Earnings Call Transcript - BABA Q3 2022

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's December Quarter 2021 Results Conference Call. At this time, all participants are on listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Rob Lin, Head of Investor Relations

Good day, everyone, and welcome to Alibaba Group's December Quarter 2021 Results Conference Call. With us on the line today are Daniel Zhang, Chairman and CEO; Joe Tsai, Executive Vice Chairman; Maggie Wu, Chief Financial Officer; Toby Xu, Deputy Chief Financial Officer. This call is also being webcast on the IR section of our corporate website. A replay of the call will be available on our website later today. Now, let me quickly go over our safe harbor. Today's discussion may contain forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For a detailed discussion of these risks and uncertainties, please refer to our latest Annual Report on Form 20-F and other documents filed with the US SEC announced on the website of the Hong Kong Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligation to update these statements, except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found on our earnings press release. Unless otherwise stated, growth rates of all stated metrics mentioned during the call refer to year-over-year growth versus the same quarter last year. In addition, during today's call, management will give their prepared remarks in English. A third-party translator will provide simultaneous Chinese translation on another conference line. Please refer to our press release for details. During the Q&A session, we will take questions in both English and Chinese, and a third-party translator will provide consecutive translation. All translations are for convenience purposes only. In the case of any discrepancies, management statements in the original language will prevail. With that, I will now turn the call over to Daniel.

