Alibaba Group Holding Ltd

NYSE:BABA

Q4-2025 Earnings Call

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March Quarter 2025 and Full Fiscal Year 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. .

[Lydia Lu, executive]

Good day, everyone. Welcome to Alibaba Group's March Quarter and Full Fiscal Year 2025 Earnings Conference Call. With us today are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Jianfeng, Chief Executive Officer of Alibaba e-commerce Business Group. .

This call is also being webcast from the Investor Relations section of our Corporate website. A replay of the call will be available on our website later today. Now let me quickly cover the safe harbor. Today's 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. Unless otherwise stated, growth rate of all stated metrics refer to year-over-year growth versus the same quarter last year.

And now I will turn the call over to Eddie. Thank you. .

[Yongming Wu, executive]

Welcome to join our quarterly earnings call. We delivered strong performance this quarter, with total revenue, excluding Sun Art and Intime, growing 10% year-over-year and adjusted EBITDA increasing 36% year-over-year. For fiscal year 2025 our user first AI-driven strategy continued to deliver meaningful results with accelerated growth across our core businesses. We've established a well-defined growth portfolio centered on AI plus cloud, e-commerce and other Internet platform businesses. We're seizing the historic opportunity presented by AI and stepping up our investments in AI infrastructure and advanced technologies to further strengthen Alibaba's global leadership in technology. .

These capabilities will also be transited into sustained drivers of our business growth, driven by robust and growing AI demand, Alibaba Cloud's revenue growth accelerated to 18% this quarter with revenue, excluding Alibaba consolidated subsidiaries increasing 17% year-over-year. Public cloud revenue growth continued to accelerate revenue from AI-related products has maintained triple-digit year-over-year growth for the seventh consecutive quarter. For the full fiscal year, Alibaba Cloud's revenue grew by double digits.

And looking ahead, we expect AI to remain a key driver of accelerated revenue growth for Alibaba Cloud. While uncertainties persist in the global AI supply chain, customer demand remains strong and unwavering. We continue to see growing demand for cloud and AI, an opportunity that will define the next 10 to 20 years and will not be derailed by short-term supply chain fluctuations. Our confidence and commitment to investing in cloud and AI infrastructure remains unchanged, and we are actively exploring diversified solutions to meet rising customer demand. We continue to advance foundational research and innovation in large models, pushing the boundaries of model capabilities while remaining firmly committed to open source.

In April, we released our next-generation QN3 model as open source. -- ranking amongst the top performers globally on multiple authoritative benchmarks. By the end of April, we had open sourced over 200 models under the QN family with more than 300 million downloads worldwide and over 100,000 derivative models, making it the world's largest open source model family. As we accelerate the adoption of AI plus cloud across a wide range of industries, 2 clear trends have emerged. -- among large and midsized enterprises, AI applications are expanding from internal systems to more customer-facing use cases.

At the same time, adoption of AI products is rapidly extending from large enterprises to a growing number of small and medium-sized businesses. This quarter, the industry penetration of our AI products expanded rapidly. In addition to faster adoption across sectors like Internet services, autonomous driving, financial services and online education, we're also seeing strong momentum in more traditional industries such as animal farming and manufacturing, which are actively exploring AI applications and have shown significant growth in demand. In the financial sector, we continue to deepen our industry leadership.

Recently, the Industrial and Commercial Bank of China, ICBC, officially selected Alibaba Cloud's Polar DB, as its enterprise-wide transactional distributed database. This represents a strong endorsement of our technological capabilities by one of the most demanding financial institutions in terms of business performance and technology requirements. In e-commerce, we remain focused on putting users first. We continue to invest in user growth and improving user experience. Taobao and Tmall Group saw stronger momentum and user growth and 88 VIP members surpassed RMB 80 million. This quarter, TTG customer management revenue rose 12% year-over-year, while adjusted EBITDA increased by 8% and we continue to invest in improving the operating environment for merchants increasing our support for those offering high-quality products and services.

