Market Overview

Alibaba Group Announces June Quarter 2018 Results

Share:

Alibaba Group Holding Limited (NYSE:BABA) today announced its financial
results for the quarter ended June 30, 2018.

"Alibaba had another excellent quarter, with significant user expansion
and even more robust engagement across our growing ecosystem. Our China
retail marketplace business continues to gain share, with New Retail
initiatives driving further revenue growth and enabling our retail
partners to seamlessly serve customers. We are executing our plan of
providing more value and choice to users along the consumption
continuum, with digital entertainment and local service offerings that
tap into big addressable markets beyond core commerce," said Daniel
Zhang, Chief Executive Officer of Alibaba Group. "We will continue to
invest in strategic business opportunities and innovation to sustain our
competitive advantage and for long-term growth."

"We delivered another great quarter with 61% revenue growth as well as
strong profit growth, excluding one-time items. We are pleased with the
strength and rapid growth of our business at such significant scale,"
said Maggie Wu, Chief Financial Officer of Alibaba Group. "The
exceptional growth across our major segments of core commerce, cloud
computing and digital media and entertainment validates our strategy of
investing in customer experience, product, technology and infrastructure
for the future. We remain confident in our ability to continue to gain
market leadership by delivering unique value propositions to our
business customers, partners and consumers."

BUSINESS HIGHLIGHTS

In the quarter ended June 30, 2018:

  • Revenue was RMB80,920 million (US$12,229 million), an increase
    of 61% year-over-year.
  • Revenue from core commerce increased 61% year-over-year to RMB69,188
    million (US$10,456 million).
  • Revenue from cloud computing increased 93% year-over-year to RMB4,698
    million (US$710 million).
  • Revenue from digital media and entertainment increased 46%
    year-over-year to RMB5,975 million (US$903 million).
  • Revenue from innovation initiatives and others increased 64%
    year-over-year to RMB1,059 million (US$160 million).
  • Annual active consumers on our China retail marketplaces
    reached 576 million, an increase of 24 million from the 12-month
    period ended March 31, 2018.
  • Mobile MAUs on our China retail marketplaces reached 634
    million in June 2018, an increase of 17 million over March 2018.
  • Income from operations was RMB8,020 million (US$1,212 million),
    a decrease of 54% year-over-year due to a one-time increase in
    share-based compensation expense related to Ant Financial's awards to
    our employees, which was the result of a significant increase in the
    valuation of Ant Financial in its most recent round of equity
    fundraising (see "Costs and Expenses – Shares-based Compensation
    Expense" and "Business and Strategic Updates—Updates on Ant Financial"
    below). Excluding Ant Financial-related share-based compensation
    expense, our income from operations would have increased by 9%. Adjusted
    EBITA
    increased 13% year-over-year to RMB26,502 million (US$4,005
    million).
  • Adjusted EBITA for core commerce was RMB32,797 million
    (US$4,956 million), an increase of 22% year-over-year, representing a
    margin of 47%. Margin in our core commerce segment has been and will
    continue to be influenced by several factors: (i) gradual revenue mix
    shift towards self-operated New Retail businesses where revenue is
    recorded on a gross basis including the cost of inventory, (ii)
    inclusion of the logistics technology business of Cainiao Network in
    our consolidated financial statements, (iii) aggressive investment in
    local services, such as Ele.me, which we acquired and consolidated
    into our financial statements this quarter and (iv) international
    expansion in regions such as Southeast Asia. Excluding the effects of
    the above-mentioned long-term investments, our adjusted EBITA margin
    in the core commerce segment remained stable as compared to the same
    period last year.
  • Net income attributable to ordinary shareholders was RMB8,685
    million (US$1,313 million), and net income was RMB7,650
    million (US$1,156 million), representing a year-on-year decrease of
    41% and 45%, respectively. However, this decrease was attributable to
    a one-time increase in share-based compensation expense of RMB11,180
    million relating to Ant Financial's awards to our employees discussed
    in "Income from operations" above. Excluding the effect of such Ant
    Financial-related share-based compensation expense, net income for the
    quarter would have increased by 33% on a year-on-year basis.
  • Non-GAAP net income was RMB20,101 million (US$3,038 million). Diluted
    EPS
    was RMB3.30 (US$0.50) and non-GAAP diluted EPS was
    RMB8.04 (US$1.22).
  • Net cash provided by operating activities was RMB36,117 million
    (US$5,458 million) and non-GAAP free cash flow was RMB26,358
    million (US$3,983 million).

BUSINESS AND STRATEGIC UPDATES

Core Commerce

Taobao – robust engagement and user growth supported by strong
business development.
In June 2018, we continued to experience
strong user activities on the Taobao App with quarterly net increase of
17 million MAUs on our China retail marketplaces to a total of 634
million MAUs. Ongoing improvements in search and personalized
recommendations on the Taobao App supported the acceleration of Taobao
paid GMV growth during the quarter. Annual active consumers increased 24
million from the 12 months ended March 31, 2018 to 576 million for the
12 months ended June 30, 2018. During the quarter, around 80% of the
increase in annual active consumers were from lower tier cities as we
broadened our offerings and services into those regions.

