Alibaba Group Holding Ltd (BABA) Q3 2023 Earnings Call Transcript

Alibaba Group Holding Ltd (NYSE:BABA) Q3 2023 Earnings Conference Call February 23, 2023 7:30 AM ET

Company Participants

Robert Lin - IR

Daniel Zhang - CEO & Executive Chairman

Toby Xu - CFO

Conference Call Participants

Alex Yao - JPMorgan Chase & Co.

Ronald Keung - Goldman Sachs Group

Eddie Leung - Bank of America Merrill Lynch

Alicia Yap - Citigroup

Jiong Shao - Barclays Bank

Jerry Liu - UBS

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's December Quarter 2022 Results Conference Call. After management's prepared remarks, there will be a Q&A session. I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Robert Lin

Thank you. Good day, everyone, and welcome to Alibaba Group's December Quarter 2022 Results Conference Call. With us today are Daniel Zhang, Chairman and CEO; Joe Tai, Executive Vice Chairman; Toby Xu, CFO. This call is also being webcast from the IR section of our corporal 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. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For a 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 were 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 financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, adjusted EBITDA 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 rate of all the metrics mentioned on this call refer to year-over-year growth versus the same quarter last year.

With that, I will now turn to Daniel.

Daniel Zhang

Thanks, Rob. Hello, everyone. Thank you for joining our earnings call today. This past quarter, our business and operations experienced significant challenges due to the rapid change in the COVID situation during December. Despite these challenges, we delivered double-digit year-on-year growth in our adjusted EBITDA and free cash flow through effective business management, cost optimization and operating efficiency.

With the lifting of COVID-related measures at the end of peak wave, everything is now quickly getting back on track. In general, consumer confidence and business confidence are rising. Logistics has resumed normal operations with the entire supply and manufacturing chains becoming active. Digital transformation across different industries and sectors has accelerated significantly.

Against this backdrop, our various businesses are showing positive trends. Recently, the IMF raised the estimated GDP growth for China to 5.2% this year. Given the expectation for economic recovery, following the lifting of COVID-related measures and China's reopening, I have chosen progress as a key word internally to set the tone for Alibaba's development this year. We need to respond quickly to the change in the macro environment and the major cycles. The theme of progress represents the need to adapt to the trends in the macro environment and for Alibaba's own development.

In China's post-COVID economic development, although different businesses across our complex ecosystem face their own unique circumstances, we remain confident in our streamlined strategic pillars of consumption, cloud computing and globalization. Now I will share how our business performed this past quarter in a different -- in a difficult COVID environment, together with some color on the situation in January and February and how we plan to capture opportunities across our businesses.

During December quarter, the China consumer market was highly impacted by COVID cases. Pohang and Tmall GMV dropped mid-single digit year-on-year, and the consumption demand was quickly suppressed.

In terms of category, apparel and other discretionary goods were weak, while health care and wellness-related grow strongly. This is consistent with the better trend released by the National Bureau of Statistics of China. From January to early February of this year, overall sales of online physical goods remained weak, and our China commerce continues to be highly impacted due to COVID cases as well as people traveling home or to other places during the spring festival holidays.

But as the influence of COVID cases at spring festival travel subsided in February, especially recovery in categories such as apparel and sports and outdoors, as work and life return to normal, all of our merchants have also expressed their strong desire to get to business. We expect this recovery will continue.

In our operations, we are strengthening the user experience and customer value proposition on Palbo and Tmall to reinforce our market leadership with the following measures.

First, enhanced user stickiness and time spent. Polvo and Tmall are home to China's most comprehensive population of online shoppers and is the most efficient consumer transaction platform. We are building on our competitive advantage by continuing to introduce a variety of consumption-related content in the form of short-form video, live streaming and other formats to strengthen consumer stickiness, product discovery, influence and user engagement.

Second, enhance value for money proposition. Price is always a key factor in consumer purchasing divisions. We will continue to improve competitive pricing on products through the design of marketplace mechanisms, promotional marketing features and the retail model innovations such as cobas direct from factory goods and farm-to-table offerings.

Third, labor for digital retail. We will capture to consumers quite sensitive needs for highly frequency everyday necessities through our neighborhood digital retail business such as [indiscernible] and [indiscernible] that fulfill orders from local supply chains using local deliveries.

