Earnings Call Transcript - BABA Q2 2022

Operator, Operator

Good day, everyone. Thank you for joining us. Welcome to the Alibaba Group's September Quarter 2021 Results Conference Call. I will now hand the call over to Rob Lin, Head of Investor Relations at Alibaba Group. Please proceed.

Robert Lin, Head of Investor Relations

Good day, everyone, and welcome to Alibaba Group's September Quarter 2021 Results Conference Call. With us today are Daniel Zhang, Chairman and CEO; Joe Tsai, Executive Vice Chairman; Maggie Wu, Chief Financial Officer. This call is also being webcast from 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 the 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 detailed discussion of these risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the U.S. SEC or announced on the website of 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, commerce adjusted EBITA before strategic investments, 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 the GAAP to non-GAAP measures can be found on our earnings press release. Unless otherwise stated, growth rate of all stated metrics mentioned during the call refers 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 translation in Chinese 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 purpose only. In the case of any discrepancies, management's statements in the original language will prevail. With that, I will now turn the call over to Daniel.

Yong Zhang, CEO

Thank you, Rob. Hello, everyone. Thanks for joining our earnings call today. In the past quarter, Alibaba continued to firmly invest into our three strategic pillars of domestic consumption, globalization, cloud computing, and data intelligence. We believe this will establish solid foundations for our long-term goal of sustainable growth in the future. Some context on the China macro environment before I share our business updates. In the September quarter, China's GDP and consumption continued to grow but slower than the previous quarters. Overall retail sales for the quarter increased 5% year-over-year. Online retail of physical goods rose 8% year-over-year compared to the 19% during the same period last year. Offline retail has only just returned to the same level as two years ago. These economic headwinds, coupled with intensifying market competition, also affected our core commerce business in China. In line with industry retail trends in China, the physical goods GMV year-over-year growth rate moderated to single digits this quarter, mainly due to a slowdown in apparel and general merchandise categories. That said, the growth rate of consumer electronics and home furniture categories remained resilient. In the challenging macro environment, we continued to invest in user acquisition that has shown promising progress in low-tier cities, which I will elaborate on later. Our global annual active consumers reached approximately 1.24 billion, which is a net increase of 62 million quarter-over-quarter and 20% growth year-over-year this past quarter. Our AAC grew to 953 million in China and 285 million overseas. We are on track to deliver the 1 billion China AAC target by the end of this fiscal year, and remain firmly committed to achieving our long-term target to serve 2 billion consumers globally. Let me turn to our long-term investment strategies. In less developed areas across China, Taobao Deals has continued incremental growth to our overall user base and stimulate more user activity and engagement in our China consumer ecosystem. Taobao Deals AAC surpassed 240 million this past quarter. Close to half of Taobao Deals daily active users are unique incremental users in addition to Taobao app DAUs. Consumers are attracted by the value-for-money products and differentiated user experiences offered by Taobao Deals. At the same time, manufacturers take advantage of its one-stop full-service solution that includes online store operation and fulfillment to sell directly to end customers. We call this solution m2c or manufacturers-to-consumers. During this past quarter, Taobao Deals m2c orders grew nearly 400% year-over-year. For our Community Marketplaces business, Taocaicai, we continued to focus on investing in and building a new digitalized community commerce model that is sustainable and healthy. Taocaicai has expanded operations to close to 200 cities and its GMV growth surpassed 150% quarter-over-quarter. We are deliberate in our approach and faithful to our belief in true value creation rather than a blinded pursuit of unqualified and unsustainable growth. We are instead focused on leveraging core capabilities that Alibaba has built over years in the supply chain, logistics, user engagement, and channel development. We aim to grow a new digitalized social commerce infrastructure that offers consumers quality services and products at highly competitive prices. Consumer survey results have shown that product quality is the top deciding factor for consumers to choose Taocaicai over other platforms. Taocaicai has contributed to increasing the purchase frequency of our core commerce consumers. More than 50% of Taocaicai users were first-time buyers of fresh produce on our China retail marketplaces. We believe the ultimate value proposition of the community commerce infrastructure is in our ability to elevate the quality of routine everyday services in local communities. In Local Services, we are creating a product and service metrics centered around synergies between Ele.me, Amap, and Fliggy. Ele.me delivered 