Title

Presentation

Alibaba Group Holding Limited beats earnings expectations. Reported EPS is $1.74, expectations were $1.48.

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group’s March Quarter 2025 and Full Fiscal Year 2025 Results Conference call. At this time, all participants are on listen-only mode. After management’s prepared remarks, there will be a Q&A session. I would now like to turn the call over to Lydia Liu, Head of Investor Relations of Alibaba Group. Please go ahead.

Lydia Liu: Good day, everyone. Welcome to Alibaba Group’s March quarter 2024 and full fiscal year 2025 earnings conference call. With us today are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Jiang Fan, Chief Executive Officer of Alibaba E-Commerce Business Group. This call is also being webcasted from the Investor Relations section of our corporate website. A replay of the call will be available on our website later today. Now let me quickly cover the safe harbor. Today’s discussions may contain forward-looking statements, particularly statements about our business and the financial results that are subject to risk and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements.

Please refer to the safe harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures that we use on this call 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 refer to year-over-year growth versus the same quarter last year. And now, I will turn the call over to Eddie.

Eddie Wu: Thank you. Welcome to join our quarterly earnings call. We delivered strong performance this quarter with total revenue excluding Sun Art at Intime, growing 10% year-over-year and adjusted EBITDA increasing 36% year-over-year. For fiscal year 2025, our user-first AI-driven strategy continued to deliver meaningful results with accelerated growth across our core businesses. We’ve established a well-defined growth portfolio centered on AI + Cloud, e-commerce, and other internet platform businesses. We’re seizing the historic opportunity presented by AI and stepping up our investments in AI infrastructure and advanced technologies to further strengthen Alibaba’s global leadership in technology. These capabilities will also be translated into sustained drivers of business growth.

Driven by robust and growing AI demand, Alibaba Cloud’s revenue growth accelerated to 18% this quarter, with revenue excluding Alibaba consolidated subsidiaries increasing 17% year-over-year. Public cloud revenue growth continue to accelerate. Revenue from AI related products has maintained triple digit year-over-year growth for the seventh consecutive quarter. For the full fiscal year, Alibaba Cloud’s revenue group by double digits, and looking ahead, we expect AI to remain a key driver of accelerated revenue growth for Alibaba Cloud. While uncertainties persist in the global AI supply chain, customer demand remains strong and unwavering. We continue to see growing demand for Cloud and AI, an opportunity that will define the next 10 to 20 years and will not be derailed by short-term supply chain fluctuations.

Our confidence and commitment to investing in Cloud and AI infrastructure remains unchanged, and we are actively exploring diversified solutions to meet rising customer demand. We continue to advance foundational research and innovation in large models, pushing the boundaries of model capabilities while remaining firmly committed to open source. In April, we released our next generation Qwen3 model as open source, ranking amongst the top performers globally on multiple authoritative benchmarks. By the end of April we had open sourced over 200 models under the Qwen family with more than 300 million downloads worldwide and over 100,000 derivative models, making it the world’s largest open source model family. As we accelerate the adoption of AI + Cloud across a wide range of industries, two clear trends have emerged.

Among large and mid-sized enterprises, AI applications are expanding from internal systems to more customer-facing use cases. At the same time, adoption of AI product is rapidly extending from large enterprises to a growing number of small and medium-sized businesses. This quarter, the industry penetration of our AI products expanded rapidly. In addition to faster adoption across sectors like internet services, autonomous driving, financial services, and online education, we’re also seeing strong momentum in more traditional industries, such as animal farming and manufacturing, which are actively exploring AI applications and have shown significant growth and demand. In the financial sector we continue to deepen our industry leadership. Recently the Industrial and Commercial Bank of China, ICBC, officially selected Alibaba Cloud’s PolarDB as its enterprise-wide transactional distributed database.

This represents a strong endorsement of our technological capabilities by one of the most demanding financial institutions in terms of business performance and technology requirements. In e-commerce, we remain focused on putting users first. We continue to invest in user growth and improving user experience. Taobao and Tmall Group saw stronger momentum in user growth and 88VIP members surpassed 50 million. This quarter TTG customer management revenue rose 12% year-over-year, while adjusted EBITDA increased by 8%, we continued to invest in improving the operating environment for merchants, increasing our support for those offering high quality products and services. Fueled by strong momentum in its cross-border businesses, AIDC achieved year-over-year revenue growth of 22% this quarter.

