Alibaba : March Quarter 2024 and Full Fiscal Year 2024 Results Transcript

Alibaba Group

March Quarter 2024 and Full Fiscal Year 2024 Results

Conference Call

Transcript

Tuesday, 14 May 2024

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

Introduction

Rob Lin

Head of Investor Relations, Alibaba Group

(Original)

Thank you and good day everyone. Welcome to Alibaba Group's March Quarter and Full Fiscal Year 2024 Results conference call. With us are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer. We have also 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 corporate website. A replay of this call will be available on our website later today.

Now, let me quickly cover the safe harbor. Today's discussion may contain forward-looking statements, including without limitation statements about our new organizational and governance structure, Alibaba's plan to convert to primary listing in Hong Kong, Alibaba's strategies and business plans, as well as our beliefs, expectations and guidance about our business prospects, such as the future growth of our business, revenue and return on investment and share repurchases. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the U.S. Securities and Exchange Commission or 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 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 turn over to Eddie.

2

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

Group Business Update

Eddie Wu

CEO, Alibaba Group

(Translation)

Hello everyone. Following several quarters of adjustments and continued user experience enhancement, our core business has gradually returned to healthy growth. Taobao and Tmall Group achieved double-digityear-over-year growth in GMV this quarter. Alibaba International Digital Commerce revenue increased by 45% year-over-year. Our core public cloud offerings recorded double-digityear-over-year growth in revenue, and AI-related revenue increased triple-digityear-over-year. This quarter's results demonstrate that our strategies are working and we are returning to growth.

Taobao and Tmall Group continued to execute its user-first strategy by creating a system for brands, distributors and industrial belt factories to operate efficiently and to meet the diverse needs of China's domestic consumers through a shopping experience that offers quality products at attractive prices supported by exemplary service. Our investments in driving price competitiveness and elevating the user experience have received positive consumer feedback. We've seen tangible results and progress, with strong growth in quarterly buyers and purchase frequency that has driven robust double-digit growth in GMV, reflecting a continued improvement in consumer sentiment and user trust. At the same time, we continued to enhance member benefits and service experience, with 88VIP members growing by double-digits year- over-year to surpass 35 million.

Last quarter, I shared Taobao and Tmall Group's three key investment areas aimed at enhancing overall capabilities: product supply, competitive pricing, and quality service. We are committed to boosting consumption willingness and purchase frequency through these measures, thus driving further growth.

In our fiscal year 2025, we expect Taobao and Tmall Group's GMV to gradually return to healthy growth as our platform's overall shopping experience continues to improve. At the same time, our schedule of launching monetization products will also proceed as planned. In the second half of the fiscal year, we will gradually introduce new monetization mechanisms aligned with new platform algorithms and product features that will further enhance CMR-centered revenue growth.

As we continue to improve our platform products and carry out investments under our user- first strategy, we're fully confident that we will win more consumer trust and maintain our market share leadership.

This quarter we completed adjustments to Alibaba Cloud's product strategy for the AI era and the quality of our revenue continued to improve. We focused on creating competitive advantages in Alibaba Cloud's technology and scale, and reduced pricing for our public cloud products globally. Revenue from our core public cloud products achieved double digit year- over-year growth this quarter. Driven by strong demand from foundational model companies,

3

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

internet companies, as well as financial services and automotive customers, AI-related revenue accelerated and recorded triple-digit growth year-over-year.

We believe that this wave of generative AI-driven technological innovation is in the early stages of the industry cycle. Starting in 2024, we've seen a rapid increase in customer demand for AI. This has also stimulated growth in demand for traditional cloud computing needs including general computing, storage, and big data. Therefore, we are actively investing in our cloud computing product matrix, especially in AI infrastructure, to capture the monumental opportunities. Currently, Alibaba Cloud has established strategic partnerships with the vast majority of leading foundational model companies in China. At the same time, Alibaba's proprietary foundational model team, Tongyi, released a 110-billion-parameter model in late April which was on par with the top open-source models globally.

