Aliviews: Daniel Zhang on Alibaba Earnings and Regulatory Environment

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Aliviews: Daniel Zhang on Alibaba Earnings and Regulatory Environment

(Editor’s note: This article was originally published on Feb. 2, 2021.)

Alibaba Group on Tuesday reported earnings for the quarter ended Dec. 31, 2020. Shortly after, Alibaba Chairman and CEO Daniel Zhang addressed investors on a conference call (login required). Below are his comments.

Alibaba Group delivered another strong quarter.

Our revenue increased 37% year-over-year to reach RMB221 billion while adjusted EBITA increased 21% year-over-year to reach RMB61.3 billion. Annual active consumers and GMV of our China retail marketplaces continued to enjoy healthy growth, with Taobao Deals surpassing 100 million mobile MAUs for the first time. We celebrated another milestone with Alibaba Cloud, which achieved its first profitable quarter with positive adjusted EBITA.

These business trends are all quite encouraging and are supported by a China economy that has recovered rapidly from the pandemic. I would like to address another subject that everyone is equally focused on, which is the potential impact of China’s changing regulatory environment on internet platform companies. I will share the latest updates on this topic.

This past quarter, Alibaba experienced the suspension of Ant Group’s IPO due to changes in the fintech regulatory environment as well as the initiation of an anti-monopoly investigation by regulators in China.

On December 24, 2020, Alibaba Group received a notice of an investigation from the State Administration for Market Regulation (“SAMR”) that it had commenced an investigation pursuant to the PRC Anti-monopoly Law. The investigation is ongoing and we are fully cooperating with the SAMR. We have established a special task force with leaders from our relevant business units to conduct internal reviews. We will continue to actively communicate with the SAMR on compliance with regulatory requirements. We will update the market once Ant Group has completed the relevant regulatory process for this rectification plan.

We approach this anti-monopoly investigation with a cooperative, receptive and open mindset. As a China retail marketplace connecting hundreds of millions of consumers and millions of merchants in transactions valued in trillions of RMB, we have a deep appreciation for the significant social and public responsibilities of operating our platform. Beyond complying with regulatory requirements, we will continue to do our best to fulfill our responsibilities to society and contribute to causes such as consumer protection, digitalization of retail, and industrial upgrading.

Regarding Ant Group – As you know, in early November, Ant Group announced the suspension of its proposed dual listings and initial public offering on the Shanghai Stock Exchange STAR board and the Hong Kong Stock Exchange. Due to recent significant changes in the fintech regulatory environment in China, Ant Group is in the process of developing its rectification plan, which will need to go through the relevant regulatory procedures. Therefore, Ant Group’s business prospects and IPO plans are subject to substantial uncertainties. Currently, we are unable to make a complete and fair assessment of the impact that these changes and uncertainties will have on Alibaba Group. We will update the market once Ant Group has completed the relevant regulatory procedures for its rectification plan.

We received questions regarding whether any potential reduction in available consumer credit via Ant Group’s offerings such as Huabei would impact consumer spending on our China retail marketplaces. I want to highlight that availability of credit is not a major reason that motivates consumers to shop at our China retail marketplaces; they are attracted by our comprehensive and high-quality product and service offerings; our competitive pricing; and our ability to satisfy and stimulate consumption needs. Payments using Huabei on our China retail marketplaces only represent a very small percentage of total credit granted under Huabei. And the vast majority of our consumers have linked their payment accounts to multiple funding sources including credit cards, and Huabei is only one of the funding channels.

Although the changing regulatory landscape applicable to fintech and internet platform companies presents near-term challenges to Alibaba, we regard them as important opportunities for reassessing and improving our business practices. In this highly competitive market environment, we will further challenge ourselves to constantly deliver and enhance value creation for customers through innovation. In multiple areas such as China commerce retail, local services, cloud computing and international commerce, we see challenges in fierce competition but also tremendous potential. Looking forward, we will be even more committed to investing in these core areas, investing for innovation, for value creation and for long term growth.

Here I will elaborate a bit more on our thinking on four core areas:

First, in China retail marketplaces, we will continue our user acquisition efforts, especially in less-developed areas. We will build on Taobao Deals’ 100 million mobile MAU base and further invest in the expansion of the user base and product supplies targeting less-developed markets. In addition, in the community group purchase space, we are developing a unique model based on consumer value proposition as opposed to subsidization to ensure good user experience and business sustainability.

Second, our local services flagship will continue to strengthen its partnership with Alipay to expand location-based on-demand delivery services to additional categories beyond meals, such as groceries and pharmaceuticals. On-demand deliveries of non-meal categories are growing rapidly on, which shows significant market potential. The current regulatory trend towards more healthy competition will benefit all market participants, as consumers and merchants look for diversified supply. We will leverage this opportunity to continue investing to strengthen our local services business.

Third, in cloud computing, we are pleased to have delivered our first quarter of positive adjusted EBITA. This is the result of years of investment in pursuit of long-term value creation. Alibaba Cloud continues to grow at a rapid rate, with 50% revenue growth year-over-year in the December quarter, reflecting the massive potential of China’s cloud computing market. We believe the market is still at its early stage, as data intelligence applications and demands for computing power will become universal across all industry sectors. We will leverage Alibaba’s unique advantage in technology and data intelligence applications, while continuing to invest for growth.

Finally, for globalization – Southeast Asia, which is a core market for our international commerce business, is witnessing Lazada’s rapid growth in both user base and transaction volume. We have spent several years upgrading Lazada’s technology infrastructure, business model and operating efficiency. We believe we are now well-positioned to capitalize on the Southeast Asia market, which is experiencing accelerated growth, through further investment into long-term opportunities with the goal of increasing our market share and user mind share.

As China is fully evolving into a digital economy, Alibaba continues to be best positioned in this historic transformation with our digital infrastructure in commerce, financial services, logistics and cloud computing that we have been building over the last 20 years. We continue to be confident about our three growth engines of domestic consumption, cutting-edge technology and globalization, as these drivers are also consistent with China’s policy direction in its economic development.

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Alibaba GroupAlibaba Group Quarterly EarningsAliViewsDaniel ZhangFintech
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