Alibaba Group Q4 2025 Earnings Call Transcript

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Provided by Quartr
May 15, 2025
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Executive

Day, everyone. Welcome to Alibaba Group's March quarter and full fiscal year twenty twenty five earnings conference call. With us today are Jue Cai, Chairman Eddie Wu, Chief Executive Officer Toby Xu, Chief Financial Officer Jiang Fan, Chief Executive Officer of Alibaba E Commerce Business Group. This call is also being webcast from the Investor Relations section of our corporate website. A replay of the call will be available on our website later today.

Executive

Now let me quickly cover the safe harbor. Today's discussions may contain forward looking statements, particularly statements about our business and the financial results that are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward looking statements. Please refer to the safe harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures that we use on this call are expressed on a non GAAP basis. Our GAAP results and reconciliations of GAAP to non GAAP measures can be found in our earnings press release.

Executive

Unless otherwise stated, growth rate of all stated metrics refer to year over year growth versus the same quarter last year. And now I will turn the call over to Eddie.

Moderator

Thank you. Welcome to join our quarterly earnings call. We delivered strong performance this quarter with total revenue, excluding SunART and InTime, growing 10% year over year and adjusted EBITA increasing 36% year over year. For fiscal year twenty twenty five, our user first AI driven strategy continued to deliver meaningful results with accelerated growth across our core businesses. We've established a well defined growth portfolio centered on AI plus cloud, e commerce, and other Internet platform businesses.

Moderator

We're seizing the historic opportunity presented by AI and stepping up our investments in AI infrastructure and advanced technologies to further strengthen Alibaba's global leadership in technology. These capabilities will also be translated into sustained drivers of business growth. Driven by robust and growing AI demand, Alibaba Cloud's revenue growth accelerated to 18% this quarter, with revenue excluding Alibaba consolidated subsidiaries increasing 17% year over year. Public cloud revenue growth continued to accelerate. Revenue from AI related products has maintained triple digit year over year growth for the seventh consecutive quarter.

Moderator

For the full fiscal year, Alibaba Cloud's revenue grew by double digits. And looking ahead, we expect AI to remain a key driver of accelerated revenue growth for Alibaba Cloud. While uncertainties persist in the global AI supply chain, customer demand remains strong and unwavering. We continue to see growing demand for cloud and AI, an opportunity that will define the next ten to twenty years and will not be derailed by short term supply chain fluctuations. Our confidence and commitment to investing in cloud and AI infrastructure remains unchanged, and we are actively exploring diversified solutions to meet rising customer demand.

Moderator

We continue to advance foundational research and innovation in large models, pushing the boundaries of model capabilities while remaining firmly committed to open source. In April, we released our next generation QN3 model as open source, ranking amongst the top performers globally on multiple authoritative benchmarks. By the April, we had open sourced over 200 models under the QN family with more than 300,000,000 downloads worldwide and over 100,000 derivative models, making it the world's largest open source model family. As we accelerate the adoption of AI plus Cloud across a wide range of industries, two clear trends have emerged. Among large and mid sized enterprises, AI applications are expanding from internal systems to more customer facing use cases.

Moderator

At the same time, adoption of AI products is rapidly extending from large enterprises to a growing number of small and medium sized businesses. This quarter, the industry penetration of our AI products expanded rapidly. In addition to faster adoption across sectors like Internet services, autonomous driving, financial services, and online education, we're also seeing strong momentum in more traditional industries such as animal farming and manufacturing, which are actively exploring AI applications and have shown significant growth in demand. In the financial sector, we continue to deepen our industry leadership. Recently, the Industrial and Commercial Bank of China, ICBC, officially selected Alibaba Cloud's PolarDB as its enterprise wide transactional distributed database.

Moderator

This represents a strong endorsement of our technological capabilities by one of the most demanding financial institutions in terms of business performance and technology requirements. In e commerce, we remain focused on putting users first. We continue to invest in user growth and improving user experience. TABA and Tmall Group saw stronger momentum in new user growth and 88 VIP members surpassed 50,000,000. This quarter, TTG customer management revenue rose 12% year over year, while adjusted EBITDA increased by 8%.

Moderator

We continue to invest in improving the operating environment for merchants, increasing our support for those offering high quality products and services. Fueled by strong momentum in its cross border businesses, AIDC achieved year over year revenue growth of 22% this quarter. Operational and investment efficiency also continued to improve. Despite potential uncertainties in global trade regulations, we remain confident that AIDC's diversified footprint across global markets positions us well to manage changes effectively, and we remain on track to achieve overall quarterly profitability in our international e commerce business in the coming fiscal year. Other businesses within the group continued to maintain healthy operations.

