Q1 2020 Earnings Call
Thank you for standing by.
June quarter of <unk>.
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At this time.
But you said, that's our only they said already about.
I'd now like to turn the call over to <unk>.
Head of Investor Relations you about bug.
I do apologize what Andy that's started any disturbances.
Hi, Good day, everyone and welcome to Alibaba Group's June quarter, 2000, <unk> results conference call.
Before I get started I just wanted to see if people on the line.
Yeah.
Well.
Maybe you could take one question operator.
Got to make sure that some more on the lung cancer.
So that they can.
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Okay, I think well proceed.
Okay.
Well sorry about that.
So with US today are Joe tie, our executive Vice Chairman.
They know Dong Chief Executive Officer.
Maggie Wu Chief Financial Officer.
This call is being webcast from our IR section of the corporate website, a replay of the call will be available on our website later today.
Now let me quickly cover the Safe Harbor today's discussion will contain forward looking statements. These forward looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations.
For detailed discussions of these risks and uncertainties. Please refer to our latest annual results on form 20-F, and other documents filed with U.S. FCC.
Any forward looking statements that we make on this call are based on assumptions as of today and we do not pay undertake any obligation to update these statements except as required under applicable law.
Please note that certain financial measures that we use on this call such as adjusted EBITDA adjusted EBITDA margin adjusted EBITDA adjusted EBITDA margin.
Marketplace face quote comes adjusted EBITDA non-GAAP net income non-GAAP diluted earnings per share or 80, S. and free cash or are expressed on a non-GAAP basis, our GAAP results and reconcile associated reconciliation of GAAP to non-GAAP measures can be found in our earnings press release.
Unless otherwise stated growth wave of all metrics pension during this call.
Your first two year on year growth versus the same quarter last year with that I would now turn the call to Joe.
Thank you Rob Thank you all for joining us.
Ali Baba business continues to do well in an uncertain economic environment characterized by slower global growth and the trade War.
And last quarter I explain why Alibaba is on the right side of all the solutions that could help us address issues and the trade War. If you haven't please go back and read my speech from the last quarter.
In this quarter, our core commerce business comprised of China retail wholesale international comp Commerce logistics and local consumer services performed exceptionally well with overall year on year revenue growth of 44% in the segment.
The question that is and there's only ask.
It's how does Alibaba.
How does alibabas business, which is consumption driven continued to deliver robust growth despite challenges in the broader economy.
I want to offer two reasons.
Both our big secular trends happening in China that we have taken advantage of.
First is demographics and the second is the rapid pace of Digitization.
On demographics.
China's 5.5 trillion U.S. dollar domestic consumption market is driven by two massive demographic forces.
First is the emergence of the middle class of over 300 million people living in large cities.
This affluent middle class population is almost as large as the entire U.S. population and their consumption needs and wants or approaching developed market levels. We have talked about the desire by these consumers to upgrade the quality of products, they buy especially the pursuit of brands and imported products Alibaba Tmall platform benefits tremendously from this ongoing trend and we believe it will continue to be the leading choice for consumers looking for quality and consumption upgrade.
The second massive demographic trend is the rise of urbanization affecting third fourth and fifth tier cities.
Other than the major metropolitan areas, like Shanghai, Beijing, and Shanghai, Shenzhen, China has more than 150 cities with a population of at least 1 million people in aggregate these lower tier cities and the surrounding townships have more than 500 million people, where the consumption economy of 2.3 trillion U.S. dollars.
What is happening is the lower tier cities are urbanizing very fast with a projected 300 million people that will move from rural areas into these cities in the next 10 years. The economy of these smaller cities will grow faster than the major <unk> metropolitan areas, we've seen projections that retail consumption from the lower tier cities and townships will triple from 2.3 trillion today to nearly seven trillion U.S. dollars by the year took 2030.
That is a compound annual growth of more than 10% over a long period of time.
In the current quarter, we grew annual active consumers of our China retail marketplaces to 674 million of which more than 70% come from lower tier cities.
Alibaba as China retail platforms, especially taobao marketplace is very well positioned to capture the consumption demands from the lower tier cities.
Alibaba is unique Alibaba is uniquely positioned with a capability to capture opportunities of both the growing middle class in metropolitan areas and urbanization of lower tier cities. This unrivalled capability is enabled by our multiple retail platforms that are highly trusted by consumers.
