阿里巴巴 (BABA) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to Alibaba Group December 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 December quarter 2015 earnings conference call.

With us are Joe Tsai, Executive Vice Chairman; Daniel Zhang, Chief Executive Officer; and 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 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 certain 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 result 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 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 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.

Thank you, all, for joining us today.

We had an excellent quarter with strong growth across all of our operating and financial metrics.

Total revenue growth in the quarter was 32% year on year.

I want to point out that our core business, the revenue growth in China retail marketplaces, was even stronger at 35% year on year.

Daniel and Maggie will discuss more detail on the quarter but, before they do that, I wanted to give you a few thoughts on the macroeconomic conditions in China, since I know it is something that you are watching very closely.

The Chinese economy is going through a structural shift from high growth to more moderate but more sustainable growth.

China is still one of the fastest growing economies in the world and we have no reason to think anything different in the foreseeable future.

We are witnessing two significant trends consistent with the Chinese Government reforms that provide the secular drivers to Alibaba's business.

First, China is moving from an investment-driven economy to a consumption-driven economy.

Consumption-driven growth is clearly more sustainable and this plays to the strength of Alibaba, with more than 400 million Chinese consumers shopping on our platforms.

Second, China is moving from an industrial manufacturing economy towards service economy.

While the manufacturing sector lost jobs in 2014, the service sector added 17 million jobs.

Job growth is taking place and it is driven by the services economy.

People now have more employment opportunities in technology, commerce, logistics, entertainment, leisure, travel and finance.

This is good for Alibaba, because our platforms enable millions of small businesses and service providers to capture the growth of this new economy.

So many of you may wonder how our business is being impacted by the Chinese economy.

I think the strong top-line growth numbers we released today speak for themselves.

But let me provide two important data points for context.

First, consumer retail sales in China grew 10.7% in 2015.

And second, and largely because of Alibaba, online penetration of retail grew from 10.6% in 2014 to 12.9% in 2015.

Taken together, these two factors helped drive 30% year-on-year GMV growth on our China retail marketplaces in calendar 2015.

Obviously, our business benefits from secular rather than cyclical trends, as consumers shift to the Internet to purchase goods, services and entertainment.

We continue to play a proactive role in transforming China's economy.

We accomplish this by enabling business using Internet and data technology and, in doing so, we believe we will continue to drive the growth of Chinese consumption and increase our share of this consumption.

Now I would like to turn to Daniel, who will discuss the developments in the past quarter.

Thank you, Joe.

I'm very excited to update our progress with you.

As Joe mentioned, we had a great quarter with overall revenues of RMB34.5 billion, achieving a year-on-year growth of 32%.

Revenue of our core China retail business was even stronger with 35% year-on-year growth at RMB28.7 billion.

This strong top-line growth is driven by two things.

One, the increasing engagement of users on our platforms, especially on mobile.

Two, our ability to increasingly monetize user activities on our platforms.

In the 12 months ended December 2015, annual active buyers grew to 407 million.

In December we had 393 million monthly active users on our mobile eCommerce apps.

This represents a net addition of 47 million mobile MAUs from the prior quarter.

These users are engaging our mobile shopping apps to buy goods and services on Tmall and Taobao marketplaces.

A very strong user growth, as well as our continued focus on merchant quality, supported high-quality GMV growth of 23% year on year to RMB964 billion for the December quarter.

To put things into perspective, this growth represents an absolute year-on-year increase of $27 billion in GMV compared to the same quarter in the prior year.

We believe Alibaba has a significant opportunity that will be realized by the growth of the Chinese consumption economy.

Specifically, we see increased consumption from the two key segments.

Number one, an expanding middle class, particularly those living in urban areas, who are undergoing lifestyle change and upgrading to higher quality products and services.

Number two, young people who have a strong appetite for spending but little interest in saving compared to their parents.

Today hundreds of millions of consumers come to Taobao marketplace and Tmall to browse for ideas, looking for new trends, receive merchant and product updates, compare products, sharing shopping experiences and be entertained.