Moderator

The Digital Media and Entertainment group achieved profitability on an adjusted EBITDA basis this quarter. In fiscal year twenty twenty six, we will continue to focus on driving growth in our core businesses of e commerce and AI plus Cloud while shaping a second growth curve powered by technology over the medium to long term. Thank you.

Executive

Thank you, Eddie. The strong financial results of the past quarter highlight the good progress we are making in driving growth in our core businesses. On our Taobao and Tmall businesses, we saw a substantial increase in CMR growth, which grew 12% year over year, primarily driven by the improvement of take rate. Our take rate benefited from the impact of the software service fee and the increasing penetration of Chunjang Tui. Merchants benefit through Chen Zhan Tui's convenience of use and improvement of marketing efficiency.

Executive

Our cloud business continues to exhibit robust momentum with revenue growth accelerating to 18 and overall revenue excluding Alibaba consolidated subsidiaries accelerated to 17% driven by an even faster public cloud revenue growth. Notably, our AI momentum remains robust with AI related product revenue sustaining triple digit growth for the seventh consecutive quarter. We are seeing our AI products being adopted across an increasingly diverse industries, including a set of digital native industries as well as traditional verticals such as manufacturing, reflecting the broader application of AI technologies in real world business environment. These demonstrate our commitment to innovation and reinforce our leadership in the cloud and AI sectors. This quarter, AIDC maintained its rapid growth momentum, primarily driven by strong performance in cross border businesses.

Executive

We continued to enrich its product offerings and diversify its business models to meet the needs of local consumers through local supply. We will continue to focus on enhancing operating efficiency and navigating in dynamic macro and geopolitical environment. Our commitment to sustainable growth and improving efficiency delivered solid results with all segments achieving year over year EBITDA improvement this quarter, leading to a 36% increase in overall group EBITDA. A number of loss making businesses are on track of turning profitable, while we are investing in selected strategic AI driven initiatives that position us to capture long term opportunities and create value to our users and customers. This quarter, we continue to optimize our business portfolio by exiting noncore assets.

Executive

We expect to generate dollars in maximum of cash proceeds from the sale of Sunna and InTime. These actions allow us to sharpen our focus on core businesses and invest in key growth areas while also enabling solid cash return to shareholders. Our Board of Directors has approved an annual dividend of US1.05 dollars per ADS, representing a 5% increase year over year. This increase reflects the impact of our share repurchase program, which resulted in a 5.1% net reduction in share count after accounting for ESOP issuance for this fiscal year. The Board also approved a special dividend of US dollar 0.95 per ADS, which is higher than last year's US dollar 0.66 per ADS.

Executive

This increase demonstrates that we are making solid progress in disposing noncore businesses in the financial investments. In total, we are distributing USD 2 per ADS in cash dividends this year, amounting to USD 4,600,000,000.0, Combined with the USD 11,900,000,000.0 in share repurchases, we have returned a total of USD 16,500,000,000.0 to our shareholders for this fiscal year. On a consolidated basis, total consolidated revenue was billion, an increase of 7% year over year. Excluding the revenue from Sanna and InTime, group revenue would have grown 10% year over year. Consolidated adjusted EBITA increased 36% to billion, primarily attributable to revenue growth and improved operating efficiency, partly offset by the increase in investments in our e commerce businesses and technology.

Executive

Our non GAAP net income was RMB 29,800,000,000.0, an increase of 22%. Our GAAP net income was RMB 12,000,000,000, an increase of RMB 11,100,000,000.0, primarily due to market to market changes from our equity investments. The increase in income from operations and the decrease in impairment of equity method investments, partly offset by the losses arising from the disposal of subsidiaries. Operating cash flow this quarter was 27,500,000,000.0, an increase of 18%. Free cash flow this quarter decreased 76% to billion, which was mainly attributed to the increase in our cloud infrastructure expenditure.