In local consumer services, [indiscernible] restaurant order volume growth rate picked up towards the end of this quarter due to increased home-based consumption from COVID cases. Notably, non-restaurant order volume growth rate was far higher than what it was for restaurants. The business saw an increase in revenue due to higher average order value Ongoing improvements in operating efficiencies resulted in lower expense ratios in marketing and logistics.

[Indiscernible] continued to demonstrate positive unit economics and it will continue to improve. During COVID, Olam adjust operating strategies safeguarded its delivery capabilities and supporting supply recovery. During peak COVID cases, AMS user scale and scale of services used were briefly affected. As cases eased, usage of Amap quickly recovered.

Ride hailing and hotel room booking volume growth very rapidly. Amap has become a new platform, providing various destination-based consumer services. Fliggy's domestic and outbound travel activity also quickly grew during the Spring Festival holidays. As a result of our ongoing developments of the supply chain and the service capability over the past 2 years, recovery of Fliggy's domestic airplane ticket and hotel booking was significantly faster than the overall domestic travel performance reported by the China National Tourism Administration, and noticeably better in comparison to 2019 before the cave outbreak.

In international commerce, our various business made steady progress. Trendyol continued to deliver strong growth as overall order volume grew over 50% year-on-year with local consumer services growing even faster. When Turkey was suddenly hit by earthquakes in early February, we actively organized and have delivered support for emergency relief. So far, all our employees in Turkey are safe. Trendyol’s business operations remain stable, and they have mobilized resources to aid disaster relief.

As for Lazada, as the business continued to optimize for order volume growth, we also reduced loss per order by more than 30% year-on-year. We remain firmly committed to continuing to invest in Lazada's region of Southeast Asia.

Through close collaboration with Cainiao, AliExpress greatly optimized and bound order deliveries on key routes as Roger services quality continue to improve and the impact of VAT and the foreign exchange rate in Spain and France continued to ease. Ali Express order volume is starting to show positive growth.

Our globalization strategy will continue to be firmly focused on Southeast Asia and Europe through a mix of localized retail and a cross-border commerce. We will continue to make sustainable long-term investments and build businesses that can withstand economic cycles.

Trendyol is celebrating its tenth anniversary this year. It has built a robust comprehensive business covering China and course for the international logistics. Last mile, logistics technology and more. It is also continuing to make progress in green logistics and emergency response logistics.

In China, Trendyol continue to expand its doorstep delivery services for our Taobao and Tmall customers. During the most recent November 11, more than 18 million orders from Taobao and Tmall were delivered to customers' doorsteps daily at its peak, which includes those delivered directly to doorsteps or through Trendyol post location in residential communities.

Trendyol has also built its own international logistics network over the past few years. As of this past quarter, it had more than 15 international sorting centers in operation. Our cloud business overall revenue growth rate this quarter was 3% year-on-year. The growth rate for public cloud was double-digit year-on-year, which was partially offset by a decline in hybrid cloud revenue from project delays due to COVID.

In terms of revenue by industry, financial services, education and automobiles are among the growth drivers. We also announced an important organizational change towards the end of last year. I took on the role of acting President of Alibaba Cloud, in addition to my current role as Chairman and CEO of Alibaba Group. This decision was based on a few considerations.

First, cloud computing is one of Alibaba's core strategies for the future. Innovation and other technologies will have an impact not just as on Alibaba Cloud for the entire Alibaba Group.

Second, Alibaba Cloud is also the foundation through which Alibaba serves the real economy and will continue to drive physical digital integration. Third, we believe this is a critical period for technological breakthrough and development in the nexus[ph] of cloud computing and AI.

As one of the leading cloud computing service providers globally, we strongly believe in the vast potential of industrial digitalization and the role of cloud computing as infrastructure to the digital economy. Going forward, we will focus on a few areas to reinforce and strengthen our market leadership position as we look at the opportunities ahead.

First, enhance the stability and the security of our cloud computing services while continuing to optimize performance and manage costs through technology investment. Second, continue to build a dynamic developers and industry ecosystem for cloud computing. Third, collaborate with partners to provide intelligence-based industry solutions to our customers in different industries and sectors.

Fourth, continue to push forward a holistic cloud-based service product that integrate DingTalk, our intelligent online workplace collaboration platform and application development platform. Lastly, in this exciting era of disruptive breakthroughs initiative by generative AI, computer power is essential.

