阿里巴巴 (BABA) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by and welcome to Alibaba Group's September quarter 2015 results conference call.

(Operator Instructions).

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

Please go ahead.

Good day, everyone, and welcome to Alibaba Group's September quarter 2015 earnings conference call.

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

Also, as you know, we distribute our earnings 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 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 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 latest annual report on form 20-S and other documents filed with the US Securities and Exchange Commission.

Any forward-looking statements that we make 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 margins and non-GAAP net income, are expressed on a non-GAAP basis.

We've 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 to 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 Daniel.

Thank you, Jane.

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

Thank you all for joining us today.

We've had a great quarter with strong growth across our core operating metrics.

Our ecosystem continues to thrive.

GMV growth, 28% year on year.

This increase was driven by robust annual active buyers and the mobile monthly active user growth.

User engagement is very healthy, with more buyers purchasing across more categories.

We are winning in mobile.

Mobile users are highly engaged and it drives online marketing spend by our merchants.

In the September quarter both mobile GMV and mobile revenue in the China retail business exceeded 60%.

As a result, we saw robust revenue growth during the quarter.

Overall, year-on-year revenue growth was 32% and specifically revenues from our China regional marketplaces grew 35%.

We are fortifying our market leadership in the major cities.

In addition to Beijing and Shanghai, we added Chengdu, Guangzhou, Hangzhou, Suzhou and Wuhan for same-day delivery for groceries.

We continue to develop commerce in the lower-tier cities and the rural areas.

In the September quarter we increased our presence in over 4,000 additional rural villages, where we provide purchasing and delivery services.

At the same time, we remain committed to providing a trusted consumer experience with authentic products by driving merchants that peddle counterfeit products off our marketplace.

This commitment to the best consumer experience has clearly not [heightened] our ability to monetize GMV.

We also want to call your attention to some recent developments in our cloud computing business.

In the September 2015 quarter revenue from cloud computing and Internet infrastructure continued to accelerate.

We opened a datacenter in Singapore, serving regional and global customers.

And we'll continue to expand our customer base, geographic coverage and product offerings.

We recently announced our Hangzhou plus Beijing twin-hubs strategy and I want to share our thoughts on this.

Beijing is the capital of China and it [comments] invaluable influence both domestically and on the global stage.

A base in Beijing will help us better serve and connect with customers in the northern regions.

Outside of Hangzhou, Beijing is our largest operations base.

This was also an important quarter for our international business.

Our globalization strategy is focused on cross-border commerce.

Our China retail marketplace platforms are engaging as a gateway for international brands and retailers to sell their products to Chinese customers.

We are making good progress.

Just two weeks ago we hosted diplomatic representatives from 39 countries at our official kick-off ceremony for this year's November 11 and announced strategic partnerships with almost 100 agricultural and governmental organizations from 25 countries to offer their best fresh foods to Chinese customers.

We also recently opened offices in London and Milan to serve European brands, retailers and trade associations who seek to access the large and growing Chinese customer class looking for high-quality imported products and services.

I want to give a quick update on the progress of our business collaboration with Suning.

We are partnering with Suning in multiple fronts, including omnichannel and logistics.

And you will see this brought to life on November 11.

For example, consumers can place orders online and goods will be fulfilled from Suning's retail stores.

We have also integrated Suning's logistic network and services, which will be made available to other merchants on our platforms.

On November 11, the Suning warehouses will be supporting fulfilment of FMCG products.

In addition, Suning locations will offer aftersales service for online purchase of goods.

Finally, I just want to give a bit of preview to November 11.

We are focused on four key areas this year: globalization, omnichannel, mobile and logistics.

We are taking November 11 global because our Chinese customers, as well as global brands and retailers, have demanded this.

Many well-known overseas retailers will participate in November 11.

And many countries are partnering with us directly to offer specialty fresh foods.

In terms of omnichannel, more than 180,000 offline stores across 330 cities will interact with our mobile e-commerce apps and offer new shopping experiences and services to customers.

With that, I will hand over to Maggie to discuss our financial performance this quarter.

Thank you, Daniel.

Hello, everyone.

Here are some financial highlights from the September quarter.

Our GMV grew 28% year over year to RMB713 billion.

Excluding the effect of the suspended lottery business, GMV would have increased by 30% year over year.

Our GMV growth was primarily driven by an increase in annual active buyers, which grew to 386 million by the end of the September quarter.