Data generated from their activities is incredibly valuable because this provides meaningful insight into the behavior and preferences of China's most important consumer population.

The value presented in the user data is not captured by GMV but it is reflected in the online marketing dollars that brands and merchants are increasingly spending on our platforms for brand building and customer acquisition and engagement.

On our platforms, marketing activities contributes relevant contents that enrich the consumer experience.

Brands invest on our platform to build relationships with customers that defer a lifetime value in the form of repeat purchase and brand loyalty.

This lifetime value creation extends beyond the online channel as brands are also seeing positive and lasting effects on their entire business.

Investments in online marketing on our platform influence and shape consumer behavior offline.

Accordingly, brands are beginning to embrace and integrate online-to-offline strategies; a trend we believe will be a key driver of our online marketing services revenue growth.

The 35% year-on-year revenue increase from our core China retail business this quarter is a validation of our (inaudible).

In a few minutes, Maggie will go into more details about our increasing ability to monetize our growing user base.

The future of our retail business will be driven by three key growth engines.

Number one, rural development.

Approximately one-half of China's population live in rural areas.

Our platform can reach rural villages very efficiently.

So far, we have expanded our rural service centers to 12,000 villages.

Our strategy is to sell goods from urban areas to villages as well as help farmers sell farm products to people living in the cities.

Number two, globalization.

We are focused on cross-border commerce that allows international brands and retailers to sell online to Chinese consumers.

On Singles Day, 30 million active buyers purchased products from over 16,000 international brands.

Tmall Global, our channel dedicated to global imports, saw 179% year-on-year growth in the December quarter, with more than 200 international brands, including Coca-Cola, Woolworths and opening flagship stores on Tmall.

Services.

Koubei, the local services joint venture we recently established with Ant Finance, is gaining strong momentum and winning market share; generating RMB15.8 billion in GMV transacted through Alipay during the quarter.

In closing, I'd like to say a few words about our cloud computing business.

AliCloud has made exciting progress in the development of customers, products and technology.

We now have a full portfolio of products over the entire technology stack providing services to Internet companies, government entities, corporate enterprise and international customers.

In the December quarter revenue from the cloud computing and Internet infrastructure business continued to grow rapidly, with a year-on-year increase of 126% to RMB819 million.

I will now turn to Maggie, who will walk you through more specific financial and operating metrics.

Okay.

Thank you, Daniel.

Hello, everyone.

Here are some financial highlights from the December quarter.

Our revenue grew 32% year over year to RMB34.5 billion.

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

Non-GAAP EBITDA margin was 55%.

Non-GAAP net income grew 25% year over year to RMB16.4 billion.

Diluted non-GAAP EPS was RMB6.43; an increase of 27% compared to RMB5.05 in the same quarter of 2014.

User growth and increasing user engagement on our China retail platform have become important drivers of our long-term revenue growth, as our marketplaces deliver a broader value proposition to sellers, in addition to sales generation.

As a result, the blended monetization rate of our China retail marketplaces reached 2.98% in the quarter ended December 31, 2015; meaningfully higher than 2.7% in the December 2014 quarter.

We have witnessed a positive trend of both revenue per annual active buyer and mobile revenue per mobile user.

Both of the abovementioned metrics have been increasing for several quarters, reaching RMB184 and RMB108 in this quarter.

We believe improving monetization in the future will be driven by the increasing value we created for customers.

A growing percentage of our China commerce retail revenue will likely come from the monetization of user engagement that helps brands and merchants build long-term relationships with consumers.

Accordingly, we expect revenue to grow faster than GMV for the foreseeable future.

Year on year our revenue grew 32% to RMB34.5 billion.

This growth was primarily due to the continued strong growth of our core China commerce retail business.

Cloud computing and Internet infrastructure revenue grew 126% year on year, reflecting the accelerated growth of our cloud computing business.

Other revenue declined year on year, due to a tough comparison to December quarter last year when we booked the interest income from the SME loan business to this line.

