Alibaba Group Holding Limited (BABA) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us at our 2020 Investor Day especially during this special time when we're only able to meet virtually. Over the past 2 days, our business team leaders have shared with you their respective business updates and strategies going forward. And in the last session, Maggie gave an overview of our financial and investment perspectives. Now on behalf of Alibaba Group, I would like to share with you our thinking on the strategic road map going forward. Before I get into our strategy, let's take a step back and look at what an extraordinary year 2020 has been. The past year has brought every one of us fresh perspectives on our own lives and the world around us. The unexpected outbreak of the COVID-19 pandemic disrupted a lot that we had taken for granted, reshaping our understanding of our society and our lives. China was the first country to be hit by the pandemic but also the first to effectively control the outbreak and reopen its economy. This was the result of concerted efforts across society. In the face of the pandemic, communities pulled together in mutual support to fight this global crisis. Over the past year, we've also seen a lot of other changes, in particular changes in geopolitical dynamics which have created a lot of uncertainties globally. In light of these new developments, we've been asking ourselves, how should we shape our business strategy given these global uncertainties? How should we approach cooperation between countries and between organizations? How should we prioritize the development of different markets? These are questions that have been on our minds. China was the first economy to recover from the worst of the impact of the COVID-19 pandemic. Starting from March and April, China's economy reopened and business activities quickly resumed, leading to a rapid economic recovery across the board. As of today, China has achieved probably the best and healthiest recovery globally. While the rest of the world has still to recover from the pandemic, creating significant economic uncertainties, in China, supply chains, manufacturing capacity and consumption have basically all returned to pre-COVID-19 levels, supporting and invigorating economic development both domestically and globally. According to the IMF's forecast, China will likely be the only major economy to achieve positive real GDP growth this year among all developed markets globally. Let's take a look at some figures. In the 12 months ended June 30, 2020, China's GDP reached USD 14.5 trillion. As the world's largest digital consumption market, China's growth has a significant positive impact on global economic stability and recovery. And most importantly, domestic consumption in China is playing an increasing role in driving China's GDP growth. China's USD 5.7 trillion consumption market is a major driver of the country's economy. The scale of this market is also a reflection of strong underlying consumer confidence and immense market potential. In China's growing consumption story, digitalization has been a significant driver in which Alibaba is playing an instrumental role. As you know, in the 12 months ended June 30, 2020, the Alibaba digital economy in China generated over USD 1 trillion in GMV. Achieving the milestone of $1 trillion GMV is not only a manifestation of China's consumption power but also a reflection of the strong growth momentum and consumer confidence in China's digital consumption, digital manufacturing and digital marketplace. Digitalization is being embraced by consumers, manufacturers, retailers and brands across China's economy. The pandemic has brought a lot of uncertainties to social and economic development. But as we have always said, in the midst of so many uncertainties, the future of digitalization is the biggest certainty we can see. Digitalization is the biggest opportunity of our time. Over the past few months, we've all witnessed how digitalization played an enormous role in our collective fight against COVID-19 and facilitated the subsequent resumption of business activities. We have experienced similar historic times in the past 2 decades, before, during and after SARS in 2003, and before, during and after the global financial crisis in 2008, when digitalization accelerated and fundamentally changed all aspects of people's lives. During the COVID-19 pandemic, everyone -- regardless of whether they had been Internet users before or whether they had been digital savvy, everyone now has become an Internet user and an online consumer to meet the needs of their everyday lives. Another new trend we saw during the pandemic was the rapid growth of many new consumption categories, especially categories that previously had been underpenetrated by e-commerce. For example, groceries, fresh food as well as health care and wellness-related products all saw a surge in online sales. This is another reflection of how COVID-19 has changed people's lives and consumption habits. At the same time, the pandemic has brought about fundamental changes in how people work and learn. Remote working requirements have made online collaboration a new normal for the workspace. Take DingTalk as an example. We've been helping millions of organizations to collaborate and run their day-to-day operations on the