Alibaba’s Daniel Zhang on Growth and Digital Transformation in the Post-Coronavirus Era

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Alibaba’s Daniel Zhang on Growth and Digital Transformation in the Post-Coronavirus Era

Alibaba Group reported its March Quarter and Full Fiscal Year 2020 earnings today. Below is the transcript of comments Chairman and CEO Daniel Zhang made during a call with analysts.

Hello everyone. Thank you for joining our earnings call today.

We have finished an extraordinary quarter and delivered an outstanding fiscal year. Despite the impact of the Covid-19 pandemic, Alibaba achieved the historic milestone of $1 trillion in GMV across our digital economy this fiscal year, which was a strategic goal we set for ourselves five years ago. We at Alibaba have always been aiming for the stars while keeping our feet on the ground. The $1 trillion GMV milestone reflects the vitality of Alibaba’s digital economy, as well as strong execution against a clear strategic vision. Our scale has now reached one-sixth of China’s total retail sales, which was about $6 trillion last year. We believe there is still tremendous potential of growth. Digital adoption and transformation in retail are accelerating due to the Covid-19 pandemic, reshaping consumer behavior and enterprise operations. On the consumer side, shopping online has become a habit for more people and in more product categories. On the retail side, online sales is no longer an option but a necessity for the brick-and-mortars. We believe this is the new normal that will stay even after the pandemic is over.

I would like to review the past quarter’s performance in the context of the impact and recovery from the Covid-19 pandemic. On January 23, right before the Chinese New Year holiday, China announced the lockdown of Wuhan, the center of the pandemic. This and lockdown measures implemented in other provinces and cities led to large-scale economic disruption in late January and February, which negatively affected our domestic ecommerce business during the period. However, China quickly contained the pandemic by implementing measures such as strict social distancing, vast testing coverage, centralized mobilization of medical resources. Businesses started to reopen across the country in late February. By March 9, Cainiao announced the full recovery of logistics operations nationwide, except for Hubei province where Wuhan is located. Normal life began to return for most people in the country when Wuhan’s ten-week lockdown was lifted on April 8. Since March, we have seen a healthy recovery in our China retail marketplaces. As of March 31, 2020, annual active customers on our China retail marketplaces reached 726 million, a net increase of 15 million versus the previous quarter. Mobile MAUs of our China retail marketplaces reached 846 million in March 2020, an increase of 22 million over December 2019. This reflects Taobao’s strong consumer mind share and healthy user stickiness. Since the new fiscal year began in April, the quarter-to-date paid GMV of our China retail marketplaces has experienced year-on-year growth at a similar rate to the December quarter level.

For the past several years we have been investing to grow our new retail business in fresh food and grocery. Freshippo and Taoxianda, which have played an important role in supplying daily necessities to people impacted during the pandemic, have become widely popular among consumers. In the past quarter, both Freshippo and Taoxianda delivered stellar growth of more than 100% year-on-year. Approximately 60% of Freshippo’s GMV came from online orders, up by 10% year-over-year. As lockdown measures eased in China starting in April, demands and popularity of our grocery business have remained strong. We believe the consumer habit of buying fresh food and groceries online will continue after the pandemic. Online and offline integration will drive the New Retail model to the next stage of development. We have been investing for years to build the New Retail technology infrastructure, which will help us further strengthen our market leadership in this sector.

As the leading cross-border import platform in China, Tmall Global has become an ever more important destination for Chinese consumers to buy imported products as they could not travel abroad during the pandemic. In markets outside of China, our international retail marketplaces such as Lazada and AliExpress attracted over 180 million annual active consumers as of March 2020. Lazada’s order volume grew more than 100% year-on-year during the fiscal year and completed the March quarter with a strong finish despite impact of the Covid-19 pandemic. During February and March 2020, our cross-border marketplace AliExpress’ GMV growth was negatively impacted mainly by supply chain and logistics disruptions caused by the Covid-19 pandemic. We are seeing signs of recovery in certain major markets starting in April, but there are still uncertainties ahead.

