Earnings Transcript for BABA - Q2 Fiscal Year 2024

Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group’s September Quarter 2023 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Rob Lin: Good day, everyone and welcome to Alibaba Group’s September quarter 2023 results conference call. With us are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Trudy Dai, CEO of Taobao Tmall Group; and Jiang Fan, the CEO of Alibaba International Digital Commerce. This call is also being webcast on the IR 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 discussion may contain forward-looking statements, including without limitation statements about our new organization and governance structure, strategies and business plans as well as our belief and expectations about our business prospects such as future growth of our business, revenue and return on investments. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the U.S. SEC or announced on the website of the Hong Kong Stock Exchange. Any forward-looking statements that we make on this call are based on assumptions as of today and we do not undertake any obligation to update these statements, except as required under applicable law. Please note that certain some financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, non-GAAP net income, non-GAAP diluted earnings per share or ADS and free cash flow are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. Unless otherwise stated, growth rates of all stated metrics mentioned during this call refer to year-over-year growth versus the same quarter last year. With that, I will now turn to Joe.

Joe Tsai: Thank you, Rob. Hello, ladies and gentlemen. Thank you for joining our earnings call for the September quarter. Although this is the first communication in my new role as Chairman of the company, I am pleased to connect with some orphans in the investment community. This is not your normal earnings report for the quarter. This is the first time we will hear directly from our Group CEO, Eddie Wu, on his strategic thinking. He will lay out our plan for growing the business as well as our strategic priorities for execution and investment. We are pleased with this quarter’s results, which show that our strategic focus on user-centric value proposition and technology innovation are driving improvements across our businesses. In addition, while global markets remain volatile, we are entering a phase of a more stable operating environment in China. In terms of asset reorganization to highlight the value of our businesses, here are a few updates. First, we announced in our earnings release that Alibaba will not pursue a full spin-off of Cloud Intelligence Group in light of uncertainties created by recent U.S. export restrictions on advanced computing chips. Instead, we will focus on developing a sustainable growth model based on emerging AI-driven demand for networked and highly scaled cloud computing services. Second, in August, Cainiao Smart Logistics filed its prospectus and application for an IPO on the Hong Kong Stock Exchange. While the success of an IPO transaction is subject to market conditions and relevant approvals, we are confident of the business fundamentals of our logistics unit. Other areas of reorganization and focus are going well across our businesses as evidenced by strong revenue growth for AIDC and Cainiao and narrowing losses in local services and digital media entertainment. As I travel around to speak with investors, many have asked me about the relationship between the group company and our business units in a post-reorganized world. I want to make two points here. First, Alibaba Group will continue to support our operating business with the group’s strong balance sheet. We ended the quarter with $63 billion in net cash and we generated $27 billion in free cash flow in the last 12 months. Alibaba has never been in a better financial position to invest for the growth of our businesses. Second, while each business is expected to operate independently and interact with each other based on arm’s length market principles, the group will use our resources to ensure long-term strategic synergies can be realized. We have businesses that are very symbiotic with each other and their relationships are highly strategic. For example, Cainiao supports the logistics needs of our e-commerce businesses and Alibaba Cloud provides superior technology capabilities to all of our own businesses. Eddie and my job is to balance the short-term goals of each business unit against the opportunities for long-term value creation. Now, let me say a few words about capital management. We are focused on unlocking value to improve shareholder returns. We are looking at four areas in capital management. Number one, enhanced return on invested capital of our operating businesses. We have undertaken a review of our operating businesses and ways to enhance ROIC, return on invested capital. In the fiscal year ended March ‘23, our ROIC was in the single-digits. Obviously, there is room for improvement and we are targeting to lift our ROIC into the double-digits. Number two, invest our cash flow for future growth. The clarity of focus emerging from our reorganization has highlighted many strategic growth opportunities for investment. Given the strength of our balance sheet, Alibaba is well positioned to capture these opportunities. Later on, Eddie will discuss our growth strategy and priorities for investment. Number three, monetize the value of non-core assets. Our balance sheet carries $67 billion in equity securities and other investments as well as investment in equity method investees. In addition, we have operating businesses that tie up capital, but generate low growth. Not all of these investments are core to – not all of these investments are core or strategic to our business. We are evaluating creative ways to monetize the value of these assets in order to return value to shareholders. Number four, speaking of returning value to shareholders. This may take the form of our share repurchase program or cash distributions via dividends. We already have a share repurchase plan that still gives us $13 billion in dry powder as of today. In addition, as we have just announced, the company will pay an annual dividend. Our capital management activities are dynamic and remain a top priority for our management team and our Board of Directors. Now, I turn to Eddie for his remarks.

