Alibaba Group Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 10 speakers on the call.

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March Quarter 2024 and Full Fiscal Year 20 24 Results Conference Call. At this time, all participants are in listen only mode. After management's prepared remarks, there will be a Q and A session.

Operator

I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Speaker 1

Thank you, and good day, everyone. Welcome to Alibaba Group's March quarter and full fiscal year 2024 results conference call. With us are Zhou Cai, Chairman Eddie Wu, Chief Executive Officer Tobi Xu, Chief Financial Officer. We have also invited Jiang Fan, Co Chairman and CEO of Alibaba International Digital Commerce Group to join the call. This call is also being webcasted on the IR section of our corporate website.

Speaker 1

A replay of this call will be available on our website later today. Now let me quickly cover the safe harbor. Today's discussion may contain forward looking statements, including without limitation statements about our Ning organization and governance structure, Alibaba's plan to convert to primary listing in Hong Kong Alibaba's strategies and business plans as well as our belief, expectations and guidance and about our business prospects, such as the future growth of our business, revenue and return on investment and share repurchases. Forward looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to the latest Annual Report on the Form 20 F and other documents filed with the U.

Speaker 1

S. SEC or announced on the website of Hong Kong Stock Exchange. 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. Please note that certain financial measures that we use on this 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. Our GAAP results and reconciliation of GAAP to non GAAP measures can be found on the earnings call earnings press release.

Speaker 1

Unless otherwise stated, growth rates of all metrics stated during the call refer to year over year growth versus same quarter last year. With that, I will turn it over to Eddie.

Speaker 2

Hello, everyone. Following several quarters of adjustments and continued user experience enhancement, our core business has gradually returned to healthy growth. The Taobao Tmall Group achieved double digit year over year growth in GMV this quarter. Alibaba International Digital Commerce revenue increased by 45%. Our core public cloud offerings recorded double digit year over year growth in revenue.

Speaker 2

AI related revenue increased triple digit year over year. This quarter's results demonstrate that our strategies are working and we are returning to growth. TDG continued to execute its user first strategy by creating a system for brands, merchants and industrial belts to operate efficiently and to meet the diverse needs of China's domestic consumers through a shopping experience that offers quality products at attractive prices supported by exemplary service. Our investments in driving price competitiveness and elevating the user experience have received positive consumer feedback. We've seen tangible results and progress, strong growth in quarterly buyers and purchase frequency that has driven robust double digit growth in GMV, reflecting a continued improvement in consumption and user trust.

Speaker 2

At the same time, we continue to enhance member benefits and service experience with 88 VIP membership numbers growing by double digits year over year to surpass $35,000,000 Last quarter, I shared TTG's 3 key investment areas aimed at enhancing overall capabilities: 1st, product supply second, competitive pricing and third, quality service. We are committed to boosting consumption and purchase frequency through these measures driving further growth. For fiscal year 2025, we expect TTG's GMV will gradually return to healthy growth as our platform's overall shopping experience continues to improve. At the same time, our schedule of launching monetization products will also proceed as planned. In the second half of the fiscal year, we will gradually introduce new monetization mechanisms aligned with new platform algorithms and product features that will further enhance CMR centered revenue growth.

Speaker 2

As we continue to improve platform products and investment tactics under our user first strategy, we're very confident we will win more consumer trust and maintain our market share leadership. This quarter, we completed adjustments to Alibaba Cloud's product strategy for the AI era and the quality of our revenue continued to improve. We focused on creating competitive advantages in Alibaba Cloud's technology and scale and reduced pricing for public cloud products globally, Driven by strong demand from various sectors, including foundational model companies, Internet companies, as well as customers from industries such as financial services and automotive, AI related revenue accelerated and continued to record triple digit growth year over year. We believe that this wave of generative AI driven technological innovation is in the early stages of the industry cycle. Starting in 2024, we've seen a rapid increase in customer demand for AI.

Speaker 2

It has also stimulated growth and demand for traditional cloud computing needs, including general computing storage and big data. Therefore, we are actively investing in our cloud computing product matrix, especially in AI infrastructure to capture the monumental opportunities. Currently, Alibaba Cloud has established strategic partnerships with the vast majority of leading foundational model companies in China. At the same time, Alibaba's proprietary foundational model, Tongyi, released a $110,000,000,000 parameter model in late April, which is on par with the top open source models globally. Looking ahead, we will deeply integrate our atonyi large model with Alibaba Cloud's advanced AI infrastructure to realize synergies and optimization across software and hardware.

Speaker 2

We aim to create the premier AI development platform that combines outstanding AI capabilities and high cost efficiency, redefining the industry benchmark for cost performance. Based on our leading product portfolio, substantial infrastructure investments and proactive industry partner strategy. We are confident that Alibaba Cloud's revenue, including excluding internal customers, will return to double digit growth in the second half of the twenty twenty five fiscal year. For our overseas e commerce, AIDC revenue grew 45% and order volume grew 20% year over year this quarter due to continued focus on expanding cross border retail operations and enhancing the consumer experience. And, Jiang Fan will share more details with you later.

