Categories Earnings Call Transcripts, Retail

Alibaba Group Holding Limited (BABA) Q4 2021 Earnings Call Transcript

BABA Earnings Call - Final Transcript

Alibaba Group Holding Limited (NYSE: BABA) Q4 2021 earnings call dated May. 13, 2021

Corporate Participants:

Robert Lin — Head of Investor Relations

Daniel Zhang — Chairman and Chief Executive Officer

Maggie Wu — Director and Chief Financial Officer


Alex Yao — J.P. Morgan — Analyst

Thomas Chong — Jefferies — Analyst

Jerry Liu — UBS — Analyst

Han Joon Kim — Macquarie — Analyst



Good day, ladies and gentlemen, thank you for standing by. Welcome to Alibaba Group’s March Quarter 2021 and Full Fiscal Year 2021 Results Conference Call. [Operator Instructions]

Now, I’d like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Robert Lin — Head of Investor Relations

Good day and good evening, everyone, and welcome to Alibaba Group’s March quarter 2021 and full fiscal year 2021 results conference call. With us today are Daniel Zhang, our 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.

Let me cover the 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 discussions of these risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the US SEC or announced on the website of Hong Kong Stock Exchange. Any forward-looking statements that we make on this call are based on our assumption 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, marketplace-based core commerce adjusted EBITA, 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 reconciliations of non-GAAP to GAAP measures can be found in our earnings press release. Unless otherwise stated, growth rate of all the stated metrics mentioned during this call refer to year-over-year growth versus the same quarter or same period last year.

In addition, during the call today 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 discrepancy, management’s statement in the original language will prevail.

With that, I will turn the call now to Daniel.

Daniel Zhang — Chairman and Chief Executive Officer

Thank you, Rob. Hello, everyone. Thank you for joining our earnings call today. We delivered another solid quarter, making the strong finish to this eventful fiscal year. China started this past year with a national battle against the COVID-19 outbreak and ended the year as the first country in the world to effectively control the pandemic and return to a normal life.

Based on IMF estimates, China was the only major economy that achieved positive real GDP growth in 2020. According to the National Bureau of Statistics, China recorded retail sales of RMB42 trillion during the 12 months ended March 31, 2021, and the GDP growth in the quarter ended March 2021 reached 18.3% year-over-year. Against the backdrop of this macroeconomic recovery and accelerated digitalization in China, Alibaba Group achieved healthy growth across all businesses.

During the past fiscal year, we’ve made significant progress in our three key strategies: namely domestic consumption; globalization; and cloud computing. Such progress demonstrated the tremendous power of Alibaba’s digital commerce infrastructure, as well as our long-term commitment to invest for the future and to create value for our consumers, merchants and partners through innovations.

For our consumer-facing businesses, Alibaba Ecosystem recorded RMB8.1 trillion in GMV, or $1.2 trillion during the fiscal year, a net increase of over RMB1 trillion year-over-year. Annual active consumers for our Ecosystem reached a historical milestone of over 1 billion, with a net increase of 170 million year-over-year. Our annual active consumers outside of China increased by 60 million to over 240 million as of March 2021, which reflects the progress of our globalization strategy.

Benefiting from the increasing demand for digitalization across industries, Alibaba Cloud’s revenue exceeded RMB60 billion for past fiscal year, representing a year-over-year growth of 50% as it continued to strengthen its market leadership in China and Asia-Pacific.

During the past fiscal year, we have gone through all kinds of challenges, including the COVID-19 pandemic, fierce competitions, as well as the Anti-monopoly investigation and the penalty decision by Chinese regulators. We believe the best way to overcome this challenge is to look forward and to — and invest for the long run — for the long-term to create value for our customers through technology and innovation and to solve major problems in society. Therefore, we plan to invest all of our incremental profits in this coming year into core strategic areas, such as technology innovation, support programs for merchants to lower their operating cost, user acquisition and experience enhancements, merchandising and supply chain capabilities, infrastructure development and new business initiatives.

Considering that our incremental profits are expected to be significant, our investments will be highly targeted and disciplined. They will be designed to enlarge our total addressable market, depreciate consumer and merchant value proposition from our competitors and generate greater consumer engagement and purchase frequency. We will establish key metrics to measure the effectiveness of these investments, which we believe will generate significant results in the long-term.

Our annual active consumers in China reached 891 million by the end of March. We hope to grow this customer base in China by over 100 million in the coming fiscal year to reach over 1 billion. Annual active consumers for our China retail marketplaces were 811 million by the end of March, representing a net increase of 85 million year-over-year. These consumers spent an average of RMB9,200 annually per person on our platforms. We believe this is the largest and best quality consumer base in China. We will continue to serve the demand of consumers diversified lifestyle based on their segmented preferences.

