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Alibaba Group Announces December Quarter 2017 Results

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Alibaba Group Holding Limited (NYSE:BABA) today announced its financial
results for the quarter ended December 31, 2017.

"Alibaba had another great quarter driven by the continued strength of
the Chinese consumer and the wide and innovative range of services we
provide for merchants and consumers," said Daniel Zhang, Chief Executive
Officer of Alibaba Group. "We are excited by the continued momentum in
New Retail, which came to life during another record-breaking 11.11
Global Shopping Festival. We expanded the scale and footprint of our New
Retail initiatives with the vision of delivering true convergence of the
online and offline consumer experience through mobile and enterprise
technology."

"We had an excellent quarter, with revenue growth of 56% year-over-year.
Given our strong performance and clear visibility as we approach the end
of the fiscal year, we are taking up our 2018 fiscal year revenue
guidance to 55% to 56%, which is an increase over the top end of the
range of 53% that we communicated last quarter," said Maggie Wu, Chief
Financial Officer of Alibaba Group. "Our core business generated
significant free cash flow of US$7.1 billion during the quarter,
enabling us to invest in New Retail, cloud computing, digital
entertainment and globalization."

BUSINESS HIGHLIGHTS

In the quarter ended December 31, 2017:

  • Revenue was RMB83,028 million (US$12,761 million), an increase
    of 56% year-over-year.
  • Revenue from core commerce increased 57% year-over-year to RMB73,244
    million (US$11,257 million).
  • Revenue from cloud computing increased 104% year-over-year to RMB3,599
    million (US$553 million).
  • Revenue from digital media and entertainment increased 33%
    year-over-year to RMB5,413 million (US$832 million).
  • Revenue from innovation initiatives and others decreased 9%
    year-over-year to RMB772 million (US$119 million).
  • Annual active consumers on our China retail marketplaces
    reached 515 million, an increase of 27 million from the 12-month
    period ended September 30, 2017.
  • Mobile MAUs on our China retail marketplaces reached 580
    million in December 2017, an increase of 31 million over September
    2017.
  • Net income was RMB23,332 million (US$3,586 million), income
    from operations
    was RMB25,996 million (US$3,996 million) and adjusted
    EBITDA
    was RMB36,183 million (US$5,561 million). Operating
    margin
    was 31%, adjusted EBITDA margin was 44% and adjusted
    EBITA margin for core commerce
    was 53%.
  • Diluted EPS was RMB9.20 (US$1.41) and non-GAAP diluted EPS
    was RMB10.61 (US$1.63).
  • Net cash provided by operating activities was RMB55,173 million
    (US$8,480 million) and non-GAAP free cash flow was RMB46,144
    million (US$7,092 million).

BUSINESS AND STRATEGIC UPDATES

Core Commerce

Taobao – artificial intelligence drives user engagement. Taobao
App's intelligent personal recommendations and innovative content
formats continue to drive strong growth in user engagement, conversion
and annual active consumers. We continue to invest in machine learning
technologies which we apply to use cases that match consumer intent and
product selection to deliver the best consumer experience.

Engagement on the Taobao App drove the increase in the number of mobile
MAUs on our China retail marketplaces to a total of 580 million in
December 2017, an increase of 31 million mobile users from the prior
quarter. The robust growth of mobile users has resulted in the increase
of annual active consumers to 515 million for the 12 months ended
December 31, 2017. The net increase of 27 million in annual active
consumers from the 12 month period ended September 30, 2017 represents
the largest net add in the past 12 quarters.

Tmall – B2C market share gains. Tmall recorded 43% year-over-year
growth in physical goods GMV during the quarter, reflecting robust
growth across all major categories including apparel and accessories,
consumer electronics (mobile phones) and FMCG. Tmall continues to be the
platform of choice for the world's top brands, with Givenchy, Giorgio
Armani Beauty and Volvo establishing Tmall flagship stores and Longines,
Hennessy, Dom Perignon and Baccarat joining our Luxury Pavilion in this
quarter.

Our 2017 annual November 11 Global Shopping Festival exceeded last
year's records, with GMV settled through Alipay on our marketplaces up
39% year-over-year to RMB168.2 billion (US$25.9 billion). The continuous
success of this record-breaking event is enabled by our resilient and
scalable technology, as well as payments and logistics infrastructure
that is capable of operating at massive scale. For example, we processed
a peak of 325,000 purchase orders per second on the Alibaba Cloud
computing stack, compared to 175,000 during last year's festival. Alipay
processed 1.5 billion payment transactions in total, an increase of 41%
year-over-year from 2016.

New Retail – rapid expansion through partnerships and innovative
technologies.
During the quarter, Hema expanded its fresh grocery
footprint by adding five new stores in Shanghai, Beijing, Ningbo and
Suzhou, bringing the total number of Hema stores to 25 as of December
31, 2017. Hema exemplifies the convergence of online and offline retail
by leveraging our in-store proprietary technology, digitized supply
chain system, consumer insights and mobile ecosystem to provide a
seamless experience for consumers.

In November 2017, we formed a strategic alliance with Sun Art Group
Limited, the number one hypermarket and supermarket chain by revenue in
China with over 440 stores nationwide. Through this partnership, we aim
to equip traditional retailers with our proprietary technology and
know-how in online offline convergence to implement their digital
transformation. In addition, the partnership with Sun Art will also
enable us to accelerate the expansion of our New Retail offerings with
national scale. In connection with this alliance, Alibaba and an
affiliate invested an aggregate of HK$22.4 billion (US$2.9 billion) for
an effective 36% equity stake in Sun Art.

International – investing for long-term growth. Our cross-border
and international retail businesses continue to show strong growth.
Revenue from our international commerce retail business reached RMB4,733
million (US$727 million) in the quarter ended December 31, 2017,
representing 93% year-on-year growth, driven by the strong growth of our
Southeast Asian platform Lazada and our global retail marketplace
AliExpress. While the markets for Southeast Asia and cross-border
commerce remain very competitive, they are in the early innings of the
game. We are optimistic about the long-term secular growth prospects of
our international markets and will therefore continue to make
significant investments for market share growth and focusing on the best
customer experience.

