Good day, ladies and gentlemen. Thank you for standing by, and welcome to Alibaba Group's September quarter 2024 results conference call. At this time, all participants are in listen-only mode. I would now like to turn the call over to Lydia Liu, Head of Investor Relations at Alibaba Group. Please go ahead.

Good day, everyone, and welcome to Alibaba Group's September quarter 2024 results conference call. With us are Chairman Eddie Wu, Chief Executive Officer Toby Xu, Chief Financial Officer, and we have invited Jiang Fan, Co-Chairman and CEO of Alibaba International Digital Commerce Group, to join the call. This call is also being webcasted from the IR section of our company website. A replay of the call will be available on our website later today. Now let me quickly cover the safe harbor. As usual, we would like to remind everyone that today's discussions may contain forward-looking statements that are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the Safe Harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures that we use on this call are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. Unless otherwise stated, growth rate of all stated metrics mentioned during this call refers to year-over-year growth versus the same quarter last year. With that, I will now turn to Eddie.

Greetings, and welcome to our quarterly earnings call. This quarter, our core business segments maintained steady growth guided by our user-first AI-driven strategy. Purchase frequency continued to drive GMV growth on our platform, with interoperability initiatives adding new growth impetus. Recently, monthly active consumers on Taobao and Tmall reached a new all-time high. Alibaba international digital commerce revenue growth remained strong. Cloud revenue, excluding Alibaba consolidated subsidiaries, grew steadily with AI products contributing an increasing share. Across segments, we progressively enhanced operational efficiency and monetization capabilities and further improved the performance of loss-making businesses. For Taobao and Tmall Group, we stick to our user-first strategy. During this quarter, purchase frequency continued to drive GMV growth, with continued improvement in overall user experience. Our loyal customers, represented by 88 VIP members, continued to increase, reaching 46 million by quarter end. In terms of monetization progress, we implemented an industry-standard 0.6% software service fee this quarter while providing certain rebates to SME merchants. Merchant adoption of Alimam's Qantian Tui marketing tool continued to rise, contributing to marketing revenue growth. We concluded a successful Double Eleven global shopping festival during which Taobao and Tmall achieved robust growth in GMV with a number of monthly active consumers back to growth and achieving a record high. We believe that the growth of purchasers will continue, and user growth and retention will subsequently bring more consumption upside in the future. We are optimistic about the government's macro stimulus policies and confident in their positive long-term economic impact. While e-commerce competition remains intense, we will continue to invest in core user groups and product categories, increase investment in new users, and improve user retention. Implementation of these initiatives will drive sustainable growth of our platform. In our cloud segment, we continue to optimize revenue mix while advancing our integrated cloud plus AI development strategy. Out of our cloud revenue, excluding Alibaba consolidated subsidiaries, grew 7% this quarter, a steady improvement from the June quarter. The revenue growth was driven by double-digit public cloud growth, and in particular, revenue from AI-related products maintained triple-digit growth for the fifth consecutive quarter, increasing its share in public cloud revenue. During this quarter, Alibaba Cloud held the sixteenth APSARA conference and launched a suite of competitive technologies and products. We believe the AI era is just beginning, and we are still in the early stage of AGI transformation. Looking ahead, AI's potential extends beyond mobile screens. It's poised to reshape the digital world and ultimately transform all industries in the physical world. As a leading cloud service provider for AI in China, we will continue to invest in advanced technology and AI infrastructure while optimizing efficiency. This will enable us to deliver more reliable and cost-effective AI technology and products across industries. We believe that as AI penetration grows, Alibaba Cloud's cloud computing and AI-related products will become the foundational infrastructure that supports development across industries. In international e-commerce, AIDC achieved 29% revenue growth this quarter, maintaining strong growth momentum, and Jiang Fan will be sharing more details shortly. This quarter, Cainiao further strengthened synergies with other businesses in our group and significantly advanced its highly digitalized global logistics network. We will continue to invest in core capabilities that promote front and back-end synergies. This quarter, we also narrowed losses in both local services and digital media entertainment, demonstrating steady and progressive improvement in operational efficiency. Despite intensifying e-commerce competition in recent months, Taobao and Tmall achieved breakthroughs in core user retention and in new user growth. Our cloud business maintained rapid growth in AI-related products. Other businesses continued to improve their operating efficiency as planned while achieving business growth. We will continue investing in core businesses and improve the quality of operations, and we are fully confident in the future. I will now hand over to Jiang Fan.

