Alibaba Group Holding Ltd. Sponsored ADR Aktie

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March Quarter and Full Fiscal Year 2026 Results Conference Call. [Operator Instructions] After management's prepared remarks, there will be a Q&A session.

I would now like to turn the call over to Lydia Lu, Head of Investor Relations of Alibaba. Please go ahead.

Good day, everyone. Thank you for joining Alibaba Group's March Quarter and Full Fiscal Year 2026 Earnings Call. On the call with me are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Jiang Fan, Chief Executive Officer of Alibaba E-commerce Business Group. As a reminder, this call is being webcast live. A replay of the call will be available on our website later today.

On this call, we may make forward-looking statements and discuss certain non-GAAP financial measures. The forward-looking statements reflect management's current expectations that are subject to risks and uncertainties. Our GAAP results and reconciliations of GAAP to non-GAAP measures is included in today's earnings press release and investor presentation. Our comments will be on year-over-year comparisons unless we state otherwise.

And with that, let me turn the call over to Eddie.

[Interpreted] Welcome to Alibaba Group's Fiscal Year 2026 Fourth Quarter Earnings Call. Over the past quarter, Alibaba's high-intensity investment in our 2 strategic priorities of AI + Cloud and consumption is rapidly translating into tangible business results with group revenue growing 11% year-over-year. This quarter, Cloud Intelligence Group's external revenue growth accelerated to 40%, and AI-related product revenue achieved triple-digit growth for the 11th consecutive quarter.

China e-commerce CMR grew 8% year-over-year on a like-for-like basis, and the quick commerce market achieved significant unit economics improvement while maintaining market share. We are at a pivotal inflection point in the evolution from conversational chatbots to autonomous AI agents, which is directly driving explosive growth across 3 core workload categories: training, inference and agent orchestration. Against this backdrop, Alibaba's AI has moved beyond the initial investment phase and progressed commercialization at scale.

Next, let me walk you through 4 areas in detail: AI commercialization, cloud infrastructure, the AI application ecosystem and our consumption business. First, the AI and cloud commercialization inflection point has arrived. This quarter, Cloud Intelligence Group's annualized AI-related product revenue has surpassed RMB 35.8 billion, continuing to maintain triple-digit growth. AI-related product revenue now accounts for 30% of Cloud Intelligence Group's external revenue. We expect that in about 1 year, AI-related product revenue will cross the 50% threshold, becoming the primary engine driving the Cloud business's revenue growth.

As a result, Cloud Intelligence Group's external revenue growth is expected to continue accelerating beyond its current 40% rate over the coming quarters. Given the certainty of long-term AI demand and our full stack technology advantages, we expect this trajectory to sustain strong growth over the medium to long term. This reflects AI's role in driving a comprehensive upgrade of Alibaba Cloud's entire business as its growth engine fully pivots from traditional compute and storage to models, AI compute and agent services.

We're also seeing exponential growth in AI model and application services revenue, a new revenue engine driven jointly by foundation model services and AI-native software. Over the past 3 months, token consumption volumes on our model services platform grew substantially quarter-over-quarter as enterprise customers accelerated their shift from simple tasks to production scale and complex workloads, driving continued growth in demand for model and application services on the Model Studio platform. We expect model and application services annualized recurring revenue, ARR, inclusive of the Model Studio platform to surpass RMB 10 billion in the June quarter and RMB 30 billion by year-end. The high margin profile of this revenue stream is becoming increasingly apparent, making it a source of healthy, high-quality growth.

Second, our AI infrastructure underpins our full technology stack and constitutes a durable moat. T-Head's proprietary GPU chips have achieved scaled MaaS production with over 60% of compute capacity already serving external customers across Internet, financial services and autonomous driving verticals. As the only AI cloud provider in China capable of delivering self-developed AI chips at scale, we've secured autonomy over our compute supply chain while providing customers with highly competitive AI inference and training services. In an environment of compute scarcity, this structural advantage is favorable to our revenue growth and gross margin improvement. At the same time, our cloud products are accelerating their AI-oriented upgrade. The surge in agent workloads has significantly elevated demand for traditional cloud products built around CPU storage and containers, and we're upgrading these into infrastructure solutions optimized for the agent era.

Third, at the application layer, we have built a complete closed loop spanning AI-native software to a full agent ecosystem. Alibaba Token Hub ATH continues to launch new products, connecting consumer and enterprise environments with breakthrough progress in AI-native software and coding agents. The Q1 model continues to iterate across reasoning, coding and agentic capabilities. On the enterprise side, we've launched a range of products spanning intelligent workplace tools, AI coding and business operations management, helping enterprises unlock greater productivity.

On the consumer side, Qwen app fully integrated Taobao and Tmall's commerce service capabilities on May 7. And with this, Qwen app is now deeply embedded across the ecosystem spanning Taobao, Alipay, Amap and Fliggy, making it China's first all-in-one personal assistant to seamlessly bridge everyday life productivity and learning.

Fourth, across our consumption business and at the group level, we're prioritizing long-term value. Beyond AI, our consumption strategy continues to progress steadily with CMR growth rebounding significantly. This quarter, CMR grew 8% year-over-year on a like-for-like basis as we continue to improve user experience and merchant operating efficiency. The quick commerce business achieved significant unit economics improvement while maintaining stable market scale.

In summary, the return on our investments in AI + Cloud and consumption are increasingly clear. AI + Cloud revenue growth is accelerating with improving margins, model and application services ARR continues to grow at pace and operating efficiency across our consumption business continues to improve. Facing the historical opportunity that AI represents, Alibaba is in a pivotal juncture where our technology investments are beginning to pay off commercially. We'll maintain our strategic results and leverage our full stack AI capabilities to support long-term growth.

That concludes my prepared remarks. Next, I'll hand over to Toby to talk you through our financial results. Thank you.

Thank you, Eddie. Our strategic priorities remain laser focused on AI + Cloud and consumption businesses. Multiple growth catalysts, including technological advancement and business innovation are aligning to create strong tailwinds. On AI + Cloud, our full stack capability span models, cloud infrastructure and applications. With established leadership in every layer, the strong growth of our AI + Cloud businesses and a clear path to monetization of our MaaS platform give us confidence to make significant investments to extend our leadership. On consumption, we achieved a strong CMR growth on a like-for-like basis during the quarter, and our quick commerce business continued to improve UE and AOV quarter-over-quarter.

Now let's look at the financial results for this quarter. On a consolidated basis, total revenue was RMB 243.4 billion. Excluding revenue from Sun Art and Intime, revenue on a like-for-like basis would have grown by 11%. Total adjusted EBITA decreased 84%, primarily due to our strategic investments in technology businesses, quick commerce and user experience, partly offset by the improved operating results supported by continued growth in consumer management service in the cloud business and enhanced operating efficiencies across various businesses. Our GAAP net income was RMB 23.5 billion, an increase of 96%, primarily attributable to the year-over-year increase in net gain from mark-to-market changes of our equity investments and disposal losses of Sun Art and Intime in the same quarter last year, partly offset by the decrease in adjusted EBITA.

Operating cash flow was an inflow of RMB 9.4 billion. Free cash flow was an outflow of RMB 17.3 billion. We are reinvesting our operating cash flow to enhance our competitive advantage in AI. As of March 31, 2026, we held approximately USD 38 billion in net cash. Excluding debt with maturities beyond 5 years, our net cash position stands at approximately USD 59 billion. This balance sheet strength gives us confidence to invest for growth.

Now let's look at our consumption businesses. Revenue from China E-commerce Group was RMB 122 billion, an increase of 6%. Customer management revenue increased by 1%. To help merchants grow their businesses and increase willingness to spend on our platform, we upgraded our business development program for select merchants during the quarter, under which the level of platform subsidies for these merchants is directly tied to their marketing spend on our platform. For accounting purpose, such subsidies previously recorded as sales and marketing expenses are now recorded as a contra revenue item to CMR. Accordingly, CMR grew 1% year-over-year during the quarter. Excluding the contra revenue impact from the program, on a like-for-like basis, CMR would have grown 8% year-over-year.

Revenue from our quick commerce business increased 57% to RMB 20 billion. The quick commerce business further improved the UE and increased the AOV quarter-over-quarter, primarily driven by order mix optimization. Alibaba China E-commerce Group adjusted EBITA was RMB 24 billion, a decrease of 40%, primarily due to the investment in quick commerce, user experience and technology, while there's positive contribution from customer management service. Excluding loss from our quick commerce business, our Alibaba China E-commerce Group EBITA would have been stable year-over-year and will fluctuate quarter-over-quarter due to significant investment in merchant retention and user experience.

Revenue from AIDC grew 6% this quarter. AIDC's adjusted EBITA loss narrowed significantly year-over-year, approaching breakeven, driven by a combination of logistics optimization and operating efficiency. The unit economics of AliExpress' Choice business continue to improve substantially on a sequential basis.

Next, let's look at the business update and results of Cloud Intelligence Group. Our cloud business delivered another quarter of accelerating growth. Revenue from external customers accelerated to grow 40%. AI-related products continued to lead this momentum. We delivered our 11th consecutive quarter of triple-digit growth in AI revenue. Its share of external cloud revenue continue to increase now account for 30%. This quarter's AI revenue is RMB 9 billion and the annual revenue run rate is RMB 36 billion or USD 5.3 billion. This is a clear reflection of the scale and acceleration in our AI business.

The adjusted EBITA margin remained relatively stable at 9.1%. All others segment revenue decreased by 21% to RMB 65.5 billion, mainly due to the disposal of Sun Art and Intime businesses as well as the decrease in revenue from Cainiao, partially offset by the increase in revenue from Freshippo and Amap. All others adjusted EBITA was a loss of RMB 21.2 billion, primarily due to the increased investment in technology businesses, including foundation models and the consumer-facing Qwen app.

As we close this fiscal year, we remain committed to delivering consistent shareholder returns. Our Board of Directors has approved an annual dividend of USD 1.05 per ADS. We will continue to invest decisively in AI and consumption businesses where we see significant long-term growth potential and our competitive advantages are compounding. We believe these investments to deliver growth and returns over time, ultimately creating greater value for our shareholders.

Thank you. We will now open for Q&A.

Hi, everyone. You're welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation. In the case of any discrepancy, our management statement in the original language will prevail. [Foreign Language]

Operator, please start the Q&A session. Thank you.

[Operator Instructions] Your first question comes from Ronald Keung with Goldman Sachs.

Thanks for sharing the very sizable AI MaaS and applications ARR scale and the target for the first time. So I just want to ask, how much of that ARR is driven by our in-house models like Qwen versus third-party models? And given the recent token price hikes, what would be the implications to MaaS and also our Cloud margins as a result?

[Foreign Language] [Interpreted] Thank you for that question. This quarter marks the first time that we announced the latest figure for model and application service revenue. That really comprises mainly 2 things. On the one hand, it includes revenue from API calls on MaaS on our Bailian platform, and it also includes revenues from our AI software subscriptions. At present, most of the revenue is coming from the first of those 2 pieces, but this is an open platform. So we are providing access both to our proprietary models as well as third-party models, including open source models and closed models. But for the time being, most of that revenue is coming from our own proprietary models, including Qwen as well as Tmall as well as our voice and video generating models.

[Foreign Language]

Your second question was also a really important one because in the past quarter, over the past few months, we've seen a very large shift in the market where AI is shifting from functioning as a conversational chatbot to providing agentic capabilities. So these agents are increasingly capable of solving for very complex problems, meaning that they need to do a lot more inferencing than in the past. And precisely because these agents can help to solve very complex tasks, customers' acceptance for higher prices, and we have increased per token prices, is good and the demand continues to be high and growing.

In fact, our ability to supply this demand is not able to keep up with all the growth and demand. We actually have a lot of customers still waiting to access the service. Inherently, MaaS will have higher gross margin than IaaS. That's important to know. And I can also add a few important points on top of that. First is that the development of reasoning or inferencing technology still continues to advance. So every quarter, we're seeing new results in terms of optimization in reasoning, in inferencing with continuous incremental effects in terms of the token capacity of a single server and a single card. At the same time, as the capabilities of models continue to strengthen and price of the models continues to increase in the next year or 2, we see that this should be a process of continued price improvement. So I think from this point of view, the rapid growth in this business over the next few quarters will result in a very positive impact on our overall gross profit margin.

Your next question comes from Kenneth Fong with UBS.

Congrats on the very strong progress on the AI. I have a question regarding the return on invested capital on the AI investment. So while our AI investments have driven impressive 40% cloud growth, they have also created significant drag on the group free cash flow as well as our EBITA. So how do investors assess the return on this investment? And what is the management's framework for balancing the aggressive AI spending versus earnings stability?

[Foreign Language] [Interpreted] Thanks, Kenneth for that question. This is Toby, and I'm going to start by answering that first question, because I think it's important and of interest to everybody. The question is the reason for the negative free cash flow and how we are managing that. So starting there, the answer is that the negative free cash flow is primarily due to the very significant investments we've been making in AI over the past year. And we've been extremely resolute in making those investments precisely because we've seen the historic opportunity of AI.

[Foreign Language]

[Interpreted] So we've been very resolute in making those investments over the past year. And looking forward to the next 2 years, we intend to be equally resolute in continuing these investments, again, because we see this is a critical window of opportunity that will be open for that period for the next couple of years. Additionally, there's really been no big change in the way that we look at cash flow. First of all, the major contributor of operating cash flow for the group is Taobao and Tmall and that cash flow is very stable. And looking ahead over the next 2 years in terms of quick commerce, the losses will narrow very substantially. At the same time, AIDC will develop from making a loss to being profitable. So we see these developments over the next 2 years as being highly positive for our net cash flow.

