Q3 2023 Alibaba Group Holding Ltd Earnings Call
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Good day, ladies and gentlemen, thank you for standing by welcome to Alibaba Group December quota 2022 results conference call. At this time all participants are in listen only mode. After management's prepared remarks, there will be a Q&A session I would now like to turn the call over to Rob Lin head of Investor Relations.
Alibaba Group. Please go ahead.
Thank you good day, everyone and welcome to Alibaba Group December quarter, 2022 results Conference call.
With us today are Daniel Zhang Chairman and CEO .
Hi, Executive Vice Chairman co Vichy CFO . 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.
Let me quickly cover the Safe Harbor today's discussion may contain forward looking statements forward looking statements in your golf inherent risks and uncertainties that may cause actual results to differ materially.
Expectations for a detailed discussion of these risks and uncertainties. Please refer to our latest annual report on form 20-F, and other documents filed with the U S. SEC were announced on the website of the Hong Kong stock exchange.
Forward looking statements that we make on this call are based on assumptions as of today and we do not undertake any obligation to update these statements except as required under applicable law.
Please note that certain financial measures that we use on this call such as adjusted EBITDA adjusted EBITDA margin adjusted EBITA adjusted EBITA margin non-GAAP net income non-GAAP diluted earnings per share or a D. S and free cash flow are expressed on a non-GAAP basis, our GAAP results and reconciliation of GAAP to non-GAAP measure can be found in our.
Earnings press release.
Unless otherwise stated growth rate of all of the metrics mentioned on this call I referred to year over year growth versus the same quarter last year.
I would now turn to Daniel.
Thanks, Rob.
Hello, everyone. Thank you for joining our earnings call today.
This past quarter, our business and operations experienced significant challenges due to the rapid change in the Covid situation during December .
Despite these challenges we delivered double digit year on year growth in our.
Adjusted EBIDTA and free cash flow, so effective business management cost optimization and operating efficiency.
What is the lifting of Covid related measures.
And off peak wave everything is now quickly getting back on track.
In general consumer confidence and business confidence are rising.
Logistics has resumed normal operations.
What is the in car supply and manufacturing change becoming active.
Digital transformation across different industries and sectors has accelerated significantly.
I guess this back.
Backdrop, our various business are showing positive trends.
Recently, the IMF raised the estimated GDP growth for China to five 2% this year.
Given the expectation for economic recovery following the lifting of coli related measures and China's reopening.
I have chosen progress and the key word internally to set the tone for Alibaba development. This year.
We need to respond quickly to the changes in the macro environment and a major cycles.
The theme of progress represents the need to adapt to the trends in the macro environment.
And for Alibaba Olga vitamins.
In China's post Covid economic environment.
All of those different businesses across our complex ecosystem face their own unique circumstances.
We remain confident in our STREAMWAY strategic Peters of consumption cloud computing and the globalization.
Now I will show, how our business performed this past quarter.
Yeah difficult Covid environment.
Together with some color on the situation in January and February and how we plan to capture opportunities across our businesses.
You mean December quarter, the Chinese consumer market was highly impacted by Covid cases.
Paul and team with G. M D dropped mid single digit year on year and the.
Consumption demand was quickly suppressed it.
In terms of category apparel, and other discretionary goods were weak while health care and wellness related grow strongly.
This is consistent with the data trend released by the National Bureau of statistics of China.
From January to early February of this year.
Overall sales of online physical goods <unk>.
Named week.
And our China Commerce continue to be highly impacted due to COVID-19 cases, as well as people covering home or to other places during the spring Festival holidays.
But I.
What was the influence of Covid cases, and the Spring Festival travel so decided in February .
Especially recovery in categories, such as apparel and sports and outdoors.
Work in the life returns to normal.
All of our merchants have also expressed their strong desire to get to business.
We expect this recovery will continue.
You know our operations, we are strengthening the user experience and the customer value proposition on top on Tmall to reinforce our market leadership with a following measures.
First <unk>.
As user stickiness and time spent.
Although N T Mo are home to China's most comprehensive population of online shoppers.
And is the most efficient consumer transaction platform.
We are building on our competitive advantage by continuing to introduce a wide variety of consumption related content in the form of short form video live streaming and other formats to strengthen consumer stickiness product discovery.
Influence and the user engagement.
Second enhance value for money proposition.
Price is always a key factor in consumer purchasing decisions.
We will continue to improve competitive pricing.
So the design of marketplace Mccann is it.
Promotional marketing features and a retail model innovations such as cobalt deals direct from factory goods and farm to table offerings.
Sure.
Neighborhood digital retail.
We will cut it to consumers time sensitive needs for highly frequency everyday necessities.
Our neighborhoods.