cloud. COVID-19 has also brought change to other sectors. In education, for example, DingTalk supported over 1 million online classrooms on a daily basis at its peak during the pandemic. These are all examples of how digitalization is reshaping collaboration. We can all see that digitalization is the future and it is unstoppable. Of course, collaboration and consumption are just part of the picture. At an even more fundamental level, digitalization is transforming enterprise operations beyond the office space, enhancing collaboration not only within an organization but across organizations throughout the entire industry value chain. This is what we have experienced firsthand during the pandemic. We believe digitalization is a historic opportunity which Alibaba is best positioned to capture. From day 1, we have been committed to one mission: to make it easy to do business anywhere. And the key to deliver that mission is digitalization. Throughout the past 20 years, we have been leveraging digital technology, the combination of technology and commerce to make it easy to do business anywhere to make our mission a reality. Ultimately, digitalization is the means to that end. The second reason why we believe we are best positioned to capture this opportunity is because we've developed all the infrastructure required for digitalization over the past 20 years. This infrastructure includes the following: first, our digital marketplace infrastructure that connects billions of consumers and tens of millions of merchants. If we combine Alibaba's and Ant's user base on a de-duplicated basis, the Alibaba digital economy's annual active users reached 1.07 billion as of the end of June. Behind those 1.07 billion users are tens of millions of enterprises in diversified industries, ranging from big brands to off-line mom-and-pop shops, to retailers, rural sellers and factories. They're all connected on our digital marketplaces where supply is matched with demand, creating value and opportunity for all ecosystem participants. Second, building on this commerce infrastructure, Alibaba, through Ant Group over the past 20 years, has developed our financial services infrastructure consisting of credit, payment and consumer finance based on billions of consumers' real-world behaviors. We're confident that we can add value to our merchants and consumers through this robust financial services platform. In addition to our commerce and financial services infrastructure, we've also built a smart logistics platform, supporting the efficient delivery of tens of billions of digitalized parcels each year. Our digital capabilities have significantly enhanced the efficiency of deliveries and have reduced costs, thereby driving the evolution of the entire logistics industry in China. Apart from our infrastructure for commerce, financial services and logistics, another important piece of infrastructure we've been working on over the years is Amap. Currently, Amap processes tens of billions of location-based service requests every day, including internal requests from within Alibaba and external requests from our ecosystem partners. In the era of digitalization, Amap acts as a data service provider for real-time user location interactions. We believe these location-based capabilities are part of the fundamental infrastructure for the digital era and will be widely adopted across all industries. The final piece of our infrastructure is the underlying layer supporting all of our other infrastructure, Alibaba Cloud. The cloud we're talking about here goes far beyond traditional IT infrastructure and extends into big data applications, in particular industry-specific data intelligence capabilities to empower different industry verticals. This is how we are redefining cloud. We envision that cloud will become a new type of infrastructure which will help all industries go digital and enable new industries to emerge and to innovate in a digital environment. In addition to the infrastructure we've developed, our capability to keep innovating is the third reason we believe we're best positioned to capture the opportunity presented by digitalization. Over the past 2 decades, Alibaba has been defined by continuous innovation. We started with B2B business in the earliest days, moving on to create new businesses, including Taobao, Alipay, which evolved into Ant, Tmall, Alibaba Cloud and Cainiao over the first decade or so, further creating DingTalk and Freshippo in the last 5 years. And most recently, we announced another new business, the Xunxi Digital Factory, our new manufacturing platform. These are examples of how we've been at the forefront of digitalization every step of the way, creating new services to better serve our customers and our users. Alibaba's capability to keep innovating has been the most important driver of our continuous growth over the past 20 years. Here at Alibaba, we often talk about development on a continuous track, meaning that we always work for today, invest for tomorrow and incubate for the day after tomorrow. We typically spend 8 to 10 years incubating, nurturing and growing a new business. In the previous session, Maggie shared with you that Alibaba Cloud is expecting to become profitable this year after 10 years of investment. And Cainiao, which was born in 2013, after 7 years of hard work, is