Alibaba Group Holding Limited (BABA) CEO Daniel Zhang on Q3 2021 Results – Earnings Call Transcript

Alibaba Group Holding Limited Q3 2021 Earnings Conference Call November 18, 2021 7:30 AM ET.

Company Participants

  • Daniel Zhang – Chairman and CEO
  • Rob Lin – Head of Investor Relations
  • Joe Tsai – Executive Vice Chairman
  • Maggie Wu – Chief Financial Officer
  • Interpreter – Interpreter

Conference Call Participants

  • Thomas Chong – Jefferies
  • Alex Yao – JPMorgan
  • Piyush Mubayi – Goldman Sachs
  • Alicia Yap – Citigroup
  • Unidentified Analyst – CICC
  • Gary Yu – Morgan Stanley

Operator

Good day, ladies and gentlemen. Thanks for standing by. Welcome to Alibaba Group ‘s September Quarter 2021 Results conference call. At this time, all participants are on listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Rob Lin

Good day, everyone and welcome to Alibaba Group’s September Quarter 2021 Results Conference Call. With us today are Daniel Zhang, Chairman and CEO; Joe Tsai, Executive Vice Chairman; Maggie Wu, Chief Financial Officer. This call is also being webcast from the IR section of our corporate website. A replay of the call will be available on our website later today. Now, let me quickly go over to our safe harbor. Today’s discussion may contain forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest Annual Report on Form 20-F and other documents filed with the U.S. SEC were announced on the website of Hong Kong Stock Exchange.

Any forward-looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligation to update these statements, except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, commerce adjusted EBITA before strategic investments, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow are expressed on a non-GAAP basis. Our GAAP results and reconciliation of the GAAP to non-GAAP measures can be found on our earnings press release. Unless otherwise stated, growth rate of all stated metric mentioned during the call refers to year-over-year growth versus the same quarter last year.

In addition, during today’s call, management will give their prepared remarks in English. A third-party translator will provide simultaneous translation in Chinese on another conference line. Please refer to our press release for details. During the Q&A session, we will take questions in both English and Chinese, and a third-party translator will provide consecutive translation. All translations are for convenience purpose only. In the case of any discrepancies, management statements in the original language will prevail. With that I will now turn the call over to Daniel.

Daniel Zhang

Thank you, Rob. Hello, everyone. Thanks for joining our earnings call today. In the past quarter, Alibaba continued to firmly invest into our 3 strategic pillars of domestic consumption, globalization, Cloud computing, and data intelligence. We believe this will establish solid foundations of our long-term goal of sustainable growth in the future. Some contents on the China macro environment, before I shift our business updates. In the September quarter, China’s GDP and consumption continued to grow a slower than the previous quarters. Overall retail sales for the quarter increased 5% year-over-year. Online retail of physical goods rose 8% year-over-year compared to the 19% during the same period last year. Offline retail has only just returned to the same level as 2 years ago. These economic headwinds coupled by intensifying market competition, also affected our core commerce business in China.

In line with industry retail trends in China, physical goods GMV year-over-year growth rate moderated to single-digit this quarter, mainly due to a slowdown in apparel and general merchandise categories. That said, growth rates of consumer electronics and home furniture in categories remained resilient. In the challenging macro environment, we continue to invest in user acquisition that have seen promising progress in low-tier cities, which I will elaborate on later. Our global annual active consumers reached approximately $1.24 billion, which is a net increase of $62 million quarter-over-quarter, and a 20% growth year-over-year this past quarter. Our AAC grow to $953 million in China, and the $285 million overseas. We are on track to deliver the 1 billing China AAC target by the end of this fiscal year.

And we remain firmly committed to achieving our long-term target to serve 2 billion consumers globally. Let me turn to our long-term investment strategies. In less developed areas across China, Taobao Deals has continued incremental growth to our overall user base and has stimulated more user activity and engagement in our China consumer ecosystem. Taobao Deals AAC surpassed 240 million this past quarter. Close to half of Taobao Deals daily active users are unique incremental users in addition to Taobao app DAUs. Consumers are attracted by the value for money products and differentiated user experiences offered by Taobao Deals. At the same time, manufacturers take advantage of its one-stop full service solution that includes online store operation and fulfillment to sell directly to end customers. We call this solution M2C or manufacturers to consumers.