Mobile MAUs were 346 million in September.

Revenue grew 32% year over year to RMB22.2 billion.

The year-on-year performance was driven primarily by the acceleration of our China commerce retail business, as well as the growth of AliCloud.

Non-GAAP EBITDA margin was 50%; same as the year-ago period.

Non-GAAP net income grew 36% year over year to RMB9.3 billion.

Diluted non-GAAP EPS, excluding SBC and amortization of intangible assets and certain other items, was RMB3.63; an increase of 30% compared to RMB2.79 in the same quarter of 2014.

Now let's get into the details.

In the September quarter, our blended monetization rate was 2.42% versus 2.3% in the year-ago period.

Our mobile monetization rate increased to 2.39% in September quarter; up from 2.16% in June quarter and 1.73% in March quarter.

The trajectory is especially impressive because the suspension of the lottery business that began in late February has proportionately negatively impacted mobile monetization.

So going forward we expect improvement in mobile monetization will be driven by our proven ability to deliver value to both buyers and advertisers on mobile devices and increased engagement on our platform.

In the long term we still believe our mobile monetization rate will approach or even exceed historical PC monetization rates.

We're also making steady progress in PC monetization, despite the slight year-on-year decline.

In the long term we're optimistic about our blended monetization rate.

Having said that, in the near term, as you know, we don't forecast revenue growth or take-rate.

Keep in mind that the improvement to monetization may not always be linear, due to a variety of factors.

Year on year our revenue grew 32% to RMB22.2 billion.

This growth was primarily due to the acceleration of our core China commerce retail business, which benefited from our focus on higher quality merchants and on delivering a better value proposition to our merchants.

We optimized online marketing efficiency and increased online marketing inventory on both mobile and PC screens.

Those also contribute to the revenue growth.

Our mobile revenue from China retail marketplace was around RMB10.5 billion or $1.7 billion, representing a year-on-year increase of 183%.

This year-on-year increase in mobile revenue in both absolute dollars and as a percentage of total revenue from the China commerce retail business was due to an increase in mobile GMV and better monetization of mobile usage.

Revenue from our international commerce retail business was RMB481 million; a year-on-year increase of 15%.

Please note that our recent efforts in the cross-border import business are not reflected in this revenue line.

In the future we will develop metrics that measure our progress in the cross-border import effort, such as Tmall global progress.

Cloud computing and Internet infrastructure revenue grew 128% year on year, primarily due to an increase in the number of paying customers and also to an increase in their usage of our cloud computing services, including more complex offerings such as our content delivery network and database services.

Other revenue is flat year on year due to a tough comparison to the September quarter 2014 when we booked interest income from the SME loan business to this line.

We no longer book the vast majority of that interest income to other revenue.

This is because of the restructure of our relationship with Ant Financial, which has been communicated earlier and the restructure was completed in February 2015.

We expect this restructuring will continue to negatively impact the year-on-year growth of our other revenue line until we anniversary it in June quarter next year.

In this quarter our non-GAAP EBITDA margin was 50%; flat from year-ago period.

Our message remains the same.

We do not manage to our margin targets.

We will continue to make strategic investments into new and existing businesses to build long-term value.

We'll continue to invest a portion of our free cash flow in new businesses and the growth of this new investment spending may be higher than our overall revenue growth.

Now let's talk about our operating expenses.

As in prior quarters, we use non-GAAP numbers to exclude stock-based compensation.

The non-GAAP costs of revenue was RMB6.6 billion.

Non-GAAP product development expense was RMB2 billion.

Non-GAAP sales and marketing expenses was RMB2.2 billion.

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

So non-GAAP cost of revenue as a percentage of revenue increased year over year.

This was primarily due to an increase in costs associated with our new business initiatives and an increase in traffic acquisition cost.

The latter grew due to the extension of our third-party affiliate ecosystem as part of the strategy to strengthen our ad platform business and Alimama.

Non-GAAP product development expense as a percentage of revenue decreased slightly year over year as we stopped paying royalty fees to Yahoo after our IPO in mid-September 2014.

Non-GAAP sales and marketing expense as a percentage of revenue is flat year on year and non-GAAP G&A expense was stable year on year.

We generated RMB13.6 billion or $2.1 billion of free cash flow in September quarter; an increase of 52% compared to RMB8.9 billion in the same quarter of 2014.

CapEx expenditure in September quarter was RMB3.2 billion; a slight decrease from RMB3.4 billion in the same quarter last year.