Executive

As of 03/31/2025, we continue to maintain a strong net cash position of RMB 3 and 66,400,000,000.0 or US50.5 billion The strong net cash position and healthy operating cash flow bring us confidence and sufficient resources to increase our investment in cloud and AI infrastructure to capitalize the sustained strong demand and the substantial growth potential presented by latest AI innovations. Now let's look at the segment results starting with Taobao and Tmall Group. Revenue from Taobao and Tmall Group was 101,400,000,000.0, an increase of 9%. Customer management revenue increased by 12%, primarily driven by the improvement of take rate. Our take rate benefited from the impact of software service fee and increasing penetration of Chunjangtue.

Executive

Merchant benefit through Chunjangtue's convenience of use and improvement of marketing efficiency. We continue to invest in user growth and other strategic initiatives such as price competitive products, customer service, membership program benefits and AI technology applications to enhance user experience. These efforts led to stronger momentum in new consumer growth and the continuous increase in orders. On the merchant end, we remained focused on improving their operating environment and ensuring their sustainable development on our platform. In particular, we increased the support of merchants that provide high quality products and customer services, including support for marketing, new product launch and the customer management.

Executive

During this quarter, the number of ADA VIP members continue to increase by double digits year over year, surpassing CHF 50,000,000. With solid profitability and increasing ARPU on a cohort basis, we will continue to focus on its retention rate. Taobao and Tmall Group adjusted EBITDA increased by 8% to billion, primarily due to the increase in revenue from custom management service, partly offset by the increase in investments in user experience and technology. Revenue from AIDC grew 22% to billion this quarter, primarily driven by strong performance in cross border businesses. AIDC's adjusted EBITA was a loss of 800,000,000.0 to a loss of 4,100,000,000.0 in the same quarter last year.

Executive

AIDC continued to focus on enhancing operating and investment efficiency, leading to a narrowed losses this quarter. In particular, the unit economics of the AliExpress's Choice business improved on a sequential basis. AIDC has a diverse geographical presence. Moving forward, we will continue to diversify and enrich our product offerings by engaging local merchants and partners through different business models in different markets and navigate in the dynamic macro and the geopolitical environment. Revenue from Cloud Intelligence Group grew 18% and overall revenue excluding Alibaba consolidated subsidiaries increased by 17%, primarily driven by an even faster public cloud revenue growth.

Executive

Notably, AI related product revenue maintained a triple digit year over year growth for the seventh consecutive quarter. Our AI products are seeing broader adoption across a wide range of industry verticals, including Internet, retail, manufacturing and the media with a growth in focus on value added applications. In April, we launched QUIN three series, a new generation of hybrid reasoning models that combine the capabilities of fast, simple responses and deeper chain of thought reasoning into a single model. The QUIN three series covers a full range of model sizes, including two MOE models and six dense models. All QUIN three models have been fully open sourced on model scope, Hugging Face and other platforms.

Executive

We believe the full open sourcing of QUIN three will drive innovation and the new applications by developers, start ups and enterprises. Cloud's adjusted EBITA increased by 69% year over year, primarily due to faster growth of public cloud products and improving operating efficiency, partly offset by increasing investments in customer growth and technology innovation. We will continue to invest in anticipation of customer growth and technology innovation, including AI products and services to including to increase cloud adoption for AI and maintain our market leadership. The adjusted EBITA margin decreased quarter over quarter by 1.9 percentage points. We increased our investments in technology and product development to capture the surge in AI demand.

Executive

And also as we ramp up infrastructure investments to growing investment to growing demand, higher depreciation and amortization expenses also weighted on margins. Revenue from Taino decreased by 12% and its adjusted EBITA increased by 55%. This is the result of the increasing integration of logistic offerings into our e commerce businesses. Revenue from local service group grew 10% driven by the combined order growth of both AMAP and Erlama as well as revenue growth from marketing services, while its adjusted EBITA loss continued to narrow year over year as scale increased and unit economics improved due to operating efficiency. Our adjusted EBITA loss increased quarter over quarter mainly due to seasonal effects, including high investments during Chinese New Year holiday.

Executive

Revenue from Digital Media and Entertainment Group grew 12% to 5,600,000,000.0, primarily driven by the stronger performance of the movie and entertainment businesses and the increase in Youku's advertising revenue. Adjusted EBITA of DME turned positive, primarily driven by Youku's profitability. Revenue from all other segments increased by 5%, primarily due to the increase in revenue from Freshippo and Alibaba Health, partly offset by a decrease in revenue from Sunna due to its sale and deconsolidation in February 2025, while adjusted EBITDA loss of 2,500,000,000.0. The All Other segment comprises a set of innovative businesses, including several strategic AI driven technology infrastructure and businesses. While we continue to drive efficiency improvements across business lines, we are also investing in AI opportunities to maintain our competitive edge and to drive future growth.

