AliViews: Alibaba’s CEO Daniel Zhang on Q2 Earnings and Investment Strategy

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AliViews: Alibaba’s CEO Daniel Zhang on Q2 Earnings and Investment Strategy

Photo credit: Alibaba Group



Alibaba Group on Thursday reported earnings for the quarter ending September 30. Shortly after, Alibaba Chairman and CEO Daniel Zhang addressed investors on a conference call. Below are his comments:

In the past quarter, Alibaba continued to firmly invest into our three strategic pillars of domestic consumption, globalization, cloud computing and data intelligence. We believe this will establish solid foundations for our long-term goal of sustainable growth in the future.

Some context on the China macro environment before I share our business updates:

In the September quarter, China’s GDP and consumption continued to grow but slower than the previous quarters. Overall retail sales for the quarter increased 5% year-over-year. Online retail of physical goods rose 8% year-over-year compared to 17% during the same period last year. Offline retail has only just returned to the same level as two years ago.

These economic headwinds coupled with intensifying market competition also affected our core commerce business in China.

In line with industry retail trends in China, physical goods GMV year-over-year growth rate moderated to single-digit this quarter, mainly due to a slowdown in apparel and general merchandise categories. That said, growth rates of consumer electronics and home furnishing categories remained resilient.

Investments

In the challenging macro environment, we continued to invest in user acquisition and have seen promising progress in lower-tier cities, which I will elaborate on later.

Our global annual active consumers reached approximately 1.24 billion, which is a net increase of 62 million quarter-over-quarter and 20% growth year-over-year this past quarter. Our AAC grew to 953 million in China and 285 million overseas.

We are on track to deliver the 1 billion China AAC target by the end of this fiscal year and remain firmly committed to achieving our longer-term target to serve 2 billion consumers globally.

Let me turn to our long-term investment strategies.

Watch to learn about Taobao Deals. Video credit: Alibaba Group

In less developed areas across China, Taobao Deals has contributed incremental growth to our overall user base and stimulated more user activity and engagement in our China consumer ecosystem.

Taobao Deals AAC surpassed 240 million this past quarter. Close to half of Taobao Deals daily active users are unique incremental users in addition to Taobao app DAUs. Consumers are attracted by the value-for-money products and differentiated user experience offered by Taobao Deals. At the same time, manufacturers take advantage of its one-stop full-service solution that includes online store operation and fulfillment to sell directly to end consumers. We call this solution “M2C” or “manufacturers-to-consumers.” During this past quarter, Taobao Deals’ M2C orders grew nearly 400% year-over-year. 

For our Community Marketplaces business Taocaicai, we continued to focus on investing in and building a new digitalized community commerce model that is sustainable and healthy. Taocaicai has expanded operations to close to 200 cities, and its GMV growth surpassed 150% quarter-over-quarter.

We are deliberate in our approach and faithful to our belief in true value creation, rather than blind pursuit of unqualified and unsustainable growth. We are instead focused on leveraging core capabilities that Alibaba has built over the years in the supply chain, logistics, user engagement and channel development. We aim to grow a new digitalized social commerce infrastructure that offers consumers quality service and products with highly competitive pricing.

Consumer survey results have shown that product quality is the top deciding factor for consumers to choose Taocaicai over other platforms.

Taocaicai has contributed to increasing the purchase frequency of our core commerce consumers. More than 50% of Taocaicai users were first-time buyers of fresh produce on our China Retail Marketplaces. We believe the ultimate value proposition of the community commerce infrastructure is in our ability to elevate the quality of routine everyday services in local communities. It ranges from guaranteeing supplies during pandemic lockdowns, supporting local farmers to sell high-quality produce, vocational training and job creation. We will continue to enhance these services to create value for our communities.

In local services, we are creating a product and service matrix centered around synergies between Ele.me, Amap, and Fliggy.

Eleme and Amap are positioned as our two main user entry points for home-bound and destination-bound local services, respectively. Eleme delivered 28% growth in AACs and 30% growth in order volume year-over-year, with non-meal delivery order growth outpacing total order growth this past quarter.