We no longer book the SME loan income to other revenue pursuant to the restructure of our relationship with Ant Financial completed in February 2015.

Excluding the revenue related to SME loan business for both periods, other revenue would have increased 62% year on year.

In December quarter our non-GAAP EBITDA margin was 55%; lower than the 58% in the December quarter of last year due to our investments in the new business initiative, which we have discussed in the previous quarters.

Please note that, just like what we have discussed during December quarter last year, a certain percentage of our costs and expenses are fixed, which gives us operating leverage in seasonally strong quarters, such as the December quarter, but can pressure margins in seasonally weaker quarters.

Now let's talk about our operating expenses.

Non-GAAP cost of revenue was RMB9.5 billion.

Non-GAAP product development expense was RMB2.2 billion.

Non-GAAP sales and marketing expenses was RMB3.1 billion.

Non-GAAP general and administrative expense was RMB1.7 billion.

Non-GAAP cost of revenue as a percentage of revenue increased year over year, primarily due to an increase in costs associated with our new business initiatives, mainly our mobile ratings system, over-the-top TV services and entertainment and also, to an increase in traffic acquisition costs.

Non-GAAP product development expense and sales and marketing as a percentage of revenue decreased slightly year over year due to operating leverage.

Non-GAAP G&A as a percentage of revenue was flat year over year.

Free cash flow generated was robust at RMB23.7 billion.

Total cash capital expenditure in December quarter were RMB4.9 billion; increasing from RMB3.2 billion last quarter.

As of December 31, 2015 our cash, cash equivalents and short-term investments were RMB118 billion versus RMB106 billion in September quarter.

That concludes our prepared remarks.

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

Thank you.

(Operator Instructions).

Carlos Kirjner, Bernstein.

I have two.

First, about the deceleration of GMV.

Some of it is presumably related to the ongoing quality improvement efforts, but the number suggests that Tmall decelerated significantly too.

Do the quality efforts impact Tmall as much as Taobao?

And, if we were to look at the conceptual cleanup GMV net of these quality efforts, net of returns and take into account all monetizable transactions, would it also have decelerated as much?

And second on the monetization rate, it came very close, I think, 7 bps below your December 2013 monetization.

And one could argue that is a good benchmark for your historical monetization rate.

You talk generically about delivering more value and hence increasing monetization, but can you be a bit more specific about how this will occur and why would sellers be willing to pay more?

And can their P&Ls support that?

Thank you.

I will take the first question and I will leave the second to Joe.

In terms of the Tmall growth, actually, when we look at our big picture, in this quarter we generated RMB946 billion (sic - see slide 8, "RMB964 billion") GMV and with net adds of RMB177 billion compared to the quarter one year ago.

So we think that this is a huge base and the amount is massive and we are happy with the result.

And we believe that this is very important too at this stage.

And with such a huge scale we can continue to grow our user base and grow especially our active annual buyers to 407 million.

And, in terms of growth, actually I have to mention that when we look at the weather in the Q4, the weather is quite warm and the temperature is unusually high in the Q4, especially in November and December.

And what we observe is that the heavier clothing items with higher ASP actually is not sitting as well.

But we are happy to see that in January most areas in China and Hong Kong experienced the coldest winter and we observed that the heaviest clothing item is sitting quite good actually in the past few weeks.

I'll take your second question about monetization rate.

Thank you for the setup.

I think you mentioned December's 2013 take rate.

That was our highest.

But if you look at our take rate in this quarter, 2.98%, that is significantly higher than the take rate of 2.7%; that's 28 basis points higher than the December 2014 take rate.

And, in fact, this take rate is the highest take rate we've ever achieved in the last eight quarters.

So I just wanted to make sure that everybody gets that.

So the question, I think, is whether the take rate can continue to go up.

So if you look at take rates, just the mathematical result of our revenue in China retail marketplace divided by the GMV of our China retail marketplace.

But, as Daniel has mentioned in his remarks, today our GMV no longer captures all the value proposition that we deliver on our platforms to the merchants and brands.

