Market Overview

Alibaba Group Announces September Quarter 2017 Results

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Alibaba Group Holding Limited (NYSE:BABA) today announced its financial
results for the quarter ended September 30, 2017.

"We had an outstanding quarter. Our consumer insights and technology
innovation were the key drivers behind our customer value proposition
across the Alibaba economy," said Daniel Zhang, Chief Executive Officer
of Alibaba Group. "We are seeing the early results from our efforts to
integrate online and offline with our New Retail strategy, and consumers
have benefited from access to high quality products, improved customer
experience and the tremendous convenience of shopping anytime, anywhere."

"This quarter we delivered excellent results, with overall revenue
growth of 61% demonstrating the robust momentum in our core commerce
business and across the Alibaba economy," said Maggie Wu, Chief
Financial Officer of Alibaba Group. "We generated approximately US$3.4
billion in non-GAAP free cash flow during the quarter,1 which
enables us to invest in our future growth areas of core commerce,
including logistics, cloud computing, digital entertainment and other
innovation initiatives."

1 For the quarter ended September 30, 2017, net cash provided
by operating activities was RMB30,507 million (US$4,585 million).

BUSINESS HIGHLIGHTS

In the quarter ended September 30, 2017:

  • Revenue was RMB55,122 million (US$8,285 million), an increase
    of 61% year-over-year.
  • Revenue from core commerce increased 63% year-over-year to RMB46,462
    million (US$6,983 million).
  • Revenue from cloud computing increased 99% year-over-year to RMB2,975
    million (US$447 million).
  • Revenue from digital media and entertainment increased 33%
    year-over-year to RMB4,798 million (US$721 million).
  • Revenue from innovation initiatives and others increased 27%
    year-over-year to RMB887 million (US$134 million).
  • Annual active consumers on our China retail marketplaces
    reached 488 million, an increase of 22 million from the 12-month
    period ended June 30, 2017.
  • Mobile MAUs on our China retail marketplaces reached 549
    million in September 2017, an increase of 20 million over June 2017.
  • Net income was RMB17,408 million (US$2,616 million), income
    from operations
    was RMB16,584 million (US$2,493 million) and adjusted
    EBITDA
    was RMB25,031 million (US$3,762 million). Operating
    margin
    was 30%, adjusted EBITDA margin was 45% and adjusted
    EBITA margin for core commerce
    was 57%.
  • Diluted EPS was RMB6.78 (US$1.02) and non-GAAP diluted EPS
    was RMB8.57 (US$1.29).
  • Net cash provided by operating activities was RMB30,507 million
    (US$4,585 million) and non-GAAP free cash flow was RMB22,505
    million (US$3,383 million).

BUSINESS AND STRATEGIC UPDATES

Core Commerce

Taobao – innovative programs driving loyalty and engagement.
Taobao App's highly relevant personal recommendations and engaging
content continue to drive robust growth in active users and engagement.
In September 2017, user activities on the Taobao App drove a quarterly
net increase of 20 million mobile MAUs on our China retail marketplaces
to a total of 549 million mobile MAUs. The Taobao App is not only a
destination for shopping but a community-based platform for sharing
product knowledge and lifestyle content that drives user engagement and
retention.

During the quarter, we launched a unified rewards-based loyalty program
across the Tmall and Taobao marketplaces, called 88 Loyalty Membership,
to enhance consumer engagement and loyalty. Membership is free and
members are tiered by loyalty scores based on their quality and
frequency of spending and social engagement, entitling them to different
levels of loyalty benefits. Members in progressively higher tiers gain
more access to exclusive privileges, products and content. Over 29
million consumers participated in our inaugural Members Festival on
August 8.

Tmall – extending B2C market leadership and delivering high quality
products to consumers.
Tmall recorded 49% year-over-year growth for
physical goods GMV in the quarter ended September 30, 2017. We achieved
robust growth across all major categories. In particular, the
accelerated growth in consumer electronics and FMCG categories reflects
our commitment to building leadership in these two important categories.
We witnessed success in new customer acquisitions through highly
coordinated marketing and promotional campaigns, which partially drove
an accelerated increase in annual active consumers to 488 million for
the 12 months ended September 30, 2017, a net increase of 22 million
from the prior quarter and taking annualized growth to double digits for
the first time in the past four quarters.

During the quarter, Tmall demonstrated its data technology capabilities
as the leading brand-building and retail distribution platform in China.
Our Luxury Pavilion on Tmall offers a unique channel for premium brands
to extend their reach, launch new product campaigns and take advantage
of omni-channel solutions specifically targeting affluent Chinese
consumers. For example, the algorithms powering our Tmall App enabled
easy access by higher tier members of our 88 Loyalty Membership to the
Luxury Pavilion, with personalized brand pages and product
recommendations. These members also receive exclusive perks such as
pre-orders of limited edition products and invitations to celebrity
events. The growing list of partnering brands include Loewe, Burberry,
LA MER, Maserati, Guerlain and Zenith.

11.11 Global Shopping Festival. In the ninth year of the world's
largest 24-hour shopping event, this year's 11.11 will showcase:

  • Alibaba Economy at scale. 11.11 will demonstrate the
    technological innovation and global scale of the entire Alibaba
    Economy. More than 140,000 brands and hundreds of millions of
    consumers will participate in 11.11 this year. This shopping festival
    will be supported by our global cloud, payment and logistics
    infrastructure. Consumers will enjoy seamless payment and consumer
    loan services provided by Ant Financial. Alibaba Cloud will serve as
    the core technology and computing backbone to ensure the best consumer
    experience throughout the festival. Cainiao Network expects over 3
    million logistics personnel to facilitate the hundreds of millions of
    packages that will be generated from the festival.
  • Power of the Chinese consumer. We expect that hundreds of
    millions of Chinese consumers who visit our platforms on November 11
    will have access to over 60,000 international brands and merchants to
    satisfy their increasing demand for goods and products from around the
    world. This year, Tmall will, for the first time, leverage its
    popularity outside China to bring over 100 domestic Chinese brands to
    international markets, targeting millions of overseas Chinese
    consumers in Asia and the rest of the world.
  • New Retail implementation. Our unique New Retail model with
    integrated online-offline customer offerings will be showcased in
    store locations across China. More than 1,000 brands will convert
    nearly 100,000 physical locations into "smart stores" and our channel
    distribution solutions make it easy for more than 500,000 local
    neighborhood stores and Rural Taobao service centers to sell to
    consumers in lower-tier cities and rural villages.

New Retail – from proof of concept to rapid expansion. As part of
our effort to create a seamless online and offline consumer experience,
we expanded our Hema fresh grocery footprint and launched Tmall-branded
franchised convenience stores.

During the quarter, Hema added new stores in major cities in China,
bringing the total number of Hema stores to 20 as of September 30, 2017.
We have taken our Hema model to our retail partners, who have begun to
open and operate Hema franchised stores, extending coverage for the
benefit of consumers.

In August, the first Tmall-branded franchised convenience store opened
through the Lingshoutong Retail Sourcing Platform ("LST"). The LST
platform is a digital sourcing platform that has been adopted by over
500,000 neighborhood mom-and-pop shops across China. The platform allows
merchants to source from a broad selection of brands and products that
can be efficiently delivered to their stores; increasing their potential
revenue opportunity and lowering operational costs. The brand partners
of LST benefit from deeper distribution channels, especially in lower
tier cities in China where organized retail is less developed.

International – further investments for long-term growth. Our
cross-border and international consumer businesses continue to exhibit
robust growth. Revenue from our international commerce retail business
reached RMB2,878 million (US$433 million) in the quarter ended September
30, 2017, representing a 115% year-on-year growth, driven by strong
growth in our Southeast Asian platform Lazada and our China outbound
platform AliExpress. The growth of Lazada and AliExpress further expands
our customer base outside China.