Eddie Wu: Investors, friends, welcome to everybody. Thanks for joining this quarter’s earnings call. It’s exciting for me to speak with you on today’s earnings call as CEO of Alibaba Group for the first time. So in addition to updating you on the progress we’ve made in all of our businesses over the past quarter, I’d also like to share with you my thinking about Alibaba’s future development strategy and business plans. Through 24 years of development, Alibaba has grown into a group that spans e-commerce, cloud computing, local services, logistics, digital media and entertainment, new retail and many innovative new businesses. Today, the world is at the starting point of a new era. Rapid technological advances are profoundly reshaping all industries, all products and all of our daily life scenarios. Virtually, any prediction made to-date is bound to underestimate the future. As the penetration rate of Internet users reaches a ceiling, the driver of growth in this sector will be technology, especially AI. Therefore, I’ve defined the following three directions as the key priorities for Alibaba’s next decade, our technology-driven Internet platform businesses, AI-driven technology businesses and global commerce network. In light of Alibaba’s huge and complex set of businesses as well as rapidly evolving market and technology trends, we intend to transform Alibaba and embrace the future through the following three key initiatives

Trudy Dai: Hi, everyone. This is Trudy, and I’m delighted to speak with you all again. Eddie has shared with you his thinking on Taobao and Tmall Group’s 3 key strategies. He further reiterated that putting users first is the top priority and further set up 3 points of focus. Here, I will present to you on our operations in the September quarter and give an overview of the just completed Tmall 11.11 Global Shopping Festival. As a result of our ongoing efforts to attract new merchants, enhance price competitiveness and enriched content offerings, in the September quarter, we continued to achieve rapid growth in DAUs. Even more importantly, we also saw that organic users grew at the same time. More users proactively coming to the Taobao app means that user mind share is strengthening as the Taobao app becomes more attractive. And in this process, we specifically saw several very clear changes. First, Taobao and Tmall’s rich assortment of supply constitutes a huge advantage with a constant inflow of new merchants, new merchandise and new content, Taobao has become more vital than ever as a universal app. We continue to invest in building our merchant ecosystem, adhering to the principles of driving with digital technology, openness and inclusivity. The number of merchants increased by over 1 million in the September quarter compared to the June quarter. At the same time, Taobao’s live streaming ecosystem maintained its growth momentum. On the one hand, top-tier live streamers and agencies from other platforms continue to join the Taobao platform such as East 5 and the Wine & Spirits and [indiscernible] and they are developing very well on Taobao live. On the other hand, merchant-operated live stream also has strong growth momentum. With more-and-more Tmall brand merchants taking part, the live streaming participation rate and total live streaming time are growing and the share of GMV from merchant-operated live streaming is also increasing. More-and-more merchants are realizing that self-operated live streaming is much, much more than just a sales tool. It’s an important and sustainable approach for brand building and user engagement on the Taobao app. Second, in line with our value positioning as an Internet consumption platform, we’ve now put in place a complete matrix of sales models, brand marketing-driven sales, everyday low-priced product sales and live streaming content driven sales. These 3 sales models are independent and complementary. In combination, they provide one-stop comprehensive value to Taobao app users, leveraging our universal supply, this sales matrix provides the consumer finds goods option, allowing users with specific purchase intent to find exactly what they want through fast accurate search. It also allows users with no specific purchase intent to have fun browsing, enabling goods to find consumers. And even users who don’t want to buy anything right away, can enjoy learning encyclopedic knowledge from relevant lifestyle and consumption content, i.e., sowing seeds. As we said, there is no question that the Taobao app has everything you could want or need. The only question is, can you think of everything you need? Or going forward, even if you can’t think of what you need, no matter, the Taobao app will help you do the thinking. All you need to do is come to the Taobao app, and you will have a great experience. Different users can get exactly what they want to need and have a fun time. And besides live streaming, which I just discussed, the total time spent on short videos posted on [indiscernible] more than quadrupled in the September quarter. Overall total time spent by users on the Taobao app is also growing. And finally, in light of the clear trend of stratification in China’s consumer market, we’ve engaged in a comprehensive exercise to build price competitiveness. We divide merchandise into 3 different tiers with different value propositions and manage price competitiveness by product category and by sales format. In this way, we’re comprehensively strengthening the price competitiveness of merchandising. This clearly defined rigorous management matrix is generating business scale growth and operational certainty from merchants who have supply chain advantages and product competitiveness. This supply, together with branded merchandise, creates a good price advantage on the Taobao platform, resulting in more transacting buyers and orders in the September quarter. For example, the number of 88 VIP members surpassed $30 million in the September quarter with continued growth in their GMV. And at the