Fueled by strong momentum in its cross-border businesses, AIDC achieved year-over-year revenue growth of 22% this quarter. Operational and investment efficiency also continued to improve. Despite potential uncertainties in global trade regulations, we remain confident that AIDC's diversified footprint across global markets positions us well to manage changes effectively and we remain on track to achieve overall quarterly profitability in our international e-commerce business in the coming fiscal year.

Other businesses within the group continued to maintain healthy operations, the Digital Media and Entertainment Group achieved profitability on an adjusted EBITDA basis this quarter. In fiscal year 2026, we will continue to focus on driving growth in our core businesses of e-commerce and AI + Cloud while shaping a second growth curve powered by technology over the medium to long term. .

[Toby Xu, executive]

Thank you, Eddie. The strong financial results of the past quarter highlight the good progress we are making in driving growth in our core businesses on our Taobao and Tmall businesses, we saw a substantial increase in CMR growth, which grew 12% year-over-year, primarily driven by the improvement of take rate. Our take rate benefited from the impact of the software service fee and the increasing penetration of Transanti. Merchants benefit through Transat's convenience of use and improvement of marketing efficiency. Our cloud business continues to exhibit robust momentum with revenue growth accelerating to 18% and and overall revenue, excluding Alibaba consolidated subsidiaries accelerated to 17%, driven by an even faster public cloud revenue growth.

Notably, our AI momentum remains robust with AI-related product revenue sustaining triple-digit growth for the seventh consecutive quarter. We are seeing our AI products being adopted across an increasingly diverse industries, including a set of digital native industries as well as traditional verticals such as manufacturing, reflecting the broader application of AI technologies in real-world business environment. These demonstrate our commitment to innovation and reinforce our leadership in the cloud and AI sectors.

This quarter, AIDC maintained its rapid growth momentum primarily driven by strong performance in cross-border businesses. We continue to enrich its product offerings and diversify its business models to meet the needs of local consumers through local supply. We will continue to focus on enhancing operating efficiency and navigating in dynamic macro and geopolitical environment. Our commitment to sustainable growth and improving efficiency delivered solid results with all segments achieving year-over-year EBITDA improvement this quarter leading to a 36% increase in overall group EBITDA.

A number of loss-making businesses are on track of turning profitable while we are investing in selected strategic AI-driven initiatives that position us to capture long-term opportunities and create value to our users and customers. This quarter, we continued to optimize our business portfolio by exiting noncore assets. We expect to generate USD 2.6 billion in maximum of cash proceeds from the sale of Sun Art and Intime. These actions allow us to sharpen our focus on core businesses and invest in key growth areas, while also enabling solid cash return to shareholders. Our Board of Directors has approved an annual dividend of USD 1.05 per ADS representing a 5% increase year-over-year.

This increase reflects the impact of our share repursue program which resulted in a 5.1% net reduction in share count after accounting for ESOP issuance for this fiscal year. The Board also approved a special dividend of USD 0.95 per ADS, which is higher than last year's USD 0.66 per ADS. This increase demonstrates that we are making solid progress in disposing noncore businesses in the financial investments. In total, we are distributing USD 2 per ADS in cash dividends this year, amounting to USD 4.6 billion. Combined with the USD 11.9 billion in share repurchases, we have returned a total of USD 16.5 billion to our shareholders for this fiscal year.

On a consolidated basis, total consolidated revenue was RMB 236.5 billion, an increase of 7% year-over-year. Excluding the revenue from Sun Air and Intime, group revenue would have grown 10% year-over-year. Consolidated adjusted EBITDA increased 36% in to RMB 32.6 billion, primarily attributable to revenue growth and improved operating efficiency, partly offset by the increase in investments in our e-commerce businesses and technology.

Our non-GAAP net income was RMB 29.8 billion, an increase of 22%. Our GAAP net income was RMB 12 billion, an increase of RMB 11.1 billion, primarily due to market-to-market changes from our equity investments. The increase in income from operations and the decrease in impairment of equity method investments, partly offset by the losses arising from the disposal of subsidiaries. Operating cash flow this quarter was RMB 27.5 billion, an increase of 18%. Free cash flow this quarter decreased 76% to RMB 3.7 billion, which was mainly attributed to the increase in our cloud infrastructure expenditure. As of March 31, 2025, we continue to maintain a strong net cash position of RMB 366.4 billion or USD 50.5 billion.

