Alibaba conference call: Strategic considerations do not involve the separation of Alibaba Cloud. Instead, an AI-driven approach and a priority strategy for public cloud will be adopted. The first batch of strategic innovative businesses has been announced.

On the evening of November 16th, Thursday, Hong Kong stocks after the US stock market, e-commerce giant Alibaba announced its second quarter results ending on September 30, 2023. The financial report showed that both revenue and net profit for this quarter exceeded expectations slightly. During the financial report conference call, Alibaba's management stated that they will increase investment in AI in the cloud business and the Taobao Tmall group.

In the financial report, Alibaba revealed many key pieces of information, the most notable of which is that the spin-off listing of Hema has been suspended, and Alibaba Cloud will no longer pursue complete spin-off.

This conference call was the first time that Wu Yongming, who took over as CEO of Alibaba Group, attended the call after the announcement of the completion of the management transition on September 10th. Wu Yongming introduced the development strategies and priorities of each business group. Taobao Tmall adheres to the principle of "putting users first" and insists on consumer grading and price power strategies. Alibaba Cloud will adhere to the "AI-driven, public cloud priority" strategy and develop through the dual drive of AI and cloud computing. He also announced Alibaba's first batch of strategic innovative businesses - 1688, Xianyu, DingTalk, and Quark.

Wu Yongming stated that Alibaba is facing rapid development of new technologies, changes in the market, and new expectations. No matter how successful the past business models were, they must turn the page and start with a fresh entrepreneurial mindset. Alibaba is embarking on a new entrepreneurial journey and is fully prepared to fully invest in technological transformation.

Wu Yongming pointed out that due to the recent export restrictions on advanced computing chips by the United States, Alibaba plans not to seek a comprehensive spin-off of Alibaba Cloud Intelligence Group. The demand for computing power and large-scale model services brought by the AI boom in this quarter continues to grow. Cloud computing is the infrastructure of the entire digital economy. It is a business model with network effects of computing resources and a service model with economies of scale. The Cloud Intelligence Group will firmly implement the AI-driven public cloud priority strategy and increase investment in AI-related hardware and software.

Wu Yongming emphasized that future businesses will operate independently and interact on the basis of fair transactions. Alibaba Group will use its own resources to ensure the long-term strategic synergies of the group can be achieved. The enterprises have a strong symbiotic relationship with each other and have a highly strategic relationship. For example, Cainiao supports the logistics needs of e-commerce businesses, and the cloud provides excellent technical capabilities for all businesses in the group.

The following is a transcript of the conference call:

Strategic considerations: No spin-off of Alibaba Cloud

There are various ways to return value to shareholders. For example, we previously announced the consideration of fully spinning off the cloud business, as well as our share repurchase plan, etc. However, based on our strategic thinking, we have now decided not to spin off Alibaba Cloud. But we believe that there are still many other ways to enhance shareholder returns.

Looking at all businesses, from Taobao to the cloud, etc., we are actually very excited because we now have a great opportunity to use the current stage to make investments for future investments and growth. The purpose of our investment is to use cash to highlight the value of the business, so it may not be a complete spin-off, but rather an investment in sustainable future growth. Believe that further investment can provide further value to investors. As for the share buyback plan, it is still ongoing.

How can cloud business achieve sustainable growth under US sanctions?

In terms of Alibaba Cloud's business model, it can be divided into two stages. The first stage is what we consider as traditional cloud computing with CPU as the core. In this field, we have accumulated 14 years of experience and have a very strong product portfolio. Within this product portfolio, we will emphasize more on the combination of public cloud products. This is because the cloud computing model of public cloud can provide stronger network effects and economies of scale, enabling us to offer better and more cost-effective services to customers. This is our growth strategy in the so-called traditional cloud computing market.

The second stage is focused on the future, with GPU as the core in the AI computing industry. Significant changes are happening in the Chinese market. Recently, international chip policies and these policies will have an important impact on the AI computing market in China. We believe that in the foreseeable future, the AI chip market in China will be highly decentralized, meaning that there will be multiple suppliers providing AI computing power and the entire supply chain behind it.

In this situation, we believe that the importance of cloud computing in the domestic AI market will increase in the long term. Because in this situation, our customers actually need cloud computing platforms to provide more efficient and one-stop solutions to simplify their development and applications. Alibaba Cloud's long-term strategy of "one cloud, multiple stars" will become more important. Alibaba Cloud can help customers improve efficiency through our PaaS platform products and MaaS products, providing a complete set of solutions to meet customers' AI computing needs from training to inference on heterogeneous computing power. Therefore, we believe that Alibaba Cloud's AI solutions can provide more value to customers in the long run. This is our overall growth strategy for the future of cloud computing.

