Alibaba Group Holding Limited

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's December quarter 2024 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 Lydia Liu, Head of Investor Relations of Alibaba Group. Please go ahead.

Good day, everyone. Welcome to Alibaba Group's December quarter 2024 earnings conference call. With us are Jiu Cai, Chairman, Eddie Wu, Chief Executive Officer, Toby Hsu, Chief Financial Officer, Jiang Fan, Chief Executive Officer of Alibaba eCommerce Business Group. This call is also being webcast 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, particularly statements about our business prospects and expected financial results 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 cancellations 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 the call over to Eddie.

Hello everyone.

Welcome to this quarter's earnings call. Over the past year, we have pursued our user-first, AI-driven strategy and focused on our two core businesses of e-commerce and AI plus cloud. After a year of transformation, our core businesses have demonstrated accelerating growth momentum. We've also largely completed the divestments of our offline assets. Across Alibaba Group, our businesses now possess strong business fundamentals and profit-generating capabilities. This quarter, we continue to pursue our integrated AI plus cloud strategy in our cloud business, leveraging our industry-leading AI product portfolio. Overall revenue, excluding Alibaba Consolidated subsidiaries, grew 11% year-over-year this quarter, with AI-related product revenue maintaining triple-digit year-over-year growth for the sixth consecutive quarter. With the rapid adoption of AI technology across industries, customer demand for Alibaba Cloud products has surged. Looking ahead, revenue growth of Cloud Intelligence Group will continue to accelerate. We recently launched QN 2.5 Max, our flagship AI foundation model, which has achieved industry-leading performance across multiple recognized benchmarks. As of the end of January, over 90,000 QN-based derivative models have been developed globally, making QN the most popular among developers across the major model families. Over 290,000 companies and developers have accessed QN APIs through Alibaba Cloud's Bylian platform, and we will soon release a deep reasoning model built on QN 2.5 Max. In e-commerce, Taobao and Tmall continued to invest in new user growth and comprehensive user experience enhancements. We saw strong growth in both new consumers and orders during the quarter. 88 VIP members, our core consumer group, maintained double-digit growth, reaching 49 million by the end of the quarter. Taobao and Tmall also made solid progress in monetization, as planned, with CMR growing 9% year over year. At the same time, Taobao and Tmall continued to strengthen merchant-friendly measures that improve our platform's business operating environment, fostering higher quality and more sustainable development. Our international e-commerce business maintained strong growth this quarter. driven by cross-border businesses with continued improvement in operating efficiency. During the quarter, we increased investment in key markets while focusing on operating efficiency, with Choices Unit Economics improving on a sequential basis. We expect AIDC to achieve its first quarter of profitability in the next fiscal year. Our other internet platform businesses continued to improve operating efficiency. AMAP achieved profitability this quarter. Looking ahead, Alibaba's strategic direction and roadmap are clearer than ever. We'll continue to focus on three business categories. First, domestic and international e-commerce. Second, AI plus cloud computing. And third, internet platform businesses. We are confident that our focused strategy will drive sustained, solid growth for Alibaba Group. Today, AI technology advancements are driving profound industry transformations. In alignment with Alibaba Group's business landscape, we will scale up investments in the following three areas as part of our broader AI strategy over the next three years. First, infrastructure for AI and cloud computing. The AI era presents a clear and massive demand for infrastructure. We will aggressively invest in AI infrastructure. Our planned investment in cloud and AI infrastructure over the next three years is set to exceed what we have spent over the past decade. Second, AI foundation models and AI native applications. AI foundation models are pivotal to transforming industry productivity. We will substantially increase R&D investment in AI foundation models to maintain our technological leadership and drive the development of AI native applications. Third, transforming our existing businesses with AI. AI technology presents powerful opportunities to enhance user value across our e-commerce and other internet platform businesses. We will increase investment in AI application R&D and computing power and deeply integrate AI across our businesses capturing new growth opportunities in the AI era. Looking ahead, we're confident in our focused strategy on e-commerce and AI plus cloud and excited by the business opportunities being unlocked by this new technology cycle. Thank you.