Executive

In closing, during this quarter, we are making significant strides in enhancing the competitiveness of our e commerce in cloud businesses. Our Taobao and Tmall Group delivered solid growth, reflecting the improvement in monetization efficiency. In cloud, revenue growth continued to accelerate sequentially As we are seeing surging demand and ramping up of our capacity, we will onboard more customers and accelerate our business growth. We are also focusing on improving the efficiency of all segments to establish a clear path to profitability with DME turned profitable this quarter. This quarter, we strengthened our balance sheet by monetizing noncore assets in the financial investments.

Executive

These actions enable us to focus more on our core businesses and provide greater flexibility to invest extensively for growth and to return value to shareholders. We are executing with speed and precision to capture the substantial opportunities ahead in the AI era. Thank you. That's the end of our prepared remarks. We can open up for Q and A.

Executive

Hi, everyone. For today's call, you are welcome to ask questions in Chinese or English. A third party translator will provide consecutive interpretation for the Q and A session. Please note that the translation is for convenience purpose only. In the case of any discrepancy, our management statement in the original language will prevail.

Executive

If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within one week after the end of the meeting. Operator, please start Q and A session. Thank you.

Operator

Thank If you wish to ask a question, please press 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press 2. If you're on a speakerphone, please pick up the handset to ask your question. To give more people the opportunity to ask questions, please keep yourself to no more than one question at a time. Your first question comes from Gary Yu with Morgan Stanley.

Operator

Please go ahead.

Moderator

Thank you. And I have two questions regarding the cloud. The first is that we've seen that it's been difficult in the past for AI to be for cloud to be monetized in the AI era. I recall management having said that in a previous quarter's earning call. And more than 90% of tokens were serving together in the cloud.

Moderator

So first, over the past several months, I'm wondering in the course of talking with your customers if you've seen any big change on that front. And in the past, starting with the enterprises that weren't that willing to go on to the cloud. Because AI is now providing a big push to get on to the cloud. So I'm wondering if you're starting to see that kind of uptake. And if you have, I'm wondering what kinds of companies it is and in what industries, and if you could share with us some color on that as well as provide some guidance for the FY 2026 fiscal year in terms of cloud service revenues.

Moderator

That was my first question. The second question has to do with AI applications, in particular, in the ecommerce area. And looking ahead, say, two to three years down the road, where do we expect to be at? Because we are one of the earlier companies in the ecommerce space that's beginning to apply AI in our ecommerce offering. So if you could provide some kind of outlook as for how much market share you expect to be able to gain as a result of that new AI deployment.

Moderator

And at the same time, in terms of monetization, will these new AI tools provide further space for expansion? Thank you. Thank you. This is Eddie. So I will take this question.

Moderator

The first question. So in the quarter that just concluded, our cloud revenue grew by 18% year over year. And I think that that is primarily benefited from and being driven by demand related to AI. And you know, in terms of putting putting a number on that, if we look at AI driven demand in the cloud space, it's already grown by triple digits for seven consecutive quarters now. And behind that, that means that there's a lot of new companies that are starting to make use of AI services.

Moderator

So as we said before, you know, a lot of the companies that started out initially adopting AI were ones in the Internet space or Internet finance education autonomous driving, those early adopter kinds of sectors. But what we're seeing now is a lot of new scenarios and a lot of newer kinds of companies and other sectors that are taking up AI services. So you know, a lot of these companies might have before they adopted AI, they might have been able to access these services offline with IDC or internally with their own server rooms in their own company. But because precisely because they're now adopting AI, they have a powerful impetus to migrate onto the cloud. And so as you've seen, we've given you some examples, for example, in the animal farming or animal husbandry sector as well as in the manufacturing sector, as well as the EU small commodity city and companies there.

Moderator

And there are a lot of these kinds of companies that originally were handling these workloads offline. So when it comes time for them to implement AI and adopt AI applications, they're migrating these services onto the cloud. And when they migrate onto the cloud, they will probably have some simple applications where they can do API calls. But when it comes to accessing their company internal proprietary data or proprietary internal processes within the enterprise and integrating with those, then a lot of the time what they are going to be doing is post training on the basis of open source model in order to meet those enterprise specific demands. So we certainly are seeing a lot of this kind of demand through Bai Lian or through leasing GPU compute on Alibaba Cloud and making use of IaaS layer services and other services, they're satisfying all of those different, demand.

