Alibaba FY 2Q17 Earnings Call Notes

Alibaba Group Holding (BABA) Q2 2017 Results

Daniel Yong Zhang

Consumer behavior is evolving dramatically

“Consumer behavior is evolving dramatically as the population getting younger and more proactive in upgrading their lifestyles. At the same time, merchant increasing dramatically with latest technologies inspires them to embrace new ways to improve business efficiency and serve customers. We believe the convergence of these factors will bring about a significant disruption of the existing commercial landscape and emergence of a new retail model.”

Not just about growing online in isolation

“The most important opportunity on horizon is helping traditional business to upgrade into a new retail model and not continuing to grow online business in isolation. Online and offline will be a single seamless experience, not just in consumer interaction, but also in the entire business operation and execution. We want to improve efficiencies across the entire value chain of product design, manufacturing, distribution and the services.”

Joseph C. Tsai – Alibaba Group Holding Ltd.

We in a process with the SEC

I’ll address the second question. As you know, we’ve been in the process of – with the SEC, they’ve sent us a letter inquiring as to a number of issues. On this, we’ve been very transparent with you guys about what’s going on. We disclosed all the issues involved and the fact that we’re voluntarily cooperating with the SEC in their inquiry. We don’t think there’s any factual basis to the New York Post story. So on that score, when we have real news we will update everyone.

Alibaba (BABA) Jack Ma’s Annual Shareholder Letter

Alibaba (BABA) Chairman Jack Ma emphasized the evolution of Alibaba’s strength as a mobile company

“In the fiscal year prior to our IPO in September 2014, mobile revenue accounted for a single-digit percentage of total revenue from our China retail marketplaces; in our most recent quarter, mobile contributed more than 75% of total revenue. Our mobile monetization rate now exceeds that of the desktop, making Alibaba Group the largest mobile commerce company in the world.”

Their cloud platform hosts more than 1/3 of all websites in China

“Supported by the twin pillars of cloud computing and Big Data, our goal is to empower merchants with the ability to transform and upgrade their businesses for the future. Eight years ago, we began to strategically invest in Alibaba Cloud in order to fulfill this mission. Today, Alibaba Cloud hosts 35% of total websites in China while also providing clients with cloud computing and big data services. Alibaba Cloud is a company with cutting-edge technology and an extensive range of products and now ranks among the world’s top three cloud computing companies.”

Similar to IBM’s outlook, Jack believes big data is a natural resource which can be mined

“The widespread adoption of cloud computing is important, yet it is just a piece of a larger picture that we see coming into focus.  Throughout history, technological disruptions have followed similar trajectories: 20 years of technological disruption followed by 30 years of further rapid change as new technologies are applied throughout society. The internet revolution is a historical inflection point, much like when electricity was introduced, and it may have an even greater impact. Over the next 30 years, with computing power as the new “technology breakthrough” and data as the new “natural resource,” the landscape of retail, financial services, manufacturing and entertainment will be transformed.”

The Alibaba platform has particular strength in the millennial demographic

“Alibaba is shaping and guiding Chinese consumer behavior and trends. We are also helping consumers enjoy greater convenience and a wider range of options in the ongoing consumption upgrade. We are popular among millennials, who view us as an inseparable part of their lives. More than 75% of our users are 35 years old or younger.”




Miscellaneous Earnings Call Notes 5.5.16

Colgate-Palmolive (CL) Ian M. Cook on Q1 2016 Results

Sentiment not all doom and gloom in China

“I have to say, having just returned from Latin America and India and China, the consumer that you see on the ground, the behavior that you see on the ground, is really quite vibrant in India; and in China, is not doom and gloom, some concerns, but not the headlines that we read every day. Conversely, in Russia and Brazil, the consumer sentiment, as we have said before, is more negative.”

Flextronics’s (FLEX) CEO Mike McNamara on Q4 2016 Results

The environment is very slow, very weak but somewhat stable

” As far as the macro, we’ve been mentioning that the macro’s been soft, particularly that we see it in the industrials, for quite some period of time. We’ve probably been talking about it for at least three quarters. We continue to see the same kind of softness. We consider it to be a reasonably weak market and we don’t see the market getting stronger, but we see it somewhat stable. We don’t see a significant downside. We just see it very slow and very weak. ”

Cummins (CMI) N. Thomas Linebarger on Q1 2016

We do not see obvious signs of a turnaround in the high power segment

“The truth is we don’t know if there’s more downside to come. We do not see obvious signs of turnaround today.”

