Kenneth Fong

Kenneth Fong from UBS asked for an update on the key progress of Alibaba's quick commerce initiative, its synergy with core e-commerce, and the outlook for December quarter Customer Management Revenue (CMR) and EBITDA for the core e-commerce segment.

Answer

Jiang Fan, CEO of Alibaba E-commerce Business Group, reported significant progress in quick commerce unit economics (UE) optimization, with per-order UE loss cut by 50% since July-August, while maintaining stable market share. He noted improvements in order mix (over 75% non-beverage), double-digit AOV growth, and reduced logistics costs due to scale. User retention and purchase frequency exceeded expectations, with rapid growth in retail categories. CFO Toby Xu added that quick commerce positively impacts CMR through enhanced user engagement and transactions. He expects the September quarter to mark the peak of investment scale, with significant reductions anticipated next quarter, though adjustments will be dynamic based on market competition. He also noted potential short-term fluctuations in CMR and EBITDA due to investments and base effects.

Kenneth Fong from UBS asked for an update on the key progress of Alibaba's quick commerce initiative, its synergy with core e-commerce, and the outlook for December quarter Customer Management Revenue (CMR) and EBITDA for the core e-commerce segment.

Answer

Jiang Fan, CEO of Alibaba E-commerce Business Group, reported significant progress in quick commerce unit economics (UE) optimization, with per-order UE loss cut by 50% since July-August, while maintaining stable market share. He noted improvements in order mix (over 75% non-beverage), double-digit AOV growth, and reduced logistics costs due to scale. User retention and purchase frequency exceeded expectations, with rapid growth in retail categories. CFO Toby Xu added that quick commerce positively impacts CMR through enhanced user engagement and transactions. He expects the September quarter to mark the peak of investment scale, with significant reductions anticipated next quarter, though adjustments will be dynamic based on market competition. He also noted potential short-term fluctuations in CMR and EBITDA due to investments and base effects.

Kenneth Fong of UBS Group AG asked if Alibaba plans to increase investment in the in-store component of its local services business, on top of its current focus on food delivery, noting recent promotional activities in certain regions.

Answer

Alibaba Management confirmed they are exploring opportunities in the in-store services space. They explained that with the QuickCommerce business now reaching 150 million daily active users, there is a natural synergy with in-store needs like self-pickup and coupon usage. To better serve this large user base, management stated they are already conducting tests and pilot programs for more diverse in-store services in select cities.

Kenneth Fong asked about the strategic rationale and timing behind the significant new investment in the instant commerce business. He also inquired about the potential impact of this investment on the profitability of the Local Services group, particularly given the intensified competition in the food delivery space.

Answer

Jianfeng (Fan Jiang), CEO of Taobao and Tmall Group, described the move as a natural evolution, leveraging Alibaba's long-standing capabilities in the space and its advantages in user base, merchant ecosystem, and logistics. CEO Yongming (Eddie) Wu added that initial trials have exceeded expectations and the investment aims to drive user frequency on the Taobao app and create synergies between local and nationwide e-commerce, with a short-term focus on aggressive user acquisition.

Kenneth Fong asked about the recent announcement of a significant investment in the instant commerce business, seeking details on the investment plan, the timing of this strategic move, and its potential impact on the profitability of the Local Services group, especially given intensified competition.

Answer

Fan Jiang, CEO of Alibaba e-commerce Business Group, described the move as a natural evolution, leveraging Taobao's vast user base, mature merchant ecosystem, and robust logistics. CEO Yongming Wu added that initial trials have exceeded expectations in both scale and efficiency. He emphasized the strategic goal of driving higher user frequency on the Taobao app and creating synergies between hyperlocal and nationwide e-commerce. Wu confirmed the company will invest aggressively in the short term to acquire users.

Kenneth Fong asked for an outlook on the Cloud Intelligence Group's future profitability, especially given recent price reductions in the market.

Answer

Executive Yongming Wu explained that cloud profitability is driven by technology and scale advantages. He characterized the recent reduction in API token prices as a long-term investment to grow the user base. By attracting more users to the platform with lower-cost models, the company expects to drive higher consumption of its broader suite of compute, storage, and database products, ultimately boosting long-term profitability.

Kenneth Fong asked for an explanation of the quarter's high tax rate and the significant decline in free cash flow, questioning if the negative impacts from AI investment and direct sales reduction would normalize.

Answer

CFO Toby Xu clarified that the adjusted tax rate is stable and the GAAP rate is skewed by one-off items. He attributed the free cash flow decline to increased AI infrastructure CapEx and a temporary working capital outflow from the planned scaling down of certain 1P direct sales businesses. He expects this working capital impact to stabilize as the business sizes stabilize.

