in the future. I will now hand over to Jiang Fang. Hi, everybody. Over this past quarter, AIBC's overall revenue grew by 29% year-over-year, primarily driven by cross-border business. In terms of our three areas of consistent focus, first, AE choice orders maintained strong year-over-year growth Its relatively high share of total orders further solidified the certainty and consistency of user experience. Average delivery time continued to shorten. During this quarter, we focused on optimizing the mix and operational efficiency of our marketplace and consignment models, improving user experience and product selection with steady improvement in AE Choices unit economics. We also launched the AliExpress Direct model, leveraging merchants' local inventories and overseas markets to expand product selection and optimize fulfillment experiences. Second, we continue to explore the application of AI across our businesses, launched and updated multiple AI tools. We released our AI-powered B2B search engine in November. This new product reimagines international procurement through conversational search, making global sourcing easier for SMEs while improving overall platform transaction efficiency. Third, we continue deepening our presence in key markets. Trendyall's international business maintains strong momentum in multiple adjacent markets with improving product selection and user experience, We will leverage the traditional peak season in November and December to increase investments and expand user base in an effective and efficient manner in key markets while balancing and enhancing user acquisition and operating efficiency. AIDC will remain focused on enhancing operational efficiency while strategically investing in key markets to pursue our strategic goal of profitability at scale. Thank you.