Moderator

So that's my response to your, first And then just to add to that previous answer, in terms of the trends that we're seeing across these different sectors with more and more companies adopting cloud based AI services, you know, these are companies that had been using a traditional CPU based compute that are now turning to AI and AI compute. So given that, what we see for the next few quarters to come is growth track, significant growth track for revenues in Alibaba Cloud, and we have quite strong confidence and conviction in that. Thank you. This is Jiang Fan, and I will take the second part of the question regarding the application of AI in the e commerce space. So as we've said several times, you know, there's huge potential for applying AI in e commerce.

Moderator

Certainly in the present phase, one thing that we're paying a lot of attention to is leveraging AI to further enhance the user experience. And as you know, we have an opportunity to reshape the consumer experience with AI. For example, in terms of search recommendations and advertising, where we are operating these systems based on traditional algorithms, and I think that this is a high priority for us in the near term. We're already making many attempts on this front and are already starting to see results. It has the potential to enhance, of course, the search experience as well as to provide more precise recommendations as well as to enhance advertising efficiency.

Moderator

So we're seeing AI already making a significant difference in those different ways. Secondly, we're also thinking about how we can leverage AI to enhance working efficiency internally for our employees and beyond our employees also more generally for merchants. Because as you know, when it comes to e commerce, apart from the platform, the other big player in the system is merchants. We also trust that with the deeper adoption of AI, we will be able to further elevate efficiency across our entire ecosystem. And then the the third point is that we believe in the longer term that AI can, create new forms of interaction and engagement.

Moderator

And we're we're working on innovation based forms of interaction and engagement for the future. We're piloting these things actively, and we believe that AI will play a critical role in terms of driving long term enhancement enhancement in the user experience on Taobao and equally in terms of driving enhancement in the efficiency of commerce.

Executive

Next question, please.

Operator

Thank you. Your next question comes from Alex Yao with JPMorgan. Please go ahead.

Moderator

Thank you. So I have a couple of questions regarding monetization on Taobao and Tmall. The first is what is the overall direction that we're moving in and what is the objective, the goal in terms of monetization. We know that starting from last year in April, you launched Zantui QZT. And then in September, you started implementing the 0.6% software service fee on Taobao, where previously it had been zero.

Moderator

You weren't charging anything. So over the past two or three quarters, we've seen these different monetization initiatives progressively rolled out and making a difference that we can see in the financial statements. But looking more to the mid to long term, when you think about monetization, what are the factors that you are considering? We know that, you know, over the last two to three years, the monetization rate has been relatively stable, perhaps with a slight decline, whereas, the monetization rates of the competitors have all risen by quite a large margin. So in a particular Taobao, we know has one of the lowest monetization rates, among any of the platforms across the industry.

Moderator

So when we're thinking about take rate and thinking about that gap with the competitors, are we thinking about merchants and their ROI? Are we thinking about our own ROI? And how are you considering that and where is the balance? And then the second follow on question to that is that we started implementing these monetization initiatives last year, QZT as well as the commission on Taobao. So that's all been in the course of one year.

Moderator

And is that it? Or is there going to be more to this sort of a multiyear initiative, a multiyear cycle where we're going to continue progressively to roll out more monetization measures. Thank you. Thank you. So I'll take the question regarding the monetization rate and how we're working to continue to enhance monetization.

Moderator

The first thing I would say is that our foremost business objective is to stabilize market share in the mid to long term. And on that basis, our monetization rate essentially reflects the size of our market share. Over the past year, we have indeed rolled out various new products, including QZT, among others. And what that did is it allowed us to take some of the traditional advertising products that we weren't able very well to monetize with respect to certain merchants and make a big improvement on that score. For example, for white label merchants, these are merchants who in the past represented a much lower level of monetization, and that's been significantly improved.

Moderator

So I think in the next few quarters to come, we will certainly continue to see this kind of a trend going forward. And of course, we've also begun charging commission on payments. So and that has made a difference in this present phase in terms of monetization. But looking more to the long term, the one hand, we want to enhance the user experience and enhance our business model on that basis, and that will result in the optimization of monetization rate. We want to see growth in our GMV and stability in our market share.

Moderator

And on that basis, we will certainly go about implementing more different kinds of monetization products and make different attempts, pilot different monetization models. I already spoke earlier about some of the attempts we're making already around AI, and I think there's certainly potential there. So on that basis, we will continue to innovate and to enhance our monetization rate and to create more possibilities for higher levels of monetization.

