Aliviews: Daniel Zhang on Alibaba’s Reorganization and Q4 Earnings

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Aliviews: Daniel Zhang on Alibaba’s Reorganization and Q4 Earnings

  • Alibaba Group’s Chairman and CEO Daniel Zhang addressed investors and analysts on an earnings call
  • The world is standing at the new starting point in the age of AI, said Zhang

Photo credit: Alibaba Group

Alibaba Group on Thursday reported earnings for the quarter ending March 31. 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 closed the March quarter and fiscal year 2022 in a changing macro environment. As Covid-19 cases waned after the Chinese New Year, business and social activities gradually recovered in China. These changes had impacted some of our businesses in various degrees.

During the past quarter, our revenues reached RMB208.2 billion, representing a year-over-year growth of 2%. Our Adjusted EBITA was approximately RMB25.3 billion, representing a year-over-year growth of 60%, as a result of our continued efforts in enhancing operating efficiency and optimizing costs.

Looking at the macro environment in China and globally, we see both challenges and opportunities amid uncertainties for an economic recovery. The international macro environment is highly uncertain. At the same time, we see market opportunities in China’s consumption recovery post the pandemic and rapid development in artificial intelligence. We will continue to execute our three core strategies in consumption, cloud and globalization in response to these opportunities.

We see both challenges and opportunities amid uncertainties for an economic recovery
– Daniel Zhang  Alibaba Chairman and CEO

In the past few months, we have noticed a gradual recovery in China consumption, but consumer confidence and spending power still need further momentum. At the same time, competition among the multiple consumption platforms is still fierce, and everyone is trying to capture the incremental demands with more value-for-money products and services.

We will focus on the following areas in such a competitive market:
1) acquisition and retention of high-quality users,
2) maintaining our platforms’ differentiated consumer mindset, and
3) most importantly, creation of new demands through supply-side innovations.

In international commerce, we will focus on building core capabilities to support the sustainable development of our international commerce business, as well as leveraging the unique advantage of China’s supply chain to serve global consumers. In cloud computing, progress in industrial digitalization and the emergence of AI have created higher demands for computing power, and foundation models have expanded AI’s application in all aspects of life. Alibaba Cloud will focus on seizing this historic opportunity to maximize its market potential.

Alibaba Group is embarking on its largest governance overhaul since it was founded in 1999. Photo credit: Alibaba Group

Organizational Transformation

In March, we announced a major organizational transformation, restructuring Alibaba Group into six business groups and other investments.

As a result, we are transforming from operating multiple group businesses into a holding company that focuses on capital management. Each business group will operate with a high degree of independence, led by its own CEO who assumes full responsibility for company performance under the supervision by its own board.

Today in our press release we also announced the list of the board of directors and CEOs of our six business groups, which was recommended by Alibaba Partnership and approved by our board of directors. We believe this transformation will empower all our businesses to become more agile, enhance decision-making, enable faster responses to market changes and promote innovation to capture opportunities, thereby unlocking shareholder value.

Starting from today, we will invite the business group CEOs to join the earnings calls in turn and share their business strategies and the thinking behind. At today’s call we have Trudy Dai and Jiang Fan, who will later discuss about the business performance and strategies of Taobao Tmall Commerce Group and International Digital Commerce Group, respectively. I will also share my thoughts on Cloud Intelligence Group’s business review and outlook.

Alibaba Cloud will focus on seizing this historic opportunity to maximize its market potential
– Daniel Zhang  Alibaba Chairman and CEO

As an important step in our reorganization, we are in the process of establishing a new governance framework under the “1+6+N” structure.

Under the new governance framework, the CEO of a business group takes overall responsibility for the operating results and compliance under the leadership of the business group’s Board. A list of reserved matters will be specified to require approvals from Alibaba Group’s board of directors.

These reserved matters include annual business plan and budget, business group CEO appointment and evaluation, major capital transactions, business cooperation and data sharing mechanism within Alibaba Group, compliance oversight, etc.

To ensure the implementation of risk management and compliance requirements under the new governance structure, we have obtained board approval to establish a new Compliance and Risk Committee, which will be responsible for overseeing the group’s compliance and risk management in areas other than financial reporting. In addition, in order to adapt to our new role as a holding company, we have also established a Capital Management Committee under Alibaba Group’s Board of Directors. With a goal of enhancing shareholder returns of the Group, the committee oversees major capital management matters across our business groups.

With the further progress of the restructuring plan, we have formulated different capital management plans based on the various stage of development, business needs, market environment and risks that each business group is facing. We are announcing several updates today.

Freshippo and Cainiao have over the years established differentiated customer value propositions, stable and well-defined business models and a clear path to profitability
– Daniel Zhang  Alibaba Chairman and CEO

Listings on the Horizon

Firstly, we plan to fully spin off Cloud Intelligence Group and complete its public listing in the next 12 months as an independent company. Cloud Intelligence’s business model, customer profile and stage of development are fundamentally different from the other consumer-focused businesses in the Alibaba ecosystem. Full independence will allow Cloud Intelligence to further sharpen its business strategy and optimize its operations and organization.