Daniel Zhang, Chairman and CEO

Thank you, Rob. Hello, everyone. Thank you for joining our earnings call today. This quarter, Alibaba Group's business continued to make steady progress. We remain focused on building long-term capabilities centered around customer value creation, despite the resurgence of COVID, China's market economy slowdown, and increasing competition. In the fourth quarter of 2021, China's GDP grew 4% while total retail sales rose 3% year-over-year. Both decelerated from the previous quarter due to the confluence of COVID, price increase of raw materials, and other factors. At the same time, the overall trend of digitization across both consumption and industrial sectors became increasingly apparent and accelerated. Large Internet companies in China have entered commerce through various ways, and digital construction format and user experiences have become increasingly diversified. Against this backdrop, we believe our most important proposition and the biggest opportunity for healthy and sustainable long-term growth are: number one, the ability to continually create new consumption demand and offer innovative consumer experiences; and number two, support the industrial digitalization of our customers. As of quarter end, our annual active consumers reached 1.28 billion globally, representing quarterly net adds of 43 million. In China, our AAC grew from 953 million to 979 million during the quarter, while AAC outside of China grew from 285 million to 301 million. We are fully on track to deliver the target of one billion China AACs by the end of this fiscal year. Taobao Deals has been the major contributor to our new user acquisition. With one billion high-quality AACs, we believe we have substantially captured all consumers with purchasing power in China. We focus on shifting from new user acquisition to user retention and ARPU growth. Despite the impact from slowing retail sales and intensifying competition on our China commerce business, the net year retention rate of new AACs acquired in the calendar year 2020 was 86% in 2021. This AAC retention rate held steady against our historical pattern, indicating healthy user stickiness on our platforms. Our overall ARPU, or the average annual spend per AAC, decreased by a low single-digit percentage year-over-year in 2021 due to the increased contribution of new users from less developed areas. But I want to highlight that the ARPU of our AACs with over RMB 10,000 annual spend on our platform continued to increase year-over-year. Looking ahead, we aim to further strengthen user engagement and time spent through a greater variety of consumption use case offerings. We want to enhance our influence on the consumer decision-making journey and tailor it to reflect the unique considerations of each product category. We will shift our focus from spending the total number of AACs in China to driving deeper AAC penetration across product categories. This will ultimately help us capture a more significant consumer wallet share. Over the past year, we invested heavily in Taobao Deals and Taocaicai. We do not view these two businesses as standalone units but as integral parts of our China commerce business metrics. The unique value contribution of these two new businesses gradually became clear following several quarters of development. Taobao Deals has been a powerhouse in new user acquisition for China commerce, attracting 280 million AACs with a quarterly net add of 39 million. Paid orders during the quarter grew over 100% year-over-year. Taobao Deals and the Taobao APP have a highly complementary user base with a higher proportion of price-sensitive consumers on Taobao Deals. There are many ways for us to realize the commercial value of these users. One example is improving supply chain efficiency by connecting manufacturers directly with consumers. As for Taocaicai, it has been a successful use case extension into the grocery and fresh produce category for price-sensitive consumers. More than 50% of Taocaicai's AACs were first-time fresh produce buyers on our platforms. Now that Taobao Deals and Taocaicai have established market presence, we will shift our focus towards quality growth through optimizing efficiency. We expect to gradually narrow the operating losses in these two businesses in the next few quarters. In local consumer business, the combined AACs of our to home and to destination business have reached 372 million, reflecting a quarterly net add of 17 million. Total order volume grew 22% year-over-year. On the to home side, we made meaningful progress in improving unit economics for Ele.me through a city strategy, with more disciplined user acquisition spending and improved delivery cost. On the to destination side, Amap reached a record high of over 200 million DAUs during the National Day holiday in China, while transacting users continued to grow during the quarter. We believe the picture of Amap transforming from a map navigation tool to a lifestyle services platform centering around destination is becoming clearer. For our international commerce business, AACs reached 301 million by December, with a quarterly net add of 16 million. Overall, order growth continued to maintain healthy momentum at 25% year-over-year with Lazada and Trendyol growing 52% and 49% respectively. AliExpress was negatively impacted by changes in the European Union's VAT exemptions. We believe the future development of the international commerce market will be based on the combination of local supply and cross-border supply. Our long-term focus is a balance of both to fully leverage China's advantage in cross-border supply while organizing local supply effectively. Meanwhile, logistic network development is a priority in our globalization strategy, as logistics is the fundamental infrastructure supporting a high-quality consumer experience based on integrated product supply from cross-border and locally. Cainiao has been developing a logistic network in Southeast Asia and Europe, leveraging the commerce use cases presented by Lazada, AliExpress, and Trendyol. We will continue to invest in the Cainiao global logistics network as a cornerstone of our globalization strategy. Additionally, global coverage and capacity in cloud is another essential piece supporting our globalization strategy. This quarter, AliCloud continued to invest in expanding its international infrastructure. We added two data centers in Asia-Pacific, one in Korea and one in Thailand. AliCloud now provides cloud computing services in 25 regions globally. Our cloud revenue grew 20% year-over-year this quarter. We saw very strong growth in demand from the financial services and telecom sectors, which partially offset slowing demand from some customers in the Internet sector. China's cloud market will be a RMB 1 trillion opportunity by 2025, and industrial digitalization today is still in a very early stage. Alibaba Cloud is committed to serving the real economy for the long-term and the digitalization of all industries. Recently, we helped the International Olympics Committee migrate 100% of their core systems onto Alibaba Cloud during the Beijing Winter Olympics. This is the first time in the history of the Olympic Games that cloud computing has replaced traditional IT infrastructure to support the planning and operations of the games. In the past, each Olympic host city would have to build extensive IT infrastructure and dismantle it after the end of the games. By replacing the physical infrastructure with cloud-based services, hardware costs will be significantly reduced while application development and deployment will be much more efficient. We see similar opportunities and advantages for digitalization in many industries in the future, such as new energy vehicles, financial services, and healthcare. These industries have high potential with massive demand for cloud computing and digital intelligence. We will leverage Alibaba Cloud's proprietary technology and products to deliver tailored industry solutions. As China continues to advance towards its carbon peak and neutrality goals, we foresee increasing demand for more reliable and sustainable technology infrastructure as digital transformation deepens across industries. We aim to leverage Alibaba Cloud's product and technology innovations to help our customers find greater energy efficiency. For example, our data centers cooled by liquid cooling technology achieved industry-leading energy efficiency levels with a PUE of as low as 1.09. Moreover, our facilities can deliver high performance with lower power consumption leveraging our proprietary products and technologies. During our Investor Day this past December, we announced Alibaba's carbon neutrality pledge. By 2030, we're committed to achieving Scope 1, 2, and 3 carbon neutrality for Alibaba Cloud, Scope 1 and 2 carbon neutrality in the operation of Alibaba Group, and reducing Scope 3 carbon intensity by half. Additionally, we introduced a concept of Scope 3+ to facilitate 1.5 gigatons of decarbonization across Alibaba's ecosystem participants by 2035. Since Q4 last year, China's regulators have issued multiple important statements about the digital economy. They emphasize the need to strengthen China's digital economy, improve its quality, and grow its scale. They also promote healthy and sustainable development of the platform economy based on robust platform governance. These principles are highly consistent with Alibaba's own business philosophy and commitment to social responsibility. Looking ahead, we remain focused on healthy and sustainable development by serving our customers, especially SMEs, supporting the digital transformation of industries, serving the real economy, and supporting our community. Thank you everyone for your time. Now I will turn it to Toby, who will walk you through the details of financial results.

