阿里巴巴 (BABA) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to Alibaba Group's March quarter 2015 and full fiscal year 2015 results conference call.

(Operator Instructions).

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

Please go ahead.

Good day, everyone, and welcome to Alibaba Group's March quarter 2015 and full fiscal year 2015 earnings conference call.

With us are Joe Tsai, Executive Vice Chairman; Daniel Zhang, Incoming CEO; Maggie Wu, Chief Financial Officer.

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

So please refer to our IR website for our earnings releases, as well as for the supplementary slides for the Company's 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 our IR section of the 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 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 and Exchange Commission, on May 6, 2014.

Any forward looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligations 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 margin -- I'm sorry, 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 in construction in progress, and adjust for changes in loan receivables relating to micro loans, upper 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.

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

Thank you all for joining.

Before we get to the results for the quarter, you will have seen that we reported some important news.

Today, we have announced that Daniel Zhang will become CEO of Alibaba Group effective May 10.

Our current CEO, Jonathan Lu, will work with Daniel to ensure a successful transition in the coming months.

Jonathan will remain on the Board of Directors of Alibaba Group as Vice Chairman.

In this capacity, Jonathan will play an important role in developing the future leaders of Alibaba Group.

We have a strong a deep bench of talented executives who will help lead the Company for years to come, and today's announcement reflects our commitment to continuing to develop strong leadership from within.

On behalf of Jack Ma and the entire Alibaba family, I want to express our personal gratitude to Jonathan Lu for his strong leadership and management over the past several years, and we all look forward to his continued contribution as a key leader.

Most of you have met and know well our new CEO, Daniel Zhang.

Daniel has been with the Company for eight years.

He has successfully managed important businesses across our organization, and he one of the founding members of the Alibaba partnership.

Daniel is a proven business leader and innovator, with a strong track record of delivering results.

He has the confidence of our entire management team, and there is no better person to lead Alibaba Group as we embark on the next stage of our growth.

This management transition is part of our progress to build the commerce infrastructure of the future.

In addition to investing in cloud computing, logistics, big data technology, cross-border trade capability and our ecosystem partners, we believe it is important to invest in and strengthen our talent.

This is needed in order to embrace the challenges of high growth, scale and complexity in executing against our vision for consumers and businesses around the world to meet, work and live at Alibaba.

I also want to note that today we are pleased to announce the appointment of Borje Ekholm to the Alibaba Group Board of Directors.

Mr. Ekholm will serve as an independent director of our Board, and he will also serve as a member of the audit committee.

Mr. Ekholm brings extensive experience in the areas of business, finance, capital markets, corporate governance and technology.

We are thrilled to have a director of Mr. Ekholm's caliber, and we look forward to working with him.

Now turning to the quarter, I will begin with a few brief comments, and then Daniel will provide a business review of the past fiscal year.

Then, Maggie will present the financials.

Daniel will then discuss our strategic priorities going forward.

In the quarter that ended March 31, which is our fiscal fourth quarter, I'm pleased to report that we saw continued strong growth across our core operating metrics.

We grew gross merchandise volume across our China retail marketplaces by 40% year on year.

In just the three months ended March 31, 2015, we achieved $97 billion in China retail GMV.

A key reason for this strong GMV growth is the continued growth in active buyers across our platforms driven by the increased reach of our mobile commerce apps to users across China, and our successful execution in converting users to buyers.

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

For the 12 months ended March 31, 2015, our annual active buyers increased to 350 million compared to 255 million in the 12 months ended March 31, 2014.

This growth represents an increase of 37%, year on year.

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

In March this year, we achieved 289 million monthly active users on our mobile commerce apps, which is a net increase of 24 million monthly active users from December, and a 77% year-on-year increase from the 163 million reported in March last year.

The 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.

For the quarter, we saw $49 billion in mobile GMV, an increase of 157% compared to the same quarter a year ago.

It is very important to note that mobile GMV now accounts for 51% of total GMV transacted on our China retail marketplaces in this quarter compared to 42% in the prior quarter, and 27% for the quarter ended March last year.

Maggie will address the financials in more detail in her comments, but our overall revenue in the quarter ended March 31, 2015, increased by 45% year on year.

We are also reporting today that mobile revenue from the China commerce retail business increased by 352% to $846 million in the quarter ended March 31, 2015.

