Shulou(Shulou.com)11/24 Report--

On the evening of February 23, Beijing time, Alibaba (NYSE: BABA;HKEX: 9988) today released its financial results for the third quarter of fiscal year 2023 ended December 31, 2022. (note: Alibaba's fiscal year is out of sync with the natural year, starting on April 1 of each year and ending on March 31 of the second year). Alibaba's revenue in the third quarter was 247.76 billion yuan ($35.921 billion), up 2 percent from a year earlier, and the market expected 245.183 billion yuan, while net profit was 45.746 billion yuan ($6.633 billion), up 138 percent from a year earlier, according to the financial report. Without Non-GAAP, net profit was 49.932 billion yuan ($7.239 billion), up 12% from a year earlier.

After the release of the results, Alibaba Group Chairman, CEO Zhang Yong, Executive Vice Chairman Cai Chongxin and CFO Xu Hong attended the subsequent conference call to interpret the results and answer analysts' questions.

The following is the main content of the question and answer session of the analyst in this conference call:

JPMorgan Chase analyst Alex Yao: first of all, I would like to ask the management a question about the long-term strategy. As Zhang Yong said, it has been 24 years since Ali was founded. According to China's computing time, it has already been two rounds. In the past 20 years, the company has led China's digital circulation, digital logistics, digital computing, the next three to five years. Which digital fields does Alibaba plan to be deeply involved in? Or from another perspective, we have seized two big opportunities in the past 24 years, one is e-commerce, the other is cloud, so if we look forward to 3-5 years, are there any tracks or industries with new and great growth opportunities?

There is also a question about the short term, that is, back this year, we saw the rise of new Internet technologies, such as ChatGPT, as well as changes in the competitive environment. For example, JD.com began 10 billion yuan in subsidies. At such a time when opportunities and challenges coexist, how can the company consider further developing its core competitiveness and whether it will further reduce costs and increase efficiency?

Zhang Yong: first, as you just said, in the past 20 years, digital circulation, digital logistics and digital computing are the three things we have done, which also reflects our long-term strategy, that is, consumption. Cloud computing and globalization, our globalization is also the globalization of consumption and cloud computing. Looking to the future, we will continue to move forward under these three top-level strategies, rather than looking for the so-called new strategic track, because we think that the ceiling of these three strategies is high enough and the market is big enough. in today's continuous technological evolution, we can still find great opportunities.

I can explain separately, for example, the consumption track. For China's growth opportunities, IMF estimates that China's GDP will grow by 5% this year. If a similar growth rate can be achieved in the next 10 years, you can imagine how big the absolute value of China's GDP will be at that time. At the same time, one thing is certain: if we want to achieve 5% growth for 10 years in a row, consumption will certainly account for a larger and larger proportion. Of China's current 11 trillion-plus GDP, the total social zero has reached more than 40 trillion, then the contribution of consumption will certainly be even greater in the next few years. In addition, technology brings opportunities for digital mobility, and with the evolution of technology, there will be more in-depth development. E-commerce 20 years ago, and e-commerce 10 years ago, and what we do now, are completely different, especially after the epidemic. In fact, as we said a few years ago, the idea that all retail will be digital has been realized. Facing the future, including the new generation of technology applications represented by generative artificial intelligence, which you just mentioned, will certainly bring brand-new digital forms and user experience, not only the changes on the consumer side, but also the changes in the supply chain. because of the digital and intelligent drive, the deep impact on the supply chain change is just beginning.

In terms of cloud computing, the development of China's cloud computing industry has just begun. Compared with the United States, China's overall IT expenditure accounts for only 1% of GDP, while the United States accounts for 5%. While the proportion of cloud in IT expenditure is 15% in China and 21% in the United States, these are IDC data. Changes in these two proportions alone can bring great opportunities, coupled with the development of today's technology. Including the generative artificial intelligence just mentioned, and the emergence of other advanced technologies, including the virtual reality technology we discussed some time ago and the improvement of related user experience, will bring a huge demand for computing power. The growth in demand for computing power is a geometric growth. As the world's leading cloud computing vendor, we think the game has only just begun. We believe that the theme of consumption and cloud computing, as well as moving towards the global market, all trends appear not only in China, but also in the global trend. in these two tracks, we are both leaders at home and in the first echelon and leading position globally. We are full of confidence in the future, and we will continue to adhere to our existing three strategies unswervingly, firmly move forward, embrace new technologies, use new technologies and businesses. With the breakthroughs of technological boundaries, we will continue to create new prospects for the future.