China is a market where some things are improving

“it’s partially because we have just seen China promise better and beat the market, not be that strong the rest of the year, a couple of years in a row, so we want to be prudent and watch and see a couple of quarters before we really call an upside and also just fundamentals don’t look that much different. So, I think that’s the place where maybe if things are improving, as some people suggest, we could have some upside in JV income there. ”

Etsy’s (ETSY) CEO Chad Dickerson on Q1 2016 Results

GMS vs Revenue

“Let’s start with GMS. During the first quarter of 2016, the Etsy marketplace generated $629.9 million in GMS, up more than 18%. Growth in GMS is driven by growth in active sellers and active buyers…Turning to revenue, during the first quarter, total revenue was $81.8 million, up 40%, driven by growth in seller services revenue and, to a lesser extent, growth in marketplace revenue.”

Match Group’s (MTCH) CEO Greg Blatt on Q1 2016 Results

Tinder MAU continues to grow, but slower in North America

“In terms of Tinder MAU, it continues to grow well. Again, as I’ve said, it’s slower growth in North America than in the rest of the world, which is natural just given the rollout. Volume of new signups continues to be very strong, and we’re showing improvement in reactivations and retention, and those things collectively drive the MAU growth, but it continues to be solid”

Ares Capital’s (ARCC) CEO Kipp deVeer on Q1 2016 Results

We believe this recovery is largely technical

“We are happy to see the fear in the market that was so prevalent in the fourth quarter and the early first quarter subsiding a bit, which eases concerns that we are headed for more significant market correction in the near term. With that being said we believe this recovery is largely technical and without a meaningful change in fundamentals, our attitude and our approach is generally unchanged. We remain cautious but confident that we can find select transactions with strong relative value attributes, amidst the broad opportunities set that our team is able to access.”

Seeing dramatic declines in banks involvement in leverage finance

“the fourth quarter and in even the first quarter you seeing a really dramatic declines in the bank’s involvement in the leverage finance markets in particular, in mid-market. So there is just less and less activity there. I’d say there has also been lack of any apatite on the behalf of investors for dividend or recapitalization deals so it’s really been a focus for 6 months on new money deals and the issue around new money deals is, I think an equity issue on the LBO [ph] side, multiples have gotten very high for private equity firms and as they look around it, the B quality and below companies, you really want to pay less and/or see more growth, and they haven’t had the ability to pay less and/or see more growth.”

Alibaba Group Holding (BABA) Daniel Yong Zhang on Q4 2016 Results

Chung Tsai – Executive Vice Chairman

Chinese consumers will propel China’s shift to a consumption driven economy

“Chinese consumers have a healthy balance sheet and ability to spend. This will propel China’s shift from an export and investment-led economy to a consumption-driven economy. Alibaba rides the secular tide as we enable more products and services, whether they are domestic or import, to reach the consumer.”

Jacobs Engineering Group (JEC) Steven J. Demetriou

Mining companies are facing most challenging commodity recession of our generation

“Our mining clients are facing one of the most challenging commodity recessions of our generation. And similar to the oil and gas situation, it’s all about preserving capital, reducing spending, and deferring projects for as long as possible. We believe we’ve hit a bottom in mining and that stabilized the business, especially in Asia and the Americas, with a successful focus on sustaining capital programs.”

Alibaba FY 3Q16 Earnings Call Notes

Alibaba Group Holding (BABA) Daniel Yong Zhang on Q3 2016 Results

We see increased consumption in the Chinese economy from urban areas and younger generations

“We believe Alibaba has a significant opportunity that will be realized by the growth of the Chinese consumption economy. Specifically, we see increased consumption from the two key segments: number one, an expanding middle-class, particularly those living in urban areas who are undergoing lifestyle change and upgrading to higher-quality products and services; number two, young people who have strong appetite for spending but little interest in saving compared to their parents.”

Rural development will be a key to our success

“The future of our retail businesses will be driven by three key growth engines. Number one, rural development. Approximately half of China’s population live in rural areas. Our platform can reach rural villages very efficiently. So far, we have expanded our rural service centers to 12,000 villages. Our strategy is to sell goods from urban areas to village, as well as help farmers sell farmer products to people living in the cities.”

When times are not good advertisers will spend more on our platform because it’s more effective

“And as you said, today is a tough time in terms of macroeconomy and it’s not that good. And the brands are usually more cautious about spending marketing dollar. And that’s also the good time for us because when people are cautious, people care more about the effectiveness of the marketing dollar usage. So that’s why we can – they continue to spend more dollar on our platform because that’s one of the few platforms they can find to get the close-looped consumer track and to consumer interaction. Thank you.”

