Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group’s March Quarter 2021 and Full Fiscal Year 2021 Results Conference Call. Now, I’d like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Good day and good evening, everyone, and welcome to Alibaba Group’s March quarter 2021 and full fiscal year 2021 results conference call. With us today are Daniel Zhang, our 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.

Thank you, Rob. Hello, everyone. Thank you for joining our earnings call today. We delivered another solid quarter, making the strong finish to this eventful fiscal year. China started this past year with the national battle against the COVID-19 outbreak and ended the year as the first country in the world to effectively control the pandemic and return to normal life. Based on IMS estimates, China was the only major economy that achieved positive real GDP growth in 2020. According to the National Bureau of Statistics, China recorded retail sales of RMB 42 trillion during the 12 months ended March 31, 2021, and the GDP growth in the quarter ended March 2021 reached 18.3% year-over-year. Against the backdrop of this macroeconomic recovery and accelerated digitalization in China, Alibaba Group achieved healthy growth across all businesses. During the past fiscal year, we made significant progress in our 3 key strategies, namely domestic consumption, globalization and cloud computing. Such progress demonstrated the tremendous power of Alibaba’s digital commerce infrastructure as well as our long-term commitment to invest for the future and to create value for our consumers, merchants and partners through innovations.

Thank you, Daniel. Hello, everyone. Let me start with financial highlights for the fiscal year 2021 and for the March quarter. So our total revenue was CNY 717 billion, an increase of 41% year-over-year. Excluding the consolidation of Sun Art, our revenue would have grown 32% year-over-year to CNY 674 billion. This is well exceeded our revenue guidance we gave at the beginning of the year, which was CNY 650 billion. For March quarter, our total revenue was CNY 187 billion, up 64% year-over-year. Excluding Sun Art, the growth would have been 40%. Still very strong. The growth was driven by the robust revenue growth of our China commerce retail business as well as continued growth of cloud computing businesses. Total adjusted EBITA was CNY 170 billion, an increase of 24% year-over-year. And for the March quarter, it was RMB 23 billion with an increase of 14% year-over-year primarily driven by healthy profitable -- profit growth of our market-based core commerce business, partially offset by increased investments in new businesses and key strategic areas. Total adjusted EBITDA increased 25% year-over-year to CNY 197 billion for the year and increased 18% year-on-year for the March quarter. So net income was CNY 143 billion for the fiscal year, which includes the onetime fine levied and increases in SBC expenses. The non-GAAP net income for the year was CNY 172 billion, 30% year-on-year growth. March quarter, we showed a net loss of CNY 7.7 billion primarily due to the antimonopoly fine of RMB 18.2 billion. Excluding this impact and certain other items, non-GAAP net income was RMB 26 billion, an increase of 18% year-over-year. We continue to maintain a solid cash position of USD 72 billion with strong cash flow generation capability. Our free cash flow grew strongly at 32% to RMB 173…

Hi, everyone. So for today’s call, we welcome to ask you -- you’re welcome to ask question in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. Our management will address your question in the language you ask. Please note that the translation is for convenience purpose only. In the case of any discrepancy, the management statement in their original language will prevail. Operator, now we can connect to the speaker and SI conference lines and start the Q&A session when ready. Thank you.

First question comes from the line of Alex Yao of JP Morgan.

I have some questions on the investment side. First of all, I’d like to know if you could please clarify the remarks made, I believe, by both Maggie and Daniel, in your presentations as regarding the intention to completely reinvest all incremental profit in the coming year. Does that mean that we’re talking about an outlook with a 0 profit growth in the coming financial year? Secondly, you listed a lot of different areas into which that investment will be channeled. I’m wondering if you could tell us which of those will be the top priorities. And thirdly, Daniel in his remarks spoke of how these investments will be managed in a prudent fashion with internally defined KPIs to monitor investment effectiveness. I’m wondering if you could please tell us more about how that will work and, on those KPIs, how performance has been year-to-date.