Operational and investment efficiency also continue to improve. Despite potential uncertainties in global trade regulations, we remain confident that AIDC’s diversified footprint across global markets positions us well to manage changes effectively, and we remain on track to achieve overall quarterly profitability in our international e-commerce business in the coming fiscal year. Other businesses within the group continued to maintain healthy operations. The Digital Media and Entertainment Group achieved profitability on an adjusted EBITDA basis this quarter. In fiscal year 2026, we will continue to focus on driving growth in our core businesses of e-commerce and AI + Cloud, while shaping a second growth curve powered by technology over the medium to long term.

Thank you.

Toby Xu: Thank you, Eddie. The strong financial results of the past quarter highlight the good progress we are making in driving growth in our core businesses. On our Taobao and Tmall businesses, we saw a substantial increase in CMR growth, which grew 12% year-over-year, primarily driven by the improvement of take rate. Our take rate benefited from the impact of the software service fee and the increasing penetration of Quanzhantui. Merchants benefit through Quanzhantui’s convenience of use and improvement of marketing efficiency. Our cloud business continues to exhibit robust momentum with revenue growth accelerating to 18% and overall revenue excluding Alibaba consolidated subsidiaries accelerated to 17%, driven by an even faster public cloud revenue growth.

Notably, our AI momentum remains robust with AI related product revenue sustaining triple digit growth for the seventh consecutive quarter. We are seeing our AI products being adopted across an increasingly diverse industries, including a set of digital native industries, as well as traditional verticals such as manufacturing, reflecting the broader application of AI technologies in real-world business environments. These demonstrate our commitment to innovation and reinforce our leadership in the Cloud and AI sectors. This quarter, AIDC maintained its rapid growth momentum, primarily driven by strong performance in cross-border businesses. We continue to enrich its product offerings and diversify its business models to meet the needs of local consumers through local supply.

We will continue to focus on enhancing operating efficiency and navigating in dynamic macro and geopolitical environment. Our commitment to sustainable growth and improving efficiency delivered solid results, with all segments achieving year-over-year EBITDA improvement this quarter, leading to a 36% increase in overall group EBITDA. A number of loss-making businesses are on track of turning profitable, while we are investing in selected strategic AI-driven initiatives that position us to capture long-term opportunities and create value to our users and customers. This quarter we continue to optimize our business portfolio by exiting non-core assets. We expect to generate $2.6 billion in maximum of cash proceeds from the sale of Sun Art and Intime.

These actions allow us to sharpen our focus on core businesses and invest in key growth areas, while also enabling solid cash return to shareholders. Our board of directors has approved an annual dividend of $1.05 per ADS, representing a 5% increase year-over-year. This increase reflects the impact of our share repurchase program, which resulted in a 5.1% net reduction in share count after accounting for ESOP issuance for this fiscal year. The board also approved a special dividend of $0.95 per ADS, which is higher than last year’s $0.66 per ADS. This increase demonstrates that we are making solid progress in disposing non-core businesses in the financial investments. In total, we are distributing $2 per ADS in cash dividends this year, amounting to $4.6 billion.

Combined with the $11.9 billion in share repurchases, we have returned a total of $16.5 billion to our shareholders for this fiscal year. On a consolidated basis, total consolidated revenue was RMB236.5 billion, an increase of 7% year-over-year. Excluding the revenue from Sun Art and Intime, group revenue would have grown 10% year-over-year. Consolidated adjusted EBITDA increased 36% to RMB32.6 billion, primarily attributable to revenue growth and improved operating efficiency, partly offset by the increase in investments in our e-commerce businesses and technology. Our non-GAAP net income was RMB29.8 billion, an increase of 22%. Our GAAP net income was RMB12 billion, an increase of RMB11.1 billion, primarily due to market-to-market changes from our equity investments.