Hi, everybody. Over this past quarter, AIDC's overall revenue grew by 29% year over year, primarily driven by cross-border business. In terms of our three areas of consistent focus, first, AE choice orders maintained strong year-over-year growth. Its relatively high share of total orders further solidified the certainty and consistency of user experience, and average delivery time continued to shorten. During this quarter, we focused on optimizing the mix and operational efficiency of our marketplace and consignment models, improving user experience and product selection with steady improvement in AE choices human economics. We also launched the AliExpress direct model, leveraging merchants' local inventories and overseas markets to expand product selection and optimize fulfillment experience. Second, we continue to explore the application of AI across our businesses, launching and updating multiple AI tools. We released our AI-powered B2B search engine in November. This new product reimagines international procurement through conversational search, making global sourcing easier for SMEs while improving overall platform transaction efficiency. Third, we continue deepening our presence in key markets. Trendy also international business maintained strong momentum in multiple adjacent markets with improving product selection and user experience. We will leverage the traditional peak season in November and December to increase investments and expand user base in an effective and efficient manner in key markets while balancing and enhancing user acquisition and operating efficiency. AIDC will remain focused on enhancing operational efficiency while strategically investing in key markets to pursue our strategic goal of profitability at scale.

Thank you, Jiang Fan. The financial performance of the past quarter further confirms that our execution of the growth strategy in our core businesses remains on track. On top of Taobao and Tmall business, we have made steady progress in our monetization strategy this quarter. We accelerated the CMR growth, contributing to a solid trend in our domestic e-commerce business. We implemented the software service fee based on a percentage of completed GMV starting from September the first. Czunzhan Pei, our AI-powered platform-wide marketing tool, saw an increase in merchant adoption from the prior quarter. Merchants benefit from improved marketing efficiency, which we expect will lead to increased spending on our platform. We adopted a more open approach for payment and logistics services on our platforms to make shopping on our platforms more convenient for a larger base of consumers and improve merchant operating efficiency. We expect this to translate into user growth and more transactions in the future. For our cloud business, momentum remains strong as revenue growth accelerated from the prior quarter to 7%. This growth is driven by the increasing demand for AI, which triggers more demand for our public cloud products. Revenue from our public cloud products grew at double digits, while AI-related product revenue achieved triple digits year-over-year growth for the fifth consecutive quarter. This quarter, AIDC maintained its rapid growth with strong momentum from cross-border business expansion, especially through our choice business. Both AliExpress and Trendio continued investing to grow users in Europe and the Gulf region. Beyond e-commerce and cloud, we are improving the operating efficiency of our other businesses with the goal of sustainable business growth and returning to profitability. Some of the businesses are achieving profitability even sooner, while the majority will achieve breakeven within one to two years and gradually begin to contribute profitability at scale. For the September quarter, we repurchased shares for a total of $4.1 billion. Combined with the $5.8 billion repurchase, approximately $10 billion and achieved a 4.4% net reduction in share count for the first half of the fiscal year. Even after factoring in ESOP issuances, we have been able to achieve this significant level of accretion just six months into fiscal 2025 compared to a 5.1% net reduction in share count for the entire fiscal year 2024. As of September 30, 2024, we still have $22 billion in authorization for further share repurchase program. Going forward, the pace of our share buybacks will be a function of share price as our strategy is to optimize share count reduction against the cash cost of an aggressive share repurchase program. Beyond our share repurchase program, we also proactively manage the dilution from our ESOP program by replacing a portion of the ESOP with long-term cash incentives starting this fiscal year. This shift allows us to limit share dilution in the future as well as better utilize our cash generated from domestic businesses. In August, we completed our primary listing in Hong Kong, followed by inclusion in the Southbound Stock Connect in September. By September 30, 2024, net inflows into our Hong Kong-listed shares reached HKD 46 billion, representing approximately 515 million Hong Kong shares, which is equivalent to 64 million ADSs in just twelve trading days. This accounts for approximately 3% of our outstanding shares. We are pleased that the Southbound Stock Connect has enabled broader access and engagement for investors from Mainland China. On a consolidated basis, total consolidated revenue was RMB 236.5 billion, an increase of 5%. Consolidated adjusted EBITDA decreased 5% to RMB 40.6 billion, primarily attributable to the increase in investments in our e-commerce businesses. Excluding the effect of the long-term cash incentive plan, our adjusted EBITDA growth would have been a decrease of 4% on a like-for-like basis compared to