Aliviews: Daniel Zhang on Alibaba’s Q1 Earnings

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Aliviews: Daniel Zhang on Alibaba’s Q1 Earnings

Photo credit: Alibaba Group

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

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

We started the fiscal year with a robust quarter. The latest macro data indicates some uncertainties in the pace of post-covid recovery, but as economic and consumer activities continue to resume, our businesses demonstrated encouraging trends that reflect the economy’s resilience, confidence in a consumption recovery, and the significant potential from an integrated development of the digital economy and the real economy.

The solid quarter also showed promising early results of our reorganization, which is beginning to unleash new energy across our businesses. Our revenue reached RMB234 billion, grew at 14% year-over-year, and growth was achieved across our different business segments.

Our adjusted EBITA increased 32% year-over-year to RMB45.4 billion, showing progress in our continued focus on operating efficiency and quality of operation. Next, I will go through the results of each of our major businesses.

The solid quarter also showed promising early results of our reorganization, which is beginning to unleash new energy across our businesses
– Daniel Zhang  Alibaba Chairman and CEO

Global Growth

Alibaba International Digital Commerce Group (“AIDC”) delivered 41% overall revenue growth this quarter, and its retail businesses achieved 60% revenue growth year-over-year.

This was driven by solid order growth of our international retail marketplaces at around 25% year-over-year, advertising revenue growth because of enhanced monetization and higher direct sales revenue contribution as AliExpress expands its new “Choice” model.

Lazada also delivered rapid order growth based on its differentiated country strategy, accelerating progress in high-priority markets such as the Philippines and Thailand.

Aliexpress Choice
AliExpress and its Choice service brought more quality items to consumers worldwide. Photo credit: Alibaba Group

In Türkiye, Trendyol continued to maintain its growth momentum and market leadership. We are starting to see economies of scale in our international retail businesses, as enhancing monetization and operating efficiency reduced adjusted EBITA loss.

AIDC’s adjusted EBITA loss decreased by 70% year-over-year during the quarter. Looking ahead, we will continue to expand the “Choice” model leveraging the capabilities of an integrated cross-border supply chain and enhanced consumer experience with higher certainty in logistics and service level. The plan is to expand the “Choice” model from AliExpress to certain of our other retail platforms while upgrading our product and services, especially in providing a better localized experience.  

Serving Consumers

During the quarter, revenue from Local Services Group grew 30% year-over-year, driven by strong combined order growth across both and Amap.

Amap’s daily active users and “to-destination” services expanded due to the strong recovery in commuting and travel demand after the pandemic measures were lifted.

With a long-term strategic focus on technology leadership, Amap released new product features such as traffic light countdown and tunnel navigation during the quarter, which were well received by its users. Its market share in map navigation services continued to expand.

Amap New Upgrade
Navigation platform Amap saw an increase in use during the quarter. Photo Credit: Alibaba Group

During the quarter, focused on investing in its own service capability enhancement and a more inclusive partnership strategy, which helped sustain healthy order growth while maintaining positive unit economics.

Cainiao’s revenue during the quarter grew 34% year-over-year, primarily driven by the volume increase of international fulfillment solution services (mainly serving AliExpress) and China domestic consumer logistics services. Cainiao’s adjusted EBITA of the quarter was RMB 877 million due to the continued focus on quality of operation and lower transportation costs as international air cargo prices came down.

Looking ahead, Cainiao will continue to invest in building logistics networks for cross-border and domestic parcels, leveraging Alibaba’s multiple digital commerce use cases to expand its network effect.

Cainiao will also share part of the savings from its operating efficiency improvement and transportation cost reduction with its customers through price strategy adjustments, and pursue higher economies of scale on a larger revenue base.

Technology Evolution

During this quarter, Alibaba Cloud’s revenue grew 4% year-over-year. The growth rate was negatively impacted by the normalization of CDN demand, as usage of video streaming, remote working and remote learning came down when offline activities resumed after pandemic measures were lifted.

The growth rate was also partly impacted by revenue decline from a top customer. In the past quarter, we have received strong demand for model training and related services on cloud infrastructure, which were only partially fulfilled due to the near-term supply chain constraints globally.

We believe the growth opportunities driven by AI services have just begun.

Alibaba Cloud Data Center
The proportion of clean electricity in Alibaba Cloud’s self-built data centers is steadily rising. Photo credit: Alibaba Cloud

We believe that the technology evolution brought by AI is not a short-term opportunity but the beginning of a new era. As one of the world’s leading cloud service providers, we will continue to invest in forming a full-stack product and technology leadership across IAAS, PAAS and MAAS layers.