Speaker 2

In March this year, we withdrew Cainiao's IPO application. Cainiao provides essential infrastructure to Alibaba's core e commerce business and we hope Cainiao will strengthen its synergies with our Chinese domestic and international e commerce operations. Alibaba Group will continue to support the expansion of China's global logistics network. The past year has been a year of self transformation for Alibaba. We're pleased that adjustments in our business and organization have yielded results.

Speaker 2

A journey of transformation will undoubtedly have challenges, but we are well prepared. In the new fiscal year, Alibaba Group will continue to focus on investing and executing our user first AI driven strategy, and we are confident in the long term healthy development of our company. Thank you. Greetings. This is Jiang Fan, and it's a pleasure to be back to give you an update on AIDC's business.

Speaker 2

AIDC continued to achieve rapid growth this quarter AIDC continued to achieve rapid growth this quarter despite widespread and intense market competition in different countries. Across AIDC, total orders were up by 20% year on year with especially significant growth in our cross border business. Next, let me share with you on the progress we've made around the 3 major drivers that are our consistent focus. First, business model and supply chain service upgrade. Driven by AE Choice.

Speaker 2

AliExpress continued to realize robust order growth. AE continued to advance in its transition from the original platform business model to a supply chain efficiency driven platform POP semi consignment plus full consignment hybrid business model. While maintaining rich merchandise assortment, we significantly enhanced user experience. By April 2024, AE Choice orders accounted for around 70% of total orders on AliExpress. At the same time, synergies between AliExpress and the cross border logistics capabilities of Cainiao have further strengthened AE's competitiveness with the 5 day and 10 day delivery completion rates both doubling year over year.

Speaker 2

And we'll continue to make effective investments while paying attention to improving the efficiency of the Choice model. 2nd is product and technology innovation. We continue to bring more localized high quality user experiences to different consumers around the world. AI and intelligent technologies continue to enhance efficiency and user experience in cross platform smart product assortment, optimized presentation of product details, multi language search, targeted recommendations and so on. Additionally, more and more small and medium enterprises are starting to leverage AI to enhance their operating efficiency.

Speaker 2

17,000 SMEs have subscribed to the AI Business Helper launched on alibaba.com and millions of products have now been launched with AI and searches for AI optimized products have increased by 37%. 3rd is sustained growth in key markets. Our continued investment in key markets for AliExpress has brought about growth in our user base as well as enhanced user experience supporting our sustained growth and continued leading position locally. Trendyol is actively investing in cross border business, achieving very rapid growth in the Gulf region. Trendyol's brand recognition has improved rapidly, driven by significant expansion in its merchandise supply.

Speaker 2

And it has become one of the most downloaded e commerce apps in the region. There remains huge potential for a IDC to grow user penetration in the majority of its markets. We will achieve quality growth by providing better and more differentiated merchandise and services. At the same time, we'll focus on enhancing operating efficiency, both by narrowing losses in certain businesses and by making higher efficiency investments to continue to grow actively in markets around the world. Thank you.

Speaker 3

Thank you, Jiang Fan. First, I will provide a recap of the key financial highlights for fiscal year 2024. Following the overview, I will provide a detailed review of the financials for the March quarter. During this fiscal year 2024, our total consolidated revenue was RMB941.2 billion, an increase of 8%. Consolidated adjusted EBITA increased by 12% to RMB165 1,000,000,000.

Speaker 3

Non GAAP net income increased 11% to RMB157.5 billion, while non GAAP diluted earnings per ADS saw a fast increase of 14% strengthened by our ongoing share repurchase program. Excluding Sunnat, Freshippo and Yintime businesses that have physical retail operations, group revenue would have grown at approximately 11% and our group consolidated adjusted EBITA margin would have been approximately 3.6 percentage points higher at approximately 21%. During the fiscal year 2024, under the leadership of the Capital Management Committee and our Board of Directors, we have increased cash return to the shareholders. We repurchased a total of about 1,250,000,000 ordinary shares or equivalent to 156,000,000 ADS for a total consideration of US12.5 billion dollars After accounting for ESOP issuance, our outstanding shares decreased by 5.1% in fiscal year 2024. Regarding cash dividend, we declared an annual cash dividend of US1 dollars per ADS, totaling about US2.5 billion dollars for fiscal year 2023, which was paid out in January 2024.