On one hand, we will continue building our own large-scale pretraining model. We are also ready to capture the market opportunities to provide the computing power for the various generative AI models and its applications. This year marks Alibaba Group's 24th year and in Chinese traditional culture, this means we have gone through 2 complete calendar cycles. We captured 2 historical opportunities of e-commerce in China for the consumer Internet and start to cloud computing in China for the industrial Internet. We will continue to capture the vast opportunities ahead through the impact of technology, both on commerce and other expenses of our society and environment.

Although there are many uncertainties in the journey ahead that are very difficult to evaluate, we remain highly confident in the future of Alibaba and China's development.

Thank you, everyone. Let me pass the microphone to Toby, who will share our financial results.

Toby Xu

Thank you, Daniel. Let me start with financial highlights for the quarter. This quarter, our total revenue was RMB 248 billion, an increase of 2% year-over-year.

Income from operations was RMB 35 billion, an increase of RMB 28 billion year-over-year, mainly driven by an RMB 22.4 billion decrease in impairment of goodwill in relation to digital media and entertainment segment adding RMB 7.2 billion increase in adjusted EBITDA.

During December quarter, we have continued to improve operating performance of our loss-making businesses by enhancing operating efficiency and optimizing costs that resulted in 16% year-over-year increase in adjusted EBITDA to RMB 52 billion. Overall adjusted EBITDA margin improved by 3 percentage points to 21%.

Now let's look at cost trends as a percentage of revenue, excluding SBC. Cost of revenue ratio remained stable year-over-year at 60% in December quarter. Our direct sales businesses and logistics services continue to grow, driving up our cost of inventory and logistics, but we were able to keep our cost of revenue ratio stable, primarily through optimizing content costs, traffic acquisition and improving operation efficiency.

Product development expenses ratio remained stable during the quarter. Sales and marketing expenses ratio decreased 3 percentage points year-over-year to 12% in December quarter, reflecting our continued effort in optimizing user acquisition and user retention spending across businesses.

General and administrative expenses ratio remained stable at 3% in December quarter. Non-GAAP net income was RMB 49.9 billion, an increase of RMB 5.3 billion or 12% year-over-year, mainly due to increase in adjusted EBITDA, partly offset by a decrease in equity pickup of our equity method investees results. Our GAAP net income was RMB 45.7 billion, an increase of RMB 26.5 billion year-over-year, primarily due to the increase in non-GAAP net income and RMB 22.4 billion decrease in Google impairment mentioned earlier.

As of December 31, 2022, we continue to maintain a strong net cash position of RMB 379 billion or USD 55 billion. Our strong net cash position is supported by healthy cash flow generation. In December 2022 quarter, cash from operating activities was RMB 87 billion, and free cash flow were RMB 82 billion, respectively, which were up by RMB 7 billion and RMB 10 billion versus 1 year ago. Majority of the difference between operating cash flow and the free cash flow was operating CapEx at RMB 5.8 billion, down by RMB 3.5 billion versus 1 year ago.

Net cash inflow from investment and acquisition activities, including disposals, was RMB 1.9 billion, compared to an outflow of RMB 4.7 billion in the same period last year.

Importantly, we have continued to enhance returns to shareholders through share repurchases given our strong balance sheet and free cash flow generation capability. During the quarter, we repurchased approximately RMB 45.4 million of our ADS for approximately USD 3.3 billion and our share repurchase program. Now let's look at our segment results.

Revenue from China commerce segment in December quarter was RMB 170 billion, a decrease of 1% year-over-year. Customer management revenue decreased by 9% year-over-year to RMB 91.3 billion. Taobao and Tmall online physical goods paid GMV declined by mid-single digit. Customer management revenue declined a few percentage points further versus Pay GMV, mainly due to higher order cancellation rates as a result of supply chain and logistics disruption caused by COVID-related impacts.

Direct sales and other revenue grew 10% to RMB 74 billion, primarily driven by strong growth of our Freshippo and Alibaba Health's direct sales businesses. China Commerce segment adjusted EBITDA increased by RMB 749 million to RMB 58.6 billion in December quarter.

Segment EBITDA margin remained stable at 34%. This reflected significant loss reductions from Taobao deal, Fresh hip and Paltai, partly offset by a decrease in profit from customer management services. Our international commerce segment revenue in December quarter was RMB 19.5 billion, an increase of 18% year-over-year.