With regard to the second question, the emergence of new technologies and new market trends, for Ali, we have designated 2023 as the year of progress, and we still have to pursue the progress of technology, the progress of commerce, and the creation of user value. We will still actively invest in new technological areas, create new achievements in the combination of new technology and business, create new value, and create new business with new technology. It is our consistent approach that new technology creates a new future. In the course of Ali's more than 20 years of development, we have not used low-price subsidies and low-level competition to gain a leading position in the market. we believe that technological creation is endless and that technology is never possible, which will make business impossible to possible. we will continue to adhere to our consistent practice and persist in creating a new business future through technological breakthroughs.

Goldman Sachs analyst Ronald Keung:2022 throughout the year, the company has cut costs and increased efficiency, and the overall macro economy has recovered in 2023, so have we now seen consumption, such as platform sales, return to growth? if not, when does management expect to return to growth? In this environment, how should we balance growth and investment this year, because other companies in the industry are also providing subsidies this year.

Zhang Yong: in fact, like everyone else, we are actively paying attention to the changes in consumption after the epidemic. In my opening remarks, I have reported to you in as much detail as possible what we have observed. Generally speaking, in January and even the Spring Festival, there are still challenges, because of the follow-up effects of the epidemic, the population movement of the Spring Festival, and some related challenges. After the Spring Festival, especially after the Lantern Festival, as life and work return to normal, we can see that there are obvious changes in consumer sentiment and the expression of users' active consumption behavior. We have also seen changes in some categories, including the categories I mentioned just now, such as clothing, sports, and outdoor, including health products, are still very popular.

On the other hand, it is the business will of merchants. After three years of uncertainty, I think all businesses and all Chinese enterprises want to do a big job in the new year, not only to get back on track as soon as possible, but also to make up for what has been lost in the past three years. I think this is everyone's common wish, so the business motivation and initiative of businessmen have also been improved. Of course, so far, there is only a little more than half a month, and we still have to continue to observe the following changes, but on the whole, we are optimistic about the overall consumption brought about by this year's recovery.

For competition in the entire market, especially those such as price subsidies, price subsidies are not new, and every once in a while someone will take the initiative to do some price subsidies, hoping to reverse the situation and win the first opportunity through subsidies. However, looking back at history, no company can achieve the goal of changing the situation through its own continuous price subsidies, and ultimately changing the situation depends on technological innovation and the innovation of business mechanisms, which really makes merchants willing to give the best goods and the best prices to consumers. It is impossible for a person to subsidize the whole platform, only if the merchant is willing to pay for his consumers and is willing to pay for them, and this payment has a long-term and sustainable business return, this is a positive cycle.

As far as Ali is concerned, we certainly have our experience in this area, and we will make full use of it. First, price is certainly a very important user experience, but how to make good use of the platform mechanism and make good use of our market resources, including our cash strength, we currently have $55 billion in net cash, but this is not a matter of money. it's a matter of business ability, a problem of technical ability, so we still hope to be able to create value for users in this way. At the same time, we also maintain our market leading position.

Bank of America Merrill Lynch analyst Eddie Leung: with regard to the local life business, I saw that the economic benefits of ele.me became regular, and we also know that there are some short video platforms that provide local life or services in the same city, so the short video platform has actually changed the competitive landscape. As the leading platform for local life services, does the company have any better strategies?

Zhang Yong: we simply divide local life into two categories, one is home service, the other is service to the store or destination, which is actually a kind of service to the destination. Our point of view is very clear. For destination services, any media, including short videos, can actually promote services to the store or offline to the destination. It can be buying coupons, ordering, and booking these services. But it is essentially a media application, and the final implementation of the contract still has to go to the store, so in essence, it is still an advertising business.