the same quarter last year. Our non-GAAP net income was RMB 36.5 billion, a decrease of 9%. Our GAAP net income was RMB 43.5 billion, an increase of 63%, primarily attributable to the market-to-market changes from our equity investments, decrease in investment impairment, and increase in income from operations. As of September 30, 2024, we continue to maintain a strong net cash position of RMB 352.1 billion or $50.2 billion. Free cash flow this quarter was RMB 13.7 billion, a decrease of 70% compared to RMB 45.2 billion in the same quarter last year. This was mainly attributed to our investments in Alibaba Cloud infrastructure. In addition, there's a refund to Tmall merchants after we canceled the annual service fee and some other working capital changes related to factors including the scale-down of certain direct sales businesses. Given the sustained and strong demand for AI, we will continue to invest in AI infrastructure as we anticipate future demand for AI-driven cloud services. Now let's look at the segment results starting with Taobao and Tmall Group. Revenue for Taobao and Tmall was RMB 99 billion, an increase of 1%. Revenue from our China commerce retail business was RMB 93 billion compared to RMB 92.6 billion in the same quarter last year. Customer management revenue increased by 2%, primarily due to online GMV growth, while the take rate remained stable year over year. We have made steady progress in our monetization strategy, driven by the implementation of the software service fee on completed GMV and a wider adoption of Transcendent. Direct sales and other revenue decreased by 5% to RMB 22.6 billion, primarily attributable to the decrease in sales of appliances. China Commerce wholesale business revenue increased 18% to RMB 6 billion, primarily due to the increase in revenue from value-added services provided to paying members. Taobao and Tmall Group adjusted EBITDA decreased by 5% to RMB 44.6 billion, primarily due to the increase in investment in user experience, partly offset by the increase in revenue from customer management service. Revenue from Cloud Intelligence Group was RMB 29.6 billion in this quarter, an increase of 7%. Overall revenue, excluding Alibaba consolidated subsidiaries, increased by 7%, mainly driven by double-digit public cloud revenue growth, including AI-related products. AI-related product revenue grew at triple digits year over year for the fifth consecutive quarter. Cloud's adjusted EBITDA increased by 89% to RMB 2.7 billion, while our adjusted EBITDA margin increased four percentage points to 9% year over year, primarily due to a shift in product mix toward high-margin public cloud products, including AI-related products, and improving operating efficiency, partly offset by the increasing investments in customer growth and technology. We will continue to invest in anticipation of customer growth and in technology, particularly in AI-related cloud infrastructure, to capture the increasing trend of cloud adoption for AI and maintain our market leadership. Revenue from AIDC grew 29% this quarter. The strong performance continued to be driven by growth of cross-border businesses, in particular, AliExpress choice business. Revenue from international commerce retail business increased by 35% to RMB 25.6 billion, primarily driven by the increase in revenue contributed by AliExpress's Choice and Trendio. Revenue from our international commerce wholesale business increased by 9% to RMB 6.1 billion, primarily due to the increase in revenue generated by cross-border related value-added service. AIDC's adjusted EBITDA was a loss of RMB 2.9 billion, compared to a loss of RMB 384 million in the same quarter last year, primarily due to the increase in investments in AliExpress and Trendio's cross-border businesses, partly offset by Lazada's significant reduction in operating loss from improvements in its monetization and operating efficiency. As Jiang Fan mentioned, going forward, AIDC will continue to invest in key growth markets we have identified for strategic expansion while enhancing operational efficiency in markets where we see a line of sight to profitability. Revenue from Cainiao grew 8% to RMB 24.6 billion, primarily driven by the increase in revenue from cross-border fulfillment solutions. We will continue to invest in Cainiao's core capabilities to ensure it delivers unique value to our e-commerce businesses. Cainiao will prioritize investing in building its core capabilities to ensure the synergies with our e-commerce businesses. Cainiao's adjusted EBITDA decreased by 94% to RMB 55 million compared to RMB 906 million in the same quarter last year, primarily due to the increased investment in cross-border fulfillment solutions. Revenue from the local service group grew by 14%, driven by the order growth of both AMAT and Ele.me, as well as revenue growth from marketing services. While losses narrowed significantly, primarily driven by improving operating efficiency and increasing scale. Revenue of the Digital Media Entertainment Group was RMB 5.7 billion, while losses narrowed. Youku progressively reduced its operating loss due to increased advertising revenue as well as improved content investment efficiency. Revenue from all other segments increased by 9%. In closing, we are making solid progress in strengthening the competitiveness of our core businesses of domestic e-commerce and cloud computing, both of which have proven to show sustainable profitability. We have the confidence to invest in our AIDC business because we see high growth potential and we continue to find ways to make our loss-making segments more efficient and put them on a clear path to profitability. Thank you. That's the end of our prepared remarks. We can open for Q&A.

