After outlining the organizational structure, BABA-SW is ready to work hard for another three years (minutes of phone meeting).

Below is the summary of Alibaba's conference call. For financial report interpretation, please refer to "Always Grinding but Never Shining? Alibaba is Really Trying This Time!".

1. Management Overview

Looking at the macro environment in China and globally, we see challenges and opportunities in the uncertainty of economic recovery, and the international macro environment is highly uncertain. At the same time, we see market opportunities in the post-epidemic recovery of Chinese consumption and the rapid development of artificial intelligence. We will continue to execute our three core strategies in consumption, cloud computing, and globalization to address these opportunities.

In the past few months, we have noticed that Chinese consumption is gradually recovering, but consumer confidence and purchasing power still need further impetus. At the same time, competition among multiple consumer platforms remains fierce, and everyone is trying to capture incremental demand with more value-for-money, better products, and better services. In such a fiercely competitive market, we will focus on the following areas:

First, acquiring and retaining high-quality users.

Second, maintaining our platform's differentiated consumer mindset.

Third, and most importantly, creating new demand through supply-side innovation.

In international business, we will focus on building core capabilities to support the sustainable development of our international business and leverage the unique advantages of China's supply chain to serve global consumers.

In the field of cloud computing, the progress of industrial digitization and the emergence of AI have raised higher requirements for computing power, and the basic model has expanded the application of AI in all aspects of life. Alibaba Cloud will seize these historical opportunities and maximize its market potential.

In March of this year, we announced a major organizational transformation, restructuring Alibaba Group into six business groups and other investments - we are transitioning from operating multiple group businesses to a holding company focused on capital management.

Each business group will operate with a high degree of independence, led by its own CEO, and will be fully responsible for the company's performance under the supervision of its own board of directors. Today, we also announced the board of directors and CEO list for these six business groups, which were recommended by Alibaba's partners and approved by our board of directors.

We believe that this transformation will make all of our businesses more agile, enhance decision-making capabilities, respond to market chains more quickly, promote innovation to capture opportunities, and release shareholder value.

Starting from this conference call, we will invite CEOs of each business group to participate in the financial report conference call in rotation and share their business strategies and thinking behind them.

As an important step in our organizational restructuring, we are establishing a new governance framework under the 1+6+N structure. Under the new governance framework, under the leadership of the business group's board of directors, quasi-business group CEOs will be responsible for overall operational results and compliance, and will clearly reserve a list of matters to require approval by the Alibaba Group's board of directors. These reserve matters include annual plans and budgets, appointments and evaluations of business group CEOs, major capital transactions, business cooperation and data sharing mechanisms within Alibaba Group, compliance, supervision, etc.

To ensure the implementation of risk management and compliance requirements under the new governance structure, we have obtained all approvals to establish a new Compliance and Risk Committee, which will be responsible for overseeing the Group's compliance and risk management in areas beyond financial reporting;

In addition, to adapt to our new role as a holding company, we have also established a Capital Management Committee under the Alibaba Group Board of Directors, with the aim of enhancing shareholder returns for the Group.

The committee oversees the major capital management affairs of our various business groups. As the restructuring plan progresses further, we have formulated different capital management plans based on the development stage, business needs, market environment, and risks faced by each business group. We announced several latest developments today.

First, we plan to fully divest Alibaba Cloud Intelligence Group and complete its public listing as an independent company within the next 12 months. Alibaba Cloud Intelligence's business model, customer profile, development stage, and relationship with other consumer-centric businesses in the Alibaba ecosystem are fundamentally different. Complete independence will enable Alibaba Cloud Intelligence to further refine its strategy, optimize operations, and organization.

Second, Hema and Cainiao have established differentiated customer value propositions, stable and broad business models, and clear paths to profitability over the years. We believe that these two companies are ready for listing. Our board of directors has approved the plan for Hema Fresh to initiate the IPO process, and Cainiao will complete the IPO within the next 12 to 18 months.

