Alibaba Group on Thursday reported earnings for the quarter ending Sept. 30. Shortly afterward, Alibaba Group’s CEO and Director Eddie Wu addressed investors and analysts on an earnings call.
Hi everybody, and welcome to this quarter’s earnings call.
I am excited to speak with you on today’s earnings call as CEO of Alibaba Group for the first time. So in addition to updating you on the progress we’ve made in all of our businesses over the past quarter, I’d also like to take this opportunity to share with you my thinking about Alibaba’s future development strategy and our business plans.
Through 24 years of development. Alibaba has grown into a group that spans e-commerce, cloud computing, local services, logistics, digital media and entertainment, new retail, and many innovative new businesses. Today, the world is at the starting point of a new era. Rapid technological advances are profoundly reshaping all industries, all products, and all of our daily life scenarios. Virtually any prediction made today is bound to underestimate the future.
As the penetration rate of Internet users reaches a ceiling, the driver of growth in this sector will be technology, especially AI. Therefore, I have defined the following three directions as the key priorities for Alibaba’s next decade: our technology-driven internet platform businesses, AI-driven technology businesses, and global commerce network.
In light of Alibaba’s huge and complex set of businesses, as well as rapidly evolving market and technology trends, we intend to transform Alibaba and embrace the future through the following three key initiatives.
First, establishing a highly nimble and corresponding fast decision-making governance structure and incentive system. Today, Alibaba must contend with fast-evolving new technologies, as well as new changes and expectations in the market. No matter how successful our business models have been in the past, we need to turn over a new page and start afresh. We need to reawaken our entrepreneurial mindset and improve our decision-making systems.
To that end, we initiated corporate governance reforms this year and continue to move quickly ahead with developing fast and nimble decision-making systems. Going forward, we want each of Alibaba’s different businesses to face the market more independently and autonomously.
On that basis, we are exploring corresponding incentive systems that strike the right balance between independence and cooperation across the business groups so as to maximize the synergy for development.
Second, conducting a strategic review of existing businesses. Focusing on the long-term and maintaining high-intensity investments in core businesses.
After years of development, we are keenly aware that outstanding business models are extremely rare.
Going forward, we will give each of the existing businesses a different level of priority, based on market size, business model, and product competitiveness, and will distinguish between “core” and “non-core” businesses. Core businesses are where we will keep our long-term focus, intensively invest resources, pursue R&D, enhance user experience, and make sure that our products and services are constantly evolving to meet our users’ needs, to keep them vital and competitive for the long term. As for the non-core businesses, we will realize the value of these assets by turning them profitable as soon as possible or through other means of capitalization.
Third, firmly committing to investing strategically for the future. The Alibaba Group will strengthen its strategic incubation initiatives. The highest priority for major investments will be placed on services and products that meet user demands and that are AI-driven.
We will resolutely invest in revolutionary products for the future, taking a patient, long-term approach, adopting a three-year window for evaluation and proof of value. In this way, we will nurture new businesses and new growth drivers for Alibaba into the future.
Next, I will share our three-year development strategies and goals for each of the business groups and companies, and how they will capture market opportunities.
Taobao and Tmall Group’s Core Strategies
Taobao and Tmall Group is committed to three core strategies: To put users first, build an ecosystem for brands and merchants to thrive on our platform, and realize AI technology-driven innovation. Despite competition in the market, this quarter Taobao and Tmall Group maintained steady revenue growth and accelerated DAU growth.
In next three-year strategic cycle, putting users first is the top priority for Taobao and Tmall Group. In particular, the focus will be on the following three areas:
- “Universal” Taobao
Taobao is universal or omnipotent, meaning it consists in the vast assortment of goods and services it can supply. We must resolutely be an integrated platform that meets the needs of all tiers of consumption demand, serving the largest consumer base, in order to increase consumer purchase frequency. This represents an important choice for Taobao and Tmall to maintain growth in today’s competitive landscape.
- Consumer tiers and price competitiveness.
China has a consumer market with multi-tiered value propositions. We have both the most diverse consumer base, and also China’s manufacturing advantage. That means that in any category, there is a sufficiently rich assortment of supply with different value propositions to meet the needs of different consumers.
Accordingly, we must execute a multi-tier market strategy within one app. Taobao is a super-app that integrates all three mainstream sales formats: livestreaming content-driven sales, brand marketing-driven sales, and everyday low-price product sales, making it the most comprehensive platform. The Taobao app can accommodate different product tiers, from branded goods to white-label goods, and the whole range of value propositions they represent. We intend to make Taobao a universal consumer app that connects to an all-inclusive and highly diversified marketplace, leveraging AI and next-generation operating models.
At the same time, we must execute a “price competitiveness” strategy. Price competitiveness is the strongest force at work for both branded goods and non-branded goods. We will continue to leverage our platform model to optimize product efficiency, enhance supply chain efficiency, and adopt “price competitiveness” as a core strategy across all product tiers.
