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pww.comAlibaba Group Holding Limited, Q1 2025 Earnings Call, Aug 15, 2024 - SEHK:9988

SEHK:9988

Robert Lin [Investor Relations] 💬

During the Alibaba Group's June Quarter 2024 Results Conference Call, Robert Lin, who is identified as the Head of Investor Relations of Alibaba Group, made the following statements:

Opening Remarks

  • Introduction:

    • Welcomed everyone to the call.
    • Mentioned the presence of Joe Tsai (Chairman), Eddie Wu (Chief Executive Officer), and Toby Xu (Chief Financial Officer).
    • Noted the participation of Jiang Fan, Co-Chairman and CEO of Alibaba International Digital Commerce Group.
    • Indicated that the call was being webcasted from the Investor Relations section of the corporate website and that a replay would be available later.

  • Safe Harbor Statement:

    • Reminded listeners that the discussion might contain forward-looking statements, including strategies, business plans, and beliefs about future growth, revenue, take rate, profitability, return on investments, and share repurchases.
    • Stated that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from expectations.
    • Directed listeners to the company's latest annual report on Form 20-F and other documents filed with the U.S. SEC or announced on the website of the Hong Kong Stock Exchange for a detailed discussion of these risks and uncertainties.
    • Clarified that any forward-looking statements made on the call are based on assumptions as of the date of the call, and the company does not undertake any obligation to update these statements, except as required by applicable law.

  • Non-GAAP Financial Measures:

    • Noted that certain financial measures discussed on the call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow, are expressed on a non-GAAP basis.
    • Indicated that the GAAP results and the reconciliation of GAAP to non-GAAP measures can be found in the earnings press release.
    • Explained that unless otherwise stated, the growth rate of all metrics mentioned during the call refers to year-over-year growth versus the same quarter last year.

Closing Remarks

  • Q&A Session:
    • Provided instructions for asking questions in Chinese or English and mentioned that a third-party translator would provide consecutive interpretation.
    • Noted that the translation is for convenience purposes only and that in case of any discrepancy, the management's statements in their original language would prevail.
    • Announced that bilingual transcripts of the call would be available on the company's website within one week after the meeting.
    • Invited participants to ask questions and signaled the start of the Q&A session.

Closing Statement

  • Conclusion:

    • Thanked everyone for joining the call and indicated that they would see everyone next quarter.

Yongming Wu [CEO, Head of Core E-Commerce Business & Director] 💬

Yongming Wu, the CEO and Head of the Core E-Commerce Business at Alibaba Group, discussed several key points during the Q1 2025 Earnings Call:

Opening Remarks

  • User-First and AI-Driven Strategies: Yongming highlighted that these strategies are beginning to show results, with steady growth momentum in the new fiscal year.
  • Taobao and Tmall Group Growth: Noted steady year-over-year growth in orders and Gross Merchandise Volume (GMV).
  • Alibaba International Digital Commerce (AIDC) Revenue: Mentioned strong revenue growth.
  • Alibaba Cloud Revenue: Reported positive growth, driven by public cloud and AI products.
  • Operational Efficiency and Monetization: Across other segments, there was an improvement in operational efficiency and monetization capabilities.

Taobao and Tmall Group

  • User Experience Focus: Continued investment in delivering quality products and services at attractive prices.
  • GMV and Order Volume Growth: Growth driven by an increase in purchase frequency.
  • Market Share Stabilization: Positive trends in market share stabilization, validating the effectiveness of investments in user experience.
  • 88VIP Members: Reached 42 million by the end of the quarter, with plans to improve program benefits.
  • TTG Operational Strategy: Importance of rich and diverse product offerings, investing in enhanced shopping experiences, and improving the efficiency of product matching with user traffic.
  • Monetization: Gradual alignment of Customer Management Revenue (CMR) growth with GMV growth over the coming quarters.

Cloud Segment

  • High-Quality Revenue Focus: Pursuit of high-quality revenue and effective execution of an integrated cloud plus AI development strategy.
  • Public Cloud Growth: Public cloud revenue maintained double-digit growth.
  • AI Product Revenue: Sustained triple-digit growth, increasing share of public cloud revenue.
  • Customer Adoption: More major customers choosing Alibaba Cloud for AI development.
  • Large Language Models: Proprietary models gaining wider adoption.
  • Olympic Games: Alibaba Cloud served as a major cloud service provider, powering cloud-based live broadcasts that overtook satellite signals as the primary means of broadcast for the first time in Olympic history.
  • AI Technology Application: First widespread application of AI technology at the Paris Olympics, including 360-degree replays in real-time.
  • Long-Term Strategy: Focus on optimizing cloud product offerings, strengthening synergies between cloud and AI products, and investing in R&D and AI CapEx.