Looking ahead, we will deeply integrate our Tongyi large model with Alibaba Cloud's advanced AI infrastructure to realize synergies and optimization across software and hardware. We aim to create a premier AI development platform that combines outstanding AI capabilities with excellent cost efficiency, redefining the industry benchmark for cost performance. Based on our leading product portfolio, substantial infrastructure investments, and proactive industry partner strategy, we are confident that Alibaba Cloud's commercial revenue - i.e., revenue excluding internal customers within Alibaba Group - will return to double-digit growth in the second half of the 2025 fiscal year.

In our overseas e-commerce business, AIDC revenue grew 45% and order volume grew 20% year-over-year this quarter due to our continued focus on expanding cross-border retail operations and enhancing the consumer experience. Jiang Fan will share more details with you later.

In March this year, we withdrew Cainiao's IPO application. Cainiao provides essential infrastructure to Alibaba's core e-commerce business and we hope Cainiao will strengthen its synergies with our domestic and international e-commerce operations. At the same time, Alibaba Group will continue to support the expansion of Cainiao's global logistics network.

The past year has been a year of self-transformation for Alibaba. We're pleased that the changes we have made in our business and organization are producing results. A journey of transformation will undoubtedly bring challenges, but we are well prepared. In the new fiscal year, Alibaba Group will continue to focus on investing in our user-first,AI-driven strategy. We are fully confident in the company's long-term healthy development.

4

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

AIDC Business Update

Jiang Fan

Co-Chairman & CEO, AIDC Group

(Translation)

Greetings. This is Jiang Fan and it's a pleasure to be back to give you an update on AIDC's business.

AIDC continued to achieve rapid growth this quarter despite various market challenges in different countries and regions. Total orders were up by 20% year-over-year, with especially significant growth in our cross-border business. Next, let me share with you on the progress we've made around the three major drivers that are our consistent focus.

First, our business model and supply chain service upgrade. Driven by AE Choice, AliExpress continued to realize strong order growth. AE continued to advance its transition from the original platform business model to a supply chain-driven platform marketplace model and offered semi- consignment and full-consignment services as part of our hybrid business model upgrade. While maintaining rich merchandise assortment, we significantly enhanced user experience. By April 2024, AE Choice orders accounted for around 70% of total orders on AliExpress. At the same time, synergies between AliExpress and Cainiao further enhanced our logistic experience. We will continue to make effective investments while paying attention and improve the efficiency of the AE Choice model.

Second, product and technology innovation. We continue to bring more localized, high-quality user experiences to different consumers around the world. AI and intelligent technologies are continuously improving efficiency and user experience in areas such as cross-platform product listing, optimization of product details, multilingual search, and targeted recommendations. Moreover, an increasing number of small- and medium-sized enterprises on the platform are beginning to leverage AI services. Some 17,000 SMEs have subscribed to the AI Business Assistant launched on Alibaba.com and millions of products have now been launched with AI. Furthermore, searches for AI-optimized products have increased by 37%.

Third, sustained growth in key markets. Our continued investment in key markets for AliExpress has brought about growth in our user base as well as enhanced user experience, supporting our sustained rapid growth and continued leading position locally in these markets. Trendyol is also actively investing in cross-border business and achieving very rapid growth. In the Gulf region, Trendyol's brand recognition has improved rapidly driven by significant expansion in its range of merchandise supply. It has become one of the most downloaded e-commerce apps in the region.

There remains huge potential for AIDC to grow user penetration in the majority of its markets. We will achieve quality growth by providing better and more differentiated merchandise and services. At the same time, we will focus on enhancing operating efficiency both by narrowing

5

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

losses in certain businesses and by making higher efficiency investments to continue to expand actively in markets around the world.

Thank you.

6

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

Financial Highlights

Toby Xu

CFO, Alibaba Group

(Original)

Thank you, Jiang Fan. First, I will provide a recap of the key financial highlights for fiscal year 2024. Following the overview, I will provide a detailed review of the financials for the March quarter.

During this fiscal year 2024, our total consolidated revenue was RMB941.2 billion, an increase of 8%. Consolidated adjusted EBITA increased 12% to RMB165 billion. Non-GAAP net income increased 11% to RMB157.5 billion, while non-GAAP diluted earnings per ADS saw faster increase of 14%, strengthened by our ongoing share repurchase program.