So today the brands and merchants are using the platform to acquire customers and then engage with users.

This goes far beyond generating the next sale.

What they're doing is building customer base and focusing on the lifetime value of these customers, so that these customers can come back and make repeated purchases and become loyal to their brands.

So all that value is not captured in the denominator in the GMV.

And what you're seeing, monetization rate going up, is revenue is reflecting this value proposition that we're delivering to the sellers.

So, on a going-forward basis, I would say that what we should focus on is to look at how we monetize the users.

So today, in our release, we have presented two more metrics which can be derived from our existing disclosed metrics, which is revenue per active buyer and also mobile revenue per monthly active user.

So the former gives you a sense of the total revenue-generating capability and how we are able to monetize the user base in terms of active buyers.

And the latter focuses on mobile and we're crushing it on mobile.

So I think this is all good and we feel very confident that the monetization trend will continue.

Alan Hellawell, Deutsche Bank.

Congratulations of very solid results.

I guess my first question would probably be directed to Maggie.

We'd love it if you could update us on what the puts and takes or the headwinds and the tailwinds to EBITDA margin might be in, for instance, calendar year 2016.

And then secondly, with regard to cross border, we're just wondering what percent of Tmall GMV might reclassify as cross border or Tmall Global, I guess.

And then what might be an educated guess around how much of C2C might be what you might call daigou or haitao?

And, sorry, just going back to cross border, can you hazard a guess as to what the hypothetical take rate or monetization rate might be of that business?

Thank you very much.

So your first question, Alan, about this margin.

I think our margin message remain unchanged.

If you look at our core business, our core business continues to generate high margins and also some operating leverage.

And we will continue our strategic investment into the new and existing business for longer term revenue and profit growth.

So margin for different quarters could be lumpy and non-linear, since certain percentage of total cost is fixed, which gives us operating leverage in seasonally strong quarters but can pressure margin in seasonally weaker quarters.

So, like we said, we don't manage this business by managing margins.

We have a very good cost control.

The second question about the cross border.

First, I would say that Tmall Global today serves as a gateway for the overseas suppliers to access to the Chinese consumers.

Today, actually, if you look at the size of Tmall Global actually still compared to Tmall, actually it's still in the early stage, but we are happy to see that Tmall Global enjoys very rapid growth.

As I said in my script, actually the year-on-year growth in December quarter was 179%.

And, actually, at this stage, what we see is that the overseas vendors actually they rush to us and try to onboard our platform, try to get access to Chinese consumers.

So this stage is quite early and the main job for Tmall Global is to sign up new accounts and get them onboarding.

But we will see a very bizarre experience in Tmall and we will give them good service and help them to grow our platform and hopefully to generate good same-store growth in the coming years.

Having said that, actually Tmall Global is just part of our international business.

Actually there was a very big portion in Tmall, which is actually the product is imported in the normal importing processes.

So, as you said, actually we also have a very good C2C cross [border] business, which mainly serves the purpose for the discovering and sharing.

And we have a global buy business in Taobao and a lot of our haitao friends actually like this very much.

Thank you.

Eddie Leung, BofA Merrill Lynch.

Just two questions.

The first one is about GMV.

You highlighted the word high-quality GMV in the quarter.

So just wondering if you could provide us some outlook in the [training] of perhaps some normalization of your GMV growth as the transitions to higher quality GMV by and large stabilized.

So that's my first question.

And then, secondly, if you could provide us some more update on your cloud computing pieces, especially on the growth drivers for the quarter.

Are we seeing more clients?

Or are we seeing the clients upgrading to higher-end services?

Any color would be helpful.

Thank you.

I will answer the first question.

For the higher quality of GMV, actually when we look at this GMV growth today we've (inaudible) very much on the user experience.

So that's why we said high-quality GMV.

And we're trying to not only to grow our business very rapidly but also try to ensure the end-to-end user experiences.

So we are happy to see that, even on November 11, actually with such huge scale and our user experience and especially in logistics side, people can get their products actually much faster than previous years.