Revenue from international commerce retail business increased by 26% to RMB 14.6 billion. The increase was primarily driven by accelerated revenue growth of Trendyol as a result of its strong order growth and more efficient use of subsidies. Lazada and AliExpress also saw recovered revenue growth this quarter.

Revenue from our alibaba.com wholesale business remained stable year-over-year. International Commerce segment adjusted EBITDA loss narrowed by RMB 2.2 billion to RMB 763 million in December quarter. The loss reduction year-over-year was primarily contributed by the reduced losses from Trendyol and Lazada.

Chandi continues to generate strong revenue growth and have enhanced operating efficiency continued narrowing of losses from Lazada was a result of ongoing improvement in monetization rate by offering more value-added services as well as enhanced operating efficiency. Our local consumer services segment revenue in December quarter grew 6% to RMB 13 billion, primarily due to positive GMV growth of 2 home business, driven by higher average order value of Olam.

Local consumer services adjusted EBITDA loss reduced by RMB 1.9 billion year-over-year to RMB 3.1 billion. Most of the loss reduction was driven by Ele.me business, while other major businesses within this segment also saw recorded reduced losses. Ele.me continued to improve its unit economics per order by increasing average order value, reducing delivery cost per order Its UE continued to improve year-over-year and remained positive this quarter.

Revenue from Tania, after intersegment elimination, grew 27% year-over-year to RMB 16.6 billion, primarily contributed by the increase in revenue from domestic customer logistics service as a result of service model upgrade since later 2021 to enhance consumer experience as well as increase in revenue from international fulfillment solution services.

In December quarter, 72% of Tania's total revenue was generated from external customers. Tania recorded adjusted EBITDA loss of RMB 12 million in December quarter, loss reduced by RMB 80 million year-over-year. Revenue from cloud segment after intersegment elimination was RMB 20.2 billion in December quarter, an increase of 3%, mainly driven by healthy double-digit public cloud growth, partially offset by declining hybrid cloud revenue as we continue to drive high-quality recurring revenue growth.

Revenue growth from non-Internet industries was 9% and contributed 53% of overall car revenue. The non-Internet revenue growth was mainly driven by solid growth of financial services education, automobile industries, which was partially offset by the decline in public services industry.

Revenue from customers in the Internet industry declined by 4%, mainly driven by declining revenue from the top Internet customer that has gradually stopped using our overseas cloud services for its international business. On the other hand, we saw improving demands from Internet customers in December quarter.

Adjusted EBITDA of cloud segment, which comprise of Alibaba Cloud and Ding Talk was a profit of RMB 356 million in December quarter, increased by RMB 222 million year-over-year. Revenue from our Digital Media & Entertainment segment in December quarter was RMB 7.6 billion, a decrease of 6%, primarily due to the decrease in revenue from Alibaba Pictures. Adjusted EBITDA was a loss of RMB 25 million, reduced by RMB 1.3 billion year-over-year, primarily due to the narrowing of loss from Youku driven by disciplined investment in content and production capability. Let me wrap up with some final thoughts.

Our December earnings results continue to demonstrate our ability to execute and achieve the key operating and financial objectives we have set since the beginning of the fiscal year. Despite another quarter of global macro and core uncertainties that weighted on our revenue growth, we have continued to focus on higher quality growth supported by consumers and customer-centric initiatives, improved operating efficiency and cost structure throughout the organization, enhanced shareholders' return through ongoing share repurchases. Consistency and persistence were key factors to our success in delivering these results in a challenging 2022.

As Daniel mentioned, we believe 2023 will be a year of progress for Alibaba. It is expected that China's economic activity will recover in 2023, which would capitalize and stimulate a gradual consumption recovery. In 2022, we have strengthened our operational and financial capabilities. We are confident that those enhancements will position us well to benefit from China's recovery. We exited 2022 with a strong financial position of USD 55 billion in net cash, allowing us the financial flexibility to grow our businesses and improve returns for key stakeholders, including shareholders.

In 2023, we intend to increase investments in major businesses that improve their competitive position and growth prospects while maintaining our mindset of enhanced operating efficiency. Thank you. Now let's turn to Q&.

Question-and-Answer Session

A - Robert Lin

For today's call, you are welcome to ask questions in Chinese or English. A third-party translator will provide secular interpretation for the Q&A session. And our management will address your questions in the language you asked. 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 our website within 1 week after the meeting. [Foreign Language] Now operator, please connect our speaker and SI conference lines. Please start the Q&A session already. Thank you.