As of September our cash, cash equivalents and short-term investments were RMB106 billion versus RMB115 billion in June quarter.

So, despite our strong free cash flow during this quarter, the decrease was mainly due to the RMB17 billion, or $2.7 billion, in cash disbursed to repurchase our shares.

We purchased 40.8 million shares in the quarter, representing about 1.6% of our weighted average outstanding shares.

That concludes our prepared remarks.

Operator, we're ready to begin the Q&A session.

Thank you.

(Operator Instructions).

Eddie Leung, BofA Merrill Lynch.

I have two questions.

The first one is about your retail business.

We have seen Tmall outperforming Taobao in terms of growth rate in the past couple of quarters.

And it seems like the trends are getting more obvious.

So just curious to hear your thoughts on this.

Are we seeing any structural change in user preferences and user behavior?

And what could be the long-term position of Taobao?

And then secondly, we would also like to hear more about your progress in lower-tier cities [commerce].

So wondering if you can share any metrics with us in terms of the business development outside the so-called Tier 1 and Tier 2 cities.

Thank you.

For the first question I would say actually, as we always tell you, that in our China retail business we manage our e-commerce platform as a whole.

And actually Taobao and Tmall are two separate brands.

And they have very clear market positions.

But they are integrated platforms.

They are integrated marketplaces.

So, actually, we always look at the growth of the two marketplaces as a whole.

And we have very clear operating goal, which is in five years we want to achieve $1 trillion GMV.

And today we are happy that we are on track.

And for the second question.

In the rural areas, yes, we have our rural Taobao program more than half a year ago.

And so far we've made very good progress.

And, as we said in our script, actually we add 4,000 villages in this quarter.

And, actually, today we are, I think -- China is very big and we are still in early stage.

But we believe the most important thing is to create the value for the farmers.

So today we are focused on to help them to buy from our online marketplace to improve their lifestyle.

And looking ahead, actually, we will help them to sell their original products, producing the [farm] (inaudible) in the rural areas to the people living in the downtown, in urban cities.

So actually we believe that we will continue to expand our network in the rural areas to bring benefit for our customers.

Thank you.

Robert Lin, Morgan Stanley.

Congratulations on a very strong quarter.

I've got two questions here.

I guess one is on brand commerce.

Obviously this year's Double-11 is very focused on omnichannel.

We've heard from retailers that about 20% to 50% of their sales from Tmall are now fulfilled from the stores.

And this is the one-step (inaudible).

Can you give us some more near-term metrics on this initiative?

How would you record the GMV that's being fulfilled from the stores or experienced from the stores?

And I guess there's about 3 billion marketing dollar that's in different news sources talking about promotion this year.

Can you share us the economics?

How much are we bearing in that 3 billion marketing dollar cost for these Double-11 events?

And, I guess in more broad terms, long term what this means for Alibaba in terms of online/offline advertising revenue?

And second question is more on the EBITDA margin.

Obviously, we've recently talked about Youku acquisition.

If we were to -- there's a lot of consolidation going on in China Internet.

Do we want to accelerate our potential acquisition of strategic assets because I think the valuation has become more reasonable?

Or do we feel that the EBITDA margin that we currently have is a suitable level we want to work with?

I'll answer your second question first and then Daniel will answer your first.

So when it comes to margin we still remain the message the same.

We don't manage with managing the margins.

This is why we don't give margin guidance.

Our core business generally are high margins.

We'll continue to make strategic investments in the new and existing business to fuel our long-term revenue and profit growth.

Our investment may be lumpy and non-linear.

So when we assess investments to make we have very rigid process in that we have these post-investment maintenance tools and measures.

Actually, for the first question, I would say today when we look at the O2O opportunities actually we should develop the solutions by categories instead of by industry.

Actually, in different sectors, different industries have different O2O solutions.

So people will always talk about the online/offline experience.

But what we can share is that first, when we look at our GMV, when we calculate our GMV, we only calculate the GMV process through our system and paid by Alipay.

And so this is our GMV and the basis to calculate our GMV.

But, having said that, actually in the O2O solution actually part of this could be the orders generated online, a few offline or picked up by customers in stores, all people can enjoy the service and they can buy some products online or enjoy the service offline.

So situations are varied in different industries.

But we always follow our methodology, which is we will monitor the GMV by the amount of the transactions processed in our system.