The increase in income from operations and the decrease in impairment of equity method investments, partly offset by the losses arising from the disposal of subsidiaries. Operating cash flow this quarter was RMB27.5 billion, an increase of 18%. Free cash flow this quarter decreased 76% to RMB3.7 billion, which was mainly attributed to the increase in our cloud infrastructure expenditure. As of March 31, 2025, we continue to maintain a strong net cash position of RMB366.4 billion, or $50.5 billion. The strong net cash position and healthy operating cash flow bring us confidence and sufficient resources to increase our investment in Cloud and AI infrastructure to capitalize the sustained strong demand and the substantial growth potential presented by latest AI innovations.

Now let’s look at the segment results, starting with Taobao and Tmall Group. Revenue from Taobao and Tmall Group was RMB101.4 billion, an increase of 9%. Customer management revenue increased by 12%, primarily driven by the improvement of take rate. Our take rate benefited from the impact of software service fee and increasing penetration of Quanzhantui. Merchant benefits through Quanzhantui’s convenience of use and improvement of marketing efficiency. We continue to invest in user growth and other strategic initiatives such as price competitive products, customer service, membership program benefits, and AI technology applications to enhance user experience. These efforts led to stronger momentum in new consumer growth and a continuous increase in orders.

On the merchant end, we remained focused on improving their operating environment and ensuring their sustainable development on our platform. In particular, we increase the support of merchants that provide high quality products and customer services, including support for marketing, new product launches, and customer management. During this quarter, the number of 88VIP members continued to increase by double digits year-over-year, surpassing 50 million. With solid profitability and increasing ARPU on a [cohort] (ph) basis, we will continue to focus on its retention rate. Taobao and Tmall Group adjusted EBITDA increased by 8% to RMB41.7 billion, primarily due to the increase in revenue from customer management service, partly offset by the increase in investments in user experience and technology.

Revenue from AIDC grew 22% to RMB33.6 billion this quarter, primarily driven by strong performance in cross-border businesses. AIDC’s adjusted EBITDA was a loss of RMB3.6 billion compared to a loss of RMB4.1 billion in the same quarter last year. AIDC continued to focus on enhancing operating and investment efficiency, leading to narrow the losses this quarter. In particular, the unit economics of the AliExpress’s Choice business improved on a sequential basis. AIDC has a diverse geographical presence. Moving forward, we will continue to diversify and enrich our product offerings by engaging local merchants and partners through different business models in different markets and navigate in the dynamic macro and the geopolitical environment.

Revenue from Cloud Intelligence Group grew 18% and overall revenue excluding Alibaba consolidated subsidiaries increased by 17%, primarily driven by an even faster public cloud revenue growth. Notably, AI-related product revenue maintained triple-digit year-over-year growth for the seventh consecutive quarter. And our AI products are seeing broader adoption across a wide range of industry verticals, including internet, retail, manufacturing, and the media, with a growth in focus on value-added applications. In April, we launched Qwen3 series, a new generation of hybrid reasoning models that combine the capabilities of fast, simple responses and deeper chain of thought reasoning into a single model. The Qwen3 series covers a full range of model sizes, including two MOE models and the six dense models.

All Qwen3 models have been fully open source on Model Scope, Hugging Face, and other platforms. We believe the full open sourcing of Qwen3 will drive innovation and the new applications by developers, start-ups and enterprises. Clouds adjusted EBITDA increased by 69% year-over-year, primarily due to faster growth of public cloud products and improving operating efficiency, partly offset by increasing investments in customer growth and technology innovation. We will continue to invest in anticipation of customer growth and technology innovation, including AI products and services, to increase cloud adoption for AI and maintain our market leadership. The adjusted EBITDA margin decreased quarter-over-quarter by 1.9 percentage points. We increased our investments in technology and product development to capture the surge in AI demand.

And also as we ramp up infrastructure investments to growing demand, higher depreciation and amortization expenses also weighted on margins. Revenue from China decreased by 12% and its adjusted EBITDA increased by 55%. This is the result of the increasing integration of logistic offerings into our e-commerce businesses. Revenue from local service groups grew 10%, driven by the combined order growth of both AMAP and Ele.me, as well as revenue growth from marketing services, while its adjusted EBITDA loss continued to narrow year-over-year as scale increased and unit economics improved due to operating efficiency. Our adjusted EBITDA loss increased quarter-over-quarter mainly due to seasonal effects, including high investments during Chinese New Year holiday.