Extensive ecosystem of brands merchants and manufacturers and AI driven personalization technology.
The second big secular trend I want to talk about is the rapid pace of digitization over the past 10 years Digitization of the Chinese economy has been driven by smartphones.
Because of the convenience and always connected nature of mobile devices more and more users are spending more and more time connected to the Internet. This is giving the digital service providers like ourselves a great feedback loop to understand user trends, so that they can rapidly and continuously improve their services.
Under our all in mobile strategy Alibaba has become the leading player in digitizing Commerce. We have developed the most sophisticated AI algorithms to serve consumers on our platform, which results in an ever improving user experience as well as increasing monetization opportunities.
In the next 10 years Digitization of the economy will be further accelerated by the advent of Fiveg connection and proliferation of I O T devices. This will have far reaching implications for all industries and processes, including public.
Including public services.
Manufacturing supply chain distribution product development and marketing by developing these essential technologies have a more digitalized digitized world such as data technology cloud infrastructure and machine intelligence I like Alibaba is very well positioned to help businesses succeed throughout new infrastructure for commerce.
Now I turn to Daniel for his remarks.
Thanks, Joe.
Hello, everyone and thank you for joining our earnings call today.
We had an outstanding quarter with excellent business performance.
And the solid execution against our overall strategy.
We enjoyed exceptional revenue growth of 42% year on year outpacing industry peers.
Even though we adopt a conservative approach in monetization to support center east in this uncertain macroeconomic environment.
We also delivered solid profit growth.
Benefiting from measures to improve operating efficiency.
During the quarter, we saw solid execution and are pushing those improvements in multiple areas. So I will address.
Including.
Number one.
Successful penetration into less developed areas.
Number two positive momentum he adopting our new retail technology, among consumers and the retail partners.
And I'm, a true efficient and innovative lost most of loosen offer by tenure.
Number four sustained improvement of our legato business in southeast Asia.
Number five robust revenue growth of our cloud computing business.
And number six repositioning our digital entertainment segment, <unk> insurers healthy long term growth.
For our China retail marketplace, we continue to demonstrate the ability to grow our customer base at scale.
In June 2019.
Our China retail marketplaces had to southern 55 men mobile any use and they use.
Accordingly, net increase of 34 million.
And new active consumers go 20 million to 674 million.
Reflecting strong user acquisition programs.
And another record breaking through 18 shopping festival.
During the quarter.
Over 70% of the increase in and new active consumers wants from less give up but to give up the areas.
Which demonstrated the success of our initiatives put touched a broader base of users.
You know a core commerce business.
T mobile continues to strengthen its market leadership team a b to C market.
Growing faster than the sector average.
He more physical goods pay the G.M.D. grew 34% in this quarter.
Mainly driven by increases in the number of users and average spending.
In June .
We achieved the largest ever prudent 18 shopping festival in fitness scale and the customer reach.
The promotional event.
So robust consumption demand that support is solid sales and the greater penetration into less developed a serious for brands and merchants.
As over 120 brands generated more than.
Well hunger admitted in R&D a day.
In this in GMI.
During the.
18.
Save promotion period.
T. more physical goods Patria, Andy was up 38%.
Given by increases in consumers and a higher.
Average spending.
Mobile Taobao App da used was up close to 30% reflecting successful promotional strategies.
And about 65% of the buyers were from lots of other areas.
The success of the event was mainly due to.
Successful promotional strategy that kept consumers engaged and are willing to spend.
More effective use acquisition programs can utilize five platter reactivation of thalmann.
Users leveraging on our data technology.
A diversified selection of value for money products to attractive to attract more users.
Our more buyers in less developed a serious.
Continuing efforts to address growing demand from our middle class consumers.
For local consumer services, we achieved strong growth in daily on to him in GE and the.
Driven by robust order growth and increasing average order size during the quarter.
We have also extended to the coverage of products and services in targeted low tier cities, where we saw improved market share.
We will continue to focus on delivering value to restaurants, and other local service merchants through our that our technology.
Our new retail business consists of two major direction.
Reforming owed and creating new.
Both of which launched the addressable market.
We are making good progress in digitizing ponderous, our retail partners and enable their new retail transformation.
We offer multiple new retail solution for traditional supermarket chains that concludes today's agenda and the digital Pos machines.
