Photo credit: Alibaba Group

Alibaba Group on Thursday reported earnings for the quarter ending March 31. Shortly after, Alibaba Chairman and CEO Daniel Zhang addressed investors on a conference call. Below are his comments:

Hello everyone. Thank you for joining our earnings call today.

We completed a solid fiscal year amidst macroeconomic challenges in China due to the resurgence of Covid, and tremendous uncertainties in the global geopolitical landscape.

During the fiscal year, we achieved the target of 1 billion AACs in China, with annual net increase of 113 million. Globally, we reached 1.31 billion AACs, with annual net increase of 177 million; and we achieved a total GMV of RMB8.3 trillion, with close to RMB8 trillion in China and RMB341 billion outside of China. Our cloud computing business completed its first profitable fiscal year while maintaining market leadership in China.

Now I would like to share a bit more about the latest situation in China with the recent resurgence of Covid. As you all know, omicron started to spread in China in March and has impacted several major consumption and manufacturing centers such as the Pearl River Delta (including Shenzhen), the Yangtze River Delta (including Shanghai), and Beijing.

During the second half of April, over 80 cities in China reported confirmed covid cases, and most are national economic centers. Such widespread impact has brought significant uncertainties to the China economy. We saw the national retail sales reporting negative year-over-year growth in March and April, and online sales of physical goods also reported a historical decline year-over-year.

The resurgence of covid has also impacted our businesses to varying degrees. Overall speaking, we saw a low-single-digit decline in revenue growth in April compared to the same period last year. Online physical goods GMV of our China Retail Marketplaces, excluding unpaid orders, saw year-over-year decline in the low-teens percentage in April.

To give you a sense of the scope of impact – Based on consumer address, cities with new covid cases in April represented more than half of our China Retail Marketplaces GMV. These cities also included major merchant hubs such as Shanghai, Shenzhen and their nearby cities, where supply chain and logistics disruptions have resulted in widespread impact.

During the same period, while our user traffic and engagement have remained resilient, patterns of consumption across categories on our platforms have shifted. Fashion and electronics consumption decreased.

Demands for essential supplies such as food and FMCG products increased significantly, with more consumers stockpiling at home.

Emerging categories such as healthcare, activewear and outdoor products also grew rapidly. We have since seen a major recovery in local logistics capacity compared to April.

Operating Stability

We believe operating stability and sustainability during this period is the primary concern of all businesses. Ensuring stability of supply chain and logistics amid the uncertainties is the best way to improve consumption sentiment and foster a more positive environment for business operations.

We are also facing uncertainties in the macro-environment outside of China. During the quarter, Lazada’s order growth slowed down to 32% year-over-year as offline consumption gradually recovered post-pandemic in Southeast Asia, with Malaysia, Vietnam and Thailand achieving higher-than-regional-average order growth rates. Trendyol continued its market leadership in Turkey with quarterly order volume growing by 48% year-over-year.

The order volume of AliExpress decreased year-over-year this quarter, mainly due to the impact of European Union’s policy change in VAT exemption; recovery of local supply chain and offline consumption post-pandemic, as well as international logistics disruptions due to regional conflict.

Despite the geopolitical conflicts and uncertainties, we will continue efforts to develop our globalization strategy in consumption. We will serve international consumers through a combination of cross-border and local e-commerce models, and proactively invest in our global logistics networks as part of our overseas digital commerce infrastructure build-up.

Facing the challenges of geopolitical and macroeconomic uncertainties, many companies started to focus on high-quality growth with cost control and loss cutting.

For Alibaba, high-quality growth has been a principle for years.

Especially during the pandemic, we see the benefits of a solid foundation that we have built over time carrying out this principle – 1) the high-quality consumers that we serve; 2) the high-quality infrastructure we are building for digital commerce; and 3) the high-quality technology innovations that drive the vast potential of our cloud computing business.

I will elaborate more in the following sections.

High-Quality Consumer Base

First of all, the high-quality consumer base: We serve the largest and highest-quality consumer base in China via Taobao and Tmall. Among our 1 billion AACs in China, 124 million consumers spent more than RMB10,000 annually on Taobao and Tmall, and 98% of these consumers continued to stay active in the following year.

Looking ahead, we will continue to strengthen our comprehensive consumer app portfolio with clearly differentiated user value propositions, and address the diversified needs of different consumer segments in accordance with their consumption power and mindset, especially those of our core customers.

What does this mean? In pre-purchase stage, it means establishing a clear consumer mindset, stimulating consumer interest through increasing user engagement and time spent on consumption-related content, and influencing consumer decision. In post-purchase stage, it means an enhanced fulfillment and customer service experience.

I believe this is the winning formula for earning consumer mindshare and wallet share in a highly competitive landscape.

High-Quality Infrastructure

Secondly, the high-quality infrastructure for digital commerce: Over the years, Alibaba has established a comprehensive infrastructure for digital commerce based on a hybrid model combining inter-city and intracity fulfillment.

Through digital user outreach, effective organization of product and service supply, as well as fulfillment service capabilities covering cities and communities, our infrastructure has become an important way for consumers to obtain daily necessities during the pandemic. In particular, over the last few years, we have created our location-based commerce business by building core capabilities in supply chain and fulfillment and online-offline integrated distribution networks on top of a preexisting marketplace model.

