阿里巴巴 (BABA) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to Alibaba Group December quarter 2014 results conference call.

(Operator Instructions).

I would now like to turn the call over to Jane Penner, Head of Investor Relations of Alibaba Group.

Thank you.

Please go ahead.

Hello, everyone, and welcome to Alibaba Group December quarter 2014 earnings conference call.

With us today are Joe Tsai, Executive Vice Chairman; Jonathan Lu, Chief Executive Officer; Daniel Zhang, Chief Operating Officer; Maggie Wu, Chief Financial Officer.

Also, as you know, we distribute our earnings press release through Alibaba Group Investor Relations website, located at www.alibabagroup.com.

So please refer to our IR website for our earnings releases, as well as the supplementary slides that accompany the call.

You can also visit our corporate website for the latest Company news and updates.

Please check it out.

This call is also being webcast from the IR section of our corporate website.

A replay of the call will be available on our website later today.

Now let me quickly cover the Safe Harbor.

Today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations.

Factors that could also cause actual results to differ materially are set forth in today's press release.

To also understand these risks and uncertainties, please refer to our Form F1, as amended, originally filed with the US Securities & Exchange Commission on May 6, 2014.

Any forward-looking statements that we made on this call are based on assumptions as of today and we do not undertake any obligation to update these statements except as required under applicable law.

Please note that certain financial measures that we use on this call, such as non-GAAP EBITDA, including non-GAAP EBITDA margin and non-GAAP net income, are expressed on a non-GAAP basis.

We have also adjusted our net cash provided by operating activities to remove purchases of property and equipment and intangible assets, excluding acquisition of land-use rights and construction in progress, and adjust for changes in loan receivables relating to micro loans of our SME loan business, which we refer to as free cash flow.

Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release.

With that, I will now turn the call over to Joe.

Thank you, Jane.

Good evening or good morning, depending on where you are.

Thank you all for joining.

Jonathan, Maggie, Daniel and I look forward to discussing our business with you today.

In the quarter that ended in December, which is our fiscal third quarter, I'm pleased to report that we saw continued strong growth across our core operating metrics.

Those who follow our Company closely know that we analyze the health of our business by focusing on a few select core metrics.

On each of these metrics we continue to see strong growth.

We grew gross merchandise volume across our China retail marketplaces because of robust growth of active buyers.

We continued to expand our strong position and competitive advantage as the unrivaled leader in mobile commerce across China.

Our business continues to perform well and our results this quarter highlight both the strength of our ecosystem and the strong foundation we have for sustainable future growth in China and beyond.

My colleagues will provide you with a more in-depth look at our business operations and financial results but, before they do that, I want to highlight a few of our key growth areas.

We grew gross merchandise volume across our China retail marketplaces by 49% year on year, driven in strength in both Taobao Marketplace and Tmall.

In just the three months ended December 31, 2014 we achieved $127 billion in China retail GMV.

For the calendar year 2014 we achieved $370 billion in China retail GMV, which demonstrates the unparalleled scale we have been able to achieve.

A key reason for this strong GMV growth is the continued growth in active buyers across our platforms.

An active buyer is someone who came to our retail marketplaces to make at least purchase during the period of measurement.

For the 12 months ended December our annual active buyers increased to 334 million, compared to 231 million in the 12 months ended a year ago.

This growth represents an increase of 45% year on year and was driven by an increase in active buyers throughout China with substantially faster growth from lower tier cities.

For context, when you consider our 334 million annual active buyers, this means a number of consumers that now surpasses the entire population of the United States is shopping and buying annually on our China retail marketplaces.

Yet these 334 million Chinese consumers represents only about one-half of the Chinese Internet user population and about one-quarter of the total population in China.

These numbers highlight the significant growth opportunity we have before us.

I next want to touch on an area that I know you are watching and analyzing closely, and that is our progress in mobile commerce.

Alibaba continues to be the unrivaled leader in mobile.

For this quarter we achieved 265 million monthly active users on our mobile commerce apps, which is a net increase of 48 million active users compared to 217 million monthly active users in the prior quarter.

This is a sequential growth of 22% and a year-on-year growth of 95%.

Alibaba leads the China mobile commerce market with an 86% share of total mobile GMV, according to iResearch, and our mobile Taobao app continues to be the number 1 commerce app and, in fact, one of the most popular mobile apps in all of China.

This strength in mobile commerce demonstrates our ability to attract mobile users with strong commercial intent on a scale that we believe is unrivaled by any of our peers in China or globally.

Turning to mobile GMV, in the December quarter we saw $53 billion in mobile GMV.