How should that allows consumers to place orders in a nearby supermarket through taobao, app and the secure delivery through our on demand delivery network.
Digital Pos machine capture the insights from local consumers in store purchases.
These new retail technologies have started to deliver positive impacts to our retail partners like Sinatra.
Felicia pool also known as <unk> in Chinese.
Has achieved robust to same store sales growth.
It will continue to expand its footprint.
Optimizing its source and introduce.
If your Asia Asia, it caught us elections.
Hello, My is consolidating the supply chain to bring the product separately from the farm to table to improve customer experience.
Hi in your network has developed a robust in port fulfillment solutions utilizing it combined Asian of bonded warehouse in China, and the direct shipments from overseas.
The bonded warehouse network operated by tying else covers all the major ports in China.
As part of <unk> comprehensive last mile solutions.
Pangels all go ATP offers and.
On demand pickup and delivery services that allow consumers to send package from their homes.
Thereby facilitating returns.
As of.
June 2019, hang Ao golf course.
Speedy on demand pickup service within two hours has covered us substantially all of the districts and the countries.
And the counties in China.
In general one out of every three returning packaged generated on our platform was handled so tangoe Gogo platform.
On the globalization front.
Lazada show solid operational improvement Optus concerning its third party marketplace business.
The management team and technology infrastructure.
For the third consecutive quarter Lazada achieved over 100% year on year growth.
Yeah on your order growth.
Reflecting strong consumption demand.
During the quarter it executed effective user acquisition programs with mobile D.A. youre doubling year on year.
Lazada a key priority is to maintain strong user growth and a user engagement in the coming years.
Our cloud computing business continues to execute an exhibit strong growth.
Revenue growth.
66% year over year.
7.8 billion RMB.
Primarily driven by an increase in average revenue per customer.
We are focusing on delivering high value added services.
While rationalizing.
Our offerings of commodity products and services.
We will continue to execute a strategy of expanding our market leadership.
Increasing investments in talent and technology infrastructure, and the developing new value add value added products.
On top of robust growth in public cloud.
We are capturing strong secular demand for private cloud.
Primary driven by digital transformation of Big enterprise clients in various industries.
During the quarter, our private cloud revenue grew over 250% year over year.
Digital media and entertainment segment continues to be impacted by tighter continent regulation and the industry.
Personalization.
You will continue to focus on investing in original content.
It's covering superior user experience and driving increasing paying subscription.
During the quarter equals average daily subscribers increased 40% year over year.
While we continue to invest in original content production capabilities.
We are also taking consistent measures to ensure.
Something cost efficiencies and the return on investment.
These measures have been reflected in reduced losses during the quarter.
Ali Baba digital economy continues to so resilient growth in the face of complex show pretty fickle and economic conditions.
Recent geopolitical uncertainties has placed additional pressure to global growth.
Looking to the future. We believe this is both a challenge and opportunity for the Chinese economy.
Consumption and the service sectors will become the new engine for China growth.
The consumption power he already bought digital economy is strong.
Coming from two types of consumers.
Those from last evaporative serious under the affluent middle class.
We estimate over half of the total addressable population being less development.
He areas are already consumers in Ali Baba digital economy.
We continue to acquire new customers.
In a holistic approach in less the voucher areas.
With such a large existing consumer base.
We see great cross sell opportunity within the RT, Bob I Court system that will drive up their purchase frequency and the categories expansion.
For affluent middle class.
Ali Baba is also well positioned to meet their consumption upgrading the men.
We are we'll probably penetrated in top tier cities and able to continuously.
Growth, principally consumers' minds here and want to share in various areas of their lives.
Today's Ali Baba digital economy is self reinforcing and it is as strong as ever.
Fueled by consistent rapid revenue growth and healthy financial performance.
We are able to continue our investment in strategic areas.
I Trust local consumer services globalization logistics cloud computing and the digital content.
Which we believe will drive future sustainable growth for Alibaba digital economy.
Now I turn the call over to Maggie who will walk you through the details of our financial results.
Thank you Daniel.
Thank you all for joining us.
We had another strong quarter.
For today's call I will begin with a review of the key financials and and with how we view that a calming cortez.
The engine a quarter as Daniel mentioned, we delivered another quarter of strong user growth with 765 million I mean, easy and 674 million of annual active consumers.
