Alibaba Group reported its June 2018 quarterly earnings today. Alibaba Executive Vice Chairman Joe Tsai kicked off the company’s analyst call with his perspective on the quarter. The transcript follows:
Last quarter I talked about three themes in my remarks:
All of these themes continue to play out in the current quarter, and I believe will play out for many years to come as the Chinese middle class continues to grow.
I want to particularly emphasize that Alibaba’s three-pronged consumer offerings in retail, entertainment and local services will be the long-term drivers of value creation as the Chinese middle class expands and more of these consumers demand a higher-quality lifestyle.
The good thing is, our historical strength in e-commerce is giving us a distinct advantage because we have already acquired our customers. To be exact, this quarter we gained another 24 million transacting users to a total of 576 million Annual Active Consumers.
These consumers have made purchases on our platform, not just once or twice but on a regular, frequent basis. The average Annual Active Consumer places 90 orders across 16 product categories per year on our China retail marketplaces. And they trust Alibaba as the company that offers goods and services that provide quality and value for their money.
Because of the loyalty of our consumers, we have the confidence to aggressively invest in new products and service offerings, as well as in innovations and necessary infrastructure to provide them with a better experience.
Whether it is a daily supply of fresh food, catching the latest fashion trends, access to luxury brands, the most popular videos, the most-exciting sporting events or a quick late-night snack delivery, Alibaba is busy at work to satisfy our customers.
We are extremely excited by the flywheel effects of expanding consumer wallet share across our ecosystem. In this past quarter, we saw share gains in core commerce, video subscription growth driven by FIFA World Cup and the integration of food delivery into our service offerings. This has given us substantial confidence in our ability to capture more wallet share.
I want to spend a few minutes on the current trade tensions.
First, what’s the impact to our business?
Alibaba’s business is focused on capturing the Chinese domestic consumption opportunity and is less reliant on Chinese exports. We believe Chinese government policy will continue to support imports into China to satisfy the rising demand of Chinese consumers. This coming November, China will hold the world’s largest import exhibition in Shanghai, which will showcase products from all over the world.
If U.S. goods become too expensive due to tariffs, Chinese consumers can shift to domestic producers or imports from other parts of the world.
In terms of our international expansion, the world is a big place. We have made substantial progress in emerging markets, such as Southeast Asia and South Asia, as these markets are ripe for us to add more consumers into our ecosystem.
When you look at Alibaba’s presence in the United States, our focus is on helping American farmers and small businesses sell their products to Chinese consumers. In addition, as demonstrated by our partnership with Starbucks, we are working constructively with American brands to better serve Chinese consumers.
Next, just a few comments on the macro environment.
It is clear nobody wins in a trade war. Over the years, China has become less reliant on exports so that the Chinese economy can withstand the imposition of tariffs on Chinese products.
The most important point, however, is that the strength of China domestic demand is critical to the stability of the Chinese economy and market confidence. Domestic consumption and investment account for more than 90% of GDP growth.
Domestic consumption is supported by three important trends we have seen over the past several years, which we believe will continue to be the case:
(1) real wage growth with more people joining the middle class,
(2) healthy household balance sheets based on high savings rates and
(3) easier access to consumer credit due to supportive government policy and innovative businesses like Ant Financial.
These are the reasons we strongly believe the Chinese economy, as supported by domestic consumption, will continue to be resilient.