Q1 2025 Alibaba Group Holding Ltd Earnings Call
Speaker Change: Good day ladies and gentlemen, thank you for standing by. Welcome to Alibaba Group's June quarter 2024 results conference call.
Speaker Change: At this time, all participants are on listen-only mode.
Speaker Change: After management's prepared remarks, there will be a Q&A session.
Rob Lin: I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.
Speaker Change: Good day everyone and welcome to Alibaba Group's June quarter 2024 results conference call. With us are Joe Tsai, Chairman,
Speaker Change: Eddie Wu, Chief Executive Officer, Toby Xu, Chief Financial Officer
Speaker Change: We have also invited Jiang Fan, co-chairman and CEO of Alibaba International Digital Commerce Group to join the call.
Speaker Change: This call is also being webcasted from the investor relations section of our corporate website. A replay of the call will be available on our website later today.
Speaker Change: Now, let me quickly cover the safe harbor.
Speaker Change: Today's discussion may contain forward-looking statements, including without limitation statements about our strategies and business plans, as well as our belief, expectation, and guidance about our business prospects, such as the future growth of our business, revenue, take-away, profitability, and return on investment and shared purchases.
Speaker Change: for looking statements involved inherent risks and uncertainties that may cause actual results to differ materially from our expected expectations.
Speaker Change: For detailed discussion of these risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed at USSEC or announced on the website of Hong Kong Stock Exchange.
Speaker Change: Any forward-looking statements that we make on this call are based on assumptions as of today and we do not undertake any obligation to update these statements except as required under applicable law.
Speaker Change: Please note that certain financial measures that we use on the call such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow are expressed on a non-GAAP basis.
Speaker Change: Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our learnings press release.
Speaker Change: Unless otherwise stated, growth rates of all stated metrics mentioned during this call refers to year-over-year growth versus the same quarter last year. With that, I will turn over to Eddie.
Eddie Wu: and many more. Thank you. Thank you.
Eddie Wu: 各位投资人,各位投资者,
Speaker Change: [inaudible]
Speaker Change: in the new fiscal year.
Eddie Wu: Our strategies of user-first and AI-driven are starting to bear fruit.
Eddie Wu: This quarter's results reflect continued steady growth momentum.
Eddie Wu: Taobao and Tmall Group achieved steady year-over-year growth in orders and in GMV.
Eddie Wu: Alibaba International Digital Commerce AIDC revenue maintains strong growth.
Eddie Wu: Alibaba clouds revenue excluding Alibaba consolidated subsidiaries returned to positive growth
Eddie Wu: notably driven by core public cloud and AI products, and across other segments we achieved better operational efficiency and monetization capabilities to varying degrees. This drove significant improvement in some loss-making businesses.
Eddie Wu: Taobao and Tmall Group maintained its user-first strategy and continued to invest in key capabilities, aiming to deliver quality products and services at attractive prices across diverse shopping needs of consumers. This quarter saw steady growth in GMV and order volume, driven by a notable increase in purchase frequency.
Eddie Wu: Internal and external data about e-commerce players market share dynamics indicates a positive trend in our gradual market share stabilization further validating the effectiveness of our investments in user experience.
Eddie Wu: 88 VIP members reached 42 million by quarter end.
Eddie Wu: We will continue to explore and improve program benefits.
Eddie Wu: product offerings and service experiences for this expanding premium member base.
Speaker Change: In TTC's operational strategy, we attach great importance to rich and diverse product offerings.
Speaker Change: while focusing on investing and enhancing shopping experiences. We continuously improve the efficiency and matching of products with user traffic and ensure stable and sustainable growth. As orders and GMV continue to grow, we're advancing monetization step by step, including the launch of our new marketing tool, Chen Chen Tui.
Speaker Change: Through algorithm upgrades, we aim to enhance the efficiency of merchants monetization, while also improving the efficiency of traffic utilization and conversion of user traffic to purchases on our platform. We expect CMR growth to gradually align with GMV growth over the coming quarters.
Speaker Change: In our cloud segment, we continue to pursue high quality revenue and effectively execute our integrated cloud plus AI development strategy.
Speaker Change: This quarter, Alibaba's overall revenue, excluding Alibaba consolidated subsidiaries, grew 6%, with public cloud revenue maintaining double-digit growth.
Speaker Change: AI-related product revenue sustained a triple-digit growth, continuing to increase its share of public cloud revenue. We're seeing more major customers choosing Alibaba Cloud as their compute infrastructure for AI development.
Speaker Change: At the same time, Alibaba's proprietary large language models are gaining wider adoption. This year, Alibaba Cloud served as a major cloud service provider for the Olympic Games, providing cloud computing and AI services to Olympic Broadcasting Services, OBS.
Speaker Change: At the Paris Olympics, cloud-based live broadcast powered by Alibaba Cloud overtook satellite signals as the primary means of broadcast for the first time in Olympic history.
Speaker Change: Two-thirds of broadcasters used live signals transmitted by Alibaba Cloud in real-time around the world, reaching billions of viewers. Additionally, Alibaba Cloud's AI technology saw its first widespread application at the Paris Olympics, including 360-degree replays in real-time, bringing pleasant surprises to the audience.
Speaker Change: Our long-term strategy for integrated cloud plus AI development comprises three key elements. One, we'll continue to optimize our cloud product offerings.
Speaker Change: focusing on competitive sustainable growth margin and scalable public cloud products. This forms the foundation for Alibaba Cloud's sustainable high-quality growth.
Speaker Change: Two, we'll strengthen synergies between cloud and AI products, not only supporting existing customers and implementing new AI capabilities on Alibaba Cloud, but also enabling AI native enterprises to scale and succeed on our platform. We're committed to capitalizing on both opportunities.
Speaker Change: Three, we'll continue to invest in R&D and AI CapEx to ensure the growth of our AI driven cloud business.
Speaker Change: Looking to the medium and long term, we're confident that Alibaba Cloud's overall revenue
Speaker Change: Excluding Alibaba Consolidated Subsidiaries
Speaker Change: We'll return to double-digit growth in the second half of the fiscal year with gradual acceleration thereafter.
Speaker Change: Through intensive R&D investment, we aim to sustain profitable growth while establishing ourselves as a leading cloud service provider for AI with healthy profitability and market share leadership.
Speaker Change: International e-commerce
Speaker Change: AIDC delivered 32% revenue growth this quarter. Our international business segment comprises a diverse business matrix, integrating both cross-border and local operations, as well as B2B and B2C formats. This presents numerous opportunities in terms of both operational models and market expansion potential, and Jiang Fan will provide a more detailed update momentarily. Beyond e-commerce and cloud, we've implemented strategic realignments across our key internet technology businesses.
Jiang Fan: through a thorough evaluation of their product capabilities and market competitiveness. While maintaining product competitiveness, most of these businesses will now place a higher priority on monetization.
Jiang Fan: This quarter, we've already seen these businesses significantly improving profitability.
Jiang Fan: And we expect this trend to continue in the coming quarters. We expect most of these businesses to break even within one to two years and gradually contribute to profitability at scale.
Speaker Change: This new fiscal year is a pivotal one for Alibaba as we set our strategic direction and realize the successes of our transformation. We are fully confident in Alibaba's sustained, healthy development into the future.
Speaker Change: Thank you very much. Thank you. Thank you.
Speaker Change: Hi everybody, it's my pleasure to share with you AIDC's latest business progress.
Speaker Change: Over the past quarter, AIDC maintained its rapid growth momentum with overall revenue increasing 32% year-on-year, primarily driven by our cross-border business. In terms of the three drivers we consistently focus on,
Speaker Change: First ongoing business model and supply chain upgrades, AliExpress maintained rapid year-on-year order growth with the percentage of AE choice orders continuing to be high and gradually stabilizing.
Speaker Change: and Enhancing the Certainty and Consistency of User Experience.
Speaker Change: AliExpress and Tsainal continue to jointly optimize logistics experience and significantly reduce the average delivery time quarter-over-quarter. We further optimize the organic balance of user experience, product richness, and efficiency across our marketplace, semi- consignment, and full consignment models.