The strong net cash position and healthy operating cash flow brings us confidence and sufficient resources to increase our investment in cloud and AI infrastructure to capitalize the sustained strong demand and the substantial growth potential presented by latest AI innovations. Now let's look at the segment results, starting with Taobao and Tmall Group. Revenue from Taobao and Tmall Group was RMB 101.4 billion, an increase of 9%. And Customer management revenue increased by 12%, primarily driven by the improvement of take rate. Our take rate benefited from the impact of software service fee and increasing penetration of Transante merchant benefit through Chanzante's convenience of use and improvement of marketing efficiency.

We continue to invest in user growth and other strategic initiatives, such as price competitive products, customer service, membership program benefits and AI technology applications to enhance user experience. These efforts led to stronger momentum in new consumer growth and continuous increase in orders. On the merchant end, we remained focused on improving their operating environment and ensuring their sustainable development on our platform. In particular, we increased the support of merchants that provide high-quality products and customer services, including support for marketing, new product launch and customer management.

During this quarter, the number of ADA VIP members continued to increase by double digits year-over-year, surpassing $50 million with solid profitability and increasing ARPU on a cohort basis we will continue to focus on its retention rate. Taobao and Tmall Group adjusted EBITDA increased by 8% to RMB 41.7 billion, primarily due to the increase in revenue from customer management service, partly offset by the increase in investments in user experience and technology.

Revenue from AIDC grew 22% to RMB 33.6 billion this quarter, primarily driven by strong performance in cross-border businesses. AIDC's adjusted EBITA was a loss of RMB 3.6 billion compared to a loss of RMB 4.1 billion in the same quarter last year. AIDC continued to focus on enhancing operating and investment efficiency, leading to narrow the losses this quarter. In particular, the unit economics of the AliExpress's Choice business improved on a sequential basis. AIDC has a diverse geoprapical presence.

Moving forward, we will continue to diversify and enrich our product offerings by engaging local merchants and partners through different business models in different markets. and navigate in the dynamic macro and geopolitical environment. Revenue from Cloud Intelligence Group grew 18% and overall revenue, excluding Alibaba consolidated subsidiaries increased by 17%, primarily driven by an even faster public cloud revenue growth. Notably, AI-related product revenue maintained triple-digit year-over-year growth for the seventh consecutive quarter. And our AI products are seeing broader adoption across a wide range of industry verticals, including Internet, retail, manufacturing and the media with a growth in focus on value-added applications.

In April, we launched Qwen3 Series, a new generation of hybrid reasoning models that combine the capabilities of fast, simple responses and deeper chain of thought reasoning into a single model. The Qwen3 Series covers a full range of motor sizes, including 2 MOE models and 6 dense models -- all Qwen3 models have been fully open source on model scope, hugging phase and other platforms -- we believe the full open sourcing of Qwen3 free will drive innovation and new applications by developers, staffers and the enterprises.

Cloud adjusted EBITDA increased by 69% year-over-year, primarily due to faster growth of public cloud products and improving operating efficiency, partly offset by the increasing investments in customer growth and technology innovation. We will continue to invest in anticipation of customer growth and technology innovation, including AI products and services to increase cloud adoption for AI and maintain our market leadership. The adjusted EBITA margin decreased quarter-over-quarter by 1.9 percentage points. We increased our investments in technology and product development to capture the surge in AI demand.

And also as we ramp up infrastructure investments to growing investment, to growing demand, higher depreciation and amortization expenses also weighted on margins. Revenue from China decreased by 12%, and its adjusted EBITDA increased by 55%. This is the result of the increasing integration of logistics offerings into our e-commerce businesses. Revenue from local service group grew 10% in driven by the combined order growth of both AMAP and Urlama as well as revenue growth from marketing services, while its adjusted EBITDA loss continue to narrow year-over-year as scale increased and unit economics improved due to operating efficiency. Our adjusted EBITDA loss increased quarter-over-quarter, mainly due to seasonal fact including high investments during Chinese New Year holiday.