Hi, everyone. For today's call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. Please note that the translation is for convenience purposes only. In the case of any discrepancy, our management statement in the original language will prevail. If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within one week after the meeting. Operator, please start the Q&A session. Thank you.

Thank you. If you wish to cancel your request, please press star two. And if you are on a speakerphone, please pick up the handset to ask your question. To give more people the opportunity to ask questions, please keep yourself to no more than one question at a time. Once again, that is star one to register for a question. Your first question today comes from Alicia Yap at Citigroup. Please go ahead.

Thank you. Good evening, management. Thanks for taking my questions. My question is related to this year's Singles' Day promotions and the macro outlook. So I think most people would agree Singles' Day's performance this year is okay and somewhat maybe better than expected. It seems like this year, most of the discount vouchers offered to consumers come from platforms rather than shared between the platforms and merchants. So just wondering if management can provide some feedback from merchants and brands regarding their satisfaction on the Singles' Day promotion and also how should we think about the financial impact near term as related to the higher coupon discount together with higher return rate this year, offsetting potential longer-term positive impact, if any, from a more vibrant and sustainable operation environment for merchants that might translate to higher ad budget spend on the app tools that will benefit longer-term CMR trend. And then if there's any preliminary view from the management that can share how you think about the macro outlook and overall improvement of the consumption trend as we head into 2025. Thank you.