29% growth in AACs and 30% growth in order volume year-over-year with non-meal delivery order growth outpacing total order growth this past quarter. In addition to navigation services, Amap has been expanding into service offerings around the user's journeys and the destinations such as ride-hailing, hotel bookings, etc. During the quarter, transacting users of this destination services on Amap increased more than 200% year-over-year. Although the recent resurgence of COVID-19 in parts of China impacted stability in the supply of hotel rooms and travel products in many provinces, we see a positive contribution in user value from adding Fliggy product supply to Amap and our other user platforms. We just celebrated our 13th November 11 Global Shopping Festival with a record GMV of RMB 540.3 billion, excluding unpaid orders, representing a year-over-year growth rate of 8.5% for the 11-day campaign. The stable and healthy growth of the high base over last year reflects China's consumption power and economic resilience. Looking forward, we remain confident in the development of China consumption. Today, we already have the largest and most valuable consumer base in China with 953 million AACs, which are still growing. At the same time, we will serve our large and diverse consumer population through user segmentation, addressing different needs and use cases through an assortment of apps with differentiated value propositions. Further, through cross-selling of products and services, we will increase our user stickiness, wallet share, and overall retail penetration. Outside of China, we continued healthy expansion of our user base and revenues, achieving 285 million AACs and 33% revenue growth during the quarter. In Southeast Asia, Lazada produced 82% order growth year-over-year during the quarter with triple-digit growth in Thailand, Vietnam, and Malaysia. Trendyol, the largest e-commerce platform in Turkey, delivered GMV growth of over 80% year-over-year. AliExpress GMV growth decelerated this quarter due to the negative impact of net VAT rules in Europe and the gradual recovery of the local supply chain and consumption in its destination markets. Looking ahead, AliExpress will further invest in expanding local operations in its strategic markets in Europe. For our logistics business, Cainiao Post has achieved coverage in over 200 cities as of the end of September. They have become our stations for consumer services in more than 100 counties and towns across less developed areas. The daily average package volume delivered through Cainiao Post increased nearly 70% year-over-year to 69 million during the quarter. In the domestic supply chain business, Cainiao's fulfillment volume for Taobao Deals m2c business increased by more than 200% year-over-year. As part of its global logistic network expansion, Cainiao launched new initiatives to improve the user experience for international consumers by introducing self-pickup lockers in Russia, Spain, France, and Poland, while continuing to enhance its cross-border end-to-end logistics capabilities. Last but not least, Alibaba Cloud delivered revenue growth of 33% year-over-year this past quarter, driven by strong revenue growth from customers in the Internet, financial services, and retail sectors. In October, we held our 13th Apsara conference, which has now become the biggest technology conference in China by attendees. We unveiled several new proprietary products and technologies upgrades, including Yitian 710 server chip, the X-Dragon architecture, Panjiu cloud-native server series, Alibaba AI and big data platform, and a new generation of PolarDB database. These show that Alibaba Cloud is benchmarking against the world's top cloud computing technologies and a milestone in its proprietary product capabilities in IaaS and PaaS. In September, we announced 10 initiatives and pledged to invest RMB 100 billion by 2025 to advance scientific and technological innovation, economic development, high-quality employment, and vulnerable group support in China. We believe these four areas are among the common focus of all responsible companies in the world under the ESG framework. We will incorporate these initiatives into the social responsibility pillar of our ESG strategy and hope that our digital commerce and technology ecosystem can contribute our part in these areas. Looking ahead, we will continue to invest heavily into our three growth engines of domestic consumption, globalization, cloud computing, and data intelligence as we announced at the beginning of our fiscal year. In core commerce, we have started to see encouraging initial results of our investment in low-tier cities, local services, and logistics in the form of user growth and enhanced logistic capabilities. Our investment in globalization has also delivered progress in user base consumption and revenue growth. In cloud computing and data intelligence, we will strengthen our market leadership by further enhancing our core product and technology capability. No matter the challenges in the current macroeconomic environment and with more and more players entering the industry, we remain very confident in our business strategy and our future. We will continue to focus on capacity building, value creation, and a multi-engine approach to growth. We firmly believe our strategy and perseverance will bring mid- and long-term returns to our customers and investors. Now I would like to turn it over to Maggie, who will walk you through the details of our financial results.