Speaker 3

Furthermore, our Board of Directors has approved an annual cash dividend for fiscal year 2024 of US1 dollars per ADS and a one time extraordinary cash dividend as a distribution of proceeds from disposition of certain financial investments in the amount of US0.66 dollars per ADS with total cash dividend amounting to approximately US4 1,000,000,000. Through a combination of share repurchase and the cash dividends, we have returned and plan to return about US16.5 billion dollars to shareholders for fiscal year 2024, up from US13.4 billion dollars for fiscal year 2023. We are committed to returning value to our shareholders and will continue to execute our capital return programs. Now let me provide a review of our financial performance for the March 2024 quarter. Overall, we observed improving fundamentals across our major businesses supported by enhanced investments aimed at fueling growth.

Speaker 3

During the quarter, our total consolidated revenue was RMB221.9 billion, an increase of 7%. Consolidated adjusted EBITDA decreased by 5% to RMB24 1,000,000,000. Our non GAAP net income was RMB24.4 billion, a decrease of 11%. However, the decline in our non GAAP diluted earnings per ADS was moderate at 5% given our ongoing share repurchase program. Our GAAP net income was RMB0.9 billion, a decrease of RMB21.1 billion.

Speaker 3

This decline was primarily due to mark to market changes of RMB 19,900,000,000 from our equity investments in publicly traded companies, which shifted from a gain in previous year to a loss this year. As of March 31, 2024, we continue to maintain a strong net cash position of RMB446 point 5 billion or US61.8 billion dollars Free cash flow this quarter was RMB15.4 billion, a decrease of RMB16.9 billion compared to the same quarter last year. The decrease mainly reflected the increase of RMB7 point 7,000,000,000 in capital expenditure, the majority of which reflected our investments in Alibaba Cloud Infrastructure as well as a special dividend of RMB10.5 billion from AN Group in the same quarter last year. Now let's look at cost trends as percentage of revenue excluding SBC during this quarter. Cost of revenue ratio increased by 1 percentage point to 67%.

Speaker 3

Product development expenses ratio remained stable at 5%. Sales and marketing expenses ratio increased by 1 percentage point to 13%. G and A expenses ratio decreased by 1 percentage point to 4%. Now let's look at the segment results, starting with Taobao and Tmall Group. Revenue from Taobao and Tmall Group was RMB93.2 billion, an increase of 4%.

Speaker 3

During the quarter, our online GMV achieved a double digit growth, which is driven by rapid order growth supported by strong increase in number of purchases and the purchase frequency. Strong GMV growth supported a 5% increase in customer manual revenue, though overall take rate declined slightly. The overall take rate was impacted by a combination of 2 factors. Firstly, Taobao and Tmall GMV both increased strongly. The decrease in take rate was due to Taobao's GMV growth outperforming that of Tmall.

Speaker 3

This trend continues to reflect increasing demand of price competitive products offered our platform. 2nd, take rate was also impacted by the introduction of new models that currently have low monetization rates. We believe our overall take rate has room to improve as the percentage of paying merchants among our SME merchants remains relatively low and we have yet to roll out the new advertising tools. As we gradually roll out the new advertising tools that would further enhancing merchants ROI, we see upside from potential increase in merchant adoption as well as higher incremental spending from paying merchants. Direct sales and others revenue decreased 2% to RMB24.7 billion.

Speaker 3

China commerce wholesale business revenue increased 20% to RMB5 1,000,000,000, primarily due to an increase in revenue from value added services provided to paying members. Taobao and Tmall Group adjusted EBITA was RMB38.5 billion compared to RMB39 1,000,000,000 in the same quarter last year, primarily due to the increase in investment in user experience, which resulted in improved customer retention and higher purchase frequency and technology infrastructure, partly offset by the increase in revenue from customer management service. Revenue from Cloud Intelligence Group was RMB25.6 billion during the quarter, an increase of 3%. We are committed to our strategy of focusing on high quality revenues from increasing public cloud adoption while reducing low margin project based contracts. During the quarter, our core public cloud offerings, which include products such as elastic compute, database and AI products, recorded double digit growth in revenue.

Speaker 3

During this quarter, AI related revenue experienced accelerated growth and continue to record triple digit growth. We expect the strong revenue growth in public cloud and AI related products will offset impact of the roll off of project based revenues. Cloud's adjusted EBITDA increased by 45% to RMB1.4 billion. The increase was primarily due to improving product mix through our focus on public cloud and operating efficiency. Alibaba International Digital Commerce Group revenue was RMB27.4 billion, an increase of 45%.

Speaker 3

Revenue from international commerce retail business increased by 56% to RMB22.3 billion. The increase in revenue was primarily due to the solid combined order growth of AIDC's retail businesses, revenue contribution from AliExpress' Choice as well as improvements in monetization, Revenue from our international commerce wholesale business increased by 11% to RMB5.2 billion. The increase was primarily due to an increase in revenue generated by cross border related value added services. AIDC's adjusted EBITA was a loss of RMB4.1 billion compared to a loss of RMB2.2 billion in the same quarter last year. Loss increased primarily because of increased investment of businesses including AliExpress Choice and the Trendyol's cross border business, partly offset by improvements in monetization.