[Foreign Language] [Interpreted] Another important point to be added is that our ongoing investments in cloud infrastructure will increase the revenues that we can achieve from our AI and cloud offerings. At the same time, we will increase gross margins in those very same offerings. So in those ways, we expect that we can achieve higher net cash flow from our cloud and AI business, and that cash flow can in turn be used to support the development of the relevant infrastructure.

An additional point is that we have a very strong balance sheet. As of March 31, 2026, we held approximately USD 38 billion in net cash. And if you exclude debt with maturities beyond 5 years, our net cash position stands at approximately USD 58 billion. So that balance sheet strength also gives us confidence to reinvest for growth. And beyond that, I would also add that we have a very strong capacity for pursuing financing in capital markets, and we have the capability to raise capital from the markets as we need to support our development.

So I wanted to open with that in response to your question on cash flows, and I'll pause there to see if Eddie has anything to add.

[Foreign Language] [Interpreted] Thank you. You asked about our investments in AI and the ROI on those investments going forward. So on top of what Toby has already said, I'd like to add a few notes regarding where we're heading. I think the best analogy is manufacturing. In other words, in order to be able to manufacture more and sell more in the future and achieve more revenue, what we're doing today is investing capital to build 2 factories, if you like. The first we can call the AI training factory. The second, we can call the inferencing factory. And both of those factories need to be powered by our AI data centers, and that requires the investment of cash flow today.

However, looking to the future, the pathway to achieving a solid return on investment in those factories, in those areas, is very clear. On the 2B side by monetizing our 2B offerings, including our cloud-based IaaS as well as MaaS, of course, and our AI-native apps. And I can tell you that today, there isn't a single card on our service that is idle. So we see the ROI on this investment in the next 3- to 5-year period as being extremely clear.

Your next question comes from Thomas Chong with Jefferies.

My question is on quick commerce. I've talked about the improvement in UE in the prepared remarks. I just wanted to get some more color about the drivers behind in terms of AOV, subsidies ratio, fulfillment ratio, et cetera. And on top of that, I remember last time we talked about the outlook for quick commerce over the next couple of years. Is there any update or changes in terms of how we think about the landscape or the UE in the next 3 years?

[Foreign Language] [Interpreted] Thank you. Well, first, as a result of our strong investments in quick commerce, we've achieved very rapid growth in quick commerce over the past year, marking a very fundamental shift in our market position. Compared to the same quarter last year, which was, of course, prior to all this large-scale investment, both our order volume and our market share have increased significantly. Overall order volume was 2.7x that of the same quarter last year with non-food orders at 3x.

From April onwards, while maintaining order volume, we've continued to drive substantial improvement in UE through enhanced fulfillment logistics efficiency as well as order mix optimization. So we are confident that UE will turn positive by the end of fiscal year '27.

[Foreign Language] [Interpreted] While optimizing UE, we will continue to innovate to improve the experience for both consumers and merchants, thereby sustaining our long-term competitiveness in quick commerce. We're confident that our quick commerce business will achieve overall profitability in the future at new scale and market share. This quarter, quick commerce continued to generate synergies with our conventional e-commerce business, as demonstrated in driving customer acquisition, enhancing user engagement, fulfilling diverse consumer demands, increasing transactions, improving monetization and supporting logistics infrastructure.

In terms of categories, quick commerce continued to drive sales in various categories, especially food and fresh produce and healthcare and contributed to Freshippo's and Tmall Supermarket's accelerated growth. So in our conventional e-commerce business, we saw GMV and CMR demonstrate strong growth momentum in the March quarter, and quick commerce played a vital role in driving that performance.

Your next question comes from Jialong Shi with Nomura.

[Foreign Language] [Interpreted] I have a follow-up based on your opening remarks concerning MaaS. I'm wondering, first of all, what are the major advantages that Alibaba has when compared to the other major AI platforms in China as well as Chinese AI start-ups? In the United States, we see that AI agents and especially coding are the fastest growth track in AI. I'm wondering when you think we'll see that kind of growth in China in terms of AI coding.

We also know that Chinese customers are less willing than U.S. customers to pay for SaaS. So do you think that will -- that means that the future commercialization of Chinese AI coding products might have less potential than we see with the U.S. counterparts?

[Foreign Language] [Interpreted] Thank you. Well, the way we define our MaaS platform, Bailian Model Studio, is as an open AI inferencing platform. Certainly at present, the majority of Bailian's revenue is driven by our own proprietary models. But in contrast to the AI start-ups in China, I think that we are investing at a much higher scale and across a much broader range of different model types. In contrast, those start-ups may tend to focus on a very narrow particular vertical segment and they can move rapidly ahead with that kind of focus.

And strictly in terms of our MaaS business, I think those AI start-ups really are partners rather than competitors. But in Alibaba, we particularly place emphasis on our model capabilities and developing them across all different spaces and all verticals to serve a very broad and diverse set of needs, including our coding model capabilities, including image-based models, so both on Wanxiang and HappyHorse as well as these new world models and, of course, voice models as well. So we aim to provide all different kinds of models to meet all different kinds of needs. And this is different, I think, from those start-ups. And at the same time, those start-ups are our partners.

[Foreign Language] [Interpreted] Okay. The other part of your question was about when we can see the similar kind of growth in China as is being witnessed in the U.S. around AI coding. And I would say in terms of what we're seeing, based on the trends that we ourselves see on Bailian, as well as the experience of some of these AI start-ups in China who work closely with us. I would say China is already there. Most of the growth that we're seeing in utilization from, say, November or December of last year through to May of this year has been driven by capability upgrades in terms of coding. And these models are not able to replace software engineers. Basically, they're able to solve a wide array of very complex tasks beyond just coding, per se, in any kind of digitalized productivity scenario.

So we've seen AI coding capabilities improve significantly in both the U.S. and in China, and these capabilities are capable of supporting much more than just a coding, per se. It can address a whole wide range of very complex tasks in the workplace in so far as those tasks can be digitalized. So looking ahead to the next 2 to 3 years, we see this as a very, very important growth driver.

[Foreign Language] [Interpreted] On your other comment, we have also taken note of the lower willingness in China to pay for SaaS. However, I think that is poised to change as the models become increasingly powerful and are able to truly solve for very complex tasks, very complex problems. As they are providing truly valuable intelligence. I think we can expect to see the same demand for that kind of service in China as in the U.S. In a certain sense, when the value provided by tokens exceeds the cost of those tokens, the demand for tokens will become infinite in a sense. So we see growth in AI demand as a long-term certainty.

And I can also share some numbers with you in terms of the growth that we're seeing on our own Bailian platform from November, December last year through to May of this year. It's higher than a 10x growth. In terms of our ARR, it's already over RMB 8 billion. And I think this quarter, it's highly certain that we can achieve ARR of over RMB 10 billion.

Your next question comes from Ellie Jiang with Macquarie.

Just wanted to stay on the topic of that global comparisons. So if you look at it globally, the overseas peers seems to have captured the most immediate ROIs in enterprise agentic workflows, whereas for the consumer and the monetization which remained a bit lagged. So going forward, considering that Alibaba is investing kind of in multi-fronts for infrastructure models, cloud and Qwen app, how do we evaluate the strategic priority and resources allocation between 2B and 2C initiatives? If going forward enterprise side continues to gain more traction, will we consider gradually shifting more resources away from Qwen app to Cloud and MaaS?

[Foreign Language] [Interpreted] Thanks for that question. And it's a good question. But I think, fundamentally, from the perspective of AI development, it's really all about a paradigm shift in computing and it's about leveraging this new technology to help users, whoever they are to complete tasks and solve problems. And that applies equally on the 2C side as well as on the 2B side. Now certainly, at present, we see higher willingness to pay on the 2B side because it's easier to show a business case with compelling ROI for a business. And at present, most of our infrastructure resources are therefore channeled to the 2B side.

But at the end of the day, AI ultimately is an invention that's there to be a helper and assistant to humans, to help humans with a whole range of things spanning their own daily life, their studies and their work. And what AI does really is the same across all of those scenarios. It's about solving problems. And that's true for 2B and for 2C.

So certainly, there's less willingness to pay today for 2C, but we're already seeing a business model where consumers are paying for individual usage in the U.S. And I'm confident that the same will come to be the case in China, especially as the technology improves, as it's better able to help them solve real problems in their daily lives. So we think that ultimately, this will be the same business model internationally. And I think we'll probably get there in China in the next, say, 1 to 2 years.

Our next question comes from Joyce Ju with Bank of America.

[Foreign Language] [Interpreted] I have a follow-up question also on the future growth of the cloud business. And I'd just like to understand what your view is on EBITA margins in the cloud business over the next few quarters. Do you think as this business accelerates, we can expect to see similar margins as we see in your international peers?

[Foreign Language] [Interpreted] I think when it comes to the deep penetration of AI technology across all different industries, we're still really in the early days of that long process. But our objective is clear. Our objective is to achieve growth, to drive growth, to drive growth in token consumption and to acquire larger market share. We aim to maintain growth that is faster than the market average in order to gain larger market share and firmly cement our absolute market leadership position. So those are the primary objectives, and margin is still secondary.

The other thing to be pointed out is that for the next 3 or even 5 years to come, there are physical constraints on production, production capacity for chips, for memory, for the physical things that are needed to support all this growth in demand. An advantage that we have in Alibaba Cloud is the scale of our customer base as well as the scale effect from all of the CapEx that we've put in over these years. But in this environment of market scarcity, we're already seeing that the cost for us to deploy one new server this year is double what that same server would have cost a year ago. So the cost inflation has been over 100%. So given that higher replacement cost effect, we have a certain pricing power with respect to new customers and also old customers. So I think in the long term, the asset pricing effect will be positive for our revenues going forward.

Secondly, we see very rapid growth in MaaS, as we reported to you. And inherently, as we've said, MaaS represents a much higher level of gross margin than IaaS or traditional types of IT operations. So as demand for inference continues to grow exponentially, we expect this will be very positive for gross margin. And due to the optimization of our reasoning technology, the output capacity, the productivity of a single card will continue to rise.

An additional factor is as we continue to scale up the deployment of T-Head, the T-Head chips represent the highest value for money compute power on the cloud platform, and that also will contribute to a better gross margin. But for several objective reasons that I've outlined, I think, overall in the next 2 to 3 years, we can expect to see a significantly higher gross margin for Alibaba Cloud, and we can expect to start to see that in the next 1 to 2 quarters.

Your last question comes from Gary Yu with Morgan Stanley.

I have a question regarding CapEx. So what kind of level of CapEx investment is required in order to satisfy the demand from both MaaS and also the long-term cloud revenue? And also management mentioned about T-Head opportunity. What is the current penetration of T-Head being deployed on AliCloud? And as this penetration increase margin uplift we should expect from our in-house chip?

[Foreign Language] [Interpreted] Thanks. So the first question is quite an important one. And actually in our prepared remarks delivered at the last quarter's earnings call, we set out a forecast for the coming 5 years for revenues, and it was a very target. But essentially, I think if you compare where things were in the year 2022 before this explosive growth in AI models and what we expect to need in 2033, I think we're talking about a 10x increase. So we need 10x the amount of data center infrastructure compared to what we had in 2022.

But there are different ways to get that compute capacity. Some of it can be CapEx. Part of it can also be OpEx. And we're actually now acquiring quite a bit of computing capacity using OpEx. The situation is complex today for reasons we've discussed. But I think it's likely, given that kind of investment, that we will overshoot the original CapEx figure that we had stated of RMB 380 billion. But at the same time, we can acquire some compute through OpEx, and as we have our own proprietary T-Head chips, we can actually also sell AI servers, leveraging those chips to other computing centers or we can co-build computing centers with others.

So there are different ways that we can get to where we need to get. But the bottom line is that the demand for compute infrastructure is going to be 10x of 2022.

[Foreign Language] [Interpreted] Yes. So in terms of our T-Head proprietary chips, they can be deployed across a very large part of our AI infrastructure, and not just compute chips, but we have a full stack including memory. But at present, the ratio is still relatively low, and that's because of constraints around production capacity in China, which has been limited. Of course, it's been growing. But as we deploy more and more of our own proprietary T-Head chips, the new chips will certainly contribute very, very significantly to gross margin expansion.

It's true to say that domestically produced semiconductors in China lag behind the leading overseas ones in terms of energy efficiency and production efficiency. However, if you look at globally leading AI chip vendors today, their gross margins are as high as 60% or even 80%. So as we ramp up domestic chip production and the capabilities improve, I think there's a lot of room for our chips to be providing very high value for money as compared to that 60% to 80% gross margin than other vendors are taking.

Thank you. This brings us to the end of today's earnings call. We appreciate your time and participation, and we look forward to speaking with you soon.

Thank you. You now may disconnect your lines.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Alibaba Group's December Quarter 2025 Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Lydia Lu, Head of Investor Relations of Alibaba Group. Please go ahead. .

Thank you. Good day, everyone, and welcome to Alibaba Group's December Quarter 2025 Earnings Conference Call. Joining us today are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Jiang Fan, Chief Executive Officer of Alibaba E-commerce Business Group. .

I would like to remind you that this call is also being webcast on our corporate website. A replay of the call will be available on our website later today. Now I will quickly cover the safe harbor. Today's discussions may contain forward-looking statements based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results may differ materially. Please refer to the safe harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures is included in today's earnings press release and investor presentation. Our comments will be our year-over-year comparisons unless we state otherwise. And now I will turn the call over to Eddie.

Thank you, and welcome to this quarter's earnings call. Over the past quarter, we maintained strong investment momentum in our 2 strategic priorities, AI plus cloud and consumption. Cloud Intelligence Group revenue growth accelerated to 36%, while our Quick Commerce business continued to expand in scale with ongoing improvement in economics. With the dawn of the AI agent era, the addressable market for AI infrastructure providers like Alibaba is set to grow exponentially. .