Which means approximately one out of two Chinese are buying from our platform.
We also continue to be successful in penetrating into less developed areas in China.
Over 70% of the increasing and your active consumers during the quarter were from last give out of the area.
Our large and active user base is a solid foundation for us to not only expand the market leadership of our China retail marketplaces.
But also grow other consumer businesses within the eye by digital economy.
Our total revenue grew 42% to 114.9 billion RMB in this quarter.
Excluding the effect of consolidating and acquired businesses.
There is a much smaller impact and second time this year.
On the revenue would have increased by 38% year on year. So these businesses include an element, which we started consolidation from may last year, none of my Kobe and a highly picture.
The increase of our total revenue was mainly driven by the robust growth I'm, sorry, I cannot comment retail business.
And roll them out.
Strong revenue growth of about a clock, that's why I say, increasing volume and order fulfillment titanium.
This quarter's costs and expenses, excluding SBC, having tightly managed.
Leading to greater efficiency.
Essentially in those businesses in that investment stage.
So the increase for a cost of revenue was primarily due to increased the inventory costs are a direct sale within your retail business increased to let just say cost of Alabama, driven by increased the auger volumes.
And partially offset by a decrease in content spending that you cool.
Let's turn to our business segments.
Core commerce.
I cannot comment segment had a strong quarter with revenue growth of 44% to possibly a wine <unk> billion RMB this quarter.
The fundamentals of our China retail business continued to be strong.
The combined custom imagine me revenue and commission revenue is pivoted healthy growth of 26% for the quarter.
Customer management revenue increased to 27% in the quarter that grows a customer imagine ran it was primarily the result of increased in a volume paid clicks theater used as well.
And more relevant listings treason by better algorithm, which resulted in better consumer experience.
Merchant confidence remained a healthy reflected by strong growth in merchant spending an increasing number of paint merging.
Commission revenue increased 23%, primarily due to strong 34% year over year growth of Timo paid physical goods E N needs.
The primary reason that gap between the commission revenue growth and the team have physical goods E. N equals a shift of chemo supermarkets revenue mix from commission to direct sales.
So revenue from team a supermarket that.
He used to be Oh in the commission now the <unk> revenue coming from the direct sales you see reflected and the others.
Within a China commerce retail business.
Contribution contributions from direct sales business, including HMO supermarket, and a Hamas restarted in audio revenue growth, which is 134% to 16.7 billion RMB.
No consumer services.
Revenue from local consumer services was 6.2 billion RMB, primarily reflecting the strength of our food delivery platform well enough.
During the quarter, our food delivery business. They say they did strong growth in daily R&D, My G.N.V. and know, what's driven by robust order growth and increasing average order size.
Ongoing operational upgrades, coupled with them more targeted and disciplined approach and expanding market share also improved operating efficiency during the quarter.
We remain focused on penetrating into less development area for the for dessert business.
Which we believe will add long term value for all of our digital economy.
We will be flexible and optimistic in our approach to investing in local customer service business in the US later part of the year.
Performance of other businesses and their core commerce, such as new retail tiny out international retail and the wholesale.
And really healthy as noted by Daniel earlier in his remarks.
Now, let's look at the driver of the cold calling as profitability.
We continued to generate solid market based core commerce adjusted EBITDA. This is a core core.
A week.
Compared to a year ago, we have increased adjusted EBITDA by 9.8 billion RMB well the combined losses from the four strategic investment areas only includes 1.6 billion RMB.
So this reflects our wrote off our disciplined approach when managing this business.
Which led to strong profit growth.
After incorporating the losses, our core commerce adjusted EBITDA grew 25% to 41 billion RMB during the quarter.
Cloud computing revenue increased 66% to 7.8 billion, primarily driven by increasing average revenue per customer.
We're improving our revenue mix by focusing on delivering high value added services, while rationalizing our offerings of commodity type products and services.
Adjusted EBITDA was a loss of 350 million RMB adjusted EBITDA margin improved from negative 10% to negative 5% in the quarter.
We will continue to execute a strategy of extending our market leadership.
By creating value and flexibility for our customers increasing investment in talent and technology infrastructures and developing new value added products and features.
Revenue for digital media and entertainment business increased by 6%.
As the industry undergoes rationalization and tighter regulation on.
Adjusted EBITDA was a loss of 2.2 billion.