During this past quarter, Taobao Deals M2C orders grew nearly 400% year-over-year. For our Community Marketplaces business, Taocaicai, we continue to focus on investing and building a new digitalized community commerce model that is sustainable and healthy. Taocaicai has expanded operations to close to 200 cities, and its GMV growth surpassed 150% year-over — quarter-over-quarter. We are deliberate in our approach and faithful to our belief in true value creation, rather than blinded pursuit of unqualified and unsustainable growth. We are instead focused on leveraging core capabilities that Alibaba has built over the years in the supply chain logistics, user engagement, and channel development. We aim to grow a new digitalized social commerce infrastructure that offer consumers quality services and products with highly competitive price.

Consumer survey results have shown that product quality is the top deciding factor for consumers to choose Taocaicai over other platforms. Taocaicai has contributed to increasing the purchase frequency of our core commerce consumers. More than 50% of Taocaicai users were first-time buyers of fresh produce from our China retail marketplaces. We believe the ultimate value proposition of the community commerce infrastructure is in our ability to elevate the quality of routing everyday services in local communities. It range from guaranteeing supplies during pandemic lockdowns, supporting local farmers to sell high-quality produce, vocational training, and job creation. We will continue to enhance these services to create value for our communities. In local services, we are creating a product and service metrics centering around synergies between Ele.me, Amap, and the Fliggy. Ele.me and Amap are positioned as our 2 main user entry points for home-bound and destination-bound local services, respectively.

Furthermore, delivered 29% growth in AACs and 30% growth in order volume year-over-year. With non-meal delivery order, growth outpacing total order growth this past quarter. In addition to map navigation services, Amap has been expanding into service offerings around the users ‘ journeys, and destinations, such as route heading, hotel bookings, etc. During the quarter, transacting users of these destination services on Amap increased more than 200% year-over-year. Although the recent resurgence of COVID-19 in parts of China impacted stability in the supply of hotel rooms and the travel products in many provinces, we see the positive contribution in user value from adding Fliggy product supply to Amap and other — and our other user platforms. We just celebrated our 13th 11.11 Global Shopping Festival with a record GMV of RMB54.03 billion, excluding unpaid orders, representing a year-over-year growth rate of 8.5% for the 11-day campaign. The stable and healthy growth of the high base over last year, reflects China ‘s consumption power and economic resilience. Looking forward, we remain confident in development of China consumption.

Today, we already have the largest and the most valuable consumer base in China with 953 meeting AACs, which are still growing. At the same time, we will serve our large and diverse consumer population through the use of segmentation, addressing different needs and use cases through an assortment of apps with their creative value propositions. Further through cross-selling of products and services, we will increase our user sickness, water share, and overall retail penetration. Outside of China, we continued healthy expansion of our user -base end revenues. Achieving $285 million AACs and a 33% revenue growth during the quarter. In Southeast Asia, Lazada produced 82% order growth year-over-year during the quarter, with triple-digit growth in Thailand, Vietnam, and Malaysia. Trendyol, the largest e-commerce platform in Turkey, delivered GMV growth of over 80% year-over-year.

AliExpress GMV growth decelerated this quarter due to the negative impact of net VAT rules in Europe, and the gradual recovery of the local supply chain and the consumption in its destination markets. Looking ahead, AliExpress will further invest to expanding local operations in its strategic markets in Europe. For our logistic business, Cainiao post has achieved coverage in over 200 cities as of the end of September. They have become our stations for consumer services in more than 100 counties and the towns across less developed areas. The daily average package volume delivers for Cainiao posts increased nearly 70% year-over-year to $69 million during the quarter. In the domestic supply chain business, Cainiao ‘s fulfillment volume for Taobao Deals ‘ M2C business increased by more than 200% year-over-year.

As part of its global logistic network expansion, Cainiao launched new initiatives to improve the user experience for international consumers by introducing self -pickup lockers in Russia, Spain, France, and Poland, while continuing to enhance its cross-border end-to-end logistic capabilities. Last but not least, Alibaba Cloud delivered revenue growth of 33% year-over-year this past quarter, driven by strong revenue growth from customers in the Internet, financial services, and retail sectors. In October, we held our 13th Apsara Conference, which is now the biggest Technology Conference in China by attendees. We unveiled several new proprietary products and technologies upgrades, including Yitian 710 Server Chip, the X-Dragon architecture, Pangu cloud-native server series, Alibaba AI and big data platform, and a new generation of PolarDB database. These show that Alibaba Cloud is benchmarking against the world’s top cloud computing technologies and the milestone is proprietary product capabilities in OS and POS.

