Release Date: February 20, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Alibaba Group Holding Ltd (BABA, Financial) reported an 11% year-over-year revenue growth, excluding consolidated subsidiaries, with AI-related product revenue maintaining triple-digit growth for the sixth consecutive quarter.
- The company launched Qwen2.5-MAX, a flagship AI foundation model, achieving industry-leading performance and attracting over 290,000 companies and developers globally.
- Taobao and Tmall saw strong growth in new consumers and orders, with 88 VIP members reaching 49 million, maintaining double-digit growth.
- Alibaba's international e-commerce business maintained strong growth, driven by cross-border businesses and improved operating efficiency.
- Amap, part of Alibaba's other Internet platform businesses, achieved profitability this quarter, highlighting improved operating efficiency across segments.
Negative Points
- Free cash flow decreased by 31% to RMB39 billion, mainly due to increased expenditure related to investments in cloud infrastructure.
- AIDC reported a loss of RMB5 billion, compared to a loss of RMB3.1 billion in the same quarter last year, due to increased investments in overseas markets.
- Revenue from Cainiao decreased by 1%, with its adjusted EBITDA decreasing by 76%, amid ongoing restructuring with e-commerce businesses.
- Despite strong revenue growth, Alibaba's cloud business faces fierce competition in China, potentially impacting margin levels compared to international peers.
- The company plans to make significant investments in AI and cloud infrastructure over the next three years, which could impact short-term profitability due to high CapEx.
Q & A Highlights
Q: Can management share insights on how Alibaba's cloud AI strategy will translate into financial upside, particularly regarding cloud revenue growth and margins? Also, what are the expected CapEx investments over the next three years?
A: Yongming Wu, CEO: Alibaba is well-positioned in AI, especially in Asia, with leading cloud infrastructure and AI models. We aim to pursue AGI, which could significantly impact global GDP. We plan to invest more in AI and cloud infrastructure over the next three years than in the past decade. CapEx will be relatively even annually, but may fluctuate quarterly. This investment will impact profitability, but we expect rapid demand uptake to offset this.
Q: How does Alibaba view the monetization of AI and cloud, especially with the introduction of high-quality, cost-efficient models like DeepSeek?
A: Yongming Wu, CEO: The AI landscape is still evolving, and future monetization models are not yet clear. However, cloud computing remains a clear monetization pathway as all AI models need hosting. Within Alibaba, AI applications in Taobao, Quark, and DingTalk are expected to enhance user engagement and efficiency.
Q: What are the key initiatives for Alibaba's domestic and international e-commerce businesses, and how do you see their profitability trends?
A: Yongming Wu, CEO: For domestic e-commerce, we focus on enhancing user experience and stabilizing market share. Internationally, we aim for stable growth and profitability, with clear pathways to profitability in our B2C business. Collaborations with local platforms are also enhancing profitability.
Q: With AI-related revenue growing at triple digits, how does this impact cloud margins, and how does Alibaba's cloud business compare to global peers?
A: Yongming Wu, CEO: AI-related revenues have seen triple-digit growth for six consecutive quarters, driven by high demand for inference. While CapEx investments will impact margins, the scale effects of cloud computing will help optimize costs. However, margins in China may differ from international markets due to competitive dynamics.
Q: How does Alibaba plan to deploy its remaining share buyback funds, and what is the strategy for enhancing shareholder returns?
A: Yongming Wu, CEO: We have made significant progress with share repurchases, achieving a 5% net reduction in share count over nine months. We will continue to optimize capital allocation to enhance shareholder returns through dividends, buybacks, and investments in high-growth areas.
Q: What is Alibaba's strategy for AI applications on the enterprise side, and how will CapEx be allocated, especially concerning chip investments?
A: Yongming Wu, CEO: AI will drive enterprise software to become more AI agent-driven, with opportunities in SaaS and supporting layers. Our cloud is designed to be compatible with various chips, ensuring policy changes won't affect our investment plans.
Q: Following the divestment of Sun Art and Intime, are there plans for further asset divestments, and how will Alibaba monetize its AI models?
A: Xu Hong, CFO: We will continue to exit noncore businesses while focusing on core operations. Freshippo, for example, is not for sale, but we are open to strategic investments to enhance its value. Yongming Wu, CEO: Our Qwen model is open-source but not free, and we charge for API access. As models improve, we may charge more, and cross-selling opportunities will drive cloud revenue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