same time, in respect of users with low purchasing power the scale of active consumers and conversion rate have increased significantly. In order for us to build a funnier, more price competitive and universal Taobao app, a crucial underlying driver is technology. In the September quarter, we continued to roll out our comprehensive AI upgrade across the entire Taobao platform. Here I’d like to upgrade – here I’d like to highlight a major upgrade to Alimama’s Wanxiangtai product. The Wanxiangtai Unbounded version we released in August, it enables merchants to allocate their advertising budgets across all available properties within the Alibaba ecosystem using a single interface and leverages AI to provide data analytics and insights to intelligently locate targeted users and to create AI-generated advertising content. So the upgrade enables merchants to optimize their advertising spending and to significantly adjust campaign efficiency, conversion rates and ROI. So the Wanxiangtai upgrade has resulted in growth in the number of advertisers. Next, I’d like to spend a little time talking about this year’s 11.11. During 11.11 this year, we achieved comprehensive growth in the number of merchants, transacting buyers, orders and GMV. Even more importantly, though, this year’s 11.11 was a test of our strategy this year. So let me share with you here the progress on several of our key initiatives as seen during this year’s 11.11. So, starting with price competitiveness. First, price competitiveness increased significantly with direct price reductions at everyday low prices beyond basket-based discounts for multiple purchases. Price competitiveness is what putting users first and creating value for users is really all about. In the past, we organized merchants to provide good prices to consumers through basket-based discounts. That satisfies some consumers, but others found it too complicated. Building on all the efforts we’ve made over the last half year to build – competitiveness during this year’s 11.11, we successfully recognized direct price reduction and everyday low price offerings in addition to those basket size-based discounts. This comprehensively strengthened price competitiveness on Taobao and Tmall. As a result, we achieved satisfactory results in terms of new user acquisition, existing user retention, overall purchase conversion rates and repurchase rates. For example, the number of 88 VIP members further grew and reached 32 million, and our enhanced price competitiveness gives us stronger confidence in every e-sales outside of large campaigns. Secondly, our product granularity based matrix of sales models began to pay off. As I mentioned, one of our milestones in the September quarter was getting this matrix in place. 11.11 was the first real-world test of our ability to deploy all of brand marketing, everyday low price and live streaming in a coordinated way during a large-scale campaign with granularity at the level of store and of product. By launching products with us here, large brands taking excellent advantage of Tmall’s Heybox to intensively launch new products can lead new consumption trends in China. In terms of everyday low price, we achieved explosive growth with both of the Taobao Good Price Festival and 10 billion subsidy programs. In terms of the live streaming content driven sales model, merchant-operated live streaming made huge breakthroughs with merchant operated live streaming accounting for close to 70% of all the dozens of live streaming rooms that generated CNY1 billion in sales. As a result of this test, we are more confident that the Taobao app is the best one-stop platform for merchants to manage diversified users and merchandise across all phases of product life cycles, and to achieve long-term certainty for their business, and we’re all the more clear about how to best serve these merchants. Third, we’ve begun to explore new operating models for new supply. What makes Taobao universal is the rich and diverse merchant ecosystem on the Taobao platform. They are the foundation of rich supply on Taobao. Over the past few months, we’ve made some adjustments to optimize the supply mix on the platform. Building on our base of Tmall branded merchants, we’ve further grown the number of channel merchants and white label factory sellers. But not all merchants are good at online operations, and there’s no reason for us to force them all to become good at everything. Some white label merchants, for example, excel at lean manufacturing and can produce large volumes of high-quality goods at low cost. So during 11.11, we tested semi consignment and full consignment models targeting them. This allows the white label manufacturers to do what they do best. They’re responsible for producing good merchandise, and we are responsible for helping them to sell it. These other initiatives is getting started and we will look forward updating you further on future earnings calls. For Taobao and Tmall each year 11.11 is a large-scale test of the strategies and tactics we’ve been deploying since the beginning of the year. This year, the business results we achieved, the competencies we honed and all of the feedback we received from users and merchants validated the correctness of our three key strategies of putting users first, building a prosperous ecosystem and driving growth with technology. Chinese e-commerce market will be a highly competitive landscape for the long-term. The road ahead will be long and difficult. I will remain firmly committed to and will not change our strategies, our focus and our investment plans, guided by the principle of putting users first. As long as we resolutely stay the course of investing and upgrading, we can certainly create a universal Taobao app that is both more fun and more price competitive. Over this 3-year business cycle, our rich and diversified monetization products will enable us to create a virtuous cycle for users, merchants and the platform. Thank you. And next, I’ll be handing over to Jiang Fan.