And as to the 3 billion market dollar, actually we are not -- I'm not aware of this 3 billion market dollar story.

And this is definitely not in our operating metrics.

Carlos Kirjner, Bernstein.

Can you help us understand the portion of GMV that is not monetized?

For example, what portion of Taobao sellers do not pay Alibaba?

And what percentage of GMV do they correspond to?

And secondly, of the $102 million in the cloud computing line, how much is cloud computing proper, such as infrastructure and platform as a service versus web hosting and other legacy services?

And how fast is the cloud computing piece actually growing?

Thank you.

To your first question, the way we look at this, we don't tie specific GMV to specific marketing dollars because advertisers advertise on our platform not only to generate that direct GMV.

They also look to acquire new customers, to engage with their customers.

And so a scenario is, if a user comes to our site because of online marketing by a merchant and they buy something and then they, again, come back a week later to purchase from the same merchant because they had bookmarked that merchant's storefront, that is additional GMV that's generated not directly as a result of advertising but that merchant has acquired the user.

So the point here is that merchants are buying online marketing to do a bunch of things, rather than generating that direct GMV.

And we feel that our entire marketplace provides a really terrific platform for merchants to market themselves, build their brand, engage with their customers.

So it's way, way beyond just generating that specific GMV.

And that's why our China retail marketplaces are such a robust platform for merchants.

That's why the brands are coming to our platform.

Regarding to your second question, what's the percentage of revenue in the AliCloud infrastructure representing the AliCloud computing revenue, I should say that significant majority of that revenue is cloud computing revenue.

Ming Zhao, 86Research.

First question is can management give us an update on the category and exchange rate on the platform?

We are aware that maybe the apparel categories are more mature and some of the new categories, like food and beverage, is growing very strong.

But we want to see if there's any color about new categories' growth can bring more growth, while offsetting the more maturing categories.

So some picture would be better for us to understand the change there.

The second question is a follow up on the cloud computing.

So assuming the triple-digit growth is coming from mainly the number of client growth, so can you give us some metrics about how many clients are you servicing on the cloud computing side?

And what is the profitability picture of that cloud computing?

Thank you very much.

To your first question, if we analyze the GMV by category, I would say, actually, our consumer electronics, mobile phone and larger clients in Tmall actually enjoyed rapid growth in the past quarter.

And, on top of that, actually, we can see a very clear trend that people buy day-to-day necessities from online platforms, because this is much more convenient than the (inaudible) [change].

And the food and beverage, and especially fresh food, are getting very popular online today.

Thank you.

Regarding your second question about cloud computing, the number of paying customers is growing very well.

We haven't disclosed it on a quarterly basis.

However, we did talk about it in our (inaudible).

So the number of enterprises who are using our cloud services is already over 1.5 million.

And there is a big group of merchants on Taobao and Tmall platform.

So, going forward, we might consider to add more disclosure at the due course.

Talking about profitability profile, cloud computing is very nascent right now.

The market is huge and we're really not even at the first pitch of the first innings.

So we're not really thinking about the profitability because long term we think that this is definitely going to be profitable.

But that's not where we're focused on at this point.

Erica Poon, UBS.

Two questions on industry alliances.

You mentioned about the joint effort with a bunch of online retailers for the upcoming Singles' Day.

It seems that your role is shifting from a disruptor to a potential savior for offline retailers.

Could you just share your perspectives on online retailing over the long term?

And do you also expect Alibaba's penetration of China's overall retail will pick up meaningfully with more integration with [offline] retailers?

And my second question is on OTA.

In light of yesterday's deal [among] Ctrip, Qunar and Baidu, could you just perhaps update us on your thoughts on the China OTA segment and also Alibaba's role in it?

Thank you.

For the first question, I would say today, if you look at the landscape in China, online shopping only accounts for 10% of the total retail in China.

So I would say that is a huge potential.

And if we look at the people geographical spreading and one-half of our population actually in the low-tier cities and in the rural areas, so that's why we initiate our rural Taobao program and try to engage these new customers who are living in the real rural villages.

So this is, I think, the dividend from the new customers.

And, in terms of the category expansion, I would say today more and more daily necessities and household products are sold online.

And for some of the categories today, if you look at the penetration rate, still far below 10%, far below the average.

So we believe which has great potential in the future.

And for the second question about OTA, yes, we observed the deal announced by Baidu and Ctrip.

And we believe the travel market is a very huge market, with over 500 billion market size.