- User value
Taobao will remain committed to its positioning as an Internet consumption platform. It is not a retail company. In line with our identity as an Internet consumption platform, we will prioritize our strategy of “putting users first”, with improving platform stickiness and customer retention as our core goals. From the operational perspective, we will adopt user purchase frequency as the highest-priority KPI for platform operations, above GMV, as purchase frequency is the most direct measure of users’ recognition of an internet consumption platform.
Taobao’s diverse monetization products can support our strategic shift to “putting users first”. We are convinced that only with more users can we generate more market opportunities for merchants. These investments will create a virtuous “win-win” cycle for users, merchants, and the platform.
Cloud’s AI-Driven Growth
Given the uncertainties in the current environment, we have decided not to pursue a full spin-off of Cloud Intelligence Group. Alibaba Group will continue to invest strategically in Cloud Intelligence Group in the long term. At the same time, Cloud Intelligence Group will continue to maintain its independent operation, to be managed by its CEO and overseen by its board.
In this quarter, we saw the AI boom bring about continued growth in demand for computing power and large model services.
Cloud Computing is the infrastructure of the digital economy. It is a business model that achieves network effects with computing resources, and a service model that features both network effects and scale effects.
With the advent of the AI era, typified by large models, and the demand for AI transformation and innovation across all industries, IT investment will grow exponentially, and demand for cloud computing will expand exponentially as well, creating a huge incremental opportunity.
The Cloud Intelligence Group will resolutely implement a strategy of driving growth with AI and of prioritizing public cloud. It will scale up its technology investments in AI-related software and hardware.
We see a fundamental paradigm shift underway in computing worldwide. We stand at the inflection point in the shift from traditional computing to AI computing. In the future, incremental demand for cloud computing will be driven by demand for AI, and most AI computing will run on the cloud.
Going forward, we will do two things: First, we will build the “most open cloud in the AI era”, providing stable and efficient AI infrastructure for all industries and enabling all sectors to “go intelligent”. Second, we will build an open and prosperous AI ecosystem.
At the recently concluded Apsara Conference, we announced a comprehensive upgrade of our AI infrastructure: the artificial intelligence platform PAI, and our large model Tongyi Qianwen 2.0, which has hundreds of billions of parameters, as well as eight vertical models. We also introduced a one-stop model application development platform, Alibaba Cloud Bailian. In this AI era, we now have in place a full-stack cloud computing system for AI development and are ready to better support demand for AI-driven computing power.
This quarter, we began proactively managing the quality of our Cloud revenue, and achieved enhanced profitability. Alibaba Cloud has advantages in terms of its pricing power, high renewal rates, and highly scalable cloud computing infrastructure and application service products. Going forward, we will be selective about all of our products and business models: we will reduce project-based revenue exposure, invest more in core products for public cloud, and continue to enhance the cloud business’s revenue quality. By prioritizing public cloud, we will continue to reap scale effects and technological dividends.
Going forward, we are extremely optimistic about the long-term development prospects of the AI+cloud computing combination.
Global Development Strategy
We are convinced that there is huge growth potential in international markets in the coming years. Our core strategies include building a world-leading digitalized supply chain network.
Alibaba already boasts the richest supply assortment in the world plus an initially completed “cross-border + local” global logistics network. Over the next few years, we will accelerate our efforts to build a world-leading digitalized supply chain network leveraging multiple world-leading merchandise centers + our high-efficiency logistics network covering major international markets.
Second, building world-leading AI + overseas digital retail technologies. Within Alibaba International Digital Commerce, we will build unified core technology capabilities for AI + digital retail, to drive efficiency enhancements and user experience innovations across platforms and regional markets. For example, by leveraging AI and other technologies to solve for translation across languages and transnational customer service, we can empower large numbers of merchants to truly make the leap from local to global. This represents a huge market opportunity and dividend.
Thirdly, achieving breakthroughs in key emerging regional markets in the next few years. At present, Alibaba International Digital Commerce has relatively high penetration of users in just a few regional markets such as Southeast Asia and Turkey. There is huge potential to grow user penetration in the majority of international markets. Leveraging our existing resources and footprint, we will scale up our investment in selected high-potential regional markets and capitalize on highly certain growth opportunities.
Cainiao continues to focus on building out its global smart logistics network and on reinforcing its end-to-end capabilities in cross-border logistics solutions. Revenue maintained relatively rapid growth this quarter.
Over the next three years, Cainiao’s core strategies will be:
- To accelerate construction of its global smart logistics network, scale up its investments in technology, grasp the historic opportunity of cross-border e-commerce growth, and achieve rapid growth in its international business by offering innovative products for cross-border ecommerce platforms and merchants.
- To continue to differentiate itself in China and maintain healthy business growth, Cainaio will continue to empower the industry with technology capabilities, helping brands and manufacturers to achieve higher levels of logistics digitalization and intelligence, and providing brands and consumers with high-quality, multi-platform, all-channel supply chain and logistics solutions.