Thank you, Jiangfan. The financial performance of the past quarter further confirms that our execution of the growth strategy in our core businesses remains on track. On top of Tmall business, we've made steady progress in our monetization strategy this quarter with accelerated CMR growth contributing to a solid trend in our domestic e-commerce business. We implemented the software service fee based on a percentage of completed GNV starting from September the 1st. Our AI-powered platform-wide marketing tool saw an increase in merchant adoption from the prior quarter. Merchants benefit through improved marketing efficiency, which we expect will lead to increased spending on our platform. We adopted a more open approach for payment and logistics services on our platforms to make shopping our platforms more convenient to a larger base of consumers and improve merchants operating efficiency. We expect this will translate into user growth and more transactions in the future for our cloud business. Momentum remains strong as revenue growth accelerated from the prior quarter to 7%. This growth is driven by the increasing demand for AI, which triggers more demand for our public cloud products. Revenue from our public cloud products grew at double digits while AI-related product revenue achieved triple digits year-over-year growth for the fifth consecutive quarter. This quarter, AIBC maintained its rapid growth with strong momentum from cross-border business expansion, especially through our choice business. Both AliExpress and Trendio continued investing to grow users in Europe and the Gulf region. Beyond e-commerce and cloud, we are improving the operating efficiency of our other businesses with the goal of sustainable business growth and returning to profitability. Some of the businesses are achieving profitability even sooner, while the majority will achieve breakeven within one to two years and gradually begin to contribute profitability at scale. For the September quarter, we repurchased Shear's for a total of U.S. dollar 4.1 billion. Combined with the U.S. dollar 5.8 billion repurchased during the June quarter, we spent a total of approximately U.S. dollar 10 billion and achieved a 4.4 net reduction in share count for the first half of the fiscal year. Even after factoring in ESOP issuances, we have been ABLE TO ACHIEVE THIS SIGNIFICANT LEVEL OF CREATION JUST SIX MONTHS INTO FISCAL 2025 COMPARED TO A 5.1% NET REDUCTION IN SHARE COUNT FOR THE ENTIRE FISCAL YEAR 2024. AS OF SEPTEMBER 30, 2024, WE STILL HAVE U.S. DOLLAR 22 BILLION IN AUTHORIZATION FOR FURTHER SHARE REPURCHASE PROGRAM. The pace of our share buybacks will be a function of share price as our strategy is to optimize share count reduction against the cash cost of an aggressive share repurchase program. Beyond our share repurchase program, we also proactively manage dilution from our ESOP program by replacing a portion of the ESOP with long-term cash incentives starting this fiscal year this shift allows us to limit sheer dilution in the future as well as better utilizing our cash generated from domestic businesses in august we completed our primary listing in hong kong followed by inclusion in the southbound stock connect in september by september 30 2024 Net inflows into our Hong Kong listed shares reached Hong Kong dollar 46 billion, representing approximately 515 million Hong Kong shares, which is equivalent to US 64 million ADSs in just 12 trading days. This accounts for approximately 3% of our outstanding shares. We are pleased that the Southbound Stock Connect has enabled a broader access and engagement for investors from mainland China. On a consolidated basis, total consolidated revenue was RMB 236.5 billion, an increase of 5%. Consolidated adjusted guitar decreased 5% to RMB 40.6 billion, primarily attributable to the increase in investment in our e-commerce businesses. Excluding the effect of long-term cash incentive plan, our adjusted EBITDA growth would have been a decrease of 4% on a life-for-life basis compared to same quarter last year. Our non-GAAP net income was $36.5 billion, a decrease of 9%. Our gap net income was RMB 43.5 billion, an increase of 63%, primarily attributable to the market-to-market changes from our equity investments, decrease in investment impairment, and increase in income from operations. As of September 30, 2024, we continued to maintain a strong net cash position of RMB 352.1 billion or US dollar 50.2 billion. Free cash flow this quarter was RMB 13.7 billion, a decrease of 70% compared to RMB 45.2 billion in the same quarter last year. This was mainly attributed to our investments in Alibaba cloud infrastructure. In addition, there's a refund to Tmall merchants after we canceled the annual service fee and some other working capital changes related to factors, including scale down of certain direct sales businesses. Given the sustained and strong demand for AI, we will continue to invest in AI infrastructure as we anticipate future demand for AI-driven cloud services. Now let's look at the segment results, starting with Taobao and Tmall Group. Revenue for Taobao and Tmall was RMB 99 billion, an increase of 1%. Revenue from our China commerce retail business was RMB 93 billion, compared to RMB 92.6 billion in the same quarter last year. Customer management revenue increased by 2%, primarily due to online GMV growth, while take rate remained stable year over year. We have made steady progress in our monetization strategy this quarter with accelerated CMR growth driven by the implementation of the software service fee on completed GNV and a wider adoption of Transanti. Direct sales and other revenue decreased by 5% to RMB 22.6 billion, primarily attributable to the decrease in sales of appliances. China Commerce wholesale business revenue increased 18% to RMB 6 billion, primarily due to the increase in revenue from value-added services provided to paying members. Powerbond Teamwork Group adjusted the guitar, decreased by 5% to RMB 44.6 billion, primarily due to the increase in investment in user experience, partly offset by the increase in revenue from customer management service. Revenue from cloud intelligence group was RMB 29.6 billion in this quarter, an increase of 7%. Overall revenue, including Alibaba consolidated subsidiaries, increased by 7%, mainly driven by double-digit public cloud revenue growth, including AI-related product. AI-related product revenue grew at triple digits year over year for the fifth consecutive quarter. Cloud-adjusted IPATAR increased by 89% to RMB 2.7 billion, while our adjusted IPATAR margin increased 4 percentage points to 9% year-over-year, primarily due to shift in product mix toward high-margin public cloud products, including AI-related products, and improving operating efficiency. partly offset by the increasing investments in customer growth and technology. We will continue to invest in anticipation of customer growth and in technology, particularly in AI-related cloud infrastructure to capture the increasing trend of cloud adoption for AI and maintain our market leadership. Revenue from AIDC grew 29% this quarter. The strong performance continued to be driven by growth of cross-border businesses, in particular, the AliExpress Choice business. Revenue from international commerce retail business increased by 35% to only 25.6 billion, primarily driven by the increasing revenue contributed by AliExpress Choice and Trendio. Revenue from our international commerce wholesale business increased by 9% to RMB 6.1 billion, primarily due to the increase in revenue generated by cross-border-related value-added services. AIDC's adjusted EBITDA was a loss of RMB 2.9 billion, compared to a loss of RMB 384 million in the same quarter last year, primarily due to the increase in investments in AliExpress and TrendView's cross-border businesses. partly offset by Lazada's significant reduction in operating loss from improvements in its monetization and operating efficiency. As Xiangfan mentioned, going forward, AIDC will continue to invest in key growth markets we have identified for strategic expansion while enhancing operational efficiency in markets we see line of sight to profitability. Revenue from China grew 8% to RMB 24.6 billion, primarily driven by the increase in revenue from cross-border fulfillment solutions. We will continue to invest in China's core capabilities to ensure it delivers unique value to our e-commerce businesses. To defend, China will prioritize investing in building its core capabilities to ensure the synergies with our e-commerce businesses. China's adjusted EBITDA decreased by 94% to RMB 55 million compared to RMB 906 million in the same quarter last year, primarily due to the increased investment in cross-border fulfillment solutions. Revenue from local service group grew by 14%, driven by the order growth of both AMAP and Erlema, as well as revenue growth from marketing services. while losses narrowed significantly, primarily driven by improving operating efficiency and increasing in scale. Revenue of Digital Media and Entertainment Group was RMB 5.7 billion while losses narrowed. Youku progressively reduced its operating loss due to increased advertising revenue as well as improved content investment efficiency. Revenue from all other segments increased by 9%, mainly due to the increase in revenue from retail businesses, including Fresh Apple and Alibaba Health, while adjusted guitar was a loss of RMB 1.6 billion. In closing, we are making solid progress in strengthening the competitiveness of our core businesses of domestic e-commerce and cloud computing, both of which have proven to show sustainable profitability. We have the confidence to invest in our AIDC business because we see high growth potential and we continue to find ways to make our loss-making segments more efficient, put them on a clear path to profitability. Thank you. That's the end of our prepared remarks. We can open up for Q&A.

Hi, everyone. For today's call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. Please note that the translation is for convenience purpose only. In the case of any discrepancy, our management statement in the original language will preview. If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within one week after the meeting. 大家好,今天的电话会欢迎您用中文或英文提问。 Operator, please start Q&A session. Thank you. Thank you.

If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two and if you are 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. Once again, that is star one to register for a question. Your first question today comes from Alicia Yap at Citigroup. Please go ahead.

Thank you. Good evening, management. Thanks for taking my questions. My question is related to this year's single-stage promotions and the macro outlook. So I think most people would agree single-stage performance this year is okay and somewhat maybe better than expected. It seems like this year most of the discount voucher offer to consumer comes from platforms rather than share between the platforms and merchants. So just wondering if management can provide some feedback from merchants and brands regarding their satisfaction on the single sales promotion. And also, how should we think about the financial impact near term as related to the higher coupon discount together with higher return rate this year? offsetting potential longer-term positive impact, if any, from a more vibrant and sustainable operation environment for merchants that might translate to higher ad budget spend on the ad tools that will benefit longer-term CMR trend. And then if there's any preliminary view from management that can share how you think about the macro outlook and overall improvement of the consumption trend as we head into 2025. Thank you.