Based on our data in March and April, the average order value of customers in our location-based commerce businesses has increased significantly as consumers in covid-affected areas rushed to stock up. As a result, while our order volumes were negatively impacted by the fulfillment capacity constraint during the pandemic, GMV of these location-based commerce businesses have shown robust year-on-year growth.

Taking Shanghai as an example – While Ele.me’s food-delivery business has been significantly impacted, deliveries of retail categories have grown rapidly. In particular, demands for groceries and pharmaceuticals are extremely strong with year-on-year growth above 100%. As Ele.me continued to enhance its operations and reduce unit logistic cost, its unit economics also improved significantly to almost breakeven during the quarter.

Our infrastructure is playing an important role during the pandemic. For example, our different businesses, including Freshippo, Taoxianda, Tmall Supermarket, Ele.me, etc, are providing essential supplies in cities impacted by covid in China. Through these efforts, we hope to integrate business capabilities with social responsibility leveraging the power of digital commerce and technology in the fight against covid and providing essential supply support for local communities.

To name a few examples:

• Sun Art, Freshippo and other business units supported the supply and delivery of essentials to the residents by dispatching thousands of couriers and frontline workers from various regions in China to Shanghai.
• Ele.me delivered more than 2.5 million pharmaceutical medicine orders to homes in Shanghai during April 2022. It also launched emergency delivery services for vulnerable groups in the city and addressed nearly 70,000 emergency requests during the month.
• Cainiao built an emergency logistics system that encompassed disaster preparedness management, emergency transportation, transit and distribution to deal with contingencies.
• Amap, our map navigation tool, launched the “Map of PCR Test Sites” which covered more than 350 cities in China by mid-May. Users can easily search for the locations and opening hours of nearby test sites.
• Taobao and Tmall have launched a series of targeted relief measures that would help merchants in Shanghai and those participating in our June 18^th Shopping Festival to ease cash flow pressure, reduce their operating costs and speed up the resumption of work and production to the largest extent possible.

High-Quality Technology Innovations

Thirdly, the high-quality technology innovations that drive the vast potential of our cloud computing business. Alibaba Cloud’s competitive advantage is its world-class proprietary technology and products that support the highly demanding and complex businesses across Alibaba Group, while serving customers across a wide variety of verticals globally.

In FY2022, Alibaba Cloud continues to be the leader in terms of market share in China and achieved full-year profitability for the first time. Its GAAP revenue reached RMB74.6 billion during the year with 23% YoY growth. Before intersegment elimination, cloud revenue for the fiscal year has exceeded RMB100 billion.

During the past quarter, Alibaba Cloud’s revenue increased by 12% YoY. The growth deceleration was a result of several factors, including the decline in corporate activities and delays in project delivery due to the impact of Covid restrictions; slowdown in the growth of internet industry customers; and the gradual termination of contracts by a top customer for our public cloud services outside of China.

We believe these impacts are temporary. While China’s Internet industry customers showed a deceleration in cloud service demands as the entire sector faced the challenge of a growth ceiling in user traffic and time spent, digitalization of other industries is just starting, and we see plenty of opportunities. Cloud computing and data intelligence services are fundamental to every business in every sector undergoing digital transformation.

According to industry estimates, China’s cloud market size will reach RMB1 trillion by 2025. Alibaba Cloud will continue to elevate its core technology and products to maintain its leadership in this high-potential market.

The cumulative results of Alibaba’s strong management and operations over the years have produced a high-quality customer base, a sophisticated digital commerce infrastructure, and world-class technology innovation.

We also have a multi-engine growth strategy, robust financial conditions, a profitable business and strong cash flow. These provide important assurances in the face of macro uncertainties and, more importantly, a source of confidence as we continue to pursue healthy and sustainable development for the future.

The Year Ahead

In the new fiscal year, we will focus even more on cost control and continue to improve our operating efficiency. This includes streamlining unprofitable businesses, improving cash cycles and enhancing investment efficiency in personnel, fixed assets, and other areas to maintain financial flexibility amidst uncertainties.

Recently, the Chinese government has released important policy signals on its commitment to stabilize the economy and the job market in response to Covid impacts. They have also issued clear statements on promoting the development of internet platform economy through a healthy regulatory environment.

Yesterday, the State Council held a national meeting to mobilize the implementation of several economic policies. As one of the representative companies of China’s internet platform economy, Alibaba is committed to supporting China’s development through the combination of technology innovation and commercial innovation.

We aim to serve Chinese consumers’ pursuit for a better life as well as the digital transformation needs of different industries. We also will be on the front lines in the fight against Covid and ensuring the availability of food and other essential supplies to communities in need.

We look forward to the introduction and implementation of policies that will enable the internet platform companies to contribute more toward stabilizing the market, creating jobs, and furthering high-quality development of China’s economy.

The history of economic development has always been filled with twists and turns. In the long run, we strongly believe in the resilience and potential of the Chinese economy.

We will strengthen our fundamentals during this unique period, focus on innovation and customer value creation, and continue investing and planning for Alibaba’s long-term growth.

Thank you everyone for your time.