Toby Xu, Deputy Chief Financial Officer

Thank you, Daniel. Good morning and good evening, everyone. This quarter, revenue reached approximately CNY 242.6 billion, reflecting a 10% increase year-over-year. The three main segments contributing to our revenue were China commerce, cloud, and international commerce, with growth rates of 7%, 20%, and 18% year-over-year, respectively. Despite facing challenges in our China commerce segment due to slowing macroeconomic conditions and heightened competition, our cloud and international commerce segments demonstrated strong growth, which we expect will be key drivers of future expansion. These segments will continue to help diversify our revenue streams. Income from operations fell by RMB 42 billion to RMB 7 billion, including a RMB 25 billion goodwill impairment related to the digital media and entertainment segment. Excluding this factor, income from operations would have been RMB 32 billion, down 34%. Adjusted EBITA decreased by 27% year-over-year to RMB 45 billion, mainly due to increased investments in growth initiatives such as Taobao Deals, Taocaicai, Lazada, and Ele.me, along with higher spending on user growth. Many of these initiatives experienced significant growth momentum, as Daniel mentioned. Furthermore, we have enhanced merchant support through incentives to encourage the adoption of new value-added services, alongside strategic reductions in select service fees to lower merchants' operational costs amid a slowing consumption environment. We believe that this short-term investment fosters goodwill with our customers and supports sustainable long-term growth for our China commerce businesses. Regarding cost trends this quarter, excluding stock-based compensation, the cost of revenue ratio rose to 60%. This increase was primarily due to a higher share of our direct sales businesses, such as Sun Art, Tmall supermarket, and Freshippo, and robust growth in Taocaicai, Freshippo, and Tmall submarket, which elevated logistics costs relative to revenue. The sales and marketing ratio climbed to 15% due to increased marketing and promotional expenditures for user acquisition and engagement across our mobile commerce apps like Taobao Deals, Taobao, Lazada, and Ele.me. The ratios for product development and general administration expenses remained consistent year-over-year. Now, looking at net income and cash flow for the quarter, our income for December declined by RMB 58.8 billion to RMB 19.2 billion, mainly driven by a RMB 25 billion goodwill impairment in the digital media and entertainment segment and a RMB 21.7 billion drop in interest income, resulting in investment income of RMB 18.4 billion, largely due to lower net gains from fair value changes in our equity investments. Our non-GAAP net income also dropped by RMB 14.6 billion, mainly as a result of a decrease of RMB 16.4 billion in adjusted EBITA. As of December 2021, we maintained a strong net cash position of RMB 379 billion or US$59.5 billion, supported by healthy cash generation. Net cash flow from operations for the quarter was RMB 60.4 billion, and free cash flow was RMB 71 billion. The roughly RMB 9.4 billion difference reflected operating capital expenditures, mainly for our cloud business and logistics fulfillment infrastructure. We remain focused on enhancing shareholder value through share repurchases. During the quarter, we repurchased approximately 10.1 million of our American depositary shares for about US$1.4 billion under our share repurchase program. For the nine-month period ending in December 2021, we repurchased around 42.2 million of our ADS for about US$7.7 billion, representing 51% of our US$15 billion share repurchase program. We believe our current share price does not accurately reflect the company's value, so we intend to continue repurchasing shares while preserving a robust cash position for future investments. Turning to our segment results, as discussed during our Investor Day, we are providing more detailed reporting of our commerce segment by breaking it into four areas: China commerce, international commerce, local consumer services, and Cainiao. Our cloud, digital media entertainment, and innovation initiatives remain unchanged. Revenue from our China commerce segment rose 7% year-over-year to RMB 172 billion. Customer management revenue slightly declined by 1%, mainly due to slow market conditions and competition in the China e-commerce space, resulting in single-digit growth in paid gross merchandise volume for Taobao and Tmall. While GMV growth was stronger in fast-moving consumer goods and home furnishing categories, it was slower for apparel, accessories, and consumer electronics. Additionally, we've enhanced merchant support through incentives to facilitate the adoption of new value-added services and made strategic reductions in certain service fees to help lower merchant operational costs in a slowing consumption climate. The increased merchant support caused customer management revenue to grow at a slower rate compared to GMV growth. We believe that increasing near-term spending fosters goodwill with our customers and supports long-term growth for our China commerce businesses. Revenue from direct sales and others grew 21% year-over-year, mainly thanks to contributions from Sun Art, Freshippo, and Tmall supermarket. Growth slowed down mainly due to the diminished impact of Sun Art consolidation, as it fully lapsed in this