Thank you, Eddie. The strong financial results of the past quarter shows that we are making very good progress to ignite growth in our core businesses. On our Taobao and Tmall businesses, we saw a significant upswing in CMR growth, which accelerated to 9% year over year. driven by growth in online GNV and improved monetization. This outcome reflected full quarter impact of the software service fee and the increasing adoption of Transanti. Our cloud business continues to exhibit robust momentum with revenue growth accelerating to 13% and the overall revenue from businesses excluding Alibaba Consolidated subsidiaries grew over 11%, fueled by an even faster public cloud revenue growth. Additionally, our AI momentum remains robust with AI-related product revenue sustaining triple-digit growth for the sixth consecutive quarter. These achievements highlight our commitment to innovation and reinforce our leadership in the cloud and AI sectors. This quarter, AIDC maintained its rapid growth momentum, primarily driven by strong cross-border business performance. AIDC increased investments during overseas shopping festivals quarter-over-quarter and continued to invest in select European markets and the Gulf region to acquire users. While we made good progress in growing our core businesses, we maintained financial discipline with enhanced operating efficiency, achieving positive EBITDA growth in Taobao and Tmall Group. Meanwhile, we improved operating efficiency of other businesses with the goal of sustainable business growth and achieving profitability. This quarter, AMAP achieved profitability for the first time, while the majority of loss-making businesses will achieve break-even and gradually begin to contribute profitability at scale within the next one to two years. We have been actively managing our balance sheet through strategic divestment of non-core assets, share buybacks, and effectively extending our debt maturities at attractive rates. During the quarter, we entered into agreements to dispose all of our interest in Senna for up to a maximum of US dollar 1.6 billion and in time for US dollar 1 billion. These moves reflect our strategic shift to streamline operations in the focus on our core businesses. Recently, we have obtained the PRC antitrust approval with respect to Senna and in times merge control filing. We expect the major financial impacts will be reflected in March quarter. These transactions will improve our operating efficiency and enhance our agility. For December quarter, we repurchased the shares of a total of US dollar 1.3 billion or 0.6% net reduction in share count. Combined with approximately US dollar 10 billion repurchased in the first half of this fiscal year, we had achieved a 5% net reduction in share count over the last nine months. In November 2024, we also completed a due currency bond issuance, raising approximately U.S. dollar $5 billion through a combination of U.S. dollar $2.65 billion U.S. dollar denominated nodes and CNH $17 billion RMB denominated nodes. which was strategically structured to leverage the attractive pricing of RMB notes to significantly lower our overall financing cost. On the consolidated basis, total consolidation revenue was RMB 280.2 billion, an increase of 8%. Consolidated adjusted EBITDA increased 4% to RMB 54.9 billion, primarily attributable to revenue growth and improved operating efficiency, partly offset by the increase in investments in our e-commerce businesses. Excluding the effect of long-term cash incentive plan, our adjusted EBITDA growth would have been an increase of 5% on a like-for-like basis compared to the same quarter last year. Our non-GAAP net income was RMB 51.1 billion, an increase of 6%. Our gap net income was RMB 46.4 billion, an increase of 333% primarily due to the increase in income from operations, mark-to-mark changes from our equity investments, and increase in share of results of equity method investees. Operating cash flow this quarter was RMB 70.9 billion, an increase of 10%. Free cash flow this quarter decreased 31% to RMB 39 billion. That decrease in free cash flow was mainly attributed to the increase in expenditure related to our investments in cloud infrastructure. As of December 31st, 2024, we continue to maintain a strong net cash position of RMB 378.5 billion or US dollar 51.9 billion. The strong net cash position and healthy operating cash flow bring us the confidence and sufficient resources to increase our investments in cloud and AI infrastructure to capitalize the substantial growth potential presented by the latest AI innovations. Now let's look at segment results, starting with Taobao and Tmall Group. Revenue from Taobao and Tmall Group was RMB $136.1 billion, an increase of 5%. Custom manual revenue increased by 9%, primarily driven by the growth in online GMV and improvement of take rate. This outcome reflected the full quarter impact of the software service fee and the increasing adoption of Quan Zhan Tui. We increased the efforts to grow our user basis and continue to invest in strategic initiatives to enhance user experience. These efforts led to strong growth in new consumers and strong order growth. During this quarter, The number of ADA VIP members continue to grow rapidly, reaching 49 million. With solid profitability and increasing up on a cohort basis, we will continue to balance the scale and the profitability of this program. Taobao and Tmall Group adjusted EBITDA increased by 2% to RMB 61.1 billion, primarily due to the increase in revenue from customer management service, partly offset by the increase in investment in user experience. Revenue from AIDC grew 32% to RMB 37.8 billion this quarter, primarily driven by strong performance of cross-border businesses. Revenue from international commerce retail business increased by 36% to RMB 31.6 billion primarily driven by the increase in revenue contributed by AliExpress and Trendio. Revenue from our international commerce wholesale business increased by 18% to RMB 6.2 billion, primarily due to an increase in revenue generated by cross-border related value-added services. AIDC's adjusted EBITDA was a loss of RMB 5 billion, Compared to a loss of RMB 3.1 billion in the same quarter of last year, AIDC increased investment during the overseas shopping festivals quarter over quarter and continued investments in select European markets and the Gulf region to acquire users. However, the UE of the AE choice business improved our sequential basis. Moving forward, we will continue to enhance operating efficiencies within each business and drive high-quality growth by strategic investments in select markets. Revenue from cloud intelligence group grew 13% and overall revenue excluding Alibaba consolidated subsidiaries increased by 11%, mainly driven by the double-digit revenue growth of public cloud products, including AI-related products. Clouds adjusted its baton increased by 33%, primarily due to shift in product mix to a higher margin public cloud 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 technology innovation, particularly in AI infrastructure to capture growth opportunities in the AI era. Revenue from Tanya decreased by 1% and its adjusted EBITDA decreased by 76%. There is an ongoing restructuring with our e-commerce businesses taking on certain logistic platform role. Tanya will continue to focus on building its global smart logistics network and make it end-to-end logistic capabilities available to our own e-commerce businesses as well as third parties. Revenue from local service group grew by 12% to RMB 17 billion, driven by the order growth of both AMAP and ULMA, as well as revenue growth from marketing services. While its adjusted EBITDA loss narrowed significantly as unit economics improved due to operating efficiency and as scale increased, Revenue from digital, medium, and entertainment group grew 8% to RMB 5.4 billion, while its adjusted impactor loss continued to narrow. Revenue from all other segments increased by 13% to RMB 53.1 billion, mainly due to the increase in revenue from retail businesses, including Fresh Apple and Alibaba Health. while adjusted EBITDA was a loss of RMB 3.2 billion. In closing, during this quarter, we are making significant strides in enhancing the competitiveness of our e-commerce and cloud businesses. Additionally, we are focusing on improving the efficiency of our loss-making segments to establish a clear path to profitability. In addition, this quarter, we continue to optimize our balance sheet and shareholder return with significant non-core asset sale, share buybacks, and effectively extending our debt maturities at attractive rates. As Eddie mentioned, we will continue to execute our strategy and make significant investments to seize opportunities presented by the AI era. Looking ahead, our unique business positioning coupled with our strong financial position give us full confidence to grow. Thank you. That's the end of our prepared remarks. We can open up for Q&A.

Thanks, Toby. 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 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 one week after the end of the meeting. 大家好,今天的电话会欢迎您用中文或英文提问。 我们会有第三方工作人员提供实时的交替传译。 翻译目的是方便大家理解。 如有任何疑义,请以我们管理层原始语言所做的陈述为准。 如您无法听到中文翻译, Thank you.

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 Alicia Yap with Citigroup. Please go ahead.

Thank you. Good evening, management. Thanks for taking my questions. Congratulations on the solid results. My question is related to cloud AI and also the CAP app. So with BABA's leading cloud infrastructure service and strong foundation AI models, BABA is well positioned to capture the transformation era of these AI adoptions in the coming months in China and also possible outside of China. So maybe can management share some insight as how it will translate into the financial upside in terms of the cloud revenue growth and also the cloud margins trend in the next few quarters? We noted that CapEx spent this quarter almost double from last quarter to $31 billion. And also management noted on the prepared remark that the expected investment in CapEx in the next three years will be more than the past 10 years. So can management clarify the comment that and help us crystallize the amount of the spend in the next few quarters? And also, do you have a budget that you can share for us for the next three years? And how will the type of spend actually impact overall profitability trend? Thank you.

Good evening.