Speaker Change: The unit economics of the choice business improved by nearly 20% quarter over quarter.
Speaker Change: Second, product and technology innovation. We advanced our AI and intelligent technologies across scenarios like AI customer service, cross-platform product placement, product description optimization, multilingual search and precise recommendations, which boosted efficiency and user experience.
Speaker Change: These innovations were deployed across our platforms and have served around 500,000 merchants and covered 100 million SKUs. Third, sustained growth in key markets.
Speaker Change: Ongoing improvement in user experience bolsters AE's confidence to step up investments in key markets to expand user base and maintain leadership. As the exclusive ecommerce partner of the European Cup 2024, we effectively boosted AE and Trendy All's brand awareness. We're also exploring
Speaker Change: diverse localized business models. In Turkey, Trendio increased monetization and profitability, solidifying its e-commerce leadership. It also enriched product offerings and marketing efficiency in the Gulf region while continuing end-user growth. In Southeast Asia, Lazada achieved single-month EBITDA profitability for the first time in July.
Speaker Change: This milestone reinforces our confidence to efficiently invest in the Southeast Asia market to consolidate our market share.
Speaker Change: So
Speaker Change: In conclusion,
Speaker Change: Our strategic focus is twofold, enhancing operational efficiency across all business segments.
Speaker Change: While, on the other hand,
Speaker Change: actively investing in key markets to drive quality growth and scale with the goal of achieving more substantial profitability at scale in the future. Thank you. This past quarter's financial performance continues to demonstrate our strategy to revitalize growth in our domestic commerce and health segments.
Speaker Change: while reinforcing our leadership position. At the same time, we are improving the monetization and operating efficiency of our loss-making businesses with the goal of achieving sustainable business growth and profitability.
Speaker Change: Taobao and Tmall Group is winning the mindshare of our consumers. This past quarter we achieved high single-digit online GMV growth and double-digit order growth.
Speaker Change: AIDC continues to achieve robust revenue growth driven by rapid order growth in cross-border businesses.
Speaker Change: especially from Aliexpress Choice.
Speaker Change: Alibaba's revenue quality is improving and back to growth. Overall revenue excluding Alibaba consolidated subsidiaries grew over 6% driven by double-digit public cloud growth and increasing adoption of AI related products.
Speaker Change: Our loss-making businesses are improving their monetization operating efficiency.
Speaker Change: significantly. For example, local service group and Lazada significantly narrowed their losses during the quarter.
Speaker Change: During this quarter, we repurchased a total of
Speaker Change: 613 million ordinary shares or 77 million ADSs for total of US dollar 5.8 billion.
Speaker Change: This includes the concurrent buyback of approximately $14.8 million ADSS for US$1.2 billion that was associated with our new CB issuance.
Speaker Change: As of June 30, 2024, we had 19 billion ordinary shares or approximately 2.4 billion ADSs outstanding.
Speaker Change: Compared to March 31, 2024, there was a 2.3% net reduction in our outstanding shares after accounting for shares issued on our ESOP.
Speaker Change: As of June 30, 2024, we still have U.S. dollar 26.1 billion remaining in our share repurchase program.
Speaker Change: Additionally, Thank you for watching. Please subscribe to our channel.
Speaker Change: as part of our plan to minimize annual ESOP dilution and better utilize the cash generated by our domestic businesses.
Speaker Change: We have started to replace a portion of Alibaba Group's ESOP incentives with long-term cash incentives for our employees.
Speaker Change: starting last quarter. These cash incentives will be reflected as costs in our adjusted financial matrix.
Speaker Change: including segment EPITAR. While this change in compensation structure will lower adjusted EPITAR, it will also result in less ESOP dilution in the future.
Speaker Change: Total revenue, on a consolidated basis, total revenue was RMB 243.2 billion, an increase of 4%.
Speaker Change: adjust EPITRP decreased 1% year-over-year to RMB 45 billion excluding the effects of long-term cash incentive adjust EPITRP growth would have Turned a positive on a like-for-like basis
Speaker Change: Our NGAP net income was RMB40.7 billion, a decrease of 4.2 billion, or 9%.
Speaker Change: Our gap net income was RMB 24 billion, a decline of 9 billion or 27%, primarily due to a decrease in income from operations and increase in impairment of some investments, partly offset by the mark-to-mark changes from our equity investments.
Speaker Change: As of June 30, 2024, we continue to maintain a strong net cash position of RMB 405.7 billion or USD 55.8 billion.
Speaker Change: Free cash flow decreased by RMB 21.7 billion to RMB 17.4 billion.
Speaker Change: This year-over-year decrease mainly reflected the increase in expenditure related to our investments in Alibaba cloud infrastructure and other working capital changes related to factors including our planned reduction of direct sales businesses.
Speaker Change: Now, let's look at cost trends as a percentage of revenue excluding SBC during this quarter. Cost of revenue ratio decreased 1.1 percentage points, product development expenses ratio remained relatively stable.
Speaker Change: Sales and marketing expenses ratio increased 1.7 percentage points year over year, primarily due to our increased investments in e-commerce businesses.
Speaker Change: G&A expenses ratio increased 1.4 percentage points.
Speaker Change: excluding the provision of RMB 3.1 billion from a one-time shareholder class action lawsuit, our GNA expenses ratio would have remained relatively stable.
Speaker Change: Now let's look at the segment results, starting with Taobao and Timo group.
Speaker Change: Revenue from Taobao and Tmall Group was RMB113.4 billion, a decrease of 1%.
Speaker Change: Revenue from our China commerce retail businesses was RMB 107.4 billion, a decrease of 2% compared to 109.8 billion in the same quarter of 2023.
Speaker Change: Custom manual revenue increased by 1% year-over-year primarily due to a high single-digit year-over-year growth in online GMV partly offset by decline in take rate.
Speaker Change: The year-over-year take rate decrease was primarily due to increasing proportion of GMV generated from new models that currently have lower monetization rates.
Speaker Change: direct sales and others revenue and the China Commerce Retail
Speaker Change: business.
Speaker Change: was RMB 27.3 billion, a decrease of 9%. As mentioned, we are proactively scaling down certain direct sales businesses, including those in Taobao and Tmall Group.
Speaker Change: China Commerce Wholesale Business Revenue increased 16% to RMB 6 billion primarily due to an increase in revenue from value-added services provided to paying members.
Speaker Change: How about Tmall Group adjusted EBITDA decreased by 1% to RMB 48.8 billion primarily due to the increase in investments in user experience and technology infrastructure partly offset by the narrowing losses in certain businesses
Speaker Change: This increasing investment led to better consumer retention, increased purchase frequency, and positive feedback regarding the overall shopping experience.
Speaker Change: Revenue from Cloud Intelligence Group was RMB 26.5 billion, an increase of 6%. Overall revenue, excluding Alibaba consolidated subsidiaries, grew over 6% year-over-year, driven by double-digit public cloud growth and increasing adoption of AI-related products.
Speaker Change: AI-related product revenue continues to grow at triple digits year-over-year.
Speaker Change: Clouds Adjusted EBITDA increased by 155% to RMB 2.3 billion, the increase was primarily due to improving
Speaker Change: product mix through our focus on public cloud adoption and operating efficiency partly offset by the increasing investments in customers and technology.
Speaker Change: We are observing strong and sustained demand
Speaker Change: for AI products and solutions from our customers.
Speaker Change: in our making significant investment to address this demand effectively.
Speaker Change: We believe our investments in AI capabilities
Speaker Change: infrastructure will help strengthen our market leadership. We are confident in our ability to balance these investments with steady profitability improvements ensuring sustainable growth and value creation.
Speaker Change: Revenue from international commerce retail business increased by 38% to RMB 23.7 billion, primarily driven by order growth from AliExpress' choice as well as improvements in monetization.
Speaker Change: Revenue from our international commerce wholesale business increased by 12% to RMB 5.6 billion, primarily due to an increase in revenue generated by cross-border related value-added services.
