Alibaba: When will the turning point for Taotian come (2Q25 conference call)

The following is the transcript of the Q2 2025 earnings conference call for $Alibaba(BABA.US) . For the financial report interpretation, please refer to How Long Can Taotian Squat? Can Alibaba Jump Again? .

I. Core Financial Report Information Review:

II. Detailed Content of the Earnings Call

2.1 Key Information from Executives:

1）Business Progress

1. Taotian Group

GMV Growth: Driven by increased purchase frequency, monthly active consumers reached an all-time high.

88VIP Membership Growth: Membership numbers reached 46 million, enhancing user stickiness.

Implemented a 0.6% industry-standard software service fee and provided rebates for small and medium-sized enterprise merchants.

The adoption rate of the “Full Site Promotion” marketing tool by merchants continues to increase, driving marketing revenue growth.

Double 11 Performance: Strong GMV growth during the Double 11 period, with monthly active consumers returning to a growth trajectory and setting new highs.

Future Plans: Focus on investing in core user groups and key product categories, optimizing user experience and improving user retention to ensure sustained platform growth.

2. Alibaba Cloud

AI Product Contribution: Revenue from AI-related products has maintained triple-digit growth for five consecutive quarters, further increasing its share of public cloud revenue.

Future Plans: Optimize revenue structure, develop a “Cloud + AI” strategy; continue investing in advanced technology and AI infrastructure to improve operational efficiency; drive transformation across industries by providing reliable AI technology.

3. International Digital Commerce Group (AIDC)

Revenue Growth: Overall revenue increased by 29% year-on-year, driven by cross-border business.

AE Choice Orders: Maintained strong growth, optimizing product selection and user experience while shortening average delivery times and improving unit economics.

AliExpress Direct Model: Expanded product selection using local inventory in overseas markets, enhancing fulfillment experience.

AI Tool Application: Launched an AI-driven B2B search engine to simplify global procurement processes through conversational search, improving transaction efficiency.

Key Market Expansion: Trendyol's international business maintains strong momentum in several neighboring markets, leveraging seasonal investments to expand user base while improving user acquisition and operational efficiency

4. Other Business Segments

The local services and digital media entertainment business losses have narrowed, and operational efficiency has steadily improved.

5. Overall Strategy and Future Outlook

Policy and Market Outlook: We are optimistic about the government's macro stimulus policies, which are expected to bring long-term economic benefits.

Key Directions: Continuously improve operational efficiency, expand the application of AI technology, optimize the performance of loss-making businesses, and maintain growth in core businesses.

2）Financial Performance

Free Cash Flow: RMB 13.7 billion, a year-on-year decrease of 70%, mainly affected by increased investment in cloud infrastructure and merchant refunds.

Net Cash Reserves: As of September 30, 2024, net cash reserves were RMB 352.1 billion (approximately USD 50.2 billion).

Stock Buyback and Capital Management: This quarter's stock buyback expenditure was USD 4.1 billion, with a cumulative buyback of USD 10 billion in the first half of the year, achieving a net share reduction of 4.4%. There is still an authorized amount of USD 22 billion for further buybacks. Alibaba will continue to invest in AI and cloud infrastructure to meet market demand and gradually optimize the operational efficiency of other businesses, laying the foundation for future profitability.

2.2. Q&A Analyst Q&A

Q: Overall, this year's Double Eleven performance is considered acceptable, even exceeding expectations. Can management share feedback and satisfaction levels from merchants and brands regarding this Double Eleven promotion? Additionally, from a financial perspective, how do you assess the short-term impact of higher coupon discounts and this year's higher return rates, and whether these will be offset by the long-term positive effects brought by a more vibrant and sustainable merchant operating environment? Could these effects translate into higher budget expenditures by merchants on advertising tools, thereby driving the long-term growth trend of Customer Management Revenue (CMR)?

A: Regarding this year's Double Eleven activities on Taobao and Tmall, we launched related promotions in October, resulting in a longer activity cycle. Of course, other platforms also adopted similar early launch strategies. Overall, during the event period, we achieved relatively strong GMV growth. From the merchants' perspective, based on discussions with them before the event, their performance exceeded expectations; from the platform's perspective, the overall performance also exceeded our expectations.

