Alibaba: Initial investment has shown results, with subsequent profits gradually catching up
The following is a summary of Alibaba's fourth quarter 2024 earnings conference call. For an interpretation of the financial report, please refer to " Alibaba's Big Surgery: Is Alibaba Really Back on Track with Aggressive Investment and Downsizing? 》
I. Review of Key Financial Information:
II. Detailed Content of the Earnings Conference Call
2.1. Key Points from Executive Statements:
- Business Overview:
① Business Growth: Alibaba's core business has experienced healthy growth after several quarters of adjustments. The group achieved double-digit year-on-year growth in GMV this quarter, with a 45% increase in international digital commerce revenue. Public cloud products and AI-related revenue also showed strong growth.
② Taotian Group: Continuously implementing a user-centric strategy by optimizing the supply chain, providing quality products and services to meet the diverse needs of Chinese consumers. Investments in price competitiveness and user experience have received positive feedback, with growth in buyer numbers and purchase frequency driving double-digit growth in GMV. Benefits for 88 VIP members have been enhanced, with membership exceeding 35 million. Looking ahead to the 2025 fiscal year, with the continuous improvement of the shopping experience, GMV is expected to resume healthy growth, while new monetization mechanisms will be introduced to enhance revenue.
③ Alibaba Cloud: Continuously improving user-first platform products and investment strategies, adjusting Alibaba Cloud's AI-era product strategy, optimizing revenue quality, and globally reducing the pricing of public cloud products. Due to strong demand from various industries, including basic model companies and internet companies, AI-related revenue continued to achieve triple-digit growth. It is expected that the increasing demand for AI will stimulate more traditional cloud computing demand, hence significant investments are being made in AI infrastructure to seize this huge opportunity.
④ International E-commerce: AIDC's revenue and order volume both achieved significant growth, thanks to the continued focus on expanding cross-border retail business and enhancing consumer experience. In March, the IPO of Cainiao was withdrawn. The company will continue to support the expansion of Trendyol's global logistics network.
- International Digital Commerce:
① Business Growth and Strategy: Despite facing intense market competition this quarter, AIDC achieved a 20% increase in orders, especially significant growth in cross-border business.
② Upgrade of Supply Chain Services: AliExpress shifted from a traditional platform model to a mixed business model driven by supply chain efficiency, improving user experience and increasing order share through Ali Choice.
③ Product and Technology Innovation: Continuously optimizing product displays and user experience through AI and intelligent technology, enhancing localized experiences for consumers in different countries. At the same time, using AI to help small and medium-sized enterprises improve operational efficiency④ Continued growth in key markets: Strengthening Trendyol's brand awareness and market share through investments in key markets such as the Gulf region to drive user base and user support growth.
⑤ Operational efficiency and financial performance: Further promoting business growth and reducing losses through operational efficiency optimization and investments to ensure sustained market leadership.
- Financial Highlights:
① Shareholder returns: Repurchased approximately 1.25 billion common shares worth USD 12.5 billion. Announced an annual cash dividend of USD 1 per ADS for the 2023 fiscal year, totaling approximately USD 25 billion. Approved an annual cash dividend of USD 1 per ADS and a one-time special cash dividend of USD 0.66 per ADS for the 2024 fiscal year, totaling approximately USD 40 billion.
② Capital returns: Returned approximately USD 16.5 billion to shareholders in the 2024 fiscal year, exceeding the USD 13.4 billion in the 2023 fiscal year.
③ Listing plan: Preparation for a major listing in Hong Kong, expected to be completed by the end of August 2024.
④ Future outlook:
- Improved user experience on domestic e-commerce platforms is expected to support GMV growth in the 2025 fiscal year.
- Alibaba Cloud business is expected to resume double-digit revenue growth in the second half of the 2025 fiscal year.
- AIDC business continues rapid growth while improving unit economic efficiency.
2.2, Q&A Analyst Q&A
Q: How should we interpret the difference between CMR and GMV growth after the launch of the full-site charging feature, and does this mean that the company will reinvest part of the CMR growth in business development or increase profitability?
A: In this quarter, our GMV achieved double-digit growth, especially among merchants on the Taobao and Tmall platforms. This indicates that our strategic execution has been effective, and the company has successfully resumed growth, which is a positive signal. In addition, we are strengthening and gradually launching new monetization products with the aim of improving return on investment, enhancing penetration of small and medium-sized enterprise merchants, and promoting their investment in monetization products. Although product promotion takes time, we expect these efforts to start showing results in the second half, especially in the second quarter.