Operator

[Operator Instructions]. Your first question comes from Alex Yao from JPMorgan.

Alex Yao

I'd like to start by asking a question that addresses the long term. And after that, I'll come back to some shorter-term questions. But starting with the long term, as you said in your speech, Daniel, Alibaba has now been around for 24 years, marking the completion of 2 complete cycles Chinese culture.

And through these 2 cycles over the past 20-plus years, Alibaba has captured digitalization enabled our opportunities around commerce, around logistics and around cloud. So looking forward, what do you think will be the next big area or areas where Alibaba can achieve significant growth. As you yourself said, there are being 2 major opportunities that Alibaba has seized in the first 24 years, e-commerce and cloud.

But see, in the next 3 to 5 years, what will be the big opportunities where you think Alibaba can achieve huge growth. And then coming back to the short term looking at this year, some of the major developments, we've seen the very rapid success of chat GPT as well as some important changes in the competitive environment with opportunities and challenges, how do you see Alibaba better marshaling its core competitiveness in the short term and will part of that involve further optimization of costs and driving operational efficiencies.

Toby Xu

Thank you, Alex, and I will take those questions one by one. First, indeed, over the past 20-plus years, the major opportunities for us that we see have been around applying digital technology to commerce, logistics and cloud computing. And this is indeed the long-term strategy of Alibaba. We remain firmly committed, as always, to our 3 core strategies around consumption, cloud and globalization.

And when we talk about globalization, it is indeed globalization of our consumption and cloud-based offerings. So to a main firmly committed to those core strategies.

We continue to remain focused on those 3 core strategies and not seek out new arenas in which to compete. Well, very simply, it's because we think that in those [indiscernible] doing is high enough and the market is big enough, it's more than enough for us to accomplish there, especially as we continue to evolve our technology we're confident that we can continue to find huge opportunities in those 3 core areas, and we can look at them one by one.

Beginning with consumption. If you look at the size of consumption in China today as a percentage of GDP. And if you think about the latest forecast from the international monetary front, the IMF of 5% economic growth in China, imagine what China's GDP numbers will look like if that can be maintained, 5% per annum growth for a period of 10 years.

And if China's economy does grow by 5% a year for 10 years, you can certainly imagine that the proportion or the size of the contribution of consumption in China within GDP. So we're talking about 40 trillion on today against 110 trillion. That proportion will certainly be even higher SP-2 Years down the road.

Turning to technology. We can look back at the trajectory that we've already traveled through 20 years ago, 10 years ago, e-commerce has taken off a completely different look. It's continued to evolve..

And we've said in the past that we would digitalize Congress in churn. Well, that's not been completely accomplished. But looking to the future, we now have these exciting new technologies coming to the floor, including generative AI, which you mentioned. And I think that certainly will also be transformative and create new experiences and new formats of consumption. But this digitalization when it comes to consumption is not just having an impact on the consumer side. It's also having an impact on supply chains and the way they're organized. And I think that really is just getting started.

This is an industry where China is really just getting started, and you can look a few figures to support that. First of all, if you look at the proportion of IT spending within total GDP in China, it's only 1%. In the U.S., it's as high as 5%. And if you look at the proportion of cloud within IT spending numbers, it's 15% in China today, 21% in the United States. These are figures from [indiscernible]. So I think that those 2 figures represent a huge opportunity for us in China. And of course, as technology continues to develop a new cutting-edge technologies like generative AI come to the fore but also VR, virtual reality, which we've discussed before. All of these technologies as they're deployed are when they require massive compute power to support them.

So we expect to see exponential growth in demand for compute power. So for us, as a cloud vendor, I think that story is purely just getting started. And of course, these are not just trends in China but for the world, and we intend to take our offering to the world. We're already the leader in China when it comes to consumption and to cloud computing and 1 of the leaders in the world, and we will continue unshakably to be committed to and to pursue those core 3 strategies that we've adopted while continuing to embrace new technologies and make technological breakthroughs in order to create new and more exciting prospects for Alibaba as a company.

And then moving on to your second question about new technologies and developments in the market. And of course, there are always new market developments on a daily basis. But as I said, Alibaba has identified progress as our keyword as our overarching theme for 2023. We'll be seeking progress in technology in our business and also in the ways that we create user value. We will be investing, therefore, to drive progress in new technology and to integrate new technology with business to create new value and new kinds of business with tremendous prospects going into the future.