And Chinese people, when their lifestyle is getting better, they will enjoy more and more travel products and services.

And, actually, in Alibaba we have our own travel business, which is [Truar].

And, actually, to date Truar has already made a very big progress.

And we are very happy with this result and business development.

And we will continue to invest in this travel business, because this is the need for the people, for Chinese people, when their lifestyle is getting better.

Thank you.

Ross Sandler, Deutsche Bank.

I just had one question on the macro and then one on the desktop take rate.

So just on the macro, what does the environment look like heading into the December quarter in terms of GMV growth, compared to the 28% reported in the September quarter?

I know you don't guide but just any thoughts on what kind of GMV growth you're expecting for Singles' Day would be helpful.

And then on the desktop take rates, so this has been declining for several quarters and it looks like you guys are starting to experiment with new ad insertions.

So can we just get an update or talk about the trajectory of desktop take rate in the December quarter and potentially beyond?

Thank you.

Just commenting on your macro question.

So the way we look at it is this way.

If the Chinese economy is growing gangbusters, are we going to benefit from this?

Absolutely, we will.

So I think it's something that is obviously influenced in both directions.

Having said that, we just don't think that the current macroeconomic situation will fundamentally affect consumption patterns.

You have a Chinese economy that is only 37% penetrated in terms of consumption.

Relative to more developed countries, you're looking at over 60% of their economy is consumption.

So there is definitely a secular tailwind driving consumption growth.

When you look at the individual Chinese consumers, they are very liquid.

They have a lot of liquid cash deposits in their bank accounts.

Over the last several years wage growth has been growing over 10% year on year.

And there's a high savings rate.

So people have lots of savings, lots of liquidity.

And we expect that this is not -- so a temporary setback in the macro economy is not going to affect their consumption pattern in a fundamental way.

And, as you know, we don't forecast GMV growth.

It's very hard to say what the next quarter is going to look like and we don't give out any forecasts on that.

Your second question about PC monetization.

You have noted that we have been making steady progress in PC monetization.

What I would like to share with you is that a way to look at the monetization level, we think the blended take-rate is a more meaningful measure.

And then the second measure is the mobile take-rate.

The reason is that we view our marketplace as an integrated piece.

And we suggest when you look at the merchants who are paying us, this is the same group of merchants, they are just behind two screens, the PC and the mobile.

So the take-rate reflects overall value we're providing and recognized by these group of merchants.

And going forward, when you look at, particularly between mobile and PC, mobile obviously is more important than PC because in the current quarter mobile already contributed over 60% of GMV and over 60% of China retail marketplaces' revenue.

And we still remain the message unchanged that, in the long run, mobile take-rate will be approaching or even exceed historical monetization rate.

It's just in near term the growth may not be linear but we're very optimistic that it will grow in long run.

I have a few words on Singles' Day this year.

As I said in my script, actually, that's only two weeks ahead for this year's Singles' Day and we are preparing for this.

Actually, all the participants, all the merchants, service providers in this ecosystem are now preparing for the Singles' Day.

And in terms of the strategy for this year's Singles' Day, basically first, we will focus on mobile.

We believe the mobile transition has deeply changed people's consumption patterns and today, I would say, in Singles' Day we, I think, expect that a lot of people will enjoy shopping in the midnight when our Singles' Day gets started.

And for the entire day, we believe that a lot of people actually will buy from mobile.

And second, for this year's Singles' Day we will focus on globalization.

So that's why we kick off our Singles' Day ceremony by inviting so many foreign representatives to join us.

This is a starting point for our globalization and we will -- actually, today we have a lot of the products supplied by overseas merchants.

They are available on our platform for our consumers and we will promote more products on the day.

And the third one, actually, we focus on omnichannel and, as I said, we work with so many offline (inaudible) chains in 330 cities to give people that integrated experience in the relevant industry.

And so we believe that this is a change of the people's experience when they consume offline.

So as we always do and we don't want to give a guidance in terms of GMV of the Singles' Day, actually, but we believe this will be the biggest day for our consumers and for our merchants.

Douglas Anmuth, JPMorgan.

I know you don't guide to margins and profitability specifically, but your margins were flat year over year in 2Q.

I was hoping you could comment and give us some color just around the puts and takes as you think about FY17, particularly as you're now past the at least annual impact here of UCWeb and AutoNavi, where the areas of leverage and then perhaps the offsets might be in FY17.

Thanks.