From this point of view, we think that the business that goes to the store, any influential media platform, media with users, will find opportunities. As far as Ali is concerned, we find another way to serve at the destination, through Gaud. As I mentioned just now, the transformation of Gaud has progressed very smoothly in recent years. It has successfully moved from just a map tool to a map-based search, to discovery, to transaction, to compliance, such a complete service platform to the destination, whether by taxi or hotel reservation. Including refueling, charging piles, these categories related to car services have been very popular with users and achieved good penetration. So in this respect, we are doing it our own way, and I think this method is very difficult for any other type of media to do.

As for home service, you just asked ele.me, indeed, after several years of efforts, we have embarked on the right track, not only the continuous positive economic benefits per unit, and continue to improve, at the same time, our orders, the number of users and user stickiness, are getting better.

We believe that home service is essentially a local e-commerce, catering takeout is a category of e-commerce, retail drugs, fast consumer goods, food is one of the categories, the ultimate need is local supply, local demand and local performance ability. the complete unity of the three at a specific time, in this case, only has the nature of the media and can not play any leading role. Whether ele.me or other companies, must make efforts on how to integrate local supply, how to operate local demand, and how to build local performance capacity, and these three must be at an intersection of time and space, in space, in time, at a certain point in time, this interaction must be completed to form a chemical reaction. For this point, I think it is only pure media, relying only on the media for promotion. It is very difficult to achieve, and this is also a great confidence of us.

Today, in the cities we mainly operate, we are making good progress. Because of its localization characteristics, it mainly operates 50 cities and 100 cities, and its focus is completely different. We still focus on our key cities, do our things well, win the trust of users, and achieve long-term business growth.

Barclays analyst Jiong Shao: just now Xu Hong mentioned that the company's cash flow exceeded $11 billion in a quarter. We also noticed that the company recently withdrew its shares from businesses including Paytm, and the company also completed a $3.3 billion share buyback in the last quarter. Has the company considered other ways to increase shareholder value and repay parents? For example, have you ever considered paying dividends or increasing buybacks?

Xu Hong: on the first question, you may also see from the media that we will diversify our investment. There is no doubt that we will make a lot of strategic investments and will make a certain exit at the right time. In fact, this is related to the setting of our overall investment strategy, so I think it is quite normal. When we invest, we will also have a certain exit.

With regard to the stock buyback you mentioned, last quarter, we mentioned expanding the share buyback program from $25 billion to $40 billion, and we did almost $3.3 billion in the third quarter. On the whole, stock buyback is a better way to increase shareholder return. At the same time, we still have a repurchase quota of almost US $21 billion, so I think it is not the most urgent to consider increasing the repurchase scale at this stage, but to make good use of the remaining US $21 billion given to us by the board of directors. to do our buyback at the right time, this may be a more important task for us at the moment.

Citibank analyst Alicia Yap: Zhang Yonggang just mentioned that we will invest more energy in some technological innovation and introduce better and new business models. Can you quantify for us, for example, which business we will see a more significant improvement this year, reflected in customer management income, will there be accelerated growth? Or will it be reflected in cloud technology, which will help us get better customers, or will there be significant revenue growth in the cloud business, or will there be an improvement in the technology that drives the growth of the local life business?

Zhang Yong: the pulling effect of technology on business growth, in fact, has been happening all the time, throughout the history of Ali. Looking to the future, I think there are mainly several big opportunities. I think the development of artificial intelligence technology, especially the current development of generative artificial intelligence, has become a craze all over the world, and in this upsurge, the most important thing is not that we have a conversational robot, but how to integrate it into their respective business scenarios. For Ali, in terms of consumption, user experience, content generation and understanding, and the improvement of advertising efficiency, I think artificial intelligence in a broad sense can play a huge role. In fact, this has always been our focus.

At the same time, in this process, how to achieve the increase of supply and demand matching efficiency, improve the promotion efficiency of merchants, and improve the service efficiency and experience of customers can be realized through all aspects of artificial intelligence.