Thank you for answering my question. I also congratulate you for achieving a very good performance this year. My question is about cloud and AI, especially capital investment, CapEx. I believe Aliyun has a very good foundation in terms of cloud and AI. So the complete availability conditions can be in the next few months. Whether in China or in the world, it is possible to invest more in AI and cloud from various companies and industries. It can benefit from it. Can you please give us a look at the growth of the net income and its profitability? We also noticed that this quarter, the capital investment of the cloud, CapEx, has turned over from last quarter to 3.1 billion yuan. uh, uh, uh, uh, uh, uh, uh, uh, uh, Thank you.

There are a lot of questions, but before you ask the question, I would like to take this opportunity to share with you our thoughts on AI and why we are investing so much in it, and how we got to know the opportunities of AI in this industry. and how we can gradually apply AI in the process of AI development, or how we can transform AI in the process of AI development. We think that Alibaba Group may have several key elements in the Asian market, We think we have the largest cloud in Asia, the world's fourth largest and the first in Asia. We are the largest in terms of scale, leading in terms of technology. At the same time, we also have advanced self-proclaimed AI models, and we agree to ask about the prosperous open-source ecosystem. Thirdly, our group has the most application scenarios on the 2C application ecosystem. However, how do we view As for the AI strategy of the Group, we may have to go a little further, because how we see this AI opportunity, we think it may be a change in the industry that has been going on for decades. First of all, we think that for ARRI Group, our primary goal in the AI strategy, our first goal, we think it may be that we must pursue AGI as a reality, as our first goal, and continue to pursue and break through the boundary of our model's intelligence. Why is the realization of AGI our first goal? It may be far beyond any application scene that we can see now. Because all of our current application scenes, whether it is in the creation of productivity, or AI search, or chatbot, are just some opportunities that have been created in the process of improving AI capabilities.

Thank you.

And there were quite a few questions in there. And perhaps before I get into each of those questions, I could begin by sharing with you our overall views on AI and why we're investing in AI so aggressively and the larger opportunities that we see in the sector, as well as the ways that we have been and will continue to monetize developments around AI progressively as they come out. First of all, we think that Alibaba is extremely well positioned in the AI space, in particular in the Asia market where we have several very important advantages. We are the number one cloud provider in the region and number four cloud provider globally. We have leading models, leading technology. We have proprietary AI models as well as a thriving open ecosystem, and we also have a multitude of application scenarios for AI across our 2C ecosystem. But to explain the group's strategy around AI requires taking an even longer term view, because this is the kind of opportunity for industry transformation that really only comes about once every several decades. So when it comes to Alibaba's AI strategy, our first and foremost goal is to pursue AGI. The pursuit of AGI is our primary objective. We aim to continue to develop models that extend the boundaries of intelligence. Why is that the primary aim? Well, it's because all of the visible AI application scenarios today that we see around content creation, search and so on and so forth, have arisen precisely as a result of the ongoing extension of those boundaries, and we want to keep pushing out those boundaries to create more and more opportunities.

Therefore, we think that the improvement of AI capabilities is the core axis of this round of AI technology productivity changes. Secondly, we need to look at the commercial values that AGI can create. Why are AI capabilities so important? The so-called AGI standard is able to complete more than 80% of human capabilities. So from this perspective, the global GDP's 50% expenditure is actually the labor wage of the unemployed, including labor and physical labor. From this perspective, we predict that if the AGI is realized, the industry related to AI will probably be the largest industry in the world. may affect or replace the GDP composition of about 50%. Secondly, from our perspective, the deep integration of cloud and AI will become the most important AI infrastructure. And the combination of cloud and AI will become one of the largest cloud computing networks to output AI intelligence in the future. This is our goal. Why do we think that most of the intelligence, most of the so-called intelligence, is the output token behind the current model? 90% of the tokens, we predict, will be stored and exported on cloud computing networks in the future. Because the amount calculated by such a huge model will only have the highest efficiency on cloud computing networks. Through our global data center, we can deliver to global app developers in a faster way. Third, on the strategic goal of our group, we will use a more open mindset to deeply apply AI in each application of the group. Because we think that AI technology applications can increase the huge value of each business on the upgrade of our existing business. AI technology will bring an increase in efficiency to all our 2B and 2C businesses, as well as a huge increase in user market and user value. This is why we have to invest so much, including what you just said. In the next three years, we will invest more than 10 years in the basic market. This is the determination of an AI strategy.

So we see the continued pushing out of the boundaries of intelligence and the pursuit of AGI as the key objective in our efforts. Secondly, the pursuit of AGI can contribute immense business value. There have been studies that indicate that when AGI is achieved, it could potentially the standard for AGI is artificial intelligence that can replace or achieve 80% of human capabilities. Well, around 50% of global GDP is manpower, salaries, including both intellectual or mental work and physical labor. So if AGI can be achieved, then that could have a tremendous impact in terms of restructuring industry around the world and could have a significant influence on or even replace 50% of global GDP. Second, we will continue to deepen the integration of cloud and AI. We see this as the most important kind of infrastructure. And in the future, we will continue to build AI on an integrated fashion across our cloud and in our own business applications. When we talk about intelligence, we're really talking about the tokens that are output by models. And we think that in the future, 95% of those output tokens will be generated on the cloud and distributed by the cloud because only a cloud computing network can generate and distribute tokens with that. highest level of efficiency and we can connect to developers on the most efficient and rapid basis worldwide through our globally deployed network of data centers. Thirdly, we maintain an open attitude with respect to the deep integration of AI into our own scenarios to create value across all of our businesses. We expect that with the further integration of AI across our 2B and 2C offerings, we will achieve higher efficiency. We will increase user time spent and create more user value for our users. So that's precisely the thinking behind our determination, as you referenced. to invest more in cloud and AI over the next three years than we did in aggregate over the last 10 years.

The second question is about our capital expenditure. We think this is a general expectation for the next three years. From our current prediction, In the annual cycle, we think it is a relatively average expenditure arrangement. But in terms of each quarter, there may be fluctuations now. Because in terms of each quarter, supply chain cycle, including the entire IDC construction cycle, these things may be done according to the supply chain situation. To do some special arrangements for each quarter. So this is basically the next situation.

The second part of your question had to do with CAPEX on a quarter-by-quarter basis going forward. What I've laid out for you is our overall expectation for the coming three years. I would say that on a year-by-year basis, the annual level of CAPEX will be more or less equal across these three years, but there could be fluctuation within each year on a quarter-by-quarter basis given what's the time that it takes for supply chains to provide what's needed as well as for the IDCs to get set up. But overall, we would expect it to be relatively even over the next three years.