Chung Tsai – Executive Vice Chairman

The Chinese economy is undergoing a structural shift from high growth to moderate growth, investment to consumption and manufacturing to service

“I wanted to give you a few thoughts on the macroeconomic conditions in China since I know it is something that you are watching very closely.

The Chinese economy is going through a structural shift from high growth to more moderate but more sustainable growth. China is still one of the fastest growing economies in the world and we have no reason to think anything different in the foreseeable future. We are witnessing two significant trends consistent with Chinese government reforms that provide the secular drivers to Alibaba’s business.

First, China is moving from an investment-driven economy to a consumption-driven economy. Consumption-driven growth is clearly more sustainable and this plays to the strength of Alibaba with more than 400 million Chinese consumers shopping on our platforms.

Second, China is moving from an industrial manufacturing economy to a service economy. While the manufacturing sector lost jobs in 2014, the service sector added 17 million jobs. Job growth is taking place and it is driven by the services economy. People now have more employment opportunities in technology, commerce, logistics, entertainment, leisure, travel and finance. This is good for Alibaba because our platforms enable millions of small businesses and service providers to capture the growth of this new economy.”

Retail sales are going against the grain of a decelerating economy

“Chinese retail sales grew 10.7% in 2015. And it’s actually a higher growth rate than the prior year. So retail sales is going against the grain of what many consider to be a decelerating economy. And that’s because the shift of the Chinese economy is going from investment-driven to consumption-driven. So consumption, as a shared GDP, is becoming higher. So we benefit from that.”

Alibaba FY 2Q16 Earnings Call Notes

Alibaba Group Holding’s (BABA) CEO Daniel Zhang on Q2 2016 Results

Added service to 4k rural villages

“we added 4,000 villages in this quarter and actually today we are – I think China is very big and we are still in early stage, but we believe the most important thing is to create the value for the farmers. So today we are focused on to help them to buy from our online marketplace to improve their lifestyle. ”

Online shopping accounts for 10% of retail in China

“For the first question, I would say today, if you look at the landscape in China, online shopping only accounts for 10% of the total retail in China. So I would say that is a huge potential”

The Chinese economy is under penetrated in terms of consumption

“we just don’t think that the current macroeconomic situation will fundamentally affect consumption patterns. You have a Chinese economy that is only 37% penetrated in terms of consumption relative to more developed countries, you’re looking at – over 60% of their economy is consumption. So there is definitely a secular tailwind driving consumption growth.”

The Chinese consumer is very liquid and has lots of savings

“When you look at the individual Chinese consumer, they’re very liquid, they have a lot of liquid cash deposits in their bank accounts. Over the last several years, wage growth has been growing over 10% year-on-year and there is a high savings rate. So people have lots of savings, lots of liquidity and we expect that this is not, so a temporary setback in the macro economy is not going to affect their consumption pattern and in a fundamental way.”

Alibaba FY 1Q16 Earnings Call Notes

Part of everyday life of the Chinese consumer

“Our growth was driven not only by an increase in the number of consumers coming to our marketplaces to shop, but also the frequency and breadth of their consumption activity across more and more product categories. This reflects our ability to deliver excellent customer experience and demonstrates that our platform is truly a part of everyday life of the Chinese consumer. We also experienced robust growth in mobile and encouraging progress in mobile monetization.”

Next day delivery in 41 cities

“Consumers now enjoy next-day delivery services in 41 cities, including Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou, and this will be extended to 50 cities by the end of this year. We have also launched same-day delivery of groceries, initially starting with Beijing and Shanghai, which has been very successful.”

Market leader in cloud in China

“Next, I’d like to discuss our cloud computing business, which had a triple-digit growth in the June quarter. We are the number one market leader in cloud computing services in China, and we are beginning to reap the results of years of investment in this business.”

Revenue: 20B RMB

“Year-on-year, our revenue grew 28% to RMB20.2 billion, primarily driven by increase in new active buyers. The lower year-on-year revenue growth was due to three factors: number one, the suspension of the online lottery business in late February 2015; a decrease in revenue from the SME loan business that were transferred to Ant Financial; lower pricing for ads on Juhuasuan, a change we made in April to acquire high quality merchants.”

No insights on the Chinese economy

“We closely monitor the Chinese economy and consumer behaviors. But as we always said, we manage our business and we execute our growth strategy for the long-term, and short-term movement won’t affect our long-term strategy.”