In addition to map navigation services, Amap has been expanding into service offerings around users’ journeys and destinations, such as ride hailing, hotel booking, etc. During the quarter, transacting users of these destination services on Amap increased more than 200% year-over-year. Although the recent resurgence of COVID-19 in parts of China impacted stability in the supply of hotel rooms and travel products in many provinces, we see the positive contribution in user value from adding Fliggy product supply to Amap and our other user platforms.

Global Shopping Festival 1111 Double Eleven 1
The 11.11 shopping festival dwarfs Black Friday and Cyber Monday combined. Photo credit: Alibaba Group

11.11 Global Shopping Festival

We just celebrated our 13th 11.11 Global Shopping Festival with a record GMV of RMB540.3 billion (excluding unpaid orders), representing a year-over-year growth rate of 8.5% for the 11-day campaign. The stable and healthy growth off the high base from last year reflects China’s consumption power and economic resilience.

Looking forward, we remain confident in the development of China’s consumption. Today we already have the largest and the most valuable consumer base in China, with 953 million AACs which are still growing. At the same time, we will serve our large and diverse consumer population through user segmentation, addressing different needs and use cases through an assortment of apps with differentiated value propositions. Through further cross-selling of products and services, we will increase our user stickiness, wallet share, and overall retail penetration.

Outside of China, we continued healthy expansion of our user base and revenues, achieving 285 million AACs and 33% revenue growth during the quarter. In Southeast Asia, Lazada produced 82% order growth year-over-year during the quarter, with triple-digit growth in Thailand, Vietnam, and Malaysia.

Trendyol, the largest e-commerce platform in Turkey, delivered GMV growth of over 80% year-over-year. AliExpress GMV growth decelerated this quarter due to the negative impact of new VAT rules in Europe and the gradual recovery of the local supply chain and consumption in its destination markets. Looking ahead, AliExpress will further invest in expanding local operations in its strategic markets in Europe.

For our logistics business, Cainiao Post has achieved coverage in over 200 cities as of the end of September. They have become our stations for consumer services in more than 1,000 counties and towns across less developed areas. The daily average package volume delivered to Cainiao Posts increased nearly 70% year-over-year to 69 million during the quarter. In the domestic supply chain business, Cainiao’s fulfillment volume for Taobao Deals’ M2C business increased by more than 200% year-over-year. As part of its global logistic network expansion, Cainiao launched new initiatives to improve the user experience for international consumers by introducing self-pickup lockers in Russia, Spain, France and Poland while continuing to enhance its cross-border end-to-end logistics capabilities.

Last but not least, Alibaba Cloud delivered revenue growth of 33% year-over-year this past quarter, driven by strong revenue growth from customers in the Internet, financial services and retail sectors.

In October, we held our 13th Apsara Conference, which is now the biggest technology conference in China by attendees. We unveiled several new proprietary products and technology upgrades, including Yitian 710 Server Chip, the X-Dragon Architecture, Panjiu cloud-native server series, Alibaba AI+Big Data platform, and a new generation of PolarDB database. These show that Alibaba Cloud is benchmarking against the world’s top cloud computing technologies and a milestone in its proprietary product capabilities in IAAS and PAAS.

ESG

In September, we announced ten initiatives and pledged to invest RMB 100 billion by 2025 to advance scientific and technological innovation, economic development, high-quality employment, and vulnerable group support in China.

We believe these four areas are among the common focus of all responsible companies in the world under the ESG framework. We will incorporate these ten initiatives into the social responsibility pillar of our ESG strategy and hope that our digital commerce and technology ecosystem can contribute our part in these areas.

Looking ahead, we will continue to invest heavily into our three growth engines of domestic consumption, globalization, cloud computing and data intelligence, as we announced at the beginning of our fiscal year.

In core commerce, we have started to see encouraging initial results of our investment in lower-tier cities, local services, and logistics in the form of user growth and enhanced logistic capabilities.

Our investment in globalization has also delivered progress in user base, consumption and revenue growth. In cloud computing and data intelligence, we will strengthen our market leadership by further enhancing our core product and technology capabilities.

No matter the challenges in the current macroeconomic environment, and with more and more players entering the industry, we remain very confident in our business strategy and our future. We will continue to focus on capacity building, value creation, and a multi-engine approach to growth.

We firmly believe our strategy and perseverance will bring mid and long-term returns to our customers and investors.

Alibaba NewsAlibaba Quarterly EarningsAliViewsDaniel Zhang

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