Total retail business, such as power and its all time high that's fulfill orders from local supply chains using local deliveries.
In local consumer services, but almost restaurant order volume growth rate pick up towards the end of this quarter due to increased home based consumption from Colby paces.
Notably no.
Restaurant order volume closely.
Was far higher than what it was for restaurants.
The business saw an increase in revenue due to higher average order value.
Ongoing improvements in operating efficiencies resulted in lower expense ratios in marketing and logistics.
All of them are continued to demonstrate positive unit economics, and it will continue to improve.
During COVID-19 all of them are just operating strategies safe.
Safeguard its delivery capabilities and supported supply recovery.
Yeah.
Yeah.
Julien peak Covid cases.
M S user scale and the scale of services used what Jen we.
We were greatly affected.
Cases east usage of aim up quickly recovered.
Rod hating in a hotel room booking volume grow very rapidly.
Matt has become a new platform, providing various destination basis consumer services.
Three is domestic and outbound travel activity also quickly grow during the spring Festival holidays.
As a result of our ongoing development of the supply chain and service capability over the past two years.
Recovery of previous domestic airplane ticket and hotel booking.
It was significantly faster than the overall domestic travel performance reported by the China National Tourism Administration.
And a notable and then noticed Paul D bench.
In comparison to 2019 before the Covid outbreak.
International Commerce.
Our various business made steady progress.
<unk> continued to deliver strong growth as overall order volume well over 50% year on year.
With local consumer service is growing even faster.
When Turkey was suddenly hit by earthquakes in early February .
We actively overnight and deliver support for emergency relief.
So far all of our employees in Turkey are safe.
Triangle's business operations.
Stable and they have mobilized resources, so eight disaster relief.
Asphalt disorder.
<unk> continued to optimize for order.
Volume growth. They also reduced loss per order by more than 30% year on year.
We remain firmly committed to continuing to invest in the region of southeast Asia.
Through close collaboration with tiny all aliexpress quickly optimize unbound order deliveries.
Oh on key routes.
That's not just service its quality continued to improve and the impact of V. A T and the foreign exchange rate in Spain, and France continued to ease.
How do you Express order volume is starting to show positive growth.
Our globalization strategy will continue to be firmly focused on southeast Asia and in Europe .
Through a mix of localized retail and cross border Commerce.
We will continue to make sustainable long term investments in our field businesses that Ken.
Withstand economic cycles.
Yeah.
Yeah.
Hi, Neil is celebrating its 10th anniversary this year.
It has built a robust comprehensive business covering China and cross border International logistics.
Last mile logistics technology and more.
It is also continuing to make progress in Green logistics and emergency response logistics.
In China Honeywell continues to expand its doorstep delivery services for our taobao and Tmall customers.
During the most recent November 11.
More than 18 million orders from Taobao, and Tmall will deliver to customers' doorsteps daily at its peak.
Which includes those delivered directly to toss that true also Tanya I'll close location in residential communities.
And you always also built its own international logistic network over the past few years.
That's all for this past quarter it had more than 15 international sorting centers in operation.
Yeah.
Our cloud business overall revenue growth rate this quarter was 3% year on year.
So closely for public cloud was double digit year on year.
Which was partially offset by a decline in hybrid cloud revenue.
Project delays due to COVID-19.
In terms of our revenue by industry.
Financial services education, and automobiles among the gross drivers.
Okay.
We also announced an important organizational change towards the end of last year.
I took on the role of acting President of Alibaba Cloud. In addition to my current role as chairman and CEO of Alibaba group.
This decision was based on a few considerations.
First cloud computing is one of the Alibaba as core strategies for the future.
Innovation and the other technologies, we will have an impact not just on.
Alibaba cloud, but the entire Alibaba group.
Second Alibaba cloud is also the foundation through which Alibaba serves the real economy and it will continue to try physical digital integration.
Third we believe this is a critical period for technological breakthrough.
And if the environment in the Nexus of cloud computing and AI.
That's one of the leading cloud computing service providers.
We strongly believe in the vast potential of industrial digitalization and the role of cloud computing infrastructure. So the digital economy.
Yeah.
Going forward, we will focus on a few areas to reinforce and strengthen our market leadership position as we look at the opportunities ahead.
First.
And has the stability and the security of our cloud computing services, while continuing to optimize performance and manage our costs through technology investments.
Second.
Continuing to build a dynamic developers in the industry ecosystem for cloud computing.
Sure.
Collaborate with partners to provide intelligence based industry solutions to our customers in different industries and sectors.
Fourth.
Continuing to push forward, a holistic cloud based service product that integrating tuck.
Our intelligent online workspace work place collaboration platform and application development platform.
Lastly in this exciting era of disruptive breakthroughs initiative like generative AI.