Jiang Fan: Well, hi, everyone. I’m delighted to speak with you all during this earnings call. AIDC continued to maintain rapid growth this quarter amidst an uncertain international market environment. This progress was a result of our sustained expansion in the different markets we serve as well as our product and technology innovations, business model transformation and efficiency improvement in our supply chain services, all of which realized greater value for our customers. Next, let me provide more details. Starting with the business model transformation and supply chain services upgrade. So as you know, over the past few months, AliExpress rolled out a brand-new service model called AE Choice. So simply, we’ve upgraded from a pure platform cross-border model to a business model that offers more supply chain services. On the one hand, the platform has dramatically reduced the complexity of doing business for merchants, allowing more diverse merchandise to enter the platform. On the other hand, with the platform taking responsibility for end-to-end consumer services, delivery time has improved dramatically, greatly improving consumers’ experience. AE Choice has already achieved rapid order growth over the past few months as a result of this business model transformation and supply chain services upgrade. In collaboration with Cainiao, we began piloting our global 5-day delivery service in Spain and other countries. And we believe that continually enhancing services to customers is the basis for long-term development of the platform. Second, product technology innovation, AIDC serves consumers in different countries and regions. So we need to continually optimize user experience to meet local consumer needs. We’re committed to driving ongoing improvement in platform commerce efficiency and to upgrading customer experience through product and technology innovation. Over the past quarter, we continue to see the value generated by these investments. For example, we are actively leveraging AI to enhance merchant operating efficiency. This quarter, alibaba.com launched new AI-based digital products for foreign trade. These AI products are tightly integrated throughout the entire foreign trade value chain features, include smart launch and management of merchandise, market analysis, customer interaction, real-time translation for video chats, covering many important links in the foreign trade business. Leveraging digital technology, merchants can export their goods to global markets more efficiently and achieve higher operating efficiency with certainty. Third, our progress in different regional markets around the world. Last quarter, we achieved quite good growth in different regional markets in Turkey, Trendyol maintained rapid growth and profitability at scale while also expanding into neighboring markets. In Southeast Asia, Lazada’s overall financial situation has also improved significantly. And going forward, we’ll continue to focus on enhancing platform operation efficiency and on sharpening our differentiated competitive advantage so as to achieve long-term sustainable development. In Germany, we announced the acquisition of a leading local B2B platform Visable. Post-acquisition, alibaba.com will operate two brands in Europe, and we’ll do business on multiple B2B trade platforms, furthering alibaba.com international expansion. Looking ahead, we see some high confidence market opportunities including further expansion of AE Choice and opportunities in some emerging markets. Over the next few quarters, our short-term business focus will be on rapidly expanding our business scale and market share. We will actively invest in these areas to achieve growth. The mission of AIDC is to help global SMEs engage in digital trade. During this year’s 11.11, we supported merchants in multiple countries as they directly provided services to consumers in over 100 countries and help them achieve rapid business growth. Taking AliExpress as an example, with the growth of AE Choice, the volume of merchandise placed by merchants in warehouses grew by several fold compared to last year. And the Choice warehouses grew by several fold compared to last year, and a large number of SME merchants achieved fast sales growth during 11.11. Going forward, we’ll continue to create long-term value for global merchants and consumers through product and technology innovation and consumer service upgrades and will continue to enable merchants to achieve sustained business growth on the platform. Thank you.

