takeaways from 2017 alibaba investor day 2 june 13 … from 2017 alibaba investor day 2 at day 2 of...

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June13,2017

DeborahWeinswig,ManagingDirector,FungGlobalRetail&[email protected]:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

Takeaways from 2017 Alibaba Investor Day 2

AtDay2ofthe2017AlibabaInvestorDay,theseniorexecutiveteamshareditsstrategicvisionforthecompanytomakeiteasytodobusinessanywhere.

1) ExecutiveChairmanJackMaoutlinedhislong-termvisionforAlibabaandidentifiedglobalizationandChina’sconsumptionupgradeopportunitywhichhebelieveswillhelpthecompanyreachUS$1trillionGMVbyfiscalyear2019andserveone-thirdoftheworld’spopulationby2036.

2) ExecutiveViceChairmanJoeTsaisharedthechieftenetsofthegroup’sinvestmentstrategy:drivinginterestalignmentthroughminoritystakesandpost-M&Avaluecreation.

3) PresidentofAliCloudSimonHubelievesAliCloudwillbeabletomaintainitsrapidgrowththroughitscontinueddomesticdominanceandoverseasexpansion.

4) AntFinancialCEOEricJing,PresidentofCainiaoNetworkWanLinandChairmanandCEOofAlibabaDigitalMedia&EntertainmentGroupYuYongfusharedtheirvisionofinclusivefinanceandhowthebusinesscanleveragedataandtheplatformeconomytocreatevalueforcustomersandmerchantsglobally.

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AboutAlibaba2017InvestorDayFungGlobalRetail&TechnologyattendedAlibaba’s2017InvestorDayatitsheadquartersinHangzhouonJune8–9.Day2oftheInvestorDayfocusedonthefollowing:

• ExecutiveChairmanJackMaexpressedhislong-termvisionforAlibabaandthetwomajoropportunitiesforthegroup:globalizationandChina’sconsumptionupgrade.

• ExecutiveViceChairmanJoeTsaitalkedaboutpost-M&Aintegration,valuecreationandinterestalignmentthroughminorityinvestmentaskeytothegroup’sinvestmentstrategy.

• PresidentofAliCloudSimonHugaveanoverviewofthegreatstridesthatAliCloudhasmadesincethedecisiontoinvesteightyearsago.HebelievesAliCloudwillbeabletomaintainrapidrevenuegrowththroughitsdomesticdominanceandoverseasexpansion.

• SeniorleadersofAntFinancial,CainiaoNetworkandAlibabaDigitalMedia&EntertainmentGroupsharedtheirvisionofhowthebusinesscanleveragedatatocreatevalueforcustomersandmerchantsglobally.

Chairman’sSpeech:“BorninChina,GrowfortheWorld”ExecutiveChairmanJackMaexpressedhisvisionforAlibabaandthetwomajoropportunities—globalizationandChina’sconsumptionupgrade—thathehasbeenwitnessing.Hewantstofocusnotmerelyonthenextquarter,ratheronhislong-termvisionforthegroup—tobecomeatrulyglobalcompanyprovidingsolutionstoworldproblems.HebelievesAlibabacanhelpglobalizationbymakingtrademoreinclusive,ande-commerceisthebestwaytosolvethat.

MaexpectsAlibaba’sgrossmerchandisevolume(GMV)toreachUS$1trillionby2019,serve2billioncustomers—one-thirdoftheworld’stotalpopulation—by2036,andsupport10millionprofitablebusinessesonitsplatformeconomy.

Source:FungGlobalRetail&Technology

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Opportunity1:MakingGlobalizationMoreInclusiveMaexpectsthenewglobaleconomytobebasedontheInternet.Withe-commercethebestsolution,heviewsglobalizationasahugeopportunityforAlibabaandexpectsitscross-bordere-commerceplatforms—LazadaandAliExpress—togrowrapidly.AtDavos,China’sPresidentXiJinpingsaidChinawillimportUS$8trillioninthenextfiveyears.