Speaker 3

Total revenue for Cainiao grew 30% to RMB24.6 billion, primarily contributed by the increase in revenue from cross border fulfillment services. Cainiao adjusted EBITDA was a loss of RMB1.3 billion compared to a loss of RMB RMB319 1,000,000 in the same quarter last year, primarily due to additional retention incentives granted to tiny employees recognized during the quarter in connection with the withdrawal office IPO. Local service group revenue in March quarter grew 19% to RMB14.6 billion, primarily due to the order growth of Ele. Mei, AMAP. Local service group adjusted EBITDA was a loss of RMB 3,200,000,000 this quarter compared to a loss of RMB 4,100,000,000 in the same quarter last year, primarily due to the continued narrowing of loss from our 2 home business driven by Ele.

Speaker 3

Mex improved unit economics and increasing business scale. Revenue from our DME Group was RMB 4,900,000,000, a decrease of 1%. Adjusted EBITDA was a loss of RMB884 1,000,000 compared to a loss of RMB1.1 billion in the same quarter last year. Loss reduced primarily due to the reduced loss of Youku. Revenue from all other segments decreased 3% to RMB51.5 billion, mainly due to the decrease in revenue from Sunnat and Alibaba Baba Health, partly offset by the increase in revenue from FreshEpo.

Speaker 3

The decrease in revenue from Sunnat was mainly driven by the scale down of supply chain business and decreasing bucket size. Adjusted EBITDA from all other segments was a loss of RMB 2,800,000,000 compared to a loss of RMB 1,900,000,000 in the same quarter last year, primarily due to the increased losses from Fresh Apple and the decrease in profitability of Lingxi Games. Lastly, we have been preparing for our primary listing in Hong Kong and currently expect to complete this by the end of August 2024. We will make a further announcement on the primary conversion day in due course. In closing, our robust balance sheet positions us well to strategically reinvest our cash flows to foster growth and strengthen leadership in core businesses, thereby improving future returns on invested capital.

Speaker 3

As Eddie and Jiang Fan mentioned, we anticipated that near term investment will yield improved firstly, improved user experience in our domestic e commerce platform that supports strong GMV growth in FY 2025 and enhance the monetization in the second half of FY 2025 secondly, a return to double digit revenue growth in the second half of fiscal year 2025 for Alibaba Cloud Business and thirdly, continuous rapid growth momentum while improving unit economics from ARDC. We are seeing positive initial results, making us even more confident in achieving strong and sustainable growth in our core businesses. Thank you. And that's the end of our prepared remarks where we can open up for Q and A.

Speaker 1

Hi, everyone. For today's call, you are welcome to ask questions in Chinese or English. A third party translator will provide consecutive Please note that the translation is for convenience purpose only. In the case of any discrepancy, our management statement in the original language will prevail. If you are unable to hear the Chinese translation, bilingual transcript of this call will be available on our website within 1 week after the meeting.

Speaker 1

Operator, please connect the speakers and

Operator

Your first question comes from Kenneth Fong with UBS. Please go ahead.

Speaker 4

Hi, good evening management. Thanks for taking my question. I have a question regarding the CMR versus the GME growth. Our strategy for focusing on user experience and price competitiveness have yielded solid result, deliver a double digit GMV growth despite the intense competition. As Toby earlier highlighted, because of the mix shift and early in monetization, we see CML underperforming GMV at only 5% growth.

Speaker 4

With our new ad product, SiteWise Marketing, Chenjang Tuiguang, to be launched, how should we think about the pace for this gap to narrow over time? And then down to EBITDA, for the incremental growth in the CMO, should we expect this to reinvest back to the business? Or we should actually expect a margin expansion as the CML growth gradually reaccelerate? Thank you.

Speaker 3

Kenny, thanks for the question. I think I would just start and provide my explanation, and then Eddie can add. I think as you can see, in this quarter, the GMV had a double digit growth. And as I said, actually, this growth is both quite strongly in Taobao and Tmall merchants. So the first thing is, I think our the execution of our strategy, we have seen the result.

Speaker 3

Basically, we are backing growth. That's very important message. Secondly, as we were saying, we are introducing enhancing our monetization product and we'll be introducing the new gradually rollout the monetization product, which will help to enhancing the ROI and eventually enhancing the penetration into the merchants, particularly the SME merchants as well as increase their up, their spending in the monetization. However, it would take some time since we are rolling out gradually. So we will be able to see the growth throughout the year, particularly in the second half of the year that you will see the sort of like that the result coming out during the Q2 of the year?