Cainiao Network – Cainiao Network continues to bring greater
efficiency for our merchants and logistics partners and improve the
consumer experience. During the 2017 November 11 Global Shopping
Festival, Cainiao Network processed 812 million logistics orders.
Cainiao Network operates an electronic shipping label system that
standardizes shipping data into structured formats, which enables
efficient pick-and-pack operations for merchants and sorting and routing
operations for delivery partners. The advantages of this system have
resulted in broad adoption by merchants and logistics service providers,
both on and off our platforms, putting us in position to serve the
growing consumption economy in China and roll out our New Retail
strategy.

Cloud Computing

Cloud computing revenue grew 104% year-over-year to RMB3,599 million
(US$553 million), driven by both robust growth in paying customers and
revenue mix toward higher value-add product. Alibaba Cloud remains the
leader in China's market for infrastructure-as-a-service (IaaS), as
measured by revenue and, according to the IDC Semi-annual Public Cloud
Services Tracker (Nov 2017), Alibaba Cloud was the largest
platform-as-a-service (PaaS) player in China based on data in the first
half of 2017.

In the December 2017 quarter, Alibaba Cloud launched 396 new products
and features and continued to introduce proprietary AI technologies to
tackle real-world challenges, such as traffic planning and optimizing
efficiency in manufacturing and airport operations. Alibaba Cloud
continues to expand its customer base across a variety of industries.
Selected large enterprise customers and major partnerships include:

  • Watsons China, the leading health and beauty retailer in China,
    is using our cloud products and services to support their digital
    online business. The company is exploring to use our data technology
    and other New Retail related services to enhance customer experience
    and shopping journey.
  • Geely, a leading automobile manufacturer in China, has adopted
    our middleware, security and database products to create a digital
    marketing platform that allows the company to optimize product design
    and manufacturing by engaging with customers in real-time.
  • Beijing Capital International Airport, one of the largest
    aviation hubs in China, is launching a pilot program on our ET
    Aviation Brain cloud platform to improve the overall efficiency of its
    operation.

Digital Media and Entertainment

During the quarter, Youku video's daily average subscribers more than
doubled year-on-year, driven by several original drama series and shows
that became popular hits with users, such as "The Advisors Alliance 2,"
"Day and Night," "Gong Shou Dao" and "Oh My General." The value of
original content is reflected through growing subscriber base as well as
increasing mindshare among users. Youku will continue to invest and
execute on a strategy of shifting its content mix toward original
content. During the quarter, Netflix signed an agreement to distribute
"Day and Night," a 32-episode detective thriller developed by Youku, to
Netflix audiences around the world. This is the first time that
China-developed original content is widely distributed digitally to a
global audience, and the distribution agreement with Netflix
demonstrates the creative capability of our digital video business.

Innovation Initiatives and Technology
Development

During the quarter, our AI-powered voice assistant, Tmall Genie,
surpassed one million units sold since its official launch in July 2017.
Tmall Genie is supported by a growing collection of content and services
and is an effective vehicle for offering a comprehensive set of
every-day living applications within the Alibaba ecosystem.

In January, Alibaba's Institute of Data Science Technologies (iDST), our
artificial intelligence research arm, developed a deep-learning neural
network for natural language processing that scored higher than humans
on a Stanford reading-comprehension test, the first time a machine has
outperformed humans on such a test. This development underscores
Alibaba's commitment to technology research which we believe builds the
foundation for our growth in the long run.

Ant Financial

We have agreed to a 33% equity stake in Ant Financial that will
strengthen our strategic relationship pursuant to the series of
agreements reached with Ant Financial in 2014.

We believe deepening our relationship through an equity stake in Ant
Financial would bring key strategic benefits to us, including advancing
our New Retail strategy with mobile payments, increasing user
acquisition and retention through collaboration with the Alipay digital
wallet ("Alipay Wallet"), and enhancing the execution of our
international expansion. In addition, the equity stake in Ant Financial
enables Alibaba and our shareholders to participate in the future growth
of the financial technology sector.

During the December 2017 quarter, Ant Financial continued to deliver
rapid revenue growth from its key businesses including digital payment,
wealth management and consumer finance. During the quarter, Ant
Financial successfully executed an aggressive user growth plan that
resulted in substantial new user additions and increased user
engagement. As a result of the user growth initiatives, in December
2017, Alipay Wallet's daily active users more than doubled on a
year-over-year basis. We expect that Ant Financial will continue to
invest to expand its market leadership in digital payment, develop new
technologies for inclusive financial services, and accelerate its
globalization strategy.

Social Impact

In December 2017, we announced plans to launch a RMB10 billion (US$1.5
billion) Alibaba Poverty Relief Program, as part of the company's
ongoing effort to promote positive social change and combat poverty in
China. The program will focus on the fields of education, rural commerce
advancement, empowering women and environmental protection. The program
will be funded by the Alibaba Foundation, a charitable foundation we
established to allocate 0.3% of our annual revenues to support social
responsibility initiatives, as well as the partners in the Alibaba
Partnership and employees of Alibaba and our affiliates.

Cash Flow from Operating Activities and Free
Cash Flow

Net cash provided by operating activities in the quarter ended December
31, 2017 was RMB55,173 million (US$8,480 million), an increase of 47%
compared to RMB37,416 million in the same quarter of 2016. Free cash
flow, a non-GAAP measurement of liquidity, in the quarter ended December
31, 2017 was RMB46,144 million (US$7,092 million), an increase of 35%
compared to RMB34,122 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*

 
   

December 31,
2016

   

September 30,
2017

   

December 31,
2017

    % Change
            YoY     QoQ
   
China Commerce Retail:
Annual active consumers(1) (in millions) 443 488 515 16% 6%
Mobile monthly active users (MAUs)(2) (in millions) 493 549 580 18% 6%
 

__________________

*     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 December 31,    
2016       2017
RMB RMB     US$(1) YoY % Change
(in millions, except percentages and per share amounts)
 
Revenue 53,248 83,028 12,761 56 %
 
Income from operations 20,664 25,996 3,996 26 %
Operating margin 39 % 31 %
Adjusted EBITDA(2) 27,021 36,183 5,561 34 %
Adjusted EBITDA margin(2) 51 % 44 %
Adjusted EBITA(2) 25,669 33,662 5,174 31 %
Adjusted EBITA margin(2) 48 % 41 %
 