quarter. China commerce adjusted EBITA fell by RMB 14 billion to RMB 58 billion, reflecting our increased investments in growth initiatives like Taobao Deals and Taocaicai, as well as greater spending for user growth and merchant support. Notably, our investments in Taobao Deals and Taocaicai have created strong transaction growth and built capabilities while also being more disciplined in improving unit economics. Taobao Deals paid orders grew over 100% year-over-year. At the same time, we executed several initiatives to optimize logistics costs and enhance the delivery experience for consumers. Taocaicai GMV increased by 30% quarter-over-quarter, with improved user experience per order from higher regional order density and better gross margin due to enhanced supply chain capabilities. As Daniel highlighted, Taobao Deals and Taocaicai are key to our China commerce segment, aiding in new customer acquisition and expanding product offerings. Given their strong position, we aim to focus on the quality of growth and expect to see these businesses gradually reduce operating losses in the upcoming quarters. International commerce revenue continued to grow strongly by 18%, primarily due to robust transaction growth at Lazada and Alibaba.com, with Lazada's order growth rising 52% and transaction value on Alibaba.com increasing by approximately 50%. The slower year-over-year revenue growth compared to the last quarter was largely attributed to single-digit revenue growth from AliExpress, primarily due to a year-over-year decrease in the number of orders resulting from a value-added tax on cross-border parcels below €22 in Europe, and the significant depreciation of the Turkish lira that negatively affected Trendyol's revenue. However, constant currency revenue growth for Trendyol reached 60% year-over-year, buoyed by strong order growth of 49%. The adjusted EBITA loss widened by RMB 1.5 billion to RMB 3 billion, mainly due to increased marketing spend at Lazada to acquire and engage users, partially offset by steady profit growth from our international wholesale commerce business. The local consumer service business achieved robust growth of 27%, supported by a 22% rise in order volume and more efficient use of subsidies that were recorded as contra revenue. However, adjusted EBITA loss increased by RMB 0.7 billion to about RMB 5 billion, mainly due to higher losses from our destination businesses, including Amap, and a moderate increase in losses from our home services such as Ele.me, which narrowed compared to last quarter due to disciplined user acquisition spending and reduced delivery costs. Revenue from Cainiao prior to inter-segment elimination grew by 23% to RMB 19.6 billion, driven by growth in fulfillment solutions and services for our China commerce retail businesses, as well as revenue increases from third-party merchants in our cross-border and international operations, with 67% of total revenue coming from external customers during the quarter. The adjusted EBITA loss improved to a slight loss of RMB 92 million due to economies of scale and improving gross margins in its cross-border and international businesses. In our cloud business, after inter-segment elimination, revenue increased by RMB 3.3 billion to RMB 19.5 billion, reflecting a solid 20% year-over-year growth, driven primarily by strong performance in the financial and telecommunications sectors, though partially offset by a top cloud client ceasing to use our overseas cloud services for international operations due to non-product-related requirements, along with tapering demand from customers in the Internet sector like online entertainment and education. Without the influence of the top Internet customer, Alibaba Cloud's revenue would have increased by 29% year-over-year. Alibaba Cloud is becoming more diverse, with contributions from non-Internet industries rising steadily, accounting for 52% of revenue after inter-segment elimination in the quarter. Adjusted EBITA stood at RMB 134 million, mainly supported by economies of scale in its profitable core cloud computing operations, despite the rising investments in DingTalk, which provides enterprise solutions for digital transformation, work collaboration, and access to Alibaba Cloud’s data analytics and AI capabilities. Since integrating DingTalk into our cloud operations in 2021, we have found new opportunities and growth initiatives, boosting our confidence that increased investment in DingTalk will provide long-term value to Alibaba Cloud. Revenue from digital media and entertainment reached RMB 8 billion in the quarter, with losses slightly decreasing year-over-year. To conclude, our China business will focus on quality growth, delivering value to customers, and enhancing capabilities. Despite a challenging macro environment and a high year-over-year comparison base, we expect continued resilience in GMV growth for China commerce. We anticipate ongoing revenue diversification, with solid growth in cloud and international commerce segments. Our growth initiatives like Taobao Deals and Taocaicai have built a substantial market presence and are showing tangible results with strong growth in average active customers and order volume. We also expect losses in these two sectors to narrow in the upcoming quarters. Lastly, we will persist in building our cloud and logistics infrastructure both in China and globally. Now, let's open the floor for questions and answers.