Mobile revenues in the current quarter now make up 40% of our China commerce retail revenue compared to 12% in the same quarter last year.

With increasing mobile GMV and mobile revenue, we're executing well against our strategy of aggressively transitioning existing users and acquiring new users to our mobile platform, as well as increasing monetization of the mobile interface at a steady pace.

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.

Therefore, we believe the increasing use of our mobile e-commerce app will continue to fuel significant future growth.

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

I would now like to turn the call over to Daniel.

Thank you, Joe.

Hello, everyone.

I'd like to start by reviewing some highlights of our fiscal 2015 operational and financial results.

$394 billion of GMV was generated on our marketplaces in fiscal 2015.

Active buyers in the last 12 months grew to 350 million.

Mobile MAUs grew to 289 million.

We earned $12.3 billion in revenue, representing a 45% increase from the revenue generated in fiscal 2014.

And our non-GAAP free cash flow generated in fiscal 2015 was $7.8 billion.

Looking back at fiscal year 2015, I want to briefly discuss our key strategic accomplishments.

Number 1 was the significant expansion of our ecosystem.

We grew our active buyers, especially in rural areas, and improved services, and (inaudible) to our sellers.

We also expanded key categories and upgraded our logistic infrastructure.

Number 2 was our unrivaled mobile leadership.

We made a big push for the mobile Taobao app this year, and it was very successful.

Our mobile GMV grew 212% in fiscal 2015 driven by incredible net adds of 126 million mobile users.

Over 50% GMV came from mobile devices during the final quarter of 2015, and we ended the year with 289 million mobile MAUs.

Number 3 was our investment in data and cloud computing platform.

We remain the number 1 cloud service provider in China.

In fiscal 2015, we made technology improvements, and with that, significantly increased our power efficiency; and we expanded and diversified our customer base.

Number 4 was our pioneer cross-border commerce.

Tmall Global captured consumer mindshare as a source of high-quality products, and we attracted major global brands and retailers to our platform.

We also established a strong cross-border logistics infrastructure.

Number 5 was strategic MA, investments and alliances.

We invested or partnered with the five different areas in 2015: Mobile, entertainment, e-commerce and logistics, O2O/travel, and healthcare.

That's the end of this review.

I'd like to turn back to Maggie for financial review.

Okay.

Thank you, Daniel.

Hello, everyone.

Here are some highlights for your financial results.

GMV grew 40% year over year to RMB600 billion.

Revenue grew 45% year over year to RMB17.4 billion.

Non-GAAP EBITDA margin was 49%, down from 57% in the year-ago period.

Non-GAAP net income grew 16% year over year to RMB7.7 billion.

Diluted non-GAAP EPS, excluding SBC and amortization of intangible assets and certain other items, was RMB3, an increase of 7% compared to RMB2.8 in the same quarter of 2014.

In the March quarter, our blended monetization rate was 2.17% versus 2.18% in the year-ago period.

The PC monetization rate was 2.63% versus 2.63% in March quarter 2014.

Our mobile monetization rate has continued to improve from 0.98% in March quarter last year to 1.73% this quarter.

However, please note that we implemented certain measures in the year-ago quarter that artificially constrained mobile monetization rates in order to ensure user experience, so this quarter's mobile monetization rate has a relatively easy comparison to our March quarter 2014.

Starting mid-June quarter 2014, we began to phase out these measures.

Going forward, we expect improvement in mobile monetization to be driven by our ability to deliver more value to customers.

Remember, improvement in mobile monetization may not always be linear given seasonality and other factors that change each quarter.

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

Year on year, our revenue grew 45% to RMB17 billion, primarily driven by an increase in new active buyers.

Both Taobao and Tmall GMV grew very well this quarter.

However, Taobao GMV year-on-year growth was disproportionately impacted by the late timing of Chinese New Year holiday, while Tmall was not impacted as much due to special holiday promotions.

Other revenue grew 169% on a year-on-year basis in this quarter driven by the consolidation of UCWeb and AutoNavi.

The restructuring of our relationship with Ant Financial was completed in early February 2015.

This had two impacts on the other revenue.

AA loss of interest income generated from the SME loan business, and addition of new income from Ant Financial equaled 2.5% of the average daily balance of SME loans pursuant to our agreement with Ant Financial.