Speaker 3

Okay. Before Eddie add on give you more color on this sort of play to rollout of the monetization product, I would just also explain on the investment we are making. For Taobao, Tmall, as we're saying, we see the early success of executing of our strategy by investing in the customer experience, various things focusing on consumer first. So we see the result and we are willing to invest. So that's the first thing, firstly.

Speaker 3

Secondly is in terms of investment we are making, on the other hand, we are doing it in a very disciplined way. We do closely monitor the ROI. For the investment we can make, definitely we will see the good ROI from it. So it's in a very disciplined way. So we will continue to make the investment.

Speaker 3

How much in terms of how much we're going to invest really depending on the space, we're ramping up the consumer experience as well as the supplies. So we have the resource and we are committed to make the investments.

Speaker 2

Thank you. Yes. So moving ahead with omni platform marketing and whole platform charging is an important direction that we're moving in as we're making it easier for SMEs to advertise. Of course, it's important to ensure that money that merchants are spending on advertising achieves solid ROI. So to that extent, we're currently adjusting and tweaking the algorithms, training the models, doing testing and using the data from the testing to further improve the service and enhance ROI.

Speaker 2

All of this will, of course, take some time, but it is certain that we are moving in that direction and will eventually get there and further optimize it for different customers and for different sectors as a means of enhancing our revenue. So I expect that this process will take something like 12 months, because it does take time to tweak the algorithms, get those data in place and ensure everything is optimal. But what I can tell you is that's certainly the direction that we're moving in and we continue to fine tune.

Speaker 4

Okay. Next question.

Operator

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

Speaker 5

Hi. Thank you, management, for the opportunity. My question is regarding the Ali Cloud business. It's encouraged to hear from management that we expect it to resume double digit growth in the second half of the year. Could management please share some of the composition of the revenue growth driver behind?

Speaker 5

How much of the improvement in growth is coming from AI related products? How much is it coming from public cloud? And how much is it coming from low margin private cloud projects becoming a smaller part of the business? And then also related to that is once we are back up to the double digit growth level, how should we look at the kind of medium term margin for cloud business going forward? Thank you.

Speaker 2

Thank you. This is Eddie, and I'll take that. If you look at the overall revenue growth of the cloud business today, most of that is already being driven, I would say, by AI and AI related new products. So going forward, a lot of the incremental growth we can expect to see in the cloud business will be related to investment the customers are making in AI. But also there's a complementary effect because the more the customers invest in and make use of AI, the more demand they will also have for other of our various cloud offerings.

Speaker 2

So the 2 things go hand in hand. At the same time, we continue to decrease the share of project based revenue in Cloud's overall revenues. In fact, the other parts of Cloud business already achieved double digit growth in this quarter, but that continues to be offset by the ongoing although diminishing but still ongoing impact of that low margin project based business. But as we continue to phase out that low margin project based business, we expect revenues to grow faster, primarily driven again by public cloud and by AI enabled offerings. And we expect that we should see that complete disappearance of that drag within, say, 1 or 2 quarters into the New Year.

Speaker 2

On the second part of your question, which had to do with the kinds of profit margins we expect to achieve in the medium to long term, once we get to that place where public cloud primarily is driving our growth and we're back to double digit growth. I would say that for the most part, our public cloud offerings have very healthy profit margins. When it comes to AI, of course, we're looking at

Speaker 1

a 10

Speaker 2

year IT new technology cycle. We're in the very early stage of that cycle. So we're talking about healthy margins, but with ongoing longer term investment. But overall, the profit margins from the AI products will be healthy.

Speaker 1

Next question please.

Operator

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

Speaker 6

Good evening, management team, and thank you for taking my question. So for the domestic e commerce business, it's great to see the GMV growth rates has recovered back to double digit in this quarter. Can you help us to understand what is driving the GMV growth rates to narrow the pace versus the e commerce market? Or put it in another way, what did you do in the past quarter that leads to a slowdown of market share loss? And a broader question is, what does it take to be competitive in the current China e commerce market given the rise of alternative e commerce competitors in the market?

Speaker 6

Thank you.

Speaker 2

Thank you. Well, overall, I think it's really about enhancing the users' shopping experience. And as I said, that really consists of getting 3 things right. 1st is having good merchandise secondly, having that at a good price and thirdly, supporting that with excellent service. Now if we break that down further when it comes to goods, the assortment of goods, there are actually different models that we can apply with different products to better support them.

Speaker 2

So basically, we can think about goods from brands, goods from channel merchants and goods from industry belts or manufacturers of white label goods. And we can provide different products and take differentiated approaches to ensure that those 3 different kinds of players are getting their goods to consumers in a way that is cost competitive. They're offering a good price and achieve high conversion efficiency for the merchandise. All of that can be further supported with strong logistics and good customer service. So we can take a different approach with respect to those 3 different kinds of supply, always with the aim of increasing customer purchase frequency and attracting new customers as well to achieve that advantage.