Taobao App provides a unique shopping experience with new, innovative
content formats and intelligent personalized recommendations.
Live-broadcast feature continues to be a fast growing consumer social
media engagement medium on the Taobao App. In the quarter ended June
2018, live-broadcast MAUs have grown over 100% year-over-year. Formats
such as curated posts, short-form videos and live-broadcast events
continue to help brands engage with their customers on our platform,
which in turn, drives purchase conversion and increases annual active
consumers.

In early August, we launched "88VIP," a new loyalty membership program
to enhance consumer engagement and loyalty. The subscription-based
program offers the most comprehensive set of benefits of commerce,
entertainment and local services in China. The exclusive membership
offerings and privileges across the Alibaba ecosystem include discount
savings on Tmall Supermarket, Tmall Global and brand stores on Tmall,
coupons for consumer electronics, subscriptions to our video-streaming
platform Youku and music-streaming platform Xiami, online movie tickets
on Taopiaopiao, and on-demand delivery service from Ele.me.

Tmall – B2C market share gains. Tmall continued to gain wallet
share and expand our B2C market leadership. Excluding unpaid orders,
physical goods GMV grew 34% year-over-year in the quarter ended June 30,
2018. The robust growth was driven by continued increases in conversion
rates and average consumer spending with strong performance from FMCG,
consumer electronics, apparel and home goods categories.

During the quarter, Tmall gained further mindshare among domestic and
international brands as the leading brand-building and distribution
platform that is capturing increasing consumer exposure and spending by
users in China. During the quarter, international brands such as MCM,
Moschino and Giuseppe Zanotti launched flagship stores on Tmall and
joined the Luxury Pavilion, our customized and premium shopping
experience for consumers.

New Retail – capturing consumption patterns of the future.
Execution of our New Retail strategy is driving a substantial
transformation of the traditional retail industry by digitizing
store-based operations, with a focus on in-store technology, on-demand
delivery, inventory tracking, supply chain management, consumer insights
and mobile payments.

Hema, our proprietary grocery retail format, continues to expand its
store network, introduce new initiatives to enhance consumer experience
and enable its retail partners to accelerate their digital
transformation. As of June 30, 2018, there were 45 self-operated Hema
stores in thirteen cities in China, primarily located in Tier 1 and Tier
2 cities.

Alibaba Group's cooperation with Sun Art (in which we hold an
approximately 31% effective equity interest) continues to deepen as Sun
Art stores adopt Hema's technologies and services including on-demand
delivery, joint procurement and supply chain management of fresh food
offerings. During the quarter, Hema and RT-Mart (a business unit of Sun
Art) established "Hexiaoma" (a.k.a Small Hema) to jointly explore
multi-format store expansion in the lower tier cities leveraging
RT-Mart's strong supply chain capability and Alibaba's data technology
platform.

In August 2018, Alibaba Group and Starbucks Coffee Company jointly
announced a comprehensive strategic "New Retail" partnership that will
enable a seamless Starbucks Experience and enhance the way
customers enjoy their coffee. Under the partnership, Alibaba will begin
to deliver Starbucks coffee to customers through our food delivery unit
Ele.me, launch new "Starbucks Delivery Kitchens" dedicated for delivery
order fulfillment with Hema, and co-create a virtual Starbucks store
presence on multiple Internet platforms operated by Alibaba to deliver a
personalized online Starbucks Experience for Chinese customers.
The strategic partnership with Starbucks is proof of our New Retail
model at scale and showcases how Alibaba can help our brand partners
more deeply and innovatively engage with their customers in China.

Local services – aggressive investment for market share gains. In
May 2018, we completed the acquisition of Ele.me, one of the leading
online food delivery platforms in China. Ele.me and Koubei, a leading
local services platform focused on in-store consumption in China, work
together to provide a comprehensive local services offering that is core
to Alibaba. Our plan is to aggressively invest in these businesses to
gain market share and execute deep integration into the ecosystem of
Alibaba service offerings, such as incorporating local services users
into our new 88VIP, as well as delivery support to mom-and-pop
convenience store operators on Alibaba's Lingshoutong (LST) platform and
Hema supermarket stores.

We have established a company to hold Ele.me and Koubei as our combined
flagship local services vehicle, which we plan to separately capitalize
with investments from Alibaba, Ant Financial and third-party investors.
As of the time of this announcement, we have received over US$3 billion
in new investment commitments, including from Alibaba and SoftBank. As a
result of this reorganization, subject to closing conditions, we will
consolidate Koubei, which would result in a material one-off revaluation
gain when the transaction closes.