<unk> adjusted EBITDA margin improved from negative 52% to negative 35% in the quarter.
Primarily due to the decrease of content spending efficiency gains.
During our.
Operations.
Revenue from innovation initiatives, and others increased 21% to 1.3 billion RMB, mainly due to increasing revenue from aim at.
It's a moderating.
<unk> adjusted EBITDA for innovation initiatives and others with a loss of 2 billion. The increase in net loss was primarily due to investments in technology research and innovation.
As well as some new business initiative.
Our business has shown strong profitability and cash flow generation capabilities.
For June quarter, we generated 26.4 billion your free cash flow.
Compared to a year ago, the free cash flow Oh show us a slight growth not as big as the profit growth there the reason.
The reasons are mainly to number one the net cash provided by operating activities. You know includes a annual payment for royalty fees and self art technology services from ant financial so that.
Settlement of the cash incurred in this quarter.
<unk> impact on the cash for the second thing is a payment of 250 million U.S. dollar cash a was a U.S. federal class action lawsuit related with the just to watch white paper.
I suppose June .
You know at the end of the quarter cash cash equivalents short time. He lesson there were 212 billion RMB.
In May 2019, our board of directors authorized to refresh our share repurchase program for a mountain of up to six feeling U.S. dollar over a period of two years.
Oh Tucker also talk about Oh type Oh, so some of our easy as as publicly disclosed.
All of US started selling their Ali Baba shares.
May Twentyth 2019.
And so far they have already sold 261 million adss only have 22 million left.
These are all based on the most recent publicly available information.
Looking ahead.
The Alibaba digital economy continues to show resilience and steady growth in the face of complex deal Colette political and economic conditions.
We had a strong quarter to start off physically year with revenue growing faster than our global technology to peers.
We're pleased to see sustained user engagement and consumer spending across our platform.
We continue to invest for longer term growth while at the same time, gaining cost efficiency scenery left in that area.
Looking ahead for the next few quarters.
We expect our China retail marketplace to hibbett strong user growth and using engagement a enhancement that's the poor healthy monetization and steady profit growth.
The sizable profit generated from marketplaces core commerce.
Allow us to invest in strategic businesses, including.
Local consumer services digital entertainment International marketplaces, new retail or logistics and the cloud computing.
We will remain proactive in our approach to increase market leadership in strategically important businesses, while also improving overall groups operating efficiencies.
These strategic businesses have already become the clear market leaders in the past quarters.
We believe there are still great potential in high growth areas that will substantially increase our total addressable market.
I also wanted to give a Jimmy if emissions, where our investor day did that this year.
We would like to announce that our 2009 Investor day will be held on September 23rd to 24th in Huntsville, China.
We hope to provide a in that business updates as we did in previous Investor days.
Details will be posted on the investor relationship section of Alibaba group's website.
That concludes our prepared remarks, let's open it up for questions. Thank you.
Hi, Peter.
Open for questions.
Yes, thank you ladies and gentlemen.
We'll now begin the question and answer session.
To ask a question. Please press star one on your telephone.
And we need to be announced.
The cancer the request these best of powder hash key.
And to give more people the opportunity to ask questions.
Please keep yourself to no more than one question at a time.
Once again.
To ask a question. Please press star one on your telephone keypad.
Our first question comes from the line of Ed Do me Young of Bank of America Merrill Lynch.
Please go ahead.
Hi, Good evening. Thank you for taking my question and congratulation on April Onest.
Hi, Bob Hi, crush and.
Oh, just the less developed areas stretch.
Could you elaborate on how you plan to differentiate from your competitors in the lower tier cities and then just a follow up do you feel that there is a high degree of overlap paying off your new customers from the less developed areas.
I'll give you a lot other ecommerce companies or do you think you are addressing a differential was a settlement in those areas. Thank you.
Oh Hi, this is Daniel Thanks for your question I do like we said in our script <unk>, a we are making good progress in user engagement and a new customer acquisition and during this quarter. We are we now at EUR 20 million.
And your active consumers and over 70% of them off from lots of other areas.
And today when we look at the consumer base, we have basically Oh, we are actually have two types of consumers have caused one these are in top tier cities and drilling.
By their consumption upgrading and power and triggering a quoting demand from the middle class families. The other ways from the from the less developed here is.