As the largest digital consumption marketplace in China, Taobao app will continue to strengthen its comprehensive supply of branded products, value for money products, agricultural products, imported products and differentiated longtail products to meet the diversified demand of our consumers. In underpenetrated categories, such as groceries, real estate, home furnishings and pharmaceuticals, we will redefine the consumer journey at the digitalized experience for the sector to enhance its online and a New Retail penetration.

We will also work on improving the overall consumer experience and engagement in Taobao app by offering diversified consumer journeys based on different user segment — based on different user segmentation and intent. At the same time, we are improving the tools and enabling capability for merchants to enhance their customer engagement and reviewing our platform policies to lower their operating cost.

As part of our China retail marketplaces, Taobao Deals has grown rapidly over the past year, reaching over 150 million annual active consumers. As an indication of the activeness of our app users, monthly active users of Taobao Deals reached 130 million in March, a net increase of 27 million from December. Taobao Deals offers the best value for money products for price-conscious consumers. It features single product design and a direct-to-consumer supply from farms and manufacturers. The rapid growth of Taobao Deals contributed positively to our China retail marketplaces. During the past fiscal year, average spending of consumers who purchased on Taobao Deals increased more than the average spending of China retail marketplaces consumers. We will further increase our investment in Taobao Deals in the new fiscal year to serve more price-conscious consumers in less developed areas.

Next, I would like to talk about New Retail, which includes the community marketplace model that has attracted a lot of attention lately. Alibaba introduced our New Retail strategies in 2016 and we have executed our strategy based on multiple business models to serve the various demands of consumers. For groceries, fresh produce and FMCG products, we’ve transformed offline retailers, such as Sun Art through digitizing their operations and created New Retail formats, such as Freshippo that integrate online/off-line experience. The combination of these New Retail formats satisfy consumer demand, not only in store, but also in nearby communities by offering comprehensive delivery options from one hour, half day, same day and next day.

As part of our latest exploration in New Retail, we started the community marketplace business in select regions in China. Our community marketplace is supported by the supply chain capabilities of Freshippo, Sun Art and other partners. In addition to one hour, half day, same day and next day delivery options mentioned above, we now offer community consumers with the option of order today and pick up tomorrow. We believe New Retail is a multiple — we believe New Retail is a multi-format consumer infrastructure, of which the community marketplace model is one of the essential ways to serve price-conscious consumers. This model can help us acquire new customers in low-tier cities and rural areas and further increase our use of consumption frequency and stickiness. We believe the key to unlocking the full value of the community marketplace model is not only about the standalone P&L of the business, but also about the overall efficiency and the servicing capability of the entire commerce platform where the business fits. And we believe the latter can generate far greater value than the former.

Alibaba has the most sophisticated and efficient commerce infrastructure in China with the most comprehensive product and service offerings to serve consumers of diversify segmentation and demand. Accordingly, we believe we will be able to create and capture the highest consumer lifetime value through investments into the community marketplace business. We will grow this business leveraging Alibaba Ecosystem’s full core capabilities, including merchandising and supply chain capabilities, logistics and fulfillment infrastructure, consumer engagement capabilities and the distribution channel development and management capabilities. While we are still in the early stage of business expansion, our goal for the new fiscal year is to expand our geographic coverage nationwide and define a healthy and a sustainable community marketplace business model.

Cainiao Network has delivered solid revenue growth during the fiscal year. Revenue from external customers outside of Alibaba Group grew 68% year-over-year and contributed to over 70% of Cainiao Network’s total revenues. Cainiao also reached an important milestone of generating positive operating cash flow during the year. We believe Cainiao’s continuous growth will be driven by three important engines: number one, first-mile business based on Cainiao Post and Cainiao Guoguo; second, fulfillment service from factory to consumers; and third, cross-border supply chain services for importing and exporting merchants.

Building on top of the significant improvement in operating efficiency in the new fiscal — in the last fiscal — in the last few quarters, invested in user acquisition and the logistic capacity during the Chinese New Year period, where many residents were encouraged by the local government to stay in the same city they work and avoid long distance travel due to the pandemic. As a result,’s annual active consumers grew strongly at close to 20% year-over-year during the fiscal year when user experience improved. Looking forward, we will continue to invest in’s consumers mindshare as the entry point for local service through converting more consumers in Alibaba Ecosystem into user, as well as cross-selling between food delivery and other on-demand services to increase order frequency.