Net income 17,157 23,332 3,586 36 %
Non-GAAP net income(2) 22,491 27,007 4,151 20 %
 
Diluted earnings per share/ADS (EPS) 6.94 9.20 1.41 33 %
Non-GAAP diluted EPS(2) 9.02 10.61 1.63 18 %
 
Nine months ended December 31,
2016   2017
RMB RMB US$(1) YoY % Change
(in millions, except percentages and per share amounts)
 
Revenue 119,694 188,334 28,946 57 %
 
Income from operations 38,523 60,093 9,236 56 %
Operating margin 32 % 32 %
Adjusted EBITDA(2) 57,859 86,338 13,270 49 %
Adjusted EBITDA margin(2) 48 % 46 %
Adjusted EBITA(2) 54,021 80,198 12,326 48 %
Adjusted EBITA margin(2) 45 % 43 %
 
Net income 31,374 54,771 8,418 75 %
Non-GAAP net income(2) 47,431 69,115 10,623 46 %
 
Diluted earnings per share/ADS (EPS) 12.85 21.64 3.33 68 %
Non-GAAP diluted EPS(2) 19.10 27.14 4.17 42 %
 

__________________

(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 RMB6.5063 to US$1.00, the exchange rate on December 29,
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 December 31, 2017

 

   

 

    Digital media     Innovation        

Core

Cloud

and initiatives

 

 

commerce

computing

entertainment and others

Unallocated (1)

Consolidated

RMB RMB RMB RMB RMB RMB     US$
(in millions, except percentages)
Revenue 73,244 3,599 5,413 772 83,028 12,761
 
Income (loss) from operations

35,439

(793)

(3,828)

(1,814)

(3,008)

25,996

3,996

Add: Share-based compensation expense

 

2,226

 

608

 

510

 

808

 

963

 

5,115

 

786

Add: Amortization of intangible assets

 

865

 

4

 

1,105

 

 

83

 

2,057

 

316

Add: Impairment of goodwill

494

494

76

 
Adjusted EBITA 38,530 (181) (2,213) (1,006) (1,468) 33,662 5,174
Adjusted EBITA margin 53% (5)% (41)% (130)%

 

41%
 
Three months ended December 31, 2016

 

 

Digital media Innovation

Core

Cloud

and initiatives

 

 

commerce

computing

entertainment and others

Unallocated (1)

Consolidated

RMB RMB RMB RMB RMB RMB
(in millions, except percentages)
Revenue 46,576 1,764 4,063 845 53,248
 
Income (loss) from operations 27,439 (339) (3,196) (1,450) (1,790) 20,664
Add: Share-based compensation expense 1,590

 

246

 

344

502

 

1,062

3,744
Add: Amortization of intangible assets 601 1 421 163 75 1,261
 
Adjusted EBITA 29,630 (92) (2,431) (785) (653) 25,669
Adjusted EBITA margin 64% (5)% (60)% (93)% 48%
 

__________________

(1)     Unallocated expenses are primarily related to corporate
administrative costs and other miscellaneous items that are not
allocated to individual segments.
 

DECEMBER QUARTER OPERATIONAL AND FINANCIAL RESULTS

Revenue

Revenue for the quarter ended December 31, 2017 was RMB83,028 million
(US$12,761 million), an increase of 56% compared to RMB53,248 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, as well as the consolidation
of Cainiao Network.

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

    Three months ended December 31,    
2016     2017
   

% of

        % of YoY %
RMB

Revenue

RMB US$ Revenue Change
(in millions, except percentages)
Core commerce:
China commerce retail
- Customer management 27,918 52% 38,800 5,964 47% 39%
- Commission 12,071 23% 16,221 2,493 19% 34%
- Others 813 2% 5,084 781 6% 525%
40,802 77% 60,105 9,238 72% 47%
China commerce wholesale 1,514 3% 1,926 296 2% 27%
International commerce retail 2,452 4% 4,733 727 6% 93%
International commerce wholesale 1,554 3% 1,666 256 2% 7%
Cainiao logistics services 3,907 600 5% N/A
Others 254 0% 907 140 1% 257%
Total core commerce 46,576 87% 73,244 11,257 88% 57%
 
Cloud computing 1,764 3% 3,599 553 4% 104%
Digital media and entertainment 4,063 8% 5,413 832 7% 33%
Innovation initiatives and others 845 2% 772 119 1% (9)%
Total 53,248 100% 83,028 12,761 100% 56%
 

Core commerce

  • China commerce retail business

    Revenue
    Revenue from our China commerce retail business in the quarter ended
    December 31, 2017 was RMB60,105 million (US$9,238 million), or 72% of
    total revenue, an increase of 47% compared to RMB40,802 million in the
    same quarter of 2016. Robust revenue growth includes the growth of our
    New Retail initiatives (included in "China commerce retail – Others"
    above) in the China commerce retail business, including Intime
    Department Stores, import, and fresh food grocery Hema. In addition,
    revenues from our China retail marketplaces (mainly comprised of
    Taobao and Tmall) continued to see strong growth. Customer management
    revenue grew by 39% year-over-year, driven largely by increases in the
    average unit price per click and to a lesser extent the volume of
    clicks, reflecting our ability to deliver highly relevant
    recommendations to consumers through personalization technology and
    the higher value that merchants put on such technology to reach the
    relevant users and increase conversion. This growth resulted in higher
    average spending on our customer management services by an increasing
    number of merchants. Commission revenue, representing 27% of China
    commerce retail revenue in the quarter ended December 31, 2017, grew
    by 34% year-over-year, primarily due to strong 43% year-over-year
    growth in physical goods GMV on Tmall. The commission revenue growth
    rate was lower than the physical goods GMV growth rate, because of
    discounts and rebates we provided to merchants during promotions.
    Other revenue was RMB5,084 million (US$781 million), a significant
    increase compared to RMB813 million in the same quarter of 2016,
    primarily driven by our New Retail businesses, including consolidation
    of Intime and contribution from Tmall Import and Hema.

