Alibaba conference call: Revenue to resume double-digit growth, emphasizing site-wide promotion, Chinese consumers showing willingness to spend

Alibaba maintained overall expansion in the fourth quarter, with overseas e-commerce revenue increasing by 45%, AI-driven cloud revenue slightly growing, Cainiao business achieving a 30% revenue growth, and local services and entertainment business narrowing losses. During a later conference call, Alibaba Group CEO and Taotian Group Chairman Eddie Wu said: The past year was a year of self-transformation for Alibaba. We are pleased that our business and organizational adjustments have yielded results. The transformation journey will undoubtedly face challenges, but we are fully prepared for the new fiscal year. Alibaba will continue to focus on investing and executing a user-centric, AI-driven strategy. We are confident in the long-term healthy development of the company. Alibaba expects that driven by AI and overseas e-commerce, the group's revenue will return to double-digit growth in the second half of the 2025 fiscal year. The improvement in e-commerce user experience will drive strong domestic GMV growth in the 2025 fiscal year, while overseas e-commerce will maintain rapid growth momentum. According to Eddie Wu, the Taotian Group's "user-first" strategy has been effective, with investments around price competitiveness and user experience receiving positive feedback from consumers. Quarterly buyer numbers and purchase frequency have shown strong growth, driving GMV to achieve double-digit strong growth, with over 35 million 88VIP members. Eddie Wu also stated: In the 2025 fiscal year, we expect Taotian's GMV to gradually recover healthy growth with the improvement of consumer experience. At the same time, the progress of our commercial products will proceed as planned, gradually launching commercial products that match new product mechanisms and platform algorithms in the second half of the fiscal year, further enhancing our revenue level centered around CMR. As product improvements and investment strategies under the "user-first" strategy progress, we have full confidence in continuing to win consumer trust, maintaining a leading market share. Jiang Fan mentioned that more and more small and medium-sized enterprises are starting to use AI to improve operational efficiency. Currently, 17,000 small and medium-sized enterprises have subscribed to Alibaba's AI business assistant, with a 37% increase in the search volume of AI-optimized products. With board approval, Jiang Fan has been appointed as the Co-Chairman and CEO of Alibaba's International Digital Business Group. Alibaba also announced a special one-time cash dividend, distributing $4 billion in dividends for the 2024 fiscal year. The Alibaba management stated: The shareholder return plan has been in place for many years. In the 2023 fiscal year, we returned nearly $13 billion in shareholder returns, and in the 2024 fiscal year, we returned $16.5 billion. Currently, we have nearly $30 billion in cash available for stock repurchases, which we can continue to utilize. The following is a transcript of the analyst Q&A session: Q1: Faced with intense competition, Alibaba achieved double-digit GMV growth, but CMR growth was only 5%. We plan to introduce a site-wide fee mechanism, which may change the gap between CMR and GMV. After implementing this mechanism, will the growth of CMR be reinvested in business development, or will it improve the company's EBITDA? This quarter, the total Gross Merchandise Volume (GMV) achieved remarkable double-digit growth, especially with significant growth from Taobao and Tmall merchants, indicating that our implemented strategies are beginning to show results. In order to further increase return on investment and merchant penetration, especially for small and medium-sized enterprises, we will gradually introduce commercial products. The promotion of these products may take some time, but significant effects are expected to be seen in the second half of the year. At the same time, our investment in Taotian Group is mainly focused on improving consumer experience, and this investment has already begun to show preliminary results, giving us confidence to further increase investments in this area. We maintain a high level of discipline towards any investment, and will only continue investing when clear returns are seen. The specific investment amount will be determined based on the progress of enhancing customer experience and product richness. I would like to add some information regarding the progress and plans for promoting our products across the entire platform. Currently, we are in the testing phase with some small-scale customers, primarily to optimize algorithm models to ensure business growth while guaranteeing customers' return on investment (ROI). This phase requires a longer time to adjust algorithms and train models based on customer data to enhance ROI efficiency. After the official launch of the platform-wide promotion, we expect to take some time to increase the customer base, match traffic from different industries and user groups, and optimize customer penetration rates. It is estimated that it will take about 12 months from the testing phase to full operation. Although this is a long-term process, we are optimistic about the successful implementation of this process and believe it will gradually lead to revenue growth. Q2: What is the composition of cloud business revenue in the second half of the year? Including the proportions of AI products, public cloud, and private cloud respectively. Also, what is the expected medium to long-term profit margin of the cloud business after returning to double-digit growth? Currently, the growth of our cloud business revenue is mainly driven by new AI products. These AI products not only bring in additional revenue themselves but also boost the sales of traditional cloud computing products, especially in the public cloud sector. This is a complementary effect, as the more customers invest in and use AI, the more they demand our various cloud products, so these two aspects complement each other. While the revenue from certain proprietary cloud project-based income is decreasing and has had a certain impact on overall revenue, the growth in revenue from public cloud and AI-related products has shown double-digit improvement in this quarter. We expect that in the coming quarters, these high-growth and high-margin areas will continue to drive overall revenue growth and offset the decrease in low-margin project-based