Maggie Wu, CFO

Thank you, Daniel. Let me share some high-level thoughts on our financial results first. Our revenue growth continues to be strong, and our revenue is becoming more diversified. So overall, we grew revenue by 29% year-over-year to CNY 200 billion. Revenue of our international commerce business and cloud computing exhibited a robust growth of 34% and 33%, respectively. Our adjusted EBITA was CNY 28 billion, but our core profitability before investments in key strategic areas remained very significant and stable at about CNY 52 billion. So I will talk about our investment areas later. The decline of RMB 13.2 billion year-over-year in total adjusted EBITA is a result of our investment in strategic areas and merchant support. We have one of the most diversified and loyal customer bases in China and we believe these investments will further strengthen our position. And our overseas investment will also help us gain more share in many international markets in the future. So here, we provide a revenue breakdown by segment, where you can see that Alibaba has evolved into a multi-engine growth company with businesses across different runways and the growth and revenue continue to be more and more diversified. Cost trends. Now let's look at our overall cost trends, excluding SBC as a percentage of revenue. The cost of revenue ratio increased in the September quarter due to a higher proportion of our direct sales business, mainly from the consolidation of Sun Art. Its direct sales business will continue to strengthen our retail initiatives, especially in the development of our product-sourcing capabilities. For example, our Community Marketplace business continued to grow rapidly which is partly thanks to the strong procurement and supply chain capability in perishables, FMCG, and general merchandise categories of Sun Art. Sales and marketing ratio also increased in the September quarter due to an increase in marketing and promotional spending for user acquisition and engagement for our mobile commerce businesses, such as Taobao Deal, Lazada, Ele.me, and also Taocaicai. G&A expense remained stable at 4% compared to the same quarter last year. Now let's look at our profitability and area of investment. Commerce adjusted EBITA before key strategic investments was largely flat at CNY 52 billion, primarily reflecting our support to merchants as well as the increased spending in user acquisition engagement on our marketplaces. So excluding our merchant support program spending, the growth of commerce adjusted EBITA before key strategic investment was similar to that of our CMR revenue growth, suggesting a relatively stable EBITA margin of our China retail marketplace. Adjusted EBITA decreased by CNY 13.2 billion. The decline primarily reflects a CNY 12.6 billion year-over-year increase in combined losses of key strategic areas such as Taobao Deals, Local Consumer Service, Community Marketplaces, and Lazada within commerce. Let's take a closer look at the business progress, revenue, and profitability of our business segments during the quarter. First, on our Commerce segment. Revenue from our commerce segment in the quarter was CNY 171 billion, representing 31% year-over-year growth. Revenue of the China commerce business showed 14% year-on-year growth, excluding Sun Art consolidation. And CMR is growing 3%. There are two key reasons for the slower growth of CMR. First, our CMR growth was primarily tied to single-digit physical goods GMV growth that resulted from slowing market conditions and more players entering this sector of the China e-commerce market. China's NBS statistics have shown a slowdown of overall consumption. We experienced a larger impact given our position as the largest e-commerce player in China. Secondly, CMR growth was lower than physical goods GMV growth, primarily due to the incremental year-on-year increase in merchant support and subsidies. Revenue of international commerce grew 34% year-over-year with continued strength of both international wholesale and international retail businesses, such as Lazada, Alibaba.com, AliExpress, and Trendyol. Commerce adjusted EBITA decreased by 12.7 billion. This decline reflects increased investment in strategic initiatives aimed at fostering growth, enhancing consumer experience, building loyalty, expanding into underdeveloped areas in China, and increasing our international presence. During the quarter, all businesses exhibited strong growth. Taobao Deals and Taocaicai continued to penetrate into less developed markets of China and they extend our addressable market. Taobao Deals achieved 240 million AAC, up 49 million. Taocaicai grew GMV by over 150% quarter-on-quarter. As a reminder, our Community Marketplace business started earlier this year. Ele.me continues to deliver strong order growth of 30% year-over-year and is one of the main consumer gateways for our local service business with