Speaker Change: AIDC's adjusted EBITDA was a loss of RMB 3.7 billion, an increase of RMB 3.3 billion compared to a loss of RMB 420 million in the same quarter last year.
Speaker Change: primarily due to the increasing investments in AliExpress and trendiest cross-border businesses, partly offset by Lazada's significant reduction in operating loss from the improvements in its monetization and operating efficiency.
Speaker Change: Revenue from Cainiao Smart Logistics Network Limited was RMB 26.8 billion, an increase of 16%, primarily driven by the increase in revenue from cross-border fulfillment solutions.
Speaker Change: Tsai Niu's EBITDA decreased by 30% to RMB 618 million, primarily due to increased investments in cross-border fulfillment solutions, partly offset by improved operating efficiency.
Speaker Change: Revenue from local service group was RMB 16.2 billion, an increase of 12% driven by the order growth of both AMAP and Ulema, as well as revenue growth from marketing services.
Speaker Change: Adjusted EPITAP was a loss of RMB 386 million compared to a loss of RMB 2 billion in the same quarter last year.
Speaker Change: primarily due to improving operating efficiency and increasing scale.
Speaker Change: Revenue from our digital media and entertainment group was RMB 5.6 billion an increase of 4% just a petard with a loss of 103 million compared to a profit of RMB 63 million same quarter last year.
Speaker Change: Revenue from all other segments increased 3% to RMB 47 billion, primarily due to the increase in revenue from Fresh Apple, Alibaba Health, and Intelligent Information Platform, partly offset by the decrease in revenue from Lingxi Games and Sunart.
Speaker Change: Adjusted EBITDA from all other segments was a loss of RMB 1.3 billion compared to a loss of RMB 1.7 billion in the same quarter of 2023.
Speaker Change: primarily due to improved operating results from Sunnart, Fresh Apple, Alibaba Health, and the Lingxi Games, partly offset by the increased investment in technology businesses.
Speaker Change: To wrap up, as Eddie and Jiang Fan mentioned,
Eddie Wu: For our Taobao and Tmall Group, as order and GMV grow, we are advancing monetization efforts step by step. We expect CMR growth to gradually align with GMV growth over the coming quarters.
Eddie Wu: for Alibaba Cloud.
Speaker Change: We are pursuing high quality revenue and effectively execute our integrated cloud plus AI development strategy.
Speaker Change: We are confident that revenue from external customers will return to double-digit growth in the second half of the fiscal year with gradual acceleration thereafter.
Speaker Change: For AIDC, we focus on proactive investment to drive high quality growth, enhancing operating efficiency across all business lines.
Speaker Change: Our loss-making businesses are improving their monetization and operating efficiency. We expect most of these businesses to break even within one to two years and gradually contribute to the profitability at scale.
Speaker Change: Thank you. That's the end of our prepared remarks. We can open up for Q&A.
Speaker Change: 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.
Speaker Change: Please know that the translation is for convenience purpose only. In the case of any discrepancy, our management statement in the original language will prevail.
Speaker Change: If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within one week after the meeting.
Speaker Change: 大家好,今天的電話會議歡迎您用中文或英文提問,我們會有第三方工作人員提供實時的交替傳示。
Speaker Change: 翻譯的目的是為方便大家理解,如果有任何疑義,請以我們管理層原始語言所做的陳述為準。
Speaker Change: If you are unable to hear the translation of this call, the translation will be available on our website within a week after the conference.
Speaker Change: Operator, we can now connect to the speaker and SI conference lines and then start a Q&A session. Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. If you wish to ask a question, please press the star key followed by the number one on your telephone keypad. To give more people the opportunity to ask questions, please keep yourself to no more than one question at a time. Your first question is from Ronald Kung from Goldman Sachs. Please go ahead.
Ronald Kung: Thank you Joe, Eddie, Hebe, Jiangfen and Rob. And I want to ask a question about our take rates, that with the high single digit GMV growth and 1% CMR growth, it does imply a wider gap this quarter, but management you just mentioned about the narrowing gap that should come. So how do we think about the take rate trajectory, the time needed for CMR to align with GMV? And can you talk a bit on what are the actual measures that we're doing? Is it software service fee or ad tech upgrades? How would these new products translate to Taobao and Tmall respective take rates into the next few quarters? Thank you.
Speaker Change: 感谢管理层接受我的提问,我这个提问的是关于take rate这一方面。
Speaker Change: In this quarter, we can see that the gap between GMB and CMR has been further expanded. But you just mentioned that in the next few quarters, the gap should be narrowed so that the two can be better synchronized. Can you introduce some new software products launched in the next few quarters? What kind of difference will it make to further narrow the gap between the two?
Speaker Change: Let me answer this question.
Speaker Change: I think Taobao and Tmall's priority now is to enhance the user's purchase experience and promote the user's purchase frequency and promote the growth of GMV. After we saw the initial market share stability, it is true that starting this quarter, we will focus on improving some of the original requirements for Take-A-Rate and commercialization measures.
Speaker Change: The progress of the project will begin to accelerate. In fact, there are several main factors in it.
Speaker Change: The first factor is that in many of our new product models,
Speaker Change: For example, live streaming, for example, our subsidies, like various types
Speaker Change: 我们今年
Speaker Change: that focused on a new form of investment that created a high user access score and benchmarked users. However, these newly created and newly commercialized products did need a specific period of time to achieve the sales they aslında
Speaker Change: 去推动的那这也是我们后面这个几度会去逐渐推
Speaker Change: Translated by https://otter.ai
Speaker Change: and gradually accelerate. The full-scale promotion needs to run well. It is not just a simple product. It needs three-way cooperation.
Speaker Change: That is to say, we are in all the users' traffic channels in Taobao To carry out a more effective
Speaker Change: to act as a bridge between public service industry and advertisers. Second, to build a good bridge between permanent jobs and advertisers.
Speaker Change: Products that support site-wide promotion need to have a sufficient number of advertisements, and it may also need to be for more than 6 months.
Speaker Change: advertising algorithms and user data optimization. So we think that the GK products launched by Quanzhang will see some obvious results and progress in the 6 to 12 months after launch in April.
Speaker Change: But we predict that the three measures I mentioned just now need to be perfect.
Speaker Change: Hong Xiu, Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Fan Jiang, Yongming Wu, Shan Dai,
Speaker Change: Thank you. This is Eddie and I'll take that first before handing over to Toby. In the Taobao and Tmall group, the priority at present
Speaker Change: very much has been on enhancing the user shopping experience so as to drive heightened purchase frequency and GMV.
Toby Xu: Now, as market share stabilizes, which is what we've
Toby Xu: certainly seen this quarter, we can start to accelerate the pace of our monetization efforts. But there are a few factors that you have to look at. First of all, the various new products we've launched, including live streaming and including the
Toby Xu: 10 billion yuan subsidy program have resulted in high user
Toby Xu: return to platform and high user repurchase rates.
Toby Xu: But it's going to take a bit of time to roll out the new monetization approaches and products
Toby Xu: and for them to gain traction. But that's certainly what we're looking at doing over the coming few quarters. The second thing to look at is our new advertising product.
Chen Zhantui: Chen Zhantui that we're introducing. Of course, in order for this to achieve solid performance, you need more than just that product in place, you need effective coordination and synergy across
Chen Zhantui: three different pieces, the first being user traffic.
Chen Zhantui: on the Taobao platform, the second being having sufficient number of advertisers taking part across a sufficient number of different sectors with sufficient coverage of different kinds of products.
Chen Zhantui: and then beyond that it'll take say six or more months to fully optimize the algorithms and also to optimize the user data.
Chen Zhantui: So, starting from the rollout of Quanzhantui back in April, it's likely to take something like six to twelve months of work to bring all of those different things together to achieve really solid progress and sizable growth.
Chen Zhantui: So, in short, for those three different things to come together and for this all to really be working well.
Chen Zhantui: likely looking at something like 12 months from the initial launch date and then to that I'll hand over to Toby to also say a few words about technology service charge.
Toby Xu: Okay, I will quickly introduce the technical service fee, because...