And in fact, that's what Alibaba has always done over the past 20 years. We haven't been a low-price competitor. We haven't been relying on heavy subsidies. We haven't been engaged in low-quality low-level competition. Rather, we've always invested in technology in the belief that technology can make the impossible become possible, and that could also make a business that had been impossible also become possible.

So we will continue to seek and drive new technology breakthroughs to open up new frontiers in commerce and in business.

Operator

The next question is from Ronald Keung from Goldman Sachs.

Ronald Keung

We know that in 2022, a major theme for Alibaba was optimizing the cost structure and driving operational efficiencies. Going into 2023, as we've talked about, we can expect to see a pickup in the macroeconomic situation, potentially hopefully leading to GMV turning positive GMV growth turning positive again. I'm wondering when you expect to see that happening.

At what point can we expect to see positive growth returning in the GDP GMV numbers. And also, how are we going to achieve balance between growth and investment in this new year because we know there are people who are engaging in a lot of subsidization behavior. So how are we on going to achieve that balance between growth and investment?

Toby Xu

Well, starting with the part of your question that had to do with the pickup in consumption that we've seen following the end of COVID measures in China. Obviously, we're following that situation very closely, just like all of you, just like everybody else.

But in my script earlier, I did lay out a detailed and comprehensive picture as I could. January certainly was still a challenging time through the spring festival, especially with people traveling widely in large numbers across the country. Life and work, however, began to normalize around the time of the Lantern festival and thereafter with improvement in consumption sentiment, indeed, as expressed in consumption behavior.

And I also shared with you the impact that, that had in different categories, including apparel, sports, outdoor and health. Certainly, what we see across all merchants is a strong desire to get back to business. They want to have a bumper year in 2023 to make up for everything they lost over the past 3 years.

That's certainly a shared hole across the board for all the merchants. Of course, since the resumption of normalcy, if you like, it's only been a short time. It's just been about 0.5 month. So we do need to keep our eyes on how the ongoing picture continues to develop.

But certainly, we are optimistic about continued improvement in the situation. The other part of your question had to do with market competition and price look, price subsidies are nothing new. Every couple of days, somebody out there comes up with a bright idea to try to engage in heavy price subsidies in order to win more opportunities and turn around their business.

But I think if you take a clear-eyed look at history, nobody, no player ever has managed to achieve that kind of turnaround by relying on price subsidies. What it takes really is technology innovation which in turn, empowers business model innovation. At the end of the day, it's really about merchants being able to provide to consumers the best products at the best prices in a way that is sustainable in the long term so that the merchant can make a return and continue to invest in a sustainable cycle.

So Alibaba has a lot of experience in empowering merchants to do that. We also have experience in utilizing platform mechanisms to enable sustainable growth. And as Toby said in his script, we have deep pockets with USD 55 billion in cash. So we can continue to leverage these approaches to create value for users and maintain our leadership in the market.

Operator

The next question is from Eddie Leung from Bank of America Merrill Lynch.

Eddie Leung

Yes. My question has to do with local services. We understand that there's been a turnaround in unit economics and has positive UV continuing to improve. But at the same time, we understand that there are various short-form video platforms that are also now investing heavily in local services, and this could lead to further changes in the competitive landscape.

So I'm wondering if you could talk to us, please, about your strategy for local services going forward to continue to maintain and strengthen that leadership position.

Toby Xu

Well, when it comes to local services, as you know, there are really 2 different kinds of services, to-home and to-storm or to-destinations because the store is one kind of positive destination. So starting with the destination, any media platform, be it short-form video or other kind of media, can find ways to develop to-destination business in the context of local services. They can promote a local destination, be it a store or something else through their media offering. They can allow consumers to place an order.

But when it comes to fulfillment, you still have to physically go to the store to fulfill your order. So certainly, any media has any kind of influence with an audience can find opportunities to do that to drive traffic to a physical location like a store. But Alibaba has opened up a whole new paradigm on the to-destination front with the important transformation and very successful transformation of Amap that we've succeeded in realizing over the past few years, taking it from simple map tool to Amap and location-enabled offering that spans search discovery and fulfillment.