Third, Alibaba International Digital Commerce Group will explore raising external capital to support business expansion in global markets. The success of the above transactions depends on various factors such as market environment and regulatory approval.

Overall Capital Allocation Strategy

We have established a Capital Management Committee to undertake a comprehensive capital management plan to enhance shareholder value. During the restructuring process, we will work closely with the newly established committee to explore and execute all options that may release the value of Alibaba Group. Under the leadership of the Capital Management Committee, we are committed to improving shareholder returns and executing a strong capital allocation framework as a holding company focused on three priorities -

1. Our balance sheet and cash position advantages are competitive advantages in uncertain environments. Although we maintain a cautious attitude towards capital structure, we will focus on improving the return on investment capital when managing company assets.

2. We will design, review, and implement earnings per share (EPS) growth initiatives, including continuous share buybacks to reduce our outstanding share count while maintaining discipline in administering employee shareholding plans.

3. We will explore all options to increase shareholder returns by improving asset value transparency and returning capital to shareholders, including subsidiaries, fundraising, IPOs, and spin-offs. Specifically,

In the future, our main source of funding will come from Taotian Group, which will continue to be our core holding and 100% ownership. Taotian Group generates a large amount of free cash flow every year, which will be provided to Alibaba Group.

In the 23rd fiscal year, we generated $25 billion in free cash flow from this business contribution, and we believe it will continue to generate strong free cash flow in the future.

In the future, due to the restructuring, our additional source of funding will come from the monetization of our merged business. As mentioned earlier, our board of directors has approved the following transactions as the initial stage of our capital management plan:

First, for Alibaba International Digital Commerce Group (hereinafter referred to as AIDC), because we have confidence in its opportunities and growth facts. This financing will help the business group expand into new geographic markets, invest in new technologies, expand its consumer and supplier base, strengthen its management team, and develop and improve its products and services for global customers.

Second, we are exploring the IPO of Cainiao as a small logistics group. The group provides supply chain, logistics, and delivery services to Taotian Group, AIDC, and third-party customers. Alibaba Group holds 67% of the company's shares.

Third, we are launching the IPO process of Freshippo (hereinafter referred to as Hema Fresh).

It is important to note that in addition to Taotian Group, these businesses and other subsidiaries have a limited time to evaluate themselves as capital of Alibaba Group, including equity injections and all market-based credit arrangements.

After that, each company should have its own independent financing capabilities, which may improve the ability to raise private equity, issue debt, and all public listings. We believe that the successful completion of these transactions will further optimize our capital structure, strengthen our cash position, and enable us to use it for shareholder returns.

We are committed to carrying out activities to increase earnings per share to improve shareholder returns. In the 2023 fiscal year, we repurchased 129.9 million American Depositary Receipts for approximately $10.9 billion, accounting for 44% of our free cash flow. From April 1 to May 17, we repurchased an additional $2.3 billion in American Depositary Receipts. Currently, we still have approximately $17.1 billion in unused funds, which will continue to be executed according to the stock repurchase plan.

During the restructuring process, each enterprise group will have its own employee stock ownership plan, which will link the interests of management and employees with corporate performance and equity value creation.

In addition, as long as the enterprise group remains a major shareholder of Alibaba Group, the asset management committee will review their proposed annual employee stock ownership plan, with the aim of striking a balance between potential dilution of Alibaba Group shareholders and providing attractive incentives to attract and retain talent for enterprise groups.

Finally, as announced, our board of directors approved the full spin-off of Yun Intelligence Group by distributing dividends to shareholders. Prior to the spin-off, we plan to bring in external strategic investors through private financing for Yun Intelligence Group. Regarding the spin-off, Yunxiang Group plans to become an independent listed company. The spin-off will depend on the restructuring of some assets, liabilities and contracts, the implementation of employee stock incentive plans, market conditions, and regulatory reviews and approvals in relevant jurisdictions.

Based on the above transactions, conditions and approvals, we intend to arrange the spin-off for shareholders in the most tax-efficient manner. Our goal is to complete the spin-off within the next 12 months. We believe that the successful execution of this plan will further unlock value for Alibaba shareholders.