In our international commerce retail business, Lazada and AliExpress, each achieved more than 100 million of annual active consumers by March 2021. Lazada delivered another quarter with triple-digit order growth year-over-year. AliExpress continue to achieve rapid growth by significantly improving the logistic experience for its consumers, leveraging Cainiao Network’s global smart network, smart logistics infrastructure. For example, France and Spain, two of the key markets that AliExpress invested in logistics infrastructure improvement, recorded triple-digit GMV growth year-over-year during the quarter. In the future, we will continue to invest in key cross-border logistics hubs in Europe, develop local logistics network in targeted markets and strengthen infrastructure support for our cross-border and local e-commerce businesses.

In fiscal year 2021, our cloud computing revenue grew 50% year-over-year to over RMB60 billion. I’m very excited about the massive potential of our cloud computing business, as the post-pandemic world is facing a massive opportunity for industrial digitalization. Cloud infrastructure will eventually replace IT infrastructure, empowering enterprises to achieve digital operation. As China’s industrial sector undergoing its digital transformation, manufacturers are moving forward, smart manufacturing and the direct-to-consumer initiatives, while other traditional industries, such as retail, energy, finance, and transportation have all noticed the tremendous value and the new opportunities that big data and intelligent applications could create.

Alibaba Cloud will capture the historical opportunity by, number one, investing in core IAAS and PAAS products, such as database, storage, elastic computing and big data platforms to establish our core product competencies, benchmarking against the global cloud leaders. And number two, further expanding the integration of intelligence with cloud infrastructure to provide our customers with more diversified industry intelligence solutions together with our partners.

Lastly, we are now in April 2021 that we received the administrative penalty decision issued by the China’s State Administration of Market Regulation. We have stated that we accept the penalty with sincerity and will ensure our compliance with determination. As a result of the Anti-monopoly Fine of RMB18.2 billion levied by the SAMR, we recorded an operating loss this quarter for the first time since our history as a public company. The penalty decision motivated us to reflect on the relationship between a platform economy and society, as well as our social responsibilities and commitments. We believe the self-reflection and adjustment we’ve made will help us better serve our community of consumers, merchants and partners and position us well in the future.

Thank you, all. Now, I will turn it over to Maggie, who will walk you through the details of our financial results.

Maggie Wu — Director and Chief Financial Officer

Thank you, Daniel. Hello, everyone. Let me start with financial highlights for the fiscal year 2021 and for the March quarter. So, our total revenue was RMB717 billion, an increase of 41% year-over-year. Excluding the consolidation of Sun Art, our revenue would have grown 32% year-over-year to RMB674 billion. This is the well exceeded revenue guidance we gave at the beginning of the year, which was RMB660 billion. For March quarter, our total revenue was RMB187 billion, up 64% year-on-year. Excluding Sun Art, the growth would have been 40%, still very strong. The growth was driven by the robust revenue growth of our China Commerce Retail business, as well as continued growth of cloud computing businesses.

Total adjusted EBITA was RMB170 billion, an increase of 24% year-over-year, and for the March quarter, it was RMB23 billion, with an increase of 14% year-over-year, primarily driven by healthy profitable — profit growth of our market-based core commerce business, partially offset by the increased investments in new businesses and key strategic areas. Total adjusted EBITDA increased 25% year-over-year to RMB197 billion for the year, and increased 18% year-over-year for the March quarter.

So net income was RMB143 billion for the fiscal year, which includes the one-time fine levied and increases in SBC expenses. The non-GAAP net income for the year was RMB172 billion, 30% year-over-year growth. March quarter, we showed net loss of RMB7.7 billion, primarily due to the Anti-monopoly Fine of RMB18.2 billion. Excluding this impact, certain other items, non-GAAP net income was RMB26 billion, an increase of 18% year-over-year.

We continue to maintain a solid cash position of $72 billion with strong cash flow generation capability. Our free cash flow grew strongly at 32% to RMB173 billion, or around $26 billion.

Now, let’s look at the fiscal 2021’s revenue in more detail. Our revenue continued to be more diversified on the back of strong organic growth. The revenue of our China retail marketplaces continue to grow strongly as reflected by our consumer — customer management revenue growth of 24%.

Our Alibaba Cloud and Cainiao businesses were the two fastest-growing businesses and important drivers of our organic revenue growth. Both have also achieved important financial milestones with the cloud computing business improving its capability to be profitable in December quarter and continue to showing increasing profit in March quarter, Cainiao generating positive cash flow. These two growth businesses exemplify our track record of committing to invest in businesses over the long-term that we believe can create tremendous value for our ecosystem. It is important to note that we have continued to invest and grow new seed businesses, such as Taobao Deal, Taobao Grocery, Freshippo Market, which is a community marketplace business and new features on the core platform, such as Taobao Live and short-form video. These initiatives address new consumption demands and behaviors that will continue to expand our addressable markets in China and create many cross-selling opportunities in our ecosystem. We believe these businesses have the potential to be the long-term revenue growth drivers that continue to catalyze our multi-growth engine in the future.