high-frequency purchasing intent. Lazada and Trendyol continued to generate robust growth in new international markets. Lazada order grew 82% year-over-year. Trendyol GMV grew over 80% year-over-year. Let's take a look at the cloud computing business. AliCloud's revenue grew 33% year-over-year to RMB 20 billion during this quarter, which reaccelerated compared to the June quarter growth. We saw strong revenue growth from customers in Internet, financial services, and retail industries. AliCloud generated an adjusted EBITA of RMB 396 million given strong revenue growth and economies of scale. Next, our DME business during the quarter was CNY 8 billion in revenue. And if you look at the losses, it slightly increased year-over-year because of the investment in content, etc. But overall, it continued to narrow in losses in the first half of the fiscal year. Income statement selected financial metrics. Let's review some of these line items. Interest and investment income was a loss of CNY 11 billion in the September quarter, primarily due to net losses arising from changes in market prices of our equity investments in publicly traded companies in the quarter. This is compared to net gains in the same quarter of 2020. Income tax expense in the quarter were CNY 6.1 billion compared to CNY 1.9 billion in the same quarter of last year. In the same quarter of last year, tax expenses reduced by approximately CNY 6 billion because during that quarter certain subsidiaries were officially notified that they were approved of Key Software Enterprise status for calendar 2019, which entitled them to a reduced tax rate of 10%. Share of results of equity method investees was CNY 5.5 billion during the quarter. Here, we show GAAP and non-GAAP net income attributable to shareholders. Besides the reasons we discussed above, the year-over-year decrease was also due to losses arising from the changes in market prices of our equity investment in publicly traded companies. September quarter free cash flow. We continued to have a strong net cash position. As of the end of the quarter, our cash, cash equivalents, and short-term investments were RMB 443 billion, which is approximately USD 69 billion. Free cash flow was RMB 22 billion. The decline was driven by a decrease in profits. Before we go into Q&A, I would like to provide some perspective on our financial outlook. Over the last six months, we have observed softer market conditions with slowing consumption growth in China. Given a slower-than-expected domestic consumption growth, since we provided our revenue guidance in May, we now expect our fiscal '22 revenue growth to be 20% to 23% year-over-year. The adjustment primarily reflects lowering of commerce revenues that include both direct sales and customer management revenue. Let me share with you a bit more about our investment and profitability. First, in China, we're seeing more players enter into the e-commerce industry. Our peers are increasing investments to acquire users and most of them continue to show high levels of spending. We will continue to invest in our e-commerce business that creates value for consumers and merchants and keeps our market leadership position and competitive strength in the long term. Secondly, we believe our local service business still has ample long-term potential. These businesses have generated strong transaction growth and a high user retention rate, setting a strong foundation to compete for the long term. We are seeing robust GMV and user growth in our international commerce business. These businesses, Lazada, Trendyol, AliExpress, are exhibiting robust growth driven by localization strategy as well as our ongoing investment in building technology and logistics capabilities. Lastly, we continue to expect exciting growth opportunities for our cloud business that will benefit from digitization in the industrial Internet era. Given our significant profit generation and a strong balance sheet, we believe it is important to grow and expand into new addressable markets for the long term despite near-term weakness in the domestic macro environment. As such, we will continuously invest in the above-mentioned areas and we will report to you the business development progress along the road. We believe this business will continue to increase consumer mind share and wallet share that will be important to our long-term growth and value. Lastly, before we move to the Q&A session, we want to let you know that we will be hosting an Investor Day on December 16 and 17. During this event, our senior management team will give you an update on Alibaba's key businesses and our vision for the future. Over the past few quarters, investors and analysts have expressed their interest in understanding more about how we assess the success of our growth businesses and their long-term prospects. This Investor Day will be a chance to share more details and insights with you.

