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pww.comAlibaba Group Holding Limited, Q4 2020 Earnings Call, May 22, 2020 - SEHK:9988

SEHK:9988

Robert Lin [Investor Relations] đź’¬

Robert Lin, the Head of Investor Relations for Alibaba Group, made the following statements during the Q4 2020 Earnings Call:

  1. Opening Remarks:

    • Gave a welcome to everyone attending the Alibaba Group's March Quarter 2020 and Fiscal Year 2020 Results Conference Call.
    • Mentioned the presence of Daniel Zhang (Executive Chairman and CEO), Joe Tsai (Executive Vice Chairman), and Maggie Wu (Chief Financial Officer).
    • Noted that the call was being webcast from the company’s IR section of the corporate website, and a replay would be available later that day.

  2. Safe Harbor Statement:

    • Covered the safe harbor statement, noting that the discussion would contain forward-looking statements, including revenue guidance, and emphasized the inherent risks and uncertainties involved.
    • Directed listeners to the company’s latest annual report on Form 20-F and other documents filed with the U.S. SEC and the Hong Kong Stock Exchange for detailed discussions of risks and uncertainties.
    • Clarified that any forward-looking statements were based on assumptions as of the date of the call and that the company did not undertake any obligation to update these statements except as required by law.

  3. Financial Measures:

    • Noted that certain financial measures used on the call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, marketplace-based core commerce adjusted EBITA, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow, were expressed on a non-GAAP basis.
    • Mentioned that the GAAP results and reconciliations of GAAP to non-GAAP measures could be found in the earnings press release.
    • Stated that unless otherwise stated, the growth rate of all stated metrics mentioned during the call referred to year-on-year growth versus the same quarter last year.

  4. Language and Translation:

    • Indicated that management would give their prepared remarks in English and a third-party translator would provide simultaneous Chinese translation.
    • Explained that during the Q&A session, questions would be taken in both English and Chinese, with consecutive translation provided by a third-party translator.
    • Noted that all translations were for convenience purposes only, and in case of discrepancies, the management’s statements in the original language would prevail.

  5. Handover to Daniel Zhang:

    • Turned the call over to Daniel Zhang, the Executive Chairman and CEO of Alibaba Group.

  6. Closing Remarks:

    • Thanked everyone for joining the call and invited them to contact the Alibaba IR team for any further questions.

    • Ended the call by thanking everyone again.

Yong Zhang [Former CEO, Executive Chairman and Chairman & Chief Executive Officer of Cloud Intelligence Group] đź’¬

Yong Zhang, referred to as Daniel in parts of the transcript, made several key points during the earnings call:

Opening Remarks

  • Historical Milestone: Alibaba achieved a historical milestone of USD 1 trillion in GMV across its digital economy in the fiscal year, a strategic goal set 5 years ago.
  • Digital Economy: Alibaba's digital economy has grown to represent 1/6 of China's total retail sales, which were about USD 6 trillion in the previous year.
  • Impact of COVID-19:
    • January 23: China announced the lockdown of Wuhan, leading to large-scale economic disruption in late January and February.
    • Late February: China began to reopen the country for business, with logistics operations recovering by March 9, except for Hubei Province.
    • April 8: Wuhan's 10-week lockdown was lifted.
  • China Retail Marketplaces:
    • Annual Active Consumers: Reached 726 million as of March 31, 2020, a net increase of 15 million from the previous quarter.
    • Mobile MAUs: Reached 846 million in March 2020, an increase of 22 million from December 2019.

Business Performance

  • QTD Paid GMV: Experiencing year-on-year growth at a similar rate to the December quarter's level since the new fiscal year began in April.
  • New Retail Business:
    • Freshippo and Taoxianda: Delivered more than 100% year-on-year growth in the past quarter.
    • Freshippo's GMV: Approximately 60% came from online orders, up by 10 percentage points year-over-year.
  • Tmall Global: Became an increasingly important destination for Chinese consumers to buy imported products.
  • International Retail Marketplaces:
    • Lazada's Order Volume: Grew more than 100% year-on-year during the fiscal year.
    • AliExpress GMV Growth: Negatively impacted by supply chain and logistics disruptions caused by COVID-19.
  • Local Consumer Services Business: Revenue decreased by 8% year-on-year in the past quarter.
  • Alibaba Cloud:
    • Revenue: Reached RMB 40 billion, an increase of 62% year-on-year.
    • Public Cloud Business: Grew rapidly, driven by increased consumption of video content and the adoption of remote working and learning.
  • DingTalk:
    • Daily Average Active Users: Significantly increased to 155 million in March, peaking at this level.
    • Education Sector: Made significant penetration as schools adopted the platform for teachers and students.
  • Digital Media and Entertainment Business: Delivered healthy growth in paying subscribers and user time spent.

Support Measures

  • Donations and Subsidies: Contributed approximately RMB 3.4 billion in value in the form of donations, subsidies, and tech support.
  • Merchant Support: Waived fees, reduced commissions, offered logistics subsidies, advanced working capital funds, and facilitated 1-year loans with preferential interest rates.
  • Logistics Support: Offered free delivery of medical supplies globally through its extensive global logistics network.