Analysis of Business Unit Spin-off

Taobao Tmall Business Group (Taotian Group) - Dai Shan

In the new year, we also saw positive momentum in the Chinese economy, with GDP growing 4.5% year-on-year in the first quarter and consumption moderately recovering. From our perspective, after the epidemic rebounded in January and the subsequent Lunar New Year, we saw year-on-year growth in users and GMV on the Taobao app from February to April, and EBITDA was also good. In addition to these macro factors, our efforts in cost optimization and efficiency improvement, as well as the returns from the 5 battles we are currently engaged in, are also an important part of it.

In addition, we see many positive factors developing. Although the demographic dividend is weakening and competition is intensifying in the e-commerce field, consumers' demand for more diversified products is constantly growing, and technological progress is creating many new opportunities. Therefore, in the new fiscal year, we have adjusted our strategy and formulated new development plans. I believe that these measures will enable us to take advantage of the recovery and consumption, seize the opportunities brought by market development and technological progress, further consolidate our leading market mission among consumers and merchants, and achieve exciting new breakthroughs in user experience.

First of all, based on our attempts in the past two years to new interactive forms and content, we are more certain that in addition to shopping, consumers want to find more diverse and diversified content on Taobao, including encyclopedia knowledge related to shoppers, lifestyle recommendations, and even interactive entertainment. The hundreds of millions of long-tail keyword searches performed by users every day also confirm this.

Therefore, in the next few years, Taobao will make large-scale and continuous investments to meet users' diversified needs in all aspects of life. This will include further investment in enriching and diversifying product categories to create richer and more differentiated content, introducing new interactive entertainment scenarios, and accelerating the growth of user scale and user spending time to consolidate its position as China's most widely used online market. Taobao will gradually upgrade to an uninterrupted consumption and lifestyle platform.

Second, by opening up and upgrading the organizational structure on the supply side, we will build a prosperous ecosystem. For example, we have established a small and medium-sized enterprise development center, dedicated to supporting start-ups and small and medium-sized merchants, helping them provide more diversified supply on the platform. Our grocery store business development center is committed to allowing users to purchase fresh food faster and more cost-effectively on the application side. Our live broadcast and content team will provide strong support for content creators. Thirdly, we will use technological advancements to reduce the operating costs of merchants. With the help of artificial intelligence and other technologies, Taobao APP will be upgraded to meet the needs of a wider range of users. Therefore, in the future, we will be more focused on technological investment. Taobao is built on the technology and data capabilities of the entire group. We will upgrade existing merchant tools, create new tools for merchants, create new lifestyle scenarios for users, and usher in a next-generation end-user experience.

In summary, our strategy is user-centric, building a prosperous ecosystem, and achieving technology-driven innovation. Our core goal is to continue making Taobao the number one consumer platform with the most users, while upgrading the platform to meet a wider range of needs.

Undoubtedly, this means that over the next 18 months, we will reduce the operating costs of merchants, increase investment in users, merchants, and technology, and provide users with high-quality products, content, experiences, and services.

I believe that with our strong growth momentum, as well as the network and scale effects we bring, and our new methods, we will definitely bring the greatest value to merchants. This means that we will continue to maintain a leading position in business scale, and on this basis, we can clearly foresee that platform investment returns will increase in the medium and long term, and I am confident about this. Therefore, in the next three years, I will firmly, continuously, and significantly invest in achieving the above three strategies and achieving continuous user growth.

Alibaba International Digital Business Group - Jiang Fan

The newly established Alibaba International Digital Business Group includes a variety of business models and operates in different countries. In the B2C retail field, we have a series of digital retail platforms with local business models, including Trendyol, Daraz, and Lazada. In addition, we also operate multiple cross-border B2C platforms, including AliExpress and Tmall Global. We also have Alibaba.com - a global B2B trade platform serving the wholesale industry.

In the past quarter, the international business sector has shown rapid growth momentum.