Toby Xu: Thank you, Jiang Fan. We achieved a healthy financial performance in the past quarter, driven by steady business momentum and improving operating efficiency in several major businesses. Total consolidated revenue was RMB224.8 billion, an increase of 9%. Consolidated adjusted EBITDA increased 18% to RMB42.8 billion. Non-GAAP diluted earnings per share was RMB1.95, an increase of 21%. Since July 1 to November 15, we repurchased approximately $3 billion worth of our shares, which accounted for 1.3% of total shares outstanding. This is supported by our continuous generation of strong free cash flow. During the quarter, free cash flow was RMB45.2 billion or $6.2 billion, an increase of 27%. Over the last several months, the capital management committee and took a review on ways to improve our ROIC and potential use of cash. Our priority in cash deployment in the following quarter

Rob Lin: Hi, everyone. For today’s call, you are welcome to ask questions in Chinese or English. Third party translator will provide consecutive interpretation for the Q&A session. Please note that the translation is for convenience purpose 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 transcript of this call will be available on the website within 1 week after the meeting. Operator, please connect speaker and SI conference line now. Please start the Q&A session when ready. Thank you.

Operator: Thank you. [Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs. Please go ahead.

Ronald Keung: Thank you, management team and congratulations Joe and Eddie and the new leadership team and also in being a key party [indiscernible]. I think I’ll start with the cloud, kind of distribution on for longer proceeding as some investors were initially hoping for some extra return probably in the cloud distribution. So how should we think about our ongoing reorganization and the plans? And how should we think about shareholder return on a kind of next few year basis? How do we think besides the newly-announced regular dividend? And do we consider any further upsizing of the buyback or even a special dividend considering our $63 billion net cash. And given that it’s 2 months into your role, as you see – you like to keep prices and priorities that you have from here both for the next – ahead. Thank you.

Joe Tsai: Hey, Ronald. Thanks very much for the question. It’s a very good question. This is Joe Tsai. So if – there are multiple ways to provide value to shareholders. And we have previously announced a multitude of approaches from full spin-off of the cloud business to share repurchase. And we’ve already explained the strategic thinking and the rationale for not doing the spin-off. Now there are alternative ways to provide enhanced returns to shareholders. And right now, our thinking is that we’re very excited about or multiple businesses from Taobao and Tmall Group to cloud that we should get into a phase of investing for growth. And Eddie has laid out a very clear strategy and multiple priorities for our investments. So I think that gives you a pretty good direction of the uses of our cash as well as thinking about how we can highlight the value of our businesses rather than some full spin-offs, investing and creating a sustainable growth model in these kind of businesses. So I think you should think about our core businesses coming to a phase where there is a reset for sure. But I think going forward, we feel very optimistic and we feel very confident about the fundamentals and all the tools and ability that we have built up, capabilities that we have built up over the years to continue to invest and show value to our investors that way. As far as the stock repurchase is concerned, we’re under – still executing our overall $4 billion share repurchase plan that was approved by the Board. And as I said, as of today, we have $13 billion of dry powder left, and we will continue to execute that buyback. We’re not going to consider a one-time cash dividend. We think, as we laid out the priority for cash use is to invest for future growth. And then executing our current share repurchase plan and number three, as Toby has said, we have announced the dividend. So those are the plans for the uses of our cash. Thanks. Next question?

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

Alicia Yap: Hi, thank you. Thank you, management for taking my question. My questions are firstly, related to investment plans for Taobao and Tmall Group because recently, you have been increasing your investments. And I am wondering if management could share with us in what areas do you think those investments have yielded results that have exceeded your expectations? And in what areas do you think there is still room to do better? And is the purpose of these investments more to regain market share, or is it more about ensuring sustainable growth of GMV and of CMR. And then finally, we noted that in this year’s 11.11, there was more collaboration with WeChat. And I am wondering if you could talk to us about that experience and how the conversion rate was of users coming from WeChat as compared to other channels.