So actually that's the result of our continuous efforts on the quality of the user experience.

And actually if you look at future and the GMV, the scale growth is mainly driven by three things, as I said in my script.

Actually first is rural areas and we will try to sign up the new customers in the rural areas and this, we believe, will have a huge potential in the future.

Second, we will try to continue to acquire all the shares of existing customers, especially through the [in growth] of high-quality products.

And the last one, actually we will continue to expand our categories, especially in service sector, to give people more selection of the products and services.

Regarding cloud computing business growth, we're first of all very proud of this business development and the growth is coming from several factors.

We keep growing our customer base, especially paying customer base, and our products offering.

So in one quarter's time we launched 19 new products.

And also our technology, further upgrading our technology, as well as ecosystem development.

So now we have over 20,000 developers working at our core computing ecosystem.

Got it.

Thank you very much.

Robert Lin, Morgan Stanley.

So I have two questions here.

Daniel, I think you mentioned about improving user experience in Tier 1 cities.

Obviously I think that entails a lot of things, particularly, I think, smart logistics, where you've done a lot in late last year, before Double-11.

Can you give some examples on how smart logistics will improve this -- or even Suning cooperation will improve this this year in the Tier 1 cities?

And second question maybe is for Joe.

You guys specifically talked about GMV of Koubei.

If I do a rough calculation that's about 5 million transactions a day during the quarter, which is probably higher than your top two competitors in the delivery side.

Obviously twofold question here is how big do you think this business could be?

And, obviously, I think a lot of investors worry about a potential subsidy war in this business this year and potential impact to your P&L.

Can you provide a little more color on the investments in the GMV side for this business?

Thank you.

For the first question, yes, logistics and users experiencing logistics service is very important to our customers.

And actually (inaudible) and we work closely with our partners in logistics side, including our warehouse operating companies, last-mile delivery companies, etc.

And just to give you a few examples.

In larger clients' category we work closely with our investing company Haier Electronics, our [S] logistics company.

And today they help us to fulfil the orders generally on the platform and they are four layers network, which cover actually close to 100 warehouses and we can get the products fulfilled and delivered to the customer very efficiently.

And, as a result, what we observe is that larger clients is one of the fast-growing categories in our Tmall business in December quarter.

And the second example is about groceries.

Actually our Tmall supermarket business is growing very rapidly with a year-on-year growth about 279% year on year, which is heavily driven by the upgrade of the logistics services.

Because for this grocery stuff people buy for convenience and people want on-demand service and same-day and second-day delivery.

So we greatly expand the areas of second-day delivery and same-day delivery and, as a result, our business growing very rapidly.

And also, actually, via the integration of the system with the delivery companies, we get the logistics data, which make us possible to help our delivery company partners to upgrade their process.

This also achieved (inaudible) as I said in the November 11 Singles Day promotion and that's one of the reasons why we our logistic partners can speed up their delivery.

Thank you.

I'll talk about this O2O.

As you know, we have a joint venture Koubei, which is a JV between us and Ant Financial.

We're very committed to this business and we disclose metrics, GMV metrics, for this business close to RMB16 billion in quarterly GMV.

And so when you analyze that and then you size it to some of the other market players, we're already very, very significant.

And, in fact, Koubei's GMV is growing faster than the competition.

For a business that's only been in operation for just a few months, it started earlier this year, in fact earlier 2015, relative to some of the other players in the market that have been in business for many, many years, this is a very, very good achievement.

And, as you said, 5 million orders per day, we're pretty excited about that.

So, going forward, we're going to be very committed to this business.

The O2O space, a lot of that is related to food; that is restaurants, restaurant guide and also food delivery.

So if you look at the whole restaurant sector it's about a $1 trillion economy and so for people to make aggressive investments in there as to capture the upside, I think that's a pretty natural thing and everybody is as excited about the potential upside.

Thanks.

I would like to add a few comments on the first question about Suning.

Actually, after our investment in Suning, and today we are in the progress to realize the synergy between us and especially in the logistics part, and today Suning help us to fulfill part of our grocery orders.

