Alibaba Group Holding Limited - Analyst-Investor Day - SEHK:9988

SEHK:9988

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

During the Alibaba Group Holding Limited Analyst/Investor Day on September 29, 2020, Yong Zhang, the Former CEO, Executive Chairman, and Chairman & Chief Executive Officer of Cloud Intelligence Group, delivered a presentation outlining the company's strategic roadmap. Below is a detailed summary of his statements:

Overview

Yong Zhang thanked attendees for joining the virtual event and provided a brief recap of the previous sessions.
He expressed that the unprecedented year of 2020 had brought about significant changes and uncertainties, particularly due to the COVID-19 pandemic and evolving geopolitical dynamics.

Impact of COVID-19 on China

China was the first country affected by the pandemic but also the first to control it and reopen its economy.
By March and April, business activities resumed, leading to a rapid economic recovery.
China achieved a healthy recovery, with supply chains, manufacturing, and consumption returning to pre-pandemic levels.
The International Monetary Fund (IMF) forecasted that China would be the only major economy to achieve positive real GDP growth in 2020 among developed markets.

China's Economic Growth

In the 12 months ending June 30, 2020, China's GDP reached USD 14.5 trillion.
China's consumption market plays an increasing role in driving GDP growth.
The scale of the consumption market reflects strong consumer confidence and market potential.
Alibaba's digital economy generated over USD 1 trillion in Gross Merchandise Volume (GMV) in the 12 months ending June 30, 2020.

Digitalization and the Pandemic

The pandemic highlighted the importance of digitalization, which played a crucial role in fighting COVID-19 and facilitating the resumption of business activities.
Digitalization accelerated and fundamentally changed various aspects of life, similar to the SARS and global financial crisis periods.
New consumption categories, such as groceries and health care products, saw a surge in online sales.
Remote working and online learning became the new normal, with Alibaba's DingTalk supporting millions of organizations and over 1 million online classrooms.

Alibaba's Strategic Position

Alibaba is well-positioned to capture the opportunities presented by digitalization due to its mission, infrastructure, and innovation capabilities.
Alibaba's mission is to make it easy to do business anywhere, and digitalization is the key to achieving this.
Alibaba has developed essential infrastructure over the past 20 years, including digital marketplaces, financial services, smart logistics, Amap, and Alibaba Cloud.
Alibaba has a proven track record of continuous innovation, creating new businesses such as Taobao, Alipay, Tmall, Alibaba Cloud, Cainiao, DingTalk, and Freshippo.

Continuous Innovation and Business Development

Alibaba spends 8 to 10 years incubating and nurturing new businesses, such as Alibaba Cloud and Cainiao, which are now seeing positive results.
Alibaba is rejuvenating established businesses like Alibaba.com and 1688.com, transforming them from simple meeting places to comprehensive trading platforms.
Alibaba maintains a disciplined approach to growth, aiming to create value for customers while maintaining high operational efficiency.

People and Culture

Alibaba's leadership has transitioned to a younger generation, with a front-line management team composed of individuals born in the 1970s, 1980s, and later.
Alibaba's culture and values, centered around its mission to make it easy to do business anywhere, guide the company's strategic decisions and innovations.

Future Opportunities

Alibaba sees three primary growth engines: domestic consumption, cloud computing and data intelligence, and globalization.
Domestic consumption: China's shift towards a consumer-driven economy presents significant opportunities.
Cloud computing and data intelligence: Alibaba aims to redefine cloud computing by integrating data with commerce and business use cases.
Globalization: Despite geopolitical changes, Alibaba remains committed to expanding its global presence.

Strategies for the Next 3-5 Years

Eleven critical strategies have been identified:
1. Expanding User Base: Driving growth in digital user bases in China and worldwide.
2. New Consumption Categories: Expanding into new consumption categories and increasing wallet share.
3. Supply Chain Transformation: Using real-time consumer insights to transform the supply chain.
4. New Retail Models: Innovating new retail formats for online and offline retail.
5. Alipay: Redefining Alipay as an entry point for digital services.
6. Cloud Computing and Data Intelligence: Integrating solutions in cloud, big data, business intelligence, and commerce platforms.
7. Logistics Sector: Revolutionizing the logistics sector with cloud computing and big data.
8. Serving All Industry Verticals: Applying cloud and big data strategies across various sectors.
9. Digital Collaboration: Enabling intelligent collaboration for organizations using Alibaba Cloud and DingTalk.
10. Industry Solutions: Developing innovative growth opportunities through industry solutions.
11. Globalization: Creating a digital ecosystem in Southeast Asia and leveraging Alibaba's strengths in supply and consumption.

Long-Term Goals

By 2036, Alibaba aims to serve 2 billion consumers worldwide, create 100 million jobs, and enable 10 million businesses to be profitable.