International E-Commerce (AIDC)

  • Rapid Growth Momentum: Overall revenue increased 32% year-over-year, primarily driven by the cross-border business.
  • Business Model and Supply Chain Upgrades: AliExpress maintained rapid order growth, with a high percentage of AE Choice orders and improved user experience.
  • Logistics Experience Optimization: AliExpress and Cainiao reduced average delivery time quarter-over-quarter.
  • Product and Technology Innovation: Advanced AI and intelligent technologies across various scenarios, boosting efficiency and user experience.
  • Key Market Growth: Investments in key markets to expand the user base and maintain leadership, including the exclusive e-commerce partnership with the European Cup 2024.

Strategic Focus

  • Enhancing Operational Efficiency: Across all business segments.
  • Active Investment: In key markets to drive quality growth and scale, aiming for substantial profitability at scale in the future.

Questions and Answers

  • Take Rate Trajectory: Discussed the factors affecting take rate, including the launch of new products and the time needed for CMR to align with GMV.

  • Quanzhantui Advertising Product: Explained the need for coordination and synergy across user traffic, advertiser participation, and algorithm optimization, estimating 6 to 12 months for solid progress.

  • Technology Service Charge: Addressed the introduction of a technology service charge on Taobao and Idle Fish, with measures to support SME merchants.

  • Competitive Landscape: Highlighted AIDC’s diverse business model and presence in multiple local markets, emphasizing the integration and sharpening of supply from China.

  • Lazada Profitability: Mentioned Lazada’s achievement of EBITA profitability for the first time in July and plans to continue making adjustments to preserve market share and enhance efficiency.

  • Cloud Demand: Noted robust demand for AI and AI-related products, with expectations of double-digit revenue growth in the second half of the fiscal year.

  • Return Rates: Commented on the slight increase in return rates, which is lower than the industry average, and emphasized the importance of a good return experience for customer retention and purchase frequency.

  • AI and Large Language Models: Discussed the implications of open-source large language models, the adoption of AI in China, and the transition of large language models into agents, highlighting the use cases for merchants and customers.

Fan Jiang [Co-Chairman & CEO of Alibaba International Digital Commerce Group] 💬

During the Alibaba Group's June Quarter 2024 Results Conference Call, Fan Jiang, Co-Chairman & CEO of Alibaba International Digital Commerce Group, provided updates and insights into the company's international digital commerce activities. Here is a detailed summary of his remarks:

Opening Remarks

  • Business Progress Overview:
    • AIDC (Alibaba International Digital Commerce) maintained rapid growth momentum with overall revenue increasing 32% year-over-year.
    • The growth was primarily driven by the cross-border business.

Key Drivers of Growth

  1. Business Model and Supply Chain Upgrades:

    • AliExpress maintained rapid year-over-year order growth.
    • The percentage of AE Choice orders remained high, stabilizing and enhancing the certainty and consistency of the user experience.
    • AliExpress and Cainiao continued to jointly optimize logistics experience, significantly reducing average delivery times.
    • The unit economics of the Choice business improved by nearly 20% quarter-over-quarter.
    • The company optimized the balance of user experience, product richness, and efficiency across its marketplace, semi-consignment, and full consignment models.

  2. Product and Technology Innovation:

    • Advanced AI and intelligent technologies across various scenarios, including AI customer service, cross-platform product placement, product description optimization, multilingual search, and precise recommendations.
    • These innovations were deployed across platforms and served around 500,000 merchants and covered 100 million SKUs.

  3. Sustained Growth in Key Markets:

    • Ongoing improvement in user experience bolstered AE's confidence to step up investments in key markets to expand the user base and maintain leadership.
    • As the exclusive e-commerce partner of the European Cup 2024, AliExpress and Trendyol effectively boosted brand awareness.
    • Trendyol in Turkey increased monetization and profitability, solidifying its e-commerce leadership.
    • In the Gulf region, the company enriched product offerings and marketing efficiency while continuing to grow the end-user base.
    • Lazada achieved single-month EBITA profitability for the first time in July, reinforcing confidence to efficiently invest in the Southeast Asia market and consolidate market share.

Strategic Focus

  • Enhancing operational efficiency across all business segments.
  • Actively investing in key markets to drive quality growth and scale with the goal of achieving more substantial profitability at scale in the future.

Closing Remarks

  • Jiang Fan concluded by summarizing the strategic focus on enhancing operational efficiency and actively investing in key markets to drive quality growth and scale, with the ultimate goal of achieving substantial profitability at scale in the future.

Hong Xu [Chief Financial Officer] 💬

During the Alibaba Group's June Quarter 2024 Results Conference Call, Hong Xu, the Chief Financial Officer, provided a comprehensive overview of the company's financial performance and addressed several key financial aspects. Here’s a detailed summary of his statements:

Financial Performance Overview

  • Total Revenue: Increased by 4% to RMB 243.2 billion.
  • Adjusted EBITA: Decreased by 1% year-over-year to RMB 45 billion. Excluding the effects of long-term cash incentives, adjusted EBITA growth would have turned positive.
  • Non-GAAP Net Income: RMB 40.7 billion, a decrease of RMB 4.2 billion or 9%.
  • GAAP Net Income: RMB 24 billion, a decline of RMB 9 billion or 27%.
  • Net Cash Position: Continued to maintain a strong net cash position of RMB 405.7 billion or USD 55.8 billion.
  • Free Cash Flow: Decreased by RMB 21.7 billion to RMB 17.4 billion.