Speaker 2

Secondly, I can add to that, that as we know, there's been very intense competition in China's domestic e commerce market. And we've made some very clear strategic choices on Taobao as to how to address this competition and win going forward. A big part of this is ensuring high product efficiency referring to conversion and also to providing optimized services as well. Of course, another important part of the very important part of equation for Taobao is what I've referred to as omnipotent Taobao or universal Taobao. Taobao has everything that anybody could want, the richest possible assortment.

Speaker 2

So while maintaining that rich and diversified assortment, also focusing on achieving better efficiency with respect to high volume selling goods to maintain that unique competitive advantage.

Speaker 1

Next question?

Operator

Thank you. Your next question comes from Ellie Jang with Macquarie. Please go ahead.

Speaker 2

Thank you. I have a follow-up question about the whole platform charges and the new marketing tools that you've mentioned that will be launched. We understand that there are some similar products that have been launched or are being launched on the market by competitors. I'm wondering how we would evaluate our products versus the competitors? How differentiated are our products?

Speaker 2

What are some of the factors that determine conversion rates for these kinds of products? If you could share some of the underlying logic? Thank you. Just to clarify the question, are you asking about our marketing products and how they are differentiated versus other platforms? Is that the question?

Speaker 2

So basically focusing on the omni platform marketing solutions, Right. Understood. I think different platforms are going to be very different if you look at the way they achieve monetization and their monetization products because the platforms are fundamentally different in terms of their traffic, the business model and the different groups of users on the platform. So I don't think there's any direct comparability. I think certainly what merchants are looking at the end of the day is the ROI that they achieve on their investments in marketing.

Speaker 2

So I don't think we can directly compare user design and algorithms and things of that nature, but you can certainly look at the ROI on marketing investment. And I can tell you that on top of today, merchants are achieving probably the highest ROI they can get on any platform for their marketing

Speaker 1

Next question.

Operator

Thank you. The next question comes from Alicia Yap with Citigroup. Please go ahead. Hi. Good evening, management.

Operator

Thanks for taking my questions. Congrats on the solid quarter. I have a follow-up on the overall CMR growth. Obviously, the 5% growth is very good and the double digit GMV growth is good. Any obstacle that we foresee that could prevent GMV and CMR to further improve from here?

Operator

I'm just wondering how is the overall consumer consumption trend? It seems that we are gaining momentum that allows us to enjoy faster growth despite potentially more muted macro outlook. Any color you can share with us with the latest trend that you're seeing for April May on the GMV growth would be helpful? Thank you.

Speaker 3

Alicia, thanks for the question. I'll take on this question. I think as we explained, we see the results from our investments, the GMV growth. And then I think that the growth trend is sustainable, what we can observe. So we're still observing a good healthy growth in April, May time.

Speaker 3

And in terms of CMR, as we were explaining, because the GMV growth, because of the mix shift in the GMV towards Taobao merchants and also some of our new sort of models and business products, which has relatively low monetization at this stage. So there is a big headroom for it to increase the monetization rate. And with the introduction of rollout of our monetization product, we will be seeing the growth of CMR catch up with GMV gradually. So it will lag behind a few quarters, but it will eventually catch up. So that's sort of our belief in terms of the effect of the investment effectiveness of the investments and also both on the G and A side and as well as on the revenue side.

Speaker 7

Next question. Sorry. Rob, hey, Alicia, this is Joe Tsai. I also like to sort of supplement what Eddie and Toby said. I think implicit in your question is, you're looking at our March quarter GMV growth in double digits.

Speaker 7

And compared to last year, it was an easy comp because last year was partially coming out of the lockout of from the COVID lockdown. And so the implicit question is, are we going to see from macro standpoint, what do we see from our platform that could reflect sort of broader consumption trends? What I would like to say is, as we look at the Chinese consumers, the number 1, right now, household cash is at its highest point. We're looking at something like $19,000,000,000,000 of household cash savings that's in the system. So the Chinese consumer has the ability to spend, right?

Speaker 7

I think all we're looking at is what's your confidence level of spending on a going forward basis. First of all, I think we've all seen some of the growth in the services sector during the May 1 holidays. And within our platform, we've seen some green shoots, some discretionary items like apparels and electronics are also are actually growing, looking pretty the growth is pretty good. So what that tells us is consumers are starting to reflect that willingness to spend. We have no doubt that they have the ability, but the willingness reflects the confidence in what they have about the future.

Speaker 7

So we're seeing some positive signals, but it is probably still too early to tell because the macro environment is still broadly affected by the property sector downturn. On that front, we've been very encouraged that the local governments now have been relaxing the property purchase restrictions. So we're going to wait and see. But so far, confidence level, we've seen some early signs of growth.