Wei Wu [Executive Director] 💬

Wei Wu, the Executive Director of Alibaba Group Holding Limited, presented the following information during the Analyst/Investor Day on September 29, 2020:

Financial Review for the Last 12 Months Ended June:
- Consumer Base Growth: Added 140 million consumers globally, reaching 1 billion annual active consumers (AAC).
- China Market: Over 800 million AAC.
- Overseas Markets: Approximately 200 million AAC.
- Total Revenue Growth: 34% year-over-year, reaching RMB 550 billion.
- Core Commerce Business: Contributed RMB 470 billion, with 33% year-over-year growth.
- New Businesses Growth:
  - New Retail: Over 100% growth, reaching RMB 100 billion in 12 months.
  - Alibaba Cloud Computing: 60% year-over-year growth.
  - Cainiao: Over 50% year-over-year growth.
- Profit Growth: Total adjusted EBITDA grew 29% year-over-year to nearly RMB 150 billion.
- Free Cash Flow: Grew 35% year-over-year to over RMB 140 billion (USD 20 billion).
Value Proposition to Consumers and Merchants:
- China Consumption Impact: Digital economy GMV reached RMB 7.3 trillion (over USD 1 trillion), accounting for 18% of total China consumption.
- Chinese Consumer Demographics:
  - Estimated total addressable consumer base: 1.2 billion.
  - AAC in China retail marketplace: 742 million.
  - Penetration rates:
    - Developed areas: About 90%.
    - Less developed areas: Less than 50%.
  - Average ARPU (Annual Gross Merchandise Volume per User): RMB 9,000 (approximately USD 1,300).
- High Spending Consumers:
  - 190 million AAC with ARPU over RMB 7,000.
  - Retention rate: 98%.
- Lower Spending Consumers:
  - 550 million AAC with ARPU less than RMB 7,000.
  - Retention rates:
    - Less than RMB 2,000: 67%.
    - Between RMB 2,000 to RMB 7,000: 96%.
- Consumer Engagement:
  - Average days spent on the platform: 10 days for single-service users and 27 days for users of five or more services.
  - 88 VIP members: Spend 9x more than overall users and visit 3x more categories.
Value Creation for Merchants:
- Merchant Profitability:
  - Average net profit margin: Approximately 4%.
- Alibaba Services:
  - Cainiao logistics: Digital logistics infrastructure.
  - Taobao and Tmall: Distribution value, new consumer acquisition, brand building, and new product launches.
  - Ali Cloud: IT infrastructure and differentiated industry solutions.
  - DingTalk: Enhanced office communication and collaboration.
- Paying Merchants:
  - 3.9 million in China retail marketplaces.
  - Over 3 million on Ali Cloud.
- ABOS (Alibaba Business Operating System):
  - Provides various services and products to enable merchants to operate better.
- Take Rate:
  - Increased from 2.5% to 4.5%.
  - 4% from CMR and commission.
  - 0.5% from Cainiao logistics services and local services.
Revenue Composition Evolution:
- 2015:
  - CMR and commission: 77% of total revenue.
- Last 12 Months:
  - CMR and commission: 47% of total revenue.
  - New Retail and direct sales: 18%.
  - Cainiao: 5%.
  - Local consumer services: 5%.
  - Cloud: 8%.
Business Growth and Innovation:
- Continuous Innovation:
  - Invests over RMB 100 billion annually in technology, research, and development.
  - Launched new businesses and services over the years.
- Business Development Phases:
  - Seed, traction, and profitability.
- Important Announcements:
  - Ali Cloud expected to turn profitable within fiscal 2021.
  - Cainiao expected to generate positive operating cash flow in fiscal 2021.
Investment Strategy:
- Core Strategic Businesses:
  - Additional investments in Ant, Cainiao, and AliHealth.
- Strengthening Core Businesses:
  - Acquisitions and investments to enhance user acquisition and experience.
- New Areas:
  - Investments in electric vehicles (Xiaopeng G3), real estate, and music.
Valuation:
- Core Commerce Businesses:
  - Adjusted EBITDA: USD 29 billion.
  - Equity value of China retail core business: Approaches current BABA market cap.
- New Businesses:
  - Leading positions in sectors like FMCG retail, digital logistics, cross-border e-commerce, and Southeast Asia e-commerce.
- Cloud Computing:
  - Annual revenue run rate: USD 7 billion.
- Ant Group Stake:
  - Market valuation to be determined.
- Cash and Strategic Investments:
  - Net cash: USD 36 billion.
  - Strategic investment: USD 45 billion.

Overall, Wei Wu emphasized Alibaba's commitment to innovation, investment in the future, and delivering robust growth for shareholders.