Yes. Let me start by answering as to what we intend to -- or what we meant with this announcement of our investment of incremental profits and what the priorities will be in terms of making this investment. So as we stated in our earnings guidance, we plan to invest all incremental profit in the coming year into growing our business further and investing for the future. Does that mean then that in the coming year there will be no prospect of profitability or profit growth? Or will maximum profit growth be restricted to what it was this year? Well, let’s look at what we can achieve with this investment first. In the market, as you know, there are very, very few companies that can do what we’ve done in terms of investing a lot of money into future business growth and to strategic initiatives while still enjoying a very robust profit growth. So I think it’s fair to say that there’s a huge potential for us to further grow be it in our core market or in other areas. There’s still lots of scope and lots of room for us to do new things and grow the business. And I think any long-term investor would say that promising to maintain a certain level of profit or prioritizing a higher level of profit would be a stupid thing to do because in the market today, there are so many competitors who are investing large amounts to gain a foothold in the market, to grow the market. And we’re in a great position to create value and capitalize on our existing resources to drive future growth going forward. So that is the intention. We’re going to be investing in a highly targeted and highly disciplined way in order to lay a foundation for even better growth going forward. And at the end of the day, users will vote with their feet. So we see these investments ultimately as playing out in terms of growing the business and more deeply engaging users. And then by way of follow-up in terms of the specific areas we intend to be investing in, as we talked about, certainly core commerce, New Retail, as Daniel mentioned in his remarks, the Community Marketplaces business, Taobao Deals but also our international business, local services and logistics. And then another way of breaking down the investments not by business but in terms of results that we see, certainly these would include growth in the user base, enhanced engagement as well as the provision of more value to merchants.

Yes. I’d just like to add to that briefly. When it comes to making these investments, we do have 3 major strategic priorities, as I mentioned in my script. These are domestic consumption, globalization and the cloud or high -- advanced technology part of the business. And we intend to be investing in all 3 of those because we see large incremental opportunity. Starting with the first of those strategic priorities, namely domestic demand, domestic consumption, our AAC number has now reached 890 million in China. This is the latest total figure across the ecosystem, all of the different platforms, an aggregate AAC figure of 890 million. However, there’s still a lot of scope to grow the frequency on purchase and engagement of these 890 million AACs to convert them into MACs, monthly active consumers, or even DACs, daily active consumers. So huge, huge scope for development there. We have today within this user base the broadest and largest multi-tier consumer base in China. So as I said in my remarks, a major priority for us and for the developing user base is to continue to drive higher levels of purchase frequency across all classes of consumers. And then, although we already have 890 million AACs, still there is quite some scope for further growth in that figure with respect to users in lower-tier cities and in rural areas. In fact, in my script just now, I reported the growth achieved in the past year in our user base, and 70% of those new users came from rural areas. So we will continue, as I said, to strive to grow the user base, adding new users, and have set as a target surpassing 1 billion AACs in the new financial year. Apart from growing the number of consumers and their…

Yes, our next question is from the line of Thomas Chong of Jefferies.

May I ask about the trend in terms of the CMR? Given that we have seen the CMR growth rate is very solid, can you comment about the FY ‘22 outlook, in particular how we should think about the take rate trend for this year? And my second question is about the competitive landscape. Given that we have a wide product selections and very strong technology, how would we leverage our core capabilities in different areas like lower-tier cities penetration as well as our strategic initiative in local service and Sun Art?