Full-site promotion is a product we are currently focusing on developing, aimed at simplifying the advertising placement process for small advertisers to promote their business growth. Currently, we are testing full-site promotion on a small customer base, primarily to optimize business growth while ensuring advertising ROI. To achieve this goal, we are adjusting and training algorithm models to improve the efficiency of ROI assurance. While this process takes time, we have identified the path to implementation. Upon official launch, we expect to take about 12 months to expand the customer base and optimize traffic matching for different industries and user groups.
**Q: With the expected double-digit growth in the second half, what proportion of revenue from cloud business is expected to come from AI-related products, public cloud services, and private cloud services? Is the share of private cloud services decreasing?A: Currently, the growth of cloud business revenue is mainly driven by AI and its related new products. With increased customer investment in AI, it is expected that the incremental growth of cloud business will be closely related to AI. The use of AI will also increase the demand for other cloud services, mutually promoting each other. Although other parts of the cloud business have achieved double-digit growth, low-profit project-based businesses have partially offset this growth. As we gradually phase out low-profit projects, revenue growth is expected to accelerate, primarily driven by public cloud and AI products. We expect the drag effect of low-profit projects to completely disappear in the first to second quarters of the new year.
Q: This quarter, the growth rate of domestic e-commerce GMV has rebounded to double digits. What are the driving factors behind this? How do these factors help us narrow the gap in growth rate with other e-commerce platforms? What measures have we taken in the past quarter to slow down the loss of market share? In the current e-commerce environment, what do we need to do to better compete with other emerging platforms?
A: We are committed to enhancing the user shopping experience, with a key focus on providing high-quality products, reasonable pricing, and excellent service. For different types of product supplies - whether they are branded products, channel distributor products, or industry/white-label products, we adopt differentiated products and strategies to ensure cost competitiveness, attractive prices, and high conversion efficiency. By strengthening logistics and customer service, we aim to increase customer purchase frequency and attract new customers to consolidate our market advantage.
In the fierce competition of the Chinese e-commerce market, Taobao has taken a unique strategic path. We focus on improving the conversion rate of products, which is backed by strengthening price competitiveness and providing better product services. At the same time, maintaining the richness and diversity of the Taobao market is also an important pillar of our strategy. We believe that as the "all-powerful Taobao," among many competitors, we have unique value. Therefore, our goal is to improve product efficiency for core hot-selling products while maintaining market diversity, and through continuous improvement in these two aspects, establish and consolidate our competitive advantage in the Chinese market.
Q: How do we differentiate our platform fees and new marketing tools from those of competitors? What are the differentiating factors of our products? Can you share the key factors and logic affecting the conversion rate of these products?
A: Each platform's commercial products have their uniqueness and need to be designed according to the platform's traffic mechanism, business model, and user base, making direct comparisons not easy. Ultimately, merchants are concerned about the ROI of their investments. Although the user processes and algorithm models of different platforms may not be comparable, merchants will decide on fund allocation based on ROI. Currently, Taobao provides the highest ROI for merchants among most e-commerce platforms.
Q: Regarding CMR growth, a 5% increase and double-digit growth in GMV are both positive. Are there any factors that may hinder further growth of GMV and CMR? What are the current consumer consumption trends? Despite possible macroeconomic constraints, are we still accumulating growth momentum? Can you share the latest trends in GMV growth for April and May?A: Our investment has shown results, with sustainable GMV growth trends. We continued to observe healthy growth in April and May. Regarding CMR, as GMV composition shifts to Taobao merchants and some new business models currently have a low monetization rate, we have room for improvement. With the launch of monetized products, we expect CMR growth to gradually catch up with GMV, although it may lag behind for a few quarters. We remain confident in the effectiveness of our investments, whether in GMV or revenue.
Considering the low base after last year's epidemic lockdown, whether our double-digit GMV growth in March is sustainable reflects certain macro consumption trends. Currently, Chinese households have cash savings of up to USD 19 trillion, indicating consumption capacity, with the key being consumer confidence and future expectations. During the May Day holiday, the service industry grew, and sales of non-essential items such as clothing and electronics on our platform also showed good growth, indicating consumer willingness to spend. Despite the impact of the sluggish real estate market on the macro environment, with local governments relaxing home purchase restrictions, we have seen preliminary signs of growing consumer confidence. Overall, we see positive signals, but further observation is needed on the impact on the macroeconomy.
I want to emphasize that our main goal this year is to invest in product categories, competitiveness, and user experience on Taobao to drive GMV growth and purchase frequency. This is our top priority. Only after achieving this goal will we increase CMR, and CMR growth will be a natural result of these efforts. I am confident that we have the ability to launch advertising products that drive CMR growth. We are controlling the pace of development to ensure a quality experience for merchants and consumers. This year, we are focused on enhancing the consumer experience and growing GMV, and building on this foundation.