In September, we announced 10 initiatives and pledged to invest RMB100 billion by 2025 to advanced scientific and technological innovation, economic development, high-quality employment, and the vulnerable groups support in China. We believe these 4 areas are among the common focus of all responsible companies in the world under the ESG framework. we will incorporate these tech initiatives into the social responsibility pillar of our ESG strategy, and hope that our digital commerce and technology ecosystem can contribute our part in these areas. Looking ahead, we will continue to invest heavily into 3 — into our 3 growth engines of domestic consumption, globalization, Cloud computing, and data intelligence, as we announced at the beginning of our fiscal year. In Core Commerce, we have started to see encouraging initial results of our investment in low-tier cities, local services and logistics in the form of user growth and enhanced logistic capabilities.

Our investment in globalization has also delivered progress in user-based consumption and revenue growth. In Cloud computing in data intelligence, we will strengthen our market leadership by further enhancing our core product and technology capability. No matter the challenges in the current macroeconomic environment, and with more and more players entering into the industry, we remain very confident in our business strategy and our future. We will continue to focus on capacity building, value creation, and a multi-engine approach to growth. We firmly believe our strategy and the perseverance will bring mid and long-term returns to our customers and investors. Now, I would like to turn it over to Maggie, who will walk you through the details of our financial results.

Maggie Wu

Thank you, Daniel. Let me share some high-level thoughts on our financial results first. Our revenue growth continues to be strong, and our revenue are becoming more diversified. So overall, we grew revenue by 29% year-over-year to RMB200 million. Revenue of our international commerce business and cloud computing distributed robust growth of 34% and 33% respectively. Our adjusted EBITA was $28 billion. The core profitability before investments in key strategic areas, remain very significant and stable at about $52 billion. So I will talk about our investment areas later. The decline of RMB 13.2 billion year-over-year in total adjusted EBITA is a result of our investment in strategic areas and merchant support.

We have one of the most diversified and loyal customer base in China and we believe these investments will further strengthen our position. And our overseas investments will also help us gain mine share in many international markets in the future. So here we provide a revenue breakdown by segment, where you can see that Alibaba has evolved into a multi-engine growth Company with businesses across different runways, and that growth and revenue continued to be more and more diversified. Cost trends. Now let’s look at our overall cost trends, excluding SBC as a percentage of revenue. Cost of revenue ratio increased in September quarter due to higher proportion of our direct sales business, mainly from the consolidation of Sun Art.

If direct sales business will continue to strengthen our retail initiatives, especially in the development of our product sourcing capabilities. For example, our Community Marketplaces business continue to grow rapidly, which is partially thanks to the strong procurement and supply chain capability in perishables, FMCG, and general merchandise categories of Sun Art. Sales and marketing ratio also increased in the September quarter due to our increasing marketing and promotional spending for user acquisition and engagement for our mobile commerce businesses, such as Taobao Deals, Lazada, Ele.me, and also Taocaicai. G&A expense remained stable at 4% compared to the same quarter last year. Now, let’s look at our profitability in the area of investments.

Commerce adjusted EBITA before key strategic investments was largely flat at $52 billion. Primarily reflected our support to merchants as well as the increased spending in user acquisition engagement on our marketplaces. So it’s excluding our merchant support programs standings, the growth of commerce adjusted EBITA before key strategic investment was similar to that of our CMR revenue growth, suggesting are relatively stable EBITA margins of our China retail marketplace. Adjusted EBITA decreased by $13.2 billion. The decline primarily reflects $12.6 billion year-over-year increase in combined losses of key strategic areas, such as Taobao Deals, Local Consumer Services, Community Marketplaces, and Lazada within commerce.

Let’s take a closer look at the business progress, revenue, and profitability of our business segments during the quarter. Before — okay. First, on our commerce segment. Revenue from our commerce segment in the quarter was RMB171 million billion, 31% year-over-year growth. Revenue of China commerce business, showing 14% year-over-year growth, excluding some of our consolidation. And CMR is growing 3%. There are 2 key reasons for the slower growth of CMR. First, our CMR growth we’re primarily tied to single-digit specific good GMV growth that resulted from slowing market conditions. And more players entering into the sector of the China e-commerce market. China’s MBS statistics have shown us a slowdown of overall consumptions.

