The following is a summary of the analyst conference call for Alibaba.US Q1 2023 (Q2 2022, based on the calendar year). For the interpretation of relevant financial reports, please refer to "Lay off nearly 10,000 people, Alibaba "desperately spend money on the road"".

Management Report

1. Three Major Business Strategies

1. In the field of consumption, we will take advantage of our digital commercial infrastructure combining near, medium, and far-field, do a good job of user segmentation, and focus on the consumption needs of different consumer groups with certainty. At the end of last fiscal year, we had achieved the target of 1 billion domestic AAC. In the future, we will focus on the growth of wallet share for different consumer groups, rather than pursuing the growth of absolute user scale in China.
2. In the field of cloud computing, we will continually improve related core technologies, focus on industries and customers that represent the development direction of society and industry, and provide better services for them.
3. In the global market, we will focus on selecting countries and regions with good economic and social development prospects in the next 5 to 10 years, focus on local capacity building, and establish the infrastructure of logistics and cloud computing.

1. Prospects

The changes in international geopolitical situation, the repeated outbreaks of the epidemic, the promotion of China's macro policies, and social development trends are all beyond the scope of influence of any enterprise. In the face of various uncertainties, the only thing we can do is to keep improving ourselves through subjective efforts. For example, we mentioned in the previous quarter that by improving business efficiency and implementing various cost optimization measures. Facing these challenges in a highly uncertain environment, we will continue to promote the three core strategies focused on high-quality growth. At the same time, we will continuously improve our business efficiency, optimize cost structure, and build long-term capabilities around the group's main business segments.

Analyst Q&A:

Q: There are signs of recovery in June. Could you share your views on GMV and CMR and the outlook for the second half of the year? How do you view the medium and long-term growth of the consumer market and the e-commerce landscape?

A: Regarding recent trends in consumption, we have seen a recovery since June. With the recovery of the supply chain, especially the normalization of the logistics network, the capabilities of these infrastructure have been restored. In terms of consumption, we also saw positive growth throughout the season through 618. After entering July, we can see that the trend is continuing, and the performance in July will be better than in June.

Looking at the future trend of consumers, apart from GDP growth and social retail growth, we also pay close attention to total consumer spending, which is the proportion of expenditure to disposable income. In the first half of 2022, the National Bureau of Statistics figure is 64%, but it was 69% last year, so there is still a significant decline, with the decline in the urban income and expenditure ratio being greater than that in rural areas.

Under the influence of the epidemic and consumers' expectations of economic trends, I think this is a normal reaction, and the willingness to consume is still in the process of recovery. For our Chinese retail platform, the trend of changing consumer behavior and the willingness of merchants to invest has always been very positive, especially during difficult times when merchants are even more hoping to drive business and achieve better results through digital platforms.

Q: In terms of cost control, EBITA has achieved good improvements. How do you view the trend of Chinese commercial EBITA and overall EBITA in the next few quarters? Will it turn towards positive growth in the next 1-2 quarters? How do you see the trend of profit margin?

A: In the last quarter, we also mentioned that we would pay great attention to cost optimization and implemented certain strategies for different businesses. As you can see, our cost optimization has achieved good results this quarter. In the coming quarters, we will continue to execute our overall cost control plan and focus on optimizing costs and improving efficiency in all aspects.

Our finances have flexibility, so we will balance cost optimization with investment in certain areas. In terms of our technology and basic capabilities, we will continue to invest so as to achieve long-term, sustainable development.

Regarding EBITA profit margins, the natural end result of our process of efficiency improvement and cost optimization will be reflected in our profit margins. We believe that this high-quality growth will help us achieve an increase in EBITA profit margins in the end.

For Alibaba.US, cost optimization is not just a financial perspective, it is closely related to our overall strategic choices, judgment of the environment, stage and strategic trade-offs.

Pursuing high-quality growth has always been our consistent business strategy. Under this business strategy, we focus on serving high-quality users, establishing a high-quality digital commercial infrastructure, and continuously conducting high-quality technological innovation. This is the foundation for us to enable business growth and achieve more sustainable, better financial results, and we have always insisted on doing so.

Since the beginning of this new fiscal year, based on the changes in the macro environment on the consumer side, especially since we have already achieved the milestone of 1 billion annual active consumers last year, our future work focus will shift from absolute user scale growth to serving existing consumers well. Because our 1 billion consumers have already covered almost all active consumers in China, we will do a good job of operating them according to their hierarchical classification and increase the wallet share of each layer of users, and provide services to segmented users.

Today, we have established a consumer matrix to provide different value points for different users, and we believe that this consumer matrix can meet the needs of segmented users very well.

Q: 1P revenue has done very well. Can you share your future strategies?

A: For Alibaba, we choose whichever mode best satisfies consumers, whether it is 1P or 3P. Although we do some 1P business, we have redefined 1P business.

**We don't want to be a supplier, a barrier between brands and consumers. Even though we purchase from brand companies, we sell to consumers through the 1P model. The ultimate operating effect of brand owners is the same as that of 3P, with data sharing and consumer insight. 1P can also improve operational efficiency and increase supply chain efficiency and logistics experience.

We will not use 1P to do wholesale business under the guise of consumer retail, just to expand the consumer base.

Q: About cost-saving and efficiency-increasing, do you have any other opinions from the perspective of the business line regarding the underlying business logic behind it? What are the measures for core cost-saving and efficiency-increasing this quarter, and what are the plans for the next few quarters? When the company is losing money, how does the management balance short-term finance and long-term growth?