Taotian Group increases investment in AI

Taotian Group's three major strategies are customer-first, ecological prosperity, and technology-driven. All of our investments are actually based on these strategies. In terms of "customer-first," we have invested heavily in building pricing capabilities and in acquiring and retaining customers, as well as acquiring new customers. Secondly, the number of active users and the user engagement on Taobao are both growing.

AI is the best era and opportunity to drive business in the future. Therefore, we continue to increase investment in AI. In terms of merchants, we will continue to increase investment in AI tools for merchants, making it easier and more efficient for them to do business on our platform.

In addition, we also want to become a good content platform. Therefore, we have greatly reduced the threshold for content creation using AIGC technology, and we hope that more users can create content within Taobao in the future. I also firmly believe that AI can bring new consumer experiences and happiness.

Cooperation between Taobao and WeChat is still in its early stages with limited impact

The current cooperation between the two parties mainly focuses on upgrading three key engines. Firstly, in terms of expanding traffic, we aim to leverage the traffic from video platforms to improve conversion efficiency and build brand recognition.

Secondly, in terms of system co-construction, we have worked together to enhance recommendation capabilities. Lastly, in terms of policies, we have jointly provided subsidies and policy support worth billions of yuan. The collaboration between the two parties aims to ignite the Double 11 shopping festival.

For Taobao, as an open platform, we are willing to work with all partners to serve merchants better.

Increasing investment in core businesses to improve capital return

Alibaba's current businesses are divided into core and non-core businesses. In addition, we have made many investments, including stock investments and investments in affiliated companies, which can be used to improve our capital return. In terms of core businesses, we need to increase investment in innovation and growth to further enhance profitability and improve capital return.

As for non-core businesses, many investments do not have strategic significance. We need to quickly turn these businesses into profitable ones, so there are opportunities to monetize certain investments. By monetizing these investments, we can also adjust and deliver value to shareholders, thereby increasing capital return.

Rapid development of Alibaba's Choice business will drive platform growth in the future

Although the Choice business model is still in the investment phase and currently operates at a loss, the losses are narrowing as the scale grows. Choice has experienced rapid development within a year of its launch, with its share of orders increasing rapidly. It is expected that in the next quarter, the proportion of Choice orders will contribute to over 50% of the total, driving the growth of the entire platform.

Currently, the Choice business model is still in the investment phase, so it is still operating at a loss. However, as the scale grows, we expect the user experience to continue to improve. We anticipate that in the near future, business growth will remain the top priority for Choice, while also considering its vitality.

Regarding the proportion of local and cross-border businesses, in many countries, the business model may be a combination of local and cross-border. Some markets will focus more on cross-border, while others will focus more on local. This proportion is dynamic and not predetermined. Our plan is not to design a fixed local-to-cross-border ratio in the long term, but to determine it based on the user experience and demands in different countries, achieving a balanced proportion.

Announcement of the first batch of strategic innovative businesses

Alibaba has announced the first batch of strategic innovative businesses, including 1688, Xianyu, DingTalk, Quark, based on their significant market potential, unique market positioning, alignment with user demand trends, and alignment with the group's "AI-driven" strategy. These strategic innovative businesses will operate as independent subsidiaries and break away from the traditional positioning within the group. Alibaba plans to continue investing in these businesses for a period of 3-5 years.

Wu Yongming mentioned that 1688 is Alibaba's oldest business, serving mainstream manufacturers in China's manufacturing industry. It has a solid foundation and tremendous potential for secondary entrepreneurship. It is expected to expand from B2B business to serving small and medium-sized enterprises and consumer procurement, while also possessing the capability to support cross-border transactions. Idle Fish will be a lifestyle platform that embodies the hobbies and fun of young consumers.

DingTalk and Quark have gained unprecedented imagination with the advent of the AI era. "Everyone and every company will have personalized intelligent assistants, and DingTalk is expected to become the best AI intelligent assistant platform. In the era of large models, Quark has a great opportunity to create innovative search products for young people."

"Successful technology companies must have the ability to navigate through technology cycles," said Wu Yongming. No product has a long-term moat. Facing the AI era, Alibaba will firmly commit to technological revolution and product innovation, creating and incubating innovative businesses and technological products to meet the new expectations and demands of the expanding market for products and services.