Revenue from our local consumer services business decreased by 8% year-on-year in the past quarter due to impact of Covid-19. In April, year-on-year growth of our food delivery GMV turned positive as lockdown measures eased, restaurants began reopening and people began returning to work in China

Alibaba Cloud continued its rapid growth in the past fiscal year, with revenue reaching RMB40 billion, an increase of 62% year-on-year. During the pandemic, our public cloud business grew rapidly, driven by increased consumption of video content as well as wide adoption of remote working and learning. Our cloud computing infrastructure and big-data services have also played a key role in enabling businesses to quickly resume operations and production. We believe the pandemic will further accelerate digital transformation of enterprises. All industries, including public sectors, will choose to move their technology infrastructure to the cloud.

DingTalk, our digital collaboration platform for enterprises, played a key role during the pandemic. Millions more enterprises and users in China are now using DingTalk to stay connected and work remotely. DingTalk also made significant penetration in the education sector as schools adopted the platform for their teachers and students. In March 2020, DingTalk conducted an average of over 1 million active classroom sessions on each school day. DingTalk’s number of daily average active users during workdays grew significantly to 155 million in March. As offices and schools reopen in China, DingTalk’s number of daily active users came down from the peak level, but was still maintained at more than 100 million.

In the past quarter, our digital media and entertainment business delivered healthy growth in paying subscribers and user time spent, as user consumption of video content increased significantly during the pandemic. Youku will continue its focus on production and distribution of original and exclusive content while ensuring cost efficiencies and return on investment.

During the past quarter, we leveraged our platform technology and other resources across the Alibaba ecosystem to support populations impacted by the Covid-19 pandemic within China and around the world. We also implemented a comprehensive set of financial and business support measures to help alleviate the near-term challenges faced by our business customers and partners. As of March 31, 2020, Alibaba together with Ant Financial have contributed approximately RMB3.4 billion in value in the form of donations, subsidies and technical support. To name a few examples:

  • We waived fees, reduced commissions and offered logistics subsidies to our merchants.
  • We worked with Ant Financial and other partners to advance working capital funds to our merchants to provide liquidity and to facilitate one-year loans with preferential interest rates.
  • We used the RMB1 billion special fund we established in January to procure medical and related supplies for parts of China affected by the pandemic.
  • Our logistics subsidiary, Cainiao, offered free delivery of medical supplies to destinations around the world through its extensive global logistics networks
  • Our self-operated fresh food and grocery chain, Freshippo, committed to keeping more than 200 stores open for business even during periods when lockdown measures were in effect. Freshippo also worked with its supply chains to keep our commitment to not raising prices as well as maintaining adequate stock on shelves.
  • We made available AI technology to over 550 hospitals in China to help improve the speed and efficiency of their Covid-19 diagnoses using CT lung scans.
  • The Alibaba Foundation, through combined efforts with Jack Ma Foundation and Joe and Clara Tsai Foundation, donated over 200 million units of personal protective equipment, testing kits and ventilators to over 150 countries and regions.

In April 2020, we further announced the 2020 Spring Thunder Initiative, which aims to help export-oriented SMEs explore opportunities in the China domestic market through our China retail marketplaces, and expand into new markets through our international wholesale and retail marketplaces such as and AliExpress. We will also help to develop digitalized manufacturing clusters, accelerate the digital transformation of China’s agriculture sector, and alleviate financing challenges faced by SMEs by working with Ant Financial and its partners.

The battle against the Covid-19 pandemic is not over. Although China has made good progress in fighting and controlling the spread of the coronavirus, with most businesses reopening and people returning to normal life, the threat of the pandemic is still looming in the rest of the world. The timing and pace of recovery is still uncertain. At the same time, tensions between the U.S. and China have added another layer of uncertainty to the post-Covid-19 world. Despite the uncertainties in the macroeconomic and geopolitical environment, there is one thing we are certain – the world is moving toward digital-first and digital-everything. In the past two decades, Alibaba has developed comprehensive infrastructure and capabilities built on digital technology for business, financial services, logistics, cloud computing and big data to prepare for this new era. We believe our infrastructure and capabilities will play an important role in enabling all industries to embrace digital transformation, and consumers to embrace a digital lifestyle. In addition, we aim to empower SMEs around the world, including those in America, to access the Chinese and other global consumer markets and create new jobs. This is the hard work that Alibaba must undertake to fulfill our mission “to make it easy to do business anywhere,” and it is also the fundamental assurance for our sustainable growth in the future.

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2020AlibabaAlibaba GroupAlibaba Group Quarterly EarningsAliViewsAnt GroupCovid-19Daniel Zhang
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