Computer power is essential.
On one hand, we will continue building our own large scale training model.
Also ready to capture the market opportunities to provide the computing power for the various generative AI models and its applications.
This year marks Alibaba group's solid fourth year.
And in Chinese traditional culture. This means we have gone through to compete calendar cycles.
We captured two historical opportunities of e-commerce in China for the consumer Internet and to start to cloud computing in China for the industrial Internet.
We will continue to capture the vast opportunities ahead, so the impact of technology.
On commerce and other.
But it's of our society and environment.
Although there are many uncertainties in the journey ahead that are very difficult to evaluate.
Evaluate.
We remain highly confident in the future of Alibaba and the China's development.
Thank you everyone. Let me pass the microphone to Toby who will share our financial results.
Yeah.
Thank you Daniel.
Let me start with financial highlights for the quarter.
This quarter, our total revenue was RMB 248 billion.
An increase of 2% year over year.
Income from operations was RMB 35 billion.
An increase of RMB $28 billion year over year.
Mainly driven by a RMB 22.4 billion decrease in.
In hammer off goodwill in relation to digital media and entertainment segment, adding RMB seven 2 billion increase in adjusted EBIDTA.
During December quarter, we have continued to improve operating performance of our loss, making businesses by enhancing operating efficiency and optimizing costs that resulted in 16% year over year increase in adjusted EBIDTA to RMB 52.
$2 billion.
Overall, our adjusted EBIDTA margin improved by three percentage points to 21%.
Now, let's look at cost trends as a percentage of revenue excluding SBC.
Cost of revenue ratio remained stable year over year at 60% in December quarter.
Our direct sales businesses and logistics services continue to grow driving up our cost of inventory and logistics, but we were able to keep our cost of revenue ratio stable.
I'm really through optimizing content cost traffic acquisition and improving operation efficiency.
Product development expenses ratio remained stable during the quarter.
Sales and marketing expenses ratio.
<unk> three percentage points year over year to 12% in December quarter.
Reflecting our continued effort in optimizing user acquisition and user retention spending across businesses.
General and administrative expenses ratio remained stable at 3% in December quarter.
non-GAAP net income was RMB 49, 9 billion, an increase of RMB, five 3 billion or 12% year over year.
Mainly due to increase in adjusted EBIDTA, partly offset by decrease in equity pickup of our equity method Investees results.
Our GAAP net income was RMB $45 7 billion, an increase of RMB $26 5 billion year over year Pri.
Primarily due to the increase in non-GAAP net income and the RMB 22, 4 billion decrease in goodwill impairment mentioned earlier.
As of December 31st 2022, we continue to maintain a strong net cash position of 379 billion RMB 155 billion U S dollar.
Our strong net cash position is supported by healthy cash flow generation in.
In December 2022 quarter cash from operating activities was RMB 87 billion and free cash flow.
RMB 82 billion respectively.
Which were up by RMB 7 billion, and RMB 10 billion versus a year ago.
Majority of the difference between operating cash flow and the free cash flow was operating capex at RMB, five 8 billion down by RMB, three 5 billion versus a year ago.
Net cash inflow.
From investment and acquisition activities, including disposals was RMB, one 9 billion compared to an outflow of RMB four 7 billion in the same period last year.
Importantly, we have continued to enhance returns to shareholders through share repurchases, given our strong balance sheet and free cash flow generation capability.
During the quarter, we repurchased approximately 45 4 million of our ABS for approximately 3.3 billion U S dollar.
Our share repurchase program.
Now, let's look at our segment results.
Revenue from China Commerce Secondly in December quarter was RMB 170 billion, a decrease of 1% year over year.
Customer management revenue decreased by 9% year over year to RMB 91 3 billion.
Taobao and Tmall online physical goods paid G M D.
Declined by mid single digits.
Customer management revenue declined a few percentage points further versus page ANV, mainly due to higher order cancellation rates as a result of supply chain and logistics disruption caused by COVID-19 related impacts.
Direct sales and others revenue grew 10% to RMB 74 billion, primarily driven by strong growth of our fresh impulse and Alibaba houses direct sales businesses.
China Commerce segment, adjusted EBIDTA increased by RMB 749 million to RMB 58, 6 billion in December quarter.
Secondly, if it's high margin remained stable at 34%.
This reflected the significant loss reductions from Taobao deal fresh Hippo and Palatis high partly offset by decrease in profit from customer management services.
Okay.
Our International Commerce Secretary revenue in December quarter was RMB, 19, 5 billion, an increase of 18% year over year.
Revenue from International Commerce retail business increased by 26% to RMB 14 6 billion.
The increase was primarily driven by a saturated revenue growth of <unk> as a result of its strong order growth and more efficient use of subsidies.