During the quarter, cooperating with Taobao Marketplace, Lazada expanded
the "Taobao Collection" to expand Lazada's product offerings in three
additional markets including Indonesia, the Philippines and Thailand,
adding to the existing markets of Singapore and Malaysia. We will
continue to invest aggressively in the nascent markets in Southeast Asia
as well as launch innovative services to benefit consumers in the region.

Building upon the significant progress made in educating the U.S. market
on the Chinese consumption economy during the Gateway '17 conference in
June, we expanded the geographic reach of our efforts to on-board small
businesses from outside China to sell into China by hosting the first
Gateway '17 conference in Canada in September. Over 3,000 Canadian small
businesses and entrepreneurs attended the event in Toronto to learn
about business opportunities in the China market that present themselves
through our ecosystem.

Cloud Computing

Cloud computing revenue grew 99% year-over-year to RMB2,975 million
(US$447 million), driven by both robust growth in paying customers and
improving revenue mix to higher valued-added services. We are seeing
significant traction and diversification of customers and revenue, and
will continue to invest to further expand the market through valuable
services for our cloud customers.

In the September 2017 quarter, Alibaba Cloud launched 245 new products
and features, including major products that enable large enterprises to
achieve higher computing performance and storage capability. For
example, our new self-developed X-Dragon Cloud server combines the
performance and isolation capabilities of bare metal servers and the
elasticity and agility of virtual machines. It is particularly suitable
for mission critical applications requiring high performance guarantee
and strong tenant isolation for enterprises. In addition, the newly
released relational database POLARDB is integrated with our proprietary
distributed storage backend for optimized performance and can store up
to 100TB of data per TB instance.

Alibaba Cloud continues to develop holistic solutions to tackle the
challenges of large enterprises spanning a variety of industries.
Selected large enterprise customers in China include:

  • Philips, one of Fortune 500 companies, has migrated their
    Enterprise IT applications in China onto Alibaba Cloud. This has
    resulted in improved operational data utilization and efficacy as well
    as largely reduced costs.
  • Kweichow Moutai, one of the world's most valuable Chinese
    liquor companies, which is publicly-traded in China, is using our
    cloud products including elastic computing, content delivery,
    database, security and others services to build its digital marketing
    platform which enables it to better engage with its consumers.
  • Bank of Nanjing, a publicly-traded bank in China, is migrating
    the core system of its Internet finance business to the Alibaba Cloud
    platform. Bank of Nanjing is adopting a range of proprietary cloud
    products including our OceanBase database and big data platform as
    well as other services designed specifically for the financial service
    sector by both Alibaba Cloud and Ant Financial.

We held the annual Computing Conference 2017 in Hangzhou in early
October. The four-day event featured more than 800 industry experts and
thought leaders at over 120 forums, covering topics such as artificial
intelligence, blockchain, Big Data, quantum computing, DevOps and the
Internet of Things (IoT). Approximately 60,000 people attended in person
and millions viewed the conference online.

During the conference, we launched an innovative global research
program, "Alibaba DAMO Academy," which is designed to bridge the gap
between academic and industry research in the field of technology
development to solve real-world problems.

We intend to invest more than US$15 billion over the next three years on
our research and development efforts, which will include the Alibaba
DAMO Academy.

Digital Media and Entertainment

During the quarter, we successfully executed our strategy of acquiring
and developing a mixture of licensed and original content that resulted
in greater consumer mind share in both the drama and variety show
categories. As a result, daily average subscribers of Youku video
subscriptions increased over 180% year-on-year during the quarter ended
September 30, 2017. We believe a strong content pipeline, especially
with a focus on original content, offering greater flexibility around
availability and distribution, will bring us sustainable long-term
advantages in video entertainment.

Innovation Initiatives

AutoNavi continues to strengthen its position as a leading provider of
digital map, navigation and location-based services in China. For the
National Day Golden Week holiday campaign, AutoNavi launched
location-based interactive marketing services for brands and retailers
across different industries, resulting in approximately 4.7 billion
branded impressions and enabled the distribution of RMB1.1 billion in
targeted coupons.

Updates on Equity Investees and Others

Cainiao Network – greater synergy with Alibaba ecosystem and
commitment to increased logistics capability.
We have completed an
additional investment of US$803 million (RMB5.3 billion) to increase our
ownership of Cainiao Network to a majority stake of 51%. The investment
demonstrates our commitment to implement our New Retail strategy and to
enhance the logistics capabilities within the Alibaba ecosystem.
Together with Cainiao Network, we plan to invest RMB100 billion (US$15.0
billion) over the next five years to further strengthen our global
logistics network with the aim to realize the mission of fulfilling
orders within 24 hours in China and within 72 hours anywhere in the
world, and enable greater efficiencies and lower costs in China's
logistics sector.

Cash Flow from Operating Activities and Free
Cash Flow

Net cash provided by operating activities in the quarter ended September
30, 2017 was RMB30,507 million (US$4,585 million), an increase of 77%
compared to RMB17,206 million in the same quarter of 2016. Free cash
flow, a non-GAAP measurement of liquidity, in the quarter ended
September 30, 2017 was RMB22,505 million (US$3,383 million), an increase
of 61% compared to RMB13,943 million in the same quarter of 2016. A
reconciliation of net cash provided by operating activities to free cash
flow is included at the end of this results announcement.

KEY OPERATIONAL METRICS*

 

September 30,
2016

 

June 30,
2017

 

September 30,
2017

  % Change
YoY   QoQ
 
China Commerce Retail:
Annual active consumers(1) (in millions) 439 466 488 11% 5%
Mobile monthly active users (MAUs)(2) (in millions) 450 529 549 22% 4%
*   For definitions of terms used but not defined in this results
announcement, please refer to our annual report on Form 20-F for the
fiscal year ended March 31, 2017.
(1) For the twelve months ended on the respective dates.
(2) For the month ended on the respective dates.
 

SUMMARY FINANCIAL RESULTS

 
  Three months ended September 30,  
2016   2017
RMB RMB   US$(1) YoY % Change
(in millions, except percentages and per share amounts)
 
Revenue 34,292 55,122 8,285 61%
 
Income from operations 9,045 16,584 2,493 83%
Operating margin 27% 30%
Adjusted EBITDA(2) 15,875 25,031 3,762 58%
Adjusted EBITDA margin(2) 46% 45%
Adjusted EBITA(2) 14,593 23,018 3,460 58%
Adjusted EBITA margin(2) 43% 42%
 
Net income 7,075 17,408 2,616 146%
Non-GAAP net income(2) 12,949 22,089 3,320 71%
 
Diluted earnings per share/ADS (EPS) 2.97 6.78 1.02 128%
Non-GAAP diluted EPS(2) 5.26 8.57 1.29 63%
(1) This results announcement contains translations of certain Renminbi
("RMB") amounts into U.S. dollars ("US$") for the convenience of the
reader. Unless otherwise stated, all translations of RMB into US$
were made at RMB6.6533 to US$1.00, the exchange rate on September
30, 2017 as set forth in the H.10 statistical release of the Federal
Reserve Board. The percentages stated in this announcement are
calculated based on the RMB amounts.
(2) See the sections entitled "Information about Segments," "Non-GAAP
Financial Measures" and "Reconciliations of Non-GAAP Measures to the
Nearest Comparable GAAP Measures" for more information about the
non-GAAP measures referred to within this results announcement.
 