Thank you for your questions. Good evening, everyone. The questions I want to ask are basically about Double 11, some sales, work, and the overall macro environment. The Double 11 this time seems to be quite good. It may exceed many people's expectations. We noticed that many of the advice we sent to consumers this time were from the platform, not from the platform and the customer. So I want to hear from you about the feedback from the business owners and the brand to Double 11. In addition, in Double 11, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah, ah,

Thank you.

Let me answer this question. In this year's Double 11 phase, our Double 11 strategy for Taobao Tianmao started earlier this year. It started in October. So our overall cycle is relatively long. Of course, the cycle of Double 11 for other platforms is also relatively long. In the overall cycle, The GMB still has a relatively strong growth. And then from the time we started with Double 11 and some of the big, big businesses to communicate, some of the performance expectations, in general, after we finished Double 11 and communicated with them, we basically exceeded their performance expectations. So this overall performance of Double 11 this year is still beyond our expectations. And then In terms of consumption and discount vouchers, in fact, the strategy of each platform is similar. Basically, there are two types of consumption vouchers. One type is platform consumption vouchers, and the other type is product vouchers. Among these two types, in fact, platform consumption vouchers are mainly for Taobao Tianmao. Maybe the platform is mainly for 88 members. Thank you. This is Eddie, and I'll be happy to take that question.

In terms of the way we approached Double 11 this year for Taobao and Tmall, we got off to an early start getting going with the campaign back in October. So the campaign ran over a longer cycle. Of course, other platforms also got off to an earlier start. Overall, we achieved relatively robust GMV growth during the campaign period. I would say that the results that merchants achieved based on what we discussed with them going into the campaign in terms of their expectations and then the feedback we got from them after the campaign is that results exceeded their expectations. I would say that overall results exceeded our expectations. As to your question on coupons, I think the setup is basically similar across all of the different platforms. You have two different categories of coupons, platform coupons on the one hand and a category coupons on the other. So when it comes to platform coupons on Taobao and Tmall, these are basically coupons that we, the platform, are issuing to our 88 VIP members. And when it comes to the category coupons, these are jointly issued by the platform and the merchants.

I would like to add one more thing. For a platform like ours, the investment in our membership vouchers, The investment of various major companies will bring a better growth to the business growth of our brand. At the same time, there will be a better expectation, so I believe that our investment in platform members will drive the growth of brand business, so that they can drive their advertising budget on our platform for a long time. It will also benefit the long-term growth of CMR.

And I'd just like to add to that last point, namely that when we as the platform provide those platform coupons to our members, that has a very positive impact in the longer term for brands in terms of helping them to grow their business. It shapes positive future expectations. And with that level of confidence that the business will be growing, we can expect them to spend more on advertising and marketing, thereby contributing to CMR revenue growth.

You asked three questions. Let me answer your third question. Since September, China has launched a series of monetary and financial policy. At the same time, we have seen very specific subsidies for consumer goods, home appliances, and the automotive industry in various regions. We also saw that these policies actually led to a relatively good growth in the relevant categories of social retail data. We judge that these new subsidies are just one of the countries' consumer stimulus policies and have just begun. We will continue to introduce many policies to promote consumer consumption in the future. In the process of continuing to introduce them, we judge that it is both conducive to shortening the storage cycle of enterprises, It will also have a long-term impact on the consumer trend of brand products. Because in the end, the main exports of these subsidies are some large brand merchants or brand factories. And these brand merchants and brand factories, in these aspects, their improvement in inventory will actually also affect their overall And then turning to your third question on the macro situation. Indeed, from the end of September onwards, various different

monetary and fiscal stimulus measures have been announced at the national level and in many different localities also. Trade-in programs are being run for upgrading electronic goods, as well as subsidies for home appliance and automobile purchases. So these programs definitely are stimulating growth in sales in the relevant categories. And I think these stimulus measures are really just getting started and over time will have a positive impact on driving consumption overall. I think these policies in particular will also help reduce merchants' destocking cycles and have a medium to long-term effect in terms of driving the consumption of branded goods.

Next question, operator.

Thank you. Your next question comes from Ronald Hieng from Goldman Sachs. Please go ahead.

Uh,

Thank you for taking my question, management. My question has to do with take rate. In your announcement for the September quarter, you indicated that take rate has stabilized. I'm wondering if you could talk about the progress of the rollout and adoption of and also what this means. Does it mean that the gap between CMR growth and take rate has now disappeared?

Thank you for your question. Let me answer this question. In fact, by this quarter, you can see that our entire take rate has become relatively stable. I think this is a comprehensive situation of several factors. This includes the increase in commercialization rate. Including in this quarter, we started to receive a software service fee of 1,600 yuan. Of course, this is only for one month, which also includes the further penetration of the full-scale push. I think these two factors are a positive factor for Tegra. At the same time, as you all know, when we are making some new models for growth, we still need to increase the commercialization rate of the models or products that are relatively low in commercialization rate. So this is the final offset result. In this quarter, the overall commercialization rate is relatively stable. If we look ahead in the future, Sorry, you can do that.