AI models and our capabilities are rapidly being embedded into mainstream work environments across all industries with token consumption surging across sectors. Cloud and software budgets for enterprise IT services have traditionally represented only around 5% of corporate revenue as model-driven agents begin to handle mainstream work tasks across industries, our total addressable market will expand by several multiples.

From AI infrastructure to the application layer, Alibaba has built a complete full stock AI capability set to support the exponential growth in AI demand. Faced with an industry transformation and strategic opportunity of this magnitude, Alibaba Group is itself entering a new phase of entrepreneurial reinvention and critical investment oriented toward the future.

Next, let me share Alibaba's AI strategic road map. We have complete full stack AI capabilities, chips and cloud computing form the AI infrastructure layer while the AI application layer is anchored by Alibaba Token Hub and comprises foundation models, mass in both enterprise and consumer applications. Together, these give us end-to-end coverage across the full stack from AI infrastructure to applications.

Given the enormous and sustained growth momentum of the AI market, combined with Alibaba's full stack positioning across the AI value chain, the business goal of Alibaba's AI strategy is very clear. Over the next 5 years, our goal is to surpass USD 100 billion in combined cloud and AI external revenue, including mass.

Regarding our infrastructure, driven by sustained strong AI demand, Cloud Intelligence Group's revenue from external customers accelerated to 35% this quarter with AI-related product revenue delivering triple-digit year-over-year growth for the tenth consecutive quarter.

Cloud Intelligence Group's market share has grown for 3 consecutive quarters, rising to 36% with our lead continuing to widen. Alibaba Cloud's cumulative external revenue through February for fiscal year 2026 officially surpassed RMB 100 billion.

Over the past 3 months, token consumption on the model studio platform has grown by 6x. We expect mass to become Cloud Intelligence Group's largest revenue product. T-Head's proprietary GPU chips have achieved scaled mass production. As of February 2026, T-Head had cumulatively shipped 470,000 AI chips.

In real-world business deployments through Alibaba Cloud, more than 60% of the T-Head ships serve external customers, and we've completed scaled adoption for external customer AI workloads. T-Head now supports the AI workloads of over 400 enterprise customers across industries, including Internet financial services and autonomous driving. We're confident that T-Head's compute supply capacity will continue to expand, contributing high-quality compute to our cloud infrastructure and mass platform, strengthening the overall competitiveness of our cloud services.

Regarding our application layer, centered on the core mission of creating, delivering and applying tokens, we established the new Alibaba Token Hub Business Group, ATH. It comprises Tongyi Laboratory, the mass business line, the QN business unit, the Wukong business unit and the AI Innovation business unit. It is the organizational foundation for executing Alibaba's AI strategy and the hub for efficient coordination across our AI businesses. .

During Chinese New Year, we launched our latest generation large model, Qwen3.5-Plus, which delivered outstanding performance across comprehensive benchmarks in reasoning, coding and Agentic capabilities. Qwen3.5-Plus demonstrated significant improvement in inference efficiency through foundational architectural innovation. Building on Qwen3.5, we will soon release the next generation of models optimized for coding and agentic use cases. On the consumer application side, powered by the strength of our models, Qwen's consumer-facing monthly active users have surpassed 300 million. During Chinese New Year, we deepened integration across Alibaba's ecosystem connecting Qwen app with e-commerce Alipay, Fliggy Amap giving it unique capabilities relevant to the everyday life and becoming China's first all-in-one personal air system for life work and learning.

We've also recently launched Wukong, our enterprise AI agent platform. Wukong is the world's first AI native enterprise grade agent platform, enabling AI-powered upgrades to enterprise workflows while remaining compatible with each organization's data permissions and management processes. It serves as the unified interface for Alibaba's AI capabilities in enterprise work environments and the B2B capabilities of businesses across Alibaba's full ecosystem will be progressively integrated to sort Wukong becoming the best AI work system.

On Alibaba's other strategic priority, the consumption segment, we continue to advance our strategic initiatives. This quarter, our Quick Commerce bills further expanded in scale with continued share growth, high customer retention and sequential improvement in both unit economics and average order value. At the same time, Quick Commerce and e-commerce demonstrated clear synergies driving Taobao app monthly active consumers to double-digit year-over-year growth. That concludes my remarks. I'll now hand over to Toby to share the financial update. .

Thank you, Eddie. Our strategic priorities are clear: we remain focused on AI plus cloud and consumption businesses. We are seeing great momentum with gains in technology, customer adoption, market share and user engagement. On AI plus cloud, we have the full stack AI capabilities with all 3 parliaments, model, cloud infrastructure and chips and leadership in each with Queen, Alibaba Cloud and T-Head. We also operate the most comprehensive consumer ecosystem in China that can monetize through AI. .

The launch of Qwen APP was a major milestone, and it can bring our consumer applications together. On consumption, a quick commerce business continued to gain GMV market share in December quarter, while economics and AOV also continued to improve.

Now let's look at the financial results. On a consolidated basis, total revenue was RMB 284.8 billion, excluding revenue from Sun Art and Intime revenue on a like-for-like basis have grown by 9%. Total adjusted EBITDA decreased by 57% primarily due to our strategic investments in technology-related innovation initiatives and the consumption front, including quick commerce business, partly offset by the improved operating results in cloud business and enhanced operating efficiencies across various businesses.

Our GAAP net income was RMB 15.6 billion, a decrease of 66%. Operating cash flow was an inflow of RMB 36 billion. Free cash flow was RMB 11.3 billion, a decrease of RMB 27.7 billion from the same quarter last year. We are reinvesting our cash flow to be a leader in AI and quick commerce.

As of December 31, 2025, we held USD 42.5 billion in net cash. Excluding that with maturities beyond 5 years, our net position stands beyond the USD 60 billion. This balance sheet strength gives us confidence to reinvest for long-term growth.

Now let's look at our consumption businesses. Revenue from China e-commerce group was RMB 159.3 billion, an increase of 6%. Customer management revenue increased by 1%. The slowdown in revenue growth was primarily due to weaker transaction activities and phase out of the impact of software service fee implementation.

The Taobao App achieved a double-digit increase in MAC during the quarter, driven by the growing mind share and increasing scale of our quick commerce business. Revenue from our quick commerce business increased 56% to RMB 20.8 billion. During the quarter, we executed our plan to further grow the scale of our quick commerce business. improved user experience, improved UE and increased AOV month-over-month during the quarter.

Alibaba China E-commerce Group adjusted EBITDA was RMB 34.6 billion, a decrease of 43%, primarily due to the investment in quick commerce, user experiences and technology. Going forward, this adjusted EBITDA will continue to fluctuate quarter-over-quarter due to intense competition and significant investment in user experience.

Revenue from AIDC grew 4% this quarter. AIDC's adjusted EBITDA loss narrowed significantly year-over-year, driven by a combination of logistics optimization and investment efficiency enhancement the UE of the Alibaba Express Choice business also improved on a sequential basis.

Next, let's look at the business updates and results of Cloud Intelligence Group. Our Cloud Business delivered another quarter of accelerating growth. Revenue from external customers grew 35%, up from 29% last quarter. AI-related products continue to lead this momentum.

We delivered our tenth consecutive quarter of triple-digit growth in AI revenue. Its sheer of external cloud revenue continue to increase. This is a clear reflection of the scale and acceleration in our AI business. The adjusted EBITA margin remained relatively stable at 9%. We will continue to invest in customer growth and technology innovation to increase adoption of AI cloud infrastructure and strengthen our market leadership.

All Other segment revenue decreased by 25% to RMB 67.3 billion, mainly due to the disposal of Sun Art and Intime businesses as well as a decrease in revenue from China, partly offset by the increase in revenue from Freshippo and Alibaba Health. All others adjusted EBITA was a loss of RMB 9.8 billion, primarily due to the increased investment in technology businesses, including Quick models and consumer-facing Qwen, partly offset by the improved results of TainiHujin DME and other businesses.

Qwen Model has become one of the most widely adopted open source model families globally, surpassing 1 billion cumulative downloads on hacking phase by the end of this January, and the consumer facing Qwen has surpassed 300 million MAU across platforms which reinforces user engagement and expand long-term monetization potential. We have been increasing investments on these technology fronts, including the Spring Festival campaign.

Building on the strong momentum and results achieved, as Eddie mentioned earlier, we will continue to invest substantially in Qwen models and Qwen APP. Our unallocated adjusted EBITDA was a loss of RMB 2.7 billion compared to a loss of RMB 0.2 billion in the same quarter last year, which reflected costs associated with talent retention incentive from the one-off replacement awards plan of. Thank you. We will now open for Q&A.

Hi, everyone. You're welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation. In the case of any discrepancy, our management's statement in the original language will prevail.

If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within 1 week after the end of the meeting. [Foreign Language]

Operator, please go ahead with the first question. Thank you.

[Operator Instructions]

First question today comes from Robin Zhu at Bernstein.

Could you give us some specific examples of how Token Hub will change how the different cloud and AI businesses work together going forward from an organizational standpoint? And strategically, what changes or goals are you hoping to achieve with this new structure that improves on the previous arrangement going forward?

And then if management could share hierarchy of priorities in cloud and AI, is it market share and revenue growth, such as the target you just announced versus having the best first-party model capabilities versus consumer side traction with customers using Agenetic AI or anything else?

[Foreign Language] [Interpreted]

Great. Thank you very much for your question. I think that the goal and purpose of the establishment of the ATH Business Group, is very much connected to the era that we're now in as of the end of 2025 and going into the first few months of 2026.

In terms of the development of AI, we're now in the agent-driven era of AI development. And this is different from the earlier period of AI development in the Agentic AI era we need to achieve a very close integration of model with application. In the earlier AI era, a lot of model training data was static data, but in the genic era, we need to enhance the integration between models and applications and achieve tight integration and a lot of the data is now coming from the customer side.

So if you look at the different layers involved in AI deployment from application model, the AI infrastructure, through chips. I think what's most different and most important about the Agentic AI era is the need to achieve this tight integration between application and model. That's the critical priority.

Next, let me address the interconnection and synergies among the different businesses in relation to ATH. If you look at the trends of where this industry is going, and we think we see these trends very clearly. The AI agents will be tightly integrated together with the application layer. And there will be a multitude of highly diverse applications. In the consumer or 2C space, we're strongly developing the Qwen app as a personal assistant for individuals. And in the 2B space, we're positioning Wukong has a 2B. .

In the AI application layer, there will be a multitude of different industry and vertically specialized applications to serve different industry use cases. And all of this needs to be supported by a very robust model as a service, mass layer. So mass supports, of course, our own internal applications as well as a multitude of external and industry-specific use cases that leverage AI. So in this context, we see massive value that we can provide and a huge total addressable market. or TAP. So going forward, we see the AI application layer as the main channel through which tokens will be distributed. And the stronger the model capabilities that you can offer at the mass layer, the more attractive and compelling all of these different offerings will be to customers. That is the business logic that we have laid out within this new business unit. .

So from the perspective of both the model and the application layers, our top priority absolutely is to develop the most intelligent models. And I really need to emphasize that only when you have the most powerful models, can you truly drive the deployment of AI applications across all kinds of different industries. Only with the strongest models, can you attract applications from across diverse industries to adopt our mass offering. .

However, in order to build the most robust models, you need to have very close collaboration with various industries and with our own 2C and 2B applications to connect with our mass 2 applications across all kinds of different industries and use cases. So we need to get more users to leverage and make use of our models in order to gradually be able to leverage the data flywheel effect. Only in that way, can we continuously enhance the capabilities of our models. So that's one of the reasons why we have established the ATH business unit at this time.

So to summarize, I would say our top priority is definitely to enhance model capabilities. However, to enhance model capabilities requires concerted efforts across the entire model pipeline as well on the application and infrastructure side in order to achieve sustained improvements over the long term.

Your next question comes from Joyce Ju at Bank of America.

Congrats on the solid progress you've made in cloud and AI. My question is we see CMR growth slowing notably in the December quarter, given the macro pressures. We have seen China's online retail sales only up 2% year-over-year in the fourth quarter '25. But more recently, MBS data point to a reacceleration in January and February. Could you share your latest view on the CMR trends heading into the March quarter? And whether you have started to see any improvement in element?

[Foreign Language] [Interpreted]

Thank you for your question. Indeed, in the December quarter, weak macro consumption, a warm winter, the later timing of the Chinese New Year challenged the growth for the December quarter. And due to the extended promotional season, our investments in consumer benefit increased compared to previous years. So as a result, the CMR and EBITDA trend softened. Going into the March quarter with the improving consumer sentiment that we've observed and momentum from our Quick Commerce strategy, our physical goods GMV and CMR trend have significantly recovered from the December quarter, and EBITDA is expected to improve accordingly.

All right. Let's move on to the next question.

Your next question comes from Gary Yu at Morgan Stanley.

My question is related to Quick Commerce. I understand that in the past couple of months, we have achieved certain milestones in terms of GDV market share and also GDV improvement. How should we look at the priority going forward? Are we aiming for market share or hoping to take this opportunity to improve unit economics, reduce loss? And how should we look at the synergy between Quick Commerce and traditional e-commerce? And how should we see these synergies to translate into CMR better growth going forward? .

[Foreign Language] [Interpreted]

Certainly, while growing our market share, we have continued to significantly improve UE driven by improvement in fulfillment logistics efficiency by improvement in monetization as well as by order mix optimization, driven by those factors, we expect to further optimize in the coming quarters.

In terms of the positive impact that Quick Commerce is bringing to our conventional e-commerce business and to our entire ecosystem. We saw a very significant increase in AACs on the platform in the past year. Our AAC number increased 150 million in 2025 and including 10 million conventional e-commerce physical goods AAC, which is more than the previous 3 years combined. .