Executive

Your

Operator

next question comes from Ronald Keung with Goldman Sachs.

Moderator

Thank you. So I have a question regarding Alibaba Cloud's growth rate because I recall that in the past quarter, had been said that starting from Spring Festival onward, we saw a surge in demand for inference workloads. So I'm wondering if we can we look at February, March compared to January, whether you saw that continuing rapid acceleration and what what kind of growth we're talking about on a month over month basis. Say for the quarter as a whole, I think it might have been 18%, but that would be the average for January, February and March as a whole. And then also, when we look at these models within the QN family, there are some smaller models as well as some larger models.

Moderator

And I'm wondering how we would evaluate these different AI models, the larger ones, the smaller ones, because we're running them on the cloud. So I'd like to hear about how what your view is in terms of growth in demand for inference, compute power, with respect to these models, given that some of them are very small models? Thank you. Thanks. So this is Eddie.

Moderator

I will take that question. And your first question had to do with the pace of cloud revenue growth in the various months over the quarter. During that first quarter in the period January, February, March, there was the Spring Festival, the Chinese New Year. So I don't think that period of time is really very representative of the overall pace of developments. But I think if you look at the quarter after the spring festival, then, you certainly do see a lot of new customers, a lot of new demand arising.

Moderator

And a lot of that new demand is for inference workloads or for workloads that are driven by inference based scenarios. So, you know, a lot of the large scale adoption, think, is what you're gonna see in the next few months to come. So not just in February and March after the Spring Festival, but through April and May as well. And I think the surge that you're seeing in demand growth is representative of and closer to what you can expect to see as the regular pace of growth going forward. So because there there were some disruptions in supply chains in January, February, March, as well as the seasonal impact of the spring festival in in that time.

Moderator

So I I think you need to look beyond that to see what the regular pattern is going forward. Looking at customer demand, as I said, a lot of demand is driven by inference that continues to grow steadily. Additionally, you'd also asked a separate question about the effect of the different AI models, different sizes of models on the cloud business. So yes, you're absolutely right. Our Q1 open source, models, have a lot of edge model applications, and, there are also applications that are suitable more suitable to be run, on the cloud.

Moderator

There's a lot of different applications. But in particular, when we talk about the smaller models of around 3,000,000,000 parameters or or even smaller, these kinds of models are are running on local devices, for example, on mobile phones of customers, or it could be in toys, or it could be on different kinds of smart devices. And so they're not gonna have much of an impact in terms of driving cloud business. But because those same customers are using the QN models, what that means is often they're also going to require additional usage of cloud based compute resources as well. So it's not just an edge model that can achieve that kind of service requirement.

Moderator

And then you have the larger model, say 32,000,000,000 parameters or higher. And although, yes, you can run those on a consumer grade video processing card, nonetheless, to really be able to run big models and run them well, run applications well, you need to put them in the cloud. So that way, you have the kind of elasticity that can scale to meet the requisite workloads, and of course, you get a better price, as well for the compute. So I think that the edge models to a certain extent are complementary with our cloud based large parameter models. They work well together as business model.

Moderator

So and I think that the use of those smaller models also contributes to higher reliance by those customers on the relevant products of Alibaba Cloud. Thank you.

Executive

Next question, please.

Operator

Thank you. Your next question comes from Kenneth Fong with UBS. Please go ahead.

Kenneth Fong
Kenneth Fong
Managing Director at UBS Group

Hi. Good evening, management, and thanks for taking my question. I have a question in our recent announcement in the instant shopping investment that we said we would invest 10,000,000,000 with Alimar to grow the quick commerce business. Can management share some plans on, let's say, area of investment, why we do it now, and how would it impact the profitability for local service, especially, in light of the intensified competition in the food delivery business recently? Thank you.

Moderator

Thank you. This is Jiang Phan. So I will take this question. Know, instant commerce is not a new racetrack for Alibaba. This isn't day one for us, so to speak.

Moderator

In this sector, we've been building up our capabilities in this marketplace for many, many years now. We invested, of course, in and developed Freshippo as well. So these were all putting pieces in place in that instant commerce space. So I think it's entirely natural for us to continue to develop and grow in this market. Of course, there have been many new large and new developments in this market recently as well.