Revenue from Digital Media and Entertainment Group grew 12% to RMB 5.6 billion, primarily driven by the strong performance of the movie and entertainment businesses and the increase in [indiscernible] advertising revenue, adjusted EBITDA of DME turned positive, primarily driven by YouKu's profitability. Revenue from all other segments increased by 5%, primarily due to the increase in revenue from Freshippo and Alibaba Health, partly offset by the decrease in revenue from Sun Air due to its sale and deconsolidation in February 2025, while adjusted EBITDA loss was a loss of RMB 2.5 billion.

All Other segment comprises a set of innovative businesses, 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, during this quarter, we are making significant strides in enhancing the competitiveness of our e-commerce and cloud businesses. Our Taobao and Tmall Group delivered solid growth reflecting the improvement in monetization efficiency in cloud, revenue growth continue to accelerate sequentially as we are seeing surging demand and ramping up of our capacity, we will onboard more customers and accelerate our business growth. We are also focusing on improving the efficiency of all segments to establish a clear path to profitability with DME turned profitable this quarter.

This quarter, we strengthened our balance sheet by monetizing noncore assets and the financial investments. These actions enable us to focus more on our core businesses and provide greater flexibility to invest decisively for growth and to return value to shareholders. We are executing with speed and position to capture the substantial opportunities ahead in the AI era. Thank you. That's the end of our prepared remarks, we can open up for Q&A.

[Lydia Lu, executive]

[Operator Instructions] [Foreign Language] Operator, please start Q&A session. Thank you.

[Operator]

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

[Gary Yu, analyst]

[Foreign Language]

[Interpreted] And I have 2 questions regarding the cloud. The first is that we've seen that it's been difficult in the past for AI to be -- for cloud to be monetized in the AI era. I recall management having said that in the previous quarter's earnings call, and more than 90% of tokens were serving together in the cloud. So first, over the past several months, I'm wondering in the course of talking with your customers if you've seen any big change on that front. And in the past, starting with the enterprises that weren't that willing to go on to the cloud, because AI is now providing a big push to get on to the cloud. So I'm wondering if you're starting to see that kind of uptick. And if you have, I'm wondering, what kinds of companies it is and in what industries and if you could share with us some color on that as well as provide some guidance for the FY '26 fiscal year in terms of cloud service revenues. That was my first question.

The second question has to do with AI applications, in particular, in the e-commerce area. And looking ahead, say, 2 to 3 years down the road, where do we expect to be at because we are one of the earlier companies in the e-commerce space that's beginning to apply AI in our e-commerce offering. So if you could provide some kind of outlook as for how much market share you expect to be able to gain as a result of that new AI deployment and at the same time, in terms of monetization will these new AI tools provide further space for expansion.

[Yongming Wu, executive]

[Foreign Language]

[Interpreted] Thank you. This is Eddie. So I will take this question. The first question. So in the quarter that just concluded, our cloud revenue grew by 18% and year-over-year. And I think that, that has primarily benefited from and being driven by demand related to AI. And in terms of putting a number on that, if we look at AI-driven demand in the cloud space, it's already grown by triple digits for 7 consecutive quarters now. And behind that, that means that there's a lot of new companies that are starting to make use of AI services. So as we said before, a lot of the companies have started out initially adopting AI were ones in the Internet space or Internet finance, education, autonomous driving, those early adopter kinds of sectors. .

But what we're seeing now is a lot of new scenarios and a lot of newer kinds of companies and other sectors that are taking up AI services. So a lot of these companies might have -- before they adopted AI, they might have been able to access these services off-line with IDC or internally with their own server rooms in their own company. But because -- precisely because they're now adopting AI, they have powerful impetus to migrate on to the cloud. And so as you've seen, we've given you some examples, for example, in the animal farming or animal husbandry sector as well as in the manufacturing sector as well as the EU small commodity city and companies there. And there are a lot of these kinds of companies that originally were handling these workloads off-line.

So when it comes time for them to implement AI and adopt AI applications, they're migrating these services on to the cloud. And when they migrate on to the cloud, they will probably have some simple applications where they can do API calls. But when it comes to accessing their company internal proprietary data, or proprietary internal processes within the enterprise and integrating with those. And a lot of the time, what they're going to be doing is post training on the basis of open source model in order to meet those enterprise-specific demands.