Now new consumers ARPU and purchase frequency are lower than that of existing users. So we aim to continually increase their ARPU and purchase frequency, which will serve as a new growth engine for our platform in the coming years. Quick Commerce is clearly driving sales in various categories such as food and fresh produce and health care and is contributing to Freshippo and Tmall supermarkets accelerated growth.

In terms of the outlook, we maintain our target of achieving over RMB 1 trillion in Quick Commerce GMV by FY '28. We expect to generate positive cash flow when the GMV target is achieved, and we expect the Quick Commerce business to be profitable in FY '29.

Quick Commerce has become a cornerstone of our e-commerce business, playing a strategically vital role in the AI era by driving customer acquisition, enhancing user engagement fulfilling diverse consumer demand, increasing transactions and improving monetization and supporting logistics infrastructure. We are committed to investing in Quick commerce in the next 2 years towards achieving the RMB 1 trillion GMV target as a market leader.

Operator, let's move on to the next question. .

Your next question comes from Alicia Yap at Citigroup. .

I have some questions regarding your chip business,. So there have been reports that Alibaba plans to spin off the that unit as a separate listing. Can management provide any information of this? And if so, what is the expected time frame for this to occur? And in the meantime, can you share more operating metrics? So in addition to the 470,000 chips that you mentioned you shipped to external customers, how we reconcile that number, the shipments to the revenue side? And also what is the expected growth rate for your chip business in the coming year? And I think you mentioned currently it's 60% of these from external customers. So maybe can you also share with us, are these chips for external customer mainly used for inferencing? And then for internal, is it used for model training and also infere ring? And then lastly, how do the chips or TS chips are compared to other domestic chips? If management can share some detail would be great.

[Foreign Language] [Interpreted]

Okay. Thank you very much for this question. And I'd like to take the opportunity to expand on this a bit because T-Head is a very important component of Alibaba's company-wide AI strategy. So in the context of China's domestic AI chip ecosystem, we firmly believe that T-Head is ranked in the top tier of the domestic AI chip ecosystem in terms of the technology capabilities and product capabilities. Our products cover the entire AI workflow from model training and fine-tuning through to inference. And our T-Head AI chips are already in extensive large-scale use via Alibaba Cloud, both for training workloads and for by inferencing use cases.

At the same time, over 60% of T-Head ships are being used by external commercial customers across Alibaba Cloud's public and hybrid cloud offerings. The external commercial clients span multiple industries, including Internet finance, autonomous driving and intelligent manufacturing. And these are external commercial customers are utilizing T-Head chips in both their training and inferencing workloads.

Moreover, on the T-Head software stack, we have excellent compatibility with the Linux ecosystem. So customers can migrate their systems easily without spending a lot of time on the migration. Another point I would make is that in my view, T-Head's significance to Alibaba lies not only in our aspiration to close the gap between domestically produced chips and foreign counterparts, foreign-produced chips in terms of manufacturing processes and overall performance across various dimensions.

But given that our chips still lag behind foreign counterparts and performance in various respects, we aspire to engage in more profound co-design with Alibaba's cloud infrastructure and the Qwen model to provide improved cost effectiveness. So this is one key differentiator and how we approach chip design at T-Head that sets us apart from other chip companies. Our primary goal is to create AI capabilities that offer superior value for money. This will make it a key product for the platform, allowing us to reduce inference costs going forward. Beyond generally improving our AI efficiency and reducing costs, there's another factor at play namely the unique circumstances currently facing the AI industry in China. In that context, one significant benefit for us is the guaranteed supply of AI computing power.

Because I believe that over the next 3 to 5 years, global AI computing power will be an extremely short supply, especially in the Chinese market, as the only cloud compute company in the Chinese market with proprietary chip development capabilities. T-Head is of paramount importance, therefore, to the Alibaba Group, increasing the supply of AI computing power will help our cloud and AI businesses, including our mass business to achieve stronger growth momentum.

At T-Head, over the past 2 years, we've successfully commercialized and launched chips with total volume exceeding 470,000 units with annual revenue reaching the 10 billion on level. Looking ahead to '27 well, through 2026, this year through '27. Next year, we expect T-Head's production capacity for high-quality AI chips to continue to expand. This will provide robust computing power support for our group's AI business and serve as a powerful growth driver for our overall AI initiatives. We also believe that future improvements in profitability will be achieved further enhancing profit levels, which will also be very beneficial. Overall, T-Head's value to Alibaba goes beyond cost optimization. It primarily serves to ensure supply chain resilience and in an era of scarce computing power. I see this as crucial to Alibaba's AI strategy. So it is possible, and we don't rule out the T-Head of considering an IPO in the future, although we currently do not have any definitive time line.

Next question, please.

The next question comes from Yuan Liao at Citic.

[Foreign Language] [Interpreted]

My question is about the business objectives for your AI strategy that you just mentioned. Revenue for the next 5 years is expected to exceed 100 billion. Could you provide more details on this target? For example, if the next 5 years is through to 2031, what kind of CAGR would that correspond to in this 5-year period? And could you also break out what will be driving that growth and how we should understand those drivers? Given this scalable growth in revenue, when can we expect to see sustained improvement in Alibaba Cloud's margins?

[Foreign Language] [Interpreted]

Thank you for your question. So yes, we certainly believe that within 5 years, revenues from our AI and cloud-related business will exceed $100 billion. We think that, that is very clear. If you look at the market growth that we're seeing today are the strength of our product portfolio and the road map to get there.

I think that the major driver underlying all this really is continued breakthroughs in the capabilities of large AI models. And we've certainly seen a riskier trend over the past couple of months, 2 months of 2026, whereby large models have now gained the capability to execute complex B2B workflows. More and more enterprises are deploying agents powered by large models to handle end-to-end business tasks. And that marks a fundamental transformation in the way that the market looks at IT budgets, IT budgets traditionally allocated to AI and cloud services. The shift really is that many enterprises now when consuming tokens don't treat token consumption as part of their IT budget any longer. Instead, they see tokens as part of their overall operational or R&D costs. Tokens are a key component of their production inputs, not just a part of their IT budget. So this is the most fundamental long-term factor that we see driving future AI growth. .

I believe that the largest drivers of growth will come from 3 areas. First is the mass-driven business, which really is the core growth engine. And the growth of our mass business will be supported by a variety of different use cases, including our own applications as well as a diverse array of AI application scenarios from across our customer base and across various different industries, including AI application software. And we believe that the growth driven by mass initiatives will be a key driver of future revenue for both AI and cloud services.

But secondly, for AI and cloud computing, there's another very important growth opportunity. Of course, we believe that public mass will be a substantial market in the future. But in a considerable number of large -- medium and large-sized enterprises, there'll also be a demand for enterprise level, internal inference and training, a new marketplace. And that market will continue to exist in the long term. It's not one that will disappear simply because each enterprise makes decisions based on its own business model and the security requirements of its specific use case or the particularity of an application scenario. So for some application scenarios, enterprises will opt to use public mass API services, while many others will be based on privately deployed solutions within the enterprise. So those kinds of application scenarios represent a large incremental growth opportunity for Alibaba Cloud's AI infrastructure.

Third, there's another important driver, an important opportunity that I think tends to get ignored a lot of the time. And I'm talking about CPU-centric cloud computing, the traditional cloud computing, which has significant room for expansion in this AI-enabled era. So traditional cloud computing is designed for IT engineers, which in China may number a few million, say, perhaps no more than 10 million potentially traditional IT engineers. And those have been the traditional cloud computing customers.

However, in the future, there could be billions of agents that are created by large AI models and their operating environment. The operating environment of these agents will also require substantial support from traditional CPU-centric cloud computing. They need these traditional CPUs as well as databases, storage and large amounts of memory to support their long-term problem solving and sustained operations. So the challenge lies in transforming the traditional cloud computing market shifting from a cloud platform designed for human users, those IT engineers to one that's optimized for agent-based implication. So I believe there's tremendous room for growth there. So a key challenge for us this year is transforming traditional cloud computing into a platform that is better suited for Agentic use. And that's a key focus of Alibaba Cloud's upgrade.

As the revenue from this business continues to grow, our AI business will undergo transformation and upgrading, shifting from selling resources to selling intelligence, selling intelligent capabilities. And I think that represents a massive upgrade to the business model. At the same time, by integrating our proprietary T-Head chips we are achieving and will achieve cost reduction and efficiency gains, we believe that as our AI and cloud business continues to grow in revenue scale, cloud profitability should become increasingly visible and we see it is on a steady path of improvement. However, the process of continued improvement is not a linear one. It's possible that there could be a scale effect breakthrough, the achievement of an economy of scale or the scaling up of our T-Head chips, and there could be a massive leap forward, but I think that's a function of the product as well and those kinds of economies of scale.

But it will not unfold in a linear fashion. So you asked about the CAGR compound annual growth rate from 2026 through to 2031. I think you can plug that into your calculator and figure out what it would be assuming it were to be linear, but I don't think that it will be linear. Our R&D investment and growth in the market will not be linear and some of the investments we're making today may not yield significant growth until 1 or even 2 years from now. However, regarding that overall 5-year goal, we are highly confident in our ability to achieve it. .

Thank you. Peter, let's take the last question.

The last question comes from Alex Yao with JPMorgan.

[Foreign Language] [Interpreted]

I'd like to shift the topic a little bit and ask a question about E-commerce. You previously said that we were in a 3-year investment cycle for E-commerce. I'm wondering if that is now being adjusted or being driven by the new opportunities that have arisen in Instant Commerce and in agentic commerce or if we're still thinking of it in terms of the original 3-year plan, which would put us now in the middle really of that 3-year period where I guess we would start to be reaping the returns on a stable basis from those investments. So if you could speak to us about the overall direction of E-commerce in the context of that 3-year investment cycle that you'd told us before and also share with us how you're thinking about being positioned and your strategies on this e-commerce track.

[Foreign Language] [Interpreted]

Thank you. So as I just mentioned, we are making a very significant investment in the instant retail business this year, the Quick Commerce business this year. And at this point in time, we're seeing a highly definitive opportunity in this space. So again, as I just mentioned, we will continue to invest heavily over the next 2 years in order to achieve our goal of surpassing RMB 1 trillion in Quick Commerce sales. We also believe that in 2 years' time, our investments in Quick Commerce will generate positive economic returns for our E-commerce business as a whole. .

[Foreign Language] [Interpreted]

But I'd like to add to that by bringing in the dimension of AI because Eddie has talked a lot about AI. I believe that AI will also have a very, very significant impact on e-commerce. However, 3 years is too long a time to talk about when it comes to AI because AI today is evolving at a pace that's measured in weeks or in months. But that's precisely why we're making significant investments on the AI front and we are leveraging AI to roll out new experiences for consumers and for merchants as well as upgrading merchants' business models with AI.

We believe that AI will allow us to make huge upgrades in e-commerce across different parts of the e-commerce business. It's beneficial for our B2B business, where we see tremendous opportunities for its deployment and we will actively seize on all of these new opportunities. .

Okay. That wraps up the Q&A session of today's earnings call. Thank you very much for joining us today, and we look forward to speaking with you soon.

Thank you. That concludes the call for today. Thank you for participating. You may now disconnect your lines.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's September Quarter 2025 Results Conference Call.

[Operator Instructions] I would now like to turn the call over to Lydia Lu, Head of Investor Relations of Alibaba Group. Please go ahead.

Thank you. Good day, everyone. Welcome to our September quarter 2025 earnings conference call. With me today from Alibaba are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Jiang Fan, Chief Executive Officer of Alibaba E-commerce business group.

I would like to remind you that this call is also being webcast on our copy website. A replay of the call will be available on our website later today. Just a few forward-looking statements before we begin today. Today's discussions may contain forward-looking statements, particularly statements about our business and financial results that are subject to risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements.

Please refer to the safe harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures that we use on this call are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I'm going to turn the call over to Eddie.

[Interpreted] Welcome to Alibaba Group's quarterly earnings call. Over the past quarter, Alibaba delivered steady and healthy growth. Our total revenue increased 15% year-over-year, excluding Sun Art and in time. Our continued investment in core businesses is yielding results with China e-commerce CMR growing 10% and Cloud Intelligence revenue rising 34%.

Let me walk you through the latest developments across our AI + Cloud and consumption businesses. Sustained strong demand for AI and rising usage of public cloud drove Alibaba's Cloud 34% revenue growth this quarter, while revenue from external customers accelerated by 29%. And AI-related products continued to post triple-digit year-over-year growth for the 9th consecutive quarter. In the cloud computing market, 2 major trends are becoming increasingly apparent. First is AI applications scale, more developers and the enterprise customers are choosing vendors with full stock AI technology portfolios.

Second, Customers are deepening and broadening their use of AI, which is significantly increasing demand for compute, storage and other traditional cloud services. Together, these forces are accelerating revenue growth driven by external customer demand. This quarter, we continued to strengthen our full stack AI capabilities, spanning high-performance AI infrastructure, foundation models and AI development frameworks. Our flagship model, Qwen3-Max ranks among the global leaders in benchmarks for real-world coding tasks, agent tool use capabilities and other specialized valuations.

Our full stack AI capabilities are now a defining competitive advantage. Alibaba Cloud is gaining market share across multiple segments. In the hybrid cloud market, Alibaba Cloud has become a key player, growing more than 20% year-over-year, outpacing the industry and steadily expanding market share. Our financial cloud business is also growing faster than the market with market share continuing to rise. In China's AI cloud market, we are also the clear leader with a market share larger than the combined total of the second to fourth largest providers. Recently, businesses such as the NBA, China UnionPay and Bosch have partnered with Alibaba Cloud on AI initiatives.