Revenue from digital media and entertainment group grew 12% to RMB5.6 billion, primarily driven by the strong performance of the movie and entertainment businesses and the increase in Youku’s advertising revenue. Adjusted EBITDA of DME turned positive, primarily driven by Youku’s profitability. Revenue from all other segments increased by 5%, primarily due to the increase in revenue from Freshippo and Alibaba Health, partly offset by the decrease in revenue from Sun Art due to its sale and deconsolidation in February 2025, while adjusted EBITDA loss was a loss of RMB2.5 billion. The all other segment comprises a set of innovative businesses, including several strategic AI-driven technology infrastructure and businesses. While we continue to drive efficiency improvements across business lines, we are also investing in AI opportunities to maintain our competitive edge and to drive future growth.

In closing, during this quarter, we are making significant strides in enhancing the competitiveness of our e-commerce and cloud businesses. Our Taobao and Tmall Group delivered solid growth, reflecting the improvement in monetization efficiency. In cloud, revenue growth continues to accelerate sequentially. As we are seeing surging demand and ramping up of our capacity, we will onboard more customers and accelerate our business growth. We are also focusing on improving the efficiency of all segments to establish a clear path to profitability with DME turned profitable this quarter. We strengthened our balance sheet by monetizing non-core assets in the financial investments. These actions enable us to focus more on our core businesses and provide greater flexibility to invest decisively for growth and to return value to shareholders.

We are executing with speed and precision to capture the substantial opportunities I have in the AI era. Thank you. That’s the end of our prepared remarks. We can open up for Q&A.

A – Lydia Liu: Hi everyone. For today’s call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. Please note that the translation is for convenience purposes only. In the case of any discrepancy, our management statement in the original language will prevail. If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within one week after the end of the meeting. [Foreign Language] Operator, please start Q&A session. Thank you.

Operator: Thank you [Operator Instructions] To give more people the opportunity to ask questions, please keep yourself to not more than one question at a time. Your first question comes from Gary Yu with Morgan Stanley. Please go ahead.

Gary Yu: [Foreign Language] Thank you. And I have two questions regarding the cloud. The first is that, we’ve seen that it’s been difficult in the past for AI to be — for cloud to be monetized in the AI era. I recall management having said that in a previous quarter’s earnings call. And more than 90% of tokens were serving together in the cloud. So first, over the past several months, I’m wondering in the course of talking with your customers, if you’ve seen any big change on that front. And in the past — starting with the enterprises that weren’t that willing to go on to the cloud, because AI is now providing a big push to get on to the cloud. So I’m wondering if you’re starting to see that kind of uptake. And if you have, I’m wondering what kinds of companies it is and in what industries and if you could share with us some color on that, as well as provide some guidance for the FY 2026 fiscal year in terms of cloud service revenues.

That was my first question. The second question has to do with AI applications, in particular in the e-commerce area. Looking ahead, say, two to three years down the road, where do we expect to be at, because we are one of the earlier companies in the e-commerce space that’s beginning to apply AI in our e-commerce offering. So if you could provide some kind of outlook as for how much market share you expect to be able to gain as a result of that new AI deployment? And at the same time, in terms of monetization, will these new AI tools provide further space for expansion? Thank you.

Eddie Wu: [Foreign Language] [interpreted] Thank you. This is Eddie. So I will take this question. The first question. So in the quarter that just concluded, our cloud revenue grew by 18% year-over-year. And I think that is primarily benefited from and being driven by demand related to AI. And in terms of putting a number on that, if we look at AI driven demand in the cloud space, it’s already grown by triple digits for seven consecutive quarters now. And behind that, that means that there’s a lot of new companies that are starting to make use of AI services. So as we said before, a lot of the companies that started out initially adopting AI were ones in the Internet space or Internet finance, education, autonomous driving, those early adopter kinds of sectors.

But what we’re seeing now is a lot of new scenarios and a lot of newer kinds of companies in other sectors that are taking up AI services. So a lot of these companies might have — before they adopted AI, they might have been able to access these services offline with IDC or internally with their own server rooms in their own company, but because — precisely because they’re now adopting AI, they have powerful impetus to migrate onto the cloud. And so, as you’ve seen, we’ve given you some examples, for example, in the animal farming or animal husbandry sector, as well as in the manufacturing sector, as well as the Yiwu small commodity city and companies there. And there are a lot of these kinds of companies that originally were handling these workloads offline.