So we certainly are seeing a lot of this kind of demand through Bylin or through leasing GPU compute on Alibaba Cloud and making use of IAS layer services and other services, they're satisfying all of those different demands. So that's my response to your first question.

[Foreign Language]

And then just to add to that previous answer, in terms of the trends that we're seeing across these different sectors with more and more companies adopting cloud-based AI services. These are companies that had been using a traditional CPU-based compute that are now turning to AI and AI compute. So given that what we see for the next few quarters to come is a growth track, significant growth track for revenues in Alibaba Cloud. And we have quite strong confidence and conviction in that.

[Fan Jiang, executive]

[Foreign Language]

This is Jiang Fan, and I will take the second part of the question regarding the application of AI in the e-commerce space. So as we've said several times, there's huge potential for applying AI in e-commerce certainly, in the present phase, one thing that we're paying a lot of attention to is leveraging AI to further enhance the user experience. And as you know, we have an opportunity to reshape the consumer experience with AI, for example, in terms of search recommendations and advertising where we are operating these systems based on traditional algorithms. And I think that this is a high priority for us in the near term.

We're already making many attempt on this front and are already starting to see results. It has the potential to enhance, of course, the search experience as well as to provide more precise recommendations as well as to enhance advertising efficiency. So we're seeing AI already making a significant difference in those different ways.

Secondly, we're also thinking about how we can leverage AI to enhance working efficiency internally for our employees and beyond our employees also more generally for merchants because as you know, when it comes to e-commerce, apart from the platform, the other big player in the system is merchants. We also trust that with the deeper adoption of AI, we will be able to further elevate efficiency across our entire ecosystem. And then the third point is that we believe in the longer term that AI can create new forms of interaction and engagement. And we're working on innovation-based forms of interaction and engagement for the future.

We're piloting these things actively. And we believe that AI will play a critical role in terms of driving long-term enhancement in the user experience on Taobao and equally in terms of driving enhancement in the efficiency of commerce.

[Lydia Lu, executive]

Next question, please. .

[Operator]

Your next question comes from Alex Yao with JPMorgan. .

[Alex Yao, analyst]

[Foreign Language] So I have a couple of questions regarding monetization on Taobao and Tmall. The first is what is the overall direction that we're moving in and what is the objective, the goal in terms of monetization. We know that starting from last year in April, you launched [indiscernible], UCT and then in September, you started implementing the 0.6% software service fee on Taobao, where previously it had been 0. You weren't charging anything. So over the past 2 or 3 quarters, we've seen these different monetization initiatives progressively rolled out and making a difference that we can see in the financial statements. But looking more to the mid- to long term, when you think about monetization, what are the factors that you are considering?

We know that over the last 2 to 3 years, the monetization rate has been relatively stable, perhaps with a slight decline whereas the monetization rates of the competitors have all risen by quite a large margin. So and in particular, Taobao, we know has one of the lowest monetization rates, among any of the platforms across the industry. So when we're thinking about take rate and thinking about that gap with the competitors are we thinking about merchants and their ROI? Are we thinking about our own ROI and how are you considering that? And where is the balance?

And then the second follow-on question to that, is that we started implementing these monetization initiatives last year. QCT as well as the commission on Taobao. So that's all been in the course of 1 year. And is that it? Or is there going to be more to this sort of a multiyear initiative, a multiyear cycle where we're going to continue progressively to roll out more monetization measures. Thank you.

[Toby Xu, executive]

Thank you. So I'll take the question regarding the monetization rate and how we're working to continue to enhance monetization. The first thing I would say is that our foremost business objective is to stabilize market share in the mid to long term. And on that basis, our monetization rate essentially reflects the size of our market share. Over the past year, we have indeed rolled out various new products, including QCT, among others. And what that did is it allowed us to take some of the traditional advertising products that we weren't able very well to monetize with respect to certain merchants and make a big improvement on that score.