You mentioned how these capital costs will affect the overall profit. In general, we think that the next three years may be the most concentrated three years in the history of ARRI Group's cloud construction cycle. So we believe We believe that the central construction period will have a certain impact on the annual sales of our hardware, including these aspects. But from the perspective of the needs of users and the prediction of the future of the industry, we believe that these overall basic facilities that are invested in will soon meet the needs of internal and external customers.

The other part of your question had to do with the potential impact of our CapEx plans on profitability. I would say that this next three-year period will likely be the single period in which we'll be making the most concentrated and highest level of investments in building out our cloud and AI-related infrastructure. And of course, the hardware infrastructure will have an impact in terms of depreciation. But behind that is our expectation of huge demand for take-up on the part of both internal and external customers. There's huge demand there, and we definitely see this being taken up very rapidly.

Next question, please.

Thank you. Your next question comes from Alex Yao with JP Morgan. Please go ahead.

Hey, thank you, management, for taking my question, and congrats on a very strong quarter. My question is also related to AI in the cloud. So based on my observation, the introduction of latest deep-seq large language model families has brought high-quality model at affordable cost to the entire industry. And because GIP6 model itself is a freedom of charge, monetization of large language model consumption has moved down one layer in the value chain to the compute power part. So first of all, do you agree or disagree with this statement? And secondly, to what extent is the compute power for large language model or Gen-AI is not a commodity? And lastly, with the help from DeepSeq's high-quality and high-cost efficiency models, where do you see the most high-potential area in terms of AI native application within Alibaba ecosystem and outside of Alibaba ecosystem. Thank you.

感谢管理层接受我的提问, 也祝贺本季度取得良好的业绩。 我的问题也是关于AI和云这一方面, 那我们只是观察到, 现在DeepSea推出了新的一些大模型, Then it is equivalent to bringing a very high quality to the entire industry. At the same time, it is also the service of such a large model that is very cheap to pay for, and the model itself is provided for free. So, in commercialization, this aspect represents It's hard to climb the value chain, but it's a step down. So I don't know if you will agree. And then is it also commercialized in terms of computing power? And that is to say, in the future, the original application of AI, what do you think is the largest and most valuable application scene inside and outside Ali?

Thank you.

You asked a good question. I think we are still in the early stages of AI technology development. At the same time, our AI technology capabilities are also developing rapidly. So, looking at it now, in terms of the machine-made large model, the business model of the machine-made large model itself may not be as clear as it seems. But we think that in the future, with the improvement of our intelligence, we have a lot of opportunities. We may not be able to see these opportunities now, but we imagine that when the future AI big model has enough intelligence, it may be able to replace our many engineers and scientists on all sides. We believe that This business model is at that stage and the stage we see now may be different. The second point we do see is that the current big model is the differentiation between the various companies. In fact, it is gradually narrowing down, which means that the differentiation between people is becoming less and less obvious. The differentiation between open source models and closed source models is also becoming less and less obvious. However, we think that such a phenomenon is actually very good for cloud computing companies, because whether it is an open source model or a closed source model, in the end, most of these open source models will be hosted on the cloud computing network. So, in terms of Aliexpress Group, what we can see now is that whether the ability of future models is greatly improved, Now, the ability of the model is still relatively different from other companies. We all have a very clear business model, which is our cloud computing network. Whether it is the so-called smart productization, in fact, I think the best thing is the cloud computing network. Because we imagine that if artificial intelligence is the biggest product in the future, compared to the current electricity, then the cloud computing network is compared to the current electricity network.

Thank you. Those were some really good questions.

I think we're still in very early days when we're talking about the advancement of artificial intelligence technology. Although it's developing rapidly, we're still in the initial stages of development. So I think the future business models and the future ways in which these models will be monetized are not necessarily clear to anybody today. As the boundaries of intelligence get pushed out, as the models get smarter and smarter, there'll be more and more opportunities to monetize them, but in ways that may not be apparent to us today. I'm talking about a future where the models become sufficiently intelligent to be able to supplant engineers and scientists, that kind of expertise, and that will really be a different stage of development. The second point is that if you look at current models today, the level of differentiation across models from different vendors is narrowing. The differences are becoming less obvious. In fact, it's also becoming less apparent what the differentiation is between open source models and closed models. But the development of all of these different models, be they open source or closed, are beneficial for our cloud computing network offerings because all of these models, open or closed, will need to be hosted on a cloud computing network. So if you ask me what the clearest monetization pathway is today, it's definitely our cloud computing network. offerings that exist to host and to support the operation of these clouds. So if I could offer an analogy, if AI, artificial intelligence, is like electricity in this new era, then our cloud computing network is like the power grid that carries that electricity.

You asked about the most potential AI application in the Aliexpress ecosystem. I think the AI model is becoming more and more powerful, and it is evolving faster and faster. Which application do you think has the most potential? It's hard for me to say. I think every application has a very high potential. In fact, we will see some obvious opportunities in several aspects. The first one is that we think it is the introduction of life consumption through AI technology. We will see our Taobao. In fact, Taobao now has quite a lot of internal projects that are being developed. They will gradually be launched later. We see that using AI technology to strengthen the interaction with our consumers and promoting transaction efficiency have been greatly improved. At the same time, because of the more applications of AI technology, in many consumer applications related to shopping or shopping decisions, we feel that there is still a lot of room for improvement in the user market of Taobao and the value of Taobao users. It may bring more user value to Taobao in addition to shopping. In fact, we still have some directions, such as the so-called AI2C field within the company. In this field, we mainly focus on our cross-cursing and our communication, these two areas. Cross-cursing is actually our AI search now. Cross-cursing is actually the highest number of applications in the AI search field in China. We think that these large model applications of AI are good for the search of users, the productivity and creation of users, and how users can improve their efficiency in their work. There is a lot of room for improvement. The other piece is a very important 2B asset in the group, Dingding. We believe that in the future, there will be a lot of opportunities and scenarios in which companies will use AI to cooperate with each other. Dingding is one of the most important AI applications in the 2B field. At the same time, we are also actively promoting our high-quality will actively use AI in the field of life to create more user value, including improving the market of users. Because high-quality is now more of a navigation tool. It is a product with more than 1.7 billion DAOs. On this product, we have the opportunity to use AI technology to make high-quality have the opportunity to become the entrance to life services.