So when it comes time for them to implement AI and adopt AI applications, they’re migrating these services onto the cloud. And when they migrate onto the cloud, they will probably have some simple applications where they can do API calls. But when it comes to accessing their company internal proprietary data or proprietary internal processes within the enterprise and integrating with those, then a lot of the time what they’re going to be doing is post training on the basis of open source model in order to meet those enterprise specific demands. So we certainly are seeing a lot of this kind of demand through Bailian or through leasing GPU compute on Alibaba Cloud and making use of IS layer services and other services, they’re satisfying all of those different demand.

So that’s my response to your first question. And then just to add to that previous answer, in terms of the trends that we’re seeing across these different sectors with more and more companies adopting cloud based AI services, these are companies that had been using a traditional CPU based compute that are now turning to AI and AI compute. So given that, what we see for the next few quarters to come is a growth track, significant growth track for revenues in Alibaba Cloud and we have quite strong confidence and conviction in that.

Jiang Fan: [Foreign Language] [interpreted] Thank you. This is Jiang Fan, and I will take the second part of the question regarding the application of AI in the e-commerce space. So, as we’ve said several times, there’s huge potential for applying AI in e-commerce. Certainly in the present phase, one thing that we’re paying a lot of attention to is leveraging AI to further enhance the user experience. And as you know, we have an opportunity to reshape the consumer experience with AI, for example, in terms of search recommendations and advertising, where we are operating these systems based on traditional algorithms. And I think that this is a high priority for us in the near term. We’re already making many attempts on this front and are already starting to see results.

It has the potential to enhance, of course, the search experience as well as to provide more precise recommendations, as well as to enhance advertising efficiency. So we’re seeing AI already making a significant difference in those different ways. Secondly, we’re also thinking about how we can leverage AI to enhance working efficiency internally for our employees and beyond our employees also more generally for merchants. Because, as you know, when it comes to e-commerce apart from the platform, the other big player in the system is merchants. We also trust that with the deeper adoption of AI, we will be able to further elevate efficiency across our entire ecosystem. And then the third point is that, we believe in the longer term that AI can create new forms of interaction and engagement.

And we’re working on innovation based forms of interaction and engagement for the future. We’re piloting these things actively and we believe that AI will play a critical role in terms of driving long term enhancement in the user experience on Taobao and equally in terms of driving enhancement in the efficiency of commerce.

Lydia Liu: Next question please.

Operator: Thank you. Your next question comes from Alex Yao with JPMorgan. Please go ahead.

Alex Yao: [Foreign Language] Thank you. So I have a couple of questions regarding monetization on Taobao and Tmall. The first is, what is the overall direction that we’re moving in and what is the objective, the goal in terms of monetization? We know that starting from last year in April, you launched Quanzhantui, [QZT] (ph) and then in September, you started implementing the 0.6% software service fee on Taobao, where previously it had been 0%, you weren’t charging anything. So over the past two or three quarters, we’ve seen these different monetization initiatives progressively rolled out and making a difference that we can see in the financial statements. But looking more to the mid to long term, when you think about monetization, what are the factors that you are considering?

We know that over the last two to three years, the monetization rate has been relatively stable, perhaps with a slight decline, whereas the monetization rates of the competitors have all risen by quite a large margin. So in particular Taobao, we know has one of the lowest monetization rates among any of the platforms across the industry. So when we’re thinking about take rate and thinking about that gap with the competitors, are we thinking about merchants and their ROI? Are we thinking about our own ROI and how are you considering that and where is the balance? And then the second follow on question to that is that, we started implementing these monetization initiatives last year, QZT as well as the commission on Taobao. So that’s all been in the course of one year.

And is that it? Or is there going to be more to this sort of a multi-year initiative, a multiyear cycle where we’re going to continue progressively to roll out more monetization measures? Thank you.

Eddie Wu: [Foreign Language] [interpreted] Thank you. So I’ll take the question regarding the monetization rate and how we’re working to continue to enhance monetization. The first thing I would say is that, our foremost business objective is to stabilize market share in the mid to long term. And on that basis, our monetization rate essentially reflects the size of our market share. Over the past year, we have indeed rolled out various new products including QZT among others. And what that did is, allowed us to take some of the traditional advertising products that we weren’t able very well to monetize with respect to certain merchants and make a big improvement on that score. For example, for white label merchants, these are merchants who in the past represented a much lower level of monetization and that’s been significantly improved.