This is a 213% increase compared with the same quarter a year ago.

Mobile GMV now accounts for 42% of total GMV transacted on our China retail marketplaces in this quarter, compared to 36% in the September quarter and 20% in the December quarter a year ago.

Stepping back, if you look at how much mobile business we do every year, for the 12 months ended December we saw $130 billion in mobile GMV on our China retail marketplaces.

It is safe to say that Alibaba is today very much a mobile Company and we have positioned ourselves for more growth in mobile users in the future.

Our mobile strategy is helping us to attract new consumers to our retail platforms that we might not otherwise reach.

For example, through our strong success in the past quarter with both the 11/11 Singles Day shopping festival and the 12/12 promotion, we introduced a large number of new mobile users to our platforms.

And, overall, we saw significantly increased and sustained mobile usage.

These new mobile customers have now experienced the ease and convenience of shopping on our platforms.

And we believe these new consumers will help to drive even more GMV growth in the future.

Maggie will address the revenue in more detail in her comments, but we are reporting today that mobile revenue from the China commerce retail business increased by 448% year over year, primarily due to a greater proportion of GMV being generated on mobile devices, as well as an increase in the mobile monetization rate.

In absolute dollar terms, for the quarter ending in December we delivered over $1 billion in mobile revenue.

We're seeing sustained progress in how we monetize mobile.

That's because consumers who come to use our mobile apps to shop for goods and services have clear commercial intent and we are able to effectively convert that commercial intent into purchases that benefit our merchants and increase their appetite and propensity to allocate more of their marketing dollars to our mobile interface.

Looking ahead, we believe that the continued trend towards mobile provides us with a unique advantage to deliver a better consumer experience as well as more value to merchants.

Because mobile users shop more frequently and we can serve them more targeted search results, we believe the increasing use of our mobile apps will fuel significant future growth in our China commerce retail business.

Taken together, the results we are reporting today show our strong foundation for future sustained growth.

Now, before I turn the call over to Maggie to go through the quarterly results, I want to address the news reports you may be seeing related to our interaction with the State Administration for Industry and Commerce, or SAIC, in China.

Let me first say that Alibaba is a company with strong values.

Nothing is more important to us than the trust we earned from our stakeholders, including our customers, business partners, regulators and shareholders.

This trust is built on the expectation that everyone at Alibaba will act with absolute honesty and integrity and to conduct our affairs with the highest standards of ethics and transparency.

Our commitment to ethical and transparent behavior is why we were so deeply troubled by an SAIC report released on January 23 that purported to publish the results of a product sample check in online commerce.

As we said before, we believe this report was flawed and was based on arbitrary methodology and we gave our views to the SAIC.

Yesterday, a so-called White Paper was posted on the SAIC website that specifically identified Alibaba and referred to a meeting between Alibaba and the regulators in July last year.

We believe the flawed approach taken in the report and the tactic of releasing a so-called White Paper specifically targeting us was so unfair that we felt compelled to take the extraordinary step of preparing a formal complaint to the SAIC.

I want to make sure you know the facts behind this so-called White Paper.

Number one.

The first time we saw the White Paper was when it was posted on the SAIC website yesterday.

Number two.

Like all international companies across the globe, we, from time to time, meet with regulators in the normal course of business.

The meeting last July was no different and at this meeting we discussed working together to create a process to address key areas of consumer protection and orderly marketplace operations in online commerce.

Number three.

Today we observed that the SAIC has removed the White Paper from its website.

And fourth, I want to make it absolutely clear that Alibaba has never requested the SAIC to delay the publication of any report.

At Alibaba we believe in fairness.

We support rigorous supervision of our Company, but we also feel compelled to speak out when there are inaccurate and unfair attacks being leveled against us.

The issues of counterfeiting and IP protections are a part of the problems in a growing economy today, whether it is online or offline.

We have a zero tolerance policy towards counterfeits on our platform because the health and integrity of our marketplaces depend on consumer trust.

To protect consumers, brand owners and legitimate sellers and to maintain the integrity of our marketplaces, we have a broad range of measures to prevent counterfeit and pirated goods from being offered and sold on our marketplaces.

For example, we use data technology to analyze and track infringing products and identify hotspots for counterfeit distribution and sales.

We work closely with Chinese public security, copyright, quality inspection and intellectual property agencies to take the online fight against counterfeits to offline perpetrators.

We conduct periodic checks by using third parties to identify suspected counterfeit products on our marketplaces.

And we have established cooperative relationships with over 1,000 major brand owners and several industry associations in connection with intellectual property rights protection to enhance the effectiveness of our takedown procedures.