INFORMATION ABOUT SEGMENTS
 

The table below sets forth selected financial information of our
operating segments for the periods indicated:

 
Three months ended September 30, 2017

Core
commerce

 

Cloud
computing

 

Digital media
and
entertainment

 

Innovation
initiatives
and others

 

 

Unallocated(1)

 

 

Consolidated

RMB RMB RMB RMB RMB RMB   US$
(in millions, except percentages)
Revenue 46,462 2,975 4,798 887 55,122 8,285
 
Income (loss) from operations

23,836

(697)

(3,383)

(1,456)

(1,716)

16,584

2,493

Add: Share-based compensation expense 1,987 531 594 930 644 4,686 704
Add: Amortization of intangible assets 591 4 1,040 30 83 1,748 263
 
Adjusted EBITA 26,414 (162) (1,749) (496) (989) 23,018 3,460
Adjusted EBITA margin 57% (5)% (36)% (56)%

 

42%
 
Three months ended September 30, 2016

Core
commerce

Cloud
computing

Digital media
and
entertainment

Innovation
initiatives
and others

 

Unallocated(1)

 

Consolidated

RMB RMB RMB RMB RMB RMB
(in millions, except percentages)
Revenue 28,493 1,493 3,608 698 34,292
 
Income (loss) from operations 15,559 (398) (2,247) (1,888) (1,981) 9,045
Add: Share-based compensation expense 1,471

 

340

 

358

952

 

1,130

4,251
Add: Amortization of intangible assets 569 1 485 165 77 1,297
 
Adjusted EBITA 17,599 (57) (1,404) (771) (774) 14,593
Adjusted EBITA margin 62% (4)% (39)% (110)% 43%
(1)   Unallocated expenses are primarily related to corporate
administrative costs and other miscellaneous items that are not
allocated to individual segments.
 

SEPTEMBER QUARTER OPERATIONAL AND FINANCIAL RESULTS

Revenue

Revenue for the quarter ended September 30, 2017 was RMB55,122 million
(US$8,285 million), an increase of 61% compared to RMB34,292 million in
the same quarter of 2016. The increase was mainly driven by the robust
revenue growth of our China commerce retail business, international
commerce retail business and Alibaba Cloud.

The following table sets forth a breakdown of our revenue by segment for
the periods indicated:

  Three months ended September 30,  
2016   2017
RMB  

% of
Revenue

RMB   US$  

% of
Revenue

YoY %
Change

(in millions, except percentages)
Core commerce:
China commerce retail
- Customer management 16,645 48% 26,272 3,949 48% 58%
- Commission 6,864 20% 10,059 1,512 18% 47%
- Others 600 2% 3,226 484 6% 438%
24,109 70% 39,557 5,945 72% 64%
China commerce wholesale 1,435 4% 1,714 258 3% 19%
International commerce retail 1,338 4% 2,878 433 5% 115%
International commerce wholesale 1,506 5% 1,651 248 3% 10%
Others 105 0% 662 99 1% 530%
Total core commerce 28,493 83% 46,462 6,983 84% 63%
 
Cloud computing 1,493 4% 2,975 447 5% 99%
Digital media and entertainment 3,608 11% 4,798 721 9% 33%
Innovation initiatives and others 698 2% 887 134 2% 27%
Total 34,292 100% 55,122 8,285 100% 61%

Core commerce

  • China commerce retail business

    Revenue
    Revenue from our China commerce retail business in the quarter ended
    September 30, 2017 was RMB39,557 million (US$5,945 million), or 72% of
    total revenue, an increase of 64% compared to RMB24,109 million in the
    same quarter of 2016. The increase in revenue was due to robust growth
    of customer management revenue and commission revenue, as well as the
    consolidation of Intime starting in mid-May 2017. Customer management
    revenue grew by 58% year-over-year, driven largely by increases in the
    volume of clicks and to a lesser extent average unit price per click,
    reflecting continuous mobile user growth and our ability to deliver
    more relevant content to consumers through our enhancements in
    personalization technology. This growth resulted in higher average
    spending on our customer management services by an increasing number
    of merchants. Commission revenue, representing 25% of China commerce
    retail revenue in the quarter ended September 30, 2017, grew by 47%
    year-over-year, primarily due to strong growth in physical goods
    transactions on Tmall. Other revenue was RMB3,226 million (US$484
    million), a significant increase compared to RMB600 million in the
    same quarter of 2016, primarily driven by our New Retail businesses,
    including consolidation of Intime and contribution from Hema.

    Our
    annual China commerce retail revenue per annual active consumer
    increased from RMB215 for the quarter ended September 30, 2016 to
    RMB293 (US$44) for the quarter ended September 30, 2017, and mobile
    revenue per mobile MAU grew from RMB151 for the quarter ended
    September 30, 2016 to RMB213 (US$32) for the quarter ended September
    30, 2017, as
    illustrated in these charts and the table at the end of this
    announcement.


    Annual active consumers Our
    China retail marketplaces had 488 million annual active consumers in
    the 12 months ended September 30, 2017, compared to 466 million in the
    12 months ended June 30, 2017, representing a net addition of 22
    million from the prior quarter, and an 11% increase from 439 million
    in the 12 months ended September 30, 2016. Average annual spend per
    active consumer for the 12 months ended September 30, 2017 also
    continued to increase from prior quarters. The longer consumers have
    been with our platform, the more they spend, placing more orders
    across more product categories.

    Mobile MAUs – Mobile
    MAUs on our China retail marketplaces grew to 549 million in September
    2017, compared to 529 million in June 2017, representing a net
    addition of 20 million MAUs in the quarter and a 22% increase from 450
    million in September 2016.
  • China commerce wholesale business

    Revenue
    from our China commerce wholesale business in the quarter ended
    September 30, 2017 was RMB1,714 million (US$258 million), an increase
    of 19% compared to RMB1,435 million in the same quarter of 2016. The
    increase was primarily due to an increase in the average revenue from
    paying members on our 1688.com platform.
  • International commerce retail business

    Revenue
    from our international commerce retail business in the quarter ended
    September 30, 2017 was RMB2,878 million (US$433 million), an increase
    of 115% compared to RMB1,338 million in the same quarter of 2016. The
    increase was primarily due to the growth in revenue generated from
    Lazada and AliExpress, driven by robust GMV growth on these two
    marketplaces.
  • International commerce wholesale business

    Revenue
    from our international commerce wholesale business in the quarter
    ended September 30, 2017 was RMB1,651 million (US$248 million), an
    increase of 10% compared to RMB1,506 million in the same quarter of
    2016, primarily due to an increase in online marketing revenue.

Cloud computing

Revenue from our cloud computing business in the quarter ended September
30, 2017 was RMB2,975 million (US$447 million), an increase of 99%
compared to RMB1,493 million in the same quarter of 2016, primarily
driven by an increase in the number of paying customers and also by an
increase in their usage of our cloud computing services including more
complex offerings, such as content delivery network, database services,
as well as data and security services.

Digital media and entertainment

Revenue from our digital media and entertainment business in the quarter
ended September 30, 2017 was RMB4,798 million (US$721 million), an
increase of 33% compared to RMB3,608 million in the same quarter of
2016. The increase was primarily due to an increase in revenue from
mobile value-added services provided by UCWeb, such as news feeds and
mobile search, and an increase in subscription and advertising revenue
from Youku Tudou.

Innovation initiatives and others

Revenue from innovation initiatives and others in the quarter ended
September 30, 2017 was RMB887 million (US$134 million), an increase of
27% compared to RMB698 million in the same quarter of 2016.

Costs and Expenses

The following tables set forth a breakdown of our costs and expenses,
share-based compensation expense and costs and expenses excluding
share-based compensation expense by function for the periods indicated.