Moderator

So I think that these are some of the reasons that we're positioned to do very well in the market, and we have some strong advantages. One thing to note about this instant retail market is that it's a huge market because basically every person in China, every consumer in China will have demands for instant commerce today. It could be a market of some, say, 500,000,000 to 600,000,000 consumers going forward that could easily be 1,000,000,000 consumers. It's also a market that's growing and developing extremely rapidly. And it's important to know that Taobao has extremely broad user base already in place.

Moderator

So it's entirely natural for us to develop in this direction and to boost up our instant commerce offerings as a new service or a new category and to integrate it into the Taobao platform. Secondly, in terms of merchants in the market, we have extremely mature and experienced merchant base already in place because, as I said, Ullehma has been operating in this market for many years now. And we also have an extremely robust and mature logistics system to support Instant Commerce as well. So this all makes it possible for us to provide an excellent service experience for Instacart on Taobao. So we're building on a very strong base with very strong advantages.

Moderator

And leveraging those advantages, I expect that we can move forward very quickly in delivering an excellent service experience for instant commerce while at the same time ensuring an excellent balance in terms of business efficiency. And then I can expand on that further to say that over the past couple of weeks, we've been making some attempts with the instant commerce or quick commerce offering. And the results of that trial have vastly exceeded our original expectation. This is we're talking about the growth in scale as well as efficiency of operations. In both of those dimensions, results were better than we had expected.

Moderator

And I think that in the longer term, continuing to develop this will result in many different benefits and advantages for Taobao. First of all, Taobao is an app. We're an e commerce app. And instant commerce is a high frequency consumption scenario. So, by developing more instant commerce on the Taobao app, we can drive higher levels of user engagement with the Taobao app.

Moderator

And that's definitely going to be a good thing for Taobao in the long term. Secondly, we see new possibilities for combining nationwide e commerce with local or hyper local e commerce. And we hope that in the next period of time to come, we can develop those synergies rapidly by investing aggressively in that integration. So we aim to convert more Taobao app users into users of the instant commerce offering on Taobao. And then in the long term, we believe that by driving the growth of this new business format on Taobao, we can upgrade our business model further and we can drive more engagement with our app.

Moderator

So in the short term, the focus of our investment will be on developing new users, as I said. And we see a huge potential for the Tableau app to grow its users and to convert existing users into instant commerce users. So in the short term, we will be investing aggressively in this business.

Executive

Next question, please.

Operator

You. Your next question comes from Joyce Ju with Bank of America. Please go ahead.

Moderator

Thanks, management, for taking my question. So as we know, recently, this year's 06/2018 campaign has begun. So first of all, I'd like to know what different strategies we can expect to see this year around the 06/18 promotion in terms of events or in terms of the pace of the presales period and so on? And then secondly, I'm wondering how the feedback is on the merchant side and on the user side. And then just to follow on from that previous question, before mine, I'm wondering if there's any connection that we can expect to see between Instant Commerce or Rapid Commerce and this year's six eighteen campaign in terms of synergies and if there might be some nice happy surprises waiting for us in the instant commerce space in connection with six eighteen.

Moderator

Okay. Thank you. This is Jiang Fan, and I will take the question about the strategic direction for instant commerce starting there first. I think in the short term, our priority, as I was just saying, is to achieve very rapid conversion, to convert more existing Taobao users into instant commerce users on Taobao and to position Taobao with that kind of mindshare amongst consumers. We're already seeing good results, as I said, from our initial forays.

Moderator

And when users first make use of Instant Commerce, then they continue to come back with high engagement and high frequency. So we're seeing higher levels of engagement from those consumers. And then a major goal for us in the present phase is to get that to get the Instant Commerce business right. I think in the longer term, there are many possibilities to achieve synergy between Instant Commerce hyper local and nationwide commerce. Okay.

Moderator

Coming to the six eighteen campaign, the other part of your question, I think that this is just getting started. In fact, I think the campaign doesn't actually start until officially until tomorrow. So, certainly, you can expect to see some changes, including around marketing and including around the pacing of the campaign. These changes are aimed at better orienting and gearing the campaign to the new competitive environment and, of course, also at offering consumers a good experience, good prices and good services. But because the campaign hasn't actually started yet, I'm not in a position to share with you any of those details.

Moderator

But I will look forward on giving you a fuller report on the campaign during our next quarterly earnings call.

Executive

Due to time limit, we'll now take the last question.

Operator

Thank you. Your next question comes from Alicia Yap with Citigroup. Please go ahead.