We experienced a larger impact given our positions that largest e-commerce player in China. Secondly, CMR growth was slower than physical goods GMV growth primarily due to the incremental year-on-year increase in merchants ‘ reports and subsidies. Revenue of international commerce grew 34% year-over-year, with continuous strength of both international wholesale and international retail businesses, such as Lazada, Alibaba.com, AliExpress, and Trendyol. Commerce adjusted EBITA decreased by 12% — 10%. The decrease reflects RMB12.7 million. The decrease reflected increased investment in those strategic initiatives. Now, these initiatives we invested within commerce is noted where your lasting growth business that strengthen consumer experience, enhanced loyalty, penetrate into less developed area in China, and further expand our presence internationally. During the quarter, the business is also robust growth.

Taobao Deals and Taocaicai continue to penetrate into less developed markets of China and they extend our addressable market. Taobao Deals achieved the $248 million AAC up $49 million. Taocaicai grew GMV by over 150% Q-on-Q. As a reminder, our community marketplace business started early this year. Ele.me continues to deliver strong order growth of 30% year-over-year and is one of the main consumer gateways for our local service business within — with high-frequency purchasing intent. Lazada and Trendyol continue to generate robust growth in new international markets. Lazada order grew 82% year-over-year, Trendyol GMV grew over 80% year-on-year. Let’s take a look at the cloud computing business.

Ali Cloud’s revenue grew 33% year-on-year to RMB20 million during this quarter, which re-accelerated compared to the June quarter growth. We saw strong revenue growth from customers in internet financial services, and retail industries. Ali Cloud generated an adjusted EBITA of $396 million given strong revenue growth and economic scale. Next, our D&E business, during the quarter was $8 billion in revenue. And if you look at the losses, there’s slightly increase year-over-year, because the investment in content, etc. But overall, they continued to narrow in losses in the first half of the fiscal year. Income statements selected financial metrics. Let’s review some of these line items. Interest and investment income was a loss of $11 billion in September quarter, primarily due to net losses arising from changes in market prices of our equity investments in publicly traded companies in the quarter.

This is compared to net gains in the same quarter of 2020. Income tax expense in the quarter was $6.1 billion compared to $1.9 billion in the same quarter of last year. In the same quarter of last year, tax expenses reduced by approximately $6 billion because during that quarter, surge on subsidiaries were officially notified that they were approved of key software enterprise status for calendar 2019, which entitled them to a reduced tax rate of 10%. Share of results of equity method investees was RMB5.5 million during the quarter. Here, we saw a GAAP and non-GAAP net income attributable to shareholders. Besides the reasons we discussed above, the year-over-year decrease was also due to our losses arising from the changes in market prices of our equity investment in publicly traded companies.

September quarter free cash flow. We continue to have a strong net cash position. As of the end of the quarter, our cash, cash equivalents and short-term investments were $443. These 3 billion RMB, which is approximately $69 billion U.S. dollar free cash flow was $22 billion RMB. That decline was driven by a decrease in the profit. Before we go into Q&A, I would like to provide some perspective on our financial outlook. Over the last 6 months, we have observed a softer market conditions with slowing consumption growth in China. Given a slower than expected domestic consumption growth since we provided our revenue guidance in May, we now expect our fiscal ’22 revenue growth to be 20% to 23% year-over-year. The adjustment primarily reflects lowering of a commerce revenues that include both direct sales and the customer management revenue. Let me share with you a bit more on our investment in profitability. So frankly in China, we’re seeing more players entering into the e-commerce industry.

Our peers are increasing investments to acquire users and most of them continue to show a level of — high level of spending. We will continue to invest in our e-commerce businesses that create value for consumer and merchants, and keep our market leadership position, and then for the competitive strength in the longer-term. Secondly, we believe our local service business still has important long-term potential. These businesses have generated strong transaction growth and high user retention rate, setting a strong foundation to compete for the long term. We’re seeing robust GMV and user growth in our international commerce business.

These businesses Lazada, Trendyol, AliExpress are exhibiting robust growth driven by localization strategy, as well as our ongoing investment in building technology and logistic capabilities. Lastly, we continue to expect exciting growth opportunities for our Cloud business that will benefit from digitization industry, industrial Internet era. Given our significant profit generation and a strong Balance Sheet, we believe it is important to grow and expand into new addressable markets for the long term, you expect near-term in domestic micro environment. As such, we will continuously invest into the above-mentioned areas and we’ll report to you the business development progress down the road. We believe this business will continue to increase consumer mindshare, our wallet share, that will be important to our longer-term growth and value.