As I noted last quarter, this restructuring has a net income neutral impact on our financials.

The decrease in revenue related to the SME loan business was offset by a decrease in expense related to managing the loan portfolio.

In the March quarter, our non-GAAP EBITDA margin was 49%, lower than 57% in the year-ago quarter.

Our full fiscal year 2015 non-GAAP EBITDA margin was 53.5% versus 58.5% in full fiscal year 2014.

The decrease in non-GAAP EBITDA margin was due primarily to the consolidation of acquired business, mainly UCWeb and AutoNavi, and also to investments in new business initiatives such as cloud computing, digital entertainment, mobile operating systems and local services.

Without the impact of the above factors, which totaled more than $1 billion, the non-GAAP EBITDA margin in fiscal year 2015 would be comparable to that in fiscal year 2014.

This amount was less than 20% of free cash flow in fiscal year 2015.

We believe that a non-GAAP EBITDA margin in the high 50s in our core commerce business will remain stable going forward.

In fiscal year 2016, we will continue to invest a portion of our free cash flow in new businesses, and we expect the growth of our new investment spending to be higher than our overall revenue growth.

Now let's talk about our operating expenses.

Non-GAAP cost of revenue was RMB5.1 billion.

Non-GAAP operating expense was RMB4.4 billion.

Non-GAAP product development expenses was RMB1.4 billion.

Non-GAAP sales and marketing expenses was RMB1.9 billion.

Non-GAAP general administrative expenses was RMB1.1 billion.

Non-GAAP costs of revenue as a percentage of revenue increased year over year, primarily due to increasing costs associated with our new business initiatives, as well as increase in the traffic acquisition costs as we expand our third-party affiliated marketing ecosystem.

As noted last quarter, our fixed costs have increased during the year, which gives us operating leverage in a seasonally strong quarter such as December quarter, but put downward pressure on our margins in seasonally weaker quarters, such as the March quarter.

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

Excluding that factor, non-GAAP product development expense, non-GAAP sales marketing and non-GAAP G&A all increased due to the investments mentioned above

We generated RMB5.7 billion of free cash flow in March quarter, an increase from [RMB2.3 million] in the same quarter of the prior year.

Our significant earnings and capital-efficient business model enable us to generate strong free cash flow.

This provides us with the flexibility and confidence to invest in new initiatives to add new users, improve engagement and customer experience, and expand our ecosystem.

Capital expenditures in March quarter were RMB1.5 billion, an increase from RMB0.4 billion in the year-ago period, and a decrease from RMB1.5 billion in December quarter.

Our cash and cash equivalent position as of March 31, 2015, is very strong at RMB108 billion.

In addition, we have RMB14 billion in short-term investments.

Before I turn to Daniel to discuss the 2016 strategic plan, I would like to address the issue of our headcount that received some media attention last week.

I think Jack's comments were taken out of context.

Our policy this year is to have no new net adds in headcount other than incoming employees to whom we have already made offers through campus recruiting.

Just to put this in context, in year 2012, we enacted the same policy.

We had almost no new net adds in headcount, and the [G&A] growth that year was 62%, which helped us reach our G&A milestone of RMB1 trillion in fiscal 2013.

At that time we enacted the policy to encourage innovation and efficiency, and our reasons this year are exactly the same.

Now I would like to turn it to Daniel.

Thank you, Maggie.

Finally, I would like to add a few words about our priorities in the coming year.

Our 2016 priorities fall into three main categories: Expanding and upgrading our existing platform services, developing new businesses, and people development.

In the first category, expanding and upgrading our existing services, we will focus on quality [GMV] growth, customer acquisition, with particularly emphasis on mobile and rural users, empowering sellers to better serve customers, especially on mobile local services.

In the second category, developing new businesses, our focus will be preliminary on cloud computing, specifically extending services to a broader base of third-party customers; cross-border, especially the import business; building up our affiliate marketing network; developing mobile Internet services; and investing in entertainment.

Finally, underlying all of these priorities is the ongoing necessity of developing talent and building up our organization and culture.

The size and scope of our ecosystem requires us to hire, retain and cultivate employees who can adapt to a dynamic, competitive and challenging business environment.