So I think in the next few quarters to come, we will certainly continue to see this kind of a trend going forward. And of course, we’ve also begun charging commission on payments. So — and that has made a difference in this present phase in terms of monetization. But looking more to the long term, on the one hand we want to enhance the user experience and enhance our business model on that basis. And that will result in the optimization of monetization rate. We want to see growth in our GMV and stability in our market share. And on that basis, we will certainly go about implementing more different kinds of monetization products and make different attempts, pilot different monetization models. I already spoke earlier about some of the attempts we’re making already around AI and I think there’s certainly potential there.

So on that basis, we will continue to innovate and to enhance our monetization rate and to create more possibilities for higher levels of monetization.

Lydia Liu: Operator, next question please.

Operator: Thank you. Your next question comes from Ronald Keung with Goldman Sachs. Please go ahead.

Ronald Keung: [Foreign Language] [interpreted] Thank you. So I have a question regarding Alibaba Cloud’s growth rate, because I recall that in the past quarter, it had been said that starting from spring festival onward, we saw a surge in demand for inference workloads. So I’m wondering if we look at February, March compared to January, whether you saw that continuing rapid acceleration and what kind of growth we’re talking about on a month over month basis. For the quarter as a whole, I think it might have been 18%, but that would be the average for January, February and March as a whole. And then also, when we look at these models within the Qwen family, there are some smaller models as well as some larger models. I’m wondering how we would evaluate these different AI models, the larger ones, the smaller ones, because we’re running them on the cloud.

So I’d like to hear about how — what your view is in terms of growth in demand for inference compute power with respect to these models given that some of them are very small models. Thank you.

Eddie Wu: [Foreign Language] [interpreted] Thanks. So this is Eddie. I will take that question. And your first question had to do with the pace of cloud revenue growth in the various months over the quarter. During that first quarter in the period January, February, March, there was the spring festival, the Chinese New Year. So I don’t think that period of time is really very representative of the overall pace of developments. But I think if you look at the quarter after the spring festival, then you certainly do see a lot of new customers, a lot of new demand arising and a lot of that new demand is for inference workloads or for workloads that are driven by inference based scenarios. So a lot of the large scale adoption, I think is what you’re going to see in the next few months to come.

So not just in February and March after the spring festival, but through April and May as well. And I think the surge that you’re seeing in demand growth is representative up and closer to what you can expect to see as the regular pace of growth going forward. So because there were some disruptions in supply chains in January, February, March as well as the seasonal impact of the spring festival in that time. So I think you need to look beyond that to see what the regular pattern is going forward. Looking at customer demand, as I said, a lot of demand is driven by inference that continues to grow steadily. Additionally, you’d also asked a separate question about the effect of the different AI models, different sizes of models on the cloud business.

So, yes, you’re absolutely right. Our Q1 open source models have a lot of edge model applications and there are also applications that are suitable — more suitable to be run on the cloud. There’s a lot of different applications. But in particular, when we talk about the smaller models of around 3 billion parameters or even smaller, these kinds of models are running on local devices, for example, on mobile phones of customers or it could be in toys or it could be on different kinds of smart devices. And so, they’re not going to have much of an impact in terms of driving cloud business, but because those same customers are using the Qwen models, what that means is often they’re also going to require additional usage of cloud based compute resources as well.

So it’s not just an edge model that can achieve that kind of service requirement. And then you have the larger model, say 32 billion parameters or higher. And although, yes, you can run those on a consumer grade video processing card, nonetheless, to really be able to run big models and run them well, run applications well, you need to put them in the cloud. So, that way the kind of elasticity that can scale to meet the requisite workloads, and of course, you get a better price as well for the compute. So I think that the edge models to a certain extent are complementary with our cloud based large parameter models. They work well together as a business model. And I think that the use of those smaller models also contributes to higher reliance by those customers on the relevant products of Alibaba Cloud.

Thank you.

Lydia Liu: Next question please.

Operator: Thank you. Your next question comes from Kenneth Fong with UBS. Please go ahead.