This is key for us in capturing AI opportunities and sets a differentiating advantage for AliCloud vs. other players in China, which mainly focus on one of the layers.

We will leverage and expand this advantage when serving the needs of our customers, including the training and service needs of large model startups, as well as industry demands for customized models and vertical models. We believe the high-performance and low-cost computing power required for model training and services will open up brand-new opportunities for cloud computing services.

Over the long term, Alibaba Cloud will benefit from the application of AI in all industries. In the MaaS layer, we have built ModelScope, a leading open-source online community in China for models and related tools & services, which is very popular among developers.

We believe that the technology evolution brought by AI is not a short-term opportunity but the beginning of a new era
– Daniel Zhang  Alibaba Chairman and CEO

The community hosted over 1,000 AI models, including Meta’s recently-released Llama2 and our own open-source model, the seven billion-parameter version of Tongyi Qianwen.

We believe the aggregation and engagement of a model ecosystem will significantly help developers optimize their models and use services on Alibaba Cloud. Since April, we released our own large language model Tongyi Qianwen, audio-to-text transcription platform Tongyi Tingwu, and text-to-image model Tongyi Wanxiang, which together have accumulated millions of users.

During the quarter, Alibaba Cloud’s adjusted EBITA reached RMB387 million, representing year-over-year growth of 106%. This was mainly due to reduced colocation and bandwidth costs of DingTalk as a result of normalized usage after the pandemic, as well as enhanced product mix and efficiency improvement (for example, server utilization) in our cloud business.

We will continue to focus on the quality of operations. And as we continue to scale, we will work to achieve economies of scale that will deliver long-term operating benefits and contribute to our profitability.

Star of the Show

Lost In The Stars
Alibaba Pictures co-produced the Chinese cinema blockbuster “Lost In The Stars”. Photo credit: Alibaba Group

Our digital media and entertainment (“DME”) business delivered 36% revenue growth year-over-year, and the first-ever quarter of profitability. This was a result of the following factors:

1) Youku’s growth in subscription revenue

2) higher revenue contribution from Damai and Taopiaopiao, which both benefited from the recovery of offline shows and cinemas after the pandemic

3) Alibaba Pictures’ launch of several blockbusters and robust China box office demands during the quarter

Going forward, we will continue to improve our content production capabilities and enhance DME business’ operating results through high-quality content creation and distribution.

Building Sustainably

In July, we published our FY2023 ESG Report. Over the past year, we have made progress across the seven strategic dimensions of social responsibility, especially in restoring our green planet.

We achieved solid emission reduction under Scope 1, 2 and 3. We drove emission reduction across our business ecosystem, which was roughly equivalent to the total annual greenhouse gas emissions of one million average households in China.

Leveraging our unique position connecting consumers and merchants, our product innovation Carbon88 ledger platform enables our consumers and merchants to join the carbon-saving efforts across our ecosystem.

Over the past year, we have made progress across the seven strategic dimensions of social responsibility
– Daniel Zhang  Alibaba Chairman and CEO

Following the announcement of our 1+6+N reorganization in March, the six business groups have started operating in a new way under the leadership of their respective boards. The past quarter’s solid performance was also a reflection of the early results of this change, and further enhanced our confidence towards the future.

As part of the new governance framework, we are also further strengthening the company’s capital management, moving ahead with our various programs to improve shareholder return under the leadership of the newly established Capital Management Committee.

The capital market projects we announced last quarter are all underway and we have also been continuing share repurchase activities in the market. We will keep you updated on the progress in the future.

Lastly, this will be the 36th earnings call I have participated in since our IPO in 2014, and the final one as Chairman and CEO of Alibaba Group.

It truly has been a privilege of a lifetime to lead this company as CEO on our three strategies of consumption, cloud computing and globalization since 2015, and be a part of Alibaba’s high-growth period. As Chairman, it was an extraordinary experience to take on the challenges brought on by the pandemic and unprecedented changes in the macro environment over the past four years.

This has been an invaluable life experience. I sincerely thank our shareholders and analysts for your trust and support over the years. This quarter is the culmination of my 8-year leadership of Alibaba and the start of my new journey.

I hope you continue to support Joe, Eddie, and the new management team. As Cloud Intelligence Group moves towards becoming a public company, I look forward to re-engaging with everyone in my new role in the journey ahead.

Thank you, everyone! Now I will pass to Toby for financial updates.

Read more about this quarter’s earnings report

Alibaba GroupAlibaba Group Quarterly EarningsAliViewsEarnings
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