AliExpress officially launched a new service called "Choice" based on the global AliExpress delivery model. It provides consumers with value-for-money product choices and better services, further enhancing the consumer experience. AliExpress maintained rapid overall growth after the February 2023 earthquake in Turkey. Trendyol and Alibaba Group actively provided relief support. Although our business in Turkey was affected in the short term, it quickly recovered and achieved strong growth, with some orders increasing by more than 27% year-on-year.

In Southeast Asia, Lazada's monetization rate continues to increase, achieving a good balance between business scale growth and operational efficiency improvement. Overall, after a challenging year, our international business has recovered and returned to a path of overall growth. Looking ahead, we will continue to invest in cross-border and local retail models. With the launch of our curated service "Global Speedy AliExpress," our cross-border business still has great potential for development. The user experience has been significantly improved, and we expect the business to continue to grow rapidly.

In terms of local commercial operations, we will continue to invest in the Southeast Asian market while actively seeking opportunities in other new regional markets. In the B2B wholesale field, we have upgraded our existing model multiple times, expanding from transaction services to other value-added services such as finance, logistics, and digital SaaS services. We believe this will keep our wholesale business healthy and growing in the coming years. Additionally, we will actively expand our business model to other markets.

• Zhang Yong, Alibaba Cloud

Last quarter, our cloud revenue decreased by 2% year-on-year. This was partly due to the impact of the COVID-19 outbreak in China in January, which also affected public cloud consumption this quarter and delayed the delivery of certain hybrid cloud projects. In February and March, with the easing of the epidemic, remote work and school activities decreased, and the demand for services such as CDN also decreased significantly.

If we look beyond the short-term fluctuations in cloud revenue and review the development of Alibaba Cloud over the past 14 years, as well as the rapid future of cloud development with the rapid development of artificial intelligence, we see enormous market potential and are confident in the future of the cloud. We have come this far because Alibaba Cloud has seized two historical opportunities. One is the rapid development of mobile internet in China, and the other is the digital transformation of traditional industries. With industry-leading technology and products, Alibaba Cloud has established a market-leading position in China and even globally by supporting the growth of numerous digital native enterprises and the digitalization of numerous industry customers.

Today, the era of artificial intelligence brings two new historical opportunities to Alibaba Cloud.

First, the emergence and widespread application of artificial intelligence, large models, and various vertical models have put forward new requirements for computing power. For Alibaba Cloud, this is a huge first-mover advantage because we have already established a fairly large channel to provide stable, secure, high-performance, and low-cost computing services. We hope that Alibaba Cloud's services can not only support our self-developed basic model but also support the training and services of other large-scale and vertical models in the market. Today, we are the leading provider of large-scale high-performance computing services based on public cloud. Leveraging this technological advantage, we are working with enterprise customers and entrepreneurs to support their needs for model training and services.

The second opportunity is to establish a service or quality model based on our own and some of our own. We hope to provide our proprietary basic models to the public while supporting our customers, partners, and developers to create the vertical models and services they need based on our basic models. In April of this year, we released a large-scale language pre-training model called "Tongyijianwen." Currently, more than 200,000 customers have applied to try it out, and we have begun working with several industry partners to develop products based on vertical models. We also plan to launch cloud products and enterprise solutions based on this model. 同时，大模型的出现也为 AI 与阿里巴巴集团内部各项业务的整合带来了新的机遇。从钉钉开始，我们相信所有面向客户的面向消费者的业务都可以通过大模型进行重塑，为用户提供全新的基于人工智能的服务体验。陈文，一个大型语言模型只是我们讲道模型系列中的一个成员。我们计划在不久的将来发布系列中其他一些大型机型。

作为一家云计算产品公司，阿里云致力于投资云计算、大数据和 AI 的核心技术开发，让计算更具包容性，让 AI 更容易获得。最近，我们推出了一系列新的产品和定价政策。我们相信这些措施可以进一步扩大我们公共云服务的客户群和云消费，并推动人工智能模型培训和相关服务所需的高性能计算能力的使用。这将为阿里云的长期发展提供更健康、更可持续的增长动力。