Well, for cloud, it is also another major strategy for us. With regard to the development of cloud computing and big data, and the improvement of big data's ability, Aliyun has established a wide range of AaaS (analytical services) and PaaS (platform services) products, and built a pre-training model based on big data platform. In these aspects, we are also glad to see that our judgment is completely consistent with the general trend of the world. So how to make good use of our big data and cloud computing capabilities to serve this new trend, to meet the geometric growth, to find our own opportunities, this is also the goal of our efforts.

With regard to artificial intelligence, I would like to add that in your question just now, the subtext may also be more concerned about the efficiency of advertising and the efficiency of the platform. in fact, the arrangement of the demand of the logistics supply chain, the matching of supply and the matching and scheduling of performance capabilities, these are actually new scenarios for artificial intelligence, and we are all making active efforts to turn it into a new commercial capability.

Jerry Liu, an analyst at UBS Securities: I also have two questions. The first is about the revenue conversion rate, that is, the growth rate of Taobao Tmall sales compared to customer management income. in the previous quarter or two, the growth rate of customer management income will be lower because of returns. If you see a recovery in consumption recently, will there be any change in the relationship between these two growth rates in recent quarters? Will the growth rate of customer management income exceed the sales growth rate? The second question, after serving as the head of Aliyun, has Zhang Yong challenged the medium-and long-term or short-term strategy and operational focus of the business in the past two months?

Xu Hong: on the first question, we also disclosed the difference in the growth rate of sales compared with customer management income, mainly because the return rate is relatively high. the sales we disclosed is a paid sales, and after the user pays, due to the influence of logistics, it may have to be returned from the consumer's point of view, so when there are logistics problems and the return rate is relatively high. The increase or decline in return sales will be higher than the same period last year. With the recent recovery of the logistics industry, which will lead to a decline in the return rate, we do begin to see a trend that the difference between the change in payment sales and the change in customer management income is narrowing.

Zhang Yong: the development of the cloud industry is a historic opportunity in China and even the whole world, and it is also of extreme strategic importance to Ali. Based on these two points, I have served as the president of Aliyun. I am also full of passion for the business. I think such a historical opportunity can not be failed, and we must seize such a historical opportunity.

After the construction of several previous presidents, Aliyun has become the first in China and the first echelon in the world. We have a good market position and a solid foundation.

Facing the future, we still have to go back to the root of the cloud. The fundamental question is that we as customers' digital infrastructure, computing infrastructure, or to maintain the consistent high standards of high availability, high standards of security, high availability, stability and security to meet and exceed customer expectations, this is our very important foundation.

Second, Ali must still pay attention to the development of public cloud. In fact, there are many views on cloud in the Chinese market today, and everyone's understanding and definition of cloud are different. What is real cloud computing? I think we should still base ourselves on China, look at the world, and constantly make technological breakthroughs, from AaaS layer to PaaS layer core products, in terms of performance. In terms of cost, we can take the lead not only in China, but also in the world.

Cloud is a business of economies of scale, without diseconomies of scale, but where does the economy come from? It comes from the technology dividend, so I think the technological breakthrough is the key, and only in this case, I think we can really allow customers to use the cloud, while ensuring that there are enough economic benefits.

Third, in the development of cloud computing, we should still pay full attention to the development of public cloud, which has large-scale benefits, and how to better combine "cloud, edge, and end" with the development of the Internet in the service industry, especially some new, data-intensive industrial opportunities, which we must actively strive for.

Finally, the new industry boom and new technological levels are endless. How can we seize the opportunity of high-performance computing and generative artificial intelligence based on high-performance computing? the deployment and operation of any large model can not be separated from the support of computing power. And computing support, network, chip, deployment, solutions, is actually a full set of things. I also see that other manufacturers in the world are also discussing this issue. Ali also attaches great importance to such opportunities and hopes to turn them into practical results of arithmetic growth.

Related readings:

Alibaba's net profit in the third quarter was 46.815 billion yuan, an increase of 138% over the same period last year.

Welcome to subscribe "Shulou Technology Information " to get latest news, interesting things and hot topics in the IT industry, and controls the hottest and latest Internet news, technology news and IT industry trends.