When we receive complaints or allegations regarding infringement or counterfeit goods, we follow well-developed procedures to take swift action.

If allegations of posting or selling counterfeit products are substantiated, we penalize the parties involved through a number of means, including enforcing the seller to reimburse the buyer; assessing penalties against the seller or limiting their ability to add listings; adopting a name-and-shame policy; and closing down storefronts and permanently banning the seller from establishing another storefront and, in the case of Tmall sellers, confiscating the consumer protection security deposits that they have paid.

These policies and procedures are tough and we work very hard to enforce them.

In addition, we're devoting more resources to the fight against fakes.

For the past two years Alibaba invested over RMB1 billion in the fight against counterfeiting and to enhance consumer protections.

In addition, we have a special task force of thousands of employees who are focused on the urgent fight against counterfeiting and we have just announced that we are adding 300 more people.

Our efforts of taking the online fight to offline perpetrators are yielding results.

Last year Alibaba cooperated with Chinese law enforcement agencies in over 1,000 counterfeiting cases.

As a result of this collaboration, 400 suspects from 18 counterfeiting rings were arrested, while 200 brick-and-mortar stores, factories or warehouses involved in production and selling of counterfeits were closed.

When you step back and look at our overall efforts to combat illicit activities, our track record is clear.

We are certainly not perfect and we have a lot of hard work ahead of us.

In the global e-commerce marketplace there will always be people who seek to conduct illicit activities and, like all global companies in our industry, we must continue to do everything we can to stop these activities.

We take these issues seriously because we are an organization built on the value of integrity.

We also take these issues seriously because we are also victims of counterfeiting.

Our entire success as a company is built on the idea that customers can come to our platforms and have trust in the quality of the products they purchase.

And customers clearly continue to give us their votes of confidence, especially when you consider the 334 million annual active buyers and 45% year-on-year growth in active buyers we reported today.

With that, I would like to turn the call over to Maggie, who will walk everyone through our financial results for the quarter.

Thank you, Joe.

Hello, everyone.

Joe discussed our key operation metrics for the December quarter and now I'll walk through the details of monetization and our financial performance.

First, the highlights.

GMV grew 49% year over year to RMB787 billion and was up 42% sequentially.

Active buyers in the last 12 months grew to 334 million; up 45% year on year.

Mobile MAUs grew to 265 million in the month ended December; a record high net adds of 48 million MAUs in three months' time.

Revenue grew 40% year over year to RMB26.2 billion and was up 56% sequentially.

Non-GAAP EBITDA margin was 58%; down from 60% in the year-ago period and up from 51% in the September quarter.

Non-GAAP net income grew 25% year over year to RMB13.1 billion.

Diluted non-GAAP EPS, this is excluding SBC and amortization of intangible assets, etc., was RMB5.05; an increase of 13% compared to RMB4.45 in the same quarter of 2013.

Year on year our revenue grew 40% to RMB26 billion.

China commerce retail revenue grew 32% to RMB21 billion and accounted for 82% of total revenue.

The lower revenue growth rate relative to GMV growth rate was mainly a result of the greater percentage of total GMV coming from mobile GMV, which monetizes at a lower rate than PC GMV.

Long term we see this as a positive trend for our business.

Mobile devices are extremely data rich and will eventually offer much better buyer experiences, both organic and commercial, that we believe will create significant long-term value for our merchants and for [Alibaba].

The rapid growth of our mobile GMV may give us some near-term growing pains but it bodes well for the future success of our entire ecosystem.

In addition to a mix shift to mobile, lower monetization on PC interface also contributed to the slowdown of China commerce retail revenue.

This was driven by user experience improvements to our ad targeting and our P4P ranking algorithm, which lowered CPCs.

I view these user experience improvements as an investment in future revenue growth because they make our marketplaces an increasingly attractive place for buyers and merchants to do business.

Other revenue grew 266% on year-on-year basis in this quarter, driven by the consolidation of UCWeb and AutoNavi, as well as the growth of interest income generated by our SME loan business.

This business, by the way, will be transferred to [Alibaba Group] very soon.

As disclosed in the IPO prospectus, we agreed to sell our micro loan assets business to Ant Financial.

After the closing, which is going to be very, very soon, in days' time, we will no longer consolidate revenue generated by the sold asset in our financial results.

Please note that we will also stop consolidating the costs associated with running of this business and will begin collecting an annual fee of 2.5% of the average daily book balance of the micro loans made by Ant Financial.

We expect this transaction to be complete this quarter, actually very soon, and I believe the net financial impact of the sale will be roughly neutral for Alibaba Group.