For example, for white label merchants. These are merchants who, in the past, represented a much lower level of monetization, and that's been significantly improved. So I think in the next few quarters to come, we will certainly continue to see this kind of a trend going forward. And of course, we've also begun charging commission on payments. So -- and that has made a difference in this present phase in terms of monetization. But looking more to the long term, on the one hand, we want to enhance the user experience and enhance our business model on that basis. And that will result in the optimization of monetization rate. We want to see growth in our GMV and the stability in our market share. And on that basis, we will certainly go about implementing more different kinds of monetization products and make different attempts, pilot different monetization models.

I already spoke earlier about some of the attempts we're making already around AI, and I think there's certainly potential there. So on that basis, we will continue to innovate and to enhance our monetization rate and to create more possibilities for higher levels of monetization.

[Lydia Lu, executive]

Next question, please. .

[Operator]

Next question comes from Ronald Keung with Goldman Sachs.

[Ronald Keung, analyst]

[Foreign Language] So I have a question regarding Alibaba Cloud's growth rate because I recall that in the past quarter, it has been said that starting from Spring Festival onward, we saw a surge in demand for inference workloads. So I'm wondering if we look at February, March compared to January, whether you saw that continuing rapid acceleration? And what kind of growth we're talking about on a month-over-month basis, say, for the quarter as a whole, I think it might have been 18% but that would be the average for January, February and March as a whole. .

And then also, when we look at these models within the -- family, there are some smaller models as well as some larger models. And I'm wondering how we would evaluate these different AI models, the larger ones, the smaller ones because we're running them on the cloud. So I'd like to hear about how -- what your view is in terms of growth in demand for inference compute power with respect to these models, given that some of them are very small models. Thank you.

[Yongming Wu, executive]

[Foreign Language] So this is Eddie. I will take that question. And your first question had to do with the pace of cloud revenue growth in the various months over the quarter. During that first quarter in the period, January, February, March, there was the Spring Festival, the Chinese New Year. So I don't think that period of time is really very representative of the overall pace of development. But I think if you look at the quarter after the spring festival, then you certainly do see a lot of new customers, a lot of new demand arises. And a lot of that new demand is for inference workloads or for workloads that are driven by inference-based scenarios.

So a lot of the large scale adoption I think, is what you're going to see in the next few months to come. So not just in February and March after the spring vessel, but through April and May as well. And I think the surge that you're seeing in demand growth is representative of and closer to what you can expect to see as the regular pace of growth going forward. So because there were some disruptions in supply chains in January. February, March as well as the seasonal impact of the spring festival in that time. So I think you need to look beyond that to see what the regular pattern is going forward.

Looking at customer demand. As I said, a lot of demand is driven by inference. That continues to grow steadily. Additionally, you would also ask a separate question about the effect of the different AI models, different sizes of models on the cloud business. So yes, you're absolutely right. Our Qwen open source models have a lot of edge model applications. And there are also applications that are suitable -- more suitable to be run on the cloud. There's a lot of different applications. But in particular, when we talk about the smaller models of around 3 billion parameters or even smaller. These kinds of models are running on local devices, for example, on mobile phones of customers or it could be in toys or it could be on different kinds of smart devices.

And so they're not going to have much of an impact in terms of driving cloud business. But because those same customers are using the Qwen models, -- what that means is often they're also going to require additional usage of cloud-based compute resources as well. So it's not just an edge model. that can achieve that kind of service requirement. And then you have the larger model, say, 32 billion parameters or higher -- and although, yes, you can run those on a consumer-grade video processing card. -- nonetheless, to really be able to run big models and run them well, run application as well, you need to put them in the cloud. So that way, you have the kind of elasticity that can scale to meet the requisite workloads. And of course, you get a better price as well for the compute.

So I think that the edge models to a certain extent are complementary with our cloud-based large parameter models. They work well together as a business model. So -- and I think that the use of those smaller models also contributes to higher reliance by those customers on the relevant products of Alibaba cloud.

[Lydia Lu, executive]

Next question, please.

[Operator]

Your next question comes from Kenneth Fong with DBS. .

[Kenneth Fong, analyst]

I have a question in our recent announcement in the in-store shopping investment. -- that we said we will invest $10 billion with [indiscernible] to grow the re-commerce business. Can management share some plans on, let's say, area for investment why we do it now? And how would it impact the profitability for local service, especially in light of the intensified competition in the food delivery business recently? .