Thank you. This is Toby. I'll take that question. Indeed, as you can see in the results from this quarter, our take rate is now relatively stable. I think there are several factors that have created that result working in tandem. These include progress on monetization, including the 0.6% software service fee that we've now started charging. Of course, we've only been doing that for one month. as well as the deepening penetration of . So these two factors are both positive for take rate, but at the same time, we also have new business models that are still in the growth stage with relatively low monetization, and it's going to take time to continue to grow those products and increase the monetization rate. So the result you're seeing this quarter in terms of a relatively stable take rate is the result of those factors in tandem. There's an offset at work there. In the longer term, we'll continue to charge that 0.6% software service fee. We'll, of course, continue to deepen the penetration and adoption of Shenzhen Tui. And at the same time, we'll continue to work on growing those products that still have relatively low monetization. So you can expect to see that kind of offsetting effect going forward.

From the perspective of take rate in the future, on the one hand, we think that from the perspective of the market, we still have room for improvement. But at the same time, we will also pay close attention to the health of the entire business operation of our platform. So we will consider these two points at the same time to balance this step of further improving take rate.

Looking into the future as regards take rate, you know, I think it's fair to say that as compared against the market average, there's still significant potential headroom for us to increase the take rate. But at the same time, we're obviously going to be looking very closely at the merchants, ensuring the health of merchant operations is critical to us. So we will be taking a balanced approach in making those considerations.

Next question, please.

Thank you. Your next question comes from . Please go ahead.

Hi. Good evening. Thanks, management, for taking my question. My question is also on TPG side. Can management comment about our investment strategies in coming quarters, and how should we think about the trend for TPG EBIT-A Given that, on the one hand, we are having a service fee, but we also have investment in the user experience. So I just want to see how these two factors need to be looked at. And my second question is also on the TTG side. I think it's more about the synergies with raising payments. Can management share about the potential with raising payment in growing our user base as well as the incremental GMB that we envision in the coming years. Thank you.

Thank you, Director Guan, for answering my question. My question is about Taotian, especially the investment strategy for the next few seasons. I want to know what you think about the growth trend of EBITDA Because on the one hand, we are now receiving software service fees and also promoting the development of our full-time push At the same time, we are also investing in improving user experience. What do you think will happen to EBITDA in the next few weeks? a trend of development. The second question is that we are now involved in WeChat payment. Next, what do you think the growth of user technology and the growth of GMV in the next few seasons will bring? Okay, thank you. Let me answer this question.

I think for Taobao Tianbao, our platform, The strategy is that while we are increasing our profitability, we are also increasing our investment in the entire user experience and business side. Therefore, there are many ways to invest. First, we will broaden the advantages of the entire supply chain, including the price power in the supply chain, as well as new products or brands with competitive advantages. At the same time, we will also provide users with better service experience, whether it is in the service after the sale or logistics, in the front-end user interface of the entire after-sales, we will make stronger investments. At the same time, we will continue to invest in technology platforms, especially We have a lot of AI-related products under development, and these AI-related products will need to use more powerful AI. These are some of our long-term investments in terms of user experience and business co-op. At the same time, we are related to your second question. After introducing the new WeChat payment, we have high expectations for the growth of new users. In this regard, we will make a long-term investment in the growth and flow of users for this batch of users. This is also a bigger investment direction for us in the future. In general, we think that in Taobao Tmall, At this stage, we are still in an investment period. Of course, in this investment period, we will continue to pay attention to our investment efficiency. At the same time, through the improvement of our CMR, we will be able to make better and bigger investments. So we estimate that at this stage of EBITDA, Thank you. Well, for Taobao and Tmall, at present our strategy is to be investing

in strengthening our abilities, our competencies, investing in the user experience, and also investing on the merchant side. That involves several different kinds of investments, investing in developing more extensive, more diversified supply, investing in developing price competitive supply, and also investing in new products and promising new brands. In terms of investing in user experience, that includes making investments in improving after-sales service, also improving the logistics experience, as well as investing in improving the front-end user interface. Additionally, we're also investing in technology. There's very rapid growth in our AI-related products uptake, so investing not only in those products, but also in the computing power that's needed to run these AI products. So these are long-term investments that we're making to enhance user experience and to enhance supply on the merchant side. So that ties in nicely to your second question about interoperability with WeChat Pay and the ability that gives us to develop new users. I would say we have quite high expectations for the ability that gives us to acquire new users. And again, we're investing for the medium to long-term in driving that user growth and retention. So this is a large investment direction for us. So overall, I would say that Taobao and Tmall is currently very much in the investment stage. We're making investments. Of course, we're paying a lot of attention to ensuring the efficiency of those investments. And we're also working on increasing CMR as well in order to be able to better make those investments. So to answer your original question, I think given that you can expect to see EBITDA fluctuate over the next few quarters to come, because overall we are in an investment phase.

OK, the second question is about your question. I think that after this collaboration, we still have a lot of room for potential users. We think that the growth of our monthly transaction users will be significantly improved, but this requires a long-term investment and a strategic cooperation with the growth of users. So we hope that these users can stay on our platform through a long-term investment. In terms of our

the cooperation that we've engaged in to allow for interoperability with wechat being accepted on taba on tmall we see a very large potential there for user growth going forward in particular we expect to see a a large noticeable increase in monthly active consumers macs but it will take time to fully realize this potential. And this is, again, complementary with the measures we're taking to drive user growth that I just shared with you. But the goal is to get them on the platform and to get them to stay on the platform and over time continue to drive incremental GMP growth.

Next question, please.

Thank you. Your next question comes from Alex Yao at J.P. Morgan. Please go ahead.