Trudy Dai: Yes. Thank you. This is Trudy. Well, as Eddie has explained at Taobao and Tmall Group, we have three key strategic priorities namely putting users first, building an ecosystem for brands and merchants that drive and realizing AI and technology-driven innovation. So, those are the strategies and of course, all of the investments that we are making and we will make will be intended to serve those strategies. So, in terms of investing in users, we have made investments in building, of course price competitiveness across the platform on increasing repurchase rate as well as on acquiring new users. And we have seen important pay-offs on the Taobao app on all the KPIs we have discussed, including time spent as well as number of active purchasers. In terms of our investments in enriching content, on Taobao, again, we are certainly seeing good pay-offs from those investments. As we mentioned earlier, a very important one is we have seen an increase in organic users, users who proactively open up their app and come to us. We have seen an increase in user time spent. And if you look at [indiscernible] as well, again, we have achieved good growth in terms of number of users and their time spent there. So, all of that really gives us all the more confidence that we need to continue with these investments in enriching the content environment. Also, as Eddie said, AI is the defining technology of our time and a very, very important driver going forward of growth in commerce. So, we will of course continue to invest in AI, leveraging AI capabilities to enable merchants to grow sustainably and help them develop their businesses in the long-term on the platform. As another part of our effort to become a very strong content platform, we are also leveraging AI generated content using AIDC to lower the barrier to entry and make it easier to produce compelling content. I believe that AI will be able to unlock and create fresh new experiences and a lot of fun for consumers. It will be compelling for consumers. And an example of that is the new consumer-facing product called Wenwen. Finally, you asked about collaboration with WeChat, this is a very initial stage and its influence has been very limited. Our collaboration with WeChat has been focused on a few limited areas, one of which is traffic. In terms of co-construction of systems, we have also worked on enhancing recommendation capacity. And in terms of policies, we also provided RMB100 million in subsidies as well as bilateral policy support. Of course, Taobao is an open platform, and we stand ready to work with all partners and potential partners to provide the best services to our merchants. Thank you. Next question?

Operator: Thank you. Your next question comes from Gary Yu with Morgan Stanley. Please go ahead.

Gary Yu: Hi. Thank you, management and for the opportunity to ask questions. I have a question regarding the opening remarks about the target to increase return on invested capital to double digit. Can management share more about what kind of targets or how achievable this target in the next couple of years, specifically regarding these non-core business turning [ph] profitable. Any specific business unit that we think we can turn profitable within a certain period of time. Thank you.

Trudy Dai: Okay. Gary, thank you for your question. I will take this question. Yes, as Joe mentioned, actually, we are looking very closely into our ROIC. And we do set a target that we want to increase the ROIC to double digit in the next few years. There is a few ways we will take to achieve that target. In all our businesses, if you like, actually, as Eddie mentioned, we do have core and non-core business. And in addition, we will also have many of the investments sitting in our equity sort of like investments or even investing associates. So, for all of those investments, we are also a resource that we can use to – as part of the resource that we can utilize to enhance our ROIC. With respect to the core businesses, as Eddie explained, actually, we will need to invest in innovation and growth. So, for all these core businesses, the growth and the future profitability will help certainly generating more earnings, which will contribute to increase of ROIC. And with respect to the non-core business and also the investments in our balance sheet that are no longer strategic or core to us, I think on one hand, as Eddie mentioned, we would need those businesses to become profitable as early as possible. And also for some of the investments, we were also looking to the opportunity to monetize, which will give us cash and eventually, we can utilize the cash to give the return to the shareholders. So, that will also help to increase our ROIC. So, thank you. Next question.

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

Alex Yao: Good evening and thank you for taking my questions. I have a question regarding the core business group. So, as you guys discussed in the prepared remarks, you decided not to proceed with a full spinoff of the cloud business. Is the withdraw of the spinoff and IPO a central decision for a fair market, if market condition change or the financial progress [ph], would you reconsider this decision? And then related to the operation, I think you guys decided to develop a tenable growth model for the cloud business. Given AI shifts restriction from the U.S., can you talk about your thoughts on how this sustainable growth model will be? Thank you very much.