[Fan Jiang, executive]

[Foreign Language]

This is Jiang Fan. So I will take this question. Instant commerce is not a new racetrack for Alibaba. This isn't a day 1 for us, so to speak, in the sector. We've been building up our capabilities in this marketplace for many, many years now. We invested, of course, in [indiscernible] and developed [indiscernible] as well. So these were all putting pieces in place in that instant commerce space. So I think it's entirely natural for us to continue to develop and grow in this market. Of course, there have been many new large and new developments in this market recently as well. So I think that these are some of the reasons that we're positioned to do very well in the market, and we have some strong advantages. One thing to note about this incident retail market is that it's a huge market because basically, every person in China, every consumer in China will have demand for instant commerce.

Today, it could be a market of some, say, 500 million to 600 million consumers going forward that could easily be 1 billion consumers. It's also a market that's growing and developing extremely rapidly. And it's important to know that Taobao has extremely broad user base already in place. So it's entirely natural for us to develop in this direction and to boost up our instant Commerce offerings as a new service or new category and to integrate it into the Taobao platform.

Secondly, in terms of merchants in the market, we have extremely mature and experienced merchant base already in place because, as I said, [indiscernible] has been operating in this market for many years now. And we also have an extremely robust and mature logistics system to support instant Commerce as well. So this all makes it possible for us to provide an excellent service experience for Instant commerce on Taobao. So we're building on a very strong base with very strong advantages, and leveraging those advantages, I expect that we can move forward very quickly in delivering an excellent service experience for some -- Instant Commerce, while at the same time ensuring an excellent balance in terms of business efficiency.

[Yongming Wu, executive]

[Foreign Language] And then I can expand on that further to say that over the past couple of weeks, we've been making some attempts with the Taobao Taobao Instant commerce or quick commerce offering. And the results of that trial have vastly exceeded our original expectation. this is -- we're talking about the growth in scale as well as efficiency of operations in both of those dimensions, results were better than we had expected. And I think that in the longer term, continuing to develop this will result in many different benefits and advantages for Taobao. First of all, for Taobao is an app. We're an e-commerce up and Instant Commerce is a high-frequency consumption scenario. So by developing more instant commerce on the Taobao app, we can drive higher levels of user engagement with the Taobao app. And that's definitely going to be a good thing for Taobao in the long term. Secondly, we see new possibilities for combining nationwide e-commerce with local or hyper local e-commerce and we hope that in the next period of time to come, we can develop those synergies rapidly by investing aggressively in that integration. So we aim to convert more Taobao app users into users of the instant commerce offering on Taobao. And then in the long term, we believe that by driving the growth of this new business format on Taobao, we can upgrade our business model further, and we can drive more engagement with our app.

So in the short term, the focus of our investment will be on developing new users, as I said. And we see a huge potential for the Taobao app to grow its users and to convert existing users into instant commerce users. So in the short term, we will be investing aggressively in this business.

[Lydia Lu, executive]

Next question, please.

[Operator]

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

[Joyce Ju, analyst]

[Foreign Language]

So as we know recently, this year's 618 ,618 campaign has begun. So first of all, I'd like to know what different strategies we can expect to see this year around the 618 promotion in terms of events or in terms of the pace of the presales period and so on? And then secondly, I'm wondering how the feedback is on the merchant side and on the user side. And then just to follow on from that previous question before mine, I'm wondering if there's any connection that we can expect to see between Instant Commerce or rapid commerce, and this year's 618 campaign in terms of synergies and if there might be some nice happy surprises waiting for us in the instant Commerce space in connection with 618.

[Fan Jiang, executive]

[Foreign Language]

Okay. Thank you. This is Jiang Fan, and I will take the question about the strategic direction for instant Commerce starting there first. I think in the short term, our priority, as I was just saying, is to achieve very rapid conversion to convert more existing 2 users into instant commerce users on Taobao and to position Taobao with that kind of mind share amongst consumers. We're already seeing good results, as I said, from our initial forays. And when users first make use of instant commerce, then they continue to come back with high engagement and high frequency.