So for FY17 it's too early to comment on the margins.

I think what we have shared is that our core business margin's very healthy at high 50%s.

And for the flat, if you compare the margins of this quarter and the quarter in last year, actually there are pluses, there are minuses.

The plus, the operating leverage we generated.

And then the minus represents the investment we made in areas like digital entertainment, our OTT set-top box business, as well as our investment in our mobile OS business.

And what I can share is that we're going to continue to make strategic investments.

So this margin question has been asked many, many times.

We also look at the history of this business.

When we make strategic investments, some of the big investments, we're always concerned on how much margin it's going to take.

But, as mentioned, in year 2003 we didn't make any investment in Taobao.

That's a big investment.

And if we didn't make an investment in AliCloud in 2009, there were a lot of questions during those years.

And it's hard to imagine how we could get where we are today.

So that's the thinking we have.

UC and AutoNavi, the business progresses very well, although it's still relatively small.

The world is (inaudible) more and the progress of the business (inaudible) at due course and we did comment on the margin impact from the possible liquid deal.

The comment is that overall margin structure would not be fundamentally changed.

Piyush Mubayi, Goldman Sachs.

I looked at the delta in the growth for Tmall and it accounts for about 73% of the sequential growth in GMV terms, which is an all-time high.

And I wondered if you could share some color on what led to this huge growth in Tmall vis-a-vis Taobao and whether we can expect the driver of the business to continue to remain Tmall to the same magnitude.

That's my first question.

The second question is about O2O space.

And I wanted to know if you could share with us your Koubei strategy, mostly because it's emerged as an area of high level of cash spend.

And we wanted to know whether you'd go down that path or you'd leverage your very deep customer presence in SME relationships.

Thank you.

Regarding this GMV growth and Tmall and Taobao, first of all, like Daniel just said, we do view these two platforms as one integrated marketplace.

So the overall growth means more to us.

And secondly, we have communicated about our long-term goal and near-term goal on the GMV.

So we're talking about $1 trillion GMV goal by the end of 2020 fiscal year.

So you could work backwards to get the taker for the overall GMV growth.

So it's either Taobao or Tmall.

Obviously Tmall contains higher brands and better service-providing merchants and the growth is higher.

But overall we're focusing on this longer term $1 trillion goal.

I'll address the O2O question.

The O2O market is huge.

It's about a $1 trillion market in China.

And so at first sight we think that this is a space that can accommodate several very significant players.

It's not a winner-take-all kind of market.

So in terms of the investment that you're asking, what kind of cash spend, what kind of investments, we see a very aggressive and competitive market right now.

But the place people are spending money on is user acquisition, rebates to customers that come to use their services.

But that's where Alibaba with our unrivaled mobile leadership has an advantage.

If you look at the mobile Taobao app and also the Alipay app, these are two of the largest apps in China with users coming in to engage in commerce transactions every day.

And those two apps are providing a great entry point for our Koubei service.

So the places where we are going to spend money in terms of investment might not be what you think.

We think that there are other areas, such as merchant acquisition and things like that, where you need to be very innovative.

And building out a huge sales force on that front is not the way to go.

So we hope to run the Koubei business as a light business and as an innovative business.

Thanks.

Robert Peck, SunTrust.

Two quick questions.

One, I was wondering if you could talk a little bit more about where desktop monetization could go.

It looks like last quarter it declined about 50 bps year over year, while this quarter it only declined 7 bps.

Joe, is this something where we can see this going positive next quarter?

And then second question is the Yahoo spin at Abaco.

Could you just talk about that asset in relation to Alibaba?

Is that something that's of interest in buying shares in that?

Is that something you could acquire?

Just curious on your views on Abaco.

Thank you.

So I'm going to ask Maggie to address the first question and I'll take the second one.

Regarding the desktop take-rate, like I said earlier we have been making efforts to continuously optimizing the online marketing efficiency as well as increased ad inventory.

So those all make the PC take-rate grow at a steady pace.

So we're making progress there.

But, overall, the take-rate -- the way we look at it is, first of all, one marketplace and blended take-rate is more important.

Secondly, mobile already accounts for 62% of GMV and we still see that trend going up.

So eventually this is going to be a lot of our business.

And then for the mobile take-rate we've said that we're very optimistic for longer term growth.

On Abaco, we're reading the news just like you are.

Don't have any information on that in addition to what was already known by the market.

What we know recently from reading news is that they are going to delay the spend until sometime in January.