Let’s look at our overall cost trends. Excluding SBC as a percentage of revenue, cost of revenue ratio increased in March quarter and fiscal year due to higher proportion of direct sales business. This increase was primarily attributable to higher proportion of our direct sales business from the consolidation of Sun Art, as well as the growth of Tmall Supermarket. These direct sales businesses will continue to strengthen our New Retail initiatives, especially in the development of our product sourcing capability.

Sales and marketing ratio also increased in March quarter and fiscal year given increasing marketing and promotion spending to drive user growth and engagement. I would like to remind everyone that we added 84 million annual active consumers on our China retail marketplace in fiscal 2021, especially in larger cities with Taobao Deals ending the year with 115 million annual active consumers.

G&A expense ratio was significantly higher at 30% for the quarter, primarily due to expensing of the one-off Anti-monopoly Fine. Excluding this item, G&A ratio would have decreased by 1 percentage point to 4%.

Revenue and adjusted EBITA, this slide provides you with an overall summary of our segment revenue and profitability for the March quarter and fiscal year. For the next part of the discussion, I’ll first provide you with an overall financial recap by segments for the fiscal year and then followed by quarterly discussion of the important segments. Let’s look at the segment revenue and profitability for fiscal year 2021. Starting this quarter, for purpose of presenting our market-based core commerce adjusted EBITA, we expanded the list of the new initiative businesses that we break out in order to present the progress of our strategic investments, as well as the profitability of our market-based core commerce business. This is on a like-for-like basis. The new initiative businesses, which now include our New Retail business, Local Consumer Service, Lazada, Taobao Deals and Cainiao, represents strategic areas where we are executing to capture incremental opportunities. As previously mentioned, we are very excited about the growth perspectives of these fast-growing businesses that will not only increase our addressable market, but also require long-term investment commitment. We believe these new businesses will be the drivers of our market engine revenue growth in the future.

So under this new presentation for fiscal 2021, our market-based — marketplace-based core commerce adjusted EBITA was RMB229 billion, growing 17% year-on-year. Combined losses of the strategic investment areas was RMB34.6 billion, reflecting investment in New Retail, Local Consumer Service, Lazada, as well as the addition of losses reflecting our aggressive investment in Taobao Deals. Core commerce adjusted EBITA reached RMB194 billion. The cloud computing and DME continue to narrow losses during this fiscal year. Our innovation initiatives recorded adjusted EBITA loss of RMB10 billion, up RMB1.8 billion as we continue to invest in technological research and innovation. Overall, our adjusted EBITA for fiscal year grew 24%, reflecting the strength of our core commerce business that was partially offset by the investment we made in the new initiatives areas.

Segment reporting, I wouldn’t go into detail for each one of them, just some highlights. So, for the core commerce, CMR grew 40% year-over-year to RMB64 billion. These are all for the discussion for the quarter. This growth actually is driven by solid growth of our China retail marketplaces. Overall online GMV was — grew 33%, reflecting the rapid recovery of growth in apparel, accessories and home furnishing category, etc. FMCG also exhibited solid growth during this quarter.

From a merchant spending perspective, we saw strong growth in higher spending per merchant and an increasing number of paying merchants on our China retail marketplace. In March quarter, China retail others revenue grew 134% to RMB60 billion due to the consolidation of Sun Art. In March quarter, marketplace-based EBITA reached RMB44 billion, up 28% year-on-year, reflecting solid CMR growth, partially offset by the increase in the marketing/promotional spending for user acquisition and increasing engagement on our China retail marketplace.

Let’s take a look at the cloud computing business. AliCloud revenue grew 37% year-over-year to RMB17 billion during the quarter. This slower revenue growth due to the — during the quarter was due to a change in our relationship with a top cloud customer in the Internet industry. This customer has a sizable presence outside of China that used our overseas cloud services. They have decided to terminate their relationship with us with respect to their international business due to non-product-related requirements. We expect the impact of reduction in revenue from this customer to affect our year-on-year growth rate with — when compared to prior years. Excluding this customer impact, Alibaba Cloud top 10 non-affiliated customers together accounted for no more than 8% of Alibaba Cloud’s total revenue. So, you get a sense on this concentration, the revenue is really not high. Going forward, we believe that our cloud computing revenue will be further diversified across customers and industries.

Alibaba Cloud was profitable for the quarter and generated an adjusted EBITA of RMB308 million. Our cloud business has delivered profit over the last two quarters, which demonstrates that we can run this business on the profitable business. We believe it is still more important to drive market share leadership given the rapid growth of the industry. We will continue to invest in innovation — in innovative technology, expanding customer servicing capabilities and enabling a robust developer ecosystem for the cloud business in the future.