Thank you for answering my question. Just now, Eddie, you spent a lot of time talking about the opportunity and strategy of consumers. I would like to change the perspective and ask some thoughts on the supply chain. Two questions. The first one is, This year, the increase in the number of live-streamed e-commerce businesses has caused a great decline. In this context, we don't feel that they are more positive towards us in terms of brand business. On the contrary, in this context, will we be more proactive in fighting for these brand business? For example, online marketing resources, operating resources, and so on. Secondly, what are our current thoughts and strategies in terms of the two major categories, such as white cards and agricultural products, which have competitive advantages over others? Thank you.

Paul. Thank you.

So Eddie spent quite some time sharing with us his thinking around the opportunity and the strategy on the consumer side. I'd just like to shift the conversation, if I may, to the supply chain side. And we note that there's been a relatively sharp decline in the growth rate of live streaming e-commerce recently. I'm wondering what what that means for your strategy will you be focusing more aggressively on brands and conversely you know what opportunities do you see what strategies will you be deploying around white label goods and agricultural produce

In general, I think what you just said about live e-commerce actually has to be divided into different platforms. In fact, the live e-commerce of each platform is very related to the strategy of each platform itself and the penetration rate of each platform itself. So from the overall trend, we see that the live e-commerce of the entire industry is greatly slowing down. But for Taobao Tianmao, our live e-commerce of this year, especially Double 11, is greatly increasing. So I think this is actually more of a different platform. It has a different market penetration rate and is in a different stage. Then I think we have seen a very big trend this year, which is to combine live e-commerce with high-quality supply. We call it a quality live broadcast. Taobao Tianmao is relatively strong, especially with the supply of brand flagship stores. With the live broadcast on Taobao Tianmao, we produced a relatively strong chemical reaction. During Double 11, the overall accuracy was very good. Another thing I think is the investment of the brand you just mentioned. In fact, every brand invests in growth. But I believe that, especially this year, I think it's a turning point. The number of e-commerce businesses on various platforms is gradually declining. I think for the brand, it will choose to bring more sales, rather than simply investing in growth. In this case, I think Thanks.

Well, I think if you're going to talk about live streaming e-commerce, you really need to drill down and look at different platforms. Different platforms have different strategies. for live streaming e-commerce, different levels of penetration of live streaming. In fact, if you look at Taobao and Tmall, there's been a very strong increase in live streaming on our platforms, especially during the double 11 period. So again, I think different platforms have different penetration levels of live streaming e-commerce and different stages of development in this regard. This year, we've seen a marriage, if you like, of high-quality supply with live streaming e-commerce. You can call it quality streaming, if you like. On Tabao and Tmall, we have very strong brands with flagship brand stores, and they've created excellent synergy with live streaming to tremendous excellent effect during Double 11. So you asked about investing in the context of brand merchants. I mean, of course, everyone invests in order to seek growth. And this year in general, I think, you know, you see growth rates across different e-commerce platforms converging. And if anything, that really plays to our advantage at Taobao and Tmall because the brands need to be looking at which platform can truly bring them more sales rather than simply just to display their products.

The second question you asked about the white brand and agricultural products, I think this is something that we often discuss within the company or even have a conflict on this topic. But our strategy is still very clear. Each platform has its characteristics, and each platform has its strength. or its core group. So, our choice is to choose from our core group. The consumption bias in this category. So, in our core group based on 88VIP, in most categories, the bias of this group is actually the brand products. However, in some categories, this group also has white-collar needs. Therefore, we will provide white-collar supply on some of these products. In addition, we also see that, especially with the opening of our payment channels, we will have a lot of new users. These new users will actually have a big difference in terms of future consumption preferences for different products. These users may also provide white-collar supply on more products. to meet the needs of these users. So, in summary, we will, according to the needs of the users and the industry, use different users for different types of consumption preferences to make this type of supply distribution. This is what we think the entire platform needs to do in a personalized way in order to better provide the experience of consumers and a better

As for your question about white label goods and agricultural produce, you know, this is a topic that we're also discussing internally and sometimes with differing views. But, you know, each platform has its own characteristics and as a platform, you do need to focus on your core group of consumers and their consumption preferences. and needs. So for us, when it comes to our 88 VIP members, these are people whose preference is for branded goods, but they do also have demand for white label as well. With the introduction of new payment options and the acquisition of new users following that, that may also result in new demand for white goods. So I do think you need to look at your users preferences their preferences in different categories and ensure that you can provide the appropriate supply for those categories to meet those different preferences as a platform it needs to be somewhat customized next question please thank you the next question comes from

Hey, good evening. Thank you for accepting my question. I have a question about the cloud. I see that the income of the cloud is accelerating. And we also said that in the second half of the year, we hope to achieve double-digit growth. The profit rate is also improving. In fact, how should we consider the future situation of the profit rate? Especially, we saw that the price of the cloud products increased recently. uh

Thanks for taking my question, management. My question is on the cloud side. We note in the results that our revenue growth is accelerating and you stated that you expect to achieve double digit growth and profitability is increasing as well. I'm wondering what your view is of future profitability of cloud, especially given the recent price decreases in cloud.