Lastly, before we go to Q&A, we’d like to inform you that we will be hosting an Investor Day on December 16th and 17th. During the event, our Senior Management team will provide you an update on Alibaba ‘s key businesses and our vision for the future. Over the last several quarters, investors and the analysts have communicated their desire to understand better on how we measure the success of our growth businesses mentioned, and that these businesses long-term prospect. This Investor Day will be an opportunity to provide you with more details, and insights. Now, let’s open the floor for Q&A. Thank you.

Operator

Thank you.

Rob Lin

Hi, everyone. For today’s call, you are welcome to ask question in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session Our management will address your question in the language asked. Please tell that to translation, and it’s for convenience purpose only. In the case of any discrepancy, our management’s statement in the origin language will prevail. [Foreign Language] Operator, please connect speaker and SI conference line now and then start the Q&A session when ready. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions]. Please stand by while we compile the Q&A roster, and to give more people the opportunity to ask questions. Please give yourselves no more than 1 question at a time. Operator Instructions]. Our first question is from the line of Thomas Chong of Jefferies. Your line is open, please go ahead.

Thomas Chong

Good evening. Thanks, management, for taking my questions. I have a question regarding our new initiatives. Given that Taocaicai, Taobao Deals, [Indiscernible] are doing very good and we are seeing Taobao Deals, the AAC already surpassing 240 million. So I just wanted to get a sense about regarding our new initiative. When should we expect the monetization to ramp up? And on the other hand, over the long run, how should we think about the revenue scale of this new initiatives versus our existing business. And then I have a second question regarding connectivity. Given that you have been quite a while after we have been cooperating with our peers on connectivity. Just want to get a sense about any latest progress on the monetization potential that can be shared? Thank you.

Daniel Zhang

[Foreign Language]

Interpreter

[Interpreted] Okay. Let me answer the questions one-by-one. For the first one, I think today our priority for Taobao deals and Taocaicai is still to build the right infrastructure in terms of the manufacturers to consumers model in Taobao Deal, as well as a hyper-local Community Marketplace infrastructure. So I think these are our priorities. And in terms of user engagement, we see very, very strong user engagement in the past quarters. As you can see, the AAC for Taobao deals reached $240 million and for Taocaicai because this is a more likely additional services on top of mobile app and Taobao Deals, which also show a very good, I mean, user conversion to the fresh produce and the food categories. We are very confident that if we can provide value to the consumers as well as the manufacturers and their suppliers of the — from the farmers, and we believe that we can find a very — We can generate also the value to the platforms as well.

Daniel Zhang

[Foreign Language]

Interpreter

[Interpreted] So looking ahead, I think for the value creation model, I would say it’s not only like a marketplace to monetize the traffic in the marketplace but also, we can see a strong potential in the supply chain — as a result of the supply chain optimization for the manufacturer to the consumer business. And as well as the farmer to table business.

Daniel Zhang

[Foreign Language]

Interpreter

For your second question, connectivity, as we always said, connectivity and openness are the core value of internet. We strong believe that it will be a win-win situation if all platform companies can embrace openness and connectivity in substance, and not in form. For us, we will continue to promote the non-discriminatory user sharing and the consistent all across platform to make sure consumers have the consistent user experience. Because today, if you are a Taobao users, you can — you may have experience that when you want to share some product links with your friends in social platforms. The experience is actually bad. So I think this is for our mutual customers benefit to improve that experience in the — when they try to do whatever they want across ecosystems. And we will make — we are aware — actually, I have already made necessary preparations for the future of interconnectivity.

Daniel Zhang

[Foreign Language]

Thomas Chong

Thank you.

Rob Lin

Operator, next question.

Operator

Thank you. The next question is from the line of Alex Yao of JPMorgan, please go ahead.

Alex Yao

Good evening, management, and thank you for taking my question. During your prepared remarks, you guys mentioned that the weak revenue momentum was due to both macro and the competition. And based on the e-commerce results tonight, you guys look like under-performing the industry peers in this quarter. Can you help us understand to what extent is the revenue weakness due to macro and to what extent is due to competition? For competition, what are the areas you see the most pressure and the challenge? And what are the strategies to regain competitiveness in those areas? Thank you.

Daniel Zhang

[Foreign Language]

Interpreter

[Interpreted] Well, if you look at the landscape — actually today, for e-commerce — and for the definition of e-commerce actually is evolving. So today in the market there are multi-format of e-commerce model. And as long as you have some traffic and you have user with you, and based on the public available third-party payment solution and the logistics and delivery — fast delivery — express deliveries, anybody can try something on e-commerce. But we strongly believe that for Taobao, our advantage is that consumer — that consumer mindset. And we are a purely a consumption destination for all the customers. So we will continue to develop Multi features and applications in our, Taobao App, as — at the same time to segment our user group, buy different mobile apps for specific value propositions.