Our DME business for the quarter grew to RMB8 billion in revenue, 12% year-on-year growth. This is a sector that impacted by the pandemic as well.

Income statement: Selected Financial Metrics. So, when you look at the interest and investment income, it was RMB111 million in March quarter. This year-over-year increase is primarily due to the decrease in net loss arising from the fair value changes of our investments. Share of results of equity method investees was RMB6 billion during the March quarter.

Our free cash flow was an outflow of RMB658 million this quarter. It was also — this was a pattern — similar pattern in last year. The cash flow outflow during this quarter was mainly due to our increased strategic investment, as well as the increase in marketing and promotional spending for user acquisition and retention. And at the same time, there was merchant deposit funds that — as a practice that we discussed in the earnings release that we just take it out from the free cash flow calculation.

Okay. So let’s take a look at the non-GAAP net income attributable to shareholders was RMB5.5 billion for the quarter. This was mostly due to expensing of RMB18.2 billion fine, partially offset that by the reduced net loss arising from the fair value changes of our investments.

Now, outlook and the guidance. So total revenue, excluding Sun Art consolidation, was RMB674 billion for our fiscal 2021, which, as I mentioned, surpassed our annual revenue guidance. This was driven by robust performance of our core business, as well as continued growth of cloud. Going forward, we expect to generate over RMB930 billion in revenue in fiscal 2022, considering the total market potential, as well as the — our strong profit and cash flow generation capability. This gives us the internal resources to focus on long-term value creation. In fiscal 2022, we plan to invest all of our incremental profits and additional capital into supporting our merchants and developing new businesses and key strategic areas that will help us increase consumer wallet share and penetrate into new addressable markets.

That completed our prepared remarks. Let’s open up for Q&A. Thank you.

Robert Lin — Head of Investor Relations

Hi, everyone. So for today’s call, we welcome to ask — you are welcome to ask questions 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 you ask. Please note that this translation is for convenience purpose only. In the case of any discrepancy, the management’s statement in the original language will prevail.

[Foreign Speech] Operator, now we can connect to the speaker and SI conference lines and start the Q&A session when ready. Thank you.

Questions and Answers:


Thank you. [Operator Instructions] First question comes from the line of Alex Yao of J.P. Morgan. Your line is open. Please go ahead.

Alex Yao — J.P. Morgan — Analyst

[Foreign Speech] Thank you, and good evening, management. I have some questions on the investment side. First of all, I’d like to know if you could please clarify the remarks made, I believe, by both Maggie and Daniel in your presentations as regarding the intention to completely reinvest all incremental profit in the coming year. Does that mean that we’re talking about an outlook with zero profit growth in the coming financial year?

Secondly, you listed a lot of different areas into which that investment will be channeled, I’m wondering if you could tell us which of those will be the top priorities.

And thirdly, Daniel in his remarks spoke of how these investments will be managed in a prudent fashion with internally-defined KPIs to monitor investment effectiveness. I’m wondering if you could please tell us more about how that will work. And on those KPIs how performance has been year-to-date? Thank you.

Maggie Wu — Director and Chief Financial Officer

[Foreign Speech] Yes. Hi, Alex, and good evening. Let me start by answering as to what we intend to — what we meant with this announcement of our investment of incremental profits and what the priorities will be in terms of making this investment. So, as we stated in our earnings guidance, we plan to invest all incremental profit in the coming year into growing our business further and investing for the future. Does that mean then that in the coming year there will be no profitability or profit growth or will maximum profit growth be restricted to what it was this year? Well, let’s look at what we can achieve with this investment first. In the market, as you know, there are very, very few companies that can do what we’ve done in terms of investing a lot of money into future business growth into strategic initiatives, while still enjoying very robust profit growth.

So, I think it’s fair to say that there is huge potential for us to further grow, be it in our core market or in other areas, there’s still lots of scope and lots of room for us to do new things and grow the business. And I think any long-term investor would say that, promising to maintain a certain level of profit or prioritizing a higher level of profit would be a stupid thing to do, because in the market today there are so many competitors who are investing large amounts to gain a foothold in the market, to grow the market, and we are in a great position to create value and capitalize on our existing resources to drive future growth going forward. So that is the intention. We’re going to be investing in a highly targeted and highly disciplined way in order to lay a foundation for even better growth going forward. And at the end of the day, users will vote with their feet [Phonetic]. And so, we see these investments ultimately as playing out in terms of growing the business and more deeply engaging users.

[Foreign Speech] And then by way of follow-up in terms of the specific areas we intend to be investing in, as we’ve talked about, certainly, core commerce, New Retail, as Daniel mentioned in his remarks, the community marketplace business, Taobao Deals, but also our international business, local services and logistics.