Toby Xu: As you may have seen, in September, we are planning to charge a basic software service fee of 1,600 RMB for Taobao and Xianyu merchants. This fee is charged according to a merchant's accepted GMB.
Toby Xu: We will start to implement the cost-to-benefit ratio after a comprehensive assessment of the industry regulations and acceptance of some feedback from merchants. It is expected to be implemented in September.
Toby Xu: We will also consider the situation of small and medium-sized businesses. So for small and medium-sized businesses whose annual GNV is lower than a certain amount, we will refund their annual service fee or provide a certain amount of assistance to help them expand their customer base on Taobao platform and increase their GNV.
Toby Xu: We expect that the revenue of the service fee will gradually contribute to the revenue in the next seven months after September. This is an introduction to the service fee.
Toby Xu: Yes, this is Toby, just to add, regarding the...
Toby Xu: technology service charge that we started talking about charging as of September on Taobao and on Idlefish at a rate of zero point
Toby Xu: 6%. And that is to be calculated on the basis of actually received GMV, actually received by the merchants. And we've come to this decision in consideration of both prevailing market practice as well as opinion.
Toby Xu: of our merchants, feedback from our merchants.
Toby Xu: Of course, we will have special measures to...
Toby Xu: take good care of our SME merchants in particular, those whose actual
Toby Xu: Annual GMV is below a certain threshold can either have that
Toby Xu: refunded or will find other ways to provide assistance to them to expand their customer base and grow their GMV to that threshold. So I would expect that with this starting as of September you can expect to see this
Toby Xu: making a difference in the financials over, say, the next seven months of this present fiscal year.
Speaker Change: Next question.
Speaker Change: Thank you. The next question is from Alicia Yap from Citigroup. Please go ahead.
Alicia Yap: Hi, good evening, management. Thanks for taking my questions. I have a questions on your AIDC business. How does management think about the overall competitive landscape now? And how will that evolve over time? What are the competitive advantage of Aliexpress for both the merchants and consumer that will help you defend your market position in some of the important countries?
Alicia Yap: And then a follow-up on that is with Lazada seems to be turning profitable starting in July. Is that a time frame that you target to achieve profitability for AliExpress as well? Thank you.
Speaker Change: Good evening, Mr. Guan. Thank you for accepting my question. My question is about AIDC. I want to know what you are thinking now.
Mr. Guan: What are the advantages of the current competitive environment and the evolution of the competitive environment? What advantages do we have in terms of business and consumer? What benefits do we have? Let's maintain our position in the central market.
Speaker Change: Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Robert Lin,
Speaker Change: [inaudible]
Speaker Change: Unknown Speaker 1, 2, 3, 4, 5, 6, 7, 8, 9, 10.
Speaker Change: First of all, I think Alibaba's overseas business is made up of multiple business sections. We may have some differences from the single business model of many other companies.
Speaker Change: So we have different brands in different markets, and we also have many very local teams operating these platforms. Our business is also a combination of cross-border and local operations. Yes, I think on one hand, as I just mentioned...
Speaker Change: We have a local brand in different markets, and we also have some very experienced local teams running it. We also hope to be able to do better as soon as possible.
Speaker Change: Integrate the entire Alibaba Group's supply, especially the supply from China, which also includes the supply from Taobao and platforms like 1688. On the consumer side, I think we still have a very good consumer brand and a very broad market in many markets.
Speaker Change: Chen Mingduk, [inaudible]
Speaker Change: What we are doing now is to upgrade and transform some business models. For example, Alice Price may be a...
Speaker Change: The business model has relatively low efficiency and relatively weak service experience. We are currently in the process of transitioning our business model. You also mentioned Lada's profitability just now. I think in July we achieved this ABTAR for the first time.
Speaker Change: Then I think we will still follow up based on
Speaker Change: Adjust according to market conditions. In this, we hope to maintain the market style while continuously optimizing our profitability.
Speaker Change: Artemis was a relatively early model. Its business model was to operate on the same platform...
Speaker Change: In the process of transitioning the hosting platform model
Speaker Change: It is still in an investment phase, and we are continuously optimizing it. For example, as we just mentioned about our previous...
Speaker Change: We have also seen the excellent optimization of our entire Achoice. In the next few quarters, we will continue to optimize our efficiency and at the same time pursue a healthier approach.
Jiang Zhao: Zhang Zhao [inaudible]
Jiang Zhao: . . . . .
Jiang Zhao: Thank you. This is Jiang Fan. Well, the first thing I would say is that AIDC, unlike some of the other businesses within the Alibaba group, comprises a number of different
Speaker Change: types of businesses. It's not a single business. We're present in many different local markets with local brands in those markets, with local teams operating them. And overall, AIDC is really a combination of both cross-border and local business.
Speaker Change: So,
Speaker Change: Something that we're working on in that broader context of being in different markets with different local brands, local experience, local teams operating them, is we're working on integrating
Speaker Change: and sharpening our integrating supply, especially supply from China.
Speaker Change: and sharpening our advantage around product supply out of China.
Speaker Change: On the consumer side, I think certainly one advantage we have is very good consumer brands with high brand recognition.
Speaker Change: You know, certainly also working very hard to enhance the user experience on AE. You know, in the past, AE was perhaps a low-efficiency kind of platform that too often offered consumers a relatively poor user experience, but we've been working very hard on improving that.
Speaker Change: As for Lazada, yes, as you noted, as I said earlier,
Speaker Change: We were EBITDA positive for the first time for a single month in July of this year and you know We'll continue to make adjustments as we have there while Preserving our market share finding ways to enhance efficiency and increase our profitability
Speaker Change: AE Choice is an important model that we've been investing in, and it's taken time to get to where it is. UE continues to optimize.
Speaker Change: in respect of AE Choice and over the next few quarters to come, we'll continue to make those efforts to drive higher efficiency and achieve high quality growth.
Speaker Change: Thank you. The next question is from Thomas Chong from Jeffries. Please go ahead.
Thomas Chong: Hi, good evening. Thanks, management, for taking my question. My first question is about StockConnect. Can management comment about our thoughts about the status of dual…
Thomas Chong: primarily this thing and the China Talk are going into StockConnect. And my second question is about our cloud business. Given that we are expecting
Speaker Change: the external crowd revenue to back to double-digit growth in the second half of fiscal year and accelerate going forward. I just want to get some color with regard to our AI revenue contribution.
Speaker Change: What's the goal that we are looking for in the long run coming from AI? Thank you.
Speaker Change: Good evening, thank you for accepting my question. My first question is about whether we can join the project of Hong Kong-Guotong. Is it possible to join Hong Kong-Guotong after completing the transformation of the main listing position of these two places? The second question is about Yun.
Speaker Change: 刚才讲到,我们预计在...
Speaker Change: In the second half of this fiscal year, the income from external customers can continue to grow in two-digit numbers. What is the sharing rate of AI? And what is our goal for the sharing rate of AI income?
Speaker Change: Okay, Thomas, thank you for your question. I will take the first one and then Eddie will answer the second question. And regarding your question about the StockConnect, I guess your question is about, you know, the primary conversion at our end. You know, currently we are actively pursuing Hong Kong primary listing. You know, we will have an AGM on the 22nd of August , so we have a
Eddie Wu: a proposal that's subject to the shareholders' approval.
Eddie Wu: And then, you know, we are aiming to complete the conversion process, you know, after we obtain approval from the shareholders and get it completed before the end of August.
Eddie Wu: Then join the Stock Connect, it was subject to different exchange process, so that's what we understand as just a procedure to go through.
Eddie Wu: So that's the update on the status.
Eddie Wu: Thank you for your question. I am Toby. I will answer the first part of the question first. I will leave the second part of the question to Eddie.
Eddie Wu: So you mentioned whether this involves the Stock Connect. I think your question is about our status of transitioning to a primary listing in Hong Kong. This is indeed a transition we are seeking. In fact, on August 22, we are going to hold our shareholders' meeting. There is such a proposal at the shareholders' meeting now, and it still needs to be approved by the majority of shareholders. If this shareholders' meeting can approve it.