Okay, thank you for your question. First of all, in terms of Yun's business, it is a business with both technology and scale effects at the same time. So we think that in terms of our investment over the past decade, the scale effect of Yun's CAPEX is actually very strong. So this is also what we see now. While Yun is maintaining the real value of the business, we can also see the improvement in profitability. As for your question about how to view the future of cloud, we need to consider an AI variable. Whether it is an AI software or an AI algorithm, we will see a longer-term view of it. We will see a continuous drop in the price of our API tokens in the consensus model. We will also see that we can make more efforts on platform reasoning and algorithmic services. I think the needs of AI business or AI industry are still very early. In this field, we will continue to prioritize these products from the perspective of expanding users. And we will see the price drop on the API token that you just mentioned. We will see many new users using our model because of these price drops. When using our model, it will very naturally... Because it wants to deploy its application on our platform, when it is deployed on our platform, it may use other products of our cloud, such as our computing, such as storage or database. So, relatively speaking, you can take the price reduction of our unified model API token and understand it as a means for user growth or user acquisition. But because we have full-time product service, so these customers can naturally use these products. As long as they come up to our platform, the cloud platform, they will use it in many ways.

Thank you. Well, cloud is a business where technology advantage matters and scale effect also matters. And we have both of those things. which is why as we've been able to grow the volume, we've been improving profitability as well. We do take a long-term view when it comes to looking at developing profitability in the sector, both in terms of software pricing and compute pricing. I think you're referring to the recent reduction in token price for Q1 API. And that's because we prioritized growing the user base there. But by lowering the API token price, we will attract lots of new users to come and use the models to deploy their applications on our cloud. And that will result in an increase in their use of our compute power storage database and other products. So you could really think of the reduction in token price as an investment in user acquisition and user growth because we have a full technology stack. And as long as people come to the platform, they will inevitably end up making use of multiple different cloud products.

Next question, please.

Thank you. The next question comes from Jielong Shi from Nomura. Please go ahead.

Good evening, Mr. Guan. Thank you very much for accepting my question. I have a few questions here. The first question is about the tech rate of the business. I also heard Mr. Guan talk about the tech rate in the beginning of the call. There is still room for improvement, but the company will also pay special attention the burden and cost of operating on our platform. In the past few months, we have seen that some of our business owners have actively reduced the cost of operating and also introduced some other measures to reduce the cost of operating. So my first question is whether these measures will make them more attractive in attracting business owners. If so, is it possible to bring the loss of some of 88's merchants. This is the first question. Then the second question is that I would like to ask about the supplementary measures that have been introduced in September. I would like to know how much the consumer electronics or home appliances have contributed to 88's entire e-commerce ecosystem or to 88's entire e-commerce GNV. And I just heard ADO say that you think that the start of this round in September is only the start of state-sponsored consumption. There may be similar subsidies in the future. So I would like to ask, from your point of view, what will be the density of the future subsidies and what will be the contents of the support for subsidies? Thank you.

Thanks, management, for taking my questions. I have a few questions. My first has to do with take rate. I noted that earlier in the call, management indicated that you see that there is still significant room to increase take rate, but at the same time, you'll be keeping a close eye on merchants, the cost to merchants, the burden for merchants in operating on the platform. You know, recently we've seen competitors reduce their rates, reduce the operating burden for merchants on their platform. Do you think that will prove attractive to merchants, and is there any risk of Alibaba losing merchants as a result of that? Secondly, regarding the trade-in subsidy programs that have been launched, I'm wondering how big an impact they're having, how large a boost are you seeing in GMV in the relevant categories like electronics, and consumer electronics and home appliances. And then building on that, would it be fair to say that these kinds of subsidy programs that started in September are just the beginning of more subsidies to come down the road? If so, how large will those future subsidy programs be? What categories will they apply to and how big a difference do you think they'll make?

Thank you for your question. My name is Toby. I will answer your first and second question, and then Eddy will answer. First of all, Taobao Tianmao has always been very concerned about the rights of the business. From the perspective of the development and operation of health on this platform, we believe that our commercialization rate is one of the best on all platforms. This is why I mentioned earlier that we think we still have room to improve our commercialization rate, but we will balance the health of the platform, the health of the business elite, and the relationship between commercialization rate. This is the first point. The second point is that we have also provided a lot of benefits and benefits to our customers. Here is an example. While we collect the technical service fee, we also carry out a certain reduction plan for small and medium-sized businesses. At the same time, we have cancelled the annual fee for Tmall Businesses. In addition, we have recently launched products such as Retail Insurance, which have greatly reduced the cost of business. Thanks, this is Toby.

I'll take the first question and Eddie will take the second one. You know, for Taobao and Tmall, we have consistently attached tremendous importance to the rights and interests of merchants, I think not only in terms of take rate, but in terms of our overall level of merchant friendliness, we are certainly the best of all the different platforms that are out there. So certainly, yes, there is room to increase take rate, but we need to take a balanced approach, balancing platform health, balancing the health of merchant operations and balancing that take rate. Also, you know, we've, We've given a lot of relief and concessions to small and medium sized merchants, including giving them rebates following our rollout of the software usage fee. We've cancelled the annual fee for Tmall merchants. They've optimized policies, including return only policies for merchants. These are all different ways in which we try really hard to safeguard the rights of merchants and be merchant friendly.

At the same time, we will continue to surround the growth and experience of users, such as membership rights, At the same time, as we've done in the past, going forward we will continue to invest

in initiatives such as membership program benefits, as well as in price competitive products and technologies, with the aim of enhancing user experience. And again, all of that investment ultimately will translate into more transactions on the platform to the benefit of our merchants.