Robert Lin, Head of Investor Relations

Hi, everyone. For today's call, you can ask questions in either Chinese or English. A third-party translator will provide interpretation for the Q&A session. Our management will respond in the language of the question. Please remember that the translation is for convenience only, and in case of any discrepancies, the management's statement in the original language will take precedence. Operator, please connect the speaker in the conference line now and start the Q&A session when ready. Thank you.

Operator, Operator

Our first question is from Thomas Chong of Jefferies.

Thomas Chong, Analyst

I have a question about our new initiatives. Given that Taocaicai and Taobao Deals are performing well, with Taobao Deals' active customer count already exceeding 240 million, I would like to know when we can expect the monetization to increase. Additionally, how should we consider the revenue potential of these new initiatives in comparison to our existing business over the long term? I also have a second question regarding connectivity. Considering that it has been a while since we collaborated with our peers on connectivity, I would like to hear about any recent progress or modernization opportunities that might be available.

Yong Zhang, CEO

Okay. Let me address the questions one by one. For the first one, our current focus for Taobao Deals and Taocaicai is to establish the right infrastructure for the manufacturers-to-consumers model in Taobao Deals, as well as develop a hyper-local community marketplace. These are our main priorities. Regarding user engagement, we have seen exceptionally strong user engagement in recent quarters. The active users for Taobao Deals reached 240 million, and for Taocaicai, which serves as additional services on the Taobao mobile app and Taobao Deals, there is also a significant user conversion in the fresh produce and food categories. We are confident that by providing value to consumers, manufacturers, and suppliers from farmers, we can generate value for the platforms as well. Looking ahead, I believe that our value-creation model goes beyond just monetizing traffic in the marketplace; there is significant potential in optimizing the supply chain for both the manufacturer-to-consumer and farmer-to-table businesses. Yes. Regarding your second question on connectivity, we believe that connectivity and openness are fundamental values of the Internet. We see a great opportunity for all platform companies to truly embrace these principles. Moving forward, we will advocate for non-discriminatory user sharing and consistency across different platforms to ensure a seamless user experience. Currently, Taobao users may struggle when trying to share product links on social media, which detracts from the experience. Enhancing this aspect will benefit our shared customers as they navigate various ecosystems. We are already preparing for improved interconnectivity in the future.

Operator, Operator

Our next question is from the line of Alex Yao of JPMorgan.

Alex Yao, Analyst

So during your prepared remarks, you mentioned that the weak revenue momentum was due to both macro and competition. Based on the e-commerce results tonight, you look like you are underperforming your industry peers in this quarter. Can you help us understand to what extent the revenue weakness is due to macro and to what extent is due to competition? For competition, what are the areas that you see the most pressure and challenges, and what strategies do you have to regain competitiveness in those areas?

Yong Zhang, CEO

Well, if you examine the current market, the definition of e-commerce is changing. There are various models within the e-commerce space. As long as there is some traffic and a user engaged, utilizing publicly available third-party payment options and quick delivery, anyone can enter the e-commerce sector. We are confident that Taobao's strength lies in the consumer perspective, and we are fundamentally a destination for consumption for our customers. Therefore, we will continue to enhance our Taobao app with multiple features and applications while also creating different mobile apps to cater to specific user groups and their needs. Today, if you look at the market, I would say all players may address customer needs from one angle. However, for Taobao, we are the only destination that can meet customers' purposes from different perspectives. For those with very specific shopping intentions, Taobao is positioned as a shopping search. It also offers many applications that enhance the discovery experience. Over the years, we've developed our live streaming business along with short video and social content. Thus, we are a platform with multiple formats, catering to consumer journeys for people with different purposes. I think we will continue to invest in this and provide people with the most comprehensive selections and the most efficient and guaranteed consumer experiences. As for your question about the reasons behind the slower GMV growth and the influence of macro conditions versus competition, it is challenging to measure the impact. Therefore, we believe these two factors should be viewed together. We are the market leader in retail commerce, and our performance to some degree reflects the overall market conditions.

Operator, Operator

Next question is from the line of Piyush Mubayi of Goldman Sachs.