Excluding Sun Art, Freshippo and InTime businesses that have physical retail operations, Alibaba Group's revenue would have grown at approximately 11% and our group consolidated adjusted EBITA margin would have been approximately 3.6 percentage points higher at approximately 21%.

During the fiscal year 2024, under the leadership of the Capital Management Committee and our Board of Directors, we have increased cash returned to the shareholders.

We repurchased a total of about 1.25 billion ordinary shares (or equivalent to 156 million ADSs) for a total consideration of US$12.5 billion. After accounting for ESOP issuances, our outstanding shares decreased by 5.1% in fiscal year 2024.

Regarding cash dividend, we declared an annual cash dividend of US$1 per ADS, totaling about US$2.5 billion for fiscal year 2023, which was paid out in January 2024.

Furthermore, our Board of Directors has approved an annual cash dividend for fiscal year 2024 of US$1 per ADS, and a one-time extraordinary cash dividend as a distribution of proceeds from disposition of certain financial investments in the amount of US$0.66 per ADS, with total cash dividend amounting to approximately US$4 billion.

Through a combination of share repurchases and cash dividends, we have returned and plan to return about US$16.5 billion to shareholders for fiscal year 2024, up from US$13.4 billion for fiscal year 2023. We are committed to returning value to our shareholders and will continue to execute our capital return programs.

Now, let me provide a review of our financial performance for the March 2024 quarter. Overall, we observed improving fundamentals across our major businesses, supported by enhanced investments aimed at fueling growth.

7

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

During the quarter, our total consolidated revenue was RMB221.9 billion, an increase of 7%. Consolidated adjusted EBITA decreased by 5% to RMB24 billion. Our non-GAAP net income was RMB24.4 billion, a decrease of 11%. However, the decline in our non-GAAP diluted earnings per ADS was more moderate at 5% given our ongoing share repurchase program. Our GAAP net income was RMB0.9 billion, a decrease of RMB21.1 billion. This decline was primarily due to mark-to-market changes of RMB19.9 billion from our equity investments in publicly-traded companies which shifted from a gain in previous years to a loss this year.

As of March 31, 2024, we continued to maintain a strong net cash position of RMB446.5 billion or US$61.8 billion. Free cash flow this quarter was RMB15.4 billion, a decrease of RMB16.9 billion compared to the same quarter last year. The decrease mainly reflected the increase of RMB7.7 billion in capital expenditure, the majority of which reflected our investments in Alibaba Cloud infrastructure, as well as a special dividend of RMB10.5 billion from Ant Group in the same quarter last year.

Now, let's look at cost trends as percentage of revenue excluding SBC during this quarter. Cost of revenue ratio increased by 1 percentage point to 67%. Product development expenses ratio remained stable at 5%. Sales and marketing expenses ratio increased by 1 percentage point to 13%. G&A expenses ratio decreased by 1 percentage point to 4%.

Now let's look at the segment results starting with Taobao and Tmall Group.

Revenue from Taobao and Tmall Group was RMB93.2 billion, an increase of 4%. During the quarter, our online GMV achieved double-digit growth, which was driven by rapid order growth supported by a strong increase in the number of purchasers and the purchase frequency. Strong GMV growth supported a 5% increase in customer management revenue, though overall take rate declined slightly. The overall take rate was impacted by a combination of two factors:

Firstly, Taobao and Tmall's GMV both increased strongly. The decrease in take rate was due to Taobao's GMV growth outperforming that of Tmall. This trend continues to reflect increasing demand of price competitive products offered on our platform. Second, take rate was also impacted by the introduction of new models that currently have lower monetization rates.

We believe our overall take rate has room to improve as the percentage of paying merchants among our SME merchants remains relatively low and we have yet to roll out the new advertising tools. As we gradually roll out the new advertising tools that would further enhancing merchants' ROI, we see upside from potential increase in merchant adoption as well as higher incremental spending from paying merchants.

Direct sales and others revenue decreased 2% to RMB24.7 billion.

China commerce wholesale business revenue increased 20% to RMB5 billion, primarily due to an increase in revenue from value added services provided to paying members.

Taobao and Tmall Group adjusted EBITA was RMB38.5 billion compared to RMB39.0 billion in the same quarter last year, primarily due to the increase in investment in user experience, which resulted in improved consumer retention and higher purchase frequency, and technology infrastructure, partly offset by the increase in revenue from customer management service.