Regarding the coupon issue, I believe the settings across platforms are generally similar, mainly divided into two categories: platform coupons and category coupons. On Taobao and Tmall, platform coupons are provided by the platform to 88VIP members, while category coupons are jointly issued by the platform and merchants, sharing the costs.

Moreover, providing coupons to members has a very positive long-term impact on brands. It not only helps in the growth of brand businesses but also creates positive market expectations. Based on this confidence in business growth, we can expect brands to increase their investments in advertising and marketing, thereby promoting the growth of CMR revenue.

Q: What is the macro outlook for the overall improvement of consumer trends in 2025?

A: As for the macroeconomic situation, since the end of September, various monetary and fiscal stimulus measures have been introduced nationwide and in various regions, such as the electronic product trade-in program and subsidies for home appliances and automobiles These policies have significantly boosted sales in related categories. I believe these stimulus measures have just begun and will continue to have a positive impact on overall consumption growth in the future, especially helping merchants shorten their inventory turnover cycle and promoting the consumption of branded goods in the medium to long term.

Q: Regarding the platform's commission rate. In your announcement about the September quarter, you mentioned that the commission rate has stabilized. Can you elaborate on the progress of the full-site promotion and application? Additionally, does this mean that the gap between customer management revenue (CMR) growth and take rate has been eliminated?

A: The results for this quarter show that our take rate has stabilized relatively. This is the result of multiple factors working together, including the 0.6% software service fee that has begun to be charged (although it has only been implemented for a month) and the in-depth penetration of full-site promotion. These two factors have positively impacted the take rate. At the same time, we also have some new business models that are in the growth stage, which have relatively low monetization levels, so it will take time to further improve the monetization rate of these products.

The relative stability of the take rate this quarter is the result of a balance of various factors. In the future, we will continue to charge the 0.6% software service fee while deepening the penetration and use of full-site promotion. Additionally, we will also focus on driving the growth of products with currently low monetization rates. Therefore, we may still see this offsetting effect in the future.

Looking ahead, we still have significant room for improvement in take rate compared to the market average. At the same time, we will closely monitor the operational health of merchants, which is our top priority. We will adopt a balanced strategy between these considerations.

Q: Can management share the investment strategy for the next few quarters? How should we view the relevant factors when considering the TTG EBITDA trend? On one hand, we have service fees and transportation revenue, while on the other hand, we are investing in user experience. How do these two aspects affect the outlook for TTG EBITDA?

A: For Taobao and Tmall, our current strategy focuses on strengthening capability building, enhancing user experience, and investing on the merchant side. These investments include expanding a broader and more diverse supply chain, developing competitively priced product offerings, and supporting the development of new products and promising new brands.

Investments in user experience mainly include improving after-sales service, optimizing logistics experience, and enhancing the front-end user interface. In addition, we have increased our investment in technology, especially in the rapid growth of AI-related products, which includes not only R&D investment in these products but also investment in the computing power required to operate these AI products.

These are all long-term investments aimed at improving user experience and enhancing supply capabilities on the merchant side. This also relates to the second question you mentioned, regarding the opportunities brought by the interoperability of WeChat Pay. We have high expectations for the potential to acquire new users through this interoperability and are making large-scale investments for medium to long-term user growth and retention Overall, Taobao and Tmall are currently in the investment phase, and we are continuously investing while also focusing on improving investment efficiency. In addition, we are working hard to increase Customer Management Revenue (CMR) to support these investments. Therefore, to answer your question, it is foreseeable that EBITDA may fluctuate in the coming quarters as we are still in the investment period.

Q: Regarding TTG, mainly about the synergy of the payment business. Can management share the potential of enhancing the payment business for user growth and the expectations for GMV increment? What are the goals for this in the coming years?

A: This is actually about the cooperation with WeChat Pay, which we believe brings great potential for user growth, especially in terms of Monthly Active Users (MAU), which is expected to see significant improvement. However, it will take time to fully unleash this potential. This also complements the user growth measures we are currently taking.

Our goal is to attract more users to the platform and retain them long-term by providing a quality experience, ultimately achieving sustained GMV growth.