Zada, an odd express also saw recovered the revenue growth this quarter.
Revenue from our Alibaba Dot com wholesale business remains stable year over year.
International Commerce segment, adjusted EBITA loss narrowed by RMB, two 2 billion to RMB 763 million in December quarter.
The loss reduction year over year was primarily contributed by the reduced the losses from <unk> and Lasalle.
<unk> continues to generate strong revenue growth and have enhanced operating efficiency.
Continuing with a narrowing of losses from Lazaro was a result of ongoing improvement in monetization rate by offering more value added services as well as enhance operating efficiency.
Yeah.
Our local consumer services segment revenue in December quarter grew 6% to RMB 13 billion.
Primarily due to positive <unk> growth of two home business driven by higher average order value of <unk> <unk>.
Local consumer services adjusted EBIDTA loss reduced by RMB, one 9 billion year over year to RMB three 1 billion.
Most of the loss reduction was driven by the business while other major businesses. Within this segment also saw recorded reduced losses.
We have continued to improve its unit economics per order.
Increasing average order value reducing delivery cost per order.
It's U E continued to improve year over year and remained positive this quarter.
Revenue from <unk>.
After into secondly, elimination grew 27% year over year to RMB 16 6 billion.
Primarily contributed by the increase in revenue from domestic customer logistics service as a result of service model upgrade since later 2021 to enhance consumer experience as.
As well as increase in revenue from international fulfillment solution services.
In December quarter, 72% of tiny I was total revenue was generated from external customers.
Yeah.
Hi, Neil recorded adjusted EBITDAR loss of RMB 12 million in December quarter.
Loss reduced by RMB $80 million year over year.
Revenue from cloud Seckman oft into secondly, elimination was RMB 22 billion in December quarter, and an increase of 3%, mainly driven by healthy double digit public cloud growth.
Partially offset by declining high breakout revenue as we continued to drive high quality recurring revenue growth.
Revenue.
From non Internet industries was 9% and.
<unk> contributed 53% of overall car revenue.
Then on Internet revenue growth was mainly driven by solid growth of financial services.
Medication automobile industries, which was partially offset by the decline in public services industry.
Revenue from customers in the Internet industry declined by 4%, mainly driven by declining revenue from the top internet customer that has gradually stopped using our overseas cloud services for its international business.
On the other hand, we saw improving demand from internet customers in December quarter.
Adjusted EBIDTA of how settlement, which comprised of Alibaba cow and Ding talk was a profit of RMB 356 million in December quarter.
Increased by RMB.
$222 million year over year.
Revenue from our digital media and Entertainment segment in December quarter was RMB, seven 6 billion a decrease of 6% primarily due to the decrease in revenue from Alibaba Pictures.
Adjusted EBIDTA was a loss of RMB 25 million reduced by RMB, one 3 billion year over year, primarily due to the narrowing of loss from <unk> driven by disciplined investment in content and production capability.
Okay.
Let me wrap up with some final thoughts.
Our December earnings result.
Continued to demonstrate our ability to execute and achieve the key operating and financial objectives. We have set since the beginning of the fiscal year.
Despite.
There's a quarter of global macro and Colby uncertainties that weighted on our revenue growth. We have continued to focus on higher quality growth supported by consumers and customer centric initiative.
Improved operating efficiency and cost structure throughout the organization.
Enhanced shareholder return through ongoing share repurchases.
Consistency and persistence.
Were key factors to our success in delivering these results in a challenging 2022.
As Daniel mentioned.
We believe 2023 will be a year of progress for Alibaba.
As expected that China's economic activity will recover in 2023, which would catalyze and stimulate a gradually.
<unk> recovery.
In 2022, we have strengthened our operational and financial capabilities. We are confident that those enhancements will position us well to benefit from China's recovery.
We exited the 2022 with a strong financial position of U S. Dollar $55 billion in net cash, allowing us the financial flexibility to grow our businesses and improvement of improved returns for key stakeholders, including <unk>.
Holders.
In 2023 we intend to increase investments in major businesses that improve their competitive position and growth prospects, while maintaining our mens my mindset of enhanced operating efficiency.
Now, let's turn to Q&A.
Okay.
For today's call Youre welcome to ask a question in Chinese or English third party translator will provide consecutive interpretation for the Q&A session.
Imagine when you adjust your question in the language you ask please know that the translation is for convenience purpose only in the case of any discrepancy our management statements and the origin of language will prevail.
Unable to hear the Chinese translation bilingual transcripts of this call will be available on our website within one week after the meeting.
Yeah, Hi, Jim here.
So in one quarter, even when you win a memorial T cell phone concentrating and <unk>.