Okay, the second question you mentioned, the new supplementary measures, as mentioned earlier, in general, For the past few months, the growth of these industries has contributed a lot. We have seen that the growth rate of these industries has increased significantly since September 2020. Then, you said that the old and new subsidies are some other categories. We see that the subsidies policies in each region are not the same, but we see some trends. In addition to large-scale stores, in different areas, we see some, for example, On your other question about the impact of these trade-in subsidies over the past few months, yes, definitely the contribution has been

large and since these trade-in subsidy policies were launched back in September, we've seen a significant growth acceleration in those categories. As for other categories, different regions have different policies. So apart from the large appliances, some may also offer trade-in subsidies for small appliances or even for home decoration, home furnishing, and other digital categories. So it does depend on the region and the different policies. In these categories, you are seeing a significant impact.

Next question, please.

Thank you. The next question comes from Gary Yu at Morgan Stanley. Please go ahead.

Thank you for giving me a chance to ask a question. I have two questions. The first question is mainly a follow-up to Taotian's business. Because we started receiving the technical service fee for Tianliu in September, there will be a contribution for the entire quarter starting next quarter. If we had a stable take rate in the last quarter, would there be a chance for our CMO growth to be faster than the GMV growth in the next quarter? This is not just a stable take rate, but a growth that can go up. This is my first question. Then my second question is about capital investment. I see that our CapEx record has also increased quite a lot. I believe that a large part of it is related to Aliyun and even AI investment. I would like to see how the managers view these investment returns. Because, for example, in terms of the application or in terms of the success of our Aliyun, I don't know, in terms of investment returns, we are looking at these capital investments. Thank you.

Thanks, management, for taking my questions. I have a couple of questions. The first is a follow-up on Taobao and Tmall, where you started charging the 0.6% software service fee from September onwards. So next quarter, that will be making a contribution for the full quarter for the first time. So since you've said that take rate is stable now, I'm wondering if that would mean that in the next quarter, CMR could actually grow faster than GMB is growing. In other words, could take rate perhaps not just be stable, but actually be growing in the next quarter. Second question has to do with CapEx. And I guess a lot of the CapEx spending is around cloud, especially around supporting AI needs. How do you think about the ROI of that CapEx?

Thank you, Gary. This is Toby. I will answer your first question first, and then Eddie will answer the second question. Regarding the first question you just mentioned, I explained it in person. In fact, I think that for us, the most important thing is to improve the penetration of the 1,600 software service fee and the full-time push. But at the same time, I also said that for some of the new models that we are investing in, its growth is relatively fast in the early stage, and the current entire commercialization rate is relatively low. So for these relatively fast-growing categories, when it grows very fast, it may completely absorb the entire take rate. So there is a factor like this. Of course, we will look at the overall take rate of Taotian, But at the same time, we will balance our take rate to give the business a better operating environment and ultimately a more balanced business environment. So from this point of view, we will focus on the overall level of this take rate. Here, we will also take the discount ratio into consideration. This is the situation.

Thanks. This is Toby. I'll take the first question and then hand over to Eddie for the second. I think I already spoke to this earlier when I flagged the two factors that are positive for take rate, namely the 0.6% software service fee and further penetration of the Chen Tui marketing tool. But in offset to that, we have these new models that we're investing in that are going fast, but with low monetization. So those new models with low monetization, if you like, are diluting or offsetting the higher take rate from the first two factors. So at TABO and Tmall, we're looking at this in the round in overall terms. and also looking at merchants, ensuring that we're providing them with a good operating environment, with a stable business environment, and ensuring that overall everything is healthy. But there is that offsetting and counterbalancing effect that we are looking at in the route.

But from a long-term perspective, I think we are still interested, because from the perspective of market water, we are still a relatively low water level, so we still have space.

I'd like to add something about the investment of CapEx. I think we invested a lot of capital on CapEx, especially on AI infrastructure. This is based on our understanding of the short-term demand and the long-term demand. From the short-term demand of the client, In terms of AI computing and API services like models, the demand is still growing. The demand for customers is also at a stage where they can't be satisfied. Therefore, our investment in AI is relatively positive. On the other hand, I think we still need to consider This wave of deep AI development is rare in the technology industry. It is a historical opportunity. It is a technological innovation of 20 years. From this point of view, we can see that in terms of the ability of the current model to display, the reasoning services needed, or the application of these models in various industries, The applications of each industry are gradually opening up. These needs are still very certain. At the same time, we have also seen a model like OpenAI's new O1, in the so-called COT, the so-called thinking chain. In this technology, we see that the industry still has a very large computing power for reasoning needs, which may be an increase in demand in the future. Based on the prediction of such technology, we will make these early investments on the basis of AI. So in general, we are very optimistic about the short-term and long-term needs. This is also a fundamental reason why we are actively investing in AI CapEx.

Yeah, you're right. A lot of the CapEx investments that we're making are in cloud, especially around AI infrastructure. And that's a function of our knowledge, our understanding of the short-term demand, as well as our judgment of the long-term demand. In terms of that short-term demand, there's ongoing explosive growth in demand for AI, for the compute power that drives AI, for the API services to access the models. And it's not even possible now to fully and effectively meet all of that demand. So that's why we're making aggressive investments for the short term. But in the longer term, we view this opportunity around GenAI as a historic opportunity. It's the kind of opportunity probably comes along only once every 20 years, say, in terms of the ability to leapfrog technologically. And that's why we think there's a high level of certainty around that demand going forward for inferencing, especially if you look at OpenAI's newest model, O1, with its COT chain of thought, that implies exponential growth in demand for inferencing. So that explains why we're investing aggressively in AI-related infrastructure for the short term and in the long term, because we're very optimistic about that demand.