Kenneth Fong from UBS questioned the key drivers behind the strong revenue acceleration in both domestic (TTG) and international (AIDC) e-commerce and asked for the margin outlook for both segments.

Answer

CEO Yongming Wu stated that for domestic e-commerce, the strategy is to enhance user experience and stabilize market share, which requires continued investment. For international e-commerce (AIDC), he noted a clear path to profitability driven by optimizing business models. CFO Toby Xu added that for the Taobao and Tmall Group, margin is a balance between investments in user experience and revenue-driving initiatives, and the group remains in an investment phase.

Kenneth Fong asked about the company's operating margin decline narrowing this quarter despite plans for increased investment, seeking clarity on the upcoming investment pace and profitability levels. He also requested insights into new consumption trends observed during the recent annual shopping festival and management's view on the competitive landscape with emerging models like quick commerce.

Answer

Zhao Jiazhen, Executive Director and Co-CEO, stated that intensified competition and ongoing investments in the 100 billion support program pressured revenue growth and led to a decline in operating margins. He reiterated PDD's commitment to long-term strategic focus and increased ecosystem investments, which will challenge revenue and profit. He also mentioned the complex global environment and regulatory changes posing unforeseeable risks. PDD prioritizes long-term high-quality development over short-term financial results, expecting fluctuations. Regarding consumption trends, he noted overall positive momentum and recovering market confidence during promotional periods, but acknowledged intense competition, emerging new business models, and escalating investments by major players. PDD will strengthen core capabilities and deepen supply chain/ecosystem efforts, accepting potential short-term financial pressures for long-term value.

Kenneth Fong inquired about PDD Holdings' operating margin, noting a narrowed decline this quarter despite plans for increased investment, and asked for insights into the future investment pace and profitability levels. He also requested management's observations on new consumption trends during the recent annual shopping festival promotions, including emerging models like quick commerce, and their view on the evolving competitive landscape.

Answer

Executive Director and Co-CEO Zhao Jiazhen confirmed that heightened competition and ongoing investments, particularly the 100 billion support program, pressured Q3 revenue growth and led to year-over-year and quarter-over-quarter declines in operating margins. He reiterated the company's long-term strategic focus, emphasizing increased investments in the platform ecosystem (e.g., merchant fee reduction, marketing support) despite the financial challenges and unforeseeable risks from the complex global environment. Zhao Jiazhen stated a firm prioritization of long-term high-quality development over short-term financial results, expecting continued fluctuations. Regarding consumption trends, he noted an overall positive momentum and stimulated e-commerce activity during promotions, but acknowledged intense competition, emerging business models, and escalating investments by major players. He concluded that PDD Holdings will strengthen core capabilities and deepen efforts in supply chain optimization and ecosystem development, accepting potential short-term disadvantages for robust long-term value.

Kenneth Fong of UBS Group asked for details on the upgraded RMB 100 billion support program, including how it will be delivered to merchants and its long-term financial impact. He also questioned how PDD is responding to national subsidy programs, given the inherent limitations of its third-party marketplace model.

Answer

Executive Director and Co-CEO Zhao Zhao Zhen detailed the RMB 100 billion support program, explaining it involves substantial financial commitments to expand support from top-tier to small and medium-sized merchants. On the demand side, it includes consumer give-back initiatives and direct discounts. He also stated that PDD is actively responding to national subsidy programs by launching dedicated channels, providing additional coupons, and benchmarking prices to ensure competitiveness, accepting that these investments may weigh on short-term profitability.

Kenneth Fong of UBS noted the recent slowdown in revenue growth and profit fluctuations, asking for the near-term outlook on these trends. He also asked for more detail on the company's long-term goals for platform responsibility and how this is balanced with duties to shareholders.

Answer

Executive Jun Liu explained that short-term fluctuations in revenue and profit are expected due to increased investments in the platform ecosystem and are part of the long-term strategy for sustainable growth. Co-CEO Jiazhen Zhao elaborated on platform responsibility, stating that it aligns with long-term shareholder accountability. He highlighted initiatives supporting quality merchants, agriculture, and remote regions as investments that create a virtuous cycle, ultimately driving sustainable growth and long-term returns for all stakeholders.

Kenneth Fong inquired about the progress of the company's merchant support initiatives and future plans, and also asked for management's perspective on its global business, the evolving external environment, and future international strategies.

Answer

Co-CEO Jiazhen Zhao detailed the progress of the CNY 10 billion fee reduction program, highlighting lower operational costs for merchants and logistics fee reductions for Western China. Executive Lei Chen addressed the global business, stating the company is proactively engaging with stakeholders to enhance service standards and compliance, while acknowledging that competition and external factors will create volatility.