And today, Amap has achieved very high penetration in a whole range of categories that we've talked about from ride hailing through to hotel reservations through to gas stations and indeed finding electric charging facilities for new energy vehicles. And I don't think that's something that any other kind of media platform, any media platform could accomplish. Now the other piece, when we talk about local services is to home and Olam is part of that section of local services. You mentioned Olam in your question. And indeed, following several years of hard work, I think Olam is very much is on the right track. Unit economics are positive and continue to improve. Things continue to move in the right direction in terms of the number of orders the number of users as well as the unit economics.

So when we talk about to-home, this is local or neighborhood e-commerce. So deliveries from restaurant to home are 1 example of that, but it's not just restaurant food orders. It could also include things like medicine, it could include groceries or other kinds of daily essentials. But to succeed in this space, you need to be able to successfully integrate local neighborhood supply neighborhood demand and neighborhood level fulfillment all in 1 place at the same time.

And again, this is something that certainly no media outlet could ever possibly hope to achieve. And this is where Eluma has been a great success because you need to be able to integrate in real-time local supply, the local demand and the local fulfillment capabilities, they only need to intersect in the space-time continuum in a single coordinate in a way that achieves chemical synergies. So that's far beyond the capabilities of any media-oriented player.

We continue to successfully grow our local services business in the priority cities we've identified. And of course, your business will look very different if you're going after 50 cities versus 100 cities. We continue to focus on the key cities that we've identified, continuing to improve the service to win and build confidence with consumers and drive long-term growth.

Operator

The next question is from Jiong Shao from Barclays.

Jiong Shao

Thank you, management. Toby, you said that in the past quarter, free cash flow exceeded USD 11 billion. And we know that there are other initiatives underway within Alibaba to monetize on certain investments.

And in the last quarter, you conducted a USD 3.3 billion of share buybacks under the buyback program. But I'm wondering what other potential methods could be available for Alibaba to increase shareholder value to increase returns to shareholders. Are there any other things you can for example, considering distributing dividends or further expanding the scale of the share buyback program?

Daniel Zhang

Thank you for your question. You touched on a couple of things. First, as you all will have seen from various media reports, we have been divesting some of our investments. I think that's normal for any corporate any company that's making a lot of strategic investments is also at some point going to make a timely exit from those investments. And that's indeed part of the original plan. When you make those current strategic investments, you are planning on exiting at a certain point.

You also talked about our share buyback program. In fact, it had already been upsized, as previously announced. It had been a USD 25 billion program. And as we spoke about last time, that was increased by USD 15 billion to a total of USD 40 billion.

In the December quarter, we bought back another USD 3.3 billion of shares, and we do think that pursuing the share buyback program is a good way to return value to our shareholders.

Now under the existing already enlarged share buyback programs, we still have a remaining quota of USD 21 billion to be deployed. So, at this point in time, no, we are not considering further expanding that quarter, rather, what's on our minds at this point in time is how we can best make use of that remaining quota of USD 21 billion, how to deploy it and when to deploy it in line with the authorization given to us by the Board of Directors in order to further enhance shareholder value.

Operator

The next question is from Alicia Yap from Citigroup.

Alicia Yap

I'd like to follow up on Daniel's earlier remarks about how Alibaba intends to continue to focus on and invest in technological innovation as a means to create new business models and new opportunities for the businesses. I'm just wondering if you could break that down for us a little bit and explain which of the businesses this year we can expect to see adopting new technological innovations that lead to new business models and new opportunities that will, for example, result in accelerated CMR growth or boost cloud revenue or will perhaps be in local services, where these breakthroughs will be met. But I appreciate if Daniel could give us some more color on a segment-by-segment basis.

Daniel Zhang

Well, driving business growth with technology has been a constant theme for all of Baba throughout its history. But looking to the future, there are certainly several big opportunities for us that we can already see clearly.

The first is around AI and lately, generative AI has become a hot topic around the world. But we're not talking about having a chat bot through the sake of a chat bot. Rather, we're talking about integrating that capability deeply into the business around consumption, around user experience for content generation to drive higher advertising effectiveness.

AI can play a huge role in all of those different areas, and we have been working on that and continue to do so. Also, when it comes to how to match supply and demand more effectively, how to achieve higher effectiveness in terms of marketing and promotion, how do we achieve higher efficiency and better user experience around different services, all of those are places where we can leverage AI to make huge improvements. So that's the first part of the answer.