[Foreign Speech] And then, another way of breaking down the investments, not by business, but in terms of the results that we see, certainly, this would include growth in the user base, enhanced engagement, as well as the provision of more value to merchants.

Daniel Zhang — Chairman and Chief Executive Officer

[Foreign Speech] Yes. I’d just like to add to that briefly. When it comes to making these investments, we do have three major strategic priorities. As I mentioned in my script, these are domestic consumption, globalization and the cloud or high — advanced technology part of the business. And we intend to be investing in all three of those because we see large incremental opportunity.

[Foreign Speech] Starting with the first of those three strategic priorities, namely domestic demand, domestic consumption. Our AAC number has now reached 890 million in China. This is the latest total figure across the ecosystem, all of the different platforms, an aggregate AAC figure of 890 million. However, there is still a lot of scope to grow the frequency of purchase and engagement of these 890 million AACs to convert them into MACs, monthly active consumers, or even DACs, daily active consumers. So huge scope for development there. We have today within this user base the broadest, largest multi-tier consumer base in China. So, as I said in my remarks, a major priority for us in further developing that user base is to continue to drive higher levels of purchase frequency across all classes of consumers.

[Foreign Speech] And then although we already have 890 million AACs, still there is quite some scope for further growth in that figure with respect to users in lower-tier cities and in rural areas. In fact, in my script, just now I reported the growth achieved in the past year in our user base and 70% of those new users came from rural areas. And we will continue, as I said, just drive to grow user base, adding new users and have set the target surpassing 1 billion AACs in the new financial year.

[Foreign Speech] Apart from growing the number of consumers and their frequency of consumption, another important initiative for us is helping merchants by reducing their burden, reducing their costs, as well as creating, facilitating and conducive environment for their long-term development and success. In this respect, we have many measures, some have already been announced, some have yet to be announced, but they all came to helping merchants.

[Foreign Speech] Finally, also in the same area of domestic demand and domestic consumption, another place we’ll be investing is in the continued construction and improvement of our infrastructure, our logistics, our supply chain and merchandising capabilities. This is also an important area where we can discover and satisfy user demand and create long-term value for users and for the Company. In the interest of time, I will not expand any further, I will merely end by saying that we will put in place detailed KPIs to monitor all of these investments and ensure that they’re conducted in a disciplined fashion.

[Foreign Speech] So, the above was all with respect to the domestic consumption piece of our strategy. Turning now to globalization. As was mentioned in my speech earlier, we’re very pleased that we now have 240 million international AACs and we hope to double that figure going forward, so growing the international user base is also very important to us.

[Foreign Speech] Finally, I’d like to talk briefly about technology. We see the cloud as a epoch-defining opportunity and we’ll continue to invest in cloud technology, but also in big data and other kinds of technology as well, including technology to enable the next-generation consumption experience to better support logistics services and in other areas to ensure that technology is supporting the realization of our domestic consumption strategy, our globalization strategy, as well as our cloud and hi-tech strategy. We want to enable all of these strategic areas to benefit from further improvement in our technology capabilities.

Robert Lin — Head of Investor Relations

Okay. Next question, please.


Thank you. Yes. Our next question is from the line of Thomas Chong of Jefferies. Your line is open. Please go ahead.

Thomas Chong — Jefferies — Analyst

Hi. Good evening. Thanks management for taking my questions. May I ask about the trend in terms of the CMR? Given that we have seen the CMR growth rate is very solid. Can you comment about the FY’22 outlook, in particular, how we should think about the take rate trend for this year?

And my second question is about the competitive landscape, given that we have a wide product selections and very strong technology, how would we leverage our core capabilities in different areas like lower-tier cities penetration, as well as our strategic initiative in local service and [Indecipherable]? Thank you.

[Foreign Speech]

Maggie Wu — Director and Chief Financial Officer

Yeah. Hi, Thomas. In terms of CMR growth, you’ve seen that we reported 24% year-on-year growth for the quarter and if you look at the past few quarters has been growing strongly, considering this large base. I believe the CMR growth going to be have — continue to have high potential. If you look at this revenue, actually the TAM is merchants budget, right? You pay for the services and we provided. Currently, our take is somewhere around 4%. This is mainly where merchants paying for the sales and marketing, branding services were provided. So, even in this sole [Phonetic] area, we still have a lot of potential and there are also other areas that we could provide merchant service. So take rate has been growing over the past years.

I think this year, as we talked about, we’re going to provide more support to the merchants. In our last call, we talked about the details on how we support our merchants, these including waiving certain charges, fees, and also invest on the platforms and infrastructures to support merchants. So, we’re not aggressively monetizing the value we created for the merchants actually.