  Three months ended September 30,  

% of
Revenue
YoY
change

2016   2017
RMB  

% of
Revenue

RMB   US$  

% of
Revenue

(in millions, except percentages)
Costs and expenses:
Cost of revenue 13,123 38% 22,002 3,307 40% 2%
Product development expenses 4,134 12% 5,083 764 9% (3)%
Sales and marketing expenses 3,878 11% 6,266 942 11% 0%
General and administrative expenses 2,815 8% 3,439 516 6% (2)%
Amortization of intangible assets 1,297 4% 1,748 263 4% 0%
Total costs and expenses 25,247 73% 38,538 5,792 70% (3)%
 
Share-based compensation expense by function:
Cost of revenue 1,183 4% 1,369 206 2% (2)%
Product development expenses 1,451 4% 1,686 253 3% (1)%
Sales and marketing expenses 478 1% 501 75 1% 0%
General and administrative expenses 1,139 3% 1,130 170 2% (1)%
Total share-based compensation expense 4,251 12% 4,686 704 8% (4)%
 
Costs and expenses excluding share-based compensation expense:
Cost of revenue 11,940 34% 20,633 3,101 38% 4%
Product development expenses 2,683 8% 3,397 511 6% (2)%
Sales and marketing expenses 3,400 10% 5,765 867 10% 0%
General and administrative expenses 1,676 5% 2,309 346 4% (1)%
Amortization of intangible assets 1,297 4% 1,748 263 4% 0%
Total costs and expenses excluding share-based compensation expense 20,996 61% 33,852 5,088 62% 1%

Cost of revenue – Cost of revenue in the quarter ended September
30, 2017 was RMB22,002 million (US$3,307 million), or 40% of revenue,
compared to RMB13,123 million, or 38% of revenue, in the same quarter of
2016. Without the effect of share-based compensation expense, cost of
revenue as a percentage of revenue would have increased from 34% in the
quarter ended September 30, 2016 to 38% in the quarter ended September
30, 2017. The increase was primarily due to our investments in New
Retail, globalization and improving user experience. These increased
costs primarily reflected the consolidation of Intime, investments in
Hema and Lazada, content acquisition costs of Youku Tudou and logistics
costs related to Tmall Supermarket.

Product development expenses – Product development expenses in
the quarter ended September 30, 2017 were RMB5,083 million (US$764
million), or 9% of revenue, compared to RMB4,134 million, or 12% of
revenue, in the same quarter of 2016. Without the effect of share-based
compensation expense, product development expenses as a percentage of
revenue would have decreased from 8% in the quarter ended September 30,
2016 to 6% in the quarter ended September 30, 2017, reflecting operating
leverage.

Sales and marketing expenses – Sales and marketing expenses in
the quarter ended September 30, 2017 were RMB6,266 million (US$942
million), or 11% of revenue, compared to RMB3,878 million, or 11% of
revenue, in the same quarter of 2016. Without the effect of share-based
compensation expense, sales and marketing expenses as a percentage of
revenue in the quarter ended September 30, 2017 would have remained
stable at 10% as compared to the same quarter in 2016.

General and administrative expenses – General and administrative
expenses in the quarter ended September 30, 2017 were RMB3,439 million
(US$516 million), or 6% of revenue, compared to RMB2,815 million, or 8%
of revenue, in the same quarter of 2016. Without the effect of
share-based compensation expense, general and administrative expenses as
a percentage of revenue would have decreased from 5% in the quarter
ended September 30, 2016 to 4% in the quarter ended September 30, 2017,
reflecting operating leverage.

Share-based compensation expense – Total share-based compensation
expense included in the cost and expense items above in the quarter
ended September 30, 2017 was RMB4,686 million (US$704 million), an
increase of 10% compared to RMB4,251 million in the same quarter of
2016. Share-based compensation expense as a percentage of revenue
decreased to 8% in the quarter ended September 30, 2017 from 12% in the
same quarter of 2016. The following table sets forth our analysis of
share-based compensation expense for the quarters indicated by type of
share-based awards:

  Three months ended    
September 30, 2016   June 30, 2017   September 30, 2017 % Change
RMB  

% of
Revenue

RMB  

% of
Revenue

RMB   US$  

% of
Revenue

YoY QoQ
(in millions, except percentages)
By type of awards:
Alibaba Group share-based awards granted to:

- Our employees

2,910 8% 3,023 6% 3,697 556 7% 27% 22%

- Ant Financial employees and other consultants(1)

598 2% 452 1% 469 70 1% (22)% 4%
Ant Financial share-based awards granted to our employees(1) 543 1% 297 1% 266 40 0% (51)% (10)%
Others 200 1% 247 0% 254 38 0% 27% 3%
Total share-based compensation expense 4,251 12% 4,019 8% 4,686 704 8% 10% 17%

(1) Awards subject to mark-to-market accounting treatment.

Share-based compensation expense related to Alibaba Group share-based
awards granted increased in this quarter compared to the previous
quarter. The increase reflected the full quarter effect of the expense
arising from the annual performance-based awards granted in the middle
of the previous quarter.

We expect that our share-based compensation expense will continue to be
affected by changes in the fair value of our shares and Ant Financial
shares, as well as the quantity of awards we grant to our employees and
consultants in the future. Due to the accounting treatment of Ant
Financial share-based awards granted to our employees, if the fair value
of Ant Financial equity increases in the future, our share-based
compensation expense will likely increase, although any such increase
will be non-cash and will not result in any economic cost or equity
dilution to our shareholders.

Amortization of intangible assets – Amortization of intangible
assets in the quarter ended September 30, 2017 was RMB1,748 million
(US$263 million), an increase of 35% from RMB1,297 million in the same
quarter of 2016. The increase was due to an increase in intangible
assets recognized relating to our strategic acquisitions and investments.

Income from operations and operating margin

Income from operations in the quarter ended September 30, 2017 was
RMB16,584 million (US$2,493 million), or 30% of revenue, an increase of
83% compared to RMB9,045 million, or 27% of revenue, in the same quarter
of 2016.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA increased by 58% to RMB25,031 million (US$3,762 million)
in the quarter ended September 30, 2017, compared to RMB15,875 million
in the same quarter of 2016. Adjusted EBITDA margin decreased to 45% in
the quarter ended September 30, 2017 from 46% in the same quarter of
2016, mainly due to our investments in New Retail, globalization, user
base and user experience, partly offset by increased operating leverage.
A reconciliation of net income to adjusted EBITDA is included at the end
of this results announcement.

As many of our newly developed and acquired businesses have different
cost structures and lower margins, we expect that our margin will
continue to be negatively impacted by these new businesses.

Adjusted EBITA and adjusted EBITA margin by
segments

Adjusted EBITA and adjusted EBITA margin by segments are set forth in
the table below. See the section entitled "Information about Segments"
above for a reconciliation of income from operations to adjusted EBITA.

  Three months ended September 30,
2016   2017
RMB  

% of
Revenue

RMB   US$  

% of
Revenue

(in millions, except percentages)
 
Core commerce 17,599 62% 26,414 3,970 57%
Cloud computing (57) (4)% (162) (24) (5)%
Digital media and entertainment (1,404) (39)% (1,749) (263) (36)%
Innovation initiatives and others

(771)

(110)%

(496)

(75)

(56)%

Core commerce segment – Adjusted EBITA increased by 50% to
RMB26,414 million (US$3,970 million) in the quarter ended September 30,
2017, compared to RMB17,599 million in the same quarter of 2016.
Adjusted EBITA margin decreased to 57% in the quarter ended September
30, 2017, as compared to 62% in the same quarter of 2016, primarily due
to our investment in New Retail businesses, including Intime and Hema,
globalization, including Lazada, user base and user experience.

Cloud computing segment – Adjusted EBITA in the quarter ended
September 30, 2017 was a loss of RMB162 million (US$24 million),
compared to a loss of RMB57 million in the same quarter of 2016.
Adjusted EBITA margin decreased to negative 5% in the quarter ended
September 30, 2017 from negative 4% in the quarter ended September 30,
2016, primarily due to our continued expansion and enhancement of our
customer base, products and services, both within China and overseas.

Digital media and entertainment segment – Adjusted EBITA in the
quarter ended September 30, 2017 was a loss of RMB1,749 million (US$263
million), compared to a loss of RMB1,404 million in the same quarter of
2016. Adjusted EBITA margin improved to negative 36% in the quarter
ended September 30, 2017 from negative 39% in the quarter ended
September 30, 2016, primarily due to solid results from UCWeb, partly
offset by an increase in investment in content costs of Youku Tudou.

Innovation initiatives and others segment – Adjusted EBITA in the
quarter ended September 30, 2017 was a loss of RMB496 million (US$75
million), compared to a loss of RMB771 million in the same quarter of
2016. Adjusted EBITA margin improved to negative 56% in the quarter
ended September 30, 2017, compared to negative 110% in the quarter ended
September 30, 2016, primarily due to increase in revenue from new
business initiatives.