Last week, we officially launched the Qwen app, which aims to be the most advanced personal AIS system powered by our latest models. In the first week of its public data, the Qwen app has already surpassed 10 million in new downloads. The launch of the Qwen app marks Alibaba's commitment to both AI for enterprise and AI for consumer. In enterprise-focused AI, our goal is to build a world-leading full-stock AI provider serving businesses across all industries. For consumers, we aim to build native AI-first applications by leveraging our best-in-class models and Alibaba's extensive ecosystem.

On the one hand, Qwen3-Max's intelligence and world-class tool use capabilities combined with Alibaba's rich consumer and lifestyle use cases contributed to exceptional user retention in the Qwen apps beta release. We believe this is the right moment to scale our consumer AI efforts. On the other hand, the synergy between AI and the broader Alibaba ecosystem is a powerful multiplier. Alibaba is the only company in China with both a leading large model and extensive lifestyle and commerce use cases. will gradually integrate e-commerce map navigation local services and more becoming an AI-powered entry point for everyday life.

With AI innovation and ecosystem collaboration reinforcing each other, we're confident in our ability to deliver substantial user value. In consumption, we continue to deepen collaboration across businesses and the benefits of our large integrated platform are becoming increasingly evident. This quarter, China e-commerce Mark grew 10%. Our Quick Commerce business saw a significant improvement in unit economics with creator fulfillment efficiencies, stronger user retention, higher average order value and expanding scale.

The growth of quick commerce business contributed to rapid growth in Taobao app's monthly active consumers and supported CMR expansion. Brands on Tmall are also accelerating their adoption of on-demand retail as of October 31, approximately 3,500 brands on Tmall onboarded their online stores to our quick commerc business. Going forward, we will further enhance synergy between quick commerce and the broader Alibaba ecosystem, continue improving unit economics and meet consumers' fast-growing demand for immediate access to diverse products and services.

On October 1, Amap's daily active users reached a historical high of 360 million. In September, we launched the Amap Street Stars feature has significantly boosted user engagement. In October, Amap Street stars averaged more than 70 million daily active users with average daily user reviews more than triple the amount of the same period last year, indicating strong future growth potential. Amap Street Stars has built a trust-based rating system for local offline services using user consented metrics such as the users credit rating.

We believe that enhancing consumer sustainable strengthening consumer confidence, enabling merchants to focus on operations while giving consumers greater peace of mind, supporting the healthy and sustainable growth of the local off-line services sector. Looking ahead, we'll continue investing decisively in our 2 core strategic pillars: AI plus cloud consumption. We will advance both enterprise and consumer-focused AI unlock deeper synergies across Alibaba's businesses and use these entrants to drive Alibaba's long-term growth and carry the company to the next level. Thank you. I will now hand over to Toby.

Thank you, Eddie. We are continuing our focus and discipline on AI plus cloud and consumption and we see strong momentum from these strategies with gains in technology, market share, consumers and user engagements. Now let's look at the financial results. On a consolidated basis, total revenue was RMB 247.8 billion. Excluding revenue from Sun Art and Intime, revenue on a like-for-like basis would have grown by 15% year-over-year. Total adjusted EBITDA decreased 78%, primarily due to our strategic investments in quick commerce business to grow its user base and transaction volume, partly offset by double-digit revenue growth in China e-commerce group and Cloud Intelligence Group and improved operating efficiencies across various businesses including AIDC and Wujin DME. Our GAAP net income was RMB 20.6 billion, a decrease of 53%, primarily attributable to the decrease in income from operations.

Operating cash flow was RMB 10.1 billion, a decrease of RMB 21.3 billion compared to the same quarter last year. The year-over-year decrease was mainly attributed to our increased strategic investments in quick commerce business. Free cash flow was an outflow of RMB 21.8 billion which reflected our significant investments in quick commerce business and AI plus cloud infrastructure, we are reinvesting our free cash flow to create a winning quick commerce business and to be a leader in AI.

Our strong balance sheet backed by USD 41 billion in net cash gives us confidence for this reinvestment strategy. Revenue from Alibaba China e-commerce group was RMB 132.6 billion, an increase of 16%. Customer management revenue increased 10% primarily due to the improvement of take rate, which benefited from the increasing penetration of [indiscernible] and the addition of software service fees. Revenue from our Quick commerce business increased 60%. During the quarter, we executed our plan to grow the scale of our quick commerce business, improve user experience and narrow UE loss.

The adjusted EBITDA from Alibaba China e-commerce group was RMB 10.5 billion. Excluding loss from our Quick commerce business, our Ali Baba China e-commerce group EBITDA would have grown at mid-single-digit year-over-year for the quarter. Going forward, this adjusted EBITDA may fluctuate quarter-over-quarter due to intense competition and a significant investment in user experience. Revenue from AIDC grew 10%. AliExpress, in particular, has developed AliExpress direct model that leverages local inventories in over 30 countries. Art Express has also enhanced the range of our product offerings by launching the Brands program, providing go-to-market solutions to Chinese brands going overseas.

A combination of logistics optimization and investment efficiency enhancement resulted in AIDC's adjusted EBITDA profit of RMB 162 million this quarter. Looking ahead, while we continue to enhance operating efficiency, AIDC adjusted EBITDA may fluctuate quarter-over-quarter due to tactical investments in select markets. Our cloud business delivered another quarter of accelerated growth as both growth of cloud segment revenue and revenue from external customers accelerated to 34% and 29%, respectively.

This momentum was primarily driven by public cloud revenue growth, including the increasing adoption of AI-related products, AI-related product revenue continue to grow at triple-digit pace. AI-related product revenue this quarter accounted for over 20% of revenue from external customers with its contribution continue to increase. We are seeing accelerated adoption of our AI products across a broader range of enterprise customers with a growing focus on value-added applications, including coating assistance.

The adjusted EBITA margin remained relatively stable at 9%. We will continue to invest in customer growth and technology innovation to increase adoption of AI infrastructure cloud and strengthen our market leadership. All Other segment revenue was a decrease by 25% and mainly due to the disposal of Sun Art and Intime businesses. All other adjusted EBITDA was a loss of RMB 3.4 billion, primarily due to the increased investment in technology businesses, partly offset by the improving operating results of other businesses. Hujing Dme has achieved profitability for 3 consecutive quarters. All Other segment comprises a set of innovative initiatives, including several strategic AI-driven technology infrastructure and businesses, including our foundation model and AI apps. We are excited to continue investing in these initiatives for future growth. Thank you, that's the end of our prepared remarks, we can open up for Q&A.

Thank you, Toby. Hi, everyone. You're welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session, the translation is for convenience purpose only. In the case of any discrempancy, our management statement in the original language will prevail. If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within 1 week after the end of the meeting. [Foreign Language]. Operator, please go ahead with Q&A session. Thank you.

[Operator Instructions] Your first question today comes from Gary Yu at Morgan Stanley.

Congratulations on a strong set of results. My question is related to cloud business. How should we look at the growth outlook going forward? Should we continue to expand growth to accelerate? And on the demand side, given we don't have a big AI company like in the U.S., how should we look at the key drivers driving the external revenue growth going forward?

[Foreign Language]

[Interpreted]

Thank you for those questions. Let me start with the first one. Certainly, we see that customer demand for AI is -- remains very strong. In fact, we're not even able to keep pace with the growth in customer demand as in orders in terms of the pace at which we can deploy new servers. So we certainly do see the demand for is accelerating. In terms of where that demand is coming from, it's really coming from all aspects of enterprise operations as AI adoption continues to not only accelerate but deepen with applications across product development through our manufacturing processes and also in terms of supporting the enterprises and customers use their products. So when all of those places AI adoption continues to deepen.

And of course, all of this activity around model training and inference requires the use of compute as well. So essentially, we're talking about a huge potential and continually growing demand among real customers engaged in real world use cases. Therefore, our conviction in future AI demand growth is strong.

Your next question comes from Kenneth Fong at UBS.

Congrats on the strong performance in our quick commerce initiative. Can management share some key progress for quick commerce and synergy to our core e-commerce so far. Given the synergy, what's the outlook for December quarter CMO and EBITDA for our core e-commerce?

[Foreign Language] [Interpreted] Thank you for your question. Over the past few months, we've focused on optimizing our unit economics in quick commerce, while maintaining our market share. And we believe we've made significant progress on this front, the order mix has improved and the economies of scale from growing order volume has driven clear reductions in logistics costs. Since November, the per order UE loss for quick commerce has been cut by 50% compared to July, August.

So on this basis, quick commerce has maintained stable order share with GMV share holding steady and trending upward. And we're also seeing uplift in related physical e-commerce categories. Let me expand a bit further on those points. First, in terms of order mix optimization. Over the past 2 months, the share of higher average order value, higher AOV orders has increased. According to the latest data, non-beverage orders now account for over 75% of total orders.

Most recently, AOV for quick commerce has grown by double digits compared to August which has contributed to an increase in quick commerce's overall GMV share. On the second point about logistics as the order volume scales, quick commerce is realized in very clear economies of scale in fulfillment and logistics.

Delivery speed is now faster than the same period last year. while average logistics cost per order has declined significantly. In fact, the average cost per order is now lower than it was before we started making large-scale investments in quick harness. .

So these 2 factors together have enabled us to achieve our near-term target, namely cutting by half the per order loss versus July, August. And importantly, during this phase of narrowing UE losses, both user retention and purchase frequency have outperformed management expectations.

Beyond food delivery, we're also seeing rapid growth in retail categories via quick commerce, clearly driving growth across related categories and businesses, especially groceries, health care products and the supermarket segment within physical e-commerce. For example, [ Frico ] and Tmall supermarket quick commerce orders are up 30% from August. Over recent months, we've also actively onboarded merchants and brands onto Taobao instant commerce, and we will further accelerate integration and synergy between key retail categories and quick commerce model going forward.

So in summary, we firmly believe that the quick commerce model holds immense potential for synergy with the broader Alibaba ecosystem. In Phase 1, we successfully achieved rapid scale expansion. In Phase II, UE optimization is progressing in line with our expectations, laying a solid foundation for the long-term sustainability of the quick commerce business and reinforcing our confidence in sustained long-term investment in quick commerce.

In the next phase, we will continue to refine the user experience through operational upgrading with a focus on serving high-value users and to focus on expanding retail categories. Quick commerce is a core strategic pillar in the Taobao Tmall Group's platform upgrade. Our goal is to generate RMB 1 trillion in GMV for the platform within 3 years, thereby driving market share gains across the related categories.

[Interpreted] This is Toby. Let me take the second part of your question about CMR and EBITDA.

So as Jiang Fan has just shared with you, a quick commerce is having a very significant effect in terms of enhancing user engagement as well as driving transactions in relevant categories. So that, of course, has a positive impact in CMR. So the main thing that we need to do in this next phase is to better integrate and achieve synergies across conventional e-commerce and quick commerce so as to more fully realize that impact.

However, we are in an investment phase right now. So this is relevant to EBITA. I think likely, the September quarter we will see the quarter during which the scale of those investments are the highest. And as efficiency improves on -- improves and the scale of this business stabilizes we can expect to see, I think, by next quarter a significant sizing down in the scale of those investments. Of course, having said that, we will dynamically adjust the pace and size of our investments in line with market competition.

When it comes to new CMR and the e-commerce business, there will be an impact from the base effect in respect of the payment processing fee as well as the rollout of QCT. We started charging the payment process in September of last year. And so starting from next quarter, we did expect to see a slowdown in growth due to that base effect but as we've consistently emphasized, our primary informal objective is to secure market share for the medium and long term.

And during this process, we will continue to decisively invest in consumers and merchants, and we will resolutely move ahead with business model upgrading of our e-commerce platform. And during that process, you can therefore expect that there will be short-term fluctuations in CMR and in EBITDA.

Your next question comes from Alex Yao at JPMorgan.

[Foreign Language] [Interpreted] Thank you very much for the opportunity. So as Jiang Fan just said, we've now completed the first phase of these investments we're now in the second phase where we are enhancing efficiency. So my question is, as the efficiency is optimized and we obtain cost savings what are we going to do with those cost savings? How will the benefit of those cost savings be allocated or distributed across the value chain among the different key stakeholders, say -- assume, for example, that we're going to continue to maintain the same level of intensity with respect to subsidies to consumers this ongoing incremental improvement in the financial performance of the business then what will that mean in terms of subsidies for merchants?

The cost savings will need to be allocated or distributed somehow across the key stakeholders, the consumer merchant and platform. And then so if we don't decrease those subsidies to consumers and we continue to follow the same path that we're on now and rely on optimization of user mix as well as try to increase in order share and driving higher basket sizes, what does that mean for you? And how much scope is there going forward for UE growth?

[Foreign Language] [Interpreted] Yes. This is Jiang Fan. Let me take this question. And it's actually related to, in part, some of the things that I was sharing with you a bit earlier. So what we've been doing in this period of time is enhancing user experience and at the same time, increasing the average order value. So that means that the revenues attributable to each order will increase, because our revenues are proportionate to average order value. I also spoke earlier about how we've optimized logistics, fulfillment, logistics efficiency, and we'll continue to drive improvement with scale.

So I think going forward, there is still considerable scope there on the one hand in respect of consumers because over the past few months, it's really been primarily new consumers in this business. And what we're doing is converting those users into users with a higher level of stickiness across the platform as a whole. And through that process, we'll continue to increase average order size, average order value and to modify the ways in which we provide subsidies. Also, if you look at traffic on the Taobao app over the past few months, including on the quick commerce channel, which has rapidly increased to the point where has over 100 million daily users on the channel. I think it speaks to the fact that there's considerable potential for monetization -- further monetization and I think that, that's an opportunity also to improve in the future.

Having said that, again, the market is a highly competitive market. So we will be looking at those opportunities, but adjusting our approach dynamically in line with market dynamics.

Your next question comes from Ronald Keung at Goldman Sachs.