The one thing worth to mention is that, CMR currently accounts for approximately 43% of our total revenue. If you look at three years ago, five years ago, it used to be like 70%, 80%, right? So, it has been growing very fast, as a percentage of revenue coming down. I think that trend will continue. That is because of our market engine strategy, we have so many new businesses and revenue contributed from these new — that become more and more important and significant to our total revenue. [Foreign Speech]

Yeah. Just one minor correction, the 24% year-on-year growth is for the annual fiscal 2021. For this quarter the growth rate for CMR was 40%. [Foreign Speech]

Daniel Zhang — Chairman and Chief Executive Officer

Let me answer the second question in terms of the technology, how do we apply technology into the competition? Actually, we always believe that technology is so critical in the competition and we are proud of our technology development and integration with the real operation and even in the fierce competition.

So, let me just give you a few examples. In domestic consumption area, actually one of the key thing is how to acquire and retain the customers on our China retail marketplaces. But the key thing is, how to use technology to match the most comprehensive product offerings we have on our platforms with the right customers and generate the real consumption. So the matching capabilities is all driven by AI and driven by technologies. So I think that’s our big advantage to make sure we have a most effective conversion, I mean, over the years our conversion rate continue to grow and which, not only to grow our GMV, but also to meeting the diversified demands of our customers.

The second example I want to give you is that, once we acquire new customers, it’s all about how to maximize the lifetime value of these customers vary across category setting opportunities. And so, in this regard, we have these — we built a very comprehensive user profile and the product features profile to make sure we can maximize we can understand our customers very well and provide all their needs during their lifetime cycle. Let me stop here for translation. [Foreign Speech]

Well, but technology application is not limited to the consumer management side. Actually, it’s covered all the areas. Just a few more examples, example on logistics side and technology actually play very important role to — for Cainiao to build a smart data-driven logistics network and operating system and — to serve our merchants, both in China and the international market.

And on the cloud side, I think technology is key, as I said in my script, we continue to invest in technology to build our competitive advantage in the IAAS and PAAS products. But this — our benchmark is not only in China, actually we benchmark global leaders in all of their — I mean, core cloud products and to make sure we are as a top tier of the world. Thank you. [Foreign Speech]

Robert Lin — Head of Investor Relations

Okay. Next question.


Thank you. Next question is from the line of Jerry Liu of UBS. Your line is open. Please go ahead.

Jerry Liu — UBS — Analyst

Okay. Thank you. Thank you management. Yeah. My question is really on the business model. If we look at the recent past years we’ve seen an increase in the 1P revenue mix, right, as Alibaba consolidates Sun Art and as we grow Hema or Freshippo. So today we talk about investing in community marketplace. And from the presentation, it looks like the providers of groceries and FMCG into this business includes also Sun Art and I believe, Hema as well. So, as we invest in these high-frequency categories, how does this change the long-term business model? How do we envision the ecosystem looking on long-term? And maybe more specifically, do we have a target 1P, 3P mix in mind? Thank you.

[Foreign Speech]

Daniel Zhang — Chairman and Chief Executive Officer

In short, we don’t have any specific goal for 1P, 3P mix. We strongly believe that this mix is an organic result outcome of operation and we don’t manage the 1P, 3P mix intentionally. Over years we built our two flying wheels in our consumption business. One is to build our — continues to build the capability to manage the customers smartly and efficiently. And in this regard, we said how to create the demand? So in the demand side, we continue to invest to improve our user interface with creativity and with technologies. And we strongly believe that it’s very important for us to engage — enhance our engagement with our customers, not only to have more customers on our platform, but also to have them spend more time with us. And we strongly believe that a very diversified supply from the merchants from different sources is very, very important. And the selection is very, very important to enhance the user stickiness. So, I think that’s the area we continue to invest and to build capability on the customer management and demand creation.

And on the other hand, over years we try to build a very strong, I mean, merchandising capabilities and supply chain management capabilities, which we believe actually — over years, no matter how frequency — how change the user interface will be, the efficient supply is a must to do a successful commerce business, including e-commerce business. So that’s why we invest a lot to build our supply side capabilities and we believe that these capabilities and the advantage of this capability will not change even with user interface upgrading and change. So these are two flying wheels to Alibaba.

I’m so proud that maybe we are one of the few companies in the world, which have the — has had the excellent, I mean, consumer management capabilities. But at the same time, has this merchandising and supply chain management capabilities in one company and in one team. I think that these two flying wheels are the critical successful factor for our long-term growth. [Foreign Speech]

Robert Lin — Head of Investor Relations

Next question.


Thank you. Next question is from the line of Han Joon Kim of Macquarie. Please go ahead.