Piyush Mubayi, Analyst

Just looking ahead, your guidance seems to suggest you'll grow between 11% and 15%, 16% in the second half of 2022 and that's a step down from the pace of growth you had in the first half. If we accept that pace as being a continuation of where we are today, what gives you the conviction that this slow pace will be maintained through the second half of 2022 fiscal? And I wonder if you could look beyond that and give us what you think is a normalized pace of growth for your business and for China GMV in general? So really focusing on growth here, if you don't mind.

Maggie Wu, CFO

Hi, Piyush, this is Maggie. Let me answer your question. Our guidance suggests that revenue growth in the second half will be in the teens. This is largely based on our expectations for GMV growth, particularly affecting core commerce and China retail commerce. Looking at China's GDP and consumption this quarter compared to the previous one, we've seen a significant decline into single digits, and we anticipate this may continue for the upcoming quarters. As the largest player, we currently have about CNY 8 trillion in GMV against a total national GMV of CNY 44 trillion to CNY 45 trillion. Therefore, the impact will primarily affect us. If you look forward beyond this year and into the following years, we see our revenue growth driven by factors beyond just China consumption and CMR. In this quarter, CMR represents around 36% of total revenue, a decline from over 50% in previous quarters. This shift is due to the increasing contributions of our cloud computing, international businesses, and local services in China. This reflects our multi-engine growth strategy, and we continue to expect growth in these areas. At the same time, within core commerce, as Daniel discussed our multi-app strategy, we believe that monetization will not solely arise from traffic and GMV growth, but more from the infrastructure capabilities we are developing to support merchants. We do not have a specific monetization plan to share at this moment, but we will provide more information later. During Investor Day, we will also explain how we assess our value creation. Ultimately, our theme is that as long as merchants remain, consumers will stay, retention rates will be sustained, and users will appreciate the service, we will discover ways to monetize. Our goal is to build a user base of more than 1 billion in China, and we're making solid progress towards that. Our multi-app strategy is boosting user engagement, and we'll be sharing more on our merchant services next month. This value creation will eventually lead to returns.

Operator, Operator

Our next question is from the line of Alicia Yap of Citigroup.

Alicia Yap, Analyst

I have a question related to CMR and GMV. So the slowdown of the CMR, is it more temporary and also a function of GMV? Has CMR actually experienced slower growth than GMV in the past couple of quarters, given we have been providing many services to support merchants this year, especially since it's a tough macro? So if GMV reaccelerates later, could CMR reaccelerate even faster since we have been still under-monetized and the way that we can further create value for merchants, we can still add to the entire value chain for the merchant. So any color that you could help us with that would be great. And also in what ways could GMV reaccelerate when the macro is recovered, and are there preparations being made to help us capture that when the macro recovers to actually boost our GMV faster than the macro recovery?

Maggie Wu, CFO

Thank you, Alicia. You're correct that CMR growth is somewhat linked to GMV growth. In recent quarters, we've found that CMR growth has lagged behind GMV growth, primarily because of our merchant support program. If we were to account for the spending on that program, then CMR growth would closely align with GMV growth. If China's consumption growth rebounds and GMV growth returns and accelerates, we anticipate that CMR growth will align with GMV growth. We believe that our future revenue sources will not only help expand the user base but also enhance our service offerings, including live streaming and various products, which will provide value to consumers. New revenue streams will contribute to our overall group revenue, further supporting our future revenue growth.

Yong Zhang, CEO

Yes. Let me elaborate on the question. We always prepare for new market opportunities and strive to create them. Currently, e-commerce represents about 20% to 25% of total retail, but penetration rates differ by category. There is still significant potential for digital transformation in retail. Additionally, we aim to generate new demand by utilizing technology to enhance supply and demand efficiency and develop digitized retail formats, whether online, offline, or integrated, to provide exceptional experiences that unlock potential consumption. We will continually innovate and develop new initiatives to take advantage of emerging opportunities and even establish new market prospects.

Operator, Operator

The next question is from the line of Yang Bai of CICC.

Yang Bai, Analyst

We have two questions. Our first question is regarding the live streaming business. What's our current strategy in the live streaming business as we know that more traffic and GMV are concentrating towards the top KOLs in Taobao? How should we think of this trend going forward? Are we going to balance the stores and the traffic between the top two and the long-tail KOLs? Any color would be very helpful. And the second question is regarding the personal information protection law impact. Are we seeing any significant impact on our CMR business? How should this change in the future?