And today, if you look at the market, I would say for the — for all the players, actually, they are — they may address the customer’s needs from one angle. But actually for Taobao, we are the only destination who can meet the customers purpose from different — to meet the customers different purposes. For someone who have very specific shopping purposes, Taobao to them is positioned as a shopping search. And also Taobao has a lot of applications to facilitate people to enjoy the fun of discovery. And over the years we’ve built our live-streaming business, as well as a short video business and the social contents business. So we are a platform with multi-formats. I mean, consumer journeys for people with different purposes. I think we will continue to invest in this and to give people the most comprehensive selections. And the most efficient and guaranteed consumer experiences.

Daniel Zhang

[Foreign Language] Mr. Speaker – [Foreign Language]

Interpreter

[Interpreted] I still question about the slower GMV gross reasons. How much from — cost from macro conditions — commerce from the competition. Actually, it’s very difficult to quantify the impacts. I would say, that’s why we believe that these 2 reasons are all the factors we should consider. Actually we are — because we are the market leader in the retail commerce. So that’s why I think our performance to some extent will reflect the overall market condition.

Daniel Zhang

[Foreign Language]

Rob Lin

Operator, next question.

Operator

Thank you. Next question is from the line of Piyush Mubayi of Goldman Sachs. Please go ahead.

Piyush Mubayi

Thank you for taking my question, but just looking ahead, your guidance seems to suggest you will grow between 11% and 15%, 16% in the second half of 2022. And that’s a step down from the pace of growth you had in the first-half. If we accept that pace as been in a continuation of where we are today. So what are you seeing that gives you the conviction that this pace have slowed — this slow pace will be maintained through the second half of 2022 fiscal? And I wonder if you could look beyond that and give us what you think is a normalized pace of growth for your business and for China GMV in general. So really focusing on growth here, if you don’t mind.

Daniel Zhang

[Foreign Language]

Maggie Wu

This is Maggie, let me try to answer your question. Yes, if you look at our guidance and then try to derive the second-half growth for our revenue, it indicates revenue growth of the teams. That assumption is mainly based on the GMV growth expectation and the impact on the revenue growth is nearly placed in the core commerce and our China retail commerce. So we do think — if you look at total China GDP and consumption, this quarter compared to previous quarter, it comes down significantly to a single-digit. We see that this may continue for the following quarters. We, as the — in size, the biggest player right now. Accounts for — we have approximately 8 trillion GMV versus 44%, 45% total national GMV. The impact will be largely on us.

And if you look forward beyond this year and the following year is how we see our revenue growth. I think, first of all, our revenue growth engine now is already beyond the China consumption, beyond that CMR. So CMR, if you look at this quarter, it accounts for around 36% of total revenue, where it used to be over 50% several quarters ago. So this is because all of these Cloud computing and international businesses are tying our local service. They all start contributing and increases contribution to our total revenue. So this is where we talked about market engine growth, and continue to expect to see growth in these areas. At the same time within core commerce, Daniel talked about our market app strategy and talks about if we look in the mid-term, long-term, we don’t believe the monetization yearly coming from these traffic, and GMV growth. But more from the infrastructure capability we’re building and to enable merchants.

We don’t have exact monetization plan to communicate at this stage, we’ll share more later on. If you are an Investor Day, we are also going to share with you how we measure the value creation. And then eventually this is always our thing, that once merchants stay, consumers stay, and retention rates here and they enjoy the service, we’ll find out ways to monetize. So if you look at the investment we’re making nowadays, we actually, this is our [Indiscernible] to our lesson and moving towards our target. First target is the user base of over 1 billion in China. I think, in that aspect, we’re pretty much on track and then the market app strategy makes the engagement of these users being enhanced. And then the merchant side, we have a lot going on in terms of mentioned service provision, which will also share next month. So value-creation and then eventually, we believe that return will be there.

Piyush Mubayi

Thank you.

Interpreter

[Foreign Language]

Rob Lin

Operator, next question.

Operator

Thank you. Our next question is from the line of Alicia Yap of Citigroup, please go ahead.