    Our
    annual China commerce retail revenue per annual active consumer
    increased from RMB241 for the quarter ended December 31, 2016 to
    RMB315 (US$48) for the quarter ended December 31, 2017, and mobile
    revenue per mobile MAU grew from RMB166 for the quarter ended December
    31, 2016 to RMB229 (US$35) for the quarter ended December 31, 2017, as
    illustrated in these charts
    and the table at the end of this announcement.

    Annual
    active consumers
    Our China retail marketplaces had 515
    million annual active consumers in the 12 months ended December 31,
    2017, compared to 488 million in the 12 months ended September 30,
    2017, representing a net addition of 27 million from the prior
    quarter, and a 16% increase from 443 million in the 12 months ended
    December 31, 2016. Average annual spend per active consumer for the 12
    months ended December 31, 2017 also continued to increase from prior
    quarters. The longer consumers have been with our platform, the more
    they spend and the more orders they place across more product
    categories.

    Mobile MAUs – Mobile MAUs on our China
    retail marketplaces grew to 580 million in December 2017, compared to
    549 million in September 2017, representing a net addition of 31
    million MAUs in the quarter and an 18% increase from 493 million in
    December 2016.
  • China commerce wholesale business

    Revenue
    from our China commerce wholesale business in the quarter ended
    December 31, 2017 was RMB1,926 million (US$296 million), an increase
    of 27% compared to RMB1,514 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
    December 31, 2017 was RMB4,733 million (US$727 million), an increase
    of 93% compared to RMB2,452 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 December 31, 2017 was RMB1,666 million (US$256 million), an
    increase of 7% compared to RMB1,554 million in the same quarter of
    2016.
  • Cainiao logistics services

    Revenue from
    Cainiao logistics services represents revenue from the domestic and
    cross-border fulfilment services provided by Cainiao Network, after
    elimination of inter-company transactions. We started to consolidate
    Cainiao Network in mid-October 2017.

Cloud computing

Revenue from our cloud computing business in the quarter ended December
31, 2017 was RMB3,599 million (US$553 million), an increase of 104%
compared to RMB1,764 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 database, storage and security services.

Digital media and entertainment

Revenue from our digital media and entertainment business in the quarter
ended December 31, 2017 was RMB5,413 million (US$832 million), an
increase of 33% compared to RMB4,063 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 revenue from Youku Tudou.

Innovation initiatives and others

Revenue from innovation initiatives and others in the quarter ended
December 31, 2017 was RMB772 million (US$119 million), a decrease of 9%
compared to RMB845 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 December 31,    

% of
Revenue
YoY
change

2016     2017
RMB    

% of
Revenue

RMB     US$    

% of
Revenue

(in millions, except percentages)
Costs and expenses:
Cost of revenue 19,126 36% 35,078 5,390 42% 6%
Product development expenses 4,420 8% 6,289 967 7% (1)%
Sales and marketing expenses 4,490 9% 8,542 1,313 10% 1%
General and administrative expenses 3,287 6% 4,572 703 6% 0%
Amortization of intangible assets 1,261 2% 2,057 316 3% 1%
Impairment of goodwill 494 76 1% 1%
Total costs and expenses 32,584 61% 57,032 8,765 69% 8%
 
Share-based compensation expense by function:
Cost of revenue 590 1% 1,328 204 2% 1%
Product development expenses 1,591 3% 1,895 291 2% (1)%
Sales and marketing expenses 386 1% 469 72 0% (1)%
General and administrative expenses 1,177 2% 1,423 219 2% 0%
Total share-based compensation expense 3,744 7% 5,115 786 6% (1)%
 
Costs and expenses excluding share-based compensation expense:
Cost of revenue 18,536 35% 33,750 5,186 40% 5%
Product development expenses 2,829 5% 4,394 676 5% 0%
Sales and marketing expenses 4,104 8% 8,073 1,241 10% 2%
General and administrative expenses 2,110 4% 3,149 484 4% 0%
Amortization of intangible assets 1,261 2% 2,057 316 3% 1%
Impairment of goodwill 494 76 1% 1%
Total costs and expenses excluding share-based compensation expense 28,840 54% 51,917 7,979 63% 9%
 

Cost of revenue – Cost of revenue in the quarter ended December
31, 2017 was RMB35,078 million (US$5,390 million), or 42% of revenue,
compared to RMB19,126 million, or 36% 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 35% in the
quarter ended December 31, 2016 to 40% in the quarter ended December 31,
2017. The increase was primarily due to our investments in New Retail,
globalization and improving user experience.

Product development expenses – Product development expenses in
the quarter ended December 31, 2017 were RMB6,289 million (US$967
million), or 7% of revenue, compared to RMB4,420 million, or 8% of
revenue, in the same quarter of 2016. Without the effect of share-based
compensation expense, product development expenses as a percentage of
revenue in the quarter ended December 31, 2017 would have remained
stable at 5% as compared to the same quarter in 2016.

Sales and marketing expenses – Sales and marketing expenses in
the quarter ended December 31, 2017 were RMB8,542 million (US$1,313
million), or 10% of revenue, compared to RMB4,490 million, or 9% 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 would have increased from 8% in the quarter ended December 31,
2016 to 10% in the quarter ended December 31, 2017, primarily due to an
increase in advertising and promotional spending in relation to the 2017
November 11 Global Shopping Festival.

General and administrative expenses – General and administrative
expenses in the quarter ended December 31, 2017 were RMB4,572 million
(US$703 million), or 6% of revenue, compared to RMB3,287 million, or 6%
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 in the quarter ended December 31, 2017 would
have remained stable at 4% as compared to the same quarter in 2016.

Share-based compensation expense – Total share-based compensation
expense included in the cost and expense items above in the quarter
ended December 31, 2017 was RMB5,115 million (US$786 million), an
increase of 37% compared to RMB3,744 million in the same quarter of
2016. Share-based compensation expense as a percentage of revenue
decreased to 6% in the quarter ended December 31, 2017 from 7% 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        
December 31, 2016     September 30, 2017     December 31, 2017 % Change
    % of     % of         % of
RMB Revenue RMB Revenue RMB US$ Revenue YoY QoQ
(in millions, except percentages)
By type of awards:
Alibaba Group share-based awards granted to:

- Our employees

3,263 6% 3,697 7% 4,371 672 5% 34% 18%

- Ant Financial employees and other consultants(1)

(134)

0%

469

1%

293

45

 

1%

 

N/A

 

(38)%

Ant Financial share-based awards granted to our employees(1)

433

1%

266 0%

 

232

 

35

 

0%

 

(46)%

 

(13)%

Others 182 0% 254 0% 219 34 0% 20% (14)%
Total share-based compensation expense 3,744 7% 4,686 8% 5,115 786 6%

 

37%

 

9%

___________________

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

Share-based compensation expense relating to Alibaba Group share-based
awards granted to our employees increased in this quarter compared to
the previous quarter. The increase reflected the effect of the expense
arising from promotion awards granted in this quarter.