Thank you. This is Eddie, and I'll be happy to take that question. In terms of the way we approached Double Eleven this year, for Taobao and Tmall, we got off to an early start with the campaign back in October. So the campaign ran over a longer cycle. Of course, other platforms also got off to an earlier start. Overall, we achieved relatively robust GMV growth during the campaign period. I would say that the results that merchants achieved based on what we discussed with them going into the campaign in terms of their expectations and then the feedback we got from them after the campaign is that results exceeded their expectations. I would say that overall results exceeded our expectations. As to your question on coupons, I think the setup is basically similar across all of the different platforms. You have two different categories of coupons, platform coupons on the one hand and category coupons on the other. So when it comes to platform coupons on Taobao and Tmall, these are basically coupons that we, the platform, are issuing to our 88 VIP members. And when it comes to the category coupons, these are jointly issued by the platform and the merchants. And if I just like to add to that last point, namely that when we, as the platform, provide those platform coupons to our members, that has a very positive impact in the longer term for brands in terms of helping them to grow their business. It shapes positive future expectations. And with that level of confidence that the business will be growing, we can expect them to spend more on advertising and marketing, thereby contributing to CMR revenue growth. And then turning to your third question on the macro situation. Indeed, from the end of September onwards, various different monetary and fiscal stimulus measures have been announced at the national level and in many different localities also, trade-in programs are being run for upgrading electronic goods as well as subsidies for home appliance and automobile purchases. So these programs definitely are stimulating growth in sales in the relevant categories. And I think these stimulus measures are really just getting started. And over time, we'll have a positive impact on driving consumption overall. I think these policies in particular will also help reduce merchants' destocking cycles and have medium to long-term effects in terms of driving the consumption of branded goods.

Next question, operator.

Thank you. Your next question comes from Ronald Keung from Goldman Sachs. Please go ahead.

Thank you for taking my question, management. My question has to do with take rate. In your announcement for the September quarter, you indicated that take rates have stabilized. I'm wondering if you could talk about the progress of the rollout and adoption of Chen Chen Tui and also what this means. Does it mean that the gap between CMR growth and take rate has now disappeared?

Thank you. This is Toby. I'll take that question. Indeed, as you can see in the results from this quarter, our take rate is now relatively stable. I think there are several factors that have created that result working in tandem. These include progress on monetization, including the 0.6% soft service fee that we've now started charging. Of course, we've only been doing that for one month, as well as the deepening penetration of Chen Chen Tui. So these two factors are both positive for take rate. But at the same time, we also have new business models that are still in the growth stage with relatively low monetization. It's going to take time to continue to grow those products and increase the monetization rate. So the result you're seeing this quarter, in terms of a relatively stable take rate, is the result of those factors in tandem. There's an offset at work there. In the longer term, we'll continue to charge that 0.6% software service fee. We'll, of course, continue to deepen the penetration and adoption of Chen Chen Tui. And at the same time, we'll continue to work on growing those products that still have relatively low monetization. So you can expect to see that kind of offsetting effect going forward.

Next question, please.

Thank you. Your next question comes from Thomas Chong with Jefferies. Please go ahead.

Hi. Good evening. Thanks, management, for taking my questions. My question is also on the PTG side. Can management comment about our investment strategies in the coming quarters? And how should we think about the trend for CPG EBITDA, given that, on the one hand, we are having a service fee, and on the other hand, we are investing in the user experience? So I just want to see how these two factors lead to PTG EBITDA outlook. And my second question is also on the PTG side. I think it's more about the synergies with WeChat payments. Can management share about the potential with WeChat payment in growing our user base as well as the incremental GMV that we envision in upcoming years? Thank you.

Thank you. Well, for Taobao and Tmall, at present, our strategy is to invest in strengthening our abilities, competencies, investing in the user experience, and also investing on the merchant side. That involves several different kinds of investments, investing in developing more extensive, more diversified supply, investing in developing price-competitive supply, and also investing in new products and promising new brands. In terms of investing in user experience, that includes making investments in improving after-sales service, also improving the logistics experience, as well as investing in improving the front-end user interface. Additionally, we're also investing in technology. There's very rapid growth in our AI-related products uptake. So investing not only in those products but also in the computing power that's needed to run these AI products. So these are long-term investments that we're making to enhance user experience and to enhance supply on the merchant side. So that ties in nicely to your second question about interoperability with WeChat Pay and the ability that gives us to develop new users. I would say we have quite high expectations for the ability that gives us to acquire new users. And, again, we're investing for the medium to long term in driving that user growth and retention. So this is a large investment direction for us. So overall, I would say that Taobao and Tmall is currently very much in the investment stage. We're making investments, of course, we're paying a lot of attention to ensuring the efficiency of those investments, and we're also working on increasing CMR as well in order to be able to better make those investments. So to answer your original question, I think given that, you can expect to see EBITDA fluctuate over the next few quarters to come because, overall, we are in an investment phase.