Speaker Change: Afterwards, we expect or strive to complete the transition of the primary listing location by the end of August . As for how to connect to the Stock Connect after that, we still need to follow the procedures under the different rules of each exchange. This should be achievable by following the procedures.
Eddie Wu: I will answer the second question about the cloud.
Speaker Change: We are indeed seeing a very strong demand from our cloud customers for AI-related products. Moreover, from the perspective of our customer pipeline, we are still far from meeting their needs.
Speaker Change: So, our current expectation is that the revenue of our external customers will increase by 0.2% in the second half of the fiscal year.
Speaker Change: In fact, when looking at the data, the revenue contributed by AI products
Speaker Change: We will see...
Taapu Fender: Dabu Fender [inaudible]
Taapu Fender: Most of the growth, most of the growth rate actually comes from the growth rate of AI-related products, because on the one hand, the industry has seen that the growth rate of the traditional cloud computing market centered on CPUs is still relatively limited. A large number of new IT demands from customers are basically concentrated on AI-related products centered on GPUs.
Speaker Change: Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Yongming Wu, Shan Dai, Robert Lin, Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin,
Speaker Change: Thank you. This is Eddie. I'll take your second question about cloud.
Speaker Change: There's very, very robust demand among our customers for AI and AI relevant products. And if you look at the pipeline, you can see that that demand is still far from being satisfied.
Speaker Change: So we think it's a very clear-cut trend that revenue from external customers will achieve double-digit growth in the second half of the fiscal year. In terms of the breakdown of that AI product revenue,
Speaker Change: In terms of the revenue, pardon me, probably most of that growth will be driven by AI products. You know, if you look at the industry as a whole, demand for CPU based traditional cloud computing is relatively limited, where most of the growth is now focused on GPU based AI product.
Speaker Change: development. So I would say something like more than half of that expected growth will be driven by AI products.
Speaker Change: Next question, please.
Speaker Change: Thank you. The next question is from Ellie Jiang from Macquarie. Please go ahead.
Ellie Jiang: Thank you so much, management, for taking my question. First of all, a quick follow-up on the prior cloud question. Obviously, we are already showing some early indicators of the positive momentum, and the management shared about, you know, the strong demand on AI. Given the current kind of macro conditions and softened enterprise demand into the second half, can you comment on kind of the mixed impact, especially in the next several quarters?
Speaker Change: And then also, the second question is on the Taobao Tmall GMV reacceleration. So we're encouraged to see, you know, our overall GMV momentum catching up. And actually, for the second quarter, we already caught up to the industry pace reported by NBS.
Speaker Change: monitoring, you know, can management comment on the key drivers behind the GMB re-acceleration and anything you can really talk on the return rate that we've been seeing across the ecosystem. Thank you.
Speaker Change: Good evening, I have two questions for you.
Speaker Change: I think we have experiences that shows that the industry has matured
Speaker Change: and the development of positive trends and strong demands. But I think that if we combine the macro aspect, we can see that the macro economic data and the needs of enterprises, what impact will these bring to the cloud?
Speaker Change: The second question is about Taotian Qichuan.
Speaker Change: We have noticed that the GMV increase has caught up with the large-scale increase announced by the National Bureau of Statistics. We would like to know what factors are contributing to this.
Speaker Change: Professor at Guangzhou University
Speaker Change: 关于云的问题,我先来回答吧。
Speaker Change: What we see now, what you want to ask is about the current macroeconomic conditions of enterprises.
Speaker Change: 虚求放缓 But the demand for a break is not high enough. 但是我们实际上看到的大部分的企业 But what we actually see is that most companies 在于尤其是在我们云上的 are struggling, especially in our cloud.
Speaker Change: For cloud clients, their budget for new AI needs this year is actually much larger than last year. Because for most of the...
Speaker Change: Most of the digital companies have to invest in AI. Because all industries are using AI to improve their product ability or product efficiency.
Speaker Change: with a deep understanding of digitalisation...
Speaker Change: Industries and companies that are highly dependent on digitalization basically will not reduce their investment in this area.
Speaker Change: Thanks. This is Eddie. I'll take the first question that had to do
Eddie Wu: with cloud. Look, I think your question had to do with
Speaker Change: how macroeconomic conditions are resulting in softening enterprise demand. But that's
Speaker Change: Not at all what we're seeing. What we see certainly among our own cloud customers is that their AI budgets for this year are higher, significantly higher than what they were last year. You know, any enterprise that is digitalized and relies on digitalization.
Speaker Change: must be investing. It simply has to be investing in AI. All the industries now that are using AI are leveraging it to enhance their competitiveness and efficiency. So any enterprise that's in any way digitally reliant will certainly not
Speaker Change: scale down its investment in AI because to do so would impair their own competitiveness and efficiency. So that's a clear trend that we're seeing and we're not seeing any kind of slowdown or softening.
Speaker Change: 您说的那个关于第二个问题就淘宝天猫的CNV的这个增速
Speaker Change: The momentum of recovery, this issue is actually one of our most core aspects overall. It still comes back to our overall business strategy for Taobao's core business. In terms of business strategy, our most important, most important thing is, just like us.
Speaker Change: What we mentioned earlier is that our most important investment is in building the experience of good products, good prices, and good service. I think this is crucial.
Speaker Change: In our e-commerce, the most basic ones are
Speaker Change: 最基本的一些用户体验上的投资
Speaker Change: For us, what is special about Taobao Tmall is that Taobao Tmall's product supply is very rich and the number of customers is also very complicated. So for us, it is...
Speaker Change: Thank you for watching, please subscribe our channel
Speaker Change: 商品供给,切分不同的服务体验,以及不同的商品供给下,我们要用不同的产品形态,或者不同的那个产品能力去让他们能够在
Speaker Change: and serve our different consumers. So, in general, you can understand that the most fundamental thing is still good products, good prices, good services. But for Taobao, we have to provide different experiences in these three dimensions for different people, and in these three dimensions, different experiences
Speaker Change: Behind the scenes, we need to continuously improve good products, good prices, and good services through supply chain optimization.
Speaker Change: Jinggit.
Speaker Change: 持续的优化吧
Speaker Change: Hong Xu, Unknown Executive, Hong Xu, Fan Jiang
Speaker Change: As to your second question on the recovery in GMV growth rate at TTG, I think really
Speaker Change: This comes down to our overall strategy for the Taobao and Tmall group where the most important thing we're investing in is
Speaker Change: the underlying capabilities that allow us to deliver.
Speaker Change: quality products and quality services at
Speaker Change #100: Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Yong Ming Wu, Shan
Speaker Change #100: product assortment, and also a very complex, multifaceted
Speaker Change #100: user base. So it's important for us to segment those consumers and to make available to them different kinds of product supply and different kinds of service experience to cater to that diverse range of needs of those
Speaker Change #100: different segments.
Speaker Change #100: and so that requires us to develop different kinds of supply capabilities.
Speaker Change #100: for those different consumer.
Speaker Change #100: segments. Thank you. Thank you.
Speaker Change #100: And underlying all of that is our ongoing investment in optimizing.
Speaker Change #100: supply chains and supply chain efficiency in order to be able to ensure we have quality products and quality services at attractive prices for those different consumer tiers.
Speaker Change #101: I would like to answer your second question about the return on investment.
Speaker Change #101: The return rates in the Chinese e-commerce industry are all rising, including ours and all other e-commerce platforms. Our return rate is currently still slightly below the industry average. That's the first point. The second point is that we think or we believe...
Speaker Change #101: The return experience is a very important part of the consumer experience and a crucial link in attracting consumers. Therefore, when we see improvements in consumer retention rates, purchase frequency, and feedback on shopping experiences, which are actually achieved through enhancements in the return experience, we consider this to be healthy.
Speaker Change #101: Namaste.
Speaker Change #102: We also observed that in the NPS, which is the Near-Recommendation Index, our platform, especially for mid- and high-end users, has been doing well this year. This also reflects an increase in the satisfaction of after-sales service, including the convenience of withdrawals.