We expect that our share-based compensation expense will continue to be
affected by changes in the fair value of our shares, our subsidiaries'
share-based awards and the quantity of awards we grant to our employees
and consultants in the future. Furthermore, our share-based compensation
expense will also be affected by the anticipated increase in fair value
of share-based awards of Ant Financial Services. As a result of these
factors, we expect that 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 December 31, 2017 was RMB2,057 million
(US$316 million), an increase of 63% from RMB1,261 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 December 31, 2017 was
RMB25,996 million (US$3,996 million), or 31% of revenue, an increase of
26% compared to RMB20,664 million, or 39% of revenue, in the same
quarter of 2016.

Adjusted EBITDA and Adjusted EBITDA margin

Adjusted EBITDA increased by 34% to RMB36,183 million (US$5,561 million)
in the quarter ended December 31, 2017, compared to RMB27,021 million in
the same quarter of 2016. Adjusted EBITDA margin decreased to 44% in the
quarter ended December 31, 2017 from 51% 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 December 31,
2016     2017
    % of         % of
RMB Revenue RMB US$ Revenue
(in millions, except percentages)
 
Core commerce 29,630 64% 38,530 5,922 53%
Cloud computing (92) (5)% (181) (28) (5)%
Digital media and entertainment (2,431) (60)% (2,213) (340) (41)%

Innovation initiatives and others

(785)

(93)%

(1,006)

(155)

(130)%

 

Core commerce segment – Adjusted EBITA increased by 30% to
RMB38,530 million (US$5,922 million) in the quarter ended December 31,
2017, compared to RMB29,630 million in the same quarter of 2016.
Adjusted EBITA margin decreased to 53% in the quarter ended December 31,
2017, as compared to 64% in the same quarter of 2016, primarily due to
our investments in New Retail businesses, including Intime, Tmall Import
and Hema, globalization, user base and user experience, including the
consolidation of Cainiao Network.

Cloud computing segment – Adjusted EBITA in the quarter ended
December 31, 2017 was a loss of RMB181 million (US$28 million), compared
to a loss of RMB92 million in the same quarter of 2016. Adjusted EBITA
margin remained stable at negative 5% in the quarter ended December 31,
2017 compared to the same quarter in 2016.

Digital media and entertainment segment – Adjusted EBITA in the
quarter ended December 31, 2017 was a loss of RMB2,213 million (US$340
million), compared to a loss of RMB2,431 million in the same quarter of
2016. Adjusted EBITA margin improved to negative 41% in the quarter
ended December 31, 2017 from negative 60% in the quarter ended December
31, 2016, primarily due to improved results from UCWeb and other media
and entertainment businesses, partly offset by an increase in investment
in content costs of Youku Tudou.

Innovation initiatives and others segment – Adjusted EBITA in the
quarter ended December 31, 2017 was a loss of RMB1,006 million (US$155
million), compared to a loss of RMB785 million in the same quarter of
2016. Adjusted EBITA margin decreased to negative 130% in the quarter
ended December 31, 2017, compared to negative 93% in the quarter ended
December 31, 2016, primarily due to investments in new business
initiatives.

Interest and investment income, net

Interest and investment income, net in the quarter ended December 31,
2017 was RMB23,643 million (US$3,634 million), a significant increase
from RMB837 million in the same quarter of 2016, primarily due to a
non-cash gain of RMB22,442 million (US$3,449 million) arising from the
revaluation of our previously held equity interest in Cainiao Network
when we acquired control over Cainiao Network in mid-October 2017.

Other income (loss), net

Other loss, net in the quarter ended December 31, 2017 was RMB348
million (US$54 million), compared to other income, net of RMB3,015
million in the same quarter of 2016. The loss was primarily due to
higher foreign exchange loss due to fluctuation of the Renminbi exchange
rate and a decrease in our profit share from Ant Financial represented
by royalty and software technology service fees, which amounted to
RMB196 million (US$30 million) during the quarter. Our profit share from
Ant Financial declined because of Ant Financial's aggressive user growth
plan during the quarter which increased expenses in return for
substantial additions in new users for Alipay Wallet.

Income tax expenses

Income tax expenses in the quarter ended December 31, 2017 were RMB6,663
million (US$1,024 million), compared to RMB5,110 million in the same
quarter of 2016.

Our effective tax rate was 14% in the quarter ended December 31, 2017,
compared to 21% in the same quarter of 2016. Excluding share-based
compensation expense, impairment of goodwill and investments and other
unrealized investment gain/loss, our effective tax rate would have been
21% in the quarter ended December 31, 2017, compared to 18% in the same
quarter of 2016. The increase in effective tax rate was primarily due to
higher withholding tax accrued on unremitted earnings arising from our
PRC operations.

Share of results of equity investees

Share of results of equity investees in the quarter ended December 31,
2017 was a loss of RMB18,452 million (US$2,836 million), compared to a
loss of RMB1,548 million in the same quarter of 2016 and a loss of
RMB882 million in the quarter ended September 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 December 31, 2017 and
the comparative periods consisted of the following:

 
    Three months ended
December 31, 2016     September 30, 2017     December 31, 2017
RMB RMB RMB     US$
(in millions)
Share of (loss) profit of equity investees:

- Koubei

(237) (369) (580) (89)

- Cainiao Network(1)

(234) (273)

- Other equity investees

(373) 190 681 105
Impairment losses (245) - (18,153) (2,790)
Dilution losses (82) (14) (10) (2)
Others(2) (377) (416) (390) (60)
Total (1,548) (882) (18,452) (2,836)
 

___________________

(1)     We started to consolidate Cainiao Network in mid-October 2017 after
obtaining control over Cainiao Network.
(2) Others mainly include amortization of intangible assets of equity
investees and share-based compensation expense.
 