Interest and investment income, net

Interest and investment income, net in the quarter ended September 30,
2017 was RMB3,435 million (US$516 million), a significant increase from
RMB419 million in the same quarter of 2016, primarily due to gains of
RMB2,362 million (US$355 million) arising from disposals of certain
investments and an increase in interest income, partly offset by
impairment loss on certain investments of RMB389 million (US$58 million).

Other income, net

Other income, net in the quarter ended September 30, 2017 was RMB1,737
million (US$261 million), compared to RMB868 million in the same quarter
of 2016. The increase was primarily due to an increase in royalty fees
and software technology service fees received from Ant Financial under
our profit sharing arrangement, which amounted to RMB1,995 million
(US$300 million) in the quarter ended September 30, 2017, offset by an
increase in exchange loss.

Income tax expenses

Income tax expenses in the quarter ended September 30, 2017 were
RMB2,719 million (US$409 million), compared to RMB2,022 million in the
same quarter of 2016.

Our effective tax rate was 13% in the quarter ended September 30, 2017,
compared to 21% in the same quarter of 2016. Excluding share-based
compensation expense, impairment of investments and other unrealized
investment gain/loss, our effective tax rate would have been 10% in the
quarter ended September 30, 2017, compared to 14% in the same quarter of
2016. The decrease in effective tax rate was primarily due to the
recognition of tax credits of approximately RMB2.3 billion (US$346
million) during the quarter as certain key subsidiaries were notified of
the renewal of their Key Software Enterprise status for calendar year
2016 by the relevant tax authorities.

Share of results of equity investees

Share of results of equity investees in the quarter ended September 30,
2017 was a loss of RMB882 million (US$133 million), compared to a loss
of RMB567 million in the same quarter of 2016 and a loss of RMB1,388
million in the quarter ended June 30, 2017. We record our share of
results of equity investees one quarter in arrears. Share of results of
equity investees in the quarter ended September 30, 2017 and the
comparative periods consisted of the following:

  Three months ended
September 30, 2016   June 30, 2017   September 30, 2017
RMB RMB RMB   US$
(in millions)
Share of (loss) profit of equity investees:

- Koubei

(3) (391) (369) (56)

- Cainiao Network

(220) (245) (273) (41)

- Other equity investees

(160) (311) 190 29
Dilution gains (losses) 46 (29) (14) (2)
Others(1) (230) (412) (416) (63)
Total (567) (1,388) (882) (133)
(1)   Others mainly include amortization of intangible assets of equity
investees and share-based compensation expense.

The share of results of equity investees in the quarter ended September
30, 2017 was a loss of RMB882 million (US$133 million), compared to a
loss of RMB1,388 million in the quarter ended June 30, 2017, primarily
due to an increase in our share of profit, net of other equity investees.

Net income and Non-GAAP net income

Our net income in the quarter ended September 30, 2017 was RMB17,408
million (US$2,616 million), an increase of 146% compared to RMB7,075
million in the same quarter of 2016. Excluding share-based compensation
expense, non-cash revaluation gain and certain other items, non-GAAP net
income in the quarter ended September 30, 2017 was RMB22,089 million
(US$3,320 million), an increase of 71% compared to RMB12,949 million in
the same quarter of 2016. A reconciliation of net income to non-GAAP net
income is included at the end of this results announcement.

Net income attributable to ordinary shareholders

Net income attributable to ordinary shareholders in the quarter ended
September 30, 2017 was RMB17,668 million (US$2,656 million), an increase
of 132% compared to RMB7,623 million in the same quarter of 2016.

Diluted EPS and non-GAAP diluted EPS

Diluted EPS in the quarter ended September 30, 2017 was RMB6.78
(US$1.02) on a weighted average of 2,607 million diluted shares
outstanding during the quarter, an increase of 128% compared to RMB2.97
on a weighted average of 2,566 million diluted shares outstanding during
the same quarter of 2016. Excluding share-based compensation expense,
non-cash revaluation gain and certain other items, non-GAAP diluted EPS
in the quarter ended September 30, 2017 was RMB8.57 (US$1.29), an
increase of 63% compared to RMB5.26 in the same quarter of 2016. A
reconciliation of diluted EPS to non-GAAP diluted EPS is included at the
end of this results announcement.

Cash, cash equivalents and short-term
investments

As of September 30, 2017, cash, cash equivalents and short-term
investments were RMB159,855 million (US$24,027 million), compared to
RMB148,152 million as of June 30, 2017. The increase in cash, cash
equivalents and short-term investments during the quarter ended
September 30, 2017 was primarily due to free cash flow generated from
operations of RMB22,505 million (US$3,383 million), partly offset by
cash used in investing activities, including investments in Ele.me and
Tokopedia.

Cash flow from operating activities and free
cash flow

Net cash provided by operating activities in the quarter ended September
30, 2017 was RMB30,507 million (US$4,585 million), an increase of 77%
compared to RMB17,206 million in the same quarter of 2016. Free cash
flow, a non-GAAP measurement of liquidity, in the quarter ended
September 30, 2017 was RMB22,505 million (US$3,383 million), compared to
RMB13,943 million in the same quarter of 2016. A reconciliation of net
cash provided by operating activities to free cash flow is included at
the end of this results announcement.

Net cash used in investing activities

During the quarter ended September 30, 2017, net cash used in investing
activities of RMB25,683 million (US$3,860 million) primarily reflected
cash outflow of RMB15,121 million (US$2,273 million) for investment and
acquisition activities, including investments in Ele.me and Tokopedia,
cash outflow of RMB8,117 million (US$1,220 million) for treasury
activities, as well as capital expenditures and intangible assets of
RMB8,673 million (US$1,303 million), which included cash outflow for
acquisition of land use rights and construction in progress of RMB671
million (US$101 million). The increase in capital expenditures mainly
represented our investment in technology that supports the growth of our
cloud business as well as growth in our commerce platforms. The outflow
was partially offset by cash inflow of RMB5,130 million (US$771 million)
from disposals of various investments.

Employees

As of September 30, 2017, we had a total of 59,572 employees, compared
to 57,302 as of June 30, 2017. The number of employees as of September
30, 2017 increased by 2,270 from June 30, 2017, primarily due to the
continued expansion of our cloud computing, New Retail and international
businesses.

Adjustment of Revenue Guidance

As a result of the consolidation of Cainiao Network starting in the
December 2017 quarter, we are increasing our 2018 fiscal year revenue
guidance to 49% to 53% (previously 45% to 49%).

WEBCAST AND CONFERENCE CALL INFORMATION

Alibaba Group's management will hold a conference call to discuss the
financial results at 7:30 a.m. U.S. Eastern Time (7:30 p.m. Hong Kong
Time) on November 2, 2017.

Details of the conference call are as follows:
International: +65 6713 5090
U.S.: +1 845 675 0437
U.K.: +44 203 621 4779
Hong Kong: +852 3018 6771
Conference ID: 96302187

A live webcast of the earnings conference call can be accessed at http://www.alibabagroup.com/en/ir/earnings.
An archived webcast will be available through the same link following
the call. A replay of the conference call will be available for one week
(dial-in number: +61 2 8199 0299; conference ID: 96302187).

Our results announcement and accompanying slides are available at
Alibaba Group's Investor Relations website at http://www.alibabagroup.com/en/ir/home
on November 2, 2017.

ABOUT ALIBABA GROUP

Alibaba Group's mission is to make it easy to do business anywhere. The
company aims to build the future infrastructure of commerce. It
envisions that its customers will meet, work and live at Alibaba, and
that it will be a company that lasts at least 102 years.