And we leverage their network to get the package delivered to the end customer very quickly.

Thank you.

Piyush Mubayi, Goldman Sachs.

I've just got one question.

When I look at the numbers for the quarter for GMV, it's a very decent growth of 23%.

If I was to take out Singles Day, for example, then you're left with a number that's shy of 20%.

May I just clarify that the run rate that you're seeing at the December quarter, or if you could shed any color on what the visibility you have for the first quarter of calendar 2016?

Could you give us a sense of what sort of growth rate are you seeing?

And Joe, you talked about the secular drivers in the economy that's driving the economy.

Are we comfortable seeing the secular drivers continue to play in our favor into 2016 calendar year?

Thank you.

For the GMV, actually in the first quarter the year-on-year growth is 23%.

And, as I said, actually the Q4, actually the apparel category, especially the heavier apparel items, the sales of these items are affected by the warm temperatures.

And in the first quarter of 2016 so far we have seen that the winter time finally comes and people buy more heavier clothing items.

And, looking ahead, actually what we see is that today we are still very active and very good at acquiring new customers.

And we believe, over time, these new customers can be a loyalty customer and we can increase the wallet share of them.

Thank you.

And may I just ask what the GMV growth would have been in theory, if you hadn't had that blip in temperature, for the quarter?

Or is that too academic a question?

Piyush, this is just the beginning of the quarter and we don't give any market guidance and forecasts on --

No, I mean for the December quarter.

No, we're not going to give any detailed information besides what we disclosed.

All right.

Thank you.

Dick Wei, Credit Suisse.

Congrats on a strong quarter.

My first question is, and maybe for this 2016, what are some of the key areas of investment that would you think about for the Company?

Particular, maybe (inaudible) Koubei or internal content investments.

And the next question is on the logistics front.

I understand that we are doing the logistics more by the verticals, by verticals basis.

After the appliances and grocery sector verticals, what are some of the other verticals that you will be focusing on for improving logistics experience?

Thank you.

Regarding the investment areas for following years, it's still going to be our strategic important areas.

So for these strategic investments it would definitely not be only one year.

So we're talking about areas like digital entertainment, operating our OS and cloud, rural cross-border business.

For the second question about the logistics development, I would say first, actually, what we will try to do is to improve the overall quality and speed of the overall user experience on logistics.

And, specifically, we will continue to develop the category-specific solutions in the important categories.

For example, we will heavily develop the solutions in fresh foods and in furniture and in large appliances and also in cross borders.

I think these actually three areas are very, very specific requirement in logistic and the user experience.

So we will try to develop the specific solutions with our partners.

Great.

Thanks.

Eric Sheridan, UBS.

Going back in time, in the summer of 2014 you made noticeable changes on the monetization front around advertising, balancing engagement versus monetization on the platform with the tilt towards desktop.

So maybe two questions about that.

One, what have you learned as we've moved past the one-year anniversary of those changes, what that's meant for desktop engagement versus desktop monetization?

And as mobile monetization rates start to become closer to desktop, what is the appetite to experiment on the mobile side of the equation with respect to the formats and engagement?

Thank you so much.

I would like to answer this question.

Actually, as you can see, we experienced a very successful mobile transition.

And we were also very happy to see mobile give us a very good opportunity to create the new value for our merchants and brands to help them to acquire, to manage and to serve the customers.

The key reason is that in the PC (inaudible) actually people get connected only when they get in touch with PC and they will stay away when they just go -- actually they will stay away from their PC in most of the times.

But on the mobile time, actually, anywhere, anytime, and they achieve --mobile, it's just one component of the body.

So this gives us a very good opportunity to help them, our merchants and brands to [impact] with their target customers.

And, because of the huge user base we have, actually today we can help them to cover the target customers and especially to acquire new customers.

So that's why our brands and partners and our merchants recognize the value and continue to increase their spending on our platform.

Just to add to Daniel's answer.

First of all, we have successfully transitioned to a mobile business.