Speaker Change #102: Because our return on investment is still slightly below the average level in the market and in the entire industry, we are not particularly worried about the increase in return on investment, which will affect the willingness of merchants to invest in our platform.
Speaker Change #103: Taiwan Diaspora, Global Dialogues Taiwan Diaspora, Global Dialogues
Speaker Change #103: Thanks, this is Toby and I'll take that other question about return rates.
Speaker Change #104: you know, purchase return rates are increasing across the industry.
Speaker Change #105: as a general trend. But in the case of Alibaba, our return rate is slightly lower than the industry.
Speaker Change #105: The second thing I would say is that the return experience is a very important part of customer experience.
Speaker Change #106: Yongming Wu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Yongming Wu, Shan Dai, Robert
Speaker Change #106: that on our platform this year, if you look at a net promoter score NPS, especially among mid and high tier consumers, our NPS has improved considerably.
Speaker Change #106: So, again, you know, our return rate is slightly lower than the overall market average, and I certainly don't think that that's going to discourage merchants from investing and doing business on our platform.
Speaker Change #107: Next question.
Speaker Change #108: Thank you. The next question is from Gary Yu from Morgan Stanley. Please go ahead.
Gary Yu: Hi, good evening. Thank you for the opportunity to ask questions. My question is regarding
Gary Yu: management comment about, you know, some of these loss-making business aiming to reach break-even in the next one to two years. Could management share more detail in terms of individual settlements, you know, including local services, AIDC, as well as most of the retail business under the all other settlement? How should we look at the timing of kind of break-even target in the next one to two years individually? Thank you.
Gary Yu: 感谢管理层接受我的提问
Gary Yu: The management team said that many of our loss-making businesses are expected to achieve a profit-loss balance within 1-2 years. I would like to know if it is possible to divide the different branches, such as local life or AIDC, when these different businesses can achieve a profit-loss balance within 1-2 years.
Gary Yu: [inaudible]
Speaker Change #110: Thank you. Thank you.
Speaker Change #111: Okay, thank you, Gary. I'll take that question. I think, you know, what Eddie and I was explaining is, you know, except for Taobo and Tmall, that sort of like the core businesses we mentioned previously, including
Speaker Change #112: Taobao team of cloud and
Speaker Change #112: and the AIDC, all the other businesses, some of those businesses are still loss-making at this stage.
Speaker Change #112: You know, and they will be ramping up their, you know, efficiency and monetization.
Speaker Change #112: and sort of enhance and reduce their losses significantly in the one in the next a year or so, one or two years.
Speaker Change #112: and to reach a break-even.
Speaker Change #113: Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin
Speaker Change #113: Yongming Wu, Shan Dai, Robert Lin, Yongming Wu, Shan Dai, Robert Lin, Yongming Wu, Shan
Speaker Change #114: the scale and efficiency, which is very important.
Speaker Change #115: Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Yongming Wu, Shan Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Yongming Wu, Shan
Speaker Change #115: Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Yongming Wu, Shan
Speaker Change #116: In, for example, in Irma's case, you know, it's about all about it's sort of like a meal delivery business, you know, improve the unit economics continuously. And then, then in a map, I think it's all about, you know, for, for example, the right hailing businesses per all the unit economics need to improve.
Speaker Change #116: So with the both scale and efficiency improve, we are able to reducing the losses very significantly and moving towards the profitability. So I think this is pretty much, you know, how this business
Speaker Change #116: will execute and move towards profitability.
Speaker Change #116: Hello, I'm Toby. I think what Eddie and I were saying earlier is that in addition to Taobao, Tmall, AIDC, these core businesses, if you include other businesses, then some of them are still at a loss. So next, they will...
Speaker Change #117: is to significantly increase their efficiency, we can further promote.
Speaker Change #117: and other business operators. This will reduce losses. In about one or two years, it is expected to achieve a profit-loss balance. After the profit-loss balance, they can gradually contribute to the group in a larger scale. How to achieve this? First, these businesses
Speaker Change #117: to improve the efficiency of their business. It is very important to balance the scale and efficiency. Secondly, they need to pay more attention to the issue of commercialization. That is to say, they need to invest and spend money to improve their efficiency.
Jiang Fan: and to improve its commercialization rate at the same time. This can lead to a balance between profit and loss, and ultimately win-win. In my speech just now, I mentioned two examples. One is local life, and the other is Lazada. Jiang Fan also explained Lazada.
Jiang Fan: operational development for Southern China.
You Yi: You Yi. Thank you.
Speaker Change #119: Like Santa Fe, a typical example, is in working mode. We are now going to progressively improve its catalyst. In the eyes of Давайische Straße we also need to improve the catalyst. After the scale and efficiency both came to an improvement, these companies
Speaker Change #120: These businesses are confident that they can reduce their losses to do business.
Speaker Change #121: Next question, please.
Speaker Change #122: Thank you. The next question is from Jiang Xiao from Barclays. Please go ahead.
Jiang Xiao: Thank you very much for taking my question.
Jiang Xiao: My question is about the gap between CMR and GMV. It's great you achieved high single digit.
Jiang Xiao: for GMV growth this quarter. The gap between the two appears to be a high single digit as well. Is that a high watermark going forward? Especially you launched
Jiang Xiao: recently launched the Quan Zhan Tong and especially when it starts to charge
Speaker Change #124: Technology Service Fee.
Toby Xu: starting in September. Any comments would be great. And related to that, I think Toby talked about a 0.6% of GMV for the technology fees. But some of the smaller merchants, you're going to waive that. I was wondering, is that sort of a net number in terms of...
Speaker Change #125: percentage of GNV you think the technology service fees will bring to CMR? Any clarification would be great. Thank you.
Speaker Change #126: Shan Dai, Robert Lin, Yongming Wu, Shan Dai, Robert Lin, Shan Dai, Robert Lin, Shan Dai,
Speaker Change #127: My question is about the gap between CMR and GMV. GMV has reached a high unit number this quarter.
Speaker Change #127: However, it seems that the gap between CMR and GMB is still high.
Speaker Change #127: in China. Thanks.
Speaker Change #128: I'm from Malaysia.
Speaker Change #129: Is it true that GMV will contribute to the future of CMR based on such a 0.6 figure? Or how should we think about it?
Speaker Change #130: Okay, thank you for the question. I'll take that.
Speaker Change #130: I think, you know, as previously, Eddie, you know, also in my prepared remarks, I think the gap between the GNV, the online GNV and CMR, you know, reflect actually the job of the take rate. Why the take rate job? You know, because currently, you know, the some of the new models with a very high growth in GNV.
Speaker Change #130: at the currently still have relatively low monetization, which will be ramped up in the next, you know, a few quarters, if you like. So that's why there's still a gap. As we also said, you know, in the next a few quarters,
Speaker Change #131: Xie Ma Krof, Xie Ma Krof, Fan Jiang, Fan Jiang, Fan Jiang, Fan Jiang, Fan Jiang
Speaker Change #131: will be in at the same pace with GMV, which means take-away will start to get relatively stabilized. So so that's what what was sort of we expecting.
Speaker Change #131: and Eddie explained the why GNVs currently, you know, grow faster than the take-away. The reason is because
Speaker Change #132: by executing our strategy, you know, we first need to invest in the in the consumers, you know, get that the more sort of purchase frequency from the consumers, then get the GNV growth.
Speaker Change #132: and as soon as we start to observe the GNV back to growth and then the market share becomes stabilizing we will gradually ramp up the monetization sort of like a pace
Speaker Change #132: A few things we're doing, you know, Eddie explained, which which is currently be rolling out the penetration into traffic will take
Eddie Wu: you know, a number of quarters. So that will certainly improve the take rate, which means, you know, we accelerate the CMR growth.
Eddie Wu: and secondly with this you know software service fee charge will also help on the on the sort of like the take rate you know a few other sort of like measures as well
Eddie Wu: So these are all the things currently we are doing. Why we started to do it? Because we see the growth of back on the GMB and we see the sign of stabilizing, you know, the market share.