Local Services Group Grows
This quarter, the Local Services Group achieved 16% year-on-year revenue growth, further improvement in business scale and efficiency, and both quarter-on-quarter and year-on-year growth in AACs (annual active consumers).
Over the next three years, location-based technology services will continue to evolve and develop rapidly across a wide range of sectors, benefitting all different kinds of businesses – not just those in the sectors that everyone is paying attention to today, such as to-home food delivery, restaurant dining, and mobility, and not only in to-C businesses.
We expect to see relatively fast growth in demand for location-based technology services from to-B businesses. Accordingly, the Group will continue to invest resolutely in location-based technology services, in both of its core local services businesses: Amap will primarily develop mobility and to-destination technology services, and Ele.me will primarily develop on-demand to-home technology services.
At the same time, the Local Services businesses will take advantage of opportunities to innovate their applications and enhance their capabilities leveraging AI. The standard of success will be “advancing together with the ecosystem”.
Digital Media Shines
The Digital Media and Entertainment Group achieved healthy growth in its revenues this quarter, with enhanced synergies across its different businesses. On the back of a strong recovery in the offline cultural consumption market, Damai recorded strong GMV growth this quarter, with continued year-on-year improvement in profitability. On Youku, the total number of interactions during paid online broadcasting of live performances set a new record. And two films co-produced by Alibaba Pictures occupied the top two spots for box office receipts during the summer season.
Over the next three years, DME’s core strategies will include the following:
- Leveraging AI and other technology innovations, DME will achieve standardized, process-based, digitalized film and drama show production capabilities within three years. We will cultivate next-generation content creators and promote the upgrading of the entertainment industry. We will launch innovative new consumer applications that will expand the boundaries of the business.
- Youku will remain committed to its top-quality content strategy while increasing the ratio of self-produced content, and will build stronger mindshare with its users with stable output of exclusive content. Alibaba Pictures will maintain its advantages in offline scenario coverage and market share, and will continue to produce top-quality films, performances, and other self-produced content. As a leading digital media and entertainment company, Alibaba’s DME Group strives to achieve overall stable profitability as soon as possible.
As previously announced, the Alibaba Group will continue to invest in and incubate strategic-level innovative businesses for the future. We have clear-cut selection criteria for such businesses: a sufficiently large addressable market; unique positioning in the market; and alignment with user demand trends and the group’s strategy of driving growth with AI.
Today, allow me to introduce to you our first batch of these strategic-level innovation businesses. They are: 1688, Xianyu, DingTalk, and Quark.
1688 is Alibaba’s oldest business, serving mainstream manufacturers in China, and has a solid foundation and huge potential to reinvent itself for this new era. Specifically, it can leverage China-manufactured products, the most competitive anywhere, to expand from B2B into SME and consumer procurement, and it also has the service capabilities to support cross-border transactions.
Xianyu (aka IdleFish) is the most popular second-hand goods trading platform among young Chinese consumers. But we see IdleFish as being much more than that in the future. It can become a lifestyle platform for consumers’ hobbies and interests.
With the advent of the AI era, there is now unprecedented scope for imagination about the future of DingTalk, the most effective enterprise productivity tool in China. In the future, we believe that every individual and every enterprise will have a personalized smart assistant powered by AI. DingTalk has the potential to become the best AI smart assistant platform for users.
Quark is a search and knowledge product that is very popular with youth. In the large model era, we believe that Quark has a tremendous opportunity to create a revolutionary search product for students and young people.
The strategic-level innovation businesses that I have listed out above will, in organizational terms, operate as independent subsidiaries and will not be constrained to their previous positioning within the Group, enabling them to face the larger market with their own strategies.
The Group will make continued investments in them over a three to five-year period. In this exciting AI era, Alibaba will resolutely devote itself to driving the technology revolution and product innovation, will continue to incubate innovative businesses and technology products, and will meet new expectations and new demands of this growing market for products and services.
Competition in the Internet and technology sector is a never-ending game. No product ever enjoys a long-term moat. Any successful technology company must have the capacity to transition across technology cycles.
For 24 years, Alibaba has firmly grasped development opportunities in the PC era and in the mobile era. Along the way, we have had successes, as well as failures; we gained experience and learned lessons. Today, Alibaba has grown into a diversified business group with annual revenues of $125 billion and free cash flow of $27 billion. We are privileged to serve and support transactions and fulfillment for tens of millions of SMEs. We own the third-largest cloud computing platform globally, and the deep convergence and flywheel effect of AI+cloud computing will be an important impetus and advantage for our future development.
Today, we stand at the beginning of a new era of technology centered on AI. The next decade will bring dramatic changes worldwide, creating immense uncertainties and opportunities in parallel. Alibaba is embarking on a new entrepreneurial journey and is fully prepared to devote its all to driving technological transformation.
We possess sufficiently advanced resources, strong cash flow, agile governance mechanisms, and a strong talent pipeline. We are confident that we can both unleash new momentum in our existing businesses and create fresh new growth opportunities.