[Foreign Language]

[Interpreted] So I'd like to ask about CapEx over the next 3 years. And I'm wondering what your thinking is as you sit here today regarding the $380 billion figure, I think you previously mentioned, in particular, because over the past 4 quarters, I believe, $120 billion has already been spent. So how should we be thinking about CapEx going forward and the incremental revenue being driven by that CapEx and how to evaluate the correlation between CapEx and the expected incremental revenue?

[Interpreted] Thank you for the question. So the $380 billion CapEx figure that we had previously mentioned was a planned figure for a 3-year period. But based on what we're seeing now, and as I just mentioned, the pace at which we can add new servers is insufficient to keep up with the growth in customer orders. So looking at the CapEx situation from where we're at today and of course, there are also supply chain issues to consider as well the pace in which we can build out IDCs and launch new service is also part of that consideration.

But essentially, we're working as fast as we can to be able to satisfy all of that customer demand. In that context, if we're not able to satisfy all of our customer demand especially well with the current pace of investment, then we wouldn't rule out further scaling up that CapEx. But again, that is somewhat dependent on supply chain and the capability. But in overall terms, certainly, we will be investing in AI infrastructure aggressively in order to meet that [indiscernible]. So in big picture terms, I would say that the $380 billion figure we had mentioned previously, might be on the small side, certainly in terms of the customer demand that we're currently seeing.

[Interpreted] Thank you. The second part of the question had to do with the incremental revenue being driven by these capital expenditures. And if there's some kind of ratio that we can calculate between x amount of CapEx investment and x amount of incremental revenue. And I don't think it's really possible to make that kind of estimate at least for the time being because overall, the AI sector is still in the early phases of its development. And if you look at the different ways that our AI infrastructure is currently being used, that's in flux and spend in several different areas, for example, we have servers that are directly granted to customers for training. We have servers that are directly rented to customers for inference.

And we're also, of course, using service ourselves by for inference. as well as for internal applications within the Alibaba Group, like Amap, like Cainiao, like Qwen and core and transforming these allocations into member services or membership-based products for our users. So overall, our AI products and AI infrastructure being used in all these different ways, different kinds of allocations, resulting in different revenues and different gross margin levels.

So I think in terms of that kind of ratio, you were asking about whatever it is, it certainly wouldn't be stable at this point. I think in the long term, though, what we care about more is that our infrastructure is serving high-quality tokens and providing good cost effectiveness.

Your next question comes from Ellie Jiang at Macquarie.

[Interpreted] This is more of a follow-up question. The company is a full-stack AI service provider and obviously is currently in an important investment cycle. And we can see that the investments you're making cover a number of different segments in the value chain. So considering the instability in the supply chains that are ongoing at present. I'm wondering how you consider the allocation of our resources because you have the model as a service, the mass layer, we also continue to build up underlying capabilities, fundamental capabilities.

And on the user-facing side, we have apps, including Q1 and AMP products like that, that we're iterating rapidly and scaling up to users. So I'm just wondering in the present macro environment, how should we think about -- how should we evaluate the return on invested capital, ROIC, in respect of AI and including both training and inferencing?

[Interpreted] Let me take that question. Indeed, as a full stack AI service provider, we are currently in a very important investment cycle for AI and investing in our products as well as in our infrastructure. So there are several different places where we're investing and we do have some internal thinking about how we prioritize them, and I can share, I think, some of those considerations with you.

First of all, I would say the most critical priorities. The first thing that we need to ensure is that we are able to continually train our own foundation models. Because in the AI space overall, the ability of our AI infrastructure to be able to acquire more customers or to be able to acquire more high-value use cases relies on our ability to continually iterate and upgrade our foundation models. We need to be doing that in order to be able to unlock new demand and to acquire new customers by unlocking risk cases.

After that, after unlocking new higher-value use cases, then the next thing is to look at the token consumption as well as token quality as well as the willingness of customers to pay for those tokens and that willingness is going to continue to strengthen gradually. So I would say that, that is one of the highest priorities when it comes to allocating those investments. Another priority is around inference, I'm thinking primarily of inference on -- as a service on Bailian. That is also a relatively high priority area for us. because we've created the Bailian platform in order to be able to serve customers all around the world. We want to ensure that those AI resources are available 24 hours a day and are being utilized 24/7 with high efficiency.

So the key there is to ensure that one AI server can run at full capacity 24 hours around the clock and thereby to generate more tokens. So Bailian is a very critical resource pool for us, and it's a relatively high priority. Separately, of course, we have internal use cases for AI inferencing. And indeed, we also have external customers who are leveraging our inferencing services to their demand. So that's also part of the picture. But when it comes to these external customers, we also had some criteria for prioritizing different external customers.

If an external customer is utilizing all of our services across cloud all of the cloud services spanning storage, spending big data and all of these other things, then, of course, not customer would be accorded to a higher level of priority. If you have a customer that's merely renting a GPU to move some very simple inferencing needs than the demands of those customers would accordingly be given a slightly lower level of priority.

Moving on to the second question, which I thought was a really good one. I think there are 2 pieces to this issue. The first is the supply side. Second is -- first is the demand side. Second is the supply side. So if we look at the foundation models and this could be video generation models. They could be omni-model models going forward, the capabilities continue to increase and be enhanced. And we're not yet seeing any issues in terms of scaling one -- nobody's hit the wall yet, so to speak, in the industry. We continue to make a lot of progress on the very important breakthroughs in terms of the capabilities. .

As the models become more powerful than the AI models will be able to do more things in the world of being able to serve larger variety of different use cases. And that will result in these models serving a lot of tasks, as the capabilities increase, they become stronger as these tasks become more deeply embedded across all industries, all aspects of business operations. So with those 2 drivers, we see in the next 3-year period, highly definitive trend of demand for AI.

And with all of this rapid growth in demand, we also need to be thinking about the supply side. I'm sure that you, as analysts have also been looking at the supply side. Starting in the second half of this year, I think we've seen worldwide. If you look at fabs, if you look at DRAM vendors, storage companies, CPU manufacturers across all of those different links in the value chain that go to making AI servers. There is a situation of undersupply, supply is unable to keep up with demand for all of these components globally. .

And I think that you can expect that to continue throughout this scaling up an investment cycle driven by real demand for AI, we know that the supply side is going to be a relatively large bottleneck. So I think that it could be at least a period of 2 or 3 years for those different suppliers, those different venues to be able to ramp up their production capacity. So in this period of 2 to 3 years, we can expect to continue to see a rapid increase in demand and not to be driving the supply side.

So I think in the next 3 years to come, AI resources will continue to be undersupplied with demand out on the supply. And what we can see internally in the industry, and if we look at the hyperscalers in the U.S., all of the latest GPUs that are running at full capacity and not just them, the last generation GPUs, even GPUs from 3 to 5 years, so also several generations back. those GPUs are to this day still running at full capacity. So looking ahead to the next, say, 3 years, we don't really see much of an issue in terms of a so-called AI bubble.

Your last question comes from Jialong Shi from Nomura.

[Interpreted] So in the last earnings call, management shared that Alibaba intends to grow its market share in the consumption market. in China. And we've seen that over the past few months, your investments in quick commerce have indeed resulted in an increase in market share. So I'd like to know apart from quick comments, apart from his e-commerce, what are the other subsectors in the consumption market that you see as good opportunities for investment where you will consider scaling up your investments?

[Interpreted] Thank you. This is Jiang Fan. Let me take this question. Alibaba has been investing strategically in consumption market over many years, and we've entered a huge number of different categories and some verticals. So apart from quick commerce, which we've been investing in heavily, we've talked a lot about it. We also, of course, have freshable, we have off-line, the offline O2O model as well as Fliggy as well as Amap and of course, local services. So that's our landscape or matrix of businesses that we've been investing in.

And I think what we need to be doing now really is working to integrate, connect those businesses and to drive more synergies across those existing businesses. And in that way, we can achieve a further increase in our market share in that larger consumption market.

Thank you. Thank you, everyone, for joining us today. We look forward to speaking with you again on our December quarter earnings call.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's June Quarter 2025 Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Lydia Lu, Head of Investor Relations of Alibaba Group. Please go ahead.

Good day, everyone. Welcome to Alibaba Group's June Quarter 2025 Earnings Conference Call. With us today are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Jiang Fan, Chief Executive Officer of Alibaba E-commerce Business Group. This call is also being webcast from the IR section of our copy website. A replay of the call will be available on our website later today.

Now I will quickly cover the safe harbor. Today's discussions may contain forward-looking statements, particularly statements about our business and financial results that are subject to risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures that we use on this call are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release.

And now I will turn the call over to Eddie.

[Interpreted]

Hello, everybody, and welcome to this quarter's earnings call. This quarter, we delivered solid growth. Excluding revenue from Sun Art and Intime, our total revenue on a like-for-like basis grew 10% year-over-year. Revenue growth of our core businesses remained strong. Customer management revenue from our China e-commerce business rose 10% year-over-year. Cloud Intelligence Group revenue growth accelerated to 26% and year-over-year with AI-related product revenue, maintaining triple-digit growth for the eighth consecutive quarter, revenue from AIDC grew by 19% year-over-year. In AI + Cloud, the accelerated development of AI applications and increasing AI product adoption by customers drove a 26% year-over-year revenue increase from our external customers.

During the quarter, AI-related revenue accounted for over 20% of revenue from external customers as AI demand continued to grow rapidly. We're also seeing AI applications driving great growth momentum of traditional products, including compute and storage.

SAP and Alibaba entered a strategic partnership focused on cloud and AI as SAP's global cloud computing partner, Alibaba Cloud will support SAP customers to run and manage their core software systems on Alibaba's platform. Leveraging our Q1 models, SAP will also provide AI transformation services for its enterprise customers. This partnership signifies the recognition of our cloud infrastructure and AI capabilities by the global leading enterprises in the SAP ecosystem.

We've continued to advance the capabilities of our AI foundation model. Since July, Alibaba has released upgraded Q13, including a nonthinking model, reasoning model and AI coding model, which are recognized as global top performers in their respective categories. Notably, our Q13 coder model has rapidly increased Q1's user adoption in overseas markets. We also open sourced several models such as the video generation model, WAN 2.2 and the text to image model Q1 image. By continuously upgrading our open source models, we're empowering our customers to develop their own AI applications.

Meanwhile, Alibaba's own AI native applications continue to advance. AMAP has undertaken a comprehensive AI transformation with the launch of AMAP 2025 and the world's first AI native location-based application. The upgrade brings spatial intelligence into dynamic real-world scenarios and AMAP is well positioned to become a new gateway for future lifestyle services. DingTalk has also completed its latest day upgrade of creating the world's first agent-driven work feeds to explore next-generation workplace application paradigm.

On our Taobao platform, we see men's AI-powered opportunities emerging, such as AI search and AI advertising platform.

In consumption, we undertook a strategic combination of Taobao and Tmall Group, Urlama and Fliggy into Alibaba China e-commerce group. This organizational change creates a comprehensive consumption platform and upgrade our consumer experience. We have consolidated supply chains, user bases and membership benefits across our businesses and launched a tiered loyalty program that connects Urlama, Fliggy and AMAP. The newly integrated benefits enhance our members' experience across a full spectrum of consumption scenarios.

Since May, our investments in Quick Commerce have rapidly surpassed key milestones and created synergies. In August, monthly active consumers on our quick commerce business are approaching 300 million, contributing to a 25% increase in monthly active consumers on the Taobao app. Daily order volume of our China e-commerce group continued to achieve new records.

Looking ahead, Alibaba Group has 2 historic opportunities, to build a technology platform centered on AI + Cloud and to create a comprehensive shopping and daily life services consumption platform. We will invest at scale to capture the opportunities. This also marks a new entrepreneurial chapter for the company after 26 years.

In line with this, in February, we announced an investment of RMB 380 billion over the next 3 years to build our cloud and AI infrastructure. In July, we announced plans to invest RMB 50 billion in consumption. The transformative impact of AI on all industries, combined with a deep integration of AI and cloud, will present the most significant opportunity in the technology sector over the next decade.

For Alibaba, we have the world's fourth largest in Asia's leading cloud infrastructure along with full stack technology capabilities spanning AI computing power, AI cloud platforms, AI models and open source ecosystem and AI applications. This quarter, our CapEx investment in AI and cloud infrastructure reached RMB 38.6 billion. Over the past 4 quarters, we have cumulatively invested over RMB 100 billion in AI infrastructure and AI product R&D. Our investments in AI have begun to yield tangible results. This is evidenced by Alibaba's Alibaba clouds returned to rapid growth driven by AI demand and our AI-enhanced experiences across consumer and enterprise-facing scenarios. So we're seeing an increasingly clear path for AI to drive Alibaba's robust growth.

We're also well positioned in China, the world's largest e-commerce market in the most promising service consumption market. China has a well-developed e-commerce infrastructure, high population density and strong demand for service consumption providing a solid foundation for the integration of our Quick commerce business and the Taobao app. We believe this convergence will fulfill consumer needs for a one-stop consumption experience and meet merchants' desire to serve consumers across multiple scenarios. It will enhance commerce efficiency and pave the way for an all-in-one AI assistant for consumption.

Alibaba's strategic positioning in Quick Commerce has ambitions beyond competing in a single category. We aim to meet the one-stop consumption needs of our 1 billion consumers and shape business models of a comprehensive consumption platform in the AI era. In consumption, our long-term goal is to create a comprehensive consumption platform catering to our 1 billion consumers full spectrum of shopping and daily life needs, we aim to offer the best experience to the largest consumer base with the highest purchase frequency ultimately leading in a RMB 30 trillion addressable market.

Over the next 3 years, Alibaba will embark on a new journey with an entrepreneurial mindset to drive robust business growth through sustained investments centered on the strategic areas of consumption and AI plus cloud confident that these investments in the core business will sharpen our competitive edge and fuel long-term growth.