income. In summary, the future growth of the cloud business will mainly come from public cloud and AI-related products with long-term business value and high margins. Regarding the medium to long-term profit margin of the cloud business after public cloud products become the main growth driver, most of our current public cloud products maintain reasonable and healthy profit margins. For AI-related products, although they are currently in the early stages of a ten-year IT development cycle, we expect these products to maintain healthy profit margins and may require continuous long-term investment. However, overall, all products in the public cloud are expected to maintain relatively healthy profit margins Q3: What are the main driving factors for the domestic e-commerce GMV to resume double-digit growth? How does Alibaba narrow the growth gap with other e-commerce platforms? What measures did Alibaba take in the past quarter to slow down the loss of market share? In the new e-commerce environment, what strategies should Alibaba adopt to compete more effectively with other emerging platforms? In general, we believe that enhancing users' e-commerce shopping experience is key, including providing high-quality products, reasonable prices, and excellent services. In terms of product supply, we adjust our product strategy based on different supply models to enhance price competitiveness and conversion efficiency. Specifically, whether it's brand merchants, channel merchants, or industrial belt factories, we optimize with different product forms and business models. Furthermore, we also heavily invest in improving customer experience, including logistics and customer service systems. We believe that through these strategies, we can not only increase the purchase frequency of existing customers but also attract more new customers and repeat customers, enhancing customer loyalty and satisfaction. In the fierce e-commerce market competition in China, Taobao stands out through a unique strategic path. We are committed to improving product efficiency, namely the conversion rate of products and price competitiveness, as well as emphasizing maintaining the richness of the market, which is one of Taobao's core advantages. Taobao is known as the "all-powerful Taobao" and occupies a unique position in the competition of Chinese e-commerce. Our goal is to maintain the diversity of the Taobao market while improving the product efficiency of core high-selling products. Through continuous optimization in these two aspects, Taobao aims to build unique competitiveness in the Chinese e-commerce market. Q4: When facing similar full-site promotion tools launched by competitors in the market, how does Taobao evaluate the differentiation of its own products, and what factors determine the conversion efficiency of such tools? Each platform's commercial products have their uniqueness, mainly designed for their own traffic mechanisms, operating mechanisms, and user groups. Therefore, the comparability of these products is not strong. However, when merchants choose to invest in platforms, they usually consider ROI (Return on Investment) as the main measurement standard for investment. Currently, Taobao provides one of the highest ROIs for merchants among many e-commerce platforms. Q5: How does Alibaba continue to increase GMV and CMR? Can you share the latest consumption trends in April and May, especially regarding CMR and GMV performance? Improving product competitiveness, efficiency, customer service, and consumer experience to drive GMV growth and user consumption frequency is our top priority this year. We believe that only significant progress in these areas will naturally lead to an increase in GMV and CMR. We have observed positive effects from the company's continued investments, especially in the sustained growth of GMV, which we believe is sustainable. Regarding the consumption trends in April and May that you asked about, we have seen a healthy development momentum. This is partly attributed to our shift towards more Taobao merchants and new commercial products, with the current low monetization rate of these new products indicating significant room for future growth We plan to gradually launch these commercial products in the upcoming quarter, expecting the growth of CMR to accelerate gradually and eventually be on par with GMV. Although this process may take several quarters, we anticipate that the two will eventually reach a similar level, leading to an overall increase in the company's revenue. Q6: From a macro perspective, can Alibaba's platform reflect broader consumption trends? With Chinese households' cash savings reaching a historical high of about $19 trillion, the purchasing power of Chinese consumers has significantly increased. During the May Day holiday, we observed a good growth trend in non-essential goods such as clothing and electronics on the service industry and online platforms, indicating an increase in consumer willingness to spend. However, whether this consumption will be sustained depends on their confidence in the future. Currently, the economy is affected by the downturn in the real estate market. Although local governments have started to relax property purchase restrictions, showing initial signs of a recovery in consumer confidence, it will take time to assess. We will continue to monitor this trend. Q7: This quarter, AIDC's losses seem to be expanding, while the performance of Taobao and Tmall remains relatively stable. What is the current scale of investment in AIDC? Additionally, we noticed a shift in service mode from full hosting to semi-hosting, where merchants are now responsible for warehousing services. Could you provide more details on this change? Regarding the issue of losses in the previous quarter, there are two main reasons: firstly, in the previous quarter, we made relatively aggressive investments in emerging markets, especially in the Middle East, particularly around important sales nodes for Muslims in March. Secondly, our business model is transitioning from the AE Superstore to a new model, and the profitability of the new model is still catching up, resulting in a certain profit gap. We are rapidly optimizing efficiency and expect to see significant improvements in the next few quarters. With the stabilization of the new business model, we will focus more on improving efficiency to ensure growth while maintaining efficiency. Regarding the shift from full hosting to semi-hosting, it is actually about the choice between cross-border and local stocking models. Some products