8

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

Revenue from Cloud Intelligence Group was RMB25.6 billion during the quarter, an increase of 3%. We are committed to our strategy of focusing on high quality revenues from increasing public cloud adoption while reducing low-marginproject-based contracts.

During the quarter, our core public cloud offerings, which include products such as elastic compute, database and AI products, recorded double-digit growth in revenue. During this quarter, AI-related revenue experienced accelerated growth and continued to record triple-digit growth. We expect that the strong revenue growth in public cloud and AI-related products will offset the impact of the roll-off of project-based revenues.

Cloud Intelligence Group's adjusted EBITA increased by 45% to RMB1.4 billion. The increase was primarily due to improving product mix through our focus on public cloud and operating efficiency.

Alibaba International Digital Commerce Group (AIDC) revenue was RMB27.4 billion, an increase of 45%.

Revenue from International commerce retail business increased by 56% to RMB22.3 billion. The increase in revenue was primarily due to the solid combined order growth of AIDC's retail businesses, revenue contribution from AliExpress' Choice as well as improvements in monetization.

Revenue from our International commerce wholesale business increased by 11% to RMB5.2 billion. The increase was primarily due to an increase in revenue generated by cross-border related value-added services.

AIDC's adjusted EBITA was a loss of RMB4.1 billion, compared to a loss of RMB2.2 billion in the same quarter last year. Loss increased primarily because of increased investment of businesses including AliExpress' Choice and Trendyol's cross-border businesses, partly offset by improvements in monetization.

Total revenue for Cainiao grew 30% to RMB24.6 billion, primarily contributed by the increase in revenue from cross-border fulfilment services. Cainiao adjusted EBITA was a loss of RMB1.3 billion compared to a loss of RMB319 million in the same quarter last year, primarily due to additional retention incentives granted to Cainiao employees recognized during the quarter, in connection with the withdrawal of its IPO.

Local Services Group revenue in March quarter grew 19% to RMB14.6 billion primarily due to the order growth of Ele.me and Amap. Local Services Group's adjusted EBITA was a loss of RMB3.2 billion this quarter, compared to a loss of RMB4.1 billion in the same quarter last year, primarily due to the continued narrowing of loss from our "To Home" business driven by Ele.me's improved unit economics and increasing business scale.

Revenue from our DME Group was RMB4.9 billion, a decrease of 1%. Adjusted EBITA was a loss of RMB884 million compared to a loss of RMB1.1 billion in the same quarter last year. Loss reduced primarily due to the reduced loss of Youku.

9

Alibaba Group March Quarter 2024 and Full Fiscal Year 2024 Results Conference Call Tuesday, 14 May 2024

Revenue from All Others segment decreased 3% to RMB51.5 billion, mainly due to the decrease in revenue from Sun Art and Alibaba Health, partly offset by the increase in revenue from Freshippo. The decrease in revenue from Sun Art was mainly driven by the scale-down of supply chain business and decrease in basket size.

Adjusted EBITA from All others segment was a loss of RMB2.8 billion compared to a loss of RMB1.9 billion in the same quarter last year, primarily due to the increased loss from Freshippo and the decrease in profitability of Lingxi Games.

Lastly, we have been preparing for our primary listing in Hong Kong and currently expect to complete this by the end of August 2024. We will make a further announcement on the primary conversion date in due course.

In closing, our robust balance sheet positions us well to strategically reinvest our cash flows to foster growth and strengthen leadership in core businesses, thereby improving future returns on invested capital.

As Eddie and Jiang Fan mentioned, we anticipated that near-term investment will yield:

• Firstly, improved user experience in our domestic e-commerce platforms that supports strong GMV growth in FY25 and enhance monetization in the second half of FY25.
• Secondly, a return to double-digit revenue growth in the second half of FY25 for Alibaba Cloud business.
• And thirdly, continuous rapid growth momentum while improving unit economics for AIDC.

We are seeing positive initial results making us even more confident in achieving strong and sustainable growth in our core businesses.

Thank you and that's the end of our prepared remarks. We can open up for Q&A.

10