Mobile GMV and mobile revenue accounts for a very high percentage of the total GMV revenue.

So people should really focus on our overall monetization, rather than separating PC and mobile.

And second point is, like Joe and Daniel mentioned earlier, our value creation goes way beyond the GMV.

So there are other values not captured [at] GMV that we will be able to monetize.

Vivian Hao, JPMorgan.

My first question is still regarding our O2O strategy.

So do we have any plan for a strategic fine tuning of Koubei after Meituan and Dianping have merged?

Also, I don't know if this is appropriate to ask, but do we plan to fully exit the new Meituan-Dianping entity and dedicate to Koubei only?

Also, do we have any plan to integrate [Ullama] to our O2O system?

This is my first question.

And the second question is can you elaborate a little bit more on our plan in 2016 on collaborating with our third-party network partners, especially with Weibo and Youku?

Thank you.

I'll address the O2O question.

So, as I said, Koubei has been a relatively new business and we're seeing very good growth trajectory and very good momentum in that business.

So, even though the rest of the market may be consolidating a little bit, as I mentioned, this is a $1 trillion market in O2O, so there is a lot of potential upside and this is a multi-year effort.

So you should expect that our investments are not going to be -- we're not going to be looking at quarter-to-quarter results from our investments, but we're looking at a long-term, several-year, multi-year, kind of outcome on this.

And we feel very positive about the long-term prospects of this business.

When it comes to which horse we're backing, clearly Koubei is the horse that we're going to back.

We've had a very successful financial investment in Meituan but we believe that a better allocation of our capital is to put our resources into Koubei and exiting Meituan is just a matter of time.

I will answer the second question about Weibo and Youku.

First of all, Youku actually is -- the privatization of Youku is not yet closed.

And when we look at these two companies, these two businesses, actually we can see very clear synergies between us.

First is the users for social media and video.

And it's a very important sector where consumers spend their times, especially on the mobile side.

So actually if we compare the user base between our retail platforms and Weibo and Youku, a material portion is overlap.

So actually via our collaboration with Weibo and Youku we can actually have to enhance our understanding and knowhow of the consumers and get more consumer data, not only from the consumption side but also from entertainment side and from social side.

I think this will give a very big potential on the marketing and on advertisements.

And actually why we want Youku, which also gives us a good opportunity to work with and to distribute digital content.

And we believe that digital content is very important in the future actually with the lifestyle upgrade.

And more and more people enjoy consuming more digital content rather than physical products in the future.

And with the data cross platforms integrated, what we can see is that there is a huge synergy between the eCommerce, between the [merge and the breadth] our retail platforms and advertisers' marketers on the media platforms.

And what we can do is to use the data to help these marketers to track and to engage; again to manage the customers in our platform, also cross platforms.

Thank you.

(Operator Instructions).

Mark Mahaney, RBC Capital Markets.

Just one question, please, Daniel.

In terms of the three growth areas, you mentioned the rural development.

Could you help just size that opportunity versus your current opportunity and talk about how material that rural market is already for Alibaba?

Thank you.

Well, actually China is so big and today when we talk about rural areas, we talk about the rural villages in China and actually there are about 600,000 rural villages across China.

And maybe with every single village, with a household less than 1,000 people.

So actually this is a highly diversified population.

And today actually when we look at the traditional distribution channel in China, few people can penetrate these rural villages via Internet, via our retail platforms.

Actually we observe a very good opportunity in a very efficient way to help our brand partners and merchants to get into these rural villages and serve the customers in this area.

So we can see that the potential is huge but also this is a very tough progress.

And in the past year actually we have made good progress in our rural Taobao, village Taobao, program and we will continue to do so to try to build up a countrywide network covering the major villages in China.

Thank you.

Chi Tsang, HSBC.

My first question is about Cainiao.

In your last mile you've made a lot of progress.

I was wondering if you could give us some targets for same-day or next-day delivery for this year.

And secondly, getting back to the macro question, in terms of GMV you've talked about the weather.