Kenneth Fong: Hi. Good evening, management, and thanks for taking my question. I have a question in our recent announcement in the [Insta Shopping] (ph) investment that we said we will invest RMB10 billion with Ele.me to grow the pre-commerce business. Can management share some plans on, let’s say, area of investment, why we do it now? And how would it impact the profitability for local service, especially in light of the intensified competition in the food delivery business recently? Thank you.

Jiang Fan: [Foreign Language] [interpreted] Thank you. This is Jiang Fan. So I will take this question. Instant commerce is not a new racetrack for Alibaba. This isn’t day one for us so to speak. In this sector, we’ve been building up our capabilities in this marketplace for many, many years now. We invested, of course, in [indiscernible] and developed Freshippo as well. So these were all putting pieces in place in that instant commerce space. So I think it’s entirely natural for us to continue to develop and grow in this market. Of course, there have been many new large and new developments in this market recently as well. So I think that these are some of the reasons that we’re positioned to do very well in the market and we have some strong advantages.

One thing to note about this instant retail market is that, it’s a huge market because basically every person in China, every consumer in China will have demands for instant commerce. Today, it could be a market of some say 500 million to 600 million consumers going forward that could easily be 1 billion consumers. It’s also a market that’s growing and developing extremely rapidly and it’s important to know that Taobao has extremely broad user base already in place. So it’s entirely natural for us to develop in this direction and to boost up our instant commerce offerings as a new service or a new category and to integrate it into the Taobao platform. Secondly, in terms of merchants in the market, we have extremely mature and experienced merchant base already in place, because, as I said, [indiscernible] has been operating in this market for many years now and we also have an extremely robust and mature logistics system to support instant commerce as well.

So this all makes it possible for us to provide an excellent service experience for instant commerce on Taobao. So we’re building on a very strong base with very strong advantages. And leveraging those advantages, I expect that we can move forward very quickly in delivering an excellent service experience for instant commerce, while at the same time ensuring an excellent balance in terms of business efficiency. And then I can expand on that further to say that over the past couple of weeks we’ve been making some attempts with the Taobao Shango, Taobao instant commerce or quick commerce offering. And the results of that trial have vastly exceeded our original expectation. This is — we’re talking about the growth in scale as well as efficiency of operations in both of those dimensions.

Results were better than we had expected. And I think that in the longer term, continuing to develop this will result in many different benefits and advantages for Taobao. First of all, for Taobao as an app, we’re an e-commerce app and instant commerce is a high frequency consumption scenario. So by developing more instant commerce on the Taobao app, we can drive higher levels of user engagement with the Taobao app and that’s definitely going to be a good thing for Taobao in the long term. Secondly, we see new possibilities for combining nationwide e-commerce with local or hyper local e-commerce. And we hope that in the next period of time to come, we can develop those synergies rapidly by investing aggressively in that integration. So we aim to convert more Taobao app users into users of the instant commerce offering on Taobao.

And then in the long term, we believe that by driving the growth of this new business format on Taobao, we can upgrade our business model further and we can drive more engagement with our app. So in the short term, the focus of our investment will be on developing new users as I said, and we see huge potential for the Taobao app to grow its users and to convert existing users into instant commerce users. So in the short term, we will be investing aggressively in this business.

Lydia Liu: Next question please.

Operator: Thank you. Your next question comes from Joyce Ju with Bank of America. Please go ahead.

Joyce Ju: [Foreign Language] [interpreted] Thanks management for taking my question. So as we know recently, this year’s [618] (ph) campaign has begun. So first of all, I’d like to know what different strategies we can expect to see this year around the 618 promotion in terms of events or in terms of the pace of the presales period and so on? And then secondly, I’m wondering how the feedback is on the merchant side and on the user side. And then just to follow on from that previous question, before mine, I’m wondering if there’s any connection that we can expect to see between instant commerce or rapid commerce and this year’s 618 campaign in terms of synergies and if there might be some nice happy surprises waiting for us in the instant commerce space in connection with 618.