SAFE HARBOR STATEMENTS

This announcement contains forward-looking statements. These statements
are made under the "safe harbor" provisions of the U.S. Private
Securities Litigation Reform Act of 1995. These forward-looking
statements can be identified by terminology such as "will," "expects,"
"anticipates," "future," "intends," "plans," "believes," "estimates,"
"potential," "continue," "ongoing," "targets," "guidance" and similar
statements. Among other things, statements that are not historical
facts, including statements about Alibaba's strategies and business
plans, Alibaba's beliefs and expectations regarding the growth of its
business and its revenue, the business outlook and quotations from
management in this announcement, as well as Alibaba's strategic and
operational plans, are or contain forward-looking statements. Alibaba
may also make forward-looking statements in its periodic reports to the
U.S. Securities and Exchange Commission (the "SEC"), in press releases
and other written materials and in oral statements made by its officers,
directors or employees to third parties. Forward-looking statements
involve inherent risks and uncertainties. A number of factors could
cause actual results to differ materially from those contained in any
forward-looking statement, including but not limited to the following:
Alibaba's goals and strategies; Alibaba's future business development;
Alibaba's ability to maintain the trusted status of its ecosystem,
reputation and brand; risks associated with increased investments in
Alibaba's business and new business initiatives; risks associated with
strategic acquisitions and investments; Alibaba's ability to retain or
increase engagement of consumers, merchants and other participants in
its ecosystem and enable new offerings; Alibaba's ability to maintain or
grow its revenue or business; risks associated with limitation or
restriction of services provided by Alipay; changes in laws, regulations
and regulatory environment that affect Alibaba's business operations;
privacy and regulatory concerns; competition; security breaches; the
continued growth of the e-commerce market in China and globally; risks
associated with the performance of our business partners, including but
not limited to Ant Financial; and fluctuations in general economic and
business conditions in China and globally and assumptions underlying or
related to any of the foregoing. Further information regarding these and
other risks is included in Alibaba's filings with the SEC. All
information provided in this results announcement is as of the date of
this results announcement and are based on assumptions that we believe
to be reasonable as of this date, and Alibaba does not undertake any
obligation to update any forward-looking statement, except as required
under applicable law.

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared
and presented in accordance with GAAP, we use the following non-GAAP
financial measures: for our consolidated results, adjusted EBITDA
(including adjusted EBITDA margin), adjusted EBITA (including adjusted
EBITA margin), non-GAAP net income, non-GAAP diluted EPS and free cash
flow. For more information on these non-GAAP financial measures, please
refer to the section entitled "Information about Segments" and the table
captioned "Reconciliations of Non-GAAP Measures to the Nearest
Comparable GAAP Measures" in this results announcement.

We believe that adjusted EBITDA, adjusted EBITA, non-GAAP net income and
non-GAAP diluted EPS help identify underlying trends in our business
that could otherwise be distorted by the effect of certain income or
expenses that we include in income from operations, net income and
diluted EPS. We believe that adjusted EBITDA, adjusted EBITA, non-GAAP
net income and non-GAAP diluted EPS provide useful information about our
core operating results, enhance the overall understanding of our past
performance and future prospects and allow for greater visibility with
respect to key metrics used by our management in our financial and
operational decision-making. We consider free cash flow to be a
liquidity measure that provides useful information to management and
investors about the amount of cash generated by our business that can be
used for strategic corporate transactions, including investing in our
new business initiatives, making strategic investments and acquisitions
and strengthening our balance sheet. Adjusted EBITDA, adjusted EBITA,
non-GAAP net income, non-GAAP diluted EPS and free cash flow should not
be considered in isolation or construed as an alternative to income from
operations, net income, diluted EPS, cash flows or any other measure of
performance or as an indicator of our operating performance. These
non-GAAP financial measures presented here may not be comparable to
similarly titled measures presented by other companies. Other companies
may calculate similarly titled measures differently, limiting their
usefulness as comparative measures to our data.

Adjusted EBITDA represents net income before (i) interest and
investment income, net, other income, net, interest expense, income tax
expenses and share of results of equity investees, and (ii) certain
non-cash expenses, consisting of share-based compensation expense,
amortization and depreciation, which we do not believe are reflective of
our core operating performance during the periods presented.

Adjusted EBITA represents net income before (i) interest and
investment income, net, other income, net, interest expense, income tax
expenses and share of results of equity investees, and (ii) certain
non-cash expenses, consisting of share-based compensation expense and
amortization, which we do not believe are reflective of our core
operating performance during the periods presented.

Non-GAAP net income represents net income before share-based
compensation expense, amortization, impairment of goodwill and
investments, gain on deemed disposals/disposals/revaluation of
investments, amortization of excess value receivable arising from the
restructuring of commercial arrangements with Ant Financial, immediate
recognition of unamortized professional fees and upfront fees upon
termination of bank borrowings and others, as adjusted for the tax
effects on non-GAAP adjustments.

Non-GAAP diluted EPS represents non-GAAP net income attributable
to ordinary shareholders divided by the weighted average number of
shares outstanding during the periods on a diluted basis, including
accounting for the effects of the assumed conversion of convertible
preference shares.

Free cash flow represents net cash provided by operating
activities as presented in our consolidated cash flow statement less
purchases of property and equipment and intangible assets (excluding
acquisition of land use rights and construction in progress) and others.

The section entitled "Information about Segments" and the table
captioned "Reconciliations of Non-GAAP Measures to the Nearest
Comparable GAAP Measures" in this results announcement have more details
on the non-GAAP financial measures that are most directly comparable to
GAAP financial measures and the related reconciliations between these
financial measures.

   
ALIBABA GROUP HOLDING LIMITED
UNAUDITED CONSOLIDATED INCOME STATEMENTS
 
Three months ended September 30, Six months ended September 30,
2016   2017 2016   2017
RMB RMB   US$ RMB RMB   US$
(in millions, except per share data) (in millions, except per share data)
Revenue 34,292 55,122 8,285 66,446 105,306 15,828
Cost of revenue (13,123) (22,002) (3,307) (24,867) (39,462) (5,931)
Product development expenses (4,134) (5,083) (764) (8,122) (9,779) (1,470)
Sales and marketing expenses (3,878) (6,266) (942) (7,492) (11,116) (1,671)
General and administrative expenses (2,815) (3,439) (516) (5,558) (7,118) (1,070)
Amortization of intangible assets (1,297) (1,748) (263) (2,548) (3,734) (561)
 
Income from operations 9,045 16,584 2,493 17,859 34,097 5,125
Interest and investment income, net 419 3,435 516 1,169 4,907 738
Interest expense (668) (747) (112) (1,294) (1,547) (233)
Other income, net 868 1,737 261 2,631 3,624 545
 
Income before income tax and share of results of equity investees 9,664 21,009 3,158 20,365 41,081 6,175
Income tax expenses (2,022) (2,719) (409) (4,113) (7,372) (1,108)
Share of results of equity investees (567) (882) (133) (2,035) (2,270) (342)
 
Net income 7,075 17,408 2,616 14,217 31,439 4,725
Net loss attributable to noncontrolling interests 548 260 40 956 912 137
 
Net income attributable to ordinary shareholders 7,623 17,668 2,656 15,173 32,351 4,862
 
Earnings per share attributable to ordinary shareholders
Basic 3.08 6.92 1.04 6.13 12.70 1.91
Diluted 2.97 6.78 1.02 5.91 12.43 1.87
 
Weighted average number of share used in calculating net income
per ordinary share
Basic 2,478 2,552 2,476 2,547
Diluted 2,566 2,607 2,568 2,603
 
   
ALIBABA GROUP HOLDING LIMITED
REVENUE
 

The following table sets forth our revenue by segments for the
periods indicated:

 
Three months ended September 30, Six months ended September 30,
2016   2017 2016   2017
RMB RMB   US$ RMB RMB   US$
(in millions) (in millions)
Core commerce(1) 28,493 46,462 6,983 55,734 89,489 13,450
Cloud computing(2) 1,493 2,975 447 2,736 5,406 813
Digital media and entertainment(3) 3,608 4,798 721 6,743 8,879 1,335
Innovation initiatives and others(4) 698 887 134 1,233 1,532 230
 
Total 34,292 55,122 8,285 66,446 105,306 15,828
(1)   Revenue from core commerce is primarily generated from our China
retail marketplaces, 1688.com, AliExpress, Alibaba.com and
Lazada.com.
(2) Revenue from cloud computing is primarily generated from the
provision of services, such as data storage, elastic computing,
database and large scale computing services, as well as web hosting
and domain name registration.
(3) Revenue from digital media and entertainment mainly represents
advertising and subscription revenue generated from our digital
entertainment business provided by Youku Tudou and mobile Internet
services revenue from UCWeb businesses.
(4) Revenue from innovation initiatives and others mainly represents
revenue generated by AutoNavi and YunOS, as well as fees from Ant
Financial related to the SME loan business.
 