Our success in doing this is the foundation of the future growth and the sustainability of our business, and it will be one of our biggest priorities in 2016 and beyond.

That is the end of our prepared remarks.

Operator, let's open the phone lines for Q&A.

Certainly.

The question and answer session of this call will start in a moment.

(Operator Instructions).

Erica Poon Werkun, UBS.

Congratulations on your results and thanks for the presentation.

My first question is on monetization.

Can you give us an update on how the merchants have responded to the changes in advertising tools, including the longer tail keywords and ranking algorithms?

I note that after the year-on-year decline in the non-mobile take rates in both the September and December quarters, the take rate stabilized in the March quarter.

Would you say that you've seen an inflection point?

What's your outlook on the trend for non-mobile take rate, please?

My second question is on your ever growing ecosystem.

Can you just share some color on what will be some of the key focus areas of expansion in fiscal 2016?

Thank you.

Well, first of all, I would like to say that we don't manage our business by mobile and non-mobile, and we view this as an integrated platform.

And our consumers do online shopping across platforms.

So it's a unified platform.

And in terms of take rate, I would say today more and more sellers, they get used to do business on mobile because they observe that consumers shift from PC to mobile.

So they are doing business on mobile and they start spending money on mobile to promote their [self] and items.

And if you look at our take rates on the PC side, I will say, actually the marketing revenue on the PC side in terms of the CPC and the pixel rate and the spending actually still decreased this quarter, but offset by the increase in the commission revenue in this quarter.

Because actually, in this quarter, we promote -- we had a quite good promotion in Tmall in the Chinese New Year and in March.

So this is an upside.

Then on the mobile side, actually, with development of the marketing tools and people will spend more money on a mobile to promote their [offerings].

So in terms of the area we're going to keep investing, so as we mentioned, the areas we invested in the past year, including the cloud computing, digital entertainment, local service and our mobile Internet services, we are going to continue making investments in these areas, keep expanding this new business.

Thank you.

Zhao Ming, 86Research.

Congratulations, Daniel, on your new role.

I have two questions.

The first question is actually about the management change.

We see that happening to the Head of Tmall.

We see that happening to the Head of Alimama, and now CEO of the Group.

So my question is: Should we understand that this management change or restructuring in the Group is pretty much done and we should see some positive change in the business starting from second quarter?

That's my first question.

The second question is a housekeeping question about your lottery business.

It's been ceased in March month.

How much of an impact that is on your GMV in March?

Would you say it's low single-digit GMV and mid single-digit revenue?

Any color would be helpful.

Thank you.

Yes.

Turning -- this is Joe Tsai.

I'll talk about the management change question.

This is really -- Alibaba is always very good at continuously developing and improving the management of our Company, and I think with the CEO transition of Daniel, we have also brought in some younger folks to run some of the core businesses like Tmall.

As you know Jeff Zhang, who was running Taobao Marketplace, is now running both Tmall, Taobao Marketplace, and also Juhuasuan.

So he has all the e-commerce marketplaces underneath him.

We also have some other terrific executives in other leadership positions in B2B, in cloud computing.

In the case of the Alibaba marketing platform, we, through the acquisition of UCWeb, we were able to -- brought on board a very strong executive in Yu Yongfu, and he has proven over the months of integration to bring a lot of value and insight to our business.

So we decided that it was appropriate and the right time for him to take over the Alibaba business.

But this is a process that we are continuously undergoing.

We always are looking for talented young executives to take on more responsibility.

And we're extremely thrilled to have Daniel taking over the leadership of this Group with the wholehearted support of management.

Turning -- this is Maggie.

Regarding your second question, on the lottery business, the lottery business grew really fast, and it's [suspended] according to the new rules [passed] by the end of February.

This still represents a small portion of our business.

It represents low single digit regarding the GMV as well as the revenue.

Thank you, Joe and Maggie.

Eddie Leung, Merrill Lynch.

Two questions.

The first one is a little bit follow up on some of the reported potential regulation changes.

Recently, Ministry of Commerce proposed to require all online merchants to have business registration and operating licenses.

So I'm just curious.

Would that affect the individual sellers on Taobao?

I'm not too concerned on Tmall but more on Taobao.

And separately, another question is about your cloud computing initiatives.

Just wondering if then you could provide a bit more color in that business.