Speaker Change #133: And then your question about how it is calculated for this 0.6 charge, it's on the completed
Speaker Change #133: transaction, completed the GNV. So it's charged on the completed GNV. However, we will refund, you know, back to some of the small and medium merchants if their annual GNV is below certain threshold.
Speaker Change #134: Thank you so much. Thank you. Thank you.
Speaker Change #135: [inaudible]
Song: and many more. Thank you for watching. See you next time.
Speaker Change #137: Eddie also talked about this issue. I also mentioned this issue in my speech.
Speaker Change #138: If you look at the difference in growth rates between GMV and CMR, it actually reflects that our take rate has
Xia Jiang: The reason for this is that the businesses with the fastest GMV growth are precisely those with relatively low commercialization rates. In the next few quarters, we will gradually improve this, but for now, this situation indeed still exists.
Chang Xu: Cha Jun, Chun Zai, [inaudible]
Chang Xu: So just now we also mentioned that in the next few quarters, we believe the growth rate of CMR will match and synchronize with the growth rate of GMV. In other words, the take rate will tend to stabilize. As Eddie explained just now...
Chang Xu: Alibaba, Alibaba,
Chang Xu: We have always invested in the consumer experience.
Chang Xu: If we increase its purchase frequency, it can drive the growth of GMB. As our market share stabilizes, we can accelerate the improvement.
Chang Xu: Just now Eddie has also introduced the promotion and popularity of No Girl's World How many quarters will it take? This will also accelerate the growth of our CMR
Speaker Change #141: 另外呢,我們說到開始收取技術服務費,這也會有利潤提高我們的take rate。
Speaker Change #141: Why are we doing this now? Because we can see the signs.
Speaker Change #141: that is to say, our GMV growth rate has recovered, and the market share is also stable. As for how to calculate the technical service fee specifically, this will be calculated according to the GMV scale completed by the transaction, but some GMVs have not reached a fixed level.
Speaker Change #141: 額度的這個小商家,我們會給他們退款。
Speaker Change #142: Next question.
Speaker Change #142: Thank you. The next question is from Kenneth Frong from UBS. Please go ahead.
Kenneth Frong: Hi, the evening management. Thanks for taking my question.
Kenneth Frong: I have one question, mainly on the financial number.
Kenneth Frong: One is on the tax rate. Notice that the tax, effective tax rate is quite high for the current quarter. Can management explain what's the rationale behind and how should we model the tax expense going forward? And the other thing is about the decline, 56% decline in our
Speaker Change #144: Free cash flow. Understand that it is related to our investment on AI cloud as well as some one-off expenses of cash flow on the planned reduction on direct sales business.
Speaker Change #145: Should we expect that to gradually normalize in the next slide, one or two quarter, especially for the direct sales business part? Thank you.
Speaker Change #145: i
Speaker Change #146: Okay, thank you. The first question I want to ask is that the tax rate is relatively high this quarter. How do you understand this? And how should we plan for the future when we are working on the model?
Speaker Change #147: The second is the decline of the free cash flow in this quarter. We understand that it is because we are investing in the economy.
Speaker Change #147: AI, voice investment, and we are deliberately reducing some direct business. But how should we think about free cash flow in the future?
Speaker Change #148: Thank you, Kenneth. I'll take this question. Your first question is about tax rate, you know, because if you're using our P&L tax divided by profit, you know, you normally cannot reach a sort of like, reach sort of like the real effective tax rate, because we do have a lot of, if you like, permanent differences, one-off items, which does not have
Speaker Change #148: We are monitoring more on an adjusted basis on the tax rate, which is relatively stable in this quarter compared with last quarter. So in terms of your model, I guess...
Speaker Change #148: probably, you know, we can, our team can sort of like look into your model and sort of communicate offline. So this is your first question.
Robert Lin: Robert Lin, Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Robert Lin, Robert Lin, Robert Lin, Robert Lin, Robert Lin, Robert Lin, Robin Lin, Robin Lin, Robert Lin
Speaker Change #150: The first question is about the tax rate. If you take the loss forecast tax divided by profit, then usually this is
Speaker Change #150: I can't see the actual tax rate, because we have some permanent...
Speaker Change #151: As for the tax rate, we have been adjusting it continuously.
Speaker Change #152: I think this quarter is relatively stable compared to the previous quarter. But how do you build the model? I think we can discuss it in private. We use an adjusted model to consider the impact of the water rate.
Speaker Change #152: and other leaders who participate in our content. Thank you very much.
Speaker Change #153: Okay, your second question is about free cash flow, you know, as I explained, there's quite a big significant job of free cash flow. One of the reasons is the significant increase in expenditure on the AI infrastructure investments, if you like. So, I think, and the other reason, as I said, is because of.
Speaker Change #153: the sort of because of the working capital changes in relation to some factors like like some of the business
Speaker Change #153: scale jobs. For these business scale jobs, many of them, if you like, a majority of them are from those, you know, plant
Speaker Change #153: scale down, if you like. As I was explaining why our direct sales business within Taobo and Tmall dropped quite significantly. The reason is we proactively scaled down some of these 1P businesses in Taobo and Tmall. The reason is we believe in some of these business or categories, you know, 1P format probably is not a more efficient format. So that's the sort of proactive, but you will also have some of the businesses, you know, scaled job was not because proactively did that. You know, some of these just like the overall market
Speaker Change #153: you know, situation. For example, as I said, you know, the revenue dropped.
Speaker Change #153: from, for example, like Sena, like InTime, all those businesses are in 1P and the job of their scale actually impacts the working capital.
Speaker Change #153: I don't know, probably I can give a little bit more color on because for doing 1P business, you know, on one hand, you are buying inventory from vendor, on the other hand, you sell it, and that the vendor normally give you a credit term like in 60 days or 90 days.
Speaker Change #153: If you can make your inventory turnover, i.e. sell the inventory within a short period of time, you know, shorter than the sort of a credit term you are given, actually you are generating cash flow.
Speaker Change #153: particularly if the size is going up, you are generating positive cash flow. So on the contrary, if you are reducing the scale
Speaker Change #153: You are it will it will have our flow on the working capital
Speaker Change #154: But is there is this a permanent impact? To me, I think this is a relatively, you know temporary impact
Speaker Change #154: During the process of reducing the scale we will see this outflow, but when the business size becomes stable, we will no longer see this type of outflow.
Speaker Change #155: I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change #156: Thank you very much.
Speaker Change #157: Yes, this is about the free cash flow decline. On the one hand, of course, we are
Speaker Change #157: Investing in AI on one hand, and having operational funds on the other.
Speaker Change #158: This is due to the business scale of some operations.
Speaker Change #158: under a project-survey with an objective to shrink the scale of our business.
Speaker Change #158: For example, we have some direct sales business on Taobao and Tmall. This is one of our proactive choices. Why did we choose to shrink its size? Because we believe that in these businesses, EP mode may not be more efficient. In addition, some business sizes shrinking is not our proactive choice, but a big market performance. For example, SunArt InTime.
Speaker Change #158: These factors influence the user experience of our products.
Speaker Change #158: In addition, I can also introduce that in these retail businesses, you often purchase and buy goods from the suppliers.
Speaker Change #158: You may have a payment period of 60 days or 90 days. This can actually bring you...
Speaker Change #158: This is a positive cash flow. If the scale of such business is reduced, it is equivalent to a kind of outflow of the operating fund. But this kind of impact is temporary.
Speaker Change #158: After the business scale stabilizes, there will be no such outflow.
Speaker Change #158: Thank you. The next question is from James Lee from Mizuho. Please go ahead.
James Lee: All right, thanks for taking my question here. My question is related to AI, more big picture question for you guys. Can you guys talk about maybe implication of open source large language model, how that impact the adoption of AI in China? And also, how should we think about
James Lee: large-language model as that transition into agents, and how do we think the use cases may change for your merchants and customers?
Speaker Change #160: Thank you.
Speaker Change #161: The question I want to ask is about AI. I want to know more about it.
Speaker Change #162: Taiwan you
Speaker Change #162: What impact will the big model have on your products' popularity in China? What will be the difference when the big model becomes an agent?
