Alibaba: Taotian Group has the strongest comprehensive capabilities for merchants and has great room for improvement in total realization rate

As of the third fiscal quarter of fiscal year 2024, Alibaba released its financial report for the third fiscal quarter of fiscal year 2024 as of December 31, 2023: revenue was 260.348 billion yuan, a year-on-year increase of 5%. Net profit was 10.717 billion yuan, a year-on-year decrease of 77%; not according to U.S. GAAP, net profit was 47.951 billion yuan, a year-on-year decrease of 4% (Note: Alibaba’s fiscal year is not synchronized with the natural year, from April 1, 2023 to 2024 March 31, 2024 is fiscal year 2024).

After the financial report was released, Alibaba Group Chairman Tsai Chongxin, CEO Wu Yongming, CFO Xu Hong, and Alibaba International Digital Commerce Group (AIDC) CEO Jiang Fan attended the subsequent conference call, Interpreted the financial report and answered questions from analysts.

The following is the main content of the analyst Q&A session of this conference call:

Goldman Sachs analyst Ronald Keung: My question is about the profitability of Taobao and Tmall businesses. Previously, management mentioned that different factors have affected the changes in the monetization rates of Taobao and Tmall businesses. My question is, especially in terms of Taobao business, what are the main driving factors for improving business profitability? In addition, when does management expect the business profitability to stabilize? For example, it is more consistent with the growth rates of GMV (gross merchandise transactions) and CMR (customer management revenue). In the long term, does management believe there is potential for growth in business profitability? After all, compared with some global peers and Chinese peers, the company's realization rate is lower than theirs. So can you ask management to talk about when the short-term liquidity will stabilize? Is there any potential for growth in the realization rate in the long term?

Xu Hong: In fact, I also mentioned in the briefing just now that our realization rate dropped slightly this quarter. The main reason behind this lies in structural changes. Current consumers are increasingly choosing products with competitive prices, in other words, "good products at low prices." So from this perspective, this (realization rate change) also represents the early results of the company's strategy execution.

We announced at the beginning of the year that the business strategy of Taobao and Tmall is to be "user-centered". We need to provide consumers at different levels with the products they need, especially "low-price" products with competitive prices. Good stuff". Therefore, this (change in realization rate) also means that the early results of the company's strategic execution have already appeared.

Against this background, we are actually not worried about the temporary slight decrease in liquidity. As we said before, the total monetization rate of Taobao merchants is still growing. In addition, you also mentioned that compared to other platforms in the industry, the total realization rate of our platform is relatively low, which means that we still have a lot of room and potential for improvement in this regard. I believe that as we continue to improve the operating efficiency of the platform and improve the operating efficiency of merchants, it will ultimately help increase the monetization rate of the platform.

Wu Yongming: I would like to add one more point about the relationship between our overall business philosophy, user consumption frequency, GMV, monetization rate and work execution.

From the business strategy we are currently implementing, we are still in the process of "how to increase the frequency of user consumption to drive GMV growth." Among the company's products and plans, we will improve advertising products based on significant growth in GMV. Our advertising products will be greatly optimized for small and medium-sized businesses. At that stage, we will help small and medium-sized businesses better improve their current efficiency through the optimization of advertising products.

So, generally speaking, we are not worried about the matching of monetization rate and GMV growth rate, because we have a relatively clear product plan in sequence.

Citibank analyst Alicia Yap: I have a follow-up question about Taotian Group. Please let the management know if my understanding is correct.

Based on the management’s answer, I feel that the company already wants to re-emphasize the “asset-light platform” model. As a result, Taotian Group's earnings before interest, taxes, depreciation and amortization (EBITDA) will actually have a higher profit margin in the future. Is my understanding correct?

In addition, the current competitive environment is relatively fierce. From the perspective of the platform, what is the biggest difference between the value that the company can bring to merchants and the value that other channels and platforms can bring to merchants? In terms of users, like other short video platforms, they actually have a lot of natural content traffic. From the perspective of traffic conversion to shelf e-commerce, they are indeed relatively successful. So, in terms of acquiring new users and attracting old buyers back to the platform, can you share with us any new plans the company has?

Wu Yongming: Let me explain the two questions you mentioned.

I think your first question should be about the company’s revenue structure. Taotian's revenue structure actually consists of two main parts: one part is CMR, and the other part is our quasi-direct-operated products.

I think from a business positioning perspective, our main revenue and profits actually come mainly from the CMR part. Regarding direct-sales products and platforms, our main purpose in the future is to retain customers and increase the frequency of customers. In some categories, we want to gain greater competitive advantages. So overall, we focus more on CMR than revenue and profit. The income from the direct operation platform is our means to acquire and retain users.

Regarding what you mentioned in your question: In the face of different competitors, what are the distinctive capabilities of our Taotian platform? I think first of all, for merchants, Taotian platform is the platform with the strongest comprehensive capabilities. How to explain our comprehensive ability? Because on Taobao’s platform, we have marketing tools like live streaming that can quickly increase volume; at the same time, we also have shelf e-commerce platform tools that are crucial for merchants and daily sales and marketing. The mainstream mentality of many users is still Go shopping through Taobao search platform.

At the same time, for merchants, there is another important business platform which is his private domain tool. In the entire Chinese e-commerce market, Taotian has the strongest ability to provide merchants with private domain tools for brand merchants. Therefore, for any merchant, we feel that the service capabilities of the Taotian platform are the most comprehensive and complete in terms of product marketing at all stages, including daily sales, managing old customers, etc.

As for how to retain users or increase user frequency in fierce competition, I have actually mentioned it in previous briefings: The most important thing is how to accurately identify the hierarchical consumption needs of so many users on our platform. , providing them with better products, better prices and better services. This is also the core experience for consumers in the entire e-commerce retail process.

We believe that by providing better products, better prices and better services, we can increase users' consumption frequency and retain more consumers.

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