In December quarter, our blended monetization rate was 2.7% versus 3.05% in the year-ago period.

The lower blended rate year over year was primarily due to lower revenue growth in our China commerce retail business, which was driven by the factors I just discussed.

As we've said many times, we operate the marketplace as a whole rather than thinking of it in terms of PC versus mobile.

Our buyers experience it this way too and we optimize for their experience across several platforms.

That said, we currently break out our mobile tick rate for investors in order to make our progress monetizing mobile transactions and traffic more transparent.

Our mobile monetization rate has continued to improve.

As you recall, in the March quarter it was 0.98%, in June quarter it grew to 1.49% and in September quarter it was 1.87% and now it's 1.96% for December quarter.

In the future we expect mobile monetization rate will be driven by our ability to deliver more value to buyers and advertisers as we develop mobile-specific ad formats, continue to refine P4P targeting and improve our ranking algorithm.

These increases may not always be linear, given seasonality and other factors that change each quarter.

But we continue to strongly believe that the longer term trend in mobile monetization is positive.

In the December quarter our non-GAAP EBITDA margin was 58%; improved from 51% last quarter.

Please note that our fixed costs, this including payroll, co-location, etc., have increased, which gives us operating leverage in seasonality strong quarter, such as the December quarter, but can significantly pressure margins in seasonality (sic) weaker quarters, like March quarter.

Furthermore, we consider discretionary spending on new initiatives a strategic priority to drive future growth and, as such, that spending will likely continue at similar or greater levels in future quarters.

In any case, please remember that we do not manage to a margin target.

Rather, we invest opportunistically in the overall growth of the entire ecosystem.

Now let's talk about our operating expense.

Non-GAAP cost of revenue was RMB6.1 billion.

Non-GAAP operating expense was RMB5.6 billion.

Non-GAAP product development expense was RMB1.8 billion.

And non-GAAP sales and marketing expense was RMB2.6 billion.

The non-GAAP general and admin expenses was RMB1.2 billion.

Non-GAAP product development expense as a percentage of revenue decreased year over year as we stopped paying royalty fees to Yahoo after our IPO in mid-September.

Non-GAAP sales and marketing expense as a percentage of revenue increased year over year, largely because of the consolidation of the marketing expense of our [investee] companies, such as UC and AutoNavi.

An increase in advertising spending in lower tier cities, as well as the promotion of new business initiatives also contributes to that result.

Non-GAAP G&A expense as a percentage of revenue decreased year over year because of a one-time equity-settled donation expense of RMB1.3 billion million made in quarter ended December 31, 2013.

Our GAAP net income in the quarter decreased 28% year on year.

On its face that seems to be a big decline, but on an operating basis, we're doing just fine.

The decrease in GAAP net income was primarily due to three things.

Number one, an increase in share-based compensation expense; including the effect of mark-to-market accounting of share-based awards in an amount of RMB1.5 billion.

Number two, an RMB830 million one-time charge for financing-related fees as a result of the early repayment of our $8 billion bank borrowings.

Number three, a year-on-year increase in income tax expenses, primarily as a result of the expiration of EIT exemption period for one of our major subsidiaries, as we discussed in last quarter as well.

On a non-GAAP basis net income increased by 25% year on year.

We generated RMB23 billion of free cash flow in December quarter; increased from RMB9 billion in September quarter and RMB17 billion in the same quarter of prior year.

Capital expenditures in the December quarter were RMB1.5 billion; a decrease from RMB1.6 billion in the year-ago period and RMB3.4 billion in the September 2014 quarter.

There are two reasons on the fall in CapEx.

First, we incurred lower real estate related CapEx in this quarter.

Second, non-real estate CapEx decreased sequentially as we invested last quarter to build our infrastructure ahead the peak shopping season of the year.

Our cash and cash equivalent position as of December 31, 2014 is very strong at RMB107 billion.

In addition, we have RMB23.7 billion in short-term investments.

That's the end of our prepared remarks.

We would like to open up for questions.

Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions).

Dick Wei, Credit Suisse.

Congrats on the very strong GMV and active buyers growth.

My first question is on the tick rate.

I guess the tick rate, I guess the primary reason is a mobile shift as well as PC tick rate is lower.

I wonder how long does this lower tick rate is going to last.

And what was the rationale for the changes during the quarter compared to prior quarters?

And I have follow-up questions.

Thanks.

(technical difficulty) the tick rate is coming from two reasons.

One thing is, like we said, mobile (inaudible), although it continued to improve, but the tick rate level is lower than PC, where you see we have a much higher mobile T&D as a percentage of total GME.