Speaker Change #163: Your question is very good. Let me answer it. The first question I think is...
Speaker Change #163: Thank you.
Speaker Change #164: In this round of AI, the direction has always been chosen by different companies. But for Aliyun, because our business model
Speaker Change #165: the purpose of my lecture is more and more to offer the fundamental facts of Cloud
Speaker Change #165: We provide a top-of-the-line open-source model for...
Speaker Change #165: China and
Speaker Change #166: The developers all over the world will be very helpful because most of the developers still hope that this model will be more controllable.
Speaker Change #166: 能够更...
Speaker Change #166: 更具备他有更多的能力,更具备他有更多的能力,
Speaker Change #167: 更多的调优的这些空间 So we need to make more room for adjustment.
Speaker Change #168: In a way, we think that the open-source model will have an advantage in the broad use of developers. In terms of the broad use of developers, this is very suitable for a company like Aliyun that provides AI infrastructure. Because when more developers will...
Speaker Change #169: When more people use our open-source model, it will naturally prioritize choosing Alibaba Cloud's AI when deploying its applications.
Speaker Change #169: Xiaoyong AI
Speaker Change #169: and they use Ali Yun's AI technology. So this is a compatible structure with English and business.
Speaker Change #170: 而且我们现在也看到 And we can see it now
Speaker Change #171: Many companies and developers choose the open source model as their priority.
Speaker Change #171: That's especially the case in China, because China has a lot of environments that require many applications and stronger controllability. However, at this point, I can't provide strong data to show how many developers have chosen our Alibaba Cloud AI services because they used our open-source model.
Speaker Change #172: But we think that in the Chinese market, we are the only company that provides open source models and provides AI cloud services at the same time. I think these two business strategies are completely compatible.
Speaker Change #172: Another question
Speaker Change #173: It's relatively complex and long-term because the question you raised is also relatively broad.
Speaker Change #173: I think overall
Speaker Change #174: The capabilities of future large models will actually become stronger and stronger, one model after another.
Speaker Change #175: In the future, the data he uses will be more and more multi-modal, and the parameters of this model will also be more and more complex.
Speaker Change #176: It will also get bigger and bigger, so the things it can do will also become more powerful. However, we do see that in solving some complex problems, we often need to go through
Speaker Change #176: Using agents to solve some complex reasoning problems, and these agents might also call different models to solve this complex reasoning process.
Speaker Change #176: So I think this trend is very obvious, but we...
Speaker Change #176: There are a lot of developers doing these agents now. But I have a judgment that these agents will be more and more. In the future, there will be large models with strong enough capabilities to produce these agents. It will be more and more automated.
Speaker Change #176: [inaudible]
Speaker Change #176: [inaudible]
Speaker Change #176: and many more. Thank you. Thank you.
Speaker Change #176: Thank you.
Speaker Change #177: Well, on your on your first question, you know, in this recent wave of generative AI development,
Speaker Change #177: different companies have made different choices around.
Speaker Change #177: whether to develop open or closed source models.
Speaker Change #177: Ah...
Speaker Change #178: Alibaba Cloud is itself a cloud service provider, so the clear choice for us has been to develop open source.
Speaker Change #178: Large language models, that's very helpful, of course, for developers, developers want more control, they want more scope.
Speaker Change #178: to optimize.
Speaker Change #178: So we feel that providing open source large language model to developers is advantageous for them and that of course very much fits into our own strategy because we are a cloud service provider so it's doubly advantageous. They can develop their offerings using our open source models and then they're very likely to continue to select Alibaba to deploy those offerings at scale so that's entirely consistent with our strategy.
Speaker Change #179: Thank you.
Speaker Change #179: Vietnam.
Speaker Change #179: you know, models are becoming larger, more and more multimodal, with more and more parameters becoming stronger and more capable.
Speaker Change #180: And so there.
Speaker Change #181: There will be a need for agents, I think, to deal with some of the more complex needs around inferencing, especially agents that can call on different underlying
Speaker Change #181: large models. I know lots of developers are working on it. But I think going into the future, this kind of development will become more automated.
Speaker Change #181: Let's open to the last question.
Speaker Change #182: Thank you. The last question is from Yusuf Squali from Trust. Please go ahead.
Speaker Change #182: Thank you very much, that's Yousef Skhali from Truist. So just on the follow-up on the AI question, one, if I look at your CapEx,
Yusuf Squali: It's more than doubled year on year in Q1. Number one, is that a good run rate to work off of for the rest of the year? And number two, as you look at the return on those investments, can you help us?
Speaker Change #184: Just understand your framework of reference, one of the key questions we often get here, at least in the U.S., is
Speaker Change #185: Robert Tsai, Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin,
Speaker Change #186: Okay, this is the last question. My question is about AI.
Speaker Change #186: 那么我们看到你们的
Speaker Change #187: Another question was about capital 죄송합니다.
Speaker Change #187: 翻了一番,还多,翻了一番,还多。
Speaker Change #188: I would like to know if the remaining time of this fiscal year is a reasonable income operating rate. Will it continue to be like this? The second question is that in the United States, we often talk about this kind of investment, an investment return rate, ROI. So when do you think you will start in AI?
Speaker Change #189: bring real investment returns? Or in which areas have we started to see some growth?
Speaker Change #189: James Lee,
Speaker Change #190: [inaudible]
Speaker Change #190: Okay, I will take the first question and Eddie will answer the second question. I think with respect to the capex, just like as you have observed from our reporting, increased very significantly.
Eddie Wu: I think, you know, the reason is because we see clearly very strong demand, you know, and the backlog. That's why, you know, we are investing, you know, we would expect, you know, in the next few quarters, you know, we would expect, you know, similar level of investments in capex going forward.
Mr. Toby: Mr. Toby, let me answer the first question first. Yes, as you can see, our capital expenditure in Capex has increased significantly. Why is that? That's because we clearly see that there are very strong needs in this area, and there are a lot of suppressed needs. So we think that in the next few quarters, we will continue to invest according to this level.
Speaker Change #192: Let me answer the question behind you.
Speaker Change #193: As Toby said, in the next few quarters, we will continue to invest in AI CapEx. We can see that customers' demand is very high, including their pipeline, which is still far from being satisfied. From our customers'
Speaker Change #194: Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin, Robert Lin,
Speaker Change #195: Training, inference, and API calls like the one for translation
Speaker Change #195: The demand in this area is growing rapidly.
Speaker Change #195: In some levels, our capex worries,
Speaker Change #196: From our point of view, as long as our flag is in the air,
Speaker Change #197: Basically, these services will be used by customers in a narrow way. So in fact, these CAPEX investments in the recent few quarters, we will see that their investment return is very objective, and in fact, their control rate is very limited. Now, basically, most of the profit, we will start to generate income at the beginning of the price, and basically start to generate income in a relatively full way.
Speaker Change #197: Thanks, this is this is Eddie. So to continue with the second part of this answer
Speaker Change #197: Certainly, as Toby said, over the next several quarters, we expect to continue to be investing in AI CapEx at that kind of pace. And it's simply because we see a lot of demand, a lot of unmet demand from many clients. And you look at the pipeline, those clients have, you know, there's going to be ongoing demand. So, I think it's important to keep that in mind as we move forward.
Speaker Change #198: So whether it's, you know, for training or inference or API calls.
Speaker Change #199: What we see when we're making these kind of CapEx investments is as soon as we get a server up, that server is essentially instantly running at full capacities.
Speaker Change #200: There's that kind of demand.
Speaker Change #200: so you know we can expect to see a very high ROI over these next quarters because we're building compute power to meet existing demand and that new compute power coming online is getting instantly taken up and running at full capacity from day one.
Speaker Change #201: Well, thank you everyone for joining. We will see you next quarter.
Speaker Change #202: Tang Tsai, Unknown Executive, Hong Xu, Fan Jiang, Yongming Wu, Shan Dai, Robert Lin,
Speaker Change #203: Stay home, stay healthy, stay safe!
Speaker Change #203: [inaudible]
Speaker Change #203: The Real Renovation of Hong Kong