During the quarter we took an impairment loss of RMB18,116 million
(US$2,784 million) with respect to Alibaba Pictures, one of our
affiliated movie production businesses. The impairment represented the
difference between the market value and our carrying value of this
investment as of December 31, 2017. In June 2015, following a financing
transaction that diluted our shareholding from a controlling position to
minority investment, we were required to write up the carrying value to
the substantially increased market value of Alibaba Pictures at the
time. As a result, we booked a non-cash accounting gain of RMB24,734
million, which increased the carrying value of our investment in Alibaba
Pictures from RMB4,818 million to RMB29,552 million. Since June 2015,
the market value of Alibaba Pictures has declined and remained below our
increased carrying value. The continued low market price combined with
Alibaba Pictures' recent strategic decision to increase investments and
expenses for market share growth of its online movie ticketing business
caused us to conclude that the decline in market value against our
carrying value may be "other-than-temporary," which led us to take the
impairment this quarter.

The market value of our investment in Alibaba Pictures as of December
31, 2017 was RMB10,919 million (US$1,678 million), which remains well
above our original cash investment amount of RMB4,955 million that we
paid in June 2014.

Net income and Non-GAAP net income

Our net income in the quarter ended December 31, 2017 was RMB23,332
million (US$3,586 million), an increase of 36% compared to RMB17,157
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 December 31, 2017 was RMB27,007 million
(US$4,151 million), an increase of 20% compared to RMB22,491 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
December 31, 2017 was RMB24,073 million (US$3,700 million), an increase
of 35% compared to RMB17,855 million in the same quarter of 2016.

Diluted EPS and non-GAAP diluted EPS

Diluted EPS in the quarter ended December 31, 2017 was RMB9.20 (US$1.41)
on a weighted average of 2,615 million diluted shares outstanding during
the quarter, an increase of 33% compared to RMB6.94 on a weighted
average of 2,571 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 December 31, 2017 was RMB10.61 (US$1.63), an increase of
18% compared to RMB9.02 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 December 31, 2017, cash, cash equivalents and short-term
investments were RMB220,380 million (US$33,872 million), compared to
RMB159,855 million as of September 30, 2017. The increase in cash, cash
equivalents and short-term investments during the quarter ended December
31, 2017 was primarily due to proceeds from our issuance of US$7.0
billion unsecured senior notes and free cash flow generated from
operations of RMB46,144 million (US$7,092 million), partly offset by
cash used in investing activities, including investments in Sun Art
Retail Group Limited, and repayment of unsecured senior notes due 2017
of US$1,300 million.

Cash flow from operating activities and free
cash flow

Net cash provided by operating activities in the quarter ended December
31, 2017 was RMB55,173 million (US$8,480 million), an increase of 47%
compared to RMB37,416 million in the same quarter of 2016. Free cash
flow, a non-GAAP measurement of liquidity, in the quarter ended December
31, 2017 was RMB46,144 million (US$7,092 million), compared to RMB34,122
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 December 31, 2017, net cash used in investing
activities of RMB24,479 million (US$3,762 million) primarily reflected
cash outflow of RMB21,308 million (US$3,275 million) for investment and
acquisition activities, including our investment in Sun Art Retail
Group, as well as capital expenditures and intangible assets of
RMB10,422 million (US$1,602 million), which included cash outflow for
acquisition of land use rights and construction in progress of RMB1,393
million (US$214 million). The outflow was partially offset by cash
inflow of RMB5,325 million (US$818 million) from treasury activities.

Employees

As of December 31, 2017, we had a total of 63,809 employees, compared to
59,572 as of September 30, 2017. The number of employees as of December
31, 2017 increased by 4,237 from September 30, 2017, primarily due to
the consolidation of Cainiao Network.

ADJUSTMENT TO REVENUE GUIDANCE

Given our clear visibility on the full year results for fiscal year
2018, we are adjusting our revenue guidance to 55% to 56% (previously
49% to 53%).

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 (8:30 p.m. Hong Kong
Time) on February 1, 2018.

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: 5799288

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: 5799288).

Our results announcement and accompanying slides are available at
Alibaba Group's Investor Relations website at http://www.alibabagroup.com/en/ir/home
on February 1, 2018.

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 (loss), 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, depreciation and impairment of goodwill, 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 (loss), 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 impairment of goodwill, 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 December 31,     Nine months ended December 31,
2016     2017 2016     2017
RMB RMB     US$ RMB RMB     US$
(in millions, except per share data) (in millions, except per share data)
Revenue 53,248 83,028 12,761 119,694 188,334 28,946
Cost of revenue (19,126) (35,078) (5,390) (43,993) (74,540) (11,457)
Product development expenses (4,420) (6,289) (967) (12,542) (16,068) (2,469)
Sales and marketing expenses (4,490) (8,542) (1,313) (11,982) (19,658) (3,021)
General and administrative expenses (3,287) (4,572) (703) (8,845) (11,690) (1,797)
Amortization of intangible assets (1,261) (2,057) (316) (3,809) (5,791) (890)
Impairment of goodwill (494) (76) (494) (76)
 
Income from operations 20,664 25,996 3,996 38,523 60,093 9,236
Interest and investment income, net 837 23,643 3,634 2,006 28,550 4,388
Interest expense (701) (844) (130) (1,995) (2,391) (368)
Other income (loss), net 3,015 (348) (54) 5,646 3,276 504
 
Income before income tax and share of results of equity investees 23,815 48,447 7,446 44,180 89,528 13,760
Income tax expenses (5,110) (6,663) (1,024) (9,223) (14,035) (2,157)
Share of results of equity investees (1,548) (18,452) (2,836) (3,583) (20,722) (3,185)
 
Net income 17,157 23,332 3,586 31,374 54,771 8,418
Net loss attributable to noncontrolling interests 698 741 114 1,654 1,653 254
 
Net income attributable to ordinary shareholders 17,855 24,073 3,700 33,028 56,424 8,672
 
Earnings per share attributable to ordinary shareholders
Basic 7.19 9.41 1.45 13.32 22.12 3.40
Diluted 6.94 9.20 1.41 12.85 21.64 3.33
 