   
ALIBABA GROUP HOLDING LIMITED
INFORMATION ABOUT SEGMENTS
 

The following table sets forth our income (loss) from operations
by segments for the periods indicated:

 
Three months ended September 30, Six months ended September 30,
2016   2017 2016   2017
RMB RMB   US$ RMB RMB   US$
(in millions) (in millions)
Core commerce 15,559 23,836 3,583 30,241 48,644   7,311
Cloud computing (398) (697) (104) (837) (1,229) (184)
Digital media and entertainment (2,247) (3,383) (509) (4,100) (6,771) (1,018)
Innovation initiatives and others (1,888) (1,456) (219) (3,460) (3,068) (461)
Unallocated (1,981) (1,716) (258) (3,985) (3,479) (523)
 
Total 9,045 16,584 2,493 17,859 34,097 5,125
 
   

The following table sets forth our adjusted EBITA by segments for
the periods indicated:

 
Three months ended September 30, Six months ended September 30
2016   2017 2016   2017
RMB RMB   US$ RMB RMB   US$
(in millions) (in millions)
Core commerce 17,599 26,414 3,970 34,223 53,384 8,024
Cloud computing (57) (162) (24) (215) (265) (40)
Digital media and entertainment (1,404) (1,749) (263) (2,400) (3,497) (526)
Innovation initiatives and others (771) (496) (75) (1,658) (1,130) (170)
Unallocated (774) (989) (148) (1,598) (1,956) (294)
 
Total 14,593 23,018 3,460 28,352 46,536 6,994
 

The table below sets forth selected financial information of our
operating segments for six months ended September 30, 2017:

 
Six months ended September 30, 2017

Core
commerce

 

Cloud
computing

 

Digital media
and
entertainment

 

Innovation
initiatives
and others

 

 

Unallocated(1)

 

 

Consolidated

RMB RMB RMB RMB RMB RMB   US$
(in millions, except percentages)
Revenue 89,489 5,406 8,879 1,532 105,306 15,828
 
Income (loss) from operations

48,644

(1,229)

(6,771)

(3,068)

(3,479)

34,097

5,125

Add: Share-based compensation expense 3,547 959 1,096 1,746 1,357 8,705 1,308
Add: Amortization of intangible assets 1,193 5 2,178 192 166 3,734 561
 
Adjusted EBITA 53,384 (265) (3,497) (1,130) (1,956) 46,536 6,994
Adjusted EBITA margin 60% (5)% (39)% (74)%

 

44%
 
Six months ended September 30, 2016

Core
commerce

Cloud
computing

Digital media
and
entertainment

Innovation
initiatives
and others

 

Unallocated(1)

 

Consolidated

RMB RMB RMB RMB RMB RMB
(in millions, except percentages)
Revenue 55,734 2,736 6,743 1,233 66,446
 
Income (loss) from operations 30,241 (837) (4,100) (3,460) (3,985) 17,859

Add: Share-based compensation expense

2,927

620

692

1,472

2,234

7,945

Add: Amortization of intangible assets 1,055 2 1,008 330 153 2,548
 
Adjusted EBITA 34,223 (215) (2,400) (1,658) (1,598) 28,352
Adjusted EBITA margin 61% (8)% (36)% (134)% 43%
(1)   Unallocated expenses are primarily related to corporate
administrative costs and other miscellaneous items that are not
allocated to individual segments.
 
   
ALIBABA GROUP HOLDING LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
 

As of March 31,

As of September 30,

2017

2017

RMB

RMB

 

US$

(in millions)

Assets
Current assets:
Cash and cash equivalents 143,736 148,746 22,357
Short-term investments 3,011 11,109 1,670
Restricted cash and escrow receivables 2,655 2,941 442
Investment securities 4,054 5,155 775
Prepayments, receivables and other assets(1) 28,408 36,697 5,515
Total current assets 181,864 204,648 30,759
 
Investment securities 31,452 33,049 4,967
Prepayments, receivables and other assets(1) 8,703 13,173 1,979
Investment in equity investees 120,368 126,850 19,066
Property and equipment, net 20,206 49,587 7,453
Land use rights, net 4,691 6,779 1,019
Intangible assets, net 14,108 14,542 2,186
Goodwill 125,420 130,196 19,569
Total assets 506,812 578,824 86,998
 
Liabilities, Mezzanine Equity and Shareholders' Equity
Current liabilities:
Current bank borrowings 5,948 7,696 1,157
Current portion of unsecured notes 8,949 8,665 1,302
Income tax payable 6,125 11,637 1,749
Escrow money payable 2,322 2,602 391
Accrued expenses, accounts payable and other liabilities(1) 46,979 60,580 9,105
Merchant deposits 8,189 8,689 1,306
Deferred revenue and customer advances 15,052 19,665 2,956
Total current liabilities 93,564 119,534 17,966
(1)   Certain reclassifications in prepayments, receivables and other
assets, accrued expenses, accounts payable and other liabilities and
deferred tax liabilities as of March 31, 2017 were retrospectively
adjusted as a result of the adoption of a new accounting standard
effective in the first quarter of fiscal 2018.
 
   
ALIBABA GROUP HOLDING LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS (CONTINUED)
 

As of March 31,

As of September 30,

2017

2017

RMB

RMB

 

US$

(in millions)
 
Deferred revenue 641   800 120
Deferred tax liabilities(1) 10,361 13,523 2,032
Non-current bank borrowings 30,959 30,971 4,655
Unsecured senior notes 45,876 44,402 6,674
Other liabilities 1,290 1,595 240
Total liabilities 182,691 210,825 31,687
 
Commitments and contingencies

Mezzanine equity

2,992 898 135

Alibaba Group Holding Limited shareholders' equity:

Ordinary shares 1 1
Additional paid-in capital 164,585 175,186 26,331
Treasury shares at cost (2,823) (2,823) (424)
Restructuring reserve (624) (492) (74)
Subscription receivables (63) (164) (25)
Statutory reserves 4,080 4,118 619
Accumulated other comprehensive income 5,085 5,474 823
Retained earnings 108,558 140,872 21,173
 
Total Alibaba Group Holding Limited shareholders' equity 278,799 322,172 48,423
Noncontrolling interests 42,330 44,929 6,753
 
Total equity 321,129 367,101 55,176
 
Total liabilities, mezzanine equity and equity 506,812 578,824 86,998
(1)   Certain reclassifications in prepayments, receivables and other
assets, accrued expenses, accounts payable and other liabilities and
deferred tax liabilities as of March 31, 2017 were retrospectively
adjusted as a result of the adoption of a new accounting standard
effective in the first quarter of fiscal 2018.
 