For example, what would be the key customer industries you have right now, the key [service] that they are using?

Any color along that line would be great.

Thanks.

Okay.

For the first question, actually, we had very [smooth] conversation with the government.

And for the Ministry of Commerce, I think they are talking about the new regulation.

And so far, we don't think this will impact our merchants, because to date, the government actually they encourage the SMEs and the entrepreneurs to start new business and create jobs.

So we believe that in our Taobao marketplaces, we really give people the chance to start a new business.

So we think that this ultimately is helpful for the business development and for the new entrepreneurs.

Eddie, for customer types with cost computing business, it includes startups, it includes enterprises, (inaudible).

So it's pretty diversified.

Thank you very much.

Robert Lin, Morgan Stanley.

So two questions.

I think overall it looks, [it appears] business units are under a lot of restructuring and were verticalizing, meaning our three business units is now doing a lot more deeper things and restructuring.

Can you help us to understand the key objectives of some of these KPUs?

We know that there's Juhuasuan and Tmall, a lot of big brands are -- we are encouraging them to come into the platform.

Maybe give us a sense on what we expect from these new restructuring [growth].

And I guess the second question is related to mobile GMV.

I think the conversation of Jeff's down to some of the sellers in recent weeks was that GMV for mobile, the potential could be 70% by the end of the year.

Is that something we can confirm for the audience?

Thank you.

Okay.

This is Daniel.

I will answer the first question.

When we look at the restructuring of the team and business, the first thing we will think, how to -- in what kind of organization structure is a benefit for the customers.

So for example, today, and a lot of Tmall merchants they are the product sellers, and they doing the day-to-day operations on Tmall platforms, but they need a space to promote, to have a big event for them.

So that's what exactly the Juhuasuan can provide.

So put all of these Tmall business and Juhuasuan into one head, such as Jeff Zhang, actually, it's benefit for the customers and can give customers a one-stop solution in terms of the daily operations and promotion events.

And second the factor when we consider in the restructuring is that how to leverage our internal resources and improve operating efficiency.

So put all the Taobao team and Juhuasuan under one head, actually, we can have each of these three platforms have a very strong unique position.

But the BU head, he can oversee the entire business.

And to promote SMEs in Taobao and to serve the brand companies, the retailers in Tmall, and give the promotion platform in Juhuasuan.

So we believe this can help us to improve our efficiency and reduce our internal conflicts.

Regarding question on mobile GMV as a percentage of total GMV, I think it's hard for us to tell precisely whether it's going to be exceeding 70% in the coming year.

But what I can share with you is that when you look at this quarter's mobile GMV, it already accounts for more than half of our total GMV.

So that growth on mobile business pretty much exceeds everybody's expectation.

And that trend is continuing.

Great.

Alan Hellawell, Deutsche Bank.

Congratulations on an outstanding quarter.

We saw a nice rebound in year-on-year ad revenue growth in the March quarter.

I think at 29% versus 18% in the December quarter.

I think you probably mentioned some constituent factors behind that.

I think Maggie mentioned relaxation of measures around mobile monetization.

But I was hoping you could give us a hierarchy of the most important drivers behind this recovery, and also how you think about growth over the next few quarters.

And then as my second question, we'd love any additional color about actual mix shift as a driver of commissions and how we see that going forward.

Thank you very much.

Alan, this is Maggie.

So in terms of our online marketing revenue, the growth rate is much higher than what you see last quarter.

The growth is actually coming from the mobile part of the online marketing revenue.

So in the mobile part, you can see that the mobile GMV grows so significantly.

So that's the key driver.

So going forward, it depends on the mobile GMV and how we improve the mobile monetization.

Then that could impact the online marketing revenue growth.

And, sorry, Maggie.

Just on that topic, can you give us a little more detail on the relaxation of mobile monetization that you mentioned?

Are there any -- can we quantify some of the measures that were taken?

Yes.

We're not actually disclosing any further granularity, but what I can share is that from all of this traffic and CPC and the conversion, all of these are factors we see pretty encouraging growth.

Got it.

Alicia Yap, Barclays.

I actually have a follow-up question on Alan's question previously, so I guess on the [relaxations] on online marketing.

So I wanted to also get some update if you have any -- the latest update on the algorithm change that we mentioned last quarter.