Yong Zhang, CEO

For your first question, live streaming on Taobao is very important as a feature in our mobile app. We see that many users enjoy this format. However, we do not consider live streaming as a standalone application; instead, we view it as part of the seller tools to help sellers connect with customers through their stores or via KOLs. Yes. In the live streaming business, there are some prominent players who are very popular with their audience. Additionally, there are many second-tier, third-tier, and emerging key opinion leaders. A distinctive aspect of the Taobao mobile app is store live streaming, which is launched by the store operators, sellers, or even associates within a seller's store. We provide a very dynamic ecosystem in Taobao live streaming. As a platform operator, we don't plan to balance or rebalance the traffic. We believe in keeping the market open to customers, allowing them to choose which KOLs to follow based on their preferences. We continually strive to support and develop a diverse range of KOLs and new generation stores among our sellers. Regarding your second question about the newly effective PIPL, we have made the necessary preparations for the law, which took effect on November 1. Based on our preliminary assessment, we don't expect PIPL to have a material impact on our business. However, because this time frame is still short, we need more time to assess. So far, so good.

Operator, Operator

Our next question is from the line of Gary Yu of Morgan Stanley.

Gary Yu, Analyst

I have two questions. The first one is on some of the new growth business that you highlighted at the press release, including both the international business and the cloud computing business. How should we look at the growth outlook in the future? What kind of competitiveness are we seeing in overseas markets? And particularly on cloud, is the headwind from major customer losses already behind us, and therefore, should we continue to see acceleration in growth going forward?

Yong Zhang, CEO

Thank you. For the first question, today, we are adopting a multi-engine growth strategy to expand our business. Both our cloud and international segments are experiencing strong growth. This quarter, cloud revenue increased by 33% year-over-year. Meanwhile, our international wholesale and retail operations achieved a 34% growth rate compared to last year. I believe both businesses are still in their early stages of development and growth. We're still trying to build the right infrastructure to capture long-term opportunities and sustain growth. For example, in cloud, we are increasing our investment in technologies and products. As I shared in my script, we announced several important technology and product upgrades at our Apsara conference this September. This reflects our continuous efforts towards cloud-relevant technologies and products. Going forward, we will continue to do so. We believe that cloud opportunities in China and the world are not only about replacing existing IT infrastructure but also about new opportunities in intelligent services, 5G applications, and more. As for the international business, we've reported that our AAC for international markets reached 285 million. We witnessed very healthy and rapid growth. If you look at the e-commerce penetration in many markets outside China, it remains in very early stages. We strongly believe that with our technology and experience in this sector, we are well-positioned to capture long-term opportunities in these markets. However, while we focus on growth, we also prioritize quality in our growth. Our emphasis is on sustainable growth while seizing new opportunities. Long-term-wise, we are confident about this multi-engine growth strategy.

Maggie Wu, CFO

Regarding your second question about the level of investment for fiscal 2023, we will certainly continue to invest while keeping an eye on our business progress in key strategic areas. Our current investment focus is on expanding our user base through initiatives like Taobao Deals and Taocaicai. We are also investing in services to better support our users in local service segments, which have significant potential. These areas are not short-term investments; they span several years. There may be a slight adjustment in the composition of these investments, as we're aiming to achieve 1 billion annual active consumers in the next two quarters. After reaching that milestone, we'll shift more focus towards engagement and growth among multi-app users.

Robert Lin, Head of Investor Relations

Hi, everyone. This is Rob. I wanted to make two comments from our earnings call today. First, I need to correct a slight error in our script. We mentioned that 11.11 GMV was CNY 54.03 billion, but it was actually CNY 540.3 billion. That's the first note. Second, we will be hosting our Investor Day on December 16 and 17, and we look forward to welcoming you. I understand there are still many questions you may have, and we look forward to addressing them at the two-day event. Thank you. This concludes our call today. We'll return it to the operator. Thank you.

Operator, Operator

This concludes today's conference call, and thank you for participating. You may now disconnect.