Alibabaisbuildingaglobalnetworktoleveragethenetworkeffect.Bymakingthenetworkavailableforallcompaniestojoin,Alibabaismakingglobaltrademoreinclusiveandlevelingtheplayingfieldbetweenlargeandsmallcompanies.

TheeWTP(ElectronicWorldTradePlatform)isaconcepttocreatedigitalfree-tradezoneswheresmallandmedium-sizedenterprises(SME)cantapintoglobaltradeviae-commerce.MalaysiawasthefirstcountrytojoininMarch2017,andAlibabaisinvitingmorecountriestojoin.

Opportunity2:China’sConsumptionUpgradeMabelievesAlibabaiswellpositionedtobenefitfromthestructuraltrendsinChina:1)agrowingmiddleclass;and2)thecountry’sshiftfromaninvestment-andexport-ledeconomytoonethatisdrivenbydomesticconsumption.First,thereareover300millionmiddle-classconsumersinChinatoday,andthisnumberisexpectedtoincreaseto500millioninthenextfiveyears.Second,hebelievese-commercewillplayamajorroleinChina’sconsumptionupgrade,whichisexpectedtodriveimportgrowth.

TheFive“New”Madiscussedtheconceptofthefive“New,”whichhebelieveawilldrivetheChineseeconomyinthefuture.Seeourreportonthetopic:DeepDive:NewRetail―TheKeyToUnlockingPent-UpChineseConsumerDemand

1. NewRetail—referstoretailers’shiftfromsellingproductstoservicingconsumers.SeeDeepDive:IntimeRetail—TheRoadmaptoNewRetailwithAlibaba

2. NewManufacturing—referstousingcloudcomputingandIoTtosolveChina’smanufacturingupgrade

3. NewFinancing—referstothecompany’svisiontomakefinancingmoreinclusive.Mastatedthatinsteadofserving20%ofthecompanies(i.e.,thelargestones)andmaking80%oftheprofitslikeotherbigfinancialinstitutions,Alibabawillfocusonservingtheremaining80%ofthecompanieswhichhavebeenunderserved.

4. NewTechnology—referstosolvingcustomers’problemswithtechnology

5. NewEnergy—referstotheuseofdatatofuelthefutureeconomy

Investments,AcquisitionsandCapitalAllocationExecutiveViceChairmanJoeTsaistartedhispresentationbyreiteratingtheinvestmentphilosophyofAlibaba,whichistobuildlong-termstrategicvalueanddrivesynergiesforthebusiness.

1. IntegrationiskeytostrategicM&A

2. Preferminorityinvestmentsovercontrolling-stakeacquisitions

https://www.fungglobalretailtech.com/research/deep-dive-new-retail%E2%80%95the-key-unlocking-pent-chinese-consumer-demand/

https://www.fungglobalretailtech.com/research/deep-dive-new-retail%E2%80%95the-key-unlocking-pent-chinese-consumer-demand/

https://www.fungglobalretailtech.com/research/deep-dive-intime-retail-roadmap-new-retail-alibaba/

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IntegrationIsKeytoStrategicM&AHealsoemphasizedtheimportanceofplanningfortheeventualintegrationintothegroup,asinvestmentoutcomesarelikelytobebinary.Successorfailurewilldependmostlyonpeopleandinnovationastheydrivevaluecreation.Hegavetheexampleofthegroup’sacquisitionofUCWebin2014.YuYongfu,thecurrentChairmanofAlibabaDigitalMedia&EntertainmentGroup,camewiththeacquisitionandwasresponsibleforhelpingAlibabaintegrateUCWebintothegroup.

Source:Companydata

PreferMinorityInvestmentsTsaialsomentionedthatAlibabapreferstomakeminorityinvestmentsoverfullacquisitionsforthreekeyreasons:

1. Minorityinvestmentsaligntheinterestsofthemanagementteamandassistsintalentretention

2. Alibabaisabletogeneratestrategicsynergiesthroughequityrelationships

3. Alibabacanminimizecapitalorintegrationriskthroughaphased-inapproach

Tsaiwrappeduphispresentationbyreviewingthegroup’sstrategicinvestmenttrackrecordandthevaluethathasbeencreatedasaresult.StrategicinvestmentsthathavebeenmadeoverthepasttwoyearstotaledUS$21billion.Thelargeminorityinvestmentshaveyieldedoverafourfoldreturn.