Alicia Yap
Alicia Yap
Analyst at Citigroup

Hi. Good evening. Thanks for taking my questions. I wanted to follow-up on the CMR this quarter. So I wanted to management to elaborate a little bit the strong performance, this quarter.

Alicia Yap
Alicia Yap
Analyst at Citigroup

How much of that, is driven by the GMV, versus the 0.6 fee and the transitory improvement? And also wanted to follow-up how much more levers that this improvement of Transantui could further drive the monetization improvement in this upcoming fiscal twenty twenty six? And then also follow-up, will the step up investment in the food delivery business to put some pressure on the TTG EBITDA in the coming quarters? Thank you.

Moderator

Thank you. So this is Toby, and let me start by answering your question about CMR. And as I said earlier, there were really two major drivers of CMR growth in this quarter. The first was the software service fee, the 0.6% charge that we began charging starting from September of last year. And then the second factor has been the growing penetration of QZT and its penetration in terms of advertising revenues.

Moderator

So in the new fiscal year, looking ahead, I think that both of those factors will continue to exist and to play a role. Starting first off with the software service fee, there will continue to be a period of time going forward because last year, we started from a very low base. So we'll continue to be rolling out and charging that software service fee, first point. Secondly, in the earliest period of implementing the software service fee, we had various merchant friendly measures, rebates to certain merchants. And in the coming fiscal year or in 2025, we will slowly start to roll back some of those rebates.

Moderator

So in the new year then, the software service fee will continue to be a positive factor for our the further growth of monetization. Then the second point regarding QZT, we'll continue to drive penetration of QZT. And in fact, progress to date is entirely in line with our expectations. The penetration rate continues to grow, and that is also having a positive driving effect on monetization rates. Of course, in that process of driving penetration of QZT, and Jiang Fan also mentioned this earlier, But the most important thing is growth in terms of new merchants, getting new merchants to adopt QZT.

Moderator

So that includes a lot of small and medium sized merchants who have now started to make use of our advertising products as well as white label merchants and so on. So from a certain perspective, this is incremental budget and incremental new advertising revenue. So this increase will be positive for driving growth in monetization in the new fiscal year. Thank you. And then turning to your second question concerning EBITDA.

Moderator

As Jiang Fan already said, our primary goal that we're focused on for the medium term is stabilizing our overall market share. And as part of that process, we are making a lot of investments. That includes investments in user experience as well as in price competitive products. And as we've said, we still very much remain in an investment stage. This is an investment period, and certainly, that will have an impact on EBITDA in line with competitive developments.

Moderator

You could expect to see fluctuation in EBITDA on a quarterly basis. So I think that's what you can expect to see in that's what you've already seen over the past several quarters. So starting from this quarter, obviously, we're also making new investments in QuickCommerce or InstantCommerce, and that also will have an impact on EBITDA. On the one hand, these investments will result in the acquisition of new users, new user growth as well as increase in frequency and in stickiness. So in a certain sense, you can see this as supplanting some of our original investments in market growth.

Moderator

So of course, we do take that into consideration. But overall, we would expect that EBITDA TTG's EBITDA overall in the next few quarters to come will experience some fluctuation in line with competitive dynamics.

Executive

Thank you, everyone, for joining us today. We appreciate your time. We will see you next quarter.

Operator

That does conclude our conference for today. Thank you for participating. You may now disconnect.

Analysts
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Key Takeaways

  • Alibaba’s AI-driven strategy delivered strong results, with total revenue excluding SunArt & InTime up 10% year-over-year and adjusted EBITA rising 36%.
  • Alibaba Cloud saw revenue growth accelerate to 18% year-over-year and AI-related product revenue maintained triple-digit growth for the seventh consecutive quarter, underscoring AI as a key growth driver.
  • Taobao & Tmall Group customer management revenue rose 12% year-over-year and adjusted EBITDA increased 8%, with 88VIP membership surpassing 50 million and continued investments in user experience and merchant support.
  • Alibaba International Digital Commerce (AIDC) achieved 22% revenue growth and is on track to deliver quarterly profitability in the coming fiscal year despite global trade uncertainties.
  • The group maintained a net cash position of ~US$50.5 billion, operating cash flow grew 18% year-over-year, and returned US$16.5 billion to shareholders via dividends and share buybacks.
AI Generated. May Contain Errors.
Earnings Conference Call
Alibaba Group Q4 2025
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