expecting to achieve positive operating cash flow this year. Both of the above are results of our continuous innovation. At the same time, we're constantly looking out for new growth opportunities, such as innovative ways to integrate new technologies with business applications, commerce or consumption. For example, our new manufacturing platform is the result of a dedicated effort we announced a few years back to expand from new retail into new manufacturing. And we're now starting to see the results after several years of incubation. In addition to incubating new businesses, our development on a continuous-track approach also applies as we rejuvenate many of Alibaba's long-established businesses, such as Alibaba.com, and 1688.com, which you heard updates on from Trudy during this Investor Day. After 20 years of development, our platforms for international wholesalers and domestic wholesalers have completely changed. They've evolved from meet at Alibaba to trade at Alibaba. And today, they're providing a full range of services to wholesalers looking to enter the international and domestic markets. Rejuvenating our existing businesses is a critical part of our ability to keep innovating. Constantly creating new businesses and transforming existing businesses are our approach to ensure that Alibaba is always driven by innovation as a pioneer in digitalization. Furthermore, in the context of Alibaba's overall development and our ability to seize the opportunities around digitalization, a critical part in addition to continuous innovation or building and leveraging our infrastructure, what's even more critical is that we have the discipline to maintain high-quality growth and operations to aim for the stars while keeping our feet on the ground. In today's highly competitive market, challenges are everywhere. Today, many companies and many new businesses are burning capital to fight for market share, hoping to use scale expansion to solve the problem of user retention and business sustainability. Alibaba firmly believes that at the end of the day, innovation should fundamentally be about creating value for our customers. We are willing to invest to create value for them while at the same time raising the bar for our operations, our efficiency and our value creation. We want to ensure that we're achieving both speed and quality as we grow. That's why Alibaba today can post robust financial health, strong overall competitiveness and a highly effective organization. These strengths enable us to keep our eyes on new industry developments and grasp new opportunities and shape the future through continuous innovation. So far, I've talked about our business capabilities, but another important reason we're well positioned to capture the historic opportunity is our people. At Alibaba, we always say that we're a group of people with a shared passion and commitment working towards a meaningful common cause. That's what we say, and that's also what we do. 20 years after our founding, the Alibaba leadership has already completed its transition to the next generation. Today, our front-line management team is entirely made up of colleagues born in the 1970s, 1980s or even younger. More importantly, all of our team members appreciate each other even if we come from different backgrounds and have different qualities, personalities and strengths. We believe we are the best team who can integrate our digital DNA with technology and commerce. By working as a team, we maximize the collective strength of each individual. That's what is powering us into the future. That's why we're not just moving fast but getting things right. In line with the teamwork spirit, the most fundamental advantage we have in capturing the opportunity of digitalization is the strength of a unified Alibaba digital economy and the underlying Alibaba culture and values that inspire us. From day 1, Alibaba has always been a company driven by its culture and values. As I said just now and have said many times before, Alibaba was founded with a mission to make it easy to do business anywhere. Our mission is the starting point and end point in our consideration of any strategic opportunity. We're constantly looking at how we can best deliver on our mission, how we can better serve our customers and how we can better create new value for our customers through innovation. Our mission and values will continue to guide us as we move forward in the historic opportunity around digitalization. Looking at Alibaba's future, we see tremendous opportunities ahead in 3 areas. We first started talking about these 3 growth engines several years ago, and our view today has not changed. These are domestic consumption, cloud computing and data intelligence, and globalization. These are the 3 growth engines for Alibaba's future. China is one of the world's largest consumption markets today. China's economy is shifting from an export and investment-driven model towards a demand and consumer-driven model. And we saw that even more clearly during and after the pandemic over the past few months. Our ability to tap into China's consumption power is the fundamental driver of our future growth. Today, the Alibaba digital economy already covers over 1 billion Chinese users. Leveraging on this large user base, we are ideally positioned to organize the best supply to