Kenneth Fong at UBS inquired about the growth outlook for JD Retail's electronics and home appliances category, considering the higher year-on-year comparison base due to government training subsidies, and the potential margin impact on JD Retail as these subsidies diminish. He also asked about JD.com's overseas strategy, including the scale and pace of investment, following recent acquisitions and the commencement of Joybuy operations.

Answer

CEO Sandy Xu addressed the electronics and home appliances outlook, acknowledging the high base effect from the training program but emphasizing JD's strengthened market share and supply chain capabilities. She outlined strategies focusing on product innovation, price optimization, and omnichannel service (e.g., JD Malls, city flagship stores) to consolidate market share and enhance user experience. She also noted the diversification of growth drivers, including general merchandise and advertising revenue. Regarding international business, Sandy Xu stated it's a key long-term strategy to establish a global retail network, leveraging JD's supply chain for a local e-commerce approach in regions like Europe (Joybuy in UK, France, Germany, Netherlands). She confirmed a gradual and prudent financial discipline, prioritizing investment efficiency, and stated the overall investment scale would not be substantial.

Kenneth Fong asked about the growth outlook for JD Retail's electronics and home appliances given the high comparison base from government training subsidies, including the margin impact as these subsidies fade. He also inquired about JD's overseas strategy, the scale and pace of investment following recent acquisitions, and the commencement of JD Joybuy operations.

Answer

CEO Sandy Xu addressed the high base effect in electronics and home appliances, emphasizing JD's enhanced market share and supply chain capabilities, focusing on product innovation, price optimization, and omnichannel service to consolidate market share. She noted diversified growth drivers from general merchandise and advertising. Regarding international business, Ms. Xu outlined JD's long-term strategy to establish a global retail network, leveraging supply chain advantages for Chinese brands. She confirmed Joybuy's test phase in Europe and stated a gradual, prudent financial discipline for international expansion, with investment scale not being substantial.

Kenneth Fong from UBS Group asked for details on the strategy and financial impact of investments in new business initiatives, including effects on revenue, profit targets, and shareholder return policies. He also questioned the drivers behind the sustained robust growth in the general merchandise category.

Answer

Sean Zhang, Head of IR, stated that new business investments in areas like food delivery and international expansion are centered around JD's core supply chain to enhance user experience. He affirmed the company's commitment to shareholder returns through dividends and buybacks, viewing the investments as crucial for long-term growth. The strength in general merchandise was attributed to enhanced operational capabilities in the supermarket category, particularly the 1P model and improved user conversion.

Kenneth Fong inquired about key metrics for the food delivery business, such as user retention, cross-selling, and unit economics, and asked how AI is being applied to enhance JD's advertising system and other business segments.

Answer

CEO Sandy Xu stated that while daily food delivery orders are approaching 20 million, it is too early to share detailed unit economics as the focus is on building fundamental capabilities. She noted healthy repeat rates and initial cross-selling into supermarket categories. Regarding AI, Ms. Xu detailed its application across the supply chain: on the demand side (search/recommendation), supply side (merchant tools), and fulfillment (automation). She emphasized that AI is driving higher ad conversion rates and that AI agents are being developed to help merchants improve campaign effectiveness.

Kenneth Fong asked about JD.com's investment strategy for new initiatives like fashion and instant retail, and how management plans to balance growth with profitability. He also requested details on the strategy, scale, and margin impact of the company's food delivery initiative.

Answer

CFO Ian Shan stated that investments remain ROI-focused and disciplined, centered on supply chain and user experience. He noted that while established categories like electronics will drive profit, emerging areas like apparel and on-demand retail are in earlier growth and mind-share-building phases. CEO Sandy Xu added that food delivery is a natural, strategic extension of the core retail business, not a standalone venture. She emphasized it is in a very early, disciplined exploration stage, aimed at enriching use cases and enhancing long-term user value and company profitability.

Kenneth Fong of UBS Group AG inquired about JD.com's low-price strategy amidst market shifts and the timeline for monetizing its third-party (3P) platform ecosystem as competitors increase their focus on monetization.

Answer

CEO Xu Ran affirmed that JD's low-price strategy is unwavering and rooted in supply chain efficiencies rather than short-term subsidies. CFO Ian Shan explained that 3P monetization is a long-term goal that will naturally follow the growth of the ecosystem, which is currently focused on expanding its merchant base and improving user metrics. He noted positive trends, including recovering commission revenues and double-digit growth in 3P advertising revenue.