And also, I wanted to see will these relaxations to continue going forward (technical difficulty).

The second question is on the Taobao GMV.

Can we also quantify or maybe give us some color how should we look at the growth trend going forward?

Thank you.

Yes.

Alicia, all of the efforts we are making and we mentioned last quarter, these are continual efforts, and these are not limited efforts we make.

The purpose of all these is to improve user experience, enhance the user engagement.

So that process will be a continued process.

So we believe that as long as we keep improving the user experience, then the monetization will come.

The second question?

Yes.

For the second question, Taobao GMV and the experience of slowdown in the first quarter.

The main reason is quite simple.

It's the late Chinese New Year.

We saw a rebound in March in Taobao GMV, and we will continue to promote the SMEs in Taobao marketplaces.

And we think that we can -- Taobao can show people very unique experience to give people a very unique experience in [these selections].

I see.

Can I follow up, Daniel, on the Taobao GMV on the Chinese New Year reason?

Will that also impact Tmall, or is it less on Tmall?

It's a good question.

Actually, this really impacts less on Tmall.

The reason is that in Taobao, most of the sellers are small sellers.

So when they are coming to a holiday, they will -- because they are -- their cash flow is quite tight, a small business always has a relatively tight cash flow, so they will pull back the inventory purchase and stock to reduce stock to a lower level.

For large sellers in Tmall, they have quite flexible cash management.

So that's why in Taobao, a lot of individuals, they will (inaudible) [their software] during the Chinese New Year, and actually before Chinese New Year until two weeks after Chinese New Year.

And this year, because of the late Chinese New Year, and we also had some impact in early March, so the business rebounded in the second half of March.

So that's why we experienced slowdown in the first quarter in Taobao.

I see.

Can I also follow up on (technical difficulty) actually help the online advertising revenue side?

Should we assume that's also mainly come from the Tmall merchants, they're also putting more ads on the mobile?

We don't really separate the Taobao Tmall merchants' revenue contribution.

So it -- because Tmall merchants also put on ads (inaudible) Taobao marketplace.

So, yes, we just look at it as a whole overall, one marketplace.

Carlos Kirjner, Bernstein.

Two questions.

Can you talk a little bit about the adoption of the Tmall mobile app versus the Taobao app?

Do you see a future where users have two apps, one app, two apps that are [deep linked]?

And if that's the case, why would you have two?

How does that evolve?

And secondly, Joe, in the transcript you said that mobile gives you an opportunity to offer better service to users and value for merchants.

Why is that?

Is there better conversion in mobile than PC?

And hypothetically, if it was up to you in three years, would you have users coming to the marketplaces over a mobile platform or over the PC?

Thank you.

Okay.

For the first question, actually, last year, we view the Taobao mobile app as a top priority.

So we input a lot of resources in the Company in the development of our Taobao mobile app and promote our -- in the promotion of our Taobao mobile app.

And this also gives a very good result.

And today, people can go into Taobao mobile app to search and to navigate and find whatever they want from Taobao and Tmall.

But also, people can go into Taobao mobile at first, then click the button of Tmall, then go to the page, webpage of Tmall, and start their journey in Tmall.

But as you said, actually, we do understand that for Tmall, actually, they need a separate app.

But we have to make sure that this separate app should give people a different shopping experience and shopping journey.

So that's why we are working very actively on the development of our new Tmall app, and we will promote this app when it is ready.

Carlos, on your second question, when a user has a mobile device, the user tends to use it more frequently.

So number 1, the frequency of purchases go up because mobile is just so convenient.

And anytime, anywhere you are, when you think about buying something, especially impulse items, it's just very easy to get on the mobile and buy something.

The second thing on user experience is that because of mobile, the collection of data can be more customized; for example, location-based data.

That could help us target the users better.

And on the seller end, we have recently launched a tool integrated into our mobile Taobao app that enables the sellers to manage the entire storefront through mobile.

So they don't even need to own a PC or a notebook computer to manage their storefront.

So we've made it very, very easy for them to manage their storefront.

So we're doing all these things to make it easy for both buyers and sellers to transact on the mobile platform.

Alex Yao, JPMorgan.

Congrats on a good quarter.

So I have a follow-up question on Daniel's comment on the PC monetization.