Han Joon Kim — Macquarie — Analyst

Great. Thank you for your time today. I wanted to ask about Taobao Deals. I think it’s been one of the fastest-growing apps in last year. And are you guys empowering it to kind of grow to 700 million, 800 million kind of users over the years or do you just kind of see it as something [Speech Overlap]? Hello? Do you hear me?

Robert Lin — Head of Investor Relations

I’m sorry to interrupt. Can you repeat your question maybe get closer to the mic?

Han Joon Kim — Macquarie — Analyst

Sure. It’s regarding Taobao Deals. I’m wondering if we are empowering it to try to grow to 700 million, 800 million users over the years or do you just…

Robert Lin — Head of Investor Relations

Sorry, your mic is still very noisy.

Han Joon Kim — Macquarie — Analyst

Hopefully, this is a little bit better.

Robert Lin — Head of Investor Relations


Han Joon Kim — Macquarie — Analyst

Yeah. Yeah. Sorry, just to repeat. For Taobao Deals, just wondering if this is a business you’re empowering to try to get to kind of 700 million, 800 million kind of user base in a few years’ time. And if that’s the case, how do we see this interacting with, I guess, Taobao and Tmall in the sense of as Tmall — as Taobao Deal grows, do we see any kind of cannibalistic behavior to our own services? And part of this is also, I don’t feel like I’m seeing your competitors in that similar space being particularly impacted as Taobao Deal grows. So, most are kind of thinking how this impacts perhaps the competitive landscape as well. Thank you. [Foreign Speech]

Daniel Zhang — Chairman and Chief Executive Officer

Well, the value proposition of Taobao Deal is very clear, it’s full of price-conscious consumers and we provide on Taobao Deals platform the value for money products for these — I mean, price-sensitive customers. And in terms of supply side, actually, we focus on manufacturers and then farmers and their direct offer and end-to-end to the customer in the — which care more about price. So, I think the value proposition and the simple consumer journey, shopping journey, I think is key for Taobao Deals. And we are very happy to see the progress we made during the last year. And as I’ve said, our MAU in March reached 130 million and for the entire year, our annual active consumer reached 150 million. So, I think that’s a good start and because China is so big and with so many population with different consumption power and with different segmentation and preferences, so we try to — as part of Alibaba China retail marketplaces, we try to provide multiple destinations to the customers with different purposes. So, I think Taobao Deals is a good supplement to our — to other application — other business we have in China retail marketplaces.

And in terms of the incremental value we create from Taobao Deals, I just gave an good example in my script to you, which is the average spending of our customers on Taobao Deals, their — the increased rate of these spending for the customer on Taobao Deals is bigger for the — for those and spend for the average spending on China retail marketplaces, which indicate that if we have people — if we give people multiple choices, overall the total spending within Alibaba Ecosystem will be bigger. So that’s a very good indicator. And so, that’s why we will continue to invest in Taobao Deals.

And as to whether this have any impact on other players? I think it’s very important that we — on Taobao Deal, our goal and value proposition is very clear and straightforward and even simple. So, we are confident the impact is coming and because for these customers they just need a simple choice and price-sensitive and price advantage. That’s it. So, we will strengthen this value proposition on Taobao Deals. While on Taobao mobile app, our flagship, I think we provide a more comprehensive offerings to different segment customers. And they will enjoy more selections and more funds. So, the value proposition are quite different. And we are — as I said, our goal is to build a metrics, an application metrics to serve the customers with different needs. Thank you. [Foreign Speech]

Robert Lin — Head of Investor Relations

Okay. Well, thank you, everyone, for joining today’s call. We have all the materials that will be provided in our IR website. We look forward to communicating with you in the coming months. Please contact me and the IR team at Alibaba. Thank you.


[Operator Closing Remarks]


This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

© COPYRIGHT 2021, AlphaStreet, Inc. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited.

Most Popular

Everything you need to know about Broadcom’s Q2 2023 earnings report

Broadcom, Inc. (NASDAQ: AVGO) on Thursday said its second-quarter 2023 earnings and revenues increased year-over-year. The chipmaker also provided guidance for the third quarter. Earnings, excluding non-recurring items, came in

HP’s (HPQ) near-term prospects look bleak as PC slump continues

Weak consumer spending and economic uncertainties are the new challenges facing the PC market which is struggling to recover from a long-drawn slowdown. HP, Inc. (NYSE: HPQ) reported a sharp

Hormel Foods (HRL): Key takeaways from the Q2 2023 earnings report

Shares of Hormel Foods Corporation (NYSE: HRL) were up over 4% on Thursday, following the company’s announcement of its second quarter 2023 earnings results. Sales fell short of estimates while

Add Comment
Viewing Highlight