   
ALIBABA GROUP HOLDING LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three months ended September 30, Six months ended September 30,
2016   2017 2016   2017
RMB RMB   US$ RMB RMB   US$
(in millions) (in millions)
 
Net cash provided by operating activities 17,206 30,507 4,585 32,164 55,818 8,390
Net cash used in investing activities (5,715) (25,683) (3,860) (67,183) (39,595) (5,951)
Net cash provided by (used in) financing activities 9,830 (416) (63) 31,142 (9,310) (1,399)
Effect of exchange rate changes on cash and cash equivalents 117 (806) (120) 743 (1,903) (287)
 
Increase (decrease) in cash and cash equivalents 21,438 3,602 542 (3,134) 5,010 753
Cash and cash equivalents at beginning of period 82,246 145,144 21,815 106,818 143,736 21,604
 
Cash and cash equivalents at end of period 103,684 148,746 22,357 103,684 148,746 22,357
 
 
ALIBABA GROUP HOLDING LIMITED
RECONCILIATIONS OF NON-GAAP MEASURES TO THE NEAREST COMPARABLE
GAAP MEASURES
 
The table below sets forth a reconciliation of our net income to
adjusted EBITA and adjusted EBITDA for the periods indicated:
   
Three months ended September 30, Six months ended September 30,
2016   2017 2016   2017
RMB RMB   US$ RMB RMB   US$
(in millions) (in millions)
Net income 7,075 17,408 2,616 14,217 31,439 4,725
Less: Interest and investment income, net (419) (3,435) (516) (1,169) (4,907) (738)
Add: Interest expense 668 747 112 1,294 1,547 233
Less: Other income, net (868) (1,737) (261) (2,631) (3,624) (545)
Add: Income tax expenses 2,022 2,719 409 4,113 7,372 1,108
Add: Share of results of equity investees 567 882 133 2,035 2,270 342
Income from operations 9,045 16,584 2,493 17,859 34,097 5,125
Add: Share-based compensation expense 4,251 4,686 704 7,945 8,705 1,308
Add: Amortization of intangible assets 1,297 1,748 263 2,548 3,734 561
Adjusted EBITA 14,593 23,018 3,460 28,352 46,536 6,994
Add: Depreciation and amortization of property and equipment and
land use rights
1,282 2,013 302 2,486 3,619 544
Adjusted EBITDA 15,875 25,031 3,762 30,838 50,155 7,538
 
 
ALIBABA GROUP HOLDING LIMITED
RECONCILIATIONS OF NON-GAAP MEASURES TO THE NEAREST COMPARABLE
GAAP MEASURES (CONTINUED)
 
The table below sets forth a reconciliation of our net income to
non-GAAP net income for the periods indicated:
           
Three months ended September 30, Six months ended September 30,
2016 2017 2016 2017
RMB RMB US$ RMB RMB US$
(in millions) (in millions)
 
Net income 7,075 17,408 2,616 14,217 31,439 4,725
Add: Share-based compensation expense 4,251 4,686 704 7,945 8,705 1,308
Add: Amortization of intangible assets 1,297 1,748 263 2,548 3,734 561
Add: Impairment of goodwill and investments 856 389 58 933 1,341 202
Less: Gain on deemed disposals/disposals/revaluation of investments
and others
(527) (2,297) (344) (582) (3,386) (509)
Add: Amortization of excess value receivable arising from the
restructuring of commercial arrangements with Ant Financial
66 66 10 132 133 20
Add: Immediate recognition of unamortized professional fees and
upfront fees upon termination of bank borrowings

92

14

Adjusted for tax effects on non-GAAP adjustments(1) (69) 89 13 (253) 50 8
 
Non-GAAP net income 12,949 22,089 3,320 24,940 42,108 6,329
(1)   Tax effects on non-GAAP adjustments comprise of tax provisions on
the amortization of intangible assets and certain gains on disposal
of investments, as well as tax benefits from share-based awards.
 
 
ALIBABA GROUP HOLDING LIMITED
RECONCILIATIONS OF NON-GAAP MEASURES TO THE NEAREST COMPARABLE
GAAP MEASURES (CONTINUED)
 
The table below sets forth a reconciliation of our diluted EPS to
non-GAAP diluted EPS for the periods indicated:
 

Three months ended September 30,

  Six months ended September 30,
2016   2017 2016   2017
RMB RMB   US$ RMB RMB   US$
(in millions, except per share data) (in millions, except per share data)
Net income attributable to ordinary shareholders – basic 7,623 17,668 2,656 15,173   32,351 4,862
Dilution effect on earnings arising from option plans operated by an
equity investee
(3) (3) - (3) (6) (1)
Net income attributable to ordinary shareholders – diluted 7,620 17,665 2,656 15,170 32,345 4,861
Add: Non-GAAP adjustments to net income(1) 5,874 4,681 704 10,723 10,669 1,604
 
Non-GAAP net income attributable to ordinary shareholders
for computing non-GAAP diluted EPS
13,494 22,346 3,360 25,893 43,014 6,465
 
Weighted average number of shares on a diluted basis 2,566 2,607 2,568 2,603
Diluted EPS(2) 2.97 6.78 1.02 5.91 12.43 1.87
Add: Non-GAAP adjustments to net income per share(3) 2.29 1.79 0.27 4.17 4.09 0.61
 
Non-GAAP diluted EPS(4) 5.26 8.57 1.29 10.08 16.52 2.48

(1)

 

See the table above for the reconciliation of net income to
non-GAAP net income for more information of these non-GAAP
adjustments.

(2)

Diluted EPS is derived from net income attributable to ordinary
shareholders for computing diluted EPS divided by weighted average
number of shares on a diluted basis.

(3)

Non-GAAP adjustments to net income per share is derived from
non-GAAP adjustments to net income divided by weighted average
number of shares on a diluted basis.

(4)

Non-GAAP diluted EPS is derived from non-GAAP net income
attributable to ordinary shareholders for computing non-GAAP
diluted EPS divided by weighted average number of shares on a
diluted basis.

 
 
ALIBABA GROUP HOLDING LIMITED
RECONCILIATIONS OF NON-GAAP MEASURES TO THE NEAREST COMPARABLE
GAAP MEASURES (CONTINUED)
 

The table below sets forth a reconciliation of net cash provided
by operating activities to free cash flow for the periods
indicated:

           
Three months ended September 30, Six months ended September 30,
2016 2017 2016 2017
RMB RMB US$ RMB RMB US$
(in millions) (in millions)
Net cash provided by operating activities 17,206 30,507 4,585 32,164 55,818 8,390
Less: Purchase of property and equipment and intangible assets
(excluding land use rights and construction in progress)
(3,348) (8,002) (1,202) (6,142) (11,164) (1,678)
Add: Others 85 - - 666 - -
 
Free cash flow 13,943 22,505 3,383 26,688 44,654 6,712
 
 

ALIBABA GROUP HOLDING LIMITED

SELECTED OPERATING DATA

Annual active consumers

The table below sets forth the number of active consumers on our China
retail marketplaces for the periods indicated:

 
Twelve months ended

Dec 31,
2015

 

Mar 31,
2016

 

Jun 30,
2016

 

Sep 30,
2016

 

Dec 31,
2016

 

Mar 31,
2017

 

Jun 30,
2017

 

Sep 30,
2017

(in millions)
Annual active consumers 407 423 434 439 443 454 466 488
 

Mobile

The table below sets forth the mobile MAUs on our China retail
marketplaces for the periods indicated:

 
  The month ended

Dec 31,
2015

 

Mar 31,
2016

 

Jun 30,
2016

 

Sep 30,
2016

 

Dec 31,
2016

 

Mar 31,
2017

 

Jun 30,
2017

 

Sep 30,
2017

(in millions)
Mobile MAUs 393 410 427 450 493 507 529 549
 

Revenue per active consumer / mobile revenue per mobile MAU

The table below sets forth information with respect to annual China
commerce retail revenue per annual active consumer and annualized mobile
revenue per mobile MAU from China commerce retail for the periods
presented:

 

Dec 31,
2015

 

Mar 31,
2016

 

Jun 30,
2016

 

Sep 30,
2016

 

Dec 31,
2016

 

Mar 31,
2017

 

Jun 30,
2017

 

Sep 30,
2017

(in RMB)
Annual China commerce retail revenue per annual active consumer(1) 184 189 202 215 241 251 273 293
 
Mobile revenue per mobile MAU from China commerce retail – Annualized(2) 108 123 140 151 166 179 196 213

(1)

 

China commerce retail revenue per active consumer for each of the
above periods is calculated by dividing the China commerce retail
revenue for the previous 12-month period by the annual active
consumers for the same 12-month period.

(2)

Mobile revenue per mobile MAU from China commerce retail,
annualized is calculated by dividing mobile revenue from China
commerce retail for the previous 12-month period by the mobile
MAUs for the last month of the same period.

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