Next question, please.

Thank you. Your next question comes from .

Please go ahead. Thank you very much for taking my question. My question is around shareholder return. I mean, it's great you guys bought back $10 billion in the last six months. Firstly, I was just wondering, do you differentiate between ADR and your Hong Kong ticker 9988 when you buy back shares? And my question is around the PBOC recently launched some swap programs to land companies to buy back their shares. But now you are in the southbound stock net. I was wondering, does that program sort of available to you? Thank you.

Thank you for accepting my question. My question is about the shareholder return. Congratulations, you are great. In the past six months, you have recovered 10 billion yuan. Very good. First of all, I want to ask, when you carry out the recovery, what kind of difference will be made between the 9988 code listed in ADR and Hong Kong? Okay, thank you for your question. This is Toby, I'll take on this question.

Firstly, actually, if you look at the distribution of the liquidity of our shares on the U.S. line, Hong Kong line, currently U.S. lines do the majority. So currently the buyback, we were executing buyback on both lines, but very recently our execution of the buyback is mainly on the U.S. line. So that's to answer your first question. And the second question, you know, we are exploring various financing options opportunities to fund our buyback. You know, the one you just mentioned, actually, we haven't been actually able to leverage that. But of course, you know, apparently we can further explore such opportunity. What we understand currently is more like for the Asia buyback. However, we do explore other ways. If you reflect back in May, we raised in cb of like 5 billion and we used that whole amount in june quarter buying back 5.8 billion us dollars of our shares so going forward we will continue to explore various ways on the financing and also you know do the buyback basically you know to create more value to our shareholders

Hello everyone, I am Toby. I will answer. If you look at the two lines of our stocks, that is, the fluidity of the two lines of the US and Hong Kong lines to make a comparison, then it is mainly the United States. So in the past, we executed stock repurchase. There are repurchases on both lines, but currently it is mainly on the US line. In addition, we will also actively explore different opportunities to buy back shares, including to raise funds in this regard. However, we have not yet been able to use the channel you just mentioned. This channel should be for the purchase of shares of listed companies of A shares, but for example, okay and just add on one point actually uh you know we do have very rich you know r b uh cash uh onshore so it if the landing is r b actually we are

CNY, if you like, we are actually not that, you know, we have abundant CNY onshore. So, to us, I think probably it's more, you know, attractive if some of the landings is like in CNH or US dollar.

Let me add one more thing. In fact, in our company, the cash flow of RMB is relatively strong. So, Due to time limit, we will now take the last question. Thank you.

Great. Thanks for taking my question.

And I got two follow-up questions on AI. First on cloud, and maybe can you double-click on the demand for AI adoption? Is the AI revenue mostly coming from model training or inferencing? Because in the U.S., and also in addition, in the U.S., people are talking about AI agents and automation or workflow, and how do you see that developing in China over time? Thanks.

Yes, I would like to ask about the opportunity of AI. Now, the main factors that drive the income of AI on the cloud side are model training or reasoning. In the US, many people are talking about AI agents, and this will promote an increase in the workload of relevant work. What do you think?

Okay, let me answer this question. I think this wave of deep-seated AI, in terms of the needs of the cloud, is indeed driven by the training of the model in the early stage. But we see that the demand for reasoning and computing continues to increase. And from what we've seen, in the future, These companies will gradually shrink to a few companies in the training of models, especially in the technical big model. Then we also see a trend in training, that is, in each industry, for example, such as the auto driving industry or other financial industries, in fact, there are these model training needs in each vertical industry. Right. Well, if you look at the demand

that's being created for cloud from Gen AI. Initially, a lot of that demand is for the training of models, but then over time, more and more computing power is needed to drive the inferencing. And looking into the future, we could expect to see there just being a smaller number of companies that are actually doing model training, especially for large foundational models. You can also expect to see a lot of training being done for different verticals, like, for example, autonomous vehicles, but also other specialized industries. So at the present time, there's very strong growth in demand to support both model training and inferencing. But in the longer term, in the future, we think that inferencing will account for the larger share of growth in demand.

And what you said, what we see is that the whole of AI in various industries and industries is indeed in different companies or different enterprises or in different software. Each of them is developing new AI agents or using AI to automate the workflow, including repeating the models it used to do with a small algorithm. I think these aspects are We can see this happening in every industry. We can also see this happening in our own industry. So, overall, we can see that the development process of these technologies is similar to that of the United States. Simply put, a lot of the original CPU-based computing needs are being repurchased by GPUs. This is what we see as a big trend. And the basis of GPO redevelopment is actually a large number of applications of various AI models.

And as you mentioned, AI is being applied in all kinds of different industries, different companies developing their own AI agents. Part of that is indeed about automating workflows, including retraining models. And I think these things are happening in a very positive way across a lot of different industries. And we see a lot of examples of this all around us, including internally within Alibaba. So I think these technologies are in a similar process of development here as well as in the United States. And a lot of the compute that used to be done on CPUs is being re-architected to run on GPUs. So it's a major trend. The foundation of all this really is the GPU, which is driving the massive adoption of AI models. And as you mentioned, AI is being applied in different industries, developing their different AI agents. I think this is a major trend.

Thank you, everyone, for joining. We will see you next quarter.