Next question, please.

Thank you. Your next question comes from Alex Yao with JP Morgan. Please go ahead.

Thank you. So Eddie spent quite some time sharing with us his thinking around the opportunity and the strategy on the consumer side. I just like to shift the conversation, if I may, to the supply chain side. We know that there's been a relatively sharp decline in the growth rate of live streaming e-commerce recently. I'm wondering what that means for your strategy. Will you be focusing more aggressively on brands, and conversely, what opportunities do you see? What strategies will you be deploying around white label goods and agricultural produce?

Thanks. Well, I think if you're going to talk about live streaming e-commerce, you really need to drill down and look at different platforms, different levels of penetration of live streaming. In fact, if you look at Taobao and Tmall, there's been a very strong increase in live streaming on our platforms, especially during the Double Eleven period. So, again, I think different platforms have different penetration levels of live streaming e-commerce and different stages of development in this regard. This year, we've seen a marriage, if you like, of high-quality supply with live streaming e-commerce. You could call it quality street, if you like. On Taobao and Tmall, we have very strong brands with flagship brand stores, and they've created excellent synergy with live streaming to tremendous effect during Double Eleven. So you asked about investing in the context of brand merchants. I mean, of course, everyone invests in order to see growth. And this year, in general, I think you see growth rates across different e-commerce platforms converging. And if anything, that really plays to our advantage at Taobao and Tmall because the brands need to be looking at which platform can truly bring them more sales rather than simply just displaying their products. As for your question about white label goods and agricultural produce, this is a topic that we're also discussing internally, and sometimes with differing views. But, you know, each platform has its own characteristics, and as a platform, you do need to focus on your core group of consumers and their consumption preferences and needs. So for us, when it comes to our 88 VIP members, these are people whose preference is for branded goods, but they do also have demand for white label as well. With the introduction of new payment options and the acquisition of new users following that, that may also result in new demand for white goods. So I do think you need to look at your users' preferences, their preferences in different categories, and ensure that you can provide the appropriate supply for those categories to meet those different preferences. As a platform, it needs to be somewhat customized.

Next question, please.

Thank you. The next question comes from Kenneth Fong. Please go ahead.

Thanks for taking my question, management. My question is on the cloud side. We note in the results that our revenue growth is accelerating, and you've stated you expect to achieve double-digit growth. And profitability is increasing as well. I'm wondering what your view is on the future profitability of cloud, especially given the recent price decreases in cloud.

Thank you. Well, cloud is a business where technology advantage matters and scale effect also matters. And we have both of those things, which is why as we've been able to grow the volume, we've been improving profitability as well. We do take a long-term view when it comes to looking at developing profitability in the sector, both in terms of software pricing and compute pricing. I think you're referring to the recent reduction in token price for Q1 API. And that's because we prioritized growing the user base there. But by lowering the API token price, we will attract lots of new users to come and use the models to deploy their applications on our cloud, and that will result in an increase in their use of our compute power, storage, database, and other products. So you could really think of the reduction in token price as an investment in user acquisition and user growth because we have a full technology stack. And as long as people come to the platform, they'll inevitably end up making use of multiple different cloud products.

Next question, please.

Thank you. The next question comes from Xiaolong Shi from Nomura. Please go ahead.