[Interpreted] Thank you, Eddie. As Eddie said, we are embarking on a new chapter of entrepreneurship by investing in 2 strategic pillars of consumption in the AI + Cloud. These represent the 2 biggest long-term opportunities we are systematically pursuing.

To reflect this sharpened focus, we have also adjusted our financial reporting accordingly. Starting from this quarter, we undertook a strategic combination of Taobao and Tmall Group, Urlama and Fliggy into Alibaba China e-commerce group, transforming our value proposition into a comprehensive consumption platform. This is not simply an organizational change. It's a major strategic investment aimed at redefining the consumer experience and unlock long-term value across our ecosystem.

This quarter marked a meaningful progress on this front as we deepen investment in quick commerce and increasingly essential use case for capturing new demand and shaping future consumer experience. Our quick commerce business achieved key milestones while contributing to the 25% year-over-year growth in the Taobao app monthly active consumers in the first 3 weeks of August. In tandem, we are building the AI + Cloud infrastructure to support the next wave of technological transformation, positioning Alibaba as a key enabler of enterprise AI adoption across industries. Our cloud business delivered accelerated growth as segment revenue and revenue from external customers both grew 26%, driven by surge in AI demand and increased customer adoption of public cloud services to support AI workloads. At the same time, we remain focused on improving operating efficiency and profitability. In the quarter, AIDC delivered solid progress approaching breakeven while sustaining strong growth momentum.

Now let's look at the financial results on a consolidated basis. Total revenue was RMB 247.7 billion. Excluding revenue from Sun Art and Intime, revenue on a like-for-like basis would have grown by 10% year-over-year. The adjusted EBITDA decreased 14%, primarily due to our strategic focus on scaling quick commerce to capture new consumption patterns and drive future monetization opportunities, partly offset by margin improvements across several businesses including AIDC and other units that made continued progress in operating efficiency.

Our GAAP net income increased 76% and primarily due to the mark-to-market changes from our equity investments and the gain arising from the disposal of local consumer service business of [indiscernible].

Operating cash flow was RMB 20.7 billion. Free cash flow was an outflow of RMB 18.8 billion. This was mainly attributed to our accelerated pace on expanding AI + Cloud infrastructure as CapEx ramped up to approximately RMB 39 billion and investment in Taobao instant commerce backed by nearly USD 50 billion in net cash, a healthy and low leveraged balance sheet and our strong access to capital markets we have ample flexibility to support long-term strategic investments while maintaining financial resilience.

This quarter, we bought back approximately 7 million ADS for a total of USD 815 million and our share repurchase program. We remain committed to shareholders' return through a mix of share buybacks, dividends and investment for growth, and we will continue to adjust the pace in form of returns based on market conditions and strategic priorities.

Now let's look at the segment results, starting with Alibaba China e-commerce group. Revenue from Alibaba China e-commerce group was RMB 140.1 billion, an increase of 10%. Customer management revenue of our e-commerce business increased by 10%, primarily driven by the improvement of take rate. We had a successful June 18 shopping festival, which delivered strong consumer growth on the Taobao app. As we implemented user-friendly promotion mechanisms and increase the support for merchants that provide high-quality products and customer services.

The number of ADA VIP members, our high-spending consumers group continued to increase by double digits year-over-year, surpassing 53 million. Revenue from our Quick commerce business increased 12% and mainly due to order growth as a result of rollout of Taobao instant commerce at the end of April. Since its launch, we have seen encouraging business progress reflecting strong user adoption and growing order momentum.

In the meantime, we have expanded our product offerings and front warehouse coverage for nonfood categories as part of our efforts to improve user experience and enhance operating efficiency. We executed our plan to generate synergies between quick commerce and the rest of Alibaba's ecosystem by leveraging supply chain, users and membership benefits across our businesses.

In August, Taobao app launched a tiered loyalty program that connects Alibaba Group's China e-commerce, quick commerce and travel platforms.

The adjusted EBITDA from Alibaba China e-commerce group decreased by 21%. Excluding the investments in our quick commerce business, our Alibaba China e-commerce group EBITDA has grown year-over-year. Revenue from AIDC grew 19% and primarily driven by strong performance in cross-border businesses. AIDC's adjusted EBITDA loss narrowed significantly approaching breakeven as we continue to improve our operating efficiency, the UE of choice and the Transics International business improved significantly on a sequential basis.

Looking ahead, we are committed to enhancing operating and investment efficiency. As a result, our profitability will continue to improve.

Cloud segment revenue grew by 26%, primarily driven by public cloud revenue growth. AI revenue continued its triple-digit growth as AI demand continues to grow rapidly, we are also seeing increasing demand of compute, storage and other public cloud services to support AI adoption. The adjusted EBITA margin remained relatively stable year-over-year at 8.8%. We will continue to invest in customer growth and the technological innovation, including DI products and services due to increased cloud adoption for AI and maintain our market leadership.

As previously mentioned, we have updated our segment reporting to better reflect our focus. We simplified the financial reporting structure by reclassifying China Amap and Hugin DME into all others.

All other segment revenue decreased by 28%, primarily due to the disposal of Sun Art and Intime.

All other adjusted EBITDA was a loss of RMB 1.4 billion, primarily due to the increased investment in technology businesses, partly offset by the improved results of businesses, including [indiscernible].

The All Other segment comprises a set of innovative initiatives including several strategic AI-driven technology infrastructure and businesses. While we continue to drive efficiency improvements across business lines, we are also investing in AI opportunities to maintain our competitive edge and to drive future growth.

In closing, this quarter marked a meaningful progress in our strategic investment on 2 pillars that will power Alibaba's next phase of growth. Our comprehensive consumption platform and AI cloud infrastructure.

In commerce, the integration of multiple businesses under Alibaba China e-commerce group is driving stronger synergy across supply chains user networks and membership programs, enabling us to better serve evolving consumer needs and capture long-term growth potential.

In cloud, Revenue growth accelerated on the back of robust AI-driven demand. As we expand infrastructure capacity, we are helping more customers deploy and the scale of their AI workloads. We are investing with clarity and the conviction on the 2 historical opportunities ahead. AI and domestic consumption. Our commitment of RMB 380 billion technology investment reflects our long-term ambition to build infrastructure essential for AI proliferation, while our focused expansion in quick commerce is designed to unlock new demand and long-term consumption potential in China with strong balance sheet operating cash flow and business momentum, we are well positioned to support these investments, drive sustainable growth and strengthen core capabilities that would define Alibaba's future.

Thank you. That's the end of our prepared remarks. We can open up for Q&A.

Hi, everyone. For today's call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. Please note that the translation is for convenience 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 transcripts of this call will be available on our website within 1 week after the end of the meeting. [Foreign Language] Operator, please start Q&A session. Thank you.

Your first question comes from Alicia Yap at Citigroup.

Congrats on your solid cloud revenue growth. I have a question related to your recent step-up investment in the quick commerce and also the food delivery business. So can management share with us what is your vision for the quick commerce growth opportunity in China? And what is your investment plan for the quick commerce? How long will the heavy investment last? And how will the investment bring the long-term value for overall Taobao and your China e-commerce platform. Can management share a bit of the latest progress of the [indiscernible], which is the quick commerce business. What are the synergies you have realized so far? And how should we expect the investment to impact our GMV and also the CMR growth in the coming quarters?

[Foreign Language]

[Interpreted]

Thanks for your question. Let me begin by reviewing some of the progress we've made so far in our Instant Commerce business and then share our expectations for Instant Commerce going forward. Since we launched Taobao Instant Commerce 4 months ago, we believe that we've been highly successful in engaging users and merchants, building logistics capabilities and marketing.

From July onwards, in particular, the growth of order volume, user scale, merchant supplies and delivery capacity have all exceeded expectations. In fact, if you just look at the food delivery to home category, we are now already the market leader in terms of orders.

Let me share some figures. First, our peak daily order volume reached 120 million, and weekly average daily orders reached 80 million in August.

Second, user scale. Quick Commerce monthly active consumers, MAC, reached 300 million in August, representing 200% growth compared to before April.

Third, merchant supply. The rapid growth in business scale has also attracted new merchants to join Taobao Instant Commerce. High-quality merchant supply, in particular, has reached industry-leading levels.

Fourth, fulfillment capacity. Daily active riders have exceeded 2 million. That is a 3x increase from April. And that also means that we've created over 1 million new jobs.

As I stated last quarter, the first-stage goals for our Quick Commerce business were to scale up user growth and build consumer mind share. With these developments over the past few months, we have already achieved our first stage goals beyond our own expectations.

[Foreign Language]

[Interpreted]

Next, let me talk about the synergies between Quick Commerce and our e-commerce business. First, Quick Commerce is a significant driver of overall user scale and engagement. In August, Quick Commerce drove 20% growth in the Taobao app's DAUs. The high-frequency pattern of Quick Commerce has also contributed to a significant increase in average purchase days per user. With the increase in user engagement, we are seeing a clear trend of quick commerce driving incremental income for our e-commerce business. Specifically, first, the growth in traffic drives advertising and CMR growth. Second, as a result of heightened user engagement, incremental new user acquisition and customer reengagement, we can reduce sales and marketing expenses. We expect this trend to continue and to expand in our ongoing operations and are confident that it will drive significant incremental income on the e-commerce side.

[Foreign Language]

[Interpreted]

Next, let me share my views on the operating efficiency and unit economics, UE of Quick Commerce because I know these are aspects to which you pay special attention. First, when talking about operating efficiency, you cannot disregard scale. In the past, our scale was just 1/3 of our peers. And in many cities and provinces, our market share was even lower than 20%. With such a huge gap in market share, it's meaningless to talk about efficiency. Now, however, our Quick commerce business is leading in scale, and we can quickly improve our operating efficiency. Our peers have achieved excellent performance in the food delivery industry, especially in terms of efficiency, and we are now actively working to narrow that gap. Our scope to improve efficiency is substantial.

Let's look at it in the short term and then in the long term. In the short term, our losses will narrow primarily driven by the following: number 1 is optimization of customer mix. We have scaled up marketing expenses for user growth nationwide over the past 4 months and acquired a large number of new customers. New user acquisition requires substantial upfront investment but we excel at user retention. And as the proportion of repeat customers increases, UE will improve.

Number 2 is optimization of order mix. In the next stage, we aim to increase the proportion of high-value orders, including high-value meal orders and increased the proportion of nonfood category orders. UE will, therefore, improve as a result of higher average order value, AOV.

And the third is optimization of fulfillment efficiency and costs. In the initial phase, as order volume ramped up by 4x, the #1 priority for us as a platform was to ensure the user experience. In July and August, therefore, we made an additional large investment to address the severe short-term lack of delivery capacity.

Going forward, as order scale stabilizes, our logistics costs will decline significantly contributing to further UE improvement.

[Foreign Language]

[Interpreted]

So in the short term, we expect that while continuing to maintain investment in consumer benefit through logistics and subsidy efficiency improvements and order structure optimization, our UE losses can be reduced by half.

In the long term, as order density increases, there is considerable scope to optimize our logistics costs compared to 4 months ago.

In addition, there is also a considerable scope to improve our targeted engagement of off-line merchants. In my view, scale is the primary factor in achieving efficiency with our newly achieved scale and market share, we are confident that we can achieve industry-leading efficiency in the long term. At the same time, we will not look at the stand-alone profitability of Quick commerce delivery. If combined with the incremental benefits to our e-commerce business, we believe Quick Commerce will bring sustained positive economic value to the overall platform while maintaining price competitiveness.

[Foreign Language]

[Interpreted]

Next, let me talk about development of the nonfood category. In quick commerce, we divide nonfood deliveries into 2 parts. One is the original hyper local quick commerce e-commerce model, and the other is e-commerce, a hybrid model, quick Commerce plus e-commerce. On the hyper local side, we have leveraged our abundant supplies and strong supply chain to develop a lightening warehouse model. Over the past few months, supply in these warehouses has rapidly expanded. We now have over 50,000 Lightning warehouses with order growth of over 360% year-on-year, 25% of the supply in these lightning warehouses comes from supply chains within the Alibaba ecosystem.

Secondly, we have fulfillment capacity from front warehouses that have been developed by Freshippo for its fresh groceries category. Following Freshippo's supply connection into Taobao Instant Commerce, order volume has already exceeded 2 million, up by 70% year-on-year.

In terms of the hybrid model, Tmall Supermarket is upgrading from a traditional B2C fulfillment model to a quick commerce model. This maintains its price competitiveness while achieving much faster shipping speeds.

[Foreign Language]

[Interpreted]

We are also actively onboarding Tmall brands off-line stores into Taobao Instant Commerce, enabling unified online-offline O2O operations for Tmall brands. We expect up to 1 million branded offline stores to join Taobao Instant Commerce over time. The integration of Tmall and Taobao Instant Commerce will open up new growth drivers for brands and offer consumers a new shopping experience.

Overall, we expect Taobao Instant commerce and quick commerce to add RMB 1 trillion in annualized incremental GMV to the platform within the next 3 years. We also believe the food delivery markets shift from a single dominant player to multi-platform competition gives merchants and consumers more choice, which benefits the industry long term. Throughout this transition, we as a platform, are committing real financial resources and investing to create over 1 million direct jobs, drive industry transformation and stimulate consumption and the broader economy. Thank you.

Next question, please.

Your next question comes from Thomas Chong at Jefferies.

Congratulations on a solid result. My question is about Alibaba Cloud. We have seen our cloud business is doing very well and accelerated to 26% year-on-year this quarter. My first question is, how should we think about this acceleration. Should we expect acceleration continues for coming quarters as well as our expectation for FY '26. Because when I look into our acceleration and look into overseas peers, how should we think about the pace of monetization versus the U.S. And on the other hand, we also see our cloud margin return at 8.8%. How should we think about the margin outlook into the future? And on that one, in our acceleration is very impressive. Can we talk about how different industry centers actually performed in this quarter. I remember last quarter, we talked about multiple sectors, the traditional sectors, also embrace the cloud opportunities. How we seeing something different or making a lot more progress for this quarter. And on that CapEx, how should we think about our CapEx outlook given we have seen our CapEx this realized during this quarter.