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Source:Companydata

Source:Companydata

Technology–Infrastructure,AIandMoreThecoremessageofAlibabaCTOJeffZhangwasthattechnologyhasbeenfundamentalindrivinggrowthintheAlibabaeconomy,andwillcontinuetobethewayforward.HestatedthatAlibaba’stechnologyprowessismanifestintherecord-settingSingles’Day,inwhich175,000transactionswerehandledeverysecondatpeak,and657milliondeliveryorderswereprocessed.Thestableandefficientperformancehasacceleratedbusinessinnovation.HeusedthebusinessintegrationoftheinvestmentinLazadaasanexampleofusingtechnologytoinnovate.AlibabawasabletorebuildLazada’ssellerplatformandlistover10millionTaobaoproductsonLazadawithinthreemonths.

Source:Companydata

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ZhangprovidedseveralexamplesofhowAlibabamadetechnologyavailableformerchantstoenablethemtodobusiness.

1. Personalization:Alibabamade‘personalized’technologyavailableonitsplatforms,enablingmerchantstotarget507millionmobileMAUsthroughpersonalizedrecommendationsandmarketing.

2. Bigdata:Alibabaruns30billionprotectivescanseachdayandusesbiometricidentificationonusersforriskmanagementandsecurity.

3. AI-poweredcustomerservice:The“StoreConcierge”chatbotisusedby100,000merchantstohandlemillionsofcustomerenquiries.

Toprepareforthefuture,AlibabahasbeenfocusingeffortsonR&Dinthefollowingfields:deeplearning,speechtechnology,voice-controlledintelligentplatform,imageandvideotechnology,IoTcloud-basedintegrationservicesandnewretailinfrastructure.

AliCloud—StrategiesforGrowthPresidentofAliCloudSimonHusharedhisvisionforAliCloudandtheimpressivestridesthatthebusinesshasmadesinceAlibaba’sdecisiontoinvesteightyearsago.Betweenfiscalyear2015and2017,AliCloudrevenueincreasedatatwo-yearcompoundedannualgrowthrate(CAGR)of115%toUS$0.97billion.HeexpectsAliCloud,theleadingcloudserviceprovideinChina,tocontinueitsfastgrowthoverthenext5–10yearsasitexpandsglobally.

Figure1.GrowthofthePublicCloudMarket,Chinavs.Global,2016–2021E

Source:Gartner

AliCloud—TheFastest-GrowingCloudServiceProviderGloballyHubelievesAliCloudiswellpositionedtomaintainitsmarket-leadingpositioninChina,andamassfurthermarketsharegrowthglobally.AliCloudiscurrentlythelargestplayerinChina’sIaaSmarket,witha40.7%marketshare,equivalenttotheaggregatemarketshareofthenextsevenplayers.China’spubliccloudmarketisexpectedtoincreaseataCAGRof17.2%between2016and2021,outpacingthe15.9%forecastfortheglobalmarket,accordingtoGartner.

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AliCloudhas15datacentersaroundtheworld,asofMay2017,andhas874,000payingcustomers.

Figure2.TopGlobalCloudMarketofIaaS,byRevenue,2016

Source:Companydata/IDCTracker2016H1/H2GlobalCloudMarketofIaaS

Asindustriesmovetodatatechnologyfrominformationtechnology,AliCloudaimstohelpenterprisesusethedatatodealwiththeirchallengesandcreatevalue.Thefourkeyareasinclude:businesstransformation,operationoptimization,employeeempowermentanduserexperienceimprovement.Theseenterprisesspanvariousindustries,suchase-commerce,finance,manufacturing,retail,energy,multimedia,healthcareandagriculture.