So that's number one.

And number 2 is the PC those [adverts] you only get on PC, which improves the (inaudible) the main impact on tick rate.

I think we're going to continue to make efforts on user experience and [treatment].

And so in terms of how that turns out and, as I mentioned earlier, we believe that long term this will enter the whole ecosystem and then the tick rate will reflect the improved user experience and merchants' returns will then -- then it's hard for us to say which quarter it can be.

And also in the following quarters there are seasonalities.

For example, in Q1 normally it is our low season.

Yes.

Okay.

Thanks, Maggie.

Maybe just a quick follow up.

And how about the -- for the commission rate itself?

If I just do a simple math on the commission rate revenue, it seems to come down as well year over year.

Was it mainly due to some of (technical difficulty) changes?

Or what are the reasons behind it?

And maybe lastly, just wonder, and I guess Joe commented on the -- on some of the press, some of the news on the SAIC issue.

Wonder, is there going to be any impact, maybe in the Q1 or in the near term?

Thank you.

Yes, the commission rate changes.

It reflects -- on certain categories it makes changes.

So that's surely the reason.

So, as you saw, the SAIC report we believe was based on flawed methodology and we have been very vocal about protesting and we're prepared to file a complaint about that.

Obviously, any time you have a situation like this, it doesn't help.

But I think we want to take a step back and look at the bigger picture.

In Q4 we added 27 million new active buyers.

So now we have a base of 334 million active buyers.

These people wouldn't come to our website to purchase things if they are getting bad-quality stuff on our site.

It's really a vote of confidence from our consumers that we're seeing.

And the other thing is we're seeing very good mobile growth.

We are generating 265 million monthly active users.

If you compare that to the last quarter that is a net add of 48 million new monthly active users on mobile, just in three months.

So we're very excited about that and this is a long-term positive for the business.

Thanks a lot, Joe and Maggie.

Angela Moh, Morgan Stanley.

I just had a couple of questions on -- more on the top line and users.

So first on the GMV, could you provide a little bit more color on the trends?

Given (inaudible) we would have (technical difficulty) potential pull forward.

Or could you comment a little bit on December quarters?

Do you see any general slowdown?

And also the trends in January so far.

So that's the first thing.

We're having a very hard time hearing you.

I'm not sure if your connection is bad.

Could you try that again?

So first question on the GMV.

If you could provide a little bit more color on the general trends on a monthly basis.

Given your 11/11 probably resulted in a little bit of a pull forward in demand, did you see any slowdown in December?

And the trend so far in January.

I guess, looking out into the March quarter, given Chinese New Year is later this year, do you expect that to add on a little bit of a boost for the quarter?

Yes.

Actually the GMV in 11/11 we hit a new high and in that day we achieved a RMB57 billion in the Singles Day.

And we do see some seasonality in the Q1 because, actually, the Chinese New Year will be in this February.

And actually what we see the trend actually is in line with what happen in the previous years.

So we believe that our journey will continue to grow, [along with] our continuous acquisition of the new customers, especially in the lower tier cities.

Sorry, just one other question, on the [CTC] rate.

I think you mentioned that that was down and Maggie had talked about your increase in the user experience, etc.

Is this related to the more targeted effective [customization] of the [web agents]?

So essentially you're helping your merchants improve their conversion rates.

And as you do a leverage of the data more going forward, should we continue to expect this to essentially result in a lot of pressure on the monetization rate?

Yes, I think (multiple speakers) --

(multiple speakers) (inaudible) of the (inaudible).

The CTC actually had some decline and because that we launched a keyword recognition tool.

And this tool will suggest to our advertisers some long-tail keywords.

Obvious these long-tail keywords will have lower CTC, because there is less demand for them.

And the second reason is that we decrease -- in July we decrease the weight of the keyword bidding and more customization components but I think our ranking acknowledges it.

And we believe this change will improve the relevance of the P4P search but obviously it will lower the CTC.

And the last reason for which might have some negative impact on CTC is that we continue to deliver a personalized customization of searches in our organic search.

And then people will actually pay more attention to this organic search result because it's more relevant to them.

Okay, thank you.

Alan Hellawell, Deutsche Bank.

Two questions.

One of them, would love to get a little more clarity on your promotional spending.

I assume that ranges from subsidies on [Quaggi, Cat to Hell] and other things.

Would love to get a better sense as to what the magnitude of that was in the quarter.

And how you think about these O2O initiatives going forward?

And then, I think my second question was somewhat -- was largely answered, but net-net, it looks as though ad revenues grew nearly 20% year on year.