Yes. In terms of CMR growth, you’ve seen that we reported 24% year-on-year growth for the quarter. And if you look at the past few quarters, that’s been growing strongly considering it has a large base. I believe the CMR growth is going to be -- have -- continues to have high potential. If you look at this revenue, actually the TAM is merchants’ budget, right? You pay for the services and -- we provided. Currently, our take is somewhere around 4%. This is mainly where merchants paying for the sales and marketing, branding services were provided. So even in this sole area, we still have a lot of potential. And there are also other areas that we could provide merchant services. So take rate has been growing over the past years. I think this year, as we talked about, we’re going to provide more support to the merchants. In our last call, we talked about the details on how we support our merchants, this including waiving certain charges, fees and also invest in the platforms and infrastructure to support merchants. So we’re not aggressively monetizing the value we created for the merchants actually. The one thing worth to mention is that CMR currently accounts for approximately 43% of our total revenue. If you look at 3 years ago, 5 years ago, it used to be like 70%, 80%, right? So it has been growing very fast, but it’s, as a percentage of revenue, coming down. I think that trend will continue. That is because of our multi-engine strategy. We have so many new businesses, and revenue contributed from these new -- that become more and more important and significant to our total revenue. Yes. Just one minor correction. The 24% year-on-year growth is for the annual fiscal 2021. For this quarter, the growth rate for CMR was 40%.

Now, let me answer the second question in terms of the technology, how to apply technology into the competition. Actually, we always believe that technology is so critical in the competition, and we are proud of our technology development and the integration with the real operation and even in the fierce competition. So let me just give you a few examples. In the matter of consumption area, actually one of the key things is how to acquire and retain the customers on our China retail marketplaces. But the key thing is how to use technology to match the most comprehensive product offerings we have on our platforms with the right customers and generate the real consumption. So the matching capabilities is all driven by AI and driven by technologies. So I think that’s our big advantage to make sure we have a most effective, I mean, conversion. I mean over years, our conversion rate had continued to grow and which -- not only to grow our GMV but also to meeting the diversified demands of our customers. The second example I want to give you is that once we acquire new customers, it’s all about how to maximize the lifetime value of these customers via cross-category setting opportunities. And so in this regard, we have this -- we built a very comprehensive user profile and product features profile to make sure we can maximize -- we can understand our customers very well and provide all their needs during their lifetime cycle. Let me stop here for translation. Well, but technology application is not limited to the consumer management side. Actually, it covers all the areas. Just a few more examples. For example, in -- on logistics side and -- technology actually play a very important role to -- for Cainiao to build a smart, data-driven logistic network and operating system and -- to serve our merchants as our -- both in China and the international market. And on the cloud side, I think technology is a key. As I said in my script, we continue to invest in technology to build our competitive advantage in the Art and FaaS products. But this -- our benchmark is not only in China. Actually, we benchmark the global leaders in all their -- I mean, core cloud products and -- to make sure we are -- as a top tier of the world.

Next question is from the line of Jerry Liu of UBS.

Yes, my question is really on the business model. If we look at the recent past years, we’ve seen an increase in the 1P revenue mix, right, as Alibaba consolidates, Sun Art and as we grow Hema or Freshippo. So today, we talk about investing in Community Marketplaces. And from the presentation, it looks like the providers of groceries and FMCG into this business includes also Sun Art and, I believe, Hema as well. So as we invest in these high-frequency categories, how does this change the long-term business model? How do we envision the ecosystem looking long term? And maybe more specifically, do we have a target 1P-3P mix in mind?

In short, we don’t have any specific goal for 1P-3P mix. We strongly believe that this mix is an organic result, outcome for our operation, and we don’t manage the 1P-3P mix intentionally. Over years, we have built our 2 flying wheels in our annual consumption business. One is to build our -- continues to build a capability to manage the customers smartly and efficiently. And in this regard, we said how to create the demand. So in the demand side, we continue to invest to improve our user interface with creativity and with technologies. And we strongly believe that it’s very important for us to engage -- enhance our engagement with our customers not only to have more customers on our platform but also to help them spend more time with us. And we strongly believe that a very diversified supply from the merchants from different sources is very, very important. And the selection is very, very important to enhance the user stickiness. So I think that’s the area we continue to invest and to build capability on the customer management and demand creation. And on the other hand, over years, we tried to build a very strong, I mean, merchandising capabilities and supply chain management capabilities, which we believe -- actually, over years, no matter how frequency -- how changed the user interface will be, the efficient supply is a must to do a successful commerce business, including e-commerce business. So that’s why we invest a lot to build our supply-side capabilities. And we believe that these capabilities -- the advantage of these capabilities will not change even without -- even with the user interface upgrading and change. So these are 2 flying wheels to Alibaba. I’m so proud that maybe we are one of the few companies in the world which have the -- has had the excellent, I mean, consumer management capabilities but, at the same time, has this merchandising and the supply chain management capabilities in one company and in one team. I think that these 2 flying wheels are the critical successful factor for our long-term growth.