push forward business innovations and to meet new consumer demands now and in the future. The second growth engine is cloud computing and data intelligence. We are redefining cloud computing to integrate data with commerce and business use cases so as to create real value for the real economy and industry verticals. Our cloud computing and data intelligence business has already achieved considerable scale, but we still regard ourselves to be in the nascent stage of the global cloud era. We believe this is an industry-wide opportunity across all sectors, the kind of opportunity that comes only once in a generation. The third growth engine is globalization. Globalization has been and will always be a priority for Alibaba's future. No matter how the geopolitical landscape changes and how international relations evolve, we believe that global consumers are living in one digital world and the global supply chain is deeply integrated. Collaboration is the only way to drive higher efficiency and stronger synergy. Therefore, globalization will always be one of our important growth engines going forward and is a course to which we remain firmly committed. Based on these 3 growth engines, we have identified 11 strategies that are critical to Alibaba's development in the next 3 to 5 years. We will drive Alibaba's future growth by implementing these 11 strategies around the above 3 growth engines. Our first strategy is to continue expanding our user base. Today, both in China and around the world, all consumers should be Internet users and all online users can be digitalized. And we're not only talking about individual users but also smartphones, smart communities, smart schools and so on. So driving growth in our digital user base both in China and worldwide is the first thing we have to focus on in the context of Alibaba's growth. Our second strategy is to help these growing digital communities expand into new consumption categories and increase our wallet share, meeting their consumption needs for physical goods, digital goods, a wide range of local services and beyond. And this is Alibaba's fundamental perspective on strategic expansion into new consumption categories. Every time we enter into a new category, we are never just looking at that category by itself. Instead, we look at it as an opportunity to serve our consumers. Over the past year, our investments in health care and recently announced investment in real estate are all part of our category expansion strategy driven by new industry opportunities and new user demands that we perceive and aim to satisfy. Thirdly, with a growing digital user base and real-time consumer insights, we are now able to turn our long-held dream into a reality, which is to go beyond a consumer-driven model to fundamental transformation of the supply chain. Our real-time consumer insights make it possible to organize supply in new ways and to manufacture in new ways. Today, as Alibaba prepares itself for the future, we are not only leveraging digitalization to meet consumer demand but also to drive evolution in supply and production, creating new supply, new products, new brands and new services to satisfy our users' new demands. Fourthly, as we grow our business to support domestic consumption, the entire retail industry is fully embracing digitalization. Today, we are not only operating online marketplaces but also new retail models, integrating online and off-line retail formats, which we've been exploring for the past few years. We believe business models in retail are undergoing rapid transformation for a better future. Today, online marketplaces have evolved from 2-dimensional display, pictures and text, to live engagement formats such as livestreaming and short-form videos. At the same time, off-line retailers are also innovating, exploring new possibilities in digitalization. For Alibaba, a major strategic opportunity is in innovating new retail formats and new retail models for online and offline retail either individually or combined. Fifthly, Alipay will play an increasingly important role in our growth opportunity in domestic consumption. In the past, Alipay used to be just a digital wallet for payment checkout, marking the end of a transaction. Now we're redefining Alipay as an entry point for digital services, upgrading it from digital checkout to digital check-in. We've made some progress over the past 6 months, but the potential ahead is enormous. And that's because all users, online and off-line, will eventually become digital payment users, and penetration continues to grow. We believe that Alipay will play a pivotal role in driving user conversion and increasing the penetration of digitalization in the consumer journey and across more consumption behaviors. Apart from the above 5 strategies related to domestic consumption, we have further identified 5 strategies in connection with our second growth engine, cloud computing and data intelligence in the context of the digital transformation of industries. By integrating our solutions in cloud, big data, business intelligence and commerce platforms, the Alibaba business operating system offers a transformational opportunity to all merchants on our China retail marketplaces, making it easy for them not just to sell products online but also to achieve digital operation throughout their