Thanks, management, for taking my questions. I have a few questions. My first has to do with take rate. I noted that earlier in the call, management indicated that you see that there is still significant room to increase take rate, but at the same time, you'll be keeping a close eye on merchants, the cost to merchants, the burden for merchants in operating on the platform. Recently, we've seen competitors reduce their rates, reduce the operating burden for merchants on their platform. Do you think that will prove attractive to merchants, and is there any risk of Alibaba losing merchants as a result of that? Secondly, regarding the trade-in subsidy programs that have been launched, I'm wondering how big an impact they're having, how large a boost are you seeing in GMV in the relevant categories like electronics, and consumer electronics and home appliances. And then building on that, would it be fair to say that these kinds of subsidy programs that started in September are just the beginning of more subsidies to come down the road? If so, how large will those future subsidy programs be? What categories will be applied to? And how big a difference do you think they'll make?

Thanks. This is Toby. I'll take the first question. For Taobao and Tmall, we have consistently attached tremendous importance to the rights and interests of merchants. I think, not only in terms of take rate, but in terms of our overall level of merchant friendliness, we are certainly the best of all the different platforms that are out there. So, certainly, yes, there is room to increase take rate, but we need to take a balanced approach, balancing platform health, balancing the health of merchant operations, and balancing that take rate. Also, you know, we've given a lot of relief and concessions to small and medium-sized merchants, including giving them rebates following our rollout of the software usage fee. We've canceled the annual fee for Tmall merchants and have optimized policies, including return-only policies for merchants. So these are all different ways in which we try really hard to safeguard the rights of merchants and be merchant-friendly. At the same time, as we've done in the past, going forward, we will continue to invest in initiatives such as membership program benefits, as well as in price-competitive products and technologies, with the aim of enhancing user experience. And, again, all of that investment ultimately will translate into more transactions on the platform to the benefit of our merchants. On your other question about the impact of these trade-in subsidies over the past few months, yes, definitely. The contribution has been large. And since these trade-in subsidy policies were launched back in September, we've seen a significant growth acceleration in those categories. As for other categories, you know, different regions have different policies. So apart from the large appliances, some may also offer trade-in subsidies for small appliances or even for home decoration, home furnishing, and other digital categories. So it just depends on the region and the different policies. In these categories, you are seeing a significant impact.

Next question, please.

Thank you. Your next question comes from Gary Yu at Morgan Stanley. Please go ahead.

Thanks, management, for taking my questions. I have a couple of questions. The first is a follow-up on Taobao and Tmall, where you started charging the 0.6% software service fee from September onwards. So next quarter, that will be making a contribution for the full quarter for the first time. So since you said that take rate is stable now, I'm wondering if that would mean that in the next quarter, CMR could actually grow faster than GMV is growing. In other words, could take rate perhaps not just be stable, but actually be growing in the next quarter? Second question has to do with CapEx. And I guess a lot of the CapEx spending is around cloud, especially around supporting AI needs. How do you think about the ROI of that CapEx?

Thanks. This is Toby. I'll take the first question and then hand over to Eddie for the second. I think I already spoke to this earlier when I flagged the two factors that are positive for take rate, namely the 0.6% software service fee and further penetration of the Chen Chuan Tui marketing tool. But in offset to that, we have these new business models that are investing in that are growing fast, but with low monetization. So those new models with low monetization, if you like, are diluting or offsetting the higher take rate from the first two factors. So at Taobao and Tmall, we're looking at this in the round in overall terms, and also looking at merchants, ensuring that we're providing them with a good operating environment with a stable business environment and ensuring that overall everything is healthy. But there is that offsetting and counterbalancing effect that we are looking at in the round.

