Earnings Call: Alibaba's Zhang Yong: Always confident in oneself.

The conference call was attended by Chairman and CEO Zhang Yong, Executive Vice Chairman Cai Chongxin, and Chief Financial Officer Xu Hong.

Financial data shows that Alibaba Group's revenue for the second quarter of the 2023 fiscal year reached 207.176 billion yuan, a 3% increase compared to the same period last year; operating profit was 25.137 billion yuan, a 68% increase compared to the same period last year; adjusted EBITA (earnings before interest, tax, depreciation, and amortization) was 36.164 billion yuan, a 29% increase compared to the same period last year.

Before the release, the market was mostly optimistic about its profitability recovering after four consecutive quarters of decline. The financial data released also lived up to expectations and exceeded market expectations.

Alibaba employees are also confident in themselves and the future, as Zhang Yong said in his speech: "No matter the ups and downs, we are always confident in ourselves and even more confident in the future."

Focus on Singles' Day sales.

During the conference call, this special 'Singles' Day' was mentioned multiple times. Since the event was first held in 2009, major platforms have also for the first time not publicly disclosed the final transaction data.

Although Alibaba stated that Tmall's 'Singles' Day' transaction volume was flat compared to last year (2021 GMV was 540.3 billion yuan, an 8.45% increase from the same period in 2020, with a slower growth rate), it still failed to satisfy investors' curiosity.

Citibank analysts have conservatively predicted that Alibaba's GMV growth rate for this year's Singles' Day event is 0.9%-3.6%.

The financial report shows that during this year's 'Singles' Day' period, there were a total of over 600 million consumers and more than 290,000 brands from over 90 countries and regions globally participating. The number of buyers decreased from the same period last year, but the average purchase amount increased.

In terms of consumer groups, over 98% of 88VIP users made purchases during Singles' Day, and their contribution to overall transactions increased. In terms of product categories, the sporting goods, outdoor, and pet interest categories, health-related categories, and consumer electronics categories achieved year-on-year growth compared to the previous quarter in September.

In terms of live streaming sales, Alibaba's overall share of sales through live streaming is relatively small on average, but it increases significantly during major events like 'Singles' Day.' They stated the need to balance a variety of sales methods, use new technologies effectively, maintain good consumer experiences, and consider the cost acceptance of business operations.

During the meeting, Zhang Yong also mentioned several unfavorable factors that may affect the final results of 'Singles' Day.' These include a weakening of non-rigid consumption demand, represented by apparel, in the atmosphere of the epidemic; interruptions in logistics services due to the impact of the epidemic; and, in an uncertain environment, the strong desire of businesses to leverage 'Singles' Day' for business growth across all channels, which objectively provides consumers with more online and offline choices.

Alibaba has further strengthened the scale and stickiness of high-quality consumer groups, achieving significant results. As of September 30, 2022, the number of consumers who made purchases of over 0.01 million yuan on Taobao and Tmall in the past year stood at 1.24 billion, with a retention rate as high as 98%. The size of 88VIP users at the end of this quarter remained at 25 million, with stable retention and continued growth in consumer contributions.

It is understood that Alibaba's "Singles' Day Sales" has been shifting its focus from GMV indicators to optimizing consumer experience, empowering merchants' operations, and enriching the platform ecosystem since last year. While the high-growth attribute of Alibaba's "Singles' Day Sales" has weakened, its contribution to the annual GMV has become more stable, and its position as the year-end concentrated consumption and main battlefield for merchant operations remains solid.

Basic performance

Having a strong basic performance is the key for Alibaba to navigate this quarter.

Amid the continued fluctuations in the pandemic, the impact of international geopolitics, inflation, and currency depreciation in overseas markets, Alibaba's non-GAAP EBITA increased by 29% compared to the same period last year, highlighting the resilience of Alibaba's business ecosystem.

According to the financial report, Alibaba's business mainly includes China commerce, international commerce, local services, Cainiao, cloud business, and digital media and entertainment.