In addition to the tweaks around the pay-for-performance algorithm, were there any other -- is there any other color you can bring to bear?

It would imply that commissions obviously grew much more strongly than ad revenues.

Thank you very much.

In terms of the [different] markets being -- we see that the quarterly result -- we just talked about the spending on the promotional activities for our core business as well as consolidation of (inaudible).

This actually didn't include the significant spending on the [taxi] business because apparently that business is promoting the online payments, which causes -- verified by the (inaudible) Group.

I think going forward, as I said, we're going to continue to invest, including in (inaudible) marketing because the new business as well as the existing business, we see potential and we do have the relatively high margins to invest.

So, overall, I think I do not change my message with [one foot] on the margins, so that also gives you a sense of our continuous spending and investment into the market.

So your second question is about commission.

Yes, I think if you compare to online marketing revenue, commissions were at a higher rate.

So going forward -- then you talked about our continuous efforts on our (inaudible) experience improvements, etc.

That will put more impact on the P4P.

So, yes, that's why, when you compare the (inaudible) to revenue items, the online marketing, which mainly includes the P4P, shows a (inaudible) slower growth rate.

Thank you.

Alex Yao, JPMorgan.

The first one is can you guys help us to understand the 2015 investment strategy and the priority?

Where do you look at for the bigger opportunities?

And how do you want to prioritize your resource allocation?

Secondly, can you give us an update on the integration with UCWeb and AutoNavi, the financial impact on the (technical difficulty) --?

(technical difficulty) [4 million].

That accounts for only 50% of the Internet population in China and only one-quarter of the whole population in China.

So that's going to continue to be one of our focus, to keep spending the (inaudible).

That actually has been the driver and will be the driver of both of our (inaudible).

So that's how we view for [quarter disclosed] and at this time we also have other (inaudible) to integrate those [private] companies we acquired invested, as well as keep exploring the globalization.

In terms of the integration of the invested companies, maybe you can --

I give you the update of the UCWeb and AutoNavi investments.

On the Group view the investments were [used for] the strategy and important to our Group as UCWeb has good understanding of mobile users' behavior and also of mobile traffic.

UCWeb's (inaudible) search is the number 2 mobile search (inaudible) in China (inaudible) Baidu in terms of unique visitors.

UCWeb has more than 100 million daily active users.

After acquisition, UCWeb has improved the mobile (inaudible) capability and mobile experience of [our] users.

And regarding AutoNavi, AutoNavi provides essential LPS and mapping information to our marketplace.

After acquisition, AutoNavi is the sole supplier of mapping services of Alibaba marketplace.

AMAP is the number 2 mobile map app in China and provides key support for Taobao local service.

Due to its solid navigation business, AutoNavi has strong cooperation and working relations with auto makers in China and has supported Alibaba's growth of Tmall auto channel and (inaudible) installations into automobiles.

Yes, that's it.

Alicia Yap, Barclays.

I actually have follow-up questions regarding the comment on the lower pay-for-performance monetization on the PC this quarter.

So I think Maggie, or maybe management, can I just get some more color, that when was the adjustments first rolled out and if that rollout also impacts the coming quarter.

So how should we expect that to affect the marketing revenues?

And then, in relation to that, how should we reconcile the comment that you had last quarter when you say you guys actually rolled out the new recommendation to improve the conversion rate?

And then for this quarter we also see the Taobao GMV growth continue to reaccelerate.

So I just wanted to -- maybe you guys can share some color how should we reconcile the two different -- one is impacting the revenue versus the other one supposed to be improving.

Thank you.

Let me try to give you more color of our pay-for-performance business.

And, as I said before, we did a lot to try to improve the ROI of the advertiser, rather than just look at the revenue and we tried to make sure that people spent money on our (inaudible) so they can get a better result, a better ROI.

So that's the principle of our P4P business.

So that's why we try to continue to personalize our P4P results and to add more features of the personalization and also consider the quality of the promoted items.

So the result is that the bidding process is only one of the components to win the P4P and we also have to consider other factors.

But the main purpose of this is to ensure the merchants can get the benefits and continue to spend money on our platform in the longer run.

So we believe that P4P model is actually a discovery mechanism by the market.

So we believe that as long as our market can continue to bring value to our merchants, our consumers can still with us continue to -- our user base continues growth and the [searchers] are willing to spend more money on our platform.

So then how long should we expect this to affect the marketing revenues in the coming quarters?

How long should we expect that to normalize on a year-over-year basis?