Alicia Yap

Hi. Good evening, management. Thanks for taking my questions. I have a question related to CMR and GMV. So the slowdown with the CMR, is it more temporary and also a function of GMV? And has CMR actually experienced slower growth than GMV in the past quarter — past couple of quarters. Even — we have been providing many service to support merchandise especially given it’s a tough macro. So GMV reaccelerate later, could CMR reaccelerate even faster since we have been still at the monetize end, the way that we can create value for merchants, we can still add on to the entire value chain for the merchants or any color that you could help us on that would be great. And also in ways of GMV, we could accelerate then the macro is recover. Is any ways that we are preparing to help us capture when the macro-recover, we can actually further boost our GMV faster than the macro-recover. Thank you.

Interpreter

[Foreign Language] Mr. Speaker – [Foreign Language]

Maggie Wu

Thank you, Alicia. Yes, you’re right. The CMR growth actually to some extent tighter than GMV growth in the past several quarters were seen that CMR growth is slower than the growth of GMV, which is mainly due to our merchants support programs. So if we add those merchants support spending then the CMR growth is — would have been pretty much in line with the GMV growth. So eventually if the China consumption growth recovered and the GMV growth comes back and get reaccelerated, we believe that CMR growth will also be consistent with the growth of GMV. But in our view, when we look at the future revenue components, we believe that all of these efforts we have been making and not only the user base expansion, but also the services. Look at live-streaming, all of these secondhand, and last year products, and a lot of our suppliers, and also user experience building exercise, will bring value to consumers. We should have new revenue streams coming into the total group revenue pack. And so, these will be adding to our future revenue growth.

Daniel Zhang

Maybe let me add a few words.

Interpreter

[Foreign Language]

Daniel Zhang

Yes. Let me add a few words on the question. Actually, we’re always making ourselves ready for any new market opportunities. And even more, we are always trying to do something to anything we tend to create new market opportunities. I think today, if you look at the landscape, the e-commerce, actually account for like a 20 to 25% of the total retail. But if you look at the penetration rate by categories, actually, it varies. So I think it’s still a big room to first to digitalize the existing, I mean, total retail. But furthermore is to create a new demand by leveraging the power of technology to improve the efficiency of the supply and demand. And also great the digitize the retail formats no matter if it’s online or offline or integrated to give people superior experiences. To unlock the potential of consumption. So we will always try to innovate and incubate new animals and to capture these new opportunities and even create new opportunities. Thank you.

Interpreter

[Foreign Language]

Rob Lin

Operator, next question.

Operator

The next question is from the line of Yang Bai of CICC, please go ahead.

Unidentified Analyst

On behalf of Bai Yang from CICC. Thanks for taking our questions. Our question is — we have two questions. First question is regarding to the live streaming business. What’s our current strategy in live streaming business? As we know that more traffic and GMV are concentrating to the top KOLs in Taobao. How should we think this trend going forward? Are we going to balance the course and the traffic between the top 2 and the long tail KOLs? Any color would be very helpful. And the second question is regarding to the personal information protection law impact. Are we seeing any significant impact to our CMR business? How should we change in the future? Thank you.

Interpreter

[Foreign Language]

Daniel Zhang

For your first question, for live streaming, actually, for our Taobao live streaming, today is a very important applications in our mobile Taobao. And we observed that for a lot of friends and customers they loves seeing this live streaming format. And but we don’t view this live streaming as a independent application, but part of the seller application to enable seller to engage with the customers through themselves, through their own stores, or through that KOLs.

Interpreter

[Foreign Language]

Daniel Zhang

If you look at the ecosystem in live streaming business, actually we do have some top players. They have a very good popularity among their friends but at the same time we have many POS, second tier, third tier, and many UKOLs. And the very unique situation in Taobao mobile app — in Taobao live streaming is the store live-streaming, which initiated by the Store Operator, by the sellers, even by the staff and associating the seller. So I think we provide a very dynamic ecosystem in this Taobao live streaming and as a platform operator, we don’t intend to so-called balance the traffic. Actually, we never do anything to balance the traffic or rebalance the traffic. I think we should keep the market open to the customers. And it’s their option to select which one to follow and which one they are in favor of. But for us, we always try to help and innovate more and more diversified KOLs and type diversified, I mean, young stars in the sellers to become a new generation stars.

Interpreter

[Foreign Language] Mr. Speaker – [Foreign Language]

Daniel Zhang

As to your second question, for the newly effective PI PL, actually we did very necessary preparation for the law, which took effective on November the 1st. And based on our preliminary assessment, we don’t see — we don’t expect a PI PL will have a material impact on our business. But because this is still a very short timeframe, we still need more time to assess. But so far so good. Thank you.