Yes, you're right. A lot of the CapEx investment that we're making is in cloud, especially around AI infrastructure, and that's a function of our knowledge, our understanding of the short-term demand, as well as our judgment of the long-term demand. In terms of that short-term demand, there's ongoing explosive growth in demand for AI, for the compute power that drives AI, for the API services to access the models. And it's not even possible now to fully meet all of that demand. So that's why we're making aggressive investments for the short term. But, you know, in the longer term, we view this opportunity around Gen AI as a historic opportunity. It's the kind of opportunity that probably comes along only once every twenty years, say, in terms of the ability to leapfrog technologically. And that's why we think there's a high level of certainty around that demand going forward for inferencing, especially, you know, if you look at OpenAI's newest model, O1, with its COT chain of thought. That implies exponential growth in demand for inferencing. So that explains why we're investing aggressively in AI-related infrastructure for the short term and in the long term because we're very optimistic about that dimension.

Next question, please.

Thank you. Your last question comes from the line of David Great. Please go ahead.

Thank you very much for taking my question. My question is around shareholder return. I mean, it's great you guys bought back $10 billion in the last six months. Firstly, I was just wondering, do you differentiate between ADR and your Hong Kong ticker at 9988 when you buy back shares? And my question is around the PBOC recently launched a swap program to enable companies to buy back shares. But now you are in the Southbound Stock Connect. I was wondering, does that program sort of available to you? Thank you.

Okay. Thank you for the question. This is Toby. I'll take on this question. Firstly, actually, if you look at the distribution of the liquidity of our shares on the US line and Hong Kong line, currently, the US line is still the majority. So currently, the buyback we were executing is mainly on the US line. So that's to answer your first question. And the second question, you know, we are exploring various financing opportunities to fund our buyback. You know, the one you just mentioned, actually, we haven't been able to leverage that. But, of course, you know, apparently, we can further explore such an opportunity. What we understand currently is more like for the A-share buyback. However, we do explore other ways. If you recall back in May, we raised a CD of $5 billion, and we used that whole amount in the June quarter buying back $5.8 billion of our shares. So going forward, we'll continue to explore various ways on the financing and also do the buyback, basically, to create more value for our shareholders. Okay. And just to add on one point. Actually, we do have very rich RMB cash onshore. So if the lending is RMB, actually, we are a CNY, if you like. We are actually not that, you know, we have abundant cash CNY onshore. So to us, I think probably it's more attractive if some of the lending seems like in CNH or USD.

Due to time limit, we will now take the last question.

Thank you. Your last question comes from the line of David Great. Please go ahead.

Thanks for the time. I guess two follow-up questions on AI. First on cloud, and maybe double click on the demand for AI adoption. Is the AI revenue mostly coming from model training or inferencing? Because in the US and also in addition, in the US, people are talking about AI agents and automation of workflow. And how do you see that developing in China over time? Thanks.

Right. Well, if you look at the demand that's being created for cloud from Gen AI, you know, initially, a lot of that demand is for the training of models. But then over time, more and more computing power is needed to drive the inferencing. And, you know, looking into the future, we could expect to see there just being a smaller number of companies that are actually doing model training, especially for large foundational models. You can also expect to see a lot of training being done for different verticals, like, for example, autonomous vehicles, but also other specialized industries. So at the present time, there's very strong growth in demand to support both model training and inferencing. But in the longer term, in the future, we think that inferencing will account for the larger share of growth in demand. As you mentioned, AI is being applied in all kinds of different industries, different companies developing their own AI agents. Part of that is indeed about automating workflows, including retraining models. And I think these things are happening in a very positive way across a lot of different industries. And we see a lot of examples of this all around us, including internally within Alibaba. So I think these technologies are in a similar process of development here as well as in the United States. And a lot of, you know, the compute that used to be done on CPUs is being rearchitected to run on GPUs. So it's a major trend. The foundation of all this really is the GPU, which is driving the massive adoption of AI models. And as you mentioned, AI is being applied in different industries, developing their different AI agents. I think this is a major trend.

Thank you, everyone, for joining. We will see you next quarter.

Thank you. That concludes the presentation for today. You may now disconnect your lines.