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So Matt one sounds Hugo.
Now operator, please connect a speaker and Si conference lines.
Please start the Q&A session one Randy thank you.
Thank you we will now begin the question and answer session. If you wish to ask a question. Please press the <unk> followed by the number one on your telephone keypad. She.
Could you 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 Alex Yao from JP Morgan. Please go ahead.
Yes.
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And John Lee.
Hopefully, we achieve both jumbo and Michelle.
Tcf.
Yes.
Okay.
Thank you very much for management for taking my question. So I'd like to start by asking a question that addresses the long term and after that I'll come back to some shorter term questions.
But starting with the long term as you said in your speech Daniel Alibaba has now been around for 24 years, our marketing.
<unk> of two complete cycles as per Chinese culture.
And through these two cycles over the past 20 plus years Alibaba is captured.
Digitalization enabled opportunities around commerce around logistics and around <unk>.
Cloud.
So looking forward what do you think will be the next big area or areas, where Alibaba can achieve significant growth as you yourself said there've been two major opportunities that Alibaba has seized in the first 24 years.
E Commerce and cloud, but see in the next three to five years, what will be the big opportunities, where you think alibaba can achieve huge growth and then coming back to the short term looking at this year some of the major developments, we've seen very rapid.
Success of chat GPT as well as some important changes in the competitive environment with opportunities and challenges.
How do you see Alibaba better marshaling its core competitiveness.
In the short term and will part of that involves further optimization of costs and driving operational efficiencies. Thank you.
Alex You said, Alex what do you believe that your onshore <unk> Jin Kim.
Just a joke.
If you can touch on the young woman sequel.
Courtyard, Virginia.
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Cheng.
Yeah.
Thank you, Alex and I will take those questions one by one.
First indeed over the past 20 plus years, the major opportunities for us that we seized have been around applying digital technology to commerce logistics and cloud computing and this is indeed, the long term strategy of Alibaba, we remained firmly committed as always to our three core.
<unk> around.
Around consumption cloud.
And globalization and we talk about globalization. It is indeed globalization of our consumption and cloud based offerings, we will remain firmly committed to those core strategies.
Well I wish you all well lets you should stay with us.
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Okay.
Why going forward will Alibaba.
We continue to remain focused on those three core strategies and not seek out.
New arenas in which to compete well very simply it's because we think that in those three areas.
The ceiling is high enough and the market is big enough more than enough for us to accomplish there, especially as we continue to evolve our technology.
We are confident that we can continue to find huge opportunities in those three core areas and we can look at them one by one beginning with consumption. If you look at the size.
Consumption in China today, as a percentage of GDP and you think about the latest forecast from the international Monetary fund the IMF, a 5% economic growth in China.
Imagine what China's GDP numbers will look like if that can be maintained 5% per annum growth for a period of 10 years.
And if China's economy does grow by 5% a year for 10 years.
You can certainly imagine that the proportion.
The size of the contribution of consumption in China within GDP. So we're talking about 40 trillion you wanted it against the 100 <unk> that proportion will certainly be even higher 10 years down the road turning to technology. We can look back at the trajectory that we've already.
Traveled through 20 years ago 10 years ago E. Commerce has taken on a completely different look it's continued to evolve.
And we said in the past that we would Digitalized Congress in China will not snobby completely accomplished looking to the future. We now have these exciting.
New technologies coming to the floor, including generative AI, which you mentioned and I think that certainly will also be a transformative and create new experiences a new formats of consumption.
Digitalization when it comes to consumption is not just a <unk>.
Having an impact on the consumer side, it's also having an impact on supply chain and the way. They are organized and I think that really is just getting started.
Okay.
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Yeah.
Yeah.
When it comes to cloud computing.
This is an industry, where China is really just getting started and you can look at a few figures to support that first of all if you look at.
A proportion of our it spending within total GDP in China is only 1% in the U S. It's as high as 5%.
And if you look at the proportion of cloud within it.
It spending numbers.
15%.
In China today, 21% in the United States. These are figures from ITC.
So I think that those two figures represent a huge opportunity for us in China and of course as technology continues to develop a new cutting edge technologies like generative AI come to the fore.
I'd also VR virtual reality, which we've discussed before all.
All of these technologies as they're deployed are going to require massive compute power to support them. So we expect to see exponential growth in demand.
For compute power so for us as a cloud vendor I think that story is really just getting started and.
And of course these are not just the trends in China, but for the world and we intend to take our offering.
Two the world we're already.
As the leader in China, when it comes to.
Consumption and to cloud computing and one of the leaders in the World and we will continue unshakable belief to be committed to pursue those core.
Core three strategies that we've adopted while continuing to embrace new technologies and make technological breakthroughs in order to create new and more exciting prospects for Alibaba as a company.