Speaker 2

Yes. This is Eddie. I'd just like to chip in to be even clearer on this point because I detect a common pattern across the past several questions. And I was just actually joking with Joe about this because it seems like investors are even more anxious than we are to make money. So I'd like to be really clear about what our primary objective is this year and that is on Tabas certainly to invest in merchandise assortment and competitiveness and enhanced user experience to drive GMV growth as well as purchase frequency, right?

Speaker 2

That's our number one objective this year. And only after being able to achieve that objective successfully can we really increase CMR. And in fact, increasing CMR will just be a natural result of those efforts. And talking about advertising and commercialization, I was personally part of the whole growth story of Tabak from 0 in revenues and the development of Alibaba from 0 through €100,000,000 to €100,000,000 to €1,000,000,000 €10,000,000,000 and beyond. So I can tell you that we have the capabilities to put in place those kinds of advertising products that will drive CMR growth.

Speaker 2

We're certain that we can do that, but we're controlling the pace, which we move forward to ensure a really good experience for our merchants and for our consumers. So this year, we're really focused on enhancing consumer experience and growing GMV, and we'll move forward on that basis.

Speaker 8

So I guess no one asked about the ARDC so far and haven't really deeply discussed. So I want to ask about the because this quarter, it was mostly the increase in ARDC losses to the group earnings. Otherwise, the Taobao Tmall has been relatively stable. So I want to hear what how do we see the investment scale evolve for international e commerce? We've also seen some of our peers shifting from fully entrusted to semi interested, which is they kind of leave merchants to do their local warehousing.

Speaker 8

How do we see our loss or investment evolve with these trends? Thank you.

Speaker 2

Thank you. Well, I think there are really 2 principal reasons for the losses in this quarter or for the heightened spending in this quarter. First was that in certain emerging markets and especially in the Middle East, this was a time of year that represents peak sales with Ramadan in Middle Eastern countries. So Trendyol was taking advantage of that with advertising spending promotions reaching out to consumers. And then the second reason has to do with AE Choice, as AE Choice occupies an increasing proportion of overall orders of the overall business.

Speaker 2

And as we're switching over to this new business model, it's going to take a little time for the profit margins in AE Choice to catch up. So there is a margin gap there to be filled. We are working rapidly to optimize efficiency of the AE Choice model. And I think you'll see within several quarters very clear enhancement in the unit economics of the AE Choice model. So as the new model stabilizes, we'll continue to pay attention, of course, to achieving growth, balancing that also with more efficiency.

Speaker 2

And on your second question, which had to do with semi consignment versus full consignment model, So that's not really about cross border per se. It's about where merchants pre place their merchandise in a local warehouse for local shipping. Our take on that is that some categories are just better suited to a cross border business model because of characteristics of the merchandise and other reasons. For other categories, that kind of local shipment model can work better. So we've done a lot of this in the past as well, pre placing merchandise into overseas warehouses to be shipped locally.

Speaker 2

And we're working on developing more local sellers in places like the Middle East, South Korea and Europe. But we think at the end of the day for some categories local merchants can be more competitive, but in other categories the cross border model will work better. It really comes down to competitiveness and consumer preference. So we continue to track how consumers receive these different approaches and plan accordingly.

Speaker 1

Thank you. Next question.

Operator

Thank you. Your next question comes from Yang Bai with CICC. Please go ahead.

Speaker 2

Thank you. My question has to do with the company's plans to deliver returns to shareholders. And we see those plans now resulting in something like the equivalent of an 8% dividend yield. But I have some concerns about the share repurchase plan going forward because it seems to be related to the currently rather low stock price. But in the longer term, how will this play out?

Speaker 2

And how can you guarantee your ability to continue to make those kinds of returns to shareholders? Well, thank you for that question. Our shareholder return plan isn't something that we just started to implement over the past 1 to 2 years. It's a long term plan. It started several years back and the current plan we have in place has been approved by the Board to run all the way through to March of 2027.

Speaker 2

If you look at the amount of share repurchases that we did in the last year, it was around USD 13,000,000,000 the more recent year at USD 16,500,000,000 approximately. And that leaves us with around $30,000,000,000 to continue to deploy. So this is a long term plan that we're committed to. For us, as management of the company, thinking about how we'll continue to deliver those returns to shareholders in the future, we have to look on the one hand at the company's cash flows and on the other hand at the investment needs of the company related to our core business, but also in new emerging areas that are important like AI, for example, and also AIDC right now. But going forward, we will be committed to continue to make those kinds of returns to shareholders on that basis.

Speaker 2

And we take an integrated view. In other words, the share buyback program and dividend distributions together comprise our shareholder return program. We look at the 2 together.

Speaker 1

Thank you. Next question.

Operator

Thank you. Your next question comes from Joyce Ju with Bank of America. Please go

Speaker 2

ahead. Thank you. My question is also about AIDC in particular. We understand that the AE choice model now represents around 70% of total orders on AliExpress. Perhaps you could give us a little more color on how that model is growing, how you see it growing in the next couple of quarters or even in the next few years on a longer term basis in terms of which regions, which categories, what kind of users represent the most stable sources of growth or where there's the most potential for further growth?