Cost Trends

  • Cost of Revenue Ratio: Decreased by 1.1 percentage points.
  • Product Development Expenses Ratio: Remained relatively stable.
  • Sales and Marketing Expenses Ratio: Increased by 1.7 percentage points year-over-year, primarily due to increased investments in e-commerce businesses.
  • G&A Expenses Ratio: Increased by 1.4 percentage points. Excluding a one-time provision of RMB 3.1 billion from a shareholder class action lawsuit, the G&A expenses ratio would have remained relatively stable.

Segment Results

  • Taobao and Tmall Group:
    • Revenue: RMB 113.4 billion, a decrease of 1%.
    • Adjusted EBITA: Decreased by 1% to RMB 48.8 billion, primarily due to the increase in investments in user experience and technology infrastructure.
  • Cloud Intelligence Group:
    • Revenue: RMB 26.5 billion, an increase of 6%.
    • Adjusted EBITA: Increased by 155% to RMB 2.3 billion.
  • International Commerce Retail Business:
    • Revenue: Increased 38% to RMB 23.7 billion, primarily driven by order growth from AliExpress’ Choice as well as improvements in monetization.
    • Adjusted EBITA: Loss of RMB 3.7 billion, an increase of RMB 3.3 billion compared to a loss of RMB 420 million in the same quarter last year.
  • Cainiao Smart Logistics Network Limited:
    • Revenue: RMB 26.8 billion, increased 16%.
    • EBITA: Decreased by 30% to RMB 618 million.
  • Local Service Group:
    • Revenue: RMB 16.2 billion, an increase of 12%.
    • Adjusted EBITA: Loss of RMB 386 million compared to a loss of RMB 2 billion in the same quarter last year.
  • Digital Media and Entertainment Group:
    • Revenue: RMB 5.6 billion, an increase of 4%.
    • Adjusted EBITA: Loss of RMB 103 million compared to a profit of RMB 63 million in the same quarter last year.
  • All Others Segment:
    • Revenue: Increased 3% to RMB 47 billion.
    • Adjusted EBITA: Loss of RMB 1.3 billion compared to a loss of RMB 1.7 billion in the same quarter of 2023.

Strategic Focus

  • Monetization Efforts: For Taobao and Tmall Group, as order and GMV growth, the company is advancing monetization efforts step by step. Expect CMR growth to gradually align with GMV growth over the coming quarters.
  • Cloud Strategy: Pursuing high-quality revenue and effectively executing an integrated cloud plus AI development strategy. Confident that revenue from external customers will return to double-digit growth in the second half of the fiscal year with gradual acceleration thereafter.
  • AIDC: Focusing on proactive investment to drive high-quality growth, enhancing operating efficiency across all business lines. Loss-making businesses are improving their monetization and operating efficiency. Most of these businesses are expected to break even within 1 to 2 years and gradually contribute to profitability at scale.

Other Key Points

  • Share Repurchase Program: Repurchased a total of 613 million ordinary shares or 77 million ADSs for a total of USD 5.8 billion.
  • ESOP Dilution Minimization: Started replacing a portion of Alibaba Group's ESOP incentives with long-term cash incentives for employees. These cash incentives will be reflected as costs in adjusted financial metrics.
  • Tax Rate: Effective tax rate is relatively stable in this quarter compared with the previous quarter.
  • Free Cash Flow Decline: The significant drop in free cash flow is primarily due to the increase in expenditures related to investments in Alibaba Cloud infrastructure and other working capital changes related to the planned reduction of direct sales businesses.

Specific Questions Addressed

  • Take Rates: Explained the reasons for the widening gap between GMV and CMR growth and the measures being taken to narrow the gap.
  • Stock Connect: Provided updates on the pursuit of Hong Kong primary listing and the process for joining the Stock Connect.
  • AI Revenue Contribution: Commented on the robust demand for AI products and the expected contribution of AI revenue to overall growth.
  • Tax Expense Modeling: Suggested offline communication for detailed modeling of tax expense.
  • Free Cash Flow Normalization: Explained the reasons for the decline in free cash flow and indicated that the impact of reducing the scale of direct sales businesses is relatively temporary.
  • AI Investments: Discussed the doubling of year-over-year CapEx in Q1 and the expectation of similar levels of investment in the coming quarters. Also, commented on the high return on AI investments due to strong demand.

These points provide a comprehensive overview of Hong Xu's statements during the conference call.

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