Joe Tsai: Okay. Alex, this is a two-part question. So, I will answer the first part and Eddie will answer the second part. About our announcement did not proceed with the full spinoff. For us, this is – when we announced the full spin-off, we were looking at a way to sort of a financial engineering way to show the value of the business. And that was when the business was operating in circumstances that we thought were predictable with our ability to project the business and communicate to investors and provide a level of transparency to investors who will independently hold the shares of the Cloud Intelligence Group. But the circumstances have changed. And right now, rather than focus on financial engineering, we rather focus on figuring out how to grow the cloud business. A big part of that is for us to – for the group to provide cash to make investments because the – in the AI driven world to develop a full-blown business based on a very networked and highly scaled infrastructure requires investment. So, we would rather show investors through the – our operations of the cloud business rather than spinning it off. And hopefully, we can enhance value to shareholders as we deliver future growth revenues and profits in the future. As far as the sustainable business model, I will let Eddie to answer that question.

Eddie Wu: Thank you. Well, the question you have asked really is a critical one. There have been many changes in the situation in the market. But I will come at this in two parts. In terms of business model, the CPU centered traditional cloud computing business is one where we built up a strong portfolio over the last 14 years. In this part of the business going forward, as we said, we are going to place our focus on public cloud because we think public cloud is where we can achieve very strong network effects and scale effects and thereby provide very good value for money to our customers. The second part of the business going forward into the future is GPU-based AI computing. And obviously, there have been some major changes in the external environment, policy wise and otherwise that will bring about important changes in the China market. I think going forward what we can certainly expect to see in the China market is that there will be multiple different chips being used multiple different providers, meeting demand for AI computing power in the China market. And I think cloud in China is going to play an ever more important role in supporting the development of AI in this market because cloud can allow developers to achieve much higher efficiency and not have to worry about complex issues around AI chip design. So, I think that we have a complete set of offerings in place that’s really well designed to support development because we have always been supporting one cloud with multiple chips, and we have these different layers, Platform-as-a-Service, Model-as-a-Service, Infrastructure-as-a-Service. We are able to support heterogeneous architecture at all of these different levels. And I think that with that in place, we are well prepared to provide great value to the Chinese market. That will be the last question.

Operator: Thank you. Your next question comes from Jiong Shao with Barclays. Please go ahead.

Jiong Shao: Thank you very much for taking my questions. You have highlighted Choice as one of the growth driver, has been one of the fastest growing segment. I was wondering, could you expand a bit on which countries and regions Choice has entered? And you talked about revenue contribution earlier. I was wondering is there any magnitude that you can share sort of a timeline to get to unit economics breakeven? And related to that, for your AIDC business, you have a mix of sort of local e-commerce in Turkey and Southeast Asia, and you have a cross-border [Technical Difficulty]. Longer term, what’s the focus, or do you always expect sort of a 50-50 or a healthy balance between the two? Thank you very much.

Eddie Wu: Thanks for the question. Well, first of all, I should point out that Choice is actually based on AE. So, it’s not something new that’s come out of nowhere. It’s layered on top of a pre-existing business, AE and AE is in over 100 different countries. So, what we have really done with Choice is we have gone from a pure platform model to a platform plus Choice model, a fully entrusted model. And what we found is that the user experience with Choice is significantly better than with the pure platform model. So, at this point, Choice is a major driver of growth in our business. So, Choice has been launched over about a year now, and it’s certainly growing very fast that accounts for an increasingly higher proportion of orders. So, I would say that in a few more quarters from now, Choice will account for more than 50% of revenue from AliExpress, excuse me, number of orders, not revenue. So, Choice is still a business that’s in the investment stage. Its profit is negative for the time being. But with further growth, its unit economics will certainly be improving. For now, we are placing – the number one priority for Choice is achieving growth, but unit economics and profitability will certainly optimize going forward. So, as regards the local e-commerce model versus the cross-border model, in some countries, the local model works better, in other countries the cross-border model works better. I wouldn’t say that we have any fixed percentage in mind in terms of how to allocate the business. It really comes down to how do you provide the best user experience and best to meet user demand in those different countries and markets.

Rob Lin: Thank you. That concludes our earnings call for today. We will see you next quarter. Thank you.

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