Jiang Fan: [Foreign Language] [interpreted] Okay. Thank you. This is Jiang Fan, and I will take the question about the strategic direction for instant commerce starting there first. I think in the short term, our priority, as I was just saying, is to achieve very rapid conversion, to convert more existing Taobao users into instant commerce users on Taobao and to position Taobao with that kind of mind share amongst consumers. We’re already seeing good results, as I said, from our initial forays and when users first make use of instant commerce, then they continue to come back with high engagement and high frequency. So we’re seeing higher levels of engagement from those consumers. And then a major goal for us in the present phase is to get that — to get the instant commerce business right.

I think in the longer term, there are many possibilities to achieve synergy between instant commerce, hyper local and nationwide-commerce. Okay, coming to the 618 campaign, the other part of your question, I think that this is just getting started. In fact, I think the campaign doesn’t actually start until officially until tomorrow. So certainly, you can expect to see some changes, including around marketing and including around the pacing of the campaign. These changes are aimed at better orienting and gearing the campaign to the new competitive environment and of course, also at offering consumers a good experience, good prices and good services. But because the campaign hasn’t actually started yet, I’m not in a position to share with you any of those details.

But I will look forward on giving you a fuller report on the campaign during our next quarterly earnings call.

Lydia Liu: Due to time limit, we’ll now take the last question.

Operator: Thank you. Your next question comes from Alicia Yap with Citigroup. Please go ahead.

Alicia Yap: Hi, good evening. Thanks for taking my questions. I wanted to follow-up on the CMR this quarter. So, I wanted to management to elaborate a little bit the strong performance this quarter. How much of that is driven by the GMV versus the 0.6% fee and the Quanzhantui improvement. And also wanted to follow-up how much more levers that this improvement on Quanzhantui could further drive the monetization improvement in this upcoming fiscal 2026? And then also follow-up, will the step up investment in the food delivery business to put some pressure on the TTG EBITDA in the coming quarters? Thank you.

Toby Xu: Thank you. So this is Toby. Let me start by answering your question about CMR. And as I said earlier, there were really two major drivers of CMR growth in this quarter. The first was the software service fee, the 0.6% charge that we began charging starting from September of last year. And then the second factor has been the growing penetration of Quanzhantui, QZT and its penetration in terms of advertising revenues. So in the new fiscal year, looking ahead, I think that both of those factors will continue to exist and to play a role. Starting first off with the software service fee, there will continue to be a period of time going forward because last year we started from a very low base. So we’ll continue to be rolling out and charging that software service fee, first point.

Secondly, in the earliest period of implementing the software service fee, we had various merchant friendly measures rebates to certain merchants. And in the coming fiscal year or in 2025, we will slowly start to roll back some of those rebates. So in the New Year then the software service fee will continue to be a positive factor for our — the further growth of monetization. Then the second point regarding QZT, we’ll continue to drive penetration of QZT and in fact progress to date is entirely in line with our expectations. The penetration rate continues to grow and that is also having a positive driving effect on monetization rates. Of course, in that process of driving penetration of QZT and Jiang Fan also mentioned this earlier, but the most important thing is growth in terms of new merchants, getting new merchants to adopt QZT.

So that includes a lot of small and medium sized merchants, who have now started to make use of our advertising products as well as white label merchants and so on. So from a certain perspective, this is incremental budget and incremental new advertising revenue. So this increase will be positive for driving growth in monetization in the new fiscal year. Thank you. And then turning to your second question concerning EBITDA. As Jiang Fan already said, our primary goal that we’re focused on for the medium term is stabilizing our overall market share. And as part of that process, we are making a lot of investments. That includes investments in user experience, as well as in price competitive products. And as we’ve said, we still very much remain in an investment stage.

This is an investment period and certainly that will have an impact on EBITDA in line with competitive developments. You could expect to see fluctuation in EBITDA on a quarterly basis. So I think that’s what you can expect to see in — that’s what you’ve already seen over the past several quarters. So starting from this quarter, obviously, we’re also making new investments in quick commerce or instant commerce and that also will have an impact on EBITDA. On the one hand, these investments will result in the acquisition of new users, new user growth as well as increase in frequency and in stickiness. So in a certain sense, you can see this as supplanting some of our original investments in market growth. So of course, we do take that into consideration.

But overall, we would expect that EBITDA — TTG’s EBITDA overall in the next few quarters to come will experience some fluctuation in line with competitive dynamics.

Lydia Liu: Thank you, everyone, for joining us today. We appreciate your time. We will see you next quarter.

Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.