Speaker 2

And I'm also like wanting to understand more about your collaboration with Cainiao in terms of making further investments together on cross border. Thank you. Well, AE Choice is a business model that is best suited, of course, for light and small packages, light and small goods. It has a strong advantage in that space, goods that can be air shipped cost effectively. And in the past, that is really where Alibaba Express has had an advantage in those kinds of categories.

Speaker 2

We are also working on growing different kinds of supply chain models for different markets. For example, for South Korea, working on developing additionally ocean freight for larger and heavier kinds of goods. So and piloting also the deployment of local warehouses as well. So our general strategy in any market is to start with those categories where we have that advantage, the light and small packages, and then to build up supply chain to support other kinds of demands that make sense for that particular market. Another important thing is that we have these local platforms in different regions, for example, Lazada in Southeast Asia, Trendyol in the Middle East.

Speaker 2

And AE Choice is currently integrating with those different platforms to allow for direct sales into those markets, meaning that AE Choice doesn't need to make any big investments in branding and marketing to consumer offering in those markets. So that's allowing us to move ahead very rapidly into those different markets. Of course, different categories make better sense in different markets. In the case of Turkey, for example, they have an advantage when it comes to apparel, but we can achieve an advantage there in other categories where they don't have that kind of local supply. So in each market, of course, we look at our own resources, what we can bring.

Speaker 2

We look at the situation in that market and then decide which categories we're going to bring to that market and how.

Speaker 1

Thank you. Let's invite the last question.

Operator

Thank you. Your next question comes from James Lee with Mizuho. Please

Speaker 9

2 questions about AI and cloud. And can you maybe talk about your development, your own large language model? And help us understand where your focus is? Is the scale? Is it due to scale to be the largest one based on the number of parameters?

Speaker 9

Or are you focused on different modalities of data, voice, text, image or video? And should we think about the end goal for your large language model to create maybe applications such as AI agents, shopping agents for your consumers and business agents for your merchants? Thanks so much.

Speaker 2

I think it's okay. Could I just ask you please to clarify the thrust of your first question? Are you asking about the main objectives for ongoing development of large models?

Speaker 9

Yes. Development of large language model, is it to scale to have one of the largest one in China based on the parameters? Is that the focus or the modality of the data, voice, text and image as the focus? Because different company that throughout internationally they have different focus in terms of growing that large language model.

Speaker 2

Right. Well, I think all of the companies in the large model space, anybody who's developing foundational models shares the same goal and that is working towards AGI, artificial general intelligence. But different companies will take different routes to get there and along the way can make different choices and may choose to develop certain kinds of vertical applications leveraging their model along the way. But at the end of the day, I think for all players, the ultimate goal is to achieve AGI covering everything from voice and audio through to image, video and text and encompassing all of that. So different pathways to getting there, perhaps different kinds of vertical models along the way, but the objective I think is a common objective.

Speaker 2

For Alibaba, I think there are really 3 major objectives underlying our ongoing large investments in research and development around AI and large models. The first is the pursuit of AGI, as I just explained, per se, developing our own foundational models for AI moving towards AGI. The second objective is internally within Alibaba, integrating cloud, our cloud offering with Tongyi, our large language model, integrating them tightly so that we can provide to our customers extremely well integrated software and hardware offerings, bringing together our cloud capabilities and our AI capabilities and enabling them to benefit from very high highly effective and cost efficient AI functionality. And I think if you look around the world, I don't think there's really any other company anywhere like Alibaba that has cloud as one of its major businesses and AI as one of its major businesses simultaneously. So we see that as a huge opportunity.

Speaker 2

And then the 3rd objective really is leveraging the development of Tongyi to enable other businesses within the Alibaba Group to better develop their own applications and their own business. So thinking of benefit from leveraging our large model Tongyi to further improve their own applications. Just to further expand on that second point I just made about the tight integration between our Toni model and our cloud offerings. Our open source model that we've made available is undoubtedly the number one top open source model anywhere in the Chinese speaking world. And it's also certainly the most widely adopted.

Speaker 2

So when you have developers using our open source model in their own development environment to develop something, when it comes time to deploy that, it's a very natural choice for them to choose Alibaba Cloud because of the very high level of cost efficiency, but also because that's the most familiar environment to them. So that's just a very simple example showing how we can leverage that tight integration between Toni, our model and cloud and indeed other aspects of Alibaba's business and business models.

Speaker 1

Okay. That concludes our earnings call today. And thank you everyone for your participation. We will take a quick

Powered by Quartr
Earnings Conference Call
Alibaba Group Q4 2024
00:00 / 00:00