Alibaba’s Daniel Zhang on Post-Covid Opportunities and Consumer Behavior

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Alibaba’s Daniel Zhang on Post-Covid Opportunities and Consumer Behavior



Alibaba Group reported itsJune quarterearnings today. Below is the transcript of comments Chairman and CEO Daniel Zhang made during a call with analysts.

We have delivered another strong quarter. Although the global community continues to struggle with uncertainties surrounding the pandemic, we have seen encouraging signs of recovery in China due to effective management of the outbreak in the vast majority of the country. Covid-19 has accelerated the digital transformation of consumer behavior and enterprise operations. Alibaba is a key beneficiary of this development, with most of our businesses, including core commerce and cloud computing, having recovered and resumed healthy growth.

The pandemic has fundamentally altered our macroeconomic environment and everyday life, but it has also introduced new opportunities. Digital adoption and transformation is the prevailing trend in this changed landscape, and we are confident that we can create Alibaba’s future by capitalizing on the opportunities in this challenging environment, just as we did in 2003 during SARS and in 2008 during the global financial crisis.

In the 12 months ended June 30, 2020, annual active consumers on our China retail marketplaces reached 742 million, representing a quarterly net increase of 16 million. Mobile MAUs on our China retail marketplaces reached 874 million, an increase of 28 million since March. These numbers reflect Taobao’s continuing strong consumer mind share, healthy user stickiness and engaging user experience as the world’s leading consumer community. Tmall online physical goods GMV, excluding unpaid orders, grew 27% year-over-year, with all major categories growing at similar or faster rates relative to the December 2019 quarter.

Our unparalleled product offerings and engaging user experience contributed to higher purchase frequency, as well as higher average spending per customer across all city tiers that increased both year over year and quarter over quarter. In terms of user acquisition, we continued to increase our penetration in less-developed markets. Taobao Deals, our new mobile app targeting value-conscious consumers, reached 40 million MAU in June. The disruption in international tourism presented an opportunity for our import commerce business. Tmall Global, the leading cross-border import platform in China, grew over 40% year-over-year in GMV excluding unpaid orders.

Looking forward, our China retail marketplaces will focus on the following areas: 1) continue to drive user acquisition, especially in less-developed markets, and work towards reaching our mid-term goal of serving more than 1 billion Chinese consumers; 2) continue expanding our product supply, especially in categories currently underpenetrated by e-commerce; and 3) continue to enhance the shopping experience and path to purchase on our platforms through new content formats such as livestreaming and short videos.

Our investments in new retail over the past several years have well positioned our grocery businesses Freshippo, Tmall Supermarket and Taoxianda to capture unprecedented growth opportunities during the pandemic, and continued to see healthy growth momentum in the past quarter. More than 60% of Freshippo’s GMV came from online, and the stores which have been in operation for more than a year enjoyed double-digit same-store growth. Tmall Supermarket’s half-day delivery service, which leverages Sun Art’s store-based inventories, gained widespread popularity among consumers and helped Sun Art increase consumer reach and create incremental sales. We enabled approximately 15% of Sun Art’s total revenue during the June quarter.

Ele.me successfully rolled out an important branding upgrade in July. The new brand proposition, “Anything you love, we deliver,” represents the transformation of Ele.me from a food delivery platform into a comprehensive digitalized local services platform. In addition to food and beverage, Ele.me now also delivers everyday necessities such as groceries, fresh produce, medicines and flowers from local merchants. In the June quarter, Ele.me achieved positive unit economics as a result of improved operational efficiency. It also resumed positive year-over-year GMV growth, signaling healthy recovery of the business.

We also saw promising early-stage results in Ele.me’s strategic cooperation with Alipay. During the past quarter, approximately 45% of new customers ordering food delivery from Ele.me did so via the Alipay app. We will further deepen the cooperation, and we believe there is significant potential for valuation creation by combining Ele.me and the power of the entire Alibaba ecosystem to capture opportunities that will emerge from the ongoing digital transformation of the food & beverage and retail industries. We will continue to invest in this area.

Lazada continued to show strong progress this past quarter, with order volume growing more than 100% year over year. The pandemic had significant impact on many Southeast Asian countries and it has converted many consumers into online shoppers. We believe the increasing adoption of online shopping is beneficial for healthy growth of the region’s e-commerce industry over the long term.

Southeast Asia continues to be the strategic priority in our globalization strategy. In this highly competitive region, with Lazada’s new leadership in place, we aim to build a sustainable digital business leveraging Alibaba’s technology to serve local consumers and business partners. During the June quarter, AliExpress, our cross-border marketplace, saw order conversion and delivery time negatively impacted by challenges in cross-border logistics, but the situation started to improve in July.

Alibaba.com and 1688.com, two of our oldest businesses, saw new market opportunities this year. Many international wholesalers have turned to Alibaba.com to source products from China, as global supply chains were disrupted and Chinese factories were the first to resume production. In June, daily active buyers on Alibaba.com increased over 100% year-over-year; 1688.com also saw more than 50% year-over-year growth in daily active buyers as a result of increasing number of SMEs (especially small retailers) looking for supply as China’s economy reopened.

The pandemic has also transformed the way enterprises work, accelerating demands for cloud infrastructure and services. According to IDC’s latest report, Alibaba Cloud maintained its position as the largest public cloud service provider in China, which is a testament to Alibaba Cloud’s strengthening market leadership. In the June quarter, our cloud computing revenue grew 59% year over year. In sectors such as internet, financial services, consumer retail and public services, Alibaba Cloud not only provides infrastructure as a service, but also develops industry-specific technology and business solutions to address real-world application requirements for our customers.

As offices and schools reopened in China, DingTalk’s DAU moderated from the peak level, but remained over 100% higher than pre-Covid-19 levels. Approach to work and education have changed fundamentally, and DingTalk will be an important digital collaboration platform for working and learning moving forward, connecting all industries to services on cloud.

For our digital media and entertainment business, Youku‘s daily average subscriber base increased by more than 60% year-over-year during the quarter with the release of popular TV series and variety shows. In July, cinemas started to gradually reopen in China, and Alibaba Pictures has been preparing for business to resume. We are closely monitoring the pace of recovery. Recently, we decided to stop the operations of UCWeb and other innovation initiatives in India after extensive review of the business. We do not expect it to have a material impact on the Group’s overall financial performance.

Today, we face uncertainties from not only the global pandemic but also increasing tensions between U.S. and China. As the world’s largest e-commerce platform, Alibaba’s primary commercial focus in the U.S. is to support American brands, retailers, small businesses and farmers to sell to consumers and trade partners in China as well as other key markets around the world.

We believe global trade will continue and Alibaba’s active pursuit of our mission “to make it easy to do business anywhere” are fully aligned with the interests of both China and the United States. We are closely monitoring the latest shift in U.S. government policies towards Chinese companies which is a very fluid situation. We are assessing the situation and any potential impact carefully and thoroughly, and will take necessary actions to comply with any new regulations.

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