Rob Lin, Head of Investor Relations

Consecutive interpretation for the Q&A session, and our management will address your questions in the language you asked. 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. So, operator, please connect the speaker and SI conference lines now and start the Q&A session when ready. Thank you.

Operator, Operator

Thank you. The first question comes from the line of Piyush Mubayi of Goldman Sachs. Please go ahead. Your line is open.

Piyush Mubayi, Analyst

Thank you for the opportunity. Thank you, Daniel, Toby for the presentation. My one question around the growth rates for the business and particularly the core business. Given what parcel numbers are looking like for the month of January and I don't want to read too much into that number and the exit run rate we saw for NBS data for the month of December, I wonder if you could walk us through the exit run rate for the third quarter for the December quarter for GMV growth, as well as CMR growth rate. And also, if you could broadly guide us to what you think the growth rates we could be expecting in the first quarter of calendar 2022? Thank you.

Toby Xu, Deputy Chief Financial Officer

Thank you for your question. As I mentioned earlier, in the last quarter, the overall macro conditions showed that the retail growth rate for December was only around 3%. Our business was also affected by these conditions and competition, resulting in single-digit growth for the December quarter. Looking ahead to the first quarter of 2022, our growth rate in terms of GMV remains relatively strong. We don’t have the January numbers yet, but we expect to see them soon. For now, our growth rate continues to show resilience.

Rob Lin, Head of Investor Relations

Next question?

Operator, Operator

Thank you. Our next question comes from the line of Thomas Chong of Jefferies. Please go ahead. Line is open.

Thomas Chong, Analyst

Good evening, management. Thank you for taking my questions. My first question relates to your outlook for the performance of different categories in the next few quarters, including FMCG, apparel, and electronics. Can you share with us your forecast on growth and trends in those different categories? Secondly, I'd like to hear from management as to when you think we'll see a turnaround in the consumption slowdown. Do you think that we'll see a pickup in momentum by, say, the June quarter or the September quarter? And finally, I'd like to hear from management please on competition. What will be the future impact of increased competition in the e-commerce space? And what is your strategy to deal with it? Thank you.

Daniel Zhang, Chairman and CEO

Thank you. This is Daniel and I'll be happy to take this question. First of all, when it comes to GMV, either by category or overall GMV, it is our consistent policy not to give guidance. But I can answer your question in overall terms in the following way. We can look at the macro environment and the e-commerce penetration in different categories from a number of angles. First of all, we can look at the share of different categories in total retail sales and then we can look at the current e-commerce penetration rate of those same categories. So if we look at those two categories you singled out, apparel and electronics, due to the rapid development of e-commerce over these past years, penetration in those categories is now relatively high. We're looking at something like 30% or 40%. However, if you look at the other categories you mentioned like FMCG and food, especially fresh foods and groceries, the overall size of the market in those categories is very large yet e-commerce penetration still remains relatively low. You'll recall that I talked about this in the presentation I gave at Investor Day back in December; we see very good opportunities for driving online conversion deeper in those categories. Now, of course, in order to do that and in order to ensure a good user experience, we need to have highly integrated fulfillment systems and a range of different offerings that cater to different kinds of demand. That's precisely what Alibaba has put in place with a matrix that includes Hema, RT-Mart with integrated online and offline operations, our third-party delivery platform Ele.me, as well as Tmall supermarket. So we're organizing supply both from nearby and from nationwide in different consumption scenarios, catering to different kinds of users from the highly affluent to the more price-sensitive. By pursuing this matrix strategy, we expect to be able to deepen our penetration in these categories substantially. On your second question, I would say that live streaming certainly has become a very important part of the digital commerce ecosystem. It's an important means of enriching the user experience and marketing in particular certain kinds of categories. The Taobao live stream ecosystem therefore is an important part and highly integrated into our overall ecosystem as a complementary part of a larger offering. However, different categories and different products are best marketed to consumers in different ways with different kinds of interaction. So live streaming is indeed good, but it's certainly not the only means of getting there. We do need a multifaceted and rich matrix of services through which to reach users and market products.