[Foreign Language]

[Interpreted]

Okay. Thank you very much for those questions. And then noting them down. I saw quite a few questions, but let me start with the first 1 regarding the outlook for our growth rate. So we certainly see a very clear trend among our customers in terms of utilizing AI products. And they're developing AI products, and this represents a very strong demand. First of all, as AI model capabilities continue to strengthen, more and more new AI applications are being developed and applied into more and more new use cases. At the same time, many vendors that had original use cases where they were running workloads on traditional CPUs are now beginning to leverage large models and using AI to run those original functions. So for all these reasons, demand is very strong and continues to grow robustly.

In recent quarters, we've seen fast growth in inference workloads as well as continued growth in training and in inferencing. Over the past few quarters, apart from that rapid growth in inferencing, we've also observed some new industry trends on the training side.

Apart from the large fundamental models that continue to be upgraded in the market. There's also a lot of training that is taking place and creating new opportunities. For example, automobile vendors, for example, companies in the education sector, or companies in the multimedia application space. They all have training requirements. They're leveraging their own proprietary data to train proprietary models to meet their demands. And that, in turn, is driving higher utilization of our overall AI infrastructure. So this is a very strong boost to infrastructure use. At the same time, we also see new opportunities around training, whereby companies are leveraging our open source models, and they have a lot of training demands in doing so. For example, we mentioned education companies as well as companies in the health care sector and companies that are creating development tools, platform companies.

So we see a lot of excellent opportunities with these proprietary models where they're leveraging their own data and their own to meet their own use cases. by performing post training or fine-tuning of our Q1 models. And on that basis, they're making use of our Alibaba cloud computing platform. And at the same time, on that basis, we can also begin gradually to develop commercialized services, post training services for our open source models.

[Foreign Language]

[Interpreted]

Your other question had to do with gross margin and benchmarking against what we see overseas. So perhaps I can share with you my judgment overall as to the Chinese cloud market. And what I see as the trend is for there to be a higher level of market concentration in China as compared to what we see in overseas markets because developers here require full stock comprehensive capabilities for what they're developing, and we have that full stack with complete capabilities across traditional cloud computing, compute storage, AI compute or AI models. And of course, we have a very developer-friendly open ecosystem as well. So our goal is to maintain a growth rate above the average rate of market growth to, at the same time, increase our market share and in terms of our strategic objectives, the priority is on growing the number of users expanding into new use cases and not in the short term on increasing gross margin.

[Foreign Language]

[Interpreted]

So turning now to the question about our CapEx, capital expenditures on AI. We will continue to implement our 3-year plan to invest RMB 380 billion in cloud and AI. However, based on the supply chain situation in different quarters, there may be a quarter-to-quarter fluctuation. At the same time, based on changes in policies around AI chips and supply, we have backup plans in place to work with various different partners and to be able to respond to different situations in respect of supply chains. So I'm confident that no matter what changes may crop up in the industry. we will continue as planned and as expected, to move forward with that planned CapEx investment of COP 380 billion.

Next question, please.

Your next question comes from Kenneth Fong at UBS.

Given the cross-selling that we have seen already achieved in our food delivery part, do we plan to ramp up the in-store part of local service i.e., Data because we noticed that [indiscernible] in-store coupons have been stepping up promotions in certain regions. So how should we think about any further investment expand in this in-store part of business in the coming months on top of the food delivery?

[Foreign Language]

[Interpreted]

Yes, thank you. Let me take this question. So the first thing I would say is that this is very much connected to the scale that we have achieved in quick commerce that I just shared with you. We have a massive scale now of users on our quick commerce channel every day. Basically, we're talking about 150 million active users on a daily basis. And within those users, there are some who go to the store themselves self-pickup. And that also includes group purchase using coupons. So from the perspective of satisfying the needs of our users and in particular, those who go offline in-store there's a lot of synergy there. And so we will also consider providing more diverse services to these users. And in fact, we're already doing some testing and piloting in certain selected cities.

Next question, please.

Your next question comes from Joyce Ju at Bank of America.

[Foreign Language]

[Interpreted] My first question has to do with the pace of investments going forward. You mentioned your commitment to the 3-year plan to invest RMB 380 billion in cloud and AI I'm wondering if you could also tell us about your investment plans going forward on the commerce side. On the consumption side, what will the pace of those investments look like and apart from investing in quick commerce. What other investments are you contemplating, for example, in supply chains or in users? And what will the pace of those investments look like?

And then secondly, I'd like to ask about CMR. So we saw a strong growth in CMR this quarter, up 10% year-on-year. But we know that heading into September, the positive impact of the software service fee that you started implementing last year will diminish. So looking forward, how much positive impact will penetration have on CMR growth. And beyond that, the incremental traffic and GMV being driven by Quick Commerce, how much positive impact will that have on CMR?

[Foreign Language]

[Interpreted]

Thank you. Let me take this question. So given the historic opportunity to invest in the consumer market today, we're certainly grasping that. But our investments in the consumption market are not just starting now. We've always been making investments in the user side. Certainly, the Taobao and Tmall Group had been investing in users on the supply chain side, not just the Taobao and Tmall Group, but also Freshippo and other of our businesses, we're investing in the supply chains as well. So when we talk about this large investment that we're now making in the consumption market of RMB 50 billion for developing quick commerce. This is incremental. This is a new investment on top of those investments that we were making. We will pace the investment cadence and rhythm in line with the market circumstances and market developments to ensure that it makes sense.

[Foreign Language]

[Interpreted]

Thank you. So your second question had to do with CMR. And I think the key point there was the impact of take rate. So in this quarter, as we said, CMR growth was positive and robust. And this was mainly because of a large increase in take rate. And there were a few -- basically 2 major reasons for that. One was the 0.6% software service fee. And the other is QCT, which is itself powered by AI, continuing to achieve deeper penetration. And I think that in the coming quarters, we can expect to see also positive impact on CMR from these aspects. At the same time, there will be positive impact on CMR from quick commerce as well, where we're driving user growth as well as higher user frequency, which will result in higher take rate. So we would expect that in the coming couple of quarters, you can expect to see relatively rapid growth in CMR as you are now seeing.

Next question, please.

The next question comes from [indiscernible].

[Foreign Language]

[Interpreted]

So we've been following very closely the developments of your models and looking at the block, what we see is that it marks a transition from an era where the focus is on training to 1 where it's all about agents, an agent-centered era. So my question is, what additional capabilities and resources or investments do we need in this transition period? And can you tell us a bit about some of your latest developments around agent products and agent applications?

[Foreign Language]

[Interpreted]

Let me take that question. So indeed, we do see the overall evolution path when it comes to models, going from simple chat bots toward agents. And there are several trends that we can see in the era of agents. One, certainly is that models require larger context windows to be able to undertake more complex tasks with longer chains of thought. They need to be able to utilize multiple different tools or chains of tools and the agents need to be able to access different systems, call on different internal systems within the enterprises. So these developments also create new opportunities for us as an infrastructure provider. Many of these agents will need virtual servers or they'll need to have many browser windows open simultaneously or they'll need many mobile virtual machines and sandbox environments. So for a cloud vendor like Alibaba cloud, these are all very positive developments. We're supporting numerous clients in numerous different sectors, and we can provide all of these with a new product called Agent Bay, which is -- it provides a sandbox environment specifically for agents. So this is very much an agent-driven era in AI and cloud development. And for us, this is an excellent opportunity.

[Foreign Language]

[Interpreted]

Let me add to that by sharing some more of our thinking about models as they relate to agent-driven AI. I think the coding capabilities will become very important, because models with strong coding capabilities can be connected to lots of different tools, and lots of different enterprise internal systems. And in that way, they'll be able to solve for many tasks within the enterprise or even to solve for some more sophisticated tasks on the consumer side.

Another point I should add with respect to agent genic products is that we have quite a few products that can tie into that with they're excellent within the Alibaba ecosystem. For example, a lot of enterprises, especially e-commerce enterprises, need client service product within Alibaba Cloud apart from providing compute and infrastructure. We're also able to synergize with Taobao, with DingTalk, with AMAP and even with Alipay in order to be able to provide more kinds of automated solutions at the business level. So through these tools, these enterprises can develop AI agents, that are better able to solve for these various tasks within the enterprise.

Next question, please.

Your next question comes from Alex Yao at JPMorgan.

[Foreign Language] I have a question coming back to quick commerce, or Instant Commerce because it's not the first time that Alibaba has tried to enter this market back in -- from the acquisition of Illuma back in 2018, lots of time, energy resources were spent on trying to grow our market share in that space, but it seems that over a period of 2 to 3 years, that original strategic intent really wasn't realized. So I asked DeepSeek why it is that lima under Alibaba still couldn't be marine and be bigger than H1. And what DeepSeek told me was that the son of the rich merchant can't beat the entrepreneurial Wolf, who was raised by a 4 family. So anyway, it doesn't matter whether DeepSeek is right or wrong. But I'm sure that we've done a lot of reflection and thinking going into this new round in the battle. So I'm sure that you will be taking some different strategies or approaches to maximize that success. But if you could tell us simply what's different this time? And what are the different tactics that we're taking?

[Foreign Language]

[Interpreted]

Thanks. Well, I guess, you could ask DeepSeek again, but I'll take a stab at answering that. It's true that we invested. We acquired Olman and have been investing in it for many years. But I think I would begin by saying that Ilimi has actually made a lot of progress over these years. And that may not be reflected in market share because market share is related to our investment as well as our strategy as well as traffic. But I would say that over these years, Olman has made tremendous improvement in terms of infrastructure development and capabilities development. And if that weren't the case, then it simply wouldn't have been possible for Taobao Instant Commerce to have achieved such rapid development in such a short period of time. We couldn't start from 0 and build this business from scratch and in just 2 to 4 months be able to service 120 million orders and not just 120 million orders, but to do so with an excellent user experience. I think that all of that credit goes to Illuma and the experience and capabilities that we've built up following that acquisition.

[Foreign Language]

[Interpreted]

To get this business right, you need to have enough merchants. You need to have enough fulfillment capacity or delivery capacity and you need to have enough consumers -- users on the consumer end. And if you're lacking in any 1 of those things, then your investment efficiency is going to be poor. So in terms of where we are today, following the integration of Illuma into the Taobao app, we have a vast number of users on Taobao, and these are highly active users. We also have the merchant base that has been built up on illuma. And at the same time, we also have the fulfillment capacity, the logistics system that we have built up. So that's the foundation on which we're making this investment.

And then the second thing I would say relates to our investment logic, the way we think about this because we're not simply looking at the Quick Commerce business on a stand-alone basis. We're really looking at what it can do, the overall incremental positive benefit it can provide for our overall e-commerce business in the short term, in the medium term and in the long term. So the logic and the way we're thinking about this is different from the past. And of course, for us to get this business right and succeed in all those goals. There's still a lot of work that we need to do.

Operator, let's take the last question.

Your next question comes from Gary Yu at Morgan Stanley.

I have a question regarding return on invested capital. Given that we are now spending close to RMB 50 billion in probably a couple of months on quick commerce, how should we look at the rate of return on invested capital from these investments? Because I would imagine if the same amount were to be spent on something on AI, maybe with much bigger TAM and much bigger faster growth in cloud. we may be able to see a much better return on investment. So how should we think about how we allocate capital internally between retail and AI investment going forward?

[Foreign Language]

[Interpreted]

Well, as Eddie and I have both mentioned already on the call, we are faced with 2 huge historic opportunities today, the first of Visa is AI, which we've been discussing. But the second is consumption. And the opportunity is to transform consumption from on that journey from e-commerce to local, hyperlocal e-commerce to instant commerce, and we absolutely need to firmly grasp both of those opportunities. They're both crucial.

[Foreign Language]

[Interpreted]

So in terms of our investment in both of those areas, of course, we're talking about a very substantial, very large investments. And from our own point of view, these are historic investments that we're making. As I said in my prepared remarks, be it from the perspective of our capabilities or our resources. And when I talk about resources, that could include our cash reserves as well as our cash flows as well as resources across our entire balance sheet. We have sufficient resources to be able to make these very substantial investments as Eddie said, investments at scale in both of these huge opportunities. So the key for us really is how to balance short-term versus long-term returns and where the priority should lie. And we can look at that in the context of our AI investments that we've been making. And I think you will also have seen very clearly already that these investments have already driven increase in the growth rate of our cloud business. As was just said earlier, that's not just for this quarter, but we expect the following few quarters to also see increase in the growth rate in cloud. So of course, we will also look at the business from the point of view of EBITDA margin. But our first priority at this point is on making these investments and not making profits -- the profit rate the higher of those 2 priorities. It doesn't mean that we're not looking at and we don't care about profit rates, of course. So in terms of AI investments and the investments in Quick Commerce.

As Jiang Fan just said. We're not yet making any money from those investments in Instant Commerce, but we can already see very clearly that with the integration of an and commerce into the Taobao app, that's driving increased traffic. It's driving increased frequency. And as a result of that, that's also driving increased advertising as well on the platform. So with the progression from e-commerce to Instant Commerce, all of these investments are going to drive good returns going forward. And I'm confident that we have sufficient resources to be able to do this and to remain focused on what is truly critical. I think it's important to note that we should not simply focus on short-term returns and by doing so, lose out on the opportunity to make those long-term returns. So this does require the proper balance.

Thank you, everyone, for joining us today. We appreciate your time, and we look forward to speaking with you again soon.

Thank you. That concludes our conference for today. You may now disconnect your lines. Thank you.