Secondly, Freshippo and Cainiao have over the years established differentiated customer value propositions, stable and well-defined business models and a clear path to profitability. We believe these two companies are ready to go public. Our board has approved Freshippo’s plan to kick off the IPO process, and Cainiao to explore an IPO in the next 12-18 months.

Thirdly, Alibaba International Digital Commerce Group will explore raising external capital to support its business expansion in the global market. The successful execution of the above transactions is subject to various factors, such as market environment, regulatory approvals and so on.

The Future is in the Cloud

In the next section, I will share some updates about our cloud computing business.

In the past quarter, our cloud revenue decreased by 2% year-over-year. This is partially due to our proactive move to adjust our revenue structure and focus on high-quality growth, and also a result of external changes in market environment and customer composition. The external factors include the impact from a top customer phasing out using our cloud services and switching to self-built infrastructure for its international business, whose revenue contribution to Alibaba Cloud decreased 41% year-over-year.

In addition, the resurgence of pandemic in China in January also impacted public cloud consumption and delayed delivery of certain hybrid cloud projects during the quarter. As the pandemic eased off and remote working and schooling activities decreased in February and March, demands for services such as CDN also decreased quite significantly.

If we zoom out from the short-term fluctuation in cloud revenues, and look back at AliCloud’s development over the past 14 years and cloud’s vast future with the rapid development of AI, we see massive market potential and remain confident at AliCloud’s future. We got to where we are today because AliCloud seized two historic opportunities— number one, rapid development of China’s mobile Internet and number two, digital transformation of traditional industries.

We believe that all of our consumer-facing businesses can be reinvented with large models to offer a new AI-based service experience for our users
– Daniel Zhang  Alibaba Chairman and CEO

With its industry-leading technologies and products, AliCloud established its market leadership in China and globally by supporting the growth of many digital-native enterprises and the digitalization of many industry customers. Today, the age of AI brings two new historic opportunities to AliCloud.

Firstly, the emergence and the broad application of artificial intelligence, large models and various vertical models have raised new requirements for computing power. This is a huge first-mover advantage for AliCloud, as we have established sizable IAAS and PAAS to provide stable, secure, high-performance and cost-efficient computing services.

We hope that AliCloud’s services can not only support our self-developed foundation model, but also support the training and services of other large models and vertical models in the market. Today we are a leading provider of large-scale high-performance computing services based on public cloud. Leveraging this technology advantage, we are working with enterprise customers and entrepreneurs to support their demands for model training and services.

The second opportunity lies in building model-as-a-service, or MaaS, on top of our foundation in IaaS and PaaS. We hope to offer our proprietary foundation model to the general public while supporting our customers, partners and developers to produce vertical models and services they need based on our foundation model.

Alibaba Large Language Model Tongyi Qianwen
Tongyi Qianwen is Alibaba Cloud’s latest AI model. Photo credit: Shutterstock

In April, we released a large-language pre-training model Tongyi Qianwen. Currently, more than 200,000 customers have applied for trial access, and we have started to work with several industry partners to develop vertical models based on Tongyi Qianwen. We also plan to launch cloud products and enterprise solutions based on the Tongyi model.

At the same time, the emergence of large models also brings new opportunities to integrate AI with the various businesses within Alibaba Group. Starting from Dingtalk, we believe that all of our consumer-facing businesses can be reinvented with large models to offer a new AI-based service experience for our users. Qianwen, a large-language model, is just one member in the family of our Tongyi series of pre-training models. We plan to release some of the other large models in the Tongyi series in the near future.

As a cloud computing product company, AliCloud is committed to investing in core technology development in cloud computing, big data and AI to make computing more inclusive and AI more accessible. Recently, we have introduced a series of new products and pricing policies. We believe these measures can further expand the customer base and cloud consumption of our public cloud services, and drive the usage of high-performance computing power required for AI model training and related services. These will provide a healthier and more sustainable growth driver for AliCloud’s long-term development.

Alibaba, like the world we are in, is at the beginning of a new era of transformation
– Daniel Zhang  Alibaba Chairman and CEO

Before ending our sharing today, I would like say a few more words: Looking back at the recent events in the past few months, Alibaba, like the world we are in, is at the beginning of a new era of transformation. The world is standing at the new starting point in the age of AI. The breakthroughs in artificial intelligence will reshape every aspect of our society, how we work and how we live, creating opportunities for disruptive innovations while bringing new problems for mankind to solve together.

For Alibaba’s own transformation, we expect the progress in group reorganization and capital management efforts to further unlock Alibaba’s own productivity and foster more innovation, such as new products and services and new experiences focused on creating value for our customers. Through these efforts, we hope to bring greater and longer-term returns to our employees and shareholders.

Thank you!

To learn more about the group restructuring, visit Alizila’s company news hub

Alibaba Group Quarterly EarningsAliViewsDaniel Zhang
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