Your other question had to do with the AI applications that we think have the greatest potential within the Alibaba ecosystem. Models are becoming more and more powerful and are evolving faster and faster, which means that it's actually quite difficult for me to tell you definitively what are the areas with the highest potential. I think that all applications potentially could have huge potential. But we are certainly internally looking at some very interesting opportunities. First, in terms of the Taobao app as a portal for lifestyle and for consumption. We're doing a lot of internal development and many of these projects will be launched soon. You'll see them when they are deployed. But these AI enhancements within Taobao will serve to increase consumer engagement and also drive higher transaction efficiency. Other kinds of AI-empowered applications will contribute to purchase-related decision-making and increase user time spent and create value for users. So beyond shopping, we can expect the further introduction of AI features on Taobao to create more kinds of value. We also have our 2C AI offerings, as you know, Quark and Tongyi, Qianwen. So Quark is an AI search product, which has the largest number of users in China. And AI is being deployed and will continue to be deployed there to improve search, productivity, creation, and overall efficiency. As you know, one of our very important, the most important asset we have on the 2B side is the DingTalk app as well. We're also deploying AI there to redefine the enterprise collaboration experience. And the same is also true for AMAP, where we're deploying AI to extend it. It's now currently mostly used as a navigation app. It has 170 million DAUs in China, but as we more deeply integrate AI, it could become a portal into lifestyle and local services, and that will increase user time spent as well.

Next question, please.

Thank you. Your next question comes from Kenneth Fong with UBS. Please go ahead.

Hi, good evening, management. Thanks for taking my questions and congrats on the strong results. I have a question about on the e-commerce side. So we see that revenue have been very strong and accelerating for both AIDC as well as CML for TTG. So can management share with us what has changed and the key initiative ahead for TDG as well as AIDC. And financially, we see the margin for TDG has also stabilized. So how should we think about the trend ahead? And for AIDC, we target for profitability next year. So shorter term, what are the key drivers for driving profitability? And longer term, should we expect the international business being more profitable than a domestic one, giving it is less competitive?

Thank you. Thank you for accepting my question.

Congratulations to the management for achieving good performance from this quarter. My question is about e-commerce. In this quarter, we can see that the e-commerce revenue has increased rapidly. in terms of AIDC, including TTG's CMR, which has been greatly improved. I would like to ask, what are the key strategies for AIDC and TTG in the future? And now that TTG's profit rate has stabilized, what will be the trend in the future? In addition, Director Guan also introduced that AIDC is expected to achieve What are the key driving factors for ARDC to achieve profit? And finally, in the long term, will our international e-commerce profits be higher than domestic e-commerce?

Because the competition is not so intense. Okay, there are many questions. We may start with domestic e-commerce. We have always been committed to our direction. We hope that on the user experience, we can continue to innovate and optimize, so that our users' annuality can be improved. We also saw in the new fiscal year, we also saw a space for users. Because we also send more users to pay, so we will also continue to invest in the user side. And then in the past, In the past year, we have done a lot of action in commercialization, including our payment procedures and our new advertising model. As you can see, these actions have also brought an obvious improvement in the take rate. So we will continue to improve the user experience, and at the same time, we will continue to optimize the efficiency of our business, including the business environment. We will also increase Thank you.

Again, there are quite a few questions there.

Why don't I start with domestic e-commerce? domestic e-commerce business, the strategy that we've been pursuing has been to enhance the user experience, to make innovation and optimization around the user experience to achieve higher levels of stickiness. Looking ahead to the coming year, we see potential to achieve further user growth by investing in users. At the same time, as you said, we've done a lot to drive increased monetization recently, including, among other things, charging payment processing fees. But we will continue to invest in enhancing the user experience as well as enhancing the operating environment for merchants, and those things will continue to require investment. So overall, we're looking at stabilizing market share while enhancing the user experience and optimizing merchant operations efficiency.

Then I will answer about the international business, because our international business is actually one of many businesses. We have B2B business, we have cross-border business, and we also have some local platforms like this. Yes, then I will talk about it separately. First of all, I think our B2B business will still have a more stable trend in the next few years. Yes, and it can also bring us a relatively considerable profit. In our B2C business, we have made a lot of improvements in the past cross-border business. We can also see a significant improvement. We are confident that in the future, within a quarter, we can see a significant improvement in the loss of our cross-border business. Our policy is that we are also We are actively seeking cooperation with some local platforms in some countries. In this way, I think it is also beneficial for us to improve our profit for a long time. So, about this long-term domestic international business, can it be more profitable than domestic business? Now we may not be able to make such a prediction. But we can see that the future of international business is a relatively clear path of profit.

Secondly, in terms of our international e-commerce business, this is really an amalgamation of lots of different business models, including B2B, cross-border, as well as local platforms that we operate. But overall, as we've said, we expect to see a stable trend in our international business in the next few years working towards achieving profitability, significant profitability at scale. In our B2C business, as you know, we've done a lot to optimize the business model and unit economics have increased very significantly. And as we've said, over the next few quarters, you can expect to see a significant increase in profitability. In some countries, we are working on collaborating with local platforms where it makes sense to do so, and that is also beneficial to increasing our profitability. You asked in the long term if the international e-commerce business could be more profitable than our domestic e-commerce business. I don't think that's something I can Okay, Kenneth, I will answer your question about the profitability of TTG.

In TTG, I think we still insist that our long-term goal is to stabilize our market share. So I think this is still very important. So, in the past few seasons, including this season, we are still in a stage of investment. These investments will focus on the user experience, and also focus on... Here, I think new users, including some users like our ATA VIP members, so the investment in this area will continue. At the same time, we also need to grasp now, because of the window of other payment, to better develop our new users. So these are also some of the key points we have invested in. So now is... It's still our investment period. So, while investing, we also hope to explore more in our open source method. Here, including our software service fee collection, we also include using a more efficient China China China Thank you very much. Thank you.

This is Toby.