HualsotalkedaboutthecompetitiveadvantagesofAliCloud,namely:

1. Havingdatacentersaroundtheworld

2. Cloudofferingswiththebestvalue-for-money

3. Heterogeneouscomputingwhichisabletousesourcessuchasvoiceandgraphics

4. AIwhichconnectsdataanalysiswithstrategicdecisions

5. IoTwhichhelpscityplannersandenterprisesupgradetheirbusinessoperations

6. Cloudsecurity—noneoftheusersonAliCloudwasaffectedbyWannaCryastheyhadreceivedawarning28daysinadvance,andtheproblemwasfixedwithinninehours

HuintroducedthreeofAliCloud’sapplications.SeeTakeawaysfromtheAlibabaComputingConference2017Part2

• ETCityBrainutilizesAliCloud’sAItechnologyandbigdataanalyticscapabilitiestooptimizecityservicesandprovidetrafficpredictionsinreal-time.InMay2017,AliCloudparticipatedandbroketheworldrecordonmachinelearningonplatformKITTIwithanaccuracyrateof90.46%invehicledetection.ThegoalistouseAItomaketrafficsmootherinHangzhouandothercities.

• ETIndustrialBrainusesAItechnologytohelpindustrialcompanieswithcentralizeddatamanagementandreal-timeproductionmonitoringtoanalyzeandfindsolutionstoweaknessesintheproductionprocess.AliCloudiscooperatingwithanumberofenterprisesincludingXuzhouConstructionMachineryGroup(XCMG)

• ETMedicalBrainisanAI-poweredsolutionthataimstoimprovemedicaldiagnosisandhealthcareadministration.AliCloudiscooperatingwithZhejiangUniversitytoincreasetheaccuracyofThyroidNodularDiagnosis.UsingAItoassistdiagnosisincreasesaccuracyto85%fromdoctors’60%–70%.

https://www.fungglobalretailtech.com/news/takeaways-alibaba-computing-conference-2017-part-2/

https://www.fungglobalretailtech.com/news/takeaways-alibaba-computing-conference-2017-part-2/

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HudescribedtheprofileofAliCloud’scustomers—overone-thirdofChina’stop500customersandabouttwo-thirdsofChineseunicorncompaniesareitsclients.HegavecasestudiesofhugeenterprisesleveragingAliCloudtoincreaseefficiency,suchasChinaUnicom,theStateAdministrationofTaxation,GCLGroupandGeelywhichAliCloudishelpingtoimproveitssupplychain.OverseascustomersincludeSchneider,Philips,Vodafone,NestleandtheOlympicsCommittee.

FutureOutlookAliCloudisthebiggestcloudproviderinChina.Ithasshifteditssightstoglobalexpansion,whichwillputitincompetitionwithAWS,thelargestcloudproviderglobally.Duringthepaneldiscussion,HumentionedthatheexpectsthegapbetweenAWSandAliCloudtonarrowfurther.Twoyearsago,AWSwas30timesthesizeofAliCloud;thegaphassincenarrowedto10times.

AntFinancial—FinancialServicesforConsumersandSmallBusinessesAntFinancialCEOEricJingsharedhisvisionofInclusiveFinanceandhowAntFinancial—withitsdeepcustomerinsightsandunrivalledtechnology—canhelpaddresscustomers’andmerchants’needs.

VisionofAntFinancial—InclusiveFinanceJingstartedwithahigh-leveloverviewofAntFinancial.Hebelievesthatfinanceshouldbetransparentandinclusive.Jingbuiltupthecasefortheneedforinclusivefinancebystatingthatapproximately30%oftheadultpopulationgloballyisunbanked,andapproximately80%ofSMEshavenoaccesstoformalfinancialsystems,accordingtotheWorldBank,2014.

AntFinancialisabletoofferfinancialsolutionsandaccesstofinancingtosmallbusinessesthroughitsdatainsights,suchasfromSesameCredit.AsoftheendofMarch2017,5.2millionsmallbusinessesweregivenaccesstounsecuredlendingandsupply-chainfinancecumulativeloansreached¥3.5billion.