Future Outlook

  • 2020 Spring Thunder Initiative: Aimed to help export-oriented SMEs explore opportunities in the China domestic market and expand into new markets through Alibaba's international wholesale and retail marketplaces.
  • Uncertainty: Acknowledged the uncertainties in the macroeconomic and geopolitical environment but emphasized the importance of digital transformation and Alibaba's role in enabling all industries to embrace it.

Closing Remarks

  • Commitment: Emphasized the company's commitment to invest and deepen its value proposition to customers, ensuring robust revenue and profit growth.

Wei Wu [Executive Director] đź’¬

Wei Wu, the Executive Director, provided a detailed financial overview during the earnings call. Below are the main points covered by Wei Wu:

  1. Impact of COVID-19 on Financials:

    • In February, due to the uncertainties of the COVID-19 pandemic, the company guided the market that its overall revenue growth rate would be negatively impacted for the March quarter.
    • Despite the initial uncertainties, the company delivered better-than-expected results for the March quarter.
    • Effective measures taken by the government to limit the spread of the virus, including lockdowns and social distancing, helped control the spread.
    • Restrictions started to ease in early March, enabling a recovery of supply chain and logistics delivery capacity.

  2. China Retail Marketplaces Performance:

    • Tmall online physical goods Gross Merchandise Volume (GMV) grew 10% in the March quarter.
    • There was robust demand for Fast-Moving Consumer Goods (FMCG) and consumer electronics categories, which grew 25% combined.
    • Discretionary product categories, such as apparel and accessories, home furnishings, and auto parts, experienced negative growth.
    • Starting in April, Tmall online physical goods GMV saw strong recovery and continued to improve in May.

  3. Local Consumer Services:

    • Recorded an 8% decline in revenue in the quarter, reflecting the closure of restaurants and local merchants.
    • However, there was increased demand for groceries and other daily necessities.
    • Starting in April, GMV growth for food delivery businesses, Ele.me, turned positive as lockdown measures eased.

  4. International Commerce Business:

    • Represents around 7% of total revenue in fiscal 2020.
    • The timing and pace of recovery are uncertain as demand in countries outside China may be further impacted by COVID-19.

  5. Financial Highlights:

    • Total revenue of RMB 114 billion grew by 22% year-over-year.
    • Growth was mainly driven by the China commerce retail business, especially new retail businesses in the grocery category, and cloud computing.
    • The decrease in non-GAAP free cash flow was due to a one-off impact related to AliExpress payment service restructuring.

  6. Revenue Breakdown:

    • China commerce retail grew 21%.
    • Customer management revenue grew 3%, primarily due to the increase in revenue from recommendation feeds and Taobao Live.
    • Commission revenue decreased 2% due to the effects of COVID-19, including cancellation of some orders and the waiver of annual service fees for the first half of 2020.

  7. International Retail Revenue:

    • Grew 8% to RMB 5.4 billion.
    • Growth was primarily due to the growth of Lazada and Trendyol.
    • Exclusion of revenue from AliExpress Russia, which was no longer consolidated since October 2019.

  8. Cainiao Revenue:

    • Reached RMB 5 billion, growing at 28% year-on-year.
    • Increase was primarily due to the rise in the volume of orders fulfilled from the fast-growing cross-border and international commerce retail businesses.

  9. Ali Cloud:

    • Continued strong growth at 58%.

  10. Cost Trends:

    • Cost of revenue, excluding stock-based compensation, was 62% of revenue.
    • Increase was primarily due to a revenue mix shift towards direct sales businesses and the consolidation of Kaola.

  11. Segment Profitabilities:

    • Marketplace-based core commerce Adjusted EBITA reached RMB 34 billion, decreased 2%.
    • Core commerce Adjusted EBITA grew 2% to RMB 28 billion.
    • Losses in strategic commerce initiatives were narrowed compared to the prior year.

  12. Innovation Initiatives:

    • Adjusted EBITA loss was RMB 3.1 billion, up from RMB 1.9 billion from a year ago.
    • Increase was primarily due to aggressive investment in DingTalk to provide remote work collaboration capabilities to enterprises and schools free of charge during the COVID-19 pandemic.

  13. Other Financial Metrics:

    • Share of results of equity investees in the quarter reached RMB 3.5 billion.
    • Non-GAAP net income attributable to shareholders increased by 12% to RMB 25 billion.

  14. Full Year Results:

    • Achieved the milestone of USD 1 trillion GMV target.
    • Annual active consumers in China reached 780 million, including 726 million on China retail marketplaces.
    • Total revenue grew 35% to RMB 510 billion.
    • Adjusted EBITA grew by 28% to RMB 137 billion.
    • Generated RMB 131 billion in non-GAAP free cash flow.

  15. Outlook:

    • Addressed the recent bill passed by the U.S. Senate called the Holding Foreign Companies Accountable Act.

    • Emphasized transparency and integrity and the company’s commitment to complying with any legislation aimed at protecting and bringing transparency to investors.

    • Expected to generate over RMB 650 billion in total revenue in fiscal year 2021.

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