Rob Lin, Head of Investor Relations

Next question, please.

Operator, Operator

Thank you. Our next question comes from the line of Jeremy Lim of UBS. Please go ahead.

Jeremy Lim, Analyst

Thank you for taking my question. My question has to do with Taobao Deals and Taocaicai, where you see them going over the next few quarters in terms of UE and further narrowing of losses. If you could talk to us, please, about how UE has been evolving in the face of competition and market developments there and whether that has improved also by the scaling up of the businesses with larger order numbers?

Unidentified Company Representative, Company Representative

Thank you for your question. Both Taobao Deals and Taocaicai were launched in 2021, as Daniel mentioned earlier. We view them as crucial components of our China Commerce segment. They serve different purposes, with Taobao Deals being particularly effective in driving significant user acquisition in lower-tier cities over the past year. Together, these two businesses have made substantial strides in serving consumers in these areas by offering not only supply but also strong fulfillment capabilities. While we are focused on scaling these businesses, we are also exploring ways to improve efficiency. Some of the efficiencies are a result of growth in scale, while others stem from specific initiatives aimed at enhancing efficiency. For instance, as order density in Taocaicai has increased, we have seen better unit economics. We are also experiencing efficiency improvements in Taobao Deals. Although we monitor our competitors, we are primarily focused on our own progress. We are confident that we can continue to grow these businesses and improve their efficiency in the future, and we expect to see their losses decrease over the coming quarters.

Rob Lin, Head of Investor Relations

Next question?

Operator, Operator

Thank you. The next question is from the line of Alex Yao of JPMorgan. Please go ahead.

Alex Yao, Analyst

Thank you, management. My question is about the growth outlook for retail in China, specifically regarding China commerce GMV. This relates to the overall performance of the retail market in China. How long do you anticipate the current downturn in consumption will continue? When do you expect a turnaround and for consumption to increase? Do you foresee this as resembling a V-shaped recovery or more of an L-shaped one? Are we likely to see the initial part of a V-shaped recovery? What changes are necessary to stimulate a rise in consumption? Would this require government stimulus, a loosening of COVID control measures, or something else?

Daniel Zhang, Chairman and CEO

Thank you for your question, Alex. Whether the recovery will be V-shaped or U-shaped is an important inquiry, and I share your interest in finding out. From my perspective, based on user data from our platform and the current macroenvironment, I believe that both factors you mentioned would certainly aid in boosting consumption. Reducing the impact of COVID or implementing government stimulus policies to encourage consumption would be positive changes. However, I want to stress that beyond the macroeconomic factors, what truly matters is the ability to innovate, particularly in supply, to generate new demand. A notable example of this is the recent Winter Olympic Games in Beijing, which created an opportunity to drive interest in winter sports and the associated economy in China. This is just one instance of how we can create new demand and supply to match that demand.

Operator, Operator

Next question is from the line of John Shaw of Barclays. Please go ahead.

Unidentified Analyst, Analyst

Thank you, Management. As Toby mentioned in his earlier presentation, you are carrying out a share repurchase program. You're re-buying shares. You also have some 70 billion in cash on your books which could be used to create shareholder value. There's also the possibility in addition to that of spinning off certain hidden assets to create shareholder value. We heard back in December at your analyst event that Trendyol was in the process of raising funds. We've also more recently seen from the media that Lazada may be in the process of raising funds. We know that competitors are spinning off some of their subsidiaries to create shareholder value, so I'm wondering if you could tell us about those kinds of opportunities and your plans in those spaces, especially around cloud and also around China commerce. Thank you.