And what we see is that because of the penetration pop off the mobile internet or we see a more we see the let's sit he runs in the low tier cities or they become even they use as food fluent internet users and that they are trying a favorite new I mean, our business applications, obviously shopping unconcentrated <unk> is one of the most it very important areas and Oh, we want to shoot they want to try it. So that's why we Oh we.
Make a lot of I mean efforts in acquiring new customers and they said they were very happy to see that to over half of the population is a you know that different eras already the customers in all the public assistance, but we'll continue our efforts to acquire more customers from these areas, but at the same time as I said before we will do everything we can to cross sale I mean pause over the services are in various categories and the two Oh 40 leverage the existing user base, we have our platform.
And the one more important point is that today our platform, we have a very dynamic supplies from brand products and ER and the products from the manufacturers. So the power of the platform is to enable our the new customers. We acquired in the low tier cities to access the various dynamic I'm part of supplies, which also are not only meet there on the existing demand, but also create new demand from them. So I think that that's is it's very very important strategy for for us to continue.
Yeah, that's very helpful. Thank you.
Sorry, I just want to supplement.
Daniel's point on the differentiated strategy and the less or develop areas.
It just when he talked about the shopping contacts as you know we have broad product selection just much broader platform and also accessed the direct to factories, but also if you look at the Alibaba ecosystem. There are beyond E. Commerce, we have local services that we serve the lesser developed cities. We also have our sister company. All you pay that provides the payment service as well as a bunch of daily sort of cloud services on their platform. So this ecosystem is bringing in lots of synergies that enable us to capture more loyalty for you know from each of the users in those lesser developed areas.
Great. Thank you.
Next question is from the night of various Mobileye Your Goldman Sachs. Please go ahead.
Thank you.
If we think of the overall, China Commerce retail business as one what percentage of Dnbi is moving from Threepi to one Pete.
And how should we think of this transformation and the business in terms of the impact on margins Thats a question to you Maggie.
And Joe if I could ask you to elaborate on how you think I OTN fiveg could prove to be transformative to Ali.
Thank you.
So you might want to repeat the second question.
And a question for Joe could you elaborate briefly on how I LTE and fiveg could prove to be transformative.
Thank you.
Thank you Bruce.
Regarding to your first question.
Once you versus repeat if you take a look at GMI, We reported a 5.7 point by 0.8 trillion RMB deal with a lot of fiscal year and that we are I took into words when Tony was dollar. So the first p. business accounts for a very small portion of it and I told her GMI.
When I look at a whole multimode supermarket business you know.
Counsel only you know.
Less than 100 billion RMB <unk> so.
Good sense.
You know, it's not it's not a big portion in terms of the you know people.
Talk about margin impact et cetera, like we said many times.
Looking at the margin, we look at deposit growth.
Yes, so actually it isn't it's that contributes to our revenue growth and also you know eventually going to contribute to our profit growth. So like you look at this quarter's revenue very strong growth last 42.
The year on year, a there is a some contribution come from first <unk> business, but even if you take that pushing it out you know the revenue still be some amongst the highest among the global peers.
But to US we see this as the one you know one piece of the business.
And.
It should really be looking at you know together and then when you look at rent water revenue gross profit also showing a very strong growth.
So the core core and providing a strong cash flows at the same time over these investment areas, including the new retail actually are not only very not just only disciplined planes, but also but also showing the growth in you know in revenue as well as the improvement in a in a profitability.
Yes, Hi, two side, yes to answer the question on Aiotv Fiveg look were in the very early innings of this really transformational technology.
Overhaul with Fiveg potentially coming online in the next year or two years on what that means is faster connections will enable a more and more devices to be connected to each other a and also to the cloud. So you can imagine in a world where faster connection enables a millions and millions of devices and what are these devices doing their sensors. There other devices that could be collecting lots of data. So for service providers that are using a kind of an aiotv strategy to provide services to.
Ah consumers as well as to enterprises in manufacturing and supply chain or what the end result of a of faster connection and millions and millions of devices is the need to manage large huge amounts of data massive amounts of data that will need to be collected a store cleanse managed and a I think a you know if you look at our Alibaba cloud business. Our expertise is rooted in data management and data technology. Our apps. Our operating system is a distributed data computing platform.
That will you know sits at the core of our cloud computing technology, and we're providing that service to our customers. So it ultimately.