Q: Regarding the losses of AIDC, it seems that the losses have expanded this quarter, while Taobao and Tmall are relatively stable. Could you introduce the current investment scale of AIDC?
A: The main reasons for the expanded losses this quarter are twofold: first, we incurred additional advertising and promotional expenses during the peak sales period in the Middle East during Ramadan. Secondly, the proportion of AE Choice orders has increased, while the profit margin of the new model has not fully caught up. We are rapidly optimizing the efficiency of the AE Choice model, and we expect a significant improvement in unit economic benefits in the coming quarters. As the new model stabilizes, we will seek a balance between growth and efficiency.
Q: We understand that AIDC is transitioning from a fully managed model to a semi-managed model, where merchants are responsible for warehousing services. Could you provide some information on this new model?
A: The transition from semi-managed to fully managed models is not directly related to cross-border business, but is determined based on product characteristics and market demand. Some product categories are more suitable for cross-border models, while others may be more suitable for local delivery. We have practices of placing goods in overseas warehouses for local delivery and cultivating local sellers in regions such as the Middle East, Korea, and Europe. We believe that local merchants may have advantages in certain categories, while cross-border models may be more effective in other categoriesWe will continue to adjust our strategy based on consumer feedback and market competitiveness.
Q: The company's current dividend yield is close to 8%, which is related to the company's low valuation and buyback plan. How do you view this strategy? From a long-term perspective, how should we understand the company's shareholder return strategy?
A: Our shareholder return plan is a long-term strategy that started a few years ago and will continue until March 2027. Last year, we repurchased around $13 billion worth of stocks, with approximately $16.5 billion repurchased in the past year, and we still have $30 billion available for future shareholder returns. While considering cash flow and investment needs in core businesses and emerging areas such as artificial intelligence, we will continue to provide returns to shareholders. Our shareholder return plan includes stock buybacks and dividend distributions, and we will take both aspects into consideration.
Q: AE Choice mode accounts for 70% of orders on AliExpress. From a regional and category perspective, what is the long-term development outlook for this business in the next few quarters or one to two years? Can you share more data, such as which markets have seen growth in which categories? Which type of user group has the most potential to become long-term stable repeat customers? Regarding the further investment of the group's Cainiao in cross-border e-commerce, can you provide some specific information? For example, plans for investment in which countries and what types?
A: The AE Choice mode is suitable for light and small goods, especially those with high cost-effectiveness in air transportation, which has always been a strength of AliExpress. We are developing diversified supply chain models for different markets, such as developing sea freight services and local warehouses for South Korea. Our strategy is to start with advantageous categories and then expand the supply chain to meet other market demands. We are also integrating AE Choice through local platforms such as Lazada in Southeast Asia and Trendyol in the Middle East to achieve direct sales in the market, avoiding large-scale brand promotion and marketing investments. Different markets have different advantageous categories, for example, Turkey has an advantage in clothing, but we can also gain advantages in other non-local supply categories. We decide which product categories to introduce based on the resources and demands of each market.
Q: Can you introduce the focus of the large language model you are developing? Is it the model size, number of parameters, or different data types such as voice, text, images, or videos? Is the model aimed at creating AI agents or commercial agents, etc.?
A: Currently, companies dedicated to developing large comprehensive models, including us, are basically pursuing Artificial General Intelligence (AGI). Although everyone's ultimate goal is the same, there are different choices in the implementation path, and some companies may make faster progress in certain vertical areas. We believe that different companies will have different progress speeds and choices on this path, but the ultimate direction is to integrate voice, text, images, and videos through the same system into a large model. This is a long-term development direction.
Alibaba has three main goals in AI and large model research and development. The first is to promote the development of Artificial General Intelligence (AGI). The second is to tightly integrate cloud computing services with our large language model "Tongyi" internally in the company, providing comprehensive software and hardware solutions, combining cloud and AI capabilities to offer customers efficient and cost-effective AI functionsWe believe that companies with two main businesses in cloud and AI are unparalleled globally, presenting a huge opportunity. Thirdly, by supporting other group businesses such as DingTalk, Kaola, and Taobao to develop their own applications through "Tongyi". Our open-source model is the top-notch and widely adopted in the Chinese world, developers naturally prefer to choose Alibaba Cloud Computing for deployment due to its cost-effectiveness and familiarity, showcasing the advantages of the close integration of "Tongyi" and cloud computing.
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