Daniel Zhang, Chairman and CEO

Thank you. This is Daniel. I'll be pleased to take that question. If you look at where Alibaba Group is today as a business, we're very much being driven by a multi-engine strategy. The group has expanded into multiple different business areas that are mutually complementary but each has unique user value and a unique user community. We believe that the market has not placed sufficient value on Alibaba's business in terms of how it's being driven by a multi-engine strategy. The full value of each of these businesses together is not being reflected in where we're at today. This is a big part of the reason why we're pursuing a share buyback strategy. Each of these different businesses, including Cainiao, our local services offering in particular Ele.me, but also Lazada and Trendyol, which you mentioned, are no longer simply internal business units or internal divisions of Alibaba Group. They're operating as independent companies. So, certainly going forward, where we have these businesses that can create a closed loop and operate as stand-alone entities, we will maintain an open attitude to do as we have indeed done in the past, deals that bring in more diverse investor bases and help these companies grow as independent entities. In sum, in the long term, we will certainly pursue strategies that are conducive to the creation of long-term shareholder value and customer value. Thank you.

Unidentified Analyst, Analyst

Thanks, Daniel. Thanks, Toby.

Operator, Operator

Thank you. The next question is from the line of Eddie Leung of Bank of America. Please go ahead.

Eddie Leung, Analyst

Thank you, management. Good evening. Two questions, if I might. First of all, it has to do with the impact of the growth of the 1P model in certain parts of your business. I'm wondering if the greater share of your business being 1P may lead to a situation where you're competing with merchants on the platform. And then secondly, tying into the previous conversation we had about certain BUs growing fast, driving a lot of user acquisition. We're seeing a lot of these new users that have joined the Alibaba digital economy coming from a couple of these new business units. I'm wondering if some of these BUs become more independent; how can we make sure that there's good synergy between them and the other businesses, and the new users they're bringing on forward will also contribute to the overall Alibaba economy? Thank you.

Daniel Zhang, Chairman and CEO

Thank you. This is Daniel. I'll be happy to take that. As to your first question regarding the two different business models, the 1P model versus the platform model. Alibaba really takes no side and has no preference. To us, it all boils down to which model can best serve the consumer. We put the consumer's interest first. Secondly, when it comes to how we engage with merchants, be it in the 1P model or the platform model, it's fundamentally our concern to find ways to help merchants better serve consumers, not just in terms of helping merchants to sell products to consumers but helping them to develop their brands and to leverage consumer data to engage consumers and grow their business. So the 1P model for us is absolutely not about erecting a wall between merchants and consumers. It's really about helping to get goods to the consumer more efficiently, with more flexible pricing, but at the same time allowing for consumers to be engaged by merchants. We always hope for consumers to remain in touch with the merchants and for the merchants to be able to leverage data to better manage and grow their businesses. So these several aspects are all integrated. What Alibaba is offering to merchants is a highly integrated portfolio of different possibilities including the 1P model and the platform model, so different business models; and also multiple scenarios including hyperlocal commerce and nationwide commerce. With this complete basket of different offerings, it's possible to better engage consumers and for merchants to build their brands and grow a healthy business. On to your second question, which had to do with how to ensure good consumer engagement across all different businesses as they develop. We fundamentally believe that we must adopt the consumer's point of view in looking at how we organize and run our businesses because at the end of the day all of our businesses are built on serving the consumer well, and we need to be able to do that across all of them. Something we're working on very, very hard is segmenting the different consumers that we have in China with closing in on 1 billion AACs in China today. It's very important that we segment them and give our different offerings differentiated value to these different segments of consumers. This is something that's of fundamental importance to us. We're working hard on it every day segmenting the 1 billion consumers and presenting to them a comprehensive consumer business matrix that satisfies their differentiated demand.

Rob Lin, Head of Investor Relations

Next question?

Operator, Operator

Thank you. The next question is from the line of James Lee of Mizuho. Please go ahead.