I'll take the question regarding margin on TTG. You know, as I think Tiang Fan has stated very clearly, the strategy for TTG has been to invest in achieving healthy, stable market share. That's been the priority of investment for the past several quarters and indeed in this quarter. investing in enhancing user experience in acquiring new users as well as in our 88 VIP core user group and those investments will continue also we've integrated new payment methods as well which is an important means also of engaging with new users and Of course, while making these investments, we're also actively exploring ways to increase revenues. We've done so with the software service fee, as you've seen, as well as with our more intelligent marketing product, QZT, which is driving higher levels of monetization. And we'll continue to invest in those areas while also seeking to increase monetization in those same ways while paying a lot of attention to optimizing the business environment for merchants on the platform. So margin is always a balance between revenue and expenditure and we do remain in an investment stage as we have been and will continue to invest in enhancing user experience and acquiring new users.

Next question, please.

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

Thank you, Joe, Eddie, Van, Toby, and Lydia. So further on the AI questions, we've seen the AI revenue triple-digit growth that we mentioned for six quarters now. So how should we quantify the size of that? Are we reaching kind of more substantial kind of double-digit mark here for AI? The reason is we want to know the implications for cloud margins, given that historically cloud business is at a very significant margin gap versus some of the global cloud players. So as the cloud makes shifts from public cloud to training and then now increasingly to inference, how should we think about the growth, and then more importantly, the cloud margin outlook for us versus our global peers in the longer term.

Thank you. Thank you for accepting my question. My question is about AI. You just mentioned that AI-related products have made a three-digit growth in the sixth consecutive quarter. This is good, but I want to know how its profitability is. a relatively good two-digit profit rate, because our profit rate has always been relatively low compared to these international companies. So, with the focus of demand now turning from the public cloud to training and then turning to reasoning, what kind of impact will this have on our profit rate and the future outlook of the profit rate?

Thank you for your question. Now, we have achieved six-week growth of more than 100%, more than three-digit growth. Now, we see that the customer demand is still growing, and this growth is still beyond our original judgment. Especially after this year's Spring Festival, we saw a very big change. is that the need for reasoning is indeed on the rise. More than 60% or 70% of our new customer needs will be used by customers to take our resources and use them for reasoning. So this is... We will see that if customers use it for reasoning, it will make our customer skills and the scenarios used or customer use in the application industry will quickly expand. In this respect, to some extent, it will increase our overall profit rate in AI-based facilities. But on the other hand, as we have just mentioned, in the next three years, we will be the largest CapEx construction cycle in the history of the Group. We believe that these big investments, or less will affect some profits. At the same time, I think due to the fierce competition in the Chinese market and China's cloud market, it is actually relatively different for the whole world. We think the overall profit rate of cloud computing in the Chinese market may be relatively different from that of other companies around the world.

Thanks for those questions.

Indeed, you're absolutely correct. Our AI-related revenues achieved over 100% growth, three-digit growth for the sixth consecutive quarter. And customer demand for AI and related products continues to grow. In fact, that growth is turning out to be much higher than our original growth. expectation and what we've seen in particular from the spring festival Chinese New Year onward is an explosion in demand for inference in fact around 60 to 70 percent of the new demand that we're seeing now is for inference so we we expect that with this rapid expansion in demand we will grow our customer base and expand industry coverage across a wider range of sectors. And all of that will certainly contribute to higher levels of margin in our AI services. However, as I said earlier, we're committed to making the highest ever historical investments in CapEx in the coming three-year period. And if you take those investments and amortize them over the coming years, that will certainly have an impact on margin. And a final point, I would expect that given the fierce competition in China and the different market dynamics here, the kind of margin that you'll see in China will be somewhat different from what you'll see internationally.

I would like to add one more thing. Because cloud computing is a business model that has both a scale effect and a network effect at the same time, especially in the current stage, the scale effect is very important. We believe that our huge investment in KAPEX in the future will help our overall hardware purchase, . . . . .

The other thing I would say is that cloud is a business that's characterized by both strong scale effects and strong network effects. And the scale effects are particularly important at this stage as we're engaging in large capital investments, building out our hardware with CapEx. So the point is that as we achieve greater scale and acquire more customers, we'll be able to better optimize the costs of this buildup.

Next question, please.

Thank you. Your next question comes from Vuen Lau with CIDIC Securities. Please go ahead.

Thank you.

Thank you, management.

Congratulations on the strong results and all the progress you're making around AI. My question has to do with shareholder returns. I think we see there's still $2.07 billion U.S. dollars. Pardon me, $20.7 billion U.S. dollars of dry powder for share buybacks. I'm wondering if you can tell us how that will be deployed, given all of the progress that you intend to make around AI and the investment there.

Okay, let me answer this question. If you look at it, in the December period, we made about $1.3 billion in repurchase. We reduced the outstanding share by 0.6%. In the previous two periods, we deployed a total of $1.1 billion. So we can see that we have spent more than $1.1 billion in the past nine months and have reduced by 5.1%.

So this whole process is still a very big progress.

Well, in the December quarter, as you know, we conducted 1.3 billion US dollars of buybacks, achieving a 0.6% net reduction in share count. And during the first half of the fiscal year, we repurchased approximately 10 billion US dollars, achieving a 5% net reduction in share count over the last nine months. So as you can see, we've already made very considerable progress with these share repurchases.

Yes, it's the same as our entire practice in the market. I think doing a share buyback as a shareholder will definitely consider the stock price. So this is why in the previous six months of this fiscal year, we bought with an acceleration. This includes For example, in June, we made about $5 billion in financing. In that period, we spent all of this $5 billion on the overall stock purchase. So at that stage, because we thought our stock was only about $80, it was very undervalued.

As is common market practice for companies engaging in share repurchase programs, of course, we will consider the current share price as we execute our share buyback program. And that's why in the first six months, you saw an accelerated pace of share repurchase. As an example, in the June quarter, we raised $5 billion U.S., in debt financing and used the entirety of the proceeds for share buybacks. And that was because at the time, our share price was only 80 U.S. dollars, which in our view was extremely undervalued.

Right. So for the overall share return, we all know that our board has a Capital Management Committee. We have such a committee. The overall establishment of this committee is to improve the overall shareholder return through better capital allocation at the company level. In the past, we have been managing such a capital allocation to improve shareholder return. In the future, I think from the perspective of shareholder return, we will continue to use Guxi,

As you know, we have set up at the board level a capital management committee precisely for the purpose of optimizing capital allocation so as to enhance shareholder return. The committee has been providing strong management to shareholder return initiatives and will continue to do so and we will aim to continue to elevate shareholder returns through a combination of dividends of share buybacks as well of course as investment in high growth high potential areas

Going forward, we will continue to deploy our cash effectively and optimally to enhance shareholder return.

and will continue to execute share repurchases in accordance with the allocation and guidance given to us by the Board of Directors and with an eye on the share price.