A: Strategically, we have initially formed a consumer matrix with rich and complete flagship Taobao, service-oriented Taote, community group-purchase Taocaicai, and Hema/Fishbowl, all of which have very clear user positioning.

The underlying logic is that consumer mind is the most valuable wealth after Alibaba has been built for many years, which means that users will return without spending money.

Especially when the overall consumption willingness is relatively weak, users come back with consumption willingness, even in this difficult quarter, our online users' DAU and page views are relatively stable, indicating that users come back to find consumption-related information, which is our most precious asset.

This is what we see in our strategy. With a user base of 1 billion and differentiated app matrixes that can serve different value users in the future, this is the basis for us to make adjustments that can be effective in China's retail business.

What was said above applies more to the situation of the whole-area platform. In several regional platforms this quarter, we are working with local life service platforms because of more focused city and regional strategies, such as Taocaicai, Hema, and Ele.me, the core of which is to obtain economies of scale within the local area and reduce unit costs through economies of scale.

We believe that looking at the total market volume is meaningless, but looking at whether specific cities have achieved economies of scale can form a three-dimensional perspective. Under this strategic guidance, good results were seen this quarter through city selection, business development, and resource allocation.

In such a macro environment, cost reduction and efficiency improvement are not isolated financial measures. We will still invest firmly in the places where we need to invest, continue to strengthen the consumption matrix that needs to be strengthened, and continue to strengthen the construction of basic capabilities, service customer capabilities, and logistics experience. These will work better for our long-term value.

Q: I'd like to know the trend of cloud business revenue growth in the second half of the year.

A: I think this question should be understood in the context of the macro situation. First of all, we need to look at the percentage of IT spending in GDP, which is much lower in China than in the United States. Second, industrial digitalization is a big trend and all industries need to transform and upgrade. Therefore, I think the opportunity for cloud business is not a cyclical opportunity but a structural opportunity, and we regard cloud as a core strategy in both the Chinese and international markets. Looking back at the background of the rapid growth of cloud business in recent years, many Internet companies are digital companies that need big data analysis and many computing power, which gave us the opportunity to turn cloud technology into cloud business. In the future, when the growth of the Internet industry slows down, the next growth point will be industrial digitalization, and every company will become a digital company. We are interested in the proportion of non-Internet companies in cloud business, and we are pleased to see this proportion continue to increase. In the future, we will launch different applications for different industries to capture opportunities. Of course, the growth of the cloud cannot be separated from the growth of the economy. Enterprises are the micro-carriers of the economy. Only when the economy grows, will enterprises be willing to invest. This is related to the prospects of the overall environment. Therefore, we must seize the opportunity of outperforming the industry.

Q: In the past few years, users have spent more time on short videos. What is the impact of external changes on e-commerce? Are we in a period of rapid growth or a mature stage? From a company perspective, what strategic adjustments will be made to respond to changes in user and merchant habits?

A: Short videos are just a way of presenting products, and e-commerce is an industry. E-commerce uses short videos because it is practical, and short videos are not new technology. Today, more than half of the goods sold on Alibaba's mobile Taobao platform use short videos to demonstrate the product, while five years ago, it was mainly images and text. What we are discussing is not the problem between short videos and e-commerce, but the issue of entertainment and e-commerce. Alibaba's most precious wealth is user mentality. Users go to our platform to consume. In many cases, consumption is part of entertainment. Alibaba focuses on the sub-category of consumption within entertainment, which we believe is large enough, so we focus on this sub-category. We moved from unlimited to personalized, to live streaming, and to short videos. New technology will change the consumer experience and other entertainment experiences beyond consumption. The core positioning issue for the platform is how to serve users.

Q: What are the biggest challenges and obstacles that Alibaba is facing now?

A: Alibaba's current challenge is that as a social microcosm, Alibaba has come this far due to the rapid development of China. We hope that China will get better and better in the future, and that we, as a micro part of society, can combine technology and business to better promote the development of society, especially small and medium-sized enterprises.

Q: What is the talent retention strategy?

A: With regard to talent, all of Alibaba's customer service is based on people. Our desire and investment in talent is as consistent as always. Now it's August, and new college graduates are entering the workforce. We can see overall uncertainty in the macro situation, and this year we have nearly 6,000 new graduates at Alibaba, most of whom have already started work, making contributions to society as well as to Alibaba's needs. As a young company with a certain history, the metabolism of continuously pushing the business forward with new talents is essential to continuous innovation.

Q: What other areas are of interest but have not been invested in?

A: New technologies and new industries emerge one after another, and we should still look at the emergence of new technologies and industries from the core strategic perspective of Alibaba. New energy is a huge industrial opportunity. We first consider opportunities from the perspective of cloud computing, and with this sunrise industry, the first element of digitalization of the industry as a whole will be established. Cloud computing will play a huge role.

Including areas such as autonomous driving and metaverse, which revolve around logistics and consumer experience, the development of new energy revolves around finding opportunities for growth alongside the industry from a cloud computing perspective, thereby broadening our own path.

At the same time, it is important to expand globally, with two verticals and one horizontal. The two verticals are consumption and the cloud, while the horizontal aspect is whether we can enter overseas markets. Some of this can be accomplished by leveraging Chinese experience and outputs, while others are based on new overseas opportunities. Our direction is to capture these opportunities from the perspective of consumption and the cloud. Risk Disclosure and Statement in this article: Dolphin Disclaimer and General Disclosure