Next question is from the line of Han Joon Kim of Macquarie.

I wanted to ask about Taobao Deals. I think it’s been one of the fastest-growing apps in last year. And are you guys empowering it to kind of grow to 700 million, 800 million kind of in a few years, or do you just kind of see it as something that is.

Han Joon, sorry.

Hello? Do you hear me?

Han Joon, sorry to interrupt. Can you repeat your question? Maybe get closer to the mic.

Sure. It’s regarding Taobao Deals. I’m wondering if we are empowering it to try to grow to 700 million, 800-type million users in a few years.

Sorry.

Or do you see this .

Sorry, your mic is still very noisy.

Hopefully, this is a little bit better.

Yes.

Yes. Sorry, just to repeat, for Taobao Deals, just wondering if this is a business you’re empowering to try to get to kind of 700 million, 800 million kind of user base in a few years’ time. And if that’s the case, how do we see this interacting with, I guess, Taobao and Tmall in the sense of as Tmall -- as Taobao Deals grows, do you see any kind of cannibalistic behavior to our own services? And part of this is also -- I don’t feel like I’m seeing your competitors in that similar space being particularly impacted as this -- as Taobao Deals grows, so I’m also kind of thinking how this impacts perhaps the competitive landscape as well.

Well, the value proposition of Taobao Deals is very clear. It’s for price-conscious consumers, and we provide on Taobao Deals platform the value-for-money products for these, I mean, price-sensitive customers. And in terms of supply side, actually we focus on manufacturers and farmers and their direct offer and end-to-end to the customer in the -- which care more about price. So I think the value proposition and the simple consumer journey, shopping journey, I think, is a key for Taobao Deals, and we are very happy to see the progress we made during the last year. And as I said, our MAU in March reached 130 million. And for the entire year, we -- our annual active consumer reached 150 million. So I think that’s a good start. And because China is so big and with so many population with different consumption power and with different segmentation and preferences, so we try to -- as part of Alibaba China retail marketplaces, we try to provide multiple destinations to the customers with different purposes. So I think Taobao Deals is a good supplement to our -- to other applications, other business we have in China retail marketplaces. And in terms of the incremental value we create from Taobao Deals, I just gave a good example in my script to you, which is the average spending of our customers on Taobao Deals. Their -- the increased rate of this spending for the customers on Taobao Deals is bigger for the -- for those -- NS spend -- for the average spending on China retail marketplace, which indicate that if we have people -- if we give people multiple choices, the overall -- the total spending within Alibaba Ecosystem will be bigger. So that’s a very good indicator. And -- so that’s why we will continue to invest in Taobao Deals. And as to whether this has any impact on other players, I think it’s very important that we -- on Taobao Deals, our goal and value proposition is very clear and straightforward and even simple. So we are confident the impact is coming and -- because for these customers, they just need a simple choice and price sensitive and price advantage. That’s it. So we will strengthen this value proposition on Taobao Deals. While on Taobao Mobile App, our flagship, I think we provide more comprehensive offerings to different segment customers, and they will enjoy more selections and more fun. So the value proposition are quite different. And we are -- as I said, our goal is to build a metrics -- application metrics to serve the customers with different needs. Thank you.

Okay. Well, thank you, everyone, for joining today’s call. We have all the materials that will be provided in our IR website. We look forward to meeting with you in the coming months. Please contact me and the IR team of Alibaba. Thank you.

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.