Weighted average number of share used in calculating net income
per ordinary share
Basic 2,485 2,557 2,479 2,551
Diluted 2,571 2,615 2,569 2,607
 
 
ALIBABA GROUP HOLDING LIMITED
REVENUE
 

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

 
    Three months ended December 31,     Nine months ended December 31,
2016     2017 2016     2017
RMB RMB     US$ RMB RMB     US$
(in millions) (in millions)
Core commerce(1) 46,576 73,244 11,257 102,310 162,733 25,012
Cloud computing(2) 1,764 3,599 553 4,500 9,005 1,384
Digital media and entertainment(3) 4,063 5,413 832 10,806 14,292 2,197
Innovation initiatives and others(4) 845 772 119 2,078 2,304 353
 
Total 53,248 83,028 12,761 119,694 188,334 28,946

 

__________________

(1)     Revenue from core commerce is primarily generated from our China
retail marketplaces, 1688.com, AliExpress, Alibaba.com, Lazada.com
and Cainiao logistics services.
(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 December 31,     Nine months ended December 31,
2016     2017 2016     2017
RMB RMB     US$ RMB RMB     US$
(in millions) (in millions)
Core commerce 27,439 35,439 5,447 57,680 84,083 12,923
Cloud computing (339) (793) (122) (1,176) (2,022) (311)
Digital media and entertainment (3,196) (3,828) (588) (7,296) (10,599) (1,629)
Innovation initiatives and others (1,450) (1,814) (279) (4,910) (4,882) (750)
Unallocated (1,790) (3,008) (462) (5,775) (6,487) (997)
 
Total 20,664 25,996 3,996 38,523 60,093 9,236
 

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

 
Three months ended December 31, Nine months ended December 31,
2016 2017 2016 2017
RMB RMB US$ RMB RMB US$
(in millions) (in millions)
Core commerce 29,630 38,530 5,922 63,853 91,914 14,127
Cloud computing (92) (181) (28) (307) (446) (69)
Digital media and entertainment (2,431) (2,213) (340) (4,831) (5,710) (878)
Innovation initiatives and others (785) (1,006) (155) (2,443) (2,136) (328)
Unallocated (653) (1,468) (225) (2,251) (3,424)     (526)
 
Total 25,669 33,662 5,174 54,021 80,198 12,326
 
 

The table below sets forth selected financial information of our
operating segments for nine months ended December 31, 2017:

 
    Nine months ended December 31, 2017

 

   

 

    Digital media     Innovation        

Core

Cloud

and initiatives

 

 

commerce

computing

entertainment and others

Unallocated (1)

Consolidated

RMB RMB RMB RMB RMB RMB     US$
(in millions, except percentages)
Revenue 162,733 9,005 14,292 2,304 188,334 28,946
 
Income (loss) from operations

84,083

(2,022)

(10,599)

(4,882)

(6,487)

60,093

9,236

Add: Share-based compensation expense 5,773 1,567 1,606 2,554 2,320 13,820 2,124
Add: Amortization of intangible assets 2,058 9 3,283 192 249 5,791 890
Add: Impairment of goodwill

494 494 76
 
Adjusted EBITA 91,914 (446) (5,710) (2,136) (3,424) 80,198 12,326
Adjusted EBITA margin 56% (5)% (40)% (93)%

 

43%
 
Nine months ended December 31, 2016

 

 

Digital media Innovation

Core

Cloud

and initiatives

 

 

commerce

computing

entertainment and others

Unallocated (1)

Consolidated

RMB RMB RMB RMB RMB RMB
(in millions, except percentages)
Revenue 102,310 4,500 10,806 2,078 119,694
 
Income (loss) from operations 57,680 (1,176) (7,296) (4,910) (5,775) 38,523
Add: Share-based compensation expense 4,517

 

866

 

1,036

1,974

 

3,296

11,689
Add: Amortization of intangible assets 1,656 3 1,429 493 228 3,809
 
Adjusted EBITA 63,853 (307) (4,831) (2,443) (2,251) 54,021
Adjusted EBITA margin 62% (7)% (45)% (118)% 45%
 

__________________

(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 December 31,

2017

2017

RMB

RMB

   

US$

 
(in millions)
Assets
Current assets:
Cash and cash equivalents 143,736 212,196 32,614
Short-term investments 3,011 8,184 1,258
Restricted cash and escrow receivables 2,655 3,381 519
Investment securities 4,054 3,752 577
Prepayments, receivables and other assets(1) 28,408 40,777 6,267
Total current assets 181,864 268,290 41,235
 
Investment securities 31,452 34,855 5,357
Prepayments, receivables and other assets(1) 8,703 14,750 2,267
Investment in equity investees 120,368 129,505 19,905
Property and equipment, net 20,206 64,973 9,986
Land use rights, net 4,691 9,257 1,423
Intangible assets, net 14,108 27,119 4,168
Goodwill 125,420 162,683 25,004
Total assets 506,812 711,432 109,345
 
Liabilities, Mezzanine Equity and Shareholders' Equity
Current liabilities:
Current bank borrowings 5,948 6,447 991
Current portion of unsecured notes 8,949
Income tax payable 6,125 12,474 1,917
Escrow money payable 2,322 2,844 437
Accrued expenses, accounts payable and other liabilities(1) 46,979 77,358 11,890
Merchant deposits 8,189 15,287 2,350
Deferred revenue and customer advances 15,052 22,028 3,385
Total current liabilities 93,564 136,438 20,970
 

__________________

(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 December 31,

2017

2017

RMB

RMB     US$
(in millions)
 
Deferred revenue 641 898 138
Deferred tax liabilities(1) 10,361 19,076 2,932
Non-current bank borrowings 30,959 34,385 5,285
Unsecured senior notes 45,876 88,499 13,602
Other liabilities 1,290 2,186 336
Total liabilities 182,691 281,482 43,263
 
Commitments and contingencies

Mezzanine equity

2,992 2,979 458

Alibaba Group Holding Limited shareholders' equity:

Ordinary shares 1 1
Additional paid-in capital 164,585 179,686 27,617
Treasury shares at cost (2,823) (2,233) (343)
Restructuring reserve (624) (426) (65)
Subscription receivables (63) (164) (25)
Statutory reserves 4,080 4,183 643
Accumulated other comprehensive income 5,085 4,035 620
Retained earnings 108,558 164,879 25,341
 