Among them, direct and other revenue from China retail commerce amounted to 64.725 billion yuan, a 6% increase compared to the same period in 2021, mainly due to the growth of direct business revenue from Hema and Ali Health.

International retail commerce revenue was 10.738 billion yuan, a 3% increase compared to the same period in 2021. This growth was mainly driven by the strong growth in order volume from Trendyol's e-commerce business and improvement in subsidy efficiency, which contributed to increased revenue. However, the decrease in order volume from AliExpress due to the depreciation of the Euro against the US Dollar offset part of the revenue increase.

In the international business sector, Lazada is one of Alibaba's fastest-growing and most promising segments with ample driving force in international markets.

In this quarter, the various measures taken by Alibaba to improve operational efficiency have achieved preliminary positive results, and the losses of businesses such as Taobao, Tao Car, Ele.me, Hema, Lazada, and Youku have significantly converged.

Hema achieved healthy growth in sales and significant reduction in losses by increasing gross margin, reducing delivery costs for online orders, and improving operational efficiency. As of September 30, 2022, excluding stores that have been open for less than 12 months, the majority of Hema stores have positive cash flow.

In addition, benefiting from the service model upgrade at the end of 2021 and factors such as improved consumer experience, Cainiao's revenue in this quarter increased by 36% year-on-year to 13.367 billion RMB after offsetting the impact of some transactions.

In China, Cainiao continues to provide diversified value-added services by expanding its Cainiao Station network. In this quarter, the total number of Cainiao Stations (including rural areas and universities) increased by more than 20% year-on-year to over 0.17 million, and the number of Cainiao Stations located in urban residential areas increased to over 0.116 million, with over 0.08 million providing home delivery services.

For the net loss of 20.561 billion RMB attributable to ordinary shareholders recorded this time, compared with the same period last year, it has changed from profit to loss. Alibaba stated that this is mainly due to the decrease in the market price of equity investments held by the Group, resulting in an increase in net loss, and a decrease in investment income accounted for using the equity method, which was partially offset by an increase in adjusted EBITDA. The Group does not include net income or net loss arising from changes in fair value of investments in non-GAAP financial indicators.

Cloud Computing and Share Repurchase Plan

For a long time, Alibaba has had three main tracks: consumer, cloud computing, and globalization, among which cloud computing represents the future.

Looking back at the Cloud Computing Conference held from November 3rd to 5th, Alibaba announced that its self-developed CPU Yitian 710 has been widely used; Alibaba Cloud Intelligent President Zhang Jianfeng also stated at the time that a new paradigm shift is taking place in software development, with Serverless being one of the most important trends. Alibaba Cloud will firmly promote the comprehensive Serverless transformation of core products to help customers achieve agile innovation.

Looking ahead, Alibaba Cloud will continue to collaborate with industry partners on various industry solutions, based on its own cloud computing and big data processing capabilities, to serve the process of digital transformation of Chinese industries.

Some believe that Alibaba Cloud represents the top level of cloud computing in China and can compete head-on with global cloud computing giants such as Amazon and Microsoft. Its first-mover advantage and technological competitiveness are also very apparent, and it will make important contributions to the group's revenue and valuation through continuous optimization of its structure.

As of November 16, Alibaba has repurchased approximately $18 billion worth of shares under its existing $25 billion share repurchase plan. In addition, the board of directors has approved an expansion of the existing share repurchase plan by $15 billion and an extension of the plan until the end of March 2025. Currently, there is $22 billion of unused capacity in the share repurchase plan after the expansion of the plan's scale and extension of its term.

"Our strong balance sheet and free cash flow give us the flexibility to confidently execute the group's share repurchase plan."

In addition, Alibaba has stated that it will not complete the planned conversion to primary listing on the Hong Kong Stock Exchange by the end of 2022 as originally planned. This is mainly because a new employee share ownership plan needs to be formulated and submitted to shareholders for approval before the formal completion of the conversion to primary listing in Hong Kong. The new plan will continue to be linked to the long-term development of the company and aligned with the interests of long-term shareholders.