Q: Regarding the supply chain, the growth rate of live e-commerce has recently shown a significant slowdown. What does this mean? Will there be a more active focus on brands? Conversely, what opportunities do you see for private label products and agricultural products, and what strategies will you adopt to respond?

A: For live e-commerce, it is necessary to analyze based on the penetration and development stage of different platforms. On Taobao and Tmall, especially during the Double Eleven period, live e-commerce has shown strong growth. The strategies and development stages of live e-commerce vary across different platforms, while Taobao and Tmall have formed a "high-quality live" model by combining high-quality supply with live e-commerce. This model has achieved significant results during the Double Eleven period through the synergy between brand flagship stores and live e-commerce.

Regarding the investment issues of brand merchants, the growth rates of various e-commerce platforms are gradually converging, which is actually more favorable for Taobao and Tmall. When choosing a platform, brand merchants need to consider not only product display but also the actual sales growth brought by the platform.

For the issue of private label products and agricultural products, the platform needs to pay attention to the preferences and demands of core consumers. For the 88VIP members of Taobao and Tmall, they prefer branded products but also have a demand for private label products. With the introduction of new payment methods and the acquisition of new users, the demand for private label products may be further stimulated. Therefore, the platform needs to provide customized supply based on user preferences in different categories to meet diverse needs.

Q: Regarding the cloud business, the revenue growth of the cloud business is accelerating, and the company expects to achieve double-digit growth while profitability is also improving. In the context of recent price reductions in cloud services, what is management's view on the future profitability of the cloud business?

A: The cloud business is a field where technological advantages and economies of scale are crucial, and we possess both of these key factors. Therefore, as the business volume grows, our profitability continues to improve. We take a long-term perspective on the profitability development in this area, whether it is software pricing or computing service pricing As for the recent reduction of the Q1 API token price you mentioned, this is a strategic move we are taking to prioritize expanding our user base. By lowering the API token price, we hope to attract more users to utilize our models and deploy applications on our cloud platform. This will further drive the growth of user engagement with our computing power, storage, databases, and other products. Therefore, this price adjustment can be seen as an investment in user acquisition and growth.

Since we have a complete technology stack, once users join our platform, they will inevitably use various cloud products, further driving the overall business development.

Q: Recently, competitors have lowered their take rates and the operational burden on merchants. Do you think these measures will be attractive to merchants? Is there a risk that Alibaba could lose merchants due to these factors?

A: For Taobao and Tmall, safeguarding the rights and interests of merchants has always been our top priority. This is reflected not only in the consideration of take rates but also in the overall friendly operating environment for merchants, which keeps us in a leading position across platforms. Although there is room for further improvement in take rates, our strategy emphasizes balance—ensuring healthy platform development while supporting sustainable operations for merchants and optimizing commission rate management.

We have taken multiple measures to support small and medium-sized merchants, including providing rebates after implementing software service fees, canceling annual fees for Tmall, and optimizing the "refund only" policy, thereby reducing the operational burden on merchants.

Looking ahead, we will continue to invest in areas such as member benefits, pricing competitiveness strategies, and technological innovation to enhance user experience. These investments are expected to drive growth in transaction volume on the platform, ultimately benefiting merchants.

Q: Regarding the recently launched trade-in subsidy program, how significant has the impact of these measures been on GMV growth in related categories (such as electronics, home appliances, etc.)? Additionally, can it be considered that these subsidy programs starting in September are just the beginning of more subsidy policies to come? If so, what might the scale of future subsidy programs be, and which categories will they apply to? How significant does management believe these policies will be in driving consumption growth?

A: Regarding the impact of the trade-in subsidies, since the policy was launched in September, these subsidies have made a significant contribution to the growth of related categories, and we have observed a noticeable acceleration in growth for these categories. As for other categories, different regions have different policy arrangements. In addition to large home appliances, some regions also offer trade-in subsidies for small appliances, home decor, household goods, and even other digital products. Therefore, the specific impact of this policy varies by region and category, but overall, these subsidies have brought significant growth momentum in relevant areas.