Total Alibaba Group Holding Limited shareholders' equity 278,799 349,961 53,788
Noncontrolling interests 42,330 77,010 11,836
 
Total equity 321,129 426,971 65,624
 
Total liabilities, mezzanine equity and equity 506,812 711,432 109,345
 

__________________

(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 December 31,     Nine months ended December 31,
2016     2017 2016     2017
RMB RMB     US$ RMB RMB     US$
(in millions) (in millions)
 
Net cash provided by operating activities 37,416 55,173 8,480 69,580 110,991 17,059
Net cash used in investing activities (8,146) (24,479) (3,762) (75,329) (64,074) (9,848)
Net cash (used in) provided by financing activities (710) 34,274 5,268 30,432 24,964 3,837
Effect of exchange rate changes on cash and cash equivalents 1,745 (1,518) (234) 2,488 (3,421) (526)
 
Increase in cash and cash equivalents 30,305 63,450 9,752 27,171 68,460 10,522
Cash and cash equivalents at beginning of period 103,684 148,746 22,862 106,818 143,736 22,092
 
Cash and cash equivalents at end of period 133,989 212,196 32,614 133,989 212,196 32,614
 
 
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 December 31, Nine months ended December 31,
2016     2017 2016     2017
RMB RMB     US$ RMB RMB     US$
(in millions) (in millions)
Net income 17,157 23,332 3,586 31,374 54,771 8,418
Less: Interest and investment income, net (837) (23,643) (3,634) (2,006) (28,550) (4,388)
Add: Interest expense 701 844 130 1,995 2,391 368
Less: Other income (loss), net (3,015) 348 54 (5,646) (3,276) (504)
Add: Income tax expenses 5,110 6,663 1,024 9,223 14,035 2,157
Add: Share of results of equity investees 1,548 18,452 2,836 3,583 20,722 3,185
Income from operations 20,664 25,996 3,996 38,523 60,093 9,236
Add: Share-based compensation expense 3,744 5,115 786 11,689 13,820 2,124
Add: Amortization of intangible assets 1,261 2,057 316 3,809 5,791 890
Add: Impairment of goodwill 494 76 494 76
Adjusted EBITA 25,669 33,662 5,174 54,021 80,198 12,326
Add: Depreciation and amortization of property and equipment and
land use rights
1,352 2,521 387 3,838 6,140 944
Adjusted EBITDA 27,021 36,183 5,561 57,859 86,338 13,270
 
 
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 December 31,     Nine months ended December 31,
2016     2017 2016     2017
RMB RMB     US$ RMB RMB     US$
(in millions) (in millions)
 
Net income 17,157 23,332 3,586 31,374 54,771 8,418
Add: Share-based compensation expense 3,744 5,115 786 11,689 13,820 2,124
Add: Amortization of intangible assets 1,261 2,057 316 3,809 5,791 890
Add: Impairment of goodwill and investments 1,476 19,033 2,925 2,409 20,374 3,131
Less: Gain on deemed disposals/disposals/revaluation of investments
and others
(1,161) (22,406) (3,443) (1,743) (25,792) (3,963)
Add: Amortization of excess value receivable arising from the
restructuring of commercial arrangements with Ant Financial
67 66 10 199 199 31
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) (53) (190) (29) (306) (140) (22)
 
Non-GAAP net income 22,491 27,007 4,151 47,431 69,115 10,623
 

_____________________

(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 December 31,     Nine months ended December 31,
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 17,855 24,073 3,700 33,028 56,424 8,672
Dilution effect on earnings arising from option plans operated by a
subsidiary and an equity investee
(3) (4) (1) (6) (10) (2)
Net income attributable to ordinary shareholders – diluted 17,852 24,069 3,699 33,022 56,414 8,670
Add: Non-GAAP adjustments to net income(1) 5,334 3,675 565 16,057 14,344 2,205
 
Non-GAAP net income attributable to ordinary shareholders
for computing non-GAAP diluted EPS
23,186 27,744 4,264 49,079 70,758 10,875
 
Weighted average number of shares on a diluted basis 2,571 2,615 2,569 2,607
Diluted EPS(2) 6.94 9.20 1.41 12.85 21.64 3.33
Add: Non-GAAP adjustments to net income per share(3) 2.08 1.41 0.22 6.25 5.50 0.84
 
Non-GAAP diluted EPS(4) 9.02 10.61 1.63 19.10 27.14 4.17

__________________

(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 December 31,     Nine months ended December 31,
2016     2017 2016     2017
RMB RMB     US$ RMB RMB     US$
(in millions) (in millions)
Net cash provided by operating activities 37,416 55,173 8,480 69,580 110,991 17,059
Less: Purchase of property and equipment and intangible assets
(excluding land use rights and construction in progress)
(3,246) (9,029) (1,388) (9,388) (20,193) (3,104)
Add: Others (48) - - 618 - -
 
Free cash flow 34,122 46,144 7,092 60,810 90,798 13,955
 
 
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
Mar 31,     Jun 30,     Sep 30,     Dec 31,     Mar 31,     Jun 30,     Sep 30,    

Dec 31,

2016 2016 2016 2016 2017 2017 2017

2017

(in millions)
Annual active consumers 423 434 439 443 454 466 488 515
 
 
Mobile
 

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

 
    The month ended
Mar 31,     Jun 30,     Sep 30,     Dec 31,     Mar 31,     Jun 30,     Sep 30,    

Dec 31,

2016 2016 2016 2016 2017 2017 2017

2017

(in millions)
Mobile MAUs 410 427 450 493 507 529 549 580
 
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:

 
    Mar 31,     Jun 30,     Sep 30,     Dec 31,     Mar 31,     Jun 30,     Sep 30,    

Dec 31,

2016 2016 2016 2016 2017 2017 2017

2017

(in RMB)
Annual China commerce retail revenue per annual active consumer(1) 189 202 215 241 251 273 293 315
 
Mobile revenue per mobile MAU from China commerce retail – Annualized(2) 123 140 151 166 179 196 213 229

 

____________________

(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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