James Lee, Analyst

Great. Thanks for taking my questions. My question is mainly on cloud. Now, given the slowdown we're seeing in the Internet industry, I'm just curious what is your plan to diversify the revenue base. It seems like that's your business plan. Maybe help us understand which verticals you're looking for your business expansion and why. Lastly, along with that line of investment in cloud, what kind of investments do you need to make to expand not only your vertical exposure but also from a product and sales perspective? Thank you.

Yong Zhang, Company Representative

Well, actually after years of effort we've already built a very diversified customer portfolio in our cloud business. As we shared in our earnings, this quarter 52% of our cloud revenue comes from non-Internet customers. I think this percentage, if you look at the past few years' track record is going up. We will over time continue to diversify this portfolio. As I shared in my remarks today, we are still in the early stage of industrial digitalization in China. For all industries, they'll need to be data-driven companies, and they need a new generation of tech infrastructure to support this digital transformation. In this regard, we see a huge opportunity in the coming years. This will definitely be a RMB 1 trillion market. In terms of the industries, as I said before, we keep a close eye on the new industries that will generate a massive amount of data and which will consume high computing power and also need intelligent data technology. For those industries, we definitely think it will drive the growth of the cloud business. Also, with mutual collaboration, it's also very good for building the ecosystem, which is also relevant to your second question. Our investment strategy for cloud computing is to first enhance our proprietary technologies. Secondly, we will enhance the power of the ecosystem to have more strategic partners in the cloud ecosystem.

Rob Lin, Head of Investor Relations

Let’s take the last question.

Operator, Operator

Yes. Thank you. Our last question is from the line of Alicia Yap of Citigroup. Please go ahead.

Alicia Yap, Analyst

Thank you, management. Some quick follow-up questions on cloud. We understand that the impact of that one Internet company stopping the use of Alibaba Cloud services around a year ago from the March quarter has been ongoing. But do we expect to see international revenue for cloud reaccelerating, starting from, would you say the March quarter? How do you view competition and price trends in the cloud space? In a more macro sense, do you think that there are perhaps many companies out there that need to get on the cloud, but they're perhaps delaying that decision in the current macroeconomic environment for the time being? And then quickly turning just to finow. We saw that growth of finow's business outside of the Alibaba ecosystem was only 15%. I'm wondering if you could talk to us about how you see finow’s revenue growing going forward with respect to serving external customers.

Daniel Zhang, Chairman and CEO

Thank you. To start with your first question regarding the impact of the large cloud customer not utilizing Alibaba Cloud services internationally in recent quarters, we have indeed observed a gradual decrease in that impact over the quarters, and we are now entering a fresh cycle. It's important to highlight that we now have a significantly diversified customer base. Particularly, when looking at large customers, very few now represent more than 2% of our revenue. This diversification puts us in a strong position for the future. Regarding the second part of your question about the macro environment's effect on the cloud business growth rate, it's essential to analyze various sectors individually. There is a widespread trend of industrial digitalization occurring, which is necessary for both traditional sectors and new emerging ones. We have discussed sectors like new energy and healthcare, which require substantial computing power and advanced data intelligence capabilities. We must adopt a sector-specific strategy, focusing on those industries with significant needs for computational resources and data intelligence. It's crucial to recognize that the cloud is not merely a replacement for traditional IT infrastructure; China is only beginning this transition. On the topic of Cainiao, after years of investment and development, it now has a growth strategy that spans multiple areas. Its services include last-mile delivery, business-to-business supply chain services, and supporting the manufacturer-to-consumer model through the growth of Taobao Deals. Internationally, it has established a robust cross-border parcel service and supply chain network. Looking ahead, with further growth in B2B, we anticipate strong export performance, all backed by Cainiao's international cargo network. Given this diverse business structure, Cainiao has tremendous potential. As part of the Alibaba family, we aim for Cainiao to effectively support various segments of Alibaba's operations and provide integrated logistics solutions while also serving external customers. We will identify opportunities for incremental growth across our different businesses.

Rob Lin, Head of Investor Relations

Okay. Thank you, everyone. That was the end of our Q&A session. If you have any further questions, please reach out to the IR team and myself. Thank you for your participation.

Operator, Operator

Thank you. And this concludes today's conference call, and thank you for participating. You may now all disconnect.