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TCP 19th century hold us this holiday Mckenzie with Michelle's team its usual tons out of the ones that Jim is as usual the credentialing.
Take the simple couldn't tell Clinton, we saw a strong year for <unk>. So you will see on women's I think asami how's it really tissue on equal on the sofa.
What's useful tool it sounds like she insomnia Sheila.
And then moving on to your second question.
About new technologies and development in the market and of course, there are always new market developments on a daily basis.
As I said Alibaba has identified progress as our keyword as our overarching theme for 2023 will be seeking progress and technology.
In our business.
And also in the ways that we create user value.
We will be investing therefore to drive progress in new technology.
And to integrate new technology with business to create new value and new kinds of business with tremendous prospects going into the future and in fact, that's what Alibaba has has always done over the past 20 years, we haven't been.
Our low price competitor, we havent been relying on a heavy subsidies we haven't been engaged in low quality low level competition, rather we've always invested in technology and the belief that technology can make the impossible become possible and that can also make business.
It had been impossible also become possible. So we will continue to seek and drive new technology breakthroughs to open up new frontiers in commerce and in business.
Okay next question.
Thank you. The next question is from Ronald Keung from Goldman Sachs. Please go ahead.
Hey, Suzanne and Daniel Toby Rob Na what kind of Giga on young woman suddenly handle sure thing I don't think so not the orange Danielle that.
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Okay.
Yeah.
Thank you we know that in 2022, a major theme for Alibaba was optimizing.
The cost structure and driving operational efficiencies.
Going into 2023, as we've talked about we can expect to see a pickup in the macroeconomic situation.
Potentially hopefully leading to a GMP.
Turning positive GMB growth turning positive again, I'm wondering when you expect to see that happening.
What point can we expect to see positive growth returning in the GDP <unk> numbers.
And also how are we going to achieve balance between growth and investment in this new year, because we know there are people.
Sure engaging in a lot of.
Subsidization behavior.
In the market. So how are we going to achieve that balance between growth and investment.
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Okay.
Well starting with.
The part of your question that had to do with the pickup in consumption that we've seen.
Following the end of Covid measures.
China, obviously, we're following that situation very closely just like all of you just like everybody else.
My script earlier.
I did lay out as detailed and comprehensive picture.
I could <unk>.
January certainly was still a challenging time through the spring festival, especially with people traveling.
Widely in large numbers across the country.
License work, however began to normalize.
Around the time of the Lantern Festival.
After with.
Improvement in consumption sentiment indeed as expressed in consumption behavior and I also shared with you the <unk>.
<unk> that that had in different categories, including apparel sports outdoor and in health.
Certainly what we see across all merchants is a strong desire to get back to business. They want to have a bumper year in 2023 to.
To make up for everything that they lost over the past three years, that's certainly a shared hope across the board.
For all the merchants.
Didn't turn empowers business model innovation at the end of the day.
It's really about merchants being able to provide to consumers the best products at the best prices in a way that is sustainable in the long term so that the merchant can make a return and continue to invest in a sustainable cycle.
So Alibaba has a lot of experience and empowering merchants to do that we also have a experienced in utilizing platform mechanisms to enable sustainable growth and has told me said and his script, we have a deep deep pockets with 55 billion U S dollars in cash so we can continue.
<unk> approaches to create value for users and maintain our leadership position in the market.
Okay next question.
Thank you. The next question, it's an Eddy along some bank of America Merrill Lynch. Please go ahead.
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Yes. Thank you for taking my question management. My question has to do with local services, we understand that there's been a turnaround and unit economics in avilla might've not positive U E continuing to improve but at the same time, we understand that there are various.
Short form video platforms that are also now investing heavily in local services and this could lead to further changes in the competitive landscape. So I'm wondering if you could talk to US. Please about your strategy for local services going forward to continue to maintain and strengthen about leadership position.
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Well when it comes to local services as you know there are really two different kinds of services.
Two home and two storm or two destination because of the store is one kind of.
Destination.
So starting with two destination, you know any media platform short form video or other kind of media.
Can find ways to.
To develop Ah Ah two destination.
Business in the context of local services. They can promote a local destination store or something else through their media offering they can allow consumers to place an order, but when it comes to fulfillment you still have to physically go to the store to fulfill your order. So certainly any me.
That has any kind of influence with an audience can find opportunities to do that to drive traffic to a physical location like a store, but I'll eat Barbour has opened up a whole new paradigm on the two destination front with the important.
[noise] transformation and very successful transformation of a map that we've succeeded and realizing over the past few years, taking it from a simple map tool to a map and location enabled offering that spends search.