are more suitable for cross-border sales due to their characteristics, while others may be more suitable for local shipping. We have observed that different platforms are trying to attract local merchants, and we are actively expanding the network of local sellers in markets such as the Middle East, South Korea, and Europe. We believe that certain categories may be more competitive when provided by local merchants, while others may have advantages in the cross-border model. Therefore, we will flexibly choose between local or cross-border business models based on consumer experience and demand, as well as operational efficiency, in different markets and categories. Q8: The company has implemented a generous shareholder return strategy, with the current dividend yield close to 8%. However, this buyback plan seems to be related to the company's lower valuation and may need to be re-announced annually, with potential adjustments in the future. In contrast, some overseas tech giants can continue to reward shareholders significantly regardless of valuation. How should the company's shareholder return strategy be understood from a long-term perspective? Our shareholder return plan is not a recent development but has been in place for many years and is planned to continue until March 2027. Over the past few years, we have implemented large-scale shareholder returns, such as returning around $13 billion in fiscal year 23, which increased to $16.5 billion by 2014 At present, we have nearly $30 billion available for stock buybacks. This shareholder return plan is long-term, and we will continue to execute it. At the same time, as management, when considering shareholder returns, we will comprehensively consider the company's cash flow, core business investment needs, and investments in new areas such as AI and cross-border business. We view stock buybacks and dividends as two forms of shareholder returns, both of which are considered ways to give back to shareholders. Q9: My question is about the AIDC business, especially the rapid growth of AE choice, which currently accounts for 70% of our Alibaba Express orders. Can you provide a detailed overview of the long-term development plan for this business from a regional and category perspective? In the next few quarters or one to two years, can we obtain more data on which markets, which categories, and which types of users show the most promise? Additionally, regarding the group's mention of Cainiao's further investment in cross-border e-commerce, can you share specific types of investments and which countries will be the focus? Currently, our cross-border e-commerce model mainly focuses on light small goods, which are very suitable for cross-border operations and can be efficiently transported across countries by air logistics, demonstrating significant advantages. These categories have always been AE's strengths. At the same time, we are exploring expanding new categories based on different supply chain models. For example, in the Korean market, we are trying to sell some heavier goods using sea freight and exploring cooperation with local warehouse sellers. Our cross-border e-commerce strategy first focuses on our advantageous categories and gradually expands to build supply chains for more categories. In addition, we have unique differentiation advantages: this year we have partnered with multiple local platforms, including Lazada in Southeast Asia and trendy all in the Middle East. Our AE Superstore will be integrated with these platforms, allowing products to be sold directly to these markets without the need to reinvest in establishing C-end brands locally, which means that AE choice does not need to make any major investments in branding and marketing consumer products in these markets. This allows us to quickly enter these different markets. In different markets, we flexibly choose categories to invest in based on existing resources and market conditions. For example, in Turkey, they have an advantage in clothing, but we can gain advantages in other categories because they do not have this local supply. So in each market, we will certainly examine our own resources and what we can bring. By observing the market situation, we then decide which categories to introduce to the market and how to introduce them. Q10: What are Alibaba's key focuses in the development of artificial intelligence and cloud fields? Is there more emphasis on technical scale, such as the number of parameters, or the pursuit of multimodal coverage, such as voice, text, and video? Additionally, is the ultimate goal of large models to create AI agents that can assist consumers in shopping or help businesses sell? Currently, many companies, including Chinese and American enterprises, are on the road to pursuing Artificial General Intelligence (AGI), although the pace varies, the direction is generally consistent. The ultimate goal for most companies is to integrate voice, text, images, and videos into a unified large model, which is a long-term development direction For Alibaba, investing significant resources in researching AGI and developing large models has three main purposes: 1) to explore and develop AI large models, which is the direct goal of technological research and development. 2) Our general large models naturally align with Alibaba Cloud's business model, allowing for software and hardware co-optimization using Alibaba Cloud's advanced AI infrastructure. 3) To provide high-performance, cost-effective AI large model inference services for Chinese developers and businesses. Through these measures, we aim to accelerate the realization of AGI and provide customers with more powerful AI services. Alibaba is one of the few companies globally that make Alibaba Cloud and large models their main businesses simultaneously, and we see this as a huge opportunity. Through the development of our large models, we can provide foundational model support for Alibaba's other businesses, such as DingTalk, Quark, and Taobao, helping them innovate and transform in the field of AI. Taking the combination of Alibaba Cloud and our general large models as an example, our open-source large model is one of the top and most widely used models in the Chinese domain. When developers use our models for application development and need to deploy them online, they naturally choose Alibaba Cloud's services because Alibaba Cloud offers the most cost-effective support. This tight integration of our large models with Alibaba Cloud's business model provides developers with a familiar and efficient platform