It's hard for us to give a (inaudible) guidance estimating how long the -- okay, what we believe is that eventually, as long as we bring the benefits and merchants, we'll get there.

However, there are some near-term impacts.

We just started this personalization effort and other efforts and so there will be some impacts for the near term.

Okay.

I see.

Okay, understood, thank you.

Piyush Mubayi, Goldman Sachs.

In the December quarter you've benefited from new categories, such as option transactions.

Could you talk about new categories that we could see come on board in the near future, such as pharmaceuticals and, if possible, give us a sense of how large these new categories could be?

And my second question, addressed to Maggie, is Maggie, we see margins -- EBITDA margins on a non-GAAP basis that bounce around in the past three quarters.

Maybe if you could help us quantify the impact of consolidation for the quarter and, if possible, give us a sense of how we should be thinking of the next few quarters.

Thanks.

Let me answer the first question.

In the [tops] actually what we can see in Q4 is that our (inaudible) and furnitures and decorations and also the other auction model actually experienced are high growth.

And actually when we look at these categories, actually they generally have a lower Internet penetration in China.

So we can see a great potential in the future for the further growth.

And in terms of the pharmaceutical, again in China now there's a (inaudible) online sales of pharmaceuticals is actually very low compared to what it is in the US.

And you may know that we have our pharmaceutical business, and today on our platform we have a lot of merchants who have the license to sell the pharms online, actually the online pharmas, but today they only sell the OTC drugs.

But what we doing right now is trying to work with the Government and with the partners to see is it possible to sell the drugs and the prescription.

So what we can see is that these new categories will continue to grow in the future.

Thanks.

Piyush, regarding the EBITDA margin, I will now change my message of EBITDA margin just based on this one past quarter.

If you look at our fixed costs, like our payroll, co-location, etc., they have increased.

This gives us operating leverage in seasonally strong quarters.

So, for example, (inaudible) quarter 1 and look at the revenue (inaudible) versus our previous quarter, it's a lot higher.

So operating leverage in these seasonally strong quarters and [pressure-wise] the margin in similar weaker quarters, because there are certain (inaudible) based over there.

Furthermore, we consider the discretionary marketing spending on new initiatives, such as local service or mobile OS and digital entertainment, etc., these are strategic priorities to drive future growth.

And as such, that spending will likely continue at a similar or even greater level.

So in any case, please remember that we don't manage to our margin targets; rather we invest in new and existing business in order to create long-term growth.

Thank you.

But, overall, yes, EBITDA margin likely to remain unchanged for the year.

Thomas Chong, Citigroup.

Two questions.

The first one is your rural cities initiative.

Can management give us some color what's the goal in 2015 about the rural cities penetration?

And my second question is about the expansion in product categories.

Apart from healthcare, what other product categories do management think will further penetrate in 2015?

And also how should we think about your digital entertainment's initiative for this year?

Thank you.

Regarding to the rural areas strategy, I would say right now it's in the early stage.

As you know that 34% of Chinese people in urban areas use e-commerce but only [5%] of Chinese people in the rural areas do.

So this is a big opportunity for long term.

Our vision is that we'll enable the farmers to sell their farm products to city people and, at the same time, will encourage China's 600 million farmers to buy online from Taobao.

There is also an opportunity to bring some large agriculture categories that are currently offline, including fertilizer and farm-care implements.

And right now we are starting to [build this office] to be managed by local residents who are not our staff, but our punters.

But this (inaudible) get permission from the sellers.

If we could buy on behalf of the local community, tell them to [led for us] and arrange payment, because the villagers often do not have Alipay or Internet, which lets them pay cash to village office who pay by Alipay.

They then tell them to also having to receive the package and Alibaba will establish operating center managed by our staff in (inaudible) managing these village office and in charge of making campaign locally.

So we just begin this real estate strategy and we have already established this office in some [provinces].

In terms of the (inaudible) categorizing in 2015, I would say in addition to the furnitures and decorations and [process rates], I said that last electronic appliance and food and groceries and these categories will continue to grow online because as we for larger clients actually now experience a transition to the small equipment.

So all the large electronic plants will be the Internet equipment, small equipment.

So we can see a (inaudible).

In terms of food and groceries, what we can see is that people will -- actually people buy this stuff -- most people actually are repeat buyers.

They buy again because they use up the food and they eat other food and use up the groceries.

So people buy for convenience.

So online shopping gives us the most convenient way to do that.

In terms of the digital entertainment, this is a very important strategy to us.

We are working on this very hard and, as you know, we have already invested in Youku Tudou and, on top of this, PC and mobile channels to distribute digital contents.