Benefit our cloud business. That's just an example, but you know as I said, we're in the very early inning and the there there could be endless possibilities that's beyond my own imagination.
Thanks you.
Excluding here.
Next question is from let me say Yap Citigroup.
It's kind of ahead.
Hi, Good evening management, congratulations on the strong quarter. Thanks for taking my questions I have a question related to your reason team our flagship store on 2.0, Great. In addition to potentially driving higher compression is that are you, saying he ran it could you help us understand.
Oh, what could be the addition, I'll comment on monetization opportunity, we could get a from the storefront upgrade would that be any incremental service fee or take rate opportunities and on a broader scope.
How should we really and compare the personalization upgrade on the storefront versus the recommended feed features on the main taobao app. Thank you.
Thank you. This is a very good question and operating strategy I think the we recently ER launch are working more on sex of school Oh 2.0 version. The purpose of this new version is to upgrade the forefront to enable our brand partners operate on T. more not only to sell their products to manage their customer, but also give them a vehicle or two to manage their fan base or they have across platforms and also this fan base management customer management is not isolated I mean passive management customer management efforts and even marketing efforts are we want to provide them a vehicle to.
Two lended or the marketing campaigns the brand have to promote their brands across channels, but finally, all these marketing campaigns that are on the cause and effect can be accumulated and then work. They will have more marketing campaign integrate into our platform, which obviously will lead to more marketing spending on Ali Baba ecosystem.
Thank you.
Thank you.
Next question is from Grace Chan of Morgan Stanley . Please go ahead.
Thank you. Thank you very much for taking my call and that's what is very encouraging to see a strong margin performance saving grace even imagine can you elaborate a bit more about what I first have to manage them and done to help improve the margin performance, especially in Congress and teach them and the tenant and whether we're going to see the strong margin performance will continue in the following quarters. Congratulations. Thank you.
Thank you for the question.
Let me elaborate on what we have done to bring out the operating efficiencies.
I think first of all on the revenue growth is very strong.
That's Oh this county function.
And also well I thought I've heard some user experience enhancement had paid off and now when you look at a a constant expenditures a we have.
You know started later last year emphasizing on all of these Ah you know efficiency Oh, let's see spending one number two is that we have seen so much a synergy coming out of not only Alibaba group, but also a synergy with our sister company. So things like marketing spending right that we're targeting or not or you know.
200 million 300 million of potential usage consumers coming to our platform. So this is all sort of targeted a us of ant financial and.
This is a word that we can work together that they are good at acquiring pets to consumers in the low to see he's in the topic is good at retaining these consumers.
So that you know we don't have to you know spend it twice, it's a very effective way of doing the marketing and acquire users.
Hope that helps.
Oh, Yeah me.
<unk> you see then magnitude.
Margin get narrowed so 55% a negative margin from last year and up 35% actually there was a one off last year, which is the World Cup spending. So if you take that out last years negative EBITDA margin would have been like somewhere around 40% to 42%, but still down by a lot I think that yeah me a a net negative margin narrowing is mainly coming from the art. It's a play on the spending particularly in the content spending.
Of course, thank you.
[noise].
Next question is something I know binnie Wong of HSBC.
Just go ahead.
Good evening management, congrats on another set of offer up in results.
So my question is on local consumer services on your for delivery business. We see that there is a strong topline growth along with last module narrows down from 9% to 5% this quarter and the first strong topline growth.
So we want to understand a major driver is it fleet efficiency improvement or less subsidy and also can we get clarity on your priorities going forward.
They still gaining market share, especially in lower tier cities and also synergies within your new retail system, along with home and also building deposit to be digitalization transformation basically tapping into merchants to protect as well and I guess lastly is that along with it.
Yes.
Okay.
Just.
Clever question, so you're asking about local consumers.
Yes, yes, the efficiency improvement yes.
And also the parties.
Okay.
Thank you Rob.
This quarter, we made.
We are making good progress.
Hi, good local services.
The low tier cities and we.
We are gaining market share.
The city.
But I'd say, we are very happy to see the.
The the.
The operating efficiency also improved and and with our continued efforts and we will continue to work on this and the two to grow our.
User base.
Local service business by leveraging the synergies Alibaba ecosystem and that said I think we have a unique advantage that.
Uh huh.
Like 7 million.
Mobile active users.