Next question, please.

Thank you. Your next question comes from Gary Yu with Morgan Stanley. Please go ahead.

Hi, thank you for the opportunity and congratulations on a strong set of results. I have two questions, both related to AI and cloud. The first one is I appreciate management comment about AI potentially representing 50% of the global GDP and cloud is important infrastructure. But when we think about how we monetize this potential sizeable opportunity, besides the infrastructure which is represented by the cloud, how should we think about Alibaba's strategy to tap into the application or software layer and could management comment more about the enterprise adoption side because we kind of understand the previous comment about the consumer facing part including consumption and local services. And my second question is related to CapEx. So our management comment about the next three years being the heaviest investment cycle in the past decade. How should we think about how Alibaba plans to allocate investment? How much will be spent on chips? And specifically, how should we think about the mix between spending on import chips from U.S., as well as domestic chips. And in the event of further export restriction from the U.S., how should we think about any contingent plan in order to continue with the investment? Thank you.

感谢管理总接受我的提问, 也祝贺取得良好的成绩。 我的问题还是关于AI和云这一方面的。 我刚才呢, I noticed that the management introduced that AI may represent 50% of the global GDP, while cloud is an important infrastructure. I would like to ask, in terms of commercialization, in addition to the infrastructure provided by cloud, how can we make applications, such as apps or software, some transformation opportunities. In addition, can you start by introducing the situation of companies using our AI services? You have just introduced the 2C end, the scene of consumption and life. Please introduce the situation of companies using it. The second question is about capital investment, CapEx. The management team just said that the next three years will be the biggest investment cycle in more than 10 years. So, what kind of distribution will these investments make? For example, how much will be invested in chips? How much of the chips will be imported from the United States? How much will be domestic? And then, if the United States Okay, thank you for your question.

We have just talked about how the Group There are a few obvious opportunities for us to upgrade with AI. In terms of 2B that you just mentioned, we actually divide it into two levels. On the one hand, we think that we have quite a lot of opportunities in the Aliyun service level. In fact, in the future, the future SaaS software or these software within the company, we believe that in the future, more will become the drive of AI Agents. That is to say, many of these systems within the enterprise will gradually become... will gradually become an AI agent that connects and calls each other, and then helps the enterprise improve efficiency, and even helps the enterprise complete some very important decision-making work. I think that there are quite a lot of software and SaaS software in this, Plus, these opportunities for software upgrades. On the other hand, we just mentioned Dingding. I think that in the future of enterprises, especially those on Dingding, we think that there are quite a lot of operations on corporate co-operations that will use more natural language, such as Dingding, to complete the interface of chat. And the CIM software or ERP software behind it will actually be more like to realize the functions of these databases. Just like how we make decisions during meetings within the enterprise, in many cases, they can be processed in a natural language on Dingding. This is a typical combination of AI Aging and Dingding. At the same time, we have a lot of companies on Dingding that have a lot of internal private information. And these internal private processes, it needs some private model deployment or some private agent to help it achieve higher efficiency. So we think that AI, these technology-based applications, are a huge change for the entire corporate software market and corporate co-operative market.

Well, thank you for those questions.

As we said, we definitely see some very clear opportunities for the application of AI on the 2C side, which I've already mentioned. When it comes to the 2B side, there are a host of different opportunities for Alibaba Cloud Intelligence to capture. I think as a general remark, SaaS software going forward will become more and more AI agent driven. In other words, a lot of the internal systems employed by enterprises in the future will become more like a network of multiple AI agents that collaborate and call on one another to provide services, including to assist the enterprise even in important decision making. Along with that, there will also be a lot of opportunities to upgrade not just the software, the SaaS layer, but also the underlying supporting PaaS layer. Another really good example, I think, is DingTalk, which is our flagship enterprise collaboration product. I think going forward with AI, a lot of functionality on DingTalk will be achieved through natural language interaction and Today's CRM and ERP type systems will become more like databases that feed in. So enterprise meetings and decision making can all be handled through natural language on Ding Talk. And again, there are many opportunities for the integration of all kinds of agents into Ding Talk. Another important thing to note is that a lot of companies internally have huge amounts proprietary data and their own proprietary in-house processes and they'll need to leverage AI agents in order to enhance the efficiency of those kinds of processes so I think overall AI will be able to empower and reshape all kinds of corporate software corporate applications and this is a huge opportunity

As for the second question you mentioned, our entire KAPEX investment is basically related to the whole structure of the different modules in our IDC. So I think it may not be too convenient to share some of the more detailed parts in it. On the other hand, on the overall chip, we have actually done a good job in the basic infrastructure of cloud computing. Aliyun is able to match a variety of chips. On to the other part of your question regarding CAPEX, in order to give you

a breakdown as to what percentage of capex will go into what area that would really require giving you a detailed breakdown of the cost of all the different equipment uh in our idc's so i don't think i'm really at liberty to get into that kind of detail with you uh what i can tell you is that the way we've designed our cloud very deliberately is to be compatible with a whole range of all kinds of different chips so no matter what kind of policy changes may be forthcoming in the future, that will not affect us and we will certainly be able to implement our investment plan.

Due to time limit, we will now take the last question.

Thank you. Your next question comes from Jialong Shi with Nomura. Please go ahead.

Good evening, Mr. Guan. Thank you for accepting my question. I have two questions. The first question is about the We recently divested some non-core assets, including InTime and SunArt. I would like to ask about some assets in our asset portfolio, such as Hema, Youku, and Elema. What is our company's position on these assets? Do you have any plans to make a similar divestment arrangement in the future? I would also like to ask about Aliyun. And my own understanding is that the growth of revenue for Alibaba, the contribution of AI to Alibaba's revenue growth is mainly realized through the strong demand for cloud-based facilities. I would like to ask, our communication model is a free open source model. In the future, what is the potential and ability of the communication model in terms of income and transformation? What are the transformation models? Also, I would like to ask you, Eddie, how do you see the future of the AI model? In the current market, as Eddie just mentioned, the market of the current Chinese AI model is more unified. In the future, I would like to ask if it will continue to be a relatively scattered market pattern, or will one or two AI models occupy a relatively large market share? Thank you.