But beyond that, when we talk about cloud computing and big data, Alibaba has substantial capabilities in terms of providing processing power. We have IS and pass offerings. But when we look at the future, and we also have, of course, our large pretraining model for AI. And what we're seeing today with recent developments is that our -- the view that we took on the future has panned out and proven to be consistent with what's happening in the market. But going forward, there's going to be exponential growth in demand for computing power to support these kinds of AI applications and Alibaba is ready to provide precisely that kind of computing power. So that is a big opportunity for us as well.

And then just to add another word because I think implicit in your question was a concern around advertising revenue. AI can be leveraged in the ways that we talked about earlier when we talked about supply chains and local services to better match local demand with fulfillment capabilities local supply in a certain time window and to make that whole local or neighborhood-based digital commerce scenario run much more efficiently. And we will continue to be working in those directions to grow our business. These are opportunities.

Operator

The next question is from Jerry Liu from UBS.

Jerry Liu

I have a couple of questions. My first has to do with take rates, looking at GMV and CMR growth on Taobao and Tmall over the past few quarters, we understand that there will be special circumstances that have changed the relationship between the 2. But looking forward to this quarter or even the few quarters to follow, do you think we will expect to see any change in the relationship between the growth rate of GMV and CMR and could CMR grow faster than GMV in the next few quarters?

Second question to Daniel has to do with your assuming the position of interim or acting head of Alibaba Cloud Intelligence. I'm wondering since you've taken up that role. What new strategies or new initiatives have you put in place for the cloud business? What changes have you made to the strategies and initiatives of that cloud business?

Daniel Zhang

Well, on your first question regarding the relationship or the ratio between CMR and GMV. We discussed this issue previously. And just to recap briefly, the issue of late really has been the high rate of order returns due to, among other things, logistics disruptions because when we talk about GMV, we're talking about paid GMV, but after the consumer has made payments and after logistics and fulfillment, the consumer well, logistics don't work out.

There's a logistics problem, the consumer will return the good. So overall, what we're seeing now is, of course, recovery in logistics and declining return rates. So I think what we're seeing now, it's fair to say that the ratio or the gap between pay GMV and the CMR is narrowing.

Secondly, on the question about cloud. We see the development of this industry, not only in China, but worldwide as an absolutely historic opportunity. And this is an opportunity of extreme strategic importance to Alibaba. So I'm extremely excited to take up the helm and be personally in charge of Alibaba Cloud at this important juncture. This is something I'm extremely passionate about, and we absolutely must not fail to seize and capitalize on this crucially important historic opportunity. We have an excellent foundation in Alibaba Cloud today, thanks to the hard work of the previous president of that business unit over the past 10 years or so.

We're already now 1 in China and 1 of the top cloud vendors indeed in the world with an excellent market position and a strong foundation to build on. Building on that foundation going forward, I think one of the first things we have to do is get back, if you like, to the essence of the cloud, the fundamentals of the cloud, which is leveraging cloud to make available computing power. We need to ensure that we're doing that with extremely high availability, high security, make sure that we're consistently exceeding customer expectations around stability and security. So that's point one.

Point two, I think we need to place emphasis on public cloud offerings. When we talk about cloud, it's not often clear that we're all necessarily even talking about the same thing. There are so many different definitions of cloud out there.

What is cloud computing? Well, I think for Alibaba, we need to be firmly rooted in China, but also have a global vision and ensure that we're making great in fundamental core capabilities around IS and PaaS, so that we will not only be a leader in China, but be a leader worldwide. Cloud computing is an industry that's built on scale of economy, if you have more scale than you have no economy. So we need technology breakthroughs to achieve those economies of scale. We need to be able to enable our users not just to use cloud, but to use cloud well and to achieve demonstrable economic benefit from leveraging those cloud offerings.

We need to be paying a lot of attention to public cloud and further drive scale there. This is a very important part of serving the digitalization of industry and providing cloud-based compute power, especially for data-intensive sectors. And then I know I've already touched on this quite a few times already, but another very important point is with generative AI and it's more broad-based application in the near future, we can expect to see very rapid growth in demand for high-performance computing power. You need infrastructure to be able to power that, and the infrastructure needs to be integrated from chip through network through to compute power, had all the global vendors are talking about that, but we and Alibaba see this as an extremely important opportunity, and we intend to fully capture it.

Robert Lin

Okay. Thank you, everyone, for your time to listening today. And that concludes our today's earnings call. Other replay and transcript will be available in our IR website in this week. We look forward to meeting you and engaging with you in the coming months and look forward to speaking to you next quarter. Thank you.

Operator

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