organizations. This is a step towards our mission of making it easy to do business anywhere by helping our merchants transform all operations throughout the commerce value chain, including sales and marketing, customer service, channel management, branding, supply chain management, finance and IT infrastructure, all empowered by data intelligence. We believe we are one of a kind in our capabilities in this area. We are uniquely capable of fully integrating cloud IT infrastructure and database business applications for a full range of commercial use cases. That's why we've positioned Alibaba Cloud as a combination of Infrastructure as A service, IaaS; Data as a Service, DaaS; and Business as a Service, BaaS. This is how we've redefined Alibaba Cloud, which means greater value for our customers and greater possibilities in the future. Next, the application of cloud computing and big data has brought revolutionary changes and industry-wide progress in the logistics sector. Alibaba's logistics infrastructure is supporting deliveries of tens of billions of digitalized packages each year. And packages are just one element in the logistics value chain. More and more elements in the value chain are being digitalized. Once every courier, every point of service, every warehouse and every vehicle have been digitalized, the logistics sector will have reached the next stage in its evolution. Of course, in addition to the sectors we discussed, such as commerce, logistics and financial services, our cloud and big data strategy is dedicated to serving all industry verticals. And the immediate opportunity in front of us is enterprises' migration to cloud. Today, across industries, cloud is replacing legacy IT infrastructure. Cloud migration is an important first step for enterprises toward intelligent digital operations and management. For enterprises migrating to cloud, one excellent business application is digital collaboration in the workspace. As I mentioned earlier, digital collaboration became a new norm during the pandemic due to remote working requirements. By combining Alibaba Cloud plus DingTalk, our cloud-based office collaboration platform, we've enabled organizations in all sectors to work and collaborate intelligently over the Internet. I believe that this new normal is here to stay even after we recover fully from the pandemic, providing crucial support for business collaboration not only within organizations but also across upstream and downstream businesses within the value chain. Our fifth strategy for cloud computing and big data goes beyond the areas of commerce, logistics and financial services that I discussed above, spanning a wider range of sectors such as transportation and health care. Industry solutions based on cloud infrastructure, big data and business applications will lead to innovative growth opportunities that will make cloud much more than just an infrastructure replacement or upgrade but will also make big data an important asset for all enterprises, an asset that can create new value for businesses, enhance operational efficiency and deliver new value to customers. The third important growth engine we've identified for Alibaba is globalization. As I already said, globalization is a long-standing strategic goal for Alibaba. We firmly believe that consumers and business operations around the world will all become fully digitalized. We aim to ride this historic tide by taking what we've learned in China, our experience in building Alibaba's digital ecosystem and successfully transposing it to markets outside China to help consumers and merchants in these markets embrace digitalization. Today, our globalization strategy is focused on the following areas: Firstly, in Southeast Asia, the region of our strategic priority on globalization, we aim to create a brand-new digital ecosystem that integrates commerce, financial services and logistics. Secondly, we're leveraging Alibaba's 2 strongest areas in China, namely supply and consumption, to help global supply access the China market and to help Chinese supply access global markets. So in sum, the above are the 11 strategies that we believe will be pivotal for Alibaba's growth in the next few years. In the era of digitalization, opportunities abound. As we often say, we always aim for the stars while keeping our feet on the ground. The path forward is under our feet. We have many ambitions, and we'll surely come up with many new innovations. But no matter what, we'll always stay true to our long-standing tradition of turning dreams into reality, using years of hard work to realize one by one, our 10-year dreams, our 20-year dreams and beyond. And on this note, our long-term goals have never changed. A few years back, in 2015, we put forward our short- and long-term goals for the future. Today, at the 2020 Investor Day, we are proudly celebrating the achievement of an important short-term milestone we set 5 years ago, USD 1 trillion GMV. Yet we have another important long-term goal to look forward to. By 2036, we aim to serve 2 billion consumers worldwide, create 100 million jobs and enable 10 million businesses to be profitable. This is our long-term vision and we will not waver. We are fully committed to fulfilling this dream and to making the future of Alibaba a reality. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]