You discussed CPC and [CTR cost per click] rate in this quarter's decline on year-on-year on basis.

I'm wondering.

Can you share with us the trend of these two metrics, since you introduced the mechanism to change the algorithm and encourage the long-tail [bidding]?

And then the [pass] of -- for these two metrics to recover and increase on year-on-year basis, should we think about that's a few months' story or a few quarters or a few years?

The second question is about Taobao versus Tmall.

So this quarter, the growth rate is very different.

I think you also mentioned one of the reasons is because Tmall have done some events to drive the GMV.

Should we think, after the management change in the China retail marketplace, you guys increasingly prioritize Tmall a bit more than Taobao?

I stop here.

Thank you.

Okay.

For the first question, let me explain again.

On PC, because more and more merchants, they observe that traffic are shipped to -- shipping to mobile, so they start to spend money on mobile and [bigger] key words.

So that's why the CPC cost per click reduced on PC side because of lack of competition.

And I try to correct that, actually.

On the PC side, it's not a CTR reduction.

It's about -- because of the traffic shifting, part of the traffic shifting to the mobile side, so actually the [first] traffic actually is going flat.

So that, we believe it's the reason why we saw a decrease in the marketing revenue on the PC side.

And for the second question about the growth of the GMV in Tmall versus Taobao, actually, we don't try to prioritize Tmall or prioritize Taobao.

They are equally important to us.

For this quarter, actually, why we have two promotions for Tmall, one is in Chinese New Year.

Because in Tmall, we have a partner with a logistics company which can help us to deliver the large appliance all across China, even in Chinese New Year.

So we encourage our sellers on the platform who are selling large appliance and they do the promotion during Chinese New Year.

And second one is the promotion in March.

Actually, in March 8, we launch a promotion which encourage consumers to scan the barcode and purchase.

The vast majority of the items selected in this promotion is groceries from Tmall.

So that's why Tmall enjoy benefit in this quarter from the promotion.

Yes, Alex.

Just add a little bit to Daniel in terms of -- we're talking about PC, the traffic CPC.

To us, we really see this PC mobile as one integrated marketplace rather than two businesses.

Think about user, right?

People, they're surfing PC screen to put the products in their shopping cart, then they confirm orders on mobile.

This just become very common.

So these two channels to us, they are really (inaudible) consumers and one market.

So to us, overall GMV growth, the overall revenue growth, that's what represents the business growth rather than just separately seeing each PC and mobile business.

[Scott Devitt, Stifel].

Congratulations on a great quarter.

One question.

It relates to long-term take rates.

As I think about your business historically, merchants have been willing to pay a certain percentage for the access to customers and an ability to actually conduct commerce on the site.

And that rate on the desktop historically has been higher than on mobile.

I'm just trying to understand.

As mobile matures over the long term, is there any reason to think that mobile monetization or take rates shouldn't converge with where the historical desktop take rate has been?

Or is there something that's done by merchants in terms of advertising spend that's not tied directly to the transaction that would lead that line of thinking to be inaccurate?

Thank you.

So in terms of the mobile take rate, I think we remain bullish, mobile monetization in the longer term.

We do believe that mobile take rates should approach PC or even higher than PC.

The reasons are very simple, three things.

We see more customers -- we see more consumers from mobile.

This you can already tell from the [major] growth.

So more buyers.

Then second one is higher engagement.

So people come to the mobile more often, more frequent than they did on PC.

And the third one is higher value.

That's because we have more data on mobile, the location-based data and buyer behavior data.

So that reason made us believe that the value gaining through the mobile platform could be very significantly higher.

And eventually, that will drive the mobile monetization, the take rate.

Dick Wei, Credit Suisse.

Congrats to Daniel for his new role and good quarter as well.

I have two questions.

The first question is on maybe the Tmall GMV growth.

Maybe if I look out for next couple of quarters, I understand there's some new merchants' recruitment policies and other customer-related user experience, policies implemented.

Should we expect the Tmall growth to continue to accelerate going to next couple of quarters?

And second question is more on the O2O and some of the local services initiatives.

I wonder if management can discuss more about some of the investment plans and some of the other cooperation with the Ant Financial [side], that would be great.

Thanks.

Okay.