Q: Regarding Taobao and Tmall, after starting to charge a 0.6% software service fee in September, the next quarter will be the first full quarter of contribution from this fee. Does this mean that the growth rate of customer management revenue (CMR) in the next quarter may exceed the growth rate of gross merchandise volume (GMV)? Is it possible that the commission rate in the next quarter will not only remain stable but may even increase? A: The two positive factors affecting the take rate are a 0.6% software service fee and further penetration of the full-site marketing tools. However, in contrast, we are investing in some new business models that, while growing rapidly, currently have a low monetization rate. It can be said that these new low-monetization models have, to some extent, diluted or offset the increase in take rate brought about by the first two factors.

In the overall operations of Taobao and Tmall, we will comprehensively consider these factors while focusing on providing merchants with a good operational environment and a stable business environment to ensure overall healthy development. It is precisely because of this balance and mutual constraints that we need to comprehensively assess and weigh the changes in the take rate.

Q: Regarding capital expenditures. Considering that most capital expenditures are concentrated in the cloud business, especially to support AI demand, how does management view the return on investment (ROI) of these capital expenditures?

A: Most of our capital expenditures are concentrated in the cloud business, particularly in areas related to AI infrastructure. This is mainly based on our understanding of short-term demand and our judgment of long-term demand.

In the short term, AI demand is experiencing explosive growth, and currently, the demand for computing power needed to drive AI and access to model API services cannot be fully met. This is also the reason for our active investment in the short term.

In the long term, we believe GenAI represents a historically significant opportunity, with such technological leaps occurring approximately every 20 years. Therefore, we have a high degree of certainty regarding future inferencing demand. Especially with the latest 01 model from OpenAI and its Chain of Thought (COT) technology, inferencing demand is expected to grow exponentially.

Thus, we are actively increasing our investment in AI-related infrastructure in the short term while maintaining confidence and continuous investment in this area from a long-term perspective.

Q: Regarding shareholder returns, in the past six months, you have repurchased $10 billion worth of shares. When conducting repurchases, do you differentiate between American Depositary Receipts (ADRs) and shares listed in Hong Kong? Additionally, the People's Bank of China recently launched some swap projects to support corporate share repurchases, and now you have been included in the Hong Kong Stock Connect. Are these projects applicable to you as well?

A: First, from the distribution of share liquidity, our American Depositary Receipts (ADRs) still account for the majority. Therefore, in share repurchases, we operate in both the U.S. and Hong Kong markets, but recent repurchases have mainly focused on the U.S. market.

We are exploring various financing avenues to support share repurchases. The swap projects you mentioned for repurchasing shares have not been utilized by us yet, but we will further study such opportunities in the future. Currently, these projects tend to support repurchases denominated in RMB, and we have a very ample reserve of RMB funds domestically, so we may be more interested in offshore RMB or USD funding sources. In addition, looking back to May of this year, we raised approximately $5 billion through note financing and used all the funds for share repurchase in June, totaling $5.8 billion. In the future, we will continue to explore various financing methods while promoting share repurchase to create more value for shareholders.

Q: Regarding the cloud business, can you elaborate on the sources of demand for AI applications? Is AI revenue primarily from model training or inference?

A: Currently, the cloud computing demand driven by generative AI is primarily concentrated on model training in the early stages. However, over time, the demand for computational power required for inference is rapidly increasing. In the future, it is expected that the number of companies engaged in large-scale foundational model training will decrease, but the demand for model training in vertical fields (such as autonomous driving and other specialized industries) will continue to grow.

In the long run, inference will account for a larger share of demand growth. At the same time, the application of AI is rapidly expanding across various industries, with companies developing their own AI agents, some of which indeed involve workflow automation, including model retraining. These technologies are positively driving the development of multiple industries, and there are similar application cases within Alibaba.

Q: In the U.S. market, there is much discussion about the development of AI agents and workflow automation. How do you view the long-term development of these trends in the Chinese market?

A: Similar to the U.S. market, many computing tasks are shifting from CPU architecture to GPU architecture, and this trend is driving the widespread application of AI models. The rapid development of GPUs has become the foundation for this transition, providing strong support for the widespread adoption of AI in various fields.

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