** 二、分析师 Q&A**

Q1：关于重组后 CMR 相关的投资战略如何选择？最大化 GMV 增长以求增量利润，或者求稳寻找平衡保持领先地位？

A1：我们一直坚信，以终为始，所有中短期的投入方向的力度将取决于长期我们又去往哪里。而现在全球经济环境充满极高的不确定性，科技创新和发展是日新月异的，那作为经营者，需要在大周期下有更长远的规划。如我之前讲到，在看到未来的 3-5 年，淘宝一定是坚持用户为先，生态繁荣和科技驱动，从交易走向消费，从消费走向生活。现在我们在互联网电商领域，用户和商家规模都是第一阵地，但是竞争非常激烈和残酷，因此

如果上面所讲，我们将全力加大对用户增长和生态繁荣的投入。在我的经营理念里面，

take rate 更偏向是一个平台经营的健康度指标，是用来衡量商家，既包括货品售卖的商家，也包括内容创作者对我们平台的信心指数和认可度。

至于 CMR 则是用户规模、商家规模及信息指数交互以后的结果，所以我们更希望是更多的用户来，也吸引更多的商家进来，在未来主要是通过用户和商家规模的增长以及技术进步来驱动平台营收的长期增长。

Q2：关于阿里云，日前降价行为带来反馈如何？期望效果如何？能否保持 IaaS/PaaS/SaaS 的领先地位？营业利润如何展望？

A2：最近价格的策略引起市场很大的关注，其实也获得客户很好的反响。其实我想我们 ** 整个的价格策略的主动调整还是基于一个目标，就是让算力更普惠 ，其实还是要让更多的中小企业，特别是开发者更好的来使用云计算， 降低使用的门槛 **。所以我想出发点意义上我们可以看到对我们增加对中小企业的覆盖，和获得更多的开发者、大学生的使用，其实都有很多的帮助。对我们的不仅是在发展行业客户、重点客户上、大客户上，而且对于客户的基础的培养我觉得是有一个长期的帮助。 Secondly, the pricing policy is based on the scale effect of our cloud computing, especially public cloud. As a leading enterprise in the field of cloud computing, Alibaba Cloud needs to fully leverage its technological advantages to reduce costs and provide better value to customers. This is our established business strategy, and the price adjustment is based on this consideration, which can ultimately translate into customer value.

Today, Alibaba Cloud is leading in IaaS/PaaS/SaaS in China. Although many players are entering the cloud market, we insist on public cloud and providing cloud services in the middle. Our public cloud revenue accounts for a significant proportion of our overall cloud revenue, which is significantly higher than the industry average. We have also increased the proportion of high-quality revenue brought by our core products in IaaS and PaaS through various adjustments. Only in this way can we obtain the scale effect, cost reduction, and technological dividends brought by cloud computing.

Of course, the latest development of AI provides us as cloud computing vendors with new opportunities. With the deepening of AI development, the demand for computing power will increase exponentially, especially for high-performance computing power, which is a public infrastructure resource. Therefore, we must be fully prepared to serve the new era of AI.

The large models brought by AI, whether basic or industry models, actually provide us with more opportunities to provide cloud-based intelligent products, bringing new product and industry opportunities. Therefore, for the cloud, there are two major opportunities: the improvement of computing power and the expansion of product lines.

As for profit margins, in the early stage of cloud computing, especially with the huge opportunities brought by the development of AI, our profit margin still has a big gap compared with the world's leading cloud vendors. However, we believe that this gap is our opportunity. With the expansion of our scale, especially the core technology and technological improvement, we hope to achieve better scale profitability, including improving profit margins. We are confident about this.

A3: The main purpose of our newly established asset management committee is to improve our returns. The spin-off of cloud business is not only based on its business characteristics and needs (we believe it is very different from many consumer businesses of Alibaba Group).

We also hope to take advantage of this spin-off opportunity to adjust the shareholder structure, introduce some strategic investors, and lay the foundation for the next step of cloud development, including market expansion. So this is indeed a major decision for us. Of course, we will fully consider the interests and values of existing shareholders, including the need for various arrangements including taxation, to ensure that our restructuring plan can maximize shareholder value.