For the first question, we adjust our recruitment policy in Tmall in early March and we higher the entry -- we upgrade our entry standards.

So the purpose of this is to increase the quality of the merchants.

So when we look at the Tmall operating methodology, we don't try to grow our business by number of merchants.

Instead, we try to help our merchants to grow their business, to help them increase to their sales, to enjoy a high sales store growth, same store growth.

So we believe that by adopting this new policy, the people will enjoy a better experience because we give them more confidence in high-quality products.

And all the merchants here are high quality, so we believe ultimately this should be benefit for all the merchants here, and also benefit for the long-term growth of Tmall.

And for your second question, O2O, I would like to say that O2O actually is -- O2O cannot be a unified platform.

It's very difficult to be a unified O2O platform because in each business, there is an O2O opportunity.

And the online/offline business in a certain business should be fully integrated.

So our strategy is to identify and focus on some of the key areas, key industries, and to restructure the business using the Internet, using Internet technology and thinking.

For example, in the food and catering, in the car booking, and the way we participate in the travel sector, either we do this business by ourselves or we enter this sector by investment.

Thomas Chong, Citigroup.

I have two questions.

The first question is about the cost for the e-commerce strategy.

Can management provide us some color about the GMV potential in the next couple of years?

And what's the expectation from Alibaba perspective in terms of serving 2 billion consumers in the next few years' time?

And secondly, it's about the M&A strategy.

Can management talk about what's your overseas strategy in e-commerce?

Thanks.

For the cross-border business, this is one of our priorities in the next year, and we have huge demand from Chinese consumer for high-quality foreign products.

This is also, we believe, the starting point of our globalization.

So we will start with the import business to bring more and more high-quality foreign brands, the retailers and their products, to China market.

Today, we are in early stage and we believe that we will have a -- consumer will over -- actually, they welcome these high-quality products and we will enjoy a rapid growth in this sector.

In terms of the GMV, I still remember two years ago when we were asked about GMV growth we were at around $250 billion GMV.

And we said that in the next two to three years' time, we'd see that number get doubled.

Right now, you can tell that we are well on track towards that target.

And going forward, we do believe that there is market for more than $1 trillion GMV worldwide.

There was a question on the M&A strategy, especially overseas.

I just wanted to comment on that.

We're looking at M&A outside of China in two types of situations.

The first one is we're always looking to invest in minority stakes in companies that we see as having disruptive technology or business ideas.

And there, the main purpose is to back entrepreneurs and establish the relationship and learn from these entrepreneurs.

So that is one type of category.

The other, when we venture out of China to do something, it is usually with a view toward improving the customer experience, that tie-back to our core business.

So for example, we made an investment in Singapore Post because we are looking at cross-border logistics; making sure that sellers that are selling from China to all over the world, especially South East Asia, consumers can have a better experience when it comes to logistics.

Cynthia Meng, Jefferies.

Congratulations for a good quarter.

My question first of all is a housekeeping one.

For the SBC to sales ratio, could Maggie give some more color on the trend of this ratio and whether we will see a step down at some point?

Secondly, is any update on Alipay?

We're interested to know the percentage of Alipay's payment that comes from Alibaba's China commerce retail marketplace; if management could give us some more color there.

Thank you.

Talking about SBC, we stated in the announcement that there are two parts included in this SBC.

One part is our normal performance on higher grant.

The other part is purely according to the GAAP, we (technical difficulty) mark to market.

This part relates to the shares awards of Ant Group granted to our employees and the shares [AGH] grants to Ant's employees.

So going forward, I think it's hard to say because the mark to market relates to the valuation of both groups.

But what I can share is that this significant part of expenses is non-cash and is not going to dilute any of our shareholdings.

And we believe that the dilution coming from this SBC will be still stay at around 1% going forward.

Sorry.

I missed the second question.

It was an update on Alipay and the percentage of Alipay's payment that was contributed from Alibaba's China commerce and retail marketplace.

Right.

Alipay, how many percentage?

We disclosed in the prospectus that around 78% of our total transactions get paid through Alipay, and in the coming [20-F)], we're going to give another update.

There is no significant change over that ratio.

Thank you.

Unfortunately, we have run out of time for any further questions.

Ladies and gentlemen, this concludes the presentation for today.

Thank you for participating.

You may all disconnect.