So we're seeing high levels of engagement from those consumers. And then a major goal for us in the present phase is to get that -- to get the instant commerce business right. I think in the longer term, there are many possibilities to achieve synergy between instant commerce, hyperlocal and nationwide commerce.

Okay. Coming to the 618 campaign, the other part of your question. I think that this is just getting started. In fact, I think the campaign doesn't actually start until officially until tomorrow. So certainly, you can expect to see some changes including around marketing and including around the pacing of the campaign. These changes are aimed at better orienting and gearing the campaign to the new competitive environment and, of course, also at offering consumers a good experience, good prices and good services. But because the campaign hasn't actually started yet, I'm not in a position to share with you any of those details, but I will look forward on giving you a fuller report the campaign during our next quarterly earnings call.

[Lydia Lu, executive]

Due to time limit, we'll now take the last question. .

[Operator]

Next question comes from Alicia Yap with Citigroup.

[Alicis a Yap, analyst]

I wanted to follow up on the CMR this quarter, wanted to management to elaborate a little bit the strong performance this quarter. How much of that is driven by the GMV versus the [indiscernible] transient rate improvement? And also wanted to follow up, how much more levers that this improvement on Transient could further drive the monetization improvement in the upcoming fiscal 2026? And then also a follow up, will the step-up investment in the food delivery business to put some pressure on the TGG EBITDA in the coming quarters. .

[Toby Xu, executive]

[Foreign Language] So this is Toby. Let me start by answering your question about CMR. And as I said earlier, there were really 2 major drivers of CMR growth in this quarter. The first was the software service fee, the 0.6% charge that we began charging starting from September of last year. And then the second factor has been the growing penetration of [indiscernible] and its penetration in terms of advertising revenues. So in the new fiscal year, looking ahead, I think that both of those factors will continue to exist. and to play a role, starting first off, with the software service fee, there will continue to be a period of time going forward because last year, we started from a very low base.

So we'll continue to be rolling out and charging that software service fee first point. Secondly, in the earliest period of implementing the software service fee, we had various merchant-friendly measures, rebates to certain merchants. And in the coming fiscal year, or in 2025, we will slowly start to roll back some of those rebates. So in the new year, then the software service fee will continue to be a positive factor for our -- the further growth of monetization.

Then the second point regarding QCT, we'll continue to drive penetration of QCT and in fact, progress to date is entirely in line with our expectations. The penetration rate continues to grow and that is also having a positive driving effect on monetization rates. Of course, in the process of driving penetration of QCT and Jiang Fan also mentioned this earlier. But the most important thing is growth in terms of new merchants, getting new merchants to adopt QCT. So that includes a lot of small- and medium-sized merchants who have now started to make use of our advertising products as well as white label merchants and so on.

So from a certain perspective, this is incremental budget and incremental new advertising revenue. So this increase will be positive for driving growth in monetization in the new fiscal year.

[Foreign Language] And then turning to your second question concerning EBITDA. As Jiang Fan already said, our primary goal that we're focused on for the medium term is stabilizing our overall market share. And as part of that process, we are making a lot of investments. That includes investments in user experience as well as in price competitive products. And as we've said, we still very much remain in an investment stage. This is an investment period. And certainly, that will have an impact on EBITDA, in line with competitive developments. You could expect to see fluctuation in EBITDA on a quarterly basis.

So I think that's what you can expect to see in -- that's what you've already seen over the past several quarters. So starting from this quarter, obviously, we're also making new investments in quick Commerce or Instant Commerce, and that also will have an impact on EBITDA. On the one hand, these investments will result in the acquisition of new users, new user growth as well as increase in frequency and in stickiness. So in a certain sense, you could see this as supplanting some of our original investments in market growth. So of course, we do take that into consideration.

But overall, we would expect that EBITDA, CTG's EBITDA overall in the next few quarters to come, will experience some fluctuation in line with competitive dynamics.

[Lydia Lu, executive]

Thank you, everyone, for joining us today. We appreciate your time. We will see you next quarter.

[Operator]

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

[Statements in English on this transcript were spoken by an interpreter present on the live call.]