In terms of the disposal/control ratio of assets, we still follow our three major strategies - consumption, cloud computing, and globalization. Among them, globalization revolves around the globalization of commercial digital, commercial logistics, and cloud computing. I think these three pointers have already told us clearly where our strategic assets and businesses are, which can be clearly explained to the market.

Under these three strategies, we still have multiple means in the capital market. I think the most important thing is to benefit the development of the business, whether it is to continue to hold the majority of shares or a smaller percentage. For example, if a business can develop more independently, we will resolutely let it go to the market for more independent development. Even if another Alibaba can emerge from within Alibaba, let it grow from today's small Alibaba to tomorrow's big Alibaba.

If a business has clear target markets, clear customer groups, clear business models, and clear core capabilities, and these four aspects can form a closed loop, it can go to the market more independently. Today, we also consider the cloud from this perspective, so we firmly believe that Alibaba Cloud today can become a company that is even larger than Alibaba tomorrow.

Starting from the restructuring in March, the change in our strategic perspective is from an Alibaba Group with diversified businesses to multiple groups with their own focused business tracks. This is our goal, and we also believe that this will make our strategy more focused, our ability training more focused, and ultimately benefit our customers, employees, and maximize shareholder value.

Q4: How is the growth rate of Taobao and Tmall in the e-commerce sector? What are the business prospects for this year?

A4: In the business of Taobao and Tmall in China, the results in March and April were quite good, especially the growth of users and orders. There are several reasons. I think the first is the slow recovery of the entire economy after the first quarter; the second is that the cost reduction and efficiency improvement actions we did before are long-term effective, and we have seen the results in these months.

Another reason is that under our three major strategies of putting users first, promoting ecological prosperity, and driving technology, our investment in users, merchants, and technology has just begun. As I mentioned before, I have made overall planning and management for a three-year cycle. Under the three-year planning goals, the most important goal this year is still investment in users, merchants, and technology, and I believe that the growth of users and merchants will definitely bring us growth in scale.

Q5: Regarding the overall strategy of AIDC (International Digital Commerce Group), do you focus on growth or seek a balance between profit and growth? A5: Regarding AIDC, we actually have many different business models in different regions. Today, we already have many businesses that have very good profits, and of course, there are also some that are still in the investment period.

Secondly, there is still great potential in the overseas retail and B2B digital trade sectors. We will definitely continue to invest in some opportunity markets and business models, and of course, we will continue to optimize and improve the operating efficiency of our existing businesses. We also take a very long-term view of overseas business, and we will dynamically assess the investment and profitability of our different businesses.

Q6: Is there a more detailed consideration for the spin-off of the cloud? For example, will Alibaba's shareholders hold the equity of Alibaba Cloud directly in exchange for liquidity?

A6: There are indeed various practical special situations that we need to consider for the spin-off of our cloud. So I think what we can tell you is that we will carefully consider the overall plan and take into account the considerations of more investors. Ultimately, we hope to give shareholders a return, so I think today I may not be able to share with you too much about our detailed plans, and we will wait for further updates.

Q7: Regarding capital management, is dividend or buyback the first choice?

A7: We just talked about the spin-off of the cloud, and we will use the form of dividend. Of course, overall, whether buyback or dividend is better, I think there may be different opinions in the market. But as I just introduced, our capital management committee will evaluate the overall situation well and find the best way to balance the interests of our investors. Whether it is buyback or dividend, we will explore all possibilities to consider other ways to give shareholders a return.

Q8: What is the capital treatment for the listing of subsidiaries? For example, if Hema goes public, will the group use equity/sell existing shares to promote cash flow into the group?

A8: Regarding the entire IPO plan of Hema, I think what we said today is that we hope to complete the IPO of Hema in the next 6 to 12 months. The details of the entire IPO process of Hema are still in the planning process, so today I may not be able to share with you too much about the current considerations and some details.

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