Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Taobao and Tmall Group achieved steady year-over-year growth in orders and GMV.
- Alibaba Cloud revenue returned to positive growth, driven by core public cloud and AI products.
- 88 VIP members reached 42 million, indicating a strong premium member base.
- International e-commerce segment, AIDC, delivered 32% revenue growth.
- Lazada achieved single-month EBITDA profitability for the first time in July.
Negative Points
- Adjusted EBITDA decreased by 1% year-over-year to RMB45 billion.
- Non-GAAP net income decreased by 9% to RMB40.7 billion.
- GAAP net income declined by 27% due to a decrease in income from operations and increased impairment of investments.
- Free cash flow decreased by RMB21.7 billion to RMB17.4 billion.
- Sales and marketing expenses ratio increased by 1.7 percentage points year-over-year.
Q & A Highlights
Q: With high single-digit GMV growth and 1% CMR growth, how should we think about the take rate trajectory and the measures being implemented?
A: Eddie Wu, CEO: The focus has been on enhancing the user shopping experience to drive GMV. As market share stabilizes, we can accelerate monetization efforts. New products like live streaming and the RMB10 billion subsidy program have increased user return rates. The new advertising product, Quanzhantui, will take 6-12 months to optimize. Toby Xu, CFO: Starting in September, a 0.6% technology service charge will be applied to Taobao and Idle Fish, with special measures for SME merchants.
Q: How does management view the competitive landscape for AIDC, and what are the profitability targets for Ali Express and Lazada?
A: Fan Jiang, CEO of AIDC: AIDC comprises diverse businesses with local brands and teams. We are integrating supply and enhancing user experience on AE. Lazada achieved single-month EBITDA profitability in July, and we aim to continue improving efficiency and profitability. AE Choice is a key model for high-quality growth.
Q: Can you comment on the status of primary listing and Stock Connect, and the expected AI revenue contribution for the cloud business?
A: Toby Xu, CFO: We are actively pursuing Hong Kong primary listing, aiming to complete the process by the end of August. Eddie Wu, CEO: There is robust demand for AI products, with more than half of expected growth driven by AI products. We anticipate double-digit growth in external cloud revenue in the second half of the fiscal year.
Q: Given the current macro conditions, how is enterprise demand for cloud services, and what are the key drivers behind Taobao and Tmall GMV reacceleration?
A: Eddie Wu, CEO: We see strong demand for AI products, with enterprises increasing their AI budgets. For Taobao and Tmall, the focus is on delivering quality products and services at attractive prices, optimizing supply chain efficiency, and catering to diverse consumer needs. Toby Xu, CFO: Our return rate is slightly lower than the industry average, and a good return experience enhances customer retention and purchase frequency.
Q: What is the timeline for breakeven targets for loss-making businesses like local services and AIDC?
A: Toby Xu, CFO: We aim to improve efficiency and monetization for loss-making businesses, expecting them to breakeven within one to two years. For local services, increasing order scale and improving unit economics are key. Lazada and other businesses will focus on balancing scale and efficiency to achieve profitability.
Q: What is the expected impact of the technology service fee on CMR, and how will it affect smaller merchants?
A: Fan Jiang, CEO of AIDC: The technology service fee of 0.6% will be charged on completed GMV, with refunds for SME merchants below a certain threshold. This will help improve the take rate and accelerate CMR growth.
Q: Can you explain the high tax rate and the decline in free cash flow?
A: Toby Xu, CFO: The tax rate includes one-off items and permanent differences. Free cash flow declined due to increased AI infrastructure investments and working capital changes related to scaling down direct sales businesses. This impact is temporary and will stabilize as business size becomes stable.
Q: What are the implications of open-source large language models and the transition to AI agents for Alibaba's merchants and customers?
A: Eddie Wu, CEO: Open-source large language models provide more control and optimization for developers, aligning with our strategy as a cloud service provider. The development of AI agents will become more automated, enhancing inferencing capabilities and benefiting merchants and customers.
Q: What is the expected ROI on AI CapEx investments, and when will these investments start bearing fruit?
A: Toby Xu, CFO: We expect similar levels of AI CapEx investments in the next few quarters due to strong demand. Eddie Wu, CEO: New compute power is instantly running at full capacity, indicating high ROI. We anticipate significant returns as we meet existing and growing demand for AI products.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