AntFinancial—AnIntegralPartoftheAlibabaEconomyJingdescribedAntFinancialasthearteriesoftheAlibabaeconomy,byprovidinginfrastructure,consumerinsightsandapaymentplatformtofacilitatetransactions.HegaveexamplesofAntFinancial’sroleindrivingAlibaba’sstrategyinNewRetailandglobalization.ThenumberofofflinepaymentshasgrownsevenfoldbetweenMarch2017and2016.Alipayallowsofflinemerchantstodigitalizepayments,whichworkshandinhandwithAlibaba’sglobalexpansionbyallowingconsumerstobuyglobally.AntFinancial’sloyaltyprogramalsohelpstoderivemorecomprehensiveconsumerinsights.

Source:Companydata

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OpenPlatformModelJingcitedAntFinancial’sopenplatformmodel,whichenablesittoprovidefinancialserviceswhichspantheentirespectrumandincreasevaluecreationtoconsumers.OnAlipayandAntFortune,thereareover100asset-managementcompaniesandmorethan2,600fundproducts,asofMay31,2017.

Onitsintegratedfinancialservicesplatform,approximately430millionusers—or8in10AntFinancialusers—usemorethantwocategoriesofservices.

Source:Companydata

Note:12monthsendedMarch31,2017

CainiaoNetwork—Scale,EfficiencyandConsumerExperiencesPresidentofCainiaoWanLinsharedhisvisionfortheopenlogisticsplatformof15logisticscompanies,andstartedhispresentationbylayingoutthegrowthpotentialforChina’slogisticsindustry.ComparedtotheUS,Chinahasahigherpopulationdensityandaretaile-commerceGMVthatisalmosttwicealarge,aswellasfasterpackagevolumegrowth.Yet,China’slogisticsindustryisfacedwithseveralchallenges.Alibaba’svisionistobridgethedividebyhelpingpartnersconnecttheirdatathroughCainiaoNetwork.

• Lacksaunifieddatastandard,makingitdifficultforcompaniestocollaboratewitheachother

• Labor-intensive,last-miledelivery

Source:Companydata

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Throughdatatechnology,Alibabaaimstodriveindustryupgradeandcollaborationamonglogisticspartners.

Source:Companydata

Note:Asofthelatestfinancialyear

FutureOpportunitiesforCainiaoNetworkWanoutlinedkeyfutureopportunitiesforCainiao,whichinclude:

1. BuildingaunifiedintelligentlogisticsnetworkinChina,whichwouldincluderuralareas

2. Buildingacross-border,globale-commercelogisticsnetwork

3. Cateringtoemergingdemand—China’sconsumptionupgradeandNewRetail

FromE-CommercetoEntertainment—ASynergisticViewChairmanandCEOofAlibabaDigitalMedia&EntertainmentGroupYuYongfusharedhisvisiontobridgee-commerceandentertainmentinordertobringnewusersanddataonChineseconsumerstotheAlibabaecosystem.AsusersshiftfromshoppingtolivingintheAlibabaecosystem,theplatformseekstomaximizethevalueofcreativepropertiesbyleveragingthemultiplemediaassetsacrossthegroup.

HeexpectsAlibabatogeneratemultiplerevenuestreamsthroughcross-platformmonetizationofTVdramasandmoviesbyusingIPonmultipleplatforms.


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Overall,hebelievesAlibabaiswellpositionedtoleverageontherelativelyuntappedgrowthpotentialofChina’sdigitalentertainmentindustry,givingseveralexamplesofdigitalentertainmentinitiativesbeingundertaken:

• Youku’soriginaldramaseries:Hegaveanexampleofaserieshaving20-millionviewersperepisode,comparedtojust3millionforNetflix’spopularHouseofCardsseries.

• AliPicture’sproductionwithAmblinFilm:Themovie“ADog’sPurpose”grossedUS$88millioninChina,morethantheUS$64millionintheUS.

• Damai,aliveperformanceticketingplatform:AccordingtoYongfu,Damaihasamarketshareofapproximately70%inChina,andheexpectsittobenefitfromthegrowingChinamarket.

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DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:[email protected]

ZaneYangResearchAssistant

HongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,18thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com

takeaways from 2017 alibaba investor day 2 june 13 … from 2017 alibaba investor day 2 at day 2 of...

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