Discovery and fulfillment and today, Emma has achieved very high penetration and a whole range of categories that we've talked about from ride hailing through to your hotel.
Reservations through to gas stations, and indeed, finding electric charging facilities for new energy vehicles, and I don't think that's something that any other kind of media platform than any media platform could accomplish now the other piece when we talk about local services is to home and.
M as part of that section of local services, you mentioned, Illinois in your question and indeed following several years of hard work I think all of them are very much is on the right track unit economics are positive and continue to improve things continue to move in the right direction in terms of the number of orders.
The number of users as well as the unit economics. So when we talk about two home this is a local or neighborhood.
E Commerce, so deliveries from restaurant to home are one example of that but it's not just a restaurant food orders. It could also include things like medicine. It could include groceries or other kinds of daily essentials, but to succeed in this space you need to be able to successfully integrate local.
Neighborhood supply neighborhood demand and neighborhood level. So film it all in one place at the same time at the game. This is this is something that certainly no media outlet could ever possibly hope to achieve and this is where Obama Ah has has.
Being a great success, because you need to be able to integrate in real time.
Local supply at the local demand and the local fulfillment capabilities the only to intersect in the space time continuum and a single coordinate in a way that achieves chemical synergy so that's far beyond the capabilities of any media oriented.
Player.
We continue to successfully grow our local services business and the priority cities. We have identified and of course your business will look very different if you're going after 50 cities versus 100 cities. We continue to focus on the key cities that we've identified <unk>.
<unk> to improve the service to win and build confidence with consumers and drive longterm growth.
Thank you next question.
Thank you. The next question is from <unk> from Barclays. Please go ahead.
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Thank you management Toby you.
Said that in the past quarter free cash flow exceeded 11 billion U S dollars and we know that there are other initiatives.
Initiatives under way within Alibaba to monetize on certain investments.
And in the last quarter U conducted a 3.3.
Building U S dollars a share buybacks under the the buyback program, but I'm wondering what other potential methods could be available for Alibaba to increase shareholder value to increase returns to shareholders are there any other things you could be doing for example, considering distributing dividends Ah.
Further expanding the scale of the share buyback program.
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Thank you for your question you touched on a couple of things first is is you all will have seen from various media reports, we have being divesting some of our investments I think that's normal for any corporate any company that.
Making a lot of strategic investments is also at some point going to make a timely exit Ah from.
From those investments and that's indeed part of the original plan when you make those kind of attitude Chick investments you are planning on exiting at.
At a certain point.
You also talked about our our share buyback program in fact, it had already been Upsized as previously announced it had been a 25 billion U S. Dollar program Ah does we spoke about last time that was increased by 15 billion to a total of 40 billion.
U S dollars in the December quarter, we <unk>.
Bought back another 3.3 billion U S dollars of shares and we do think that pursuing the share buyback program is a good way to.
To return value to our shareholders no under the existing already enlarged share buyback programs. We still have our remaining quota of 21 billion U S dollars to be deployed so at this point in time no. We are not considering further expanding that quota rather what's on our minds.
At this point in time is how we can best to make use of that remaining quota of 21 billion U S dollars, how to deploy it and when to deploy it in line with the authorization given to us by the board of directors in order to further enhance shareholder value.
Okay next question.
Thank you. The next question is from Citigroup. Please go ahead.
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Thank you I'd like to follow up on Daniel's earlier remark about how Alibaba intends to continue to focus on and invest in technological innovation as a means to create new business models and new opportunities for the businesses I'm just wondering if.
If you could break that down for us a little bit and explain which of the businesses. This year. We can expect to see adopting new technological innovations that lead to new business models and new opportunities that will for example result in accelerated C Omar growth or boost cloud revenue.
Or will it perhaps be in local services, where these breakthroughs will be made but I'd. Appreciate it if daniel could give us some more color on a segment by segment basis.
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[noise] well.
Driving business growth with technology has been a constant theme for all in Barbour throughout its history Ah, but looking to the future of there are certainly several big opportunities for us that we can already see clearly.
The first is around a I, a and lately generative AI has become a hot topic around the world, but we're not talking about having a chatbot for the sake of chatbot, rather we're talking about integrating that capability deeply into the business around consumption around user.
Experience for content generation Ah to drive a higher advertising effectiveness AI can play a huge role in all of those different areas and we have been working on that and continue to do so.
Also when it comes to how to match supply and demand more more effectively how to achieve higher effectiveness in terms of marketing and promotion how to achieve a higher efficiency in a better user experience around different services. All of those are places, where we can leverage a R. A.
To make huge improvements Ah. So that's the first part of the answer but beyond that when we talk about cloud computing and big data.
Alibaba has a substantial capabilities in terms of providing processing power.
We have Ah I awesome pass offerings.