So I'm wondering how the economic slowdown is impacting some of the online shopping habits you're seeing in the Tier 1, Tier 2 cities and some of the rural places.

Thanks so much.

First I think I will say we don't disclose the target of the delivery of business.

But what I can share with you is that in logistics side we believe the most important thing is to manage the expectations of the customers in terms of logistics speed, especially the speed.

So actually people not always want faster delivery and they will compare the price they pay and the service they get.

So the most important thing is to manage expectation.

But for certain categories and for certain business, actually the speed is very important because people buy stuff for on-demand consumption.

So in these areas we will actually set the high criteria for the speed and to ensure the user experience.

I'll address the macro question.

So the one thing that I mentioned in my earlier remark was that Chinese retail sales grew 10.7% in 2015 and it's actually a higher growth rate than the prior year.

So retail sales is going against the grain of what many consider to be a decelerating economy.

And that's because the shift of the Chinese economy is going from investment driven to consumption driven.

So consumption as a share of GDP is becoming higher.

So we benefit from that.

But the thing that's really important to understand is eCommerce penetration continues to grow.

And that is largely because Alibaba is behind driving that penetration of online commerce.

And we've seen a very massive shift of users going online.

That's because of the advent of the mobile device.

Today with a smartphone you can buy from anywhere, anytime.

And Alibaba, with our leadership in mobile, is capturing that activity.

So underlying our business is a very significant secular trend and that is really decoupling from the larger economy.

And, with more specific color, we're seeing strength in electronics.

In the sale of cellphones, for example, we sold more than 3 million cellphone units on Singles Day.

We're also seeing strength in the large-ticket items; for example, large appliance, white goods category.

And that's because of our category-specific logistics strategy providing not just the delivery but also good installation services through our logistics partners.

And we also see a lot of good growth in the first-tier cities in the grocery area with buying groceries and everyday staple items.

So there's strength in parts of the categories that we're seeing and set against this larger context of high retail sales growth and also increasing online penetration.

Ken Sena, Evercore ISI.

And just to follow up on Carlos' question just in the beginning, on the topic of branding and advertising relationships and lifetime value.

How are advertisers realizing the higher lifetime value?

Is it due in part to the measurements that you're making in terms of conversion tracking?

Or is it there's?

Or is something else really happening?

And then our understanding is that advertising in China has shown some signs of slowdown.

So I guess the timing in terms of advertisers' willingness to increase their brand spend just seems to come at an unusual point.

So maybe if you can just elaborate on that a bit more.

And then, finally, if the brand-to-volume divide continues, is there any consideration, at this point, to changes in how you may begin to disclose?

Thank you.

That's a very good question.

Actually for the advertisements, actually traditionally people view this as two types: first is brand advertisement; second performance-based advertisement.

But here within Alibaba ecosystem, with our retail platforms and our media platform we are building up, actually we can do a very unique combined effect of the advertisement, which means action-driven and interaction-driven advertisement.

So today actually more and more brands are realizing the value of this advertisement because they can not only catch the eye box of the audience but also to drive them back to the retail platforms and to make interaction.

So this will create a lot of opportunities to acquire new customers and to get a repeat purchase.

So that's actually the opportunity people have seen.

And very important thing in this shift, which is to build the measurement and the close look measurement for the advertisers and marketers.

And that's actually the job we are doing right now, to build up a new set of the measurements together with our partners for the advertisements and the marketers.

And, as you said, today is a tough time in terms of macro economy and it's not that good.

And brands are usually more cautious about spending marketing dollar.

And that's also the good time for us because, actually, when people are cautious, people care more about the effectiveness of the marketing dollar usage.

So that's why they continue to spend more dollars on our platform because that's actually one of the few platforms they can find to get the close look to consumer track and to consumer interaction.

Thank you.

Thank you very much.

And then just on the disclosure question?

Operator, I think that is the end of our call.

There are no other questions.

So, ladies and gentlemen, that does conclude our conference for today.

Thank you for participating.

You may all disconnect.