Interpreter

[Foreign Language]

Rob Lin

Operator next question.

Operator

Thank you our next question is from the line of Gary Yu of Morgan Stanley. Please go ahead.

Gary Yu

Thank you, management, for the opportunity to ask questions. I have 2 questions. First one is on some of the new growth business that you highlighted at the press release, including both the international business and also the Cloud computing business. How should we look at the growth outlook in the future? What kind of competitiveness are we seeing in overseas market? And particularly on Cloud, is the headwind from major customer loss are ready behind and therefore, we should continue to see acceleration growth going forward. My second question is related to strategic investment. How should we look at the level of investment going into fiscal 2023, given we have already reached — achieved some early success? Should we expect continue to step up investment in Taobao Deals and marketplace — competitive marketplace are going into fiscal 2023? Thank you.

Interpreter

Mr. Speaker – [Foreign Language]

Daniel Zhang

Thank you. For the first question. Today, as we said, we are taking the multi-engine growth approach to grow our business. So today, you will see that both Cloud International Business to very robust growth. The revenue, the Cloud this quarter resume the growth to 33% year-on-year. And for international business — for international wholesale and retail business as a whole, reached the year-on-year growth rate of 34%. So I think for both business today, both of them are in the early stage of development, early stage of growth. We’re still trying to build, do the right thing to build the right infrastructure to make sure we capture the long-term opportunities, and to maintain a sustainable growth. Take an example, like for Cloud, today, we enhance our investment in technologies and products.

And in our, as I shared in my script, we announced a couple of very important technology and product upgrading in our Aspara Conference this September. And this is a reflection of our continuous efforts in Cloud relevant technologies and products. And we going forward, we will continue to do so. And we believe that for Cloud opportunities in China and in the world, it’s not only a replacement of the existing IT info, but instead actually because of Cloud, you get new opportunities in intelligence services. You have got new opportunities in 5G, for not only for Cloud, but also for network and terminal and edge. So we will get ourselves ready for all of these new opportunities.

And I think this is relevant to all the industry, all the sectors, and in the in economy and not only in China, but also in many other markets in the world. And as to the international business, today, we reported that our AAC for international markets reached 285 million. I think we have witnessed a very healthy growth and very rapid growth. And if you look at the penetration of e-commerce in many other markets outside China, I think it’s still in a very early stage. We strongly believe that with our perpetual technology and experiences in this sector, we are in a good position to capture this opportunity in many other markets. But as we always said, we focus on growth, but we focus on quality, as well. So we focus on a sustainable growth in encapturing this new opportunities. But long-term wise, we are very confident about these multi-engine growth strategy. Thank you.

Interpreter

Mr. Speaker – [Foreign Language]

Maggie Wu

Regarding your second question on the whether we will continue to invest, and to what level our investments would be in the future. I think first of all, for sure, we’ll continue to invest while monitoring the business progress in this strategic initiatives areas. So when you look at where we invest nowadays is user base right through our Taobao deals, etc. And also the services — provide more services to our user base, like local service segment. We — there are still quite a lot of potential there. And also globalization, Lazada and Trendyol, etc. These areas, it’s not a 1-year investment period, it’s several years. And but there might be some adjustment in terms of the mix of the investment. For example, we expect to achieve a billion annual active consumer in the following 2 quarters. And then 1 bedtime we achieve that we’re going to focus more on the engagement, and those multi-app user growth. So you asked about ’23 fiscal years investment outlook. I think we will start our business planning and budgeting session soon, so that we’ll provide more color and guidance later on.

Interpreter

[Foreign Language] Mr. Speaker – [Foreign Language] Mr. Speaker – [Foreign Language]

Rob Lin

Hi, everyone, this is Rob. I just wanted to make 2 comments from our earnings call today. First, just want to make a slight error change in our script. We said W11 GMV was $54.03 billion, it was actually $540.3 billion. That’s the first notes. The second, we are having our Investor Day on December 16 and 17. We look forward to hosting you. I’m sure there are a lot of questions you may still have. And we look forward to address all those questions on the 2 day event.

Interpreter

[Foreign Language] Mr. Speaker – [Foreign Language]

Rob Lin

Thank you. And this is end of our call today. We’ll pass back to the operator. Thank you.

Interpreter

[Foreign Language]

Operator

All right. This marks the end of today’s conference call. And thank you for participating. You may now disconnect.

Source: Seeking Alpha

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