We are also working very hard to promote our OTT box and to promote the Smart TV of our partners, which (inaudible) our Uos.

So we believe that living room is a very important channel and we try to reach the consumers in this new channel and we can distribute the various digital contents to them.

Of course, in the digital strategy, content is very important and we will be very disciplined and selective to purchase very unique contents as well as to self-produce some unique contents to give people that unique experience from our content operating platform.

Thank you.

Carlos Kirjner, Bernstein.

I have two questions.

If my math is correct, Taobao GMV accelerated 400 bps while Tmall decelerated 1,800 bps sequentially.

Can you help us understand the drivers for both the Taobao GMV acceleration but, most importantly, the Tmall GMV deceleration?

Secondly, over the last few weeks we saw several events that suggest that Ant Financial and Alibaba will build some type of consumer credit business, including the notice about the preparation of personal credit rating by the PBOC to Ant Financial and the launch of Sesame Credit by Alipay.

Can you tell us what are your aspirations in consumer credit and maybe help us understand the role that Alibaba will play versus Ant and if you're going to take credit risk on the potential implications on the balance sheet?

Thank you.

For the first question on the growth of Tmall, actually on an asset dollar basis, Tmall (inaudible) still closed out RMB110 billion year over year and RMB117 billion sequentially.

So actually, this is very clear that Tmall still expresses robust growth.

Since in Q4 we have November 11 and there's a year-over-year growth of GMV on November 11, and also the 12/12 December (inaudible).

Compared to what happened a year ago, actually the growth rate in 2014 is lower compared to the previous year because the size is already very huge, so we can see we didn't achieve the same growth rate in November 11 and 12/12.

So this had some impact on our year-over-year growth rate.

And the deceleration of Tmall's GMV growth is also affected by the people's shift to the mobile.

Actually, when we look at our mobile strategy, we promote very heavily our Taobao mobile app in the past year.

As a result, our users tend to use Taobao app, even though they want to find a few more listings, because they can find a few more listings on Taobao app.

So actually that, without being a fact that Tmall actually gets less organic mobile traffic on this mobile app compared to other PC [plans].

So looking forward, we will work very hard to promote the Tmall mobile app and to get more and more organic traffic on the mobile side.

Thank you.

Yes, that's the thinking on financial services.

First of all, all the financial services business will be carried out through Ant Financial.

So Alibaba Group will benefit from that through our profit share arrangement with Ant Financial.

So if we get into a credit business where our credit risk is being undertaken, being underwritten, Ant Financial is going to do that.

And any loans, consumer credit or SME credit, will be on the Ant Financial balance sheet.

But Alibaba Group will participate in the profitability of Ant Financial.

So sitting where we are at Alibaba Group, you get the best of both worlds.

Now the thinking on financial services for Ant Financial, there are really two reasons why we believe an Internet business can execute a sound financial services strategy.

Number one, Internet businesses have a lot of data on users.

So with e-commerce-related data and payment data, you can create very good credit profiles of potential borrowers.

That is merchants and also consumers.

And number two, Internet platforms are very good distributors of financial assets.

So we have already seen the success of Ant Financial in distributing money-market fund products.

So we think, having those advantages of data and distribution capability, Ant Financial is very uniquely positioned to execute its financial services strategy.

Thank you.

Erica Poon Werkun, UBS.

My first question is for Joe.

Just wanted to ask you in three years' time how much do you think the mobile will contribute to your overall GMV in rough terms?

And do you expect that, after all the efforts in improving the user experience and the ROI of the advertisers, that your mobile tick rate at that point will be closer to your PC tick rate?

That's the number one question.

And the second question is, we've been hearing recently potential changes in the VIE structure.

Just wanted to check what do you think are the potential changes for Alibaba?

Thank you.

Well, it's always hazardous to do a three-year projection of mobile, but just look at the facts.

In this quarter we had 42% GMV already coming from mobile.

Having said that, we don't think the desktop computer is going away.

E-commerce is the kind of activity where people want to sit down and spend time, especially on large-ticket items and that usually will happen still on a desktop computer.

And so we see people buying stuff on mobile that are more impulse-buy items.

But, over the longer term, we think that probably most of our users will have both purchased on PC but also have purchased on mobile.

We now have 334 million active buyers and our monthly active user base on mobile is already at 265 million.

So I think the future is very much mobile.

On your VIE question, these are draft rules that the regulators are proposing and various lawyers and parties are going to submit comments.

We're taking a wait-and-see approach.

We're not going to comment further on that question at this point.

Ladies and gentlemen, that does conclude our conference for today.

Thank you for participating, you may all disconnect.