But we don't really speculate on what happens after that.

I just wanted to just make an overall comment.

Just like our share repurchase program, we will buy shares or buy back our shares if it is very significantly accretive to our shareholders.

And that's the principle we operate on.

Dick Wei, Credit Suisse.

Congrats on the strong quarter.

Two questions.

First question is on the public -- or take-rate for the Company for -- I think this is the first quarter that the mobile take-rate surpasses the PC take-rate.

I wonder what kind of the ROI did we observe from this -- the (inaudible) currently between PC and mobile?

And probably more importantly, with some of the changes in the PC ad format, what kind of ROI did some of our merchants sees on the PC front?

And my second question is that I think the Company has made out quite a few of the large M&As and this year adding more than [RMB10 billion] investment that you're -- I wonder how should we think about going forward if there's some of the important opportunities like any of the reference size investment that you may be thinking about?

Thank you.

Could you just repeat your first question for us?

Yes.

The first question is basically, how do you see the ROI differences on PC and on mobile, given the PC take-rate now is below that of mobile take-rate?

And also, what is the return investment impact difference for the new formats that we have on PC side?

I think at the end, when we look at our take-rate, either PC, mobile, we think it's more meaningful to look at it blended because we're facing the same group of merchants.

So they either spend on PC or for mobile.

It's just two business [screen].

And ROI of the merchant means more to us.

We've always considered ROI.

So the absolute measure for us to look at to ensure the value provided is these merchants continue to stay in our program, they have their single-store growth and they continue to spend on our platform.

So we very happily see that that is the trend.

So on your second question, obviously I'm not going to telegraph the forward-looking M&A activity.

But the one thing that I just want to say is we do M&A and acquisitions and investments consistent with our core business strategy.

And on the business strategy we have seen that consumption growth is something that we want to leverage our business to.

And consumption is not just about online shopping but also consumption of digital goods, it's about consumption of services.

So we are looking at things that will enhance our position in the consumption economy and the growth in the consumption economy.

Chi Tsang, HSBC.

I just had one question.

I'm wondering, as it relates to Singles' Day in particular, your strategy regarding the globalization and also multi-channel.

I'm wondering if that is positive or negative to your margins.

Thank you.

Well, this is the seventh year since we started our Singles' Days campaign.

Actually, we never connect a Singles' Day with margin and what we want to do is create that day for the consumers to make the day for the festival of the shoppers.

So that's our purpose.

So it's in our operating methodology we don't connect this with margin and we don't measure our business by margin, as we always said.

Thank you.

Mark Mahaney, RBC.

Could you talk about some of the cohort trends?

So, of the active buyers that you brought on in the last year, how do they compare with active buyers you've had on in the past?

Are they ramping up relatively similarly in terms of spend or the categories that they shop in?

Or do they -- are they somehow different than the cohorts that you've brought in in the past?

And then when you talk about globalizing November 11, could you talk about how much maybe in marketing or in merchant outreach you plan to spend maybe this year or you have been spending this year in preparation for that to help us think about how much of an effort you're making to truly globalize November 11?

Thank you.

According to the cohort analysis we have done, it still shows the same pattern, which is for the same group of consumers, the longer they stay with us the more they can spend on annual basis.

And you're asking about compare the first year consumers that joined us this year and in previous years.

The average spending level actually is not any lower.

So we do observe that new buyers come more to our mobile platform, which could have a smaller ticket size, but the frequency of the purchase, the engagement's higher.

For the second question about November 11 and the spending for this big event, I would say, yes, actually, we position globalization is our core strategy for the coming decade and we prioritize globalization using November 11 this year.

But, actually, as always, know that actually we are the entry point of the online shoppers and the people have high recognition of November 11 and so we enjoy the massive organic traffic in November 11.

And, actually, this won't cost us a lot to get the traffic and to get the people's recognition.

So, on top of that, we do spend some marketing dollars to acquire new customers and to get them to recognize the new offerings on our platform, like the offerings from other countries, the supply from other countries.

But, on top of that, actually, when we look at November 11, this is not only the day for the consumer but also the day for the merchants.

So all the merchants they were very active in participating in this November 11 and they will spend their marketing dollar on our marketplace to get more traffic and get people's recognition of their services and products.

Thank you.

I think we're finished with the Q&A and we can close the call.

Thank you, everyone, for joining us today.

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

Thank you for participating.

You may all disconnect.