But when we look at the future and we also have of course are large pre training model for AI and what we're seeing today with recent developments that are the view that we took on the future has a as parent and proven to be consistent with what's happening in the market.
But going forward, there's going to be exponential growth in demand for computing power to support these kinds of AI applications are in.
[noise] Alibaba is ready to provide precisely about kind of computing power. So that is a big opportunity for us as well.
And then just to add another word because I think implicit in your question was Ah concerned around advertising revenue.
A a I can be leveraged and the way that we talked about earlier, when we talked about Ah supply chain some local services.
To better match local demand with fulfillment capabilities local supply in a certain time window and to make that a whole local or neighborhood based digital commerce scenario run much more efficiently and we will continue to be working in those directions to grow our business.
These are opportunities.
Thank you next question.
Thank you. The next question is from Jerry Lee.
Yes. Please go ahead.
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Thank you how about a couple of questions. My first has to do with take race Ah you know looking at G. M V. N C emaar growth on top of on Chimo over the past few quarters, we understand that there'd be a special circumstances that have changed the relationship between.
The two but looking forward to this quarter or even the.
The the few quarters to follow do you think we will expect to see any change in the relationship between the growth rate of GMP EM.
<unk> could see a marco faster than GMP in the next few quarters second question to Daniel has to do with your assuming the position of interim or acting head of I'll give up a cloud of intelligence I'm wondering since you've taken up that rule what.
New strategies or a new initiatives have you put in place for the cloud business. What changes have you made to the strategies and initiatives of the cloud business.
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Now the other ones do you watch out while you're okay Daniel.
Well on your first question regarding the relationship or the ratio between C. M. R. N G M V.
We we discuss this issue previously and just to recap briefly the issue of Lee really has been the high high rate of order returns due to among other things logistics disruptions because when we talk about she M. B, we're talking about paid G. M V, but after the <unk>.
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Well the logistics don't work out.
Logistics problem, the consumer will return the good Ah. So Ah overall, what we're seeing now is of course recovery on logistics and declining return rates. So I think what we're seeing now it's fair to say that the ratio or the gap between pay G. M P.
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Secondly.
On the question about cloud.
We see the development of this industry not only in China, but worldwide as an absolutely historic opportunity.
And this is an opportunity of extreme strategic importance to Alibaba. So I'm extremely excited to take up the helm that'd be personally in charge of Alibaba cloud at this important juncture. This is something I'm extremely passionate about.
We absolutely must not Ah Ah failed to seize and capitalize on this Ah crucially important historic opportunity.
We have a an excellent foundation in Alibaba cloud today, thanks to the hard work of the previous presidents of that business unit over the past 10 years or so.
We're already know number one in China in one of the top cloud vendors.
Indeed in the world with an excellent market position and a strong foundation to build on building on that foundation going forward I think one of the first things we have to do is get back if you'd like to the essence of the cloud the fundamentals of the cloud, which is leveraging cloud to make.
Available computing power, we need to ensure that we're doing that with extremely high availability high security make sure that we're consistently exceeding customer expectations around Ah stability and security. So that's that's the 0.1.
0.2, I think we need to place emphasis on public cloud offerings. When we talk about cloud, it's not often cleared that we're all necessarily even talking about the same thing there are so many different definitions of cloud out there.
What is cloud computing Ah well I think for Alibaba, we need to be firmly rooted in China, but also have a global vision and ensure that we're making breakthroughs in fundamental core capabilities around I ask in past so that we will not only be a leader in China, but.
Ah Ah Ah leader.
Worldwide.
Cloud computing a as in industry that's built on.
Scales of economy, if you have no skills and you have no economy, so we need technology breakthroughs.
To achieve those economies of scale.
We need to be able to enable our users nauseous to use cloud, but to use cloud well and to achieve demonstrable economic benefit from leveraging those cloud offerings.
We need to be paying a lot of attention to public cloud further drive scale. There. This is a very important part of surfing the digitalization of industry and providing a cloud based computing power, especially for data intensive sectors.
And then I know I've already touched on this quite a few times already but another very important point is with generative AI and it's more broad based application in the near future. We can expect to see.
Very rapid growth in demand for high performance computing power.
You need infrastructure to be able to power that and infrastructure needs to be integrated from chip through network through to compute power.
And all the global vendors, we're talking about that but we can alibaba see this is an extremely important opportunity and we intend to fully capture.
Okay. Thank you everyone for your time to listening today that concludes our today's earnings call ordered a <unk> groupie available you know our our website in this week, we look forward to meeting.
Meeting you engage with you in the coming months and look forward to speak to your next quarter. Thank you.
Thank you that does conclude outcome science slow today, thank you for participating.
Connect.
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