Rubber consumer by various consumer platforms, so how to import.
Promoted and local services.
Within these existing user base, especially in the <unk>.
The low tier cities.
Cities lighting is our is our big advantage, we will continue to work on this and other thing time, because all these local services, we built a very efficient demented. The route network and which also led by our new retail initiatives and today. We are we are.
These complimentary network help for our retail partners local retail partners.
Two ought to do the argument is it really.
For the older away from stores I think by by doing so we also improving operating efficiencies of these off market sources and because all these other capacities can be 40 utilized on <unk>. So [noise].
The various different cases.
[noise] and thank you just one follow up on the parties going forward.
Within this segment.
Well as I said, we will continue to Oh too.
Invest and grow our local business, especially in the low tier cities and to lead the priorities that on average our user base. We have and also we are continuing to improve our operating efficiency as well.
Thank you.
That's what [noise].
Okay.
Thank you next question comes from the line of Gregory Zhao of Barclays.
Please go ahead.
Hi management, Thanks for taking my question.
Oh very impressive result, so my question is about a recommendation for Pete I just wanted to check the recent progress off your monetization on the recommendation fees and then what the contribution to your customer management revenue and also wanted to understand if there is any seasonality of the business such as the last and monetization maybe during the 618 on top we haven't.
That's a promotion to push your keyword search advertising and also quick follow up on a lower tier city expansion I think you're talking a lot about the opportunity in North Jersey tea and to address what we also know you prioritized.
Okay strategic vision of what your thoughts are on during the quarter. So, California stands Oh, Oh, what do you differentiate the order what's your city expansion strategy with your peers. Thank you.
Hey, Greg talk about Uh huh.
You know.
In addition to the <unk>.
<unk>.
A third so youve seen that our customer management revenue grew 27% year on year. That's the reason for the growth or the driver is mainly you know a bigger user base in and a better user experience, so that or the merchant or you know satisfied and are willing to pay more ER and we you know said that for a recommendation fees. We are doing that do not plan to roll out.
Particularly in the current uncertain macro environment. This is one kind of ways of helping of our.
SMB customers.
And.
So from the you know competition point of view, we also won't be aggressively target on a you know.
Well in terms of the almost started using the low tier cities as I've said before today over half of the population is in the last areas already our customers. So oh.
I'd be very important we'll we'll also we'll continue to.
To Flav age these user base, we have I mean, our ecosystem.
To provide them various I mean supplies and as you said, we have various promotional I mean initiatives, including she was one day deal so on and so forth and bar. These I mean, very effective and efficient promotion a promotion platform and you can customers from utilities are very easy to find the it's a product of value for money. So a lot of these efforts we are effectively increase the use of frequencies at buying frequencies and a sickness.
And in terms of the new customer acquisitions are we still see a big opportunities and by leveraging the power of Alibaba ecosystem and a week together with our you pay and two and local services to further penetrate these I mean TV customer base and what are the digital I mean checkout off the new customers actually also give us a good opportunity to check in on them into our shopping and consumption platforms.
So we will continue to work on this.
Operator next question.
Thank you our next question from Samsung to line of Jay the option.
Yes. Please go ahead.
Hi, Thank you Yeah. My question is about our comments on the call so far about SKU rationalization and optimization, especially in a lot of our investments that we've done so far this year.
If I look at actually EBITDA growth this quarter.
The year over year growth is actually better than the either the revenue or EBITDA growth of the core core and what's your stuff.
First time in over here. So I'm wondering is there more rationalization. We can continue to do to continue this trend. Thanks.
Yeah.
I said that I think first of all the revenue growth is very strong right. So 42% if you compare with the altogether peers a floor.
And.
At the same time, we talk about the discipline and the college you know I noticed it a freaking fishing.
So we're going to continue to do so.
Well you know we.
We do see great potential in the market, so whether we're talking about the dissipate.
Were also you know flexible and an optimist mistake <unk> you know in our approach to investing in all of these sub isn't initiatives because.
Just like you know how we did in the past 20 years investing in these new areas Messianic inhalation brains gross isn't sustainable growth for long lead times.
Thank you.
Thank you everyone for joining the call today. If you have further question. Please reach out to the Investor Relations.
He modality bye bye thank you.
Thank you.
Ladies and gentlemen that does conclude they conference for today and thank you for participating email all disconnect.