Thanks, management, for taking my questions. I have two questions. My first is following your successful divestment of physical retail assets in Time and Sonar. I'm wondering if you have any plans for potential future divestment of other assets, including Fresh Depot, Youku, and Ulema. My second question, coming back to cloud, it seems that a lot of the revenue growth that's being driven in cloud is as a result of demand for compute associated with uptake in AI. But I'm wondering if there's, in addition to that, any future monetization pathway, monetization model for Tongi, the use of the model itself. Is there any way to generate revenue and profits from the model? not just from the compute. And as Eddie said, the Chinese AI market seems to be rather homogeneous in the sense that there's a lack of differentiation across the different models. Do you think that'll continue to be the case or in the future will there come a day when there might just be one or two big models in the market that take up a large market share?

Thank you for your question. I will answer your first part of the question, and then Eddie will answer your second part of the question. Regarding your question about some of our core assets, China China China China or in the June quarter, depending on the whole process, I think we will still complete these two sales. This is the first. Second, we are in some of our non-strategic minority equity investments, we are also actively conducting certain withdrawals, so everyone may also often see some of us withdrawing some investment from the market. Such a message, then, in the future, I think we will still continue to look at our entire first focus on our main business, At the same time, we will also further observe these assets and investments that we still have. While focusing on withdrawing some non-core investments, we will also pay more attention to how our business values can better reflect in our stock. Here I think a few examples, for example, Hema, everyone may have completely China China China China I believe we need to explore and think about it in the future.

Thank you. This is Toby.

I'll take the first part of the question and then hand over to Eddie. So as you know, we have been strictly implementing our strategy of focusing on our core businesses and exiting our non-core businesses. And as has been announced, in the December quarter, we completed the sale in full of of Sunart and Intime and we have already passed anti-monopoly reviews so we expect to complete those transactions either in the March quarter or in the June quarter. We will continue to look for opportunities to exit our non-strategic minority owned assets and you'll continue to see announcements coming forth as we go forward. And in the future, we will be focusing, as we have been on our core businesses, we'll be looking at the assets in which we're invested and exiting, as I say, the non-core ones. But in respect of other assets, we'll be looking for ways to tap into their business value and to see that value better reflected in the valuation of Alibaba Group. And I think fresh ship owners which you mentioned is a really good example of that. FreshUp was a business that's achieved very good growth, very good expansion. It's achieved very good profitability, and it's an excellent example of an innovative business model that integrates online and offline retail. So given its success, no, we don't have any plan to sell FreshUp, but we would certainly have and take an open attitude, for example, to introducing a strategic investor or a other similar approaches that could enhance the value of FreshHippo and in particular result in that value being better reflected in the valuation of the Alibaba Group. So this is something that needs further exploration going forward.

Okay, let me answer the following question. Our current income growth in Alibaba is actually dependent on a very strong demand for AI-related products. Now, when it comes to our communication model, we are an open source model, but it is not necessarily a free model, because we also provide a fee-saving API on our blockchain platform. Of course, for now, the fee-saving API has a relatively low revenue, but we believe that with the continuous improvement of model capabilities and the growth of future customers, . . . . . will naturally use Aliexpress. Because using Aliexpress, the entire communication and communication extension model has the best efficiency. Another third point is that we found that using our communication API customers will actually lead to a lot of product sales on other clouds. This is a very obvious effect of customer-related sales. Thanks.

This is Eddie.

Let me take the other part of that question. So, yes, the growth, the robust growth that we're seeing in cloud revenue is largely being driven by a huge customer demand for AI products. Our Qianwen model is an open source product, but that does not necessarily mean that it is provided free of charge. In fact, we do charge for access to the model via the API on the Bailian platform. Of course, the revenues that we create that way are relatively low, but as the model's improve become more powerful as the capabilities become more sophisticated it's certainly possible that we could charge more for the use of the models but I should also say that q1 is an open source model which means that a lot of developers are using it as a foundation model on which to develop their own vertical models and their own applications and it's therefore only natural that they will deploy those models, those applications on Alibaba Cloud because that's the most efficient way to do it. Thirdly, I would also say that when customers are accessing our QN model through the API, There are a lot of opportunities for us to cross-sell to them other of our cloud offerings. It's a really excellent example of a cross-selling opportunity. So although Q1 in and of itself is not driving and may not drive huge revenues, it's a very, very important part of our overall cloud offering that will help to drive overall cloud revenue.

Okay, your last question is about the market pattern of AI big models. Because the entire AI model technology is still in a rapid transition, and it is also the early stage of the entire market. So I think it is not very clear to judge the overall future. But from what we see now, some industry trends, I think on the most basic base model, we will see that in fact, everyone's gap is slowly becoming smaller. And, but we see, especially based on OpenAI 01, or DeepSeq, such a reasoning model, and the reasoning model that we will launch in the future, the technology in this area is getting better and better. We see that in the post-training stage, for model customization, and being able to adapt to different industries, or even adapt to different private data, we see that there will be a very big and market space. On the other hand, we also see that there should be a lot of big and small companies that can generate a lot of creative value from this. I believe that in the future, there will be a lot of professional models or vertical models that will be able to host on the cloud. This is also one of the reasons why we are happy to see a more prosperous open source ecosystem in the future.

Finally, on your last question, which had to do with the future market landscape for AI in China, you know, this is a period of time right now where things are iterating and developing rapidly. At the same time, it's very early days in the development of AI. So I just don't think it's possible to judge what the end game will look like. What I can tell you is the trends that we're seeing today, as I've said, the gap between between different foundation models today is narrowing. I think that going forward, you can expect to see a lot of demand around post-training. So thinking of models like OpenAI 01, DeepSeq, the reasoning models, as well as the reasoning model of Q1 that we will be releasing shortly. A lot of the demand will be around post-training to customize those models, adapt them to different sectors, different use cases, to adapt them to private data sets, and I think that there's huge market potential for that kind of post-training. I think there's also lots of opportunity to create value for a whole range of different companies, large and small. All of these models, the specialized models, the vertical models I've referenced, will all need to be hosted on cloud. So that's why we are very excited and confident in the prosperous development of an open cloud ecosystem.

Thanks, Eddie. That wraps up the Q&A session of today's earnings call. Thank you very much for joining us today. We look forward to speaking with you soon. Thank you.

That does conclude our conference for today. Thank you for participating. You may now disconnect.