Cainiao Network – building and enabling a smart global logistics
network through partnerships.
As part of our eWTP initiative,
Cainiao is cooperating with the Malaysian customs at the regional
e-commerce hub near the Kuala Lumpur airport, the first eWTP hub outside
of China, and has improved the customs clearance capability.

In addition, Cainiao announced in June 2018 that it will lead a joint
venture with China National Aviation Corporation (Group) Limited and YTO
Express that will invest approximately US$1.5 billion to build a
world-class digital logistics center at Hong Kong International Airport.
This landmark property, leveraging leading technologies such as
automated warehousing and temperature control solutions, will be a
connection and routing point for ground transportation in the Pearl
River Delta, one of the most important regions in China.

In May 2018, Alibaba and Cainiao led a US$1.38 billion investment for an
approximate 10% equity stake in ZTO Express, a leading and fast-growing
express delivery company in China. In connection with this investment,
Cainiao and ZTO will deepen their collaboration in the transformation of
China's logistics industry amid the growth of New Retail.

International – further investments for long-term growth. Our
cross-border and international retail businesses continue to show
promising growth. Revenue from our international commerce retail
business reached RMB4,316 million (US$652 million) in the quarter ended
June 30, 2018, representing 64% year-on-year growth.

Lazada has developed a clear plan to position its business into three
segments: C2C marketplace, branded flagship store mall (LazMall) and
cross-border e-commerce (LazGlobal). Launched in June and July in most
of the countries where Lazada operates, LazMall is a new platform
tailored for brands' official and / or certified stores that offer
premium services and guarantee product authenticity. LazGlobal will
connect consumers in Southeast Asia with Taobao Collection businesses
and sellers from other countries where Lazada does not currently have a
presence. We believe the deepened integration with the Alibaba ecosystem
will drive enhanced customer satisfaction and market leadership in the
future. We are highly committed to the Southeast Asian market and will
continue to invest in Lazada's growth and customer reach.

Cloud Computing

Cloud computing revenue grew 93% year-over-year to RMB4,698 million
(US$710 million), driven by both revenue mix towards higher value-added
products and services and robust growth in paying customers.

In the June 2018 quarter, Alibaba Cloud's product innovation focused on
big data analytics, artificial intelligence, security and
Internet-of-Things applications. As part of deepening our relationship
with customers, we have launched products that enable customers to
achieve fast, cost effective and secure data migration from on premise
data centers onto the public cloud. For example, enterprises can
leverage Lightning Cube, our cloud migration solution that enables
uninterrupted migration of petabytes-scale data.

For the June 2018 quarter, Alibaba Cloud continues to deepen cooperation
with customers in a variety of industries. Selected large enterprise
customers and major partnerships include:

  • Minsheng Bank is the first major bank in China to successfully
    adopt a financial cloud with distributed core account architecture
    that is equipped with a disaster recovery system. Four months since
    launch of the new financial cloud, it has improved processing
    efficiency that is three times higher than that of the original core
    system.
  • China Communications Construction Group (CCCG), one of the
    largest engineering and construction companies in China, is leveraging
    our middleware and public cloud services to improve its supply chain
    management efficiency in design, construction and operation of
    infrastructure assets such as highways, high-speed rail, airports, and
    marine ports. By working with CCCG, we have further penetrated into
    the industrial and construction sector.
  • IHG® (InterContinental Hotels Group) is leveraging Alibaba
    Cloud's hybrid cloud solution, compliance and security services to
    provide on-demand room booking and related business for its global
    guests in Greater China.

Digital Media and Entertainment

We are executing our strategy to integrate entertainment elements into
our overall offerings to consumers beyond commerce. The synergy between
our commerce and entertainment businesses delivers a superior user
experience while increasing customer loyalty and subscription revenue,
as well as return on investment for advertisers.

During the quarter, Youku partnered with China Central Television (CCTV)
to stream all 2018 FIFA World Cup games to hundreds of millions of fans
in China. During the tournament, Youku users accessed 180 million unique
devices, including mobile devices and smart TVs, to watch the games.
Alibaba Group delivered unique consumer experience by integrating a
broad range of service offerings from our ecosystem, including red
packet promotions from Taobao and Alipay as well as late night delivery
services from Hema and Ele.me. Alibaba Cloud's proprietary technologies
delivered high resolution and low latency livestreaming of World Cup
games on Youku, with peak concurrent viewers exceeding that of the most
watched program during Chinese New Year. During the quarter, our World
Cup programming and ongoing improvement of video content offerings led
to daily average subscriber growth of 200% year-over-year for Youku.

Innovation Initiatives & Technology Development

Tmall Genie, our AI-powered voice assistant, achieved sales of 5 million
units since its official launch just a year ago. Tmall Genie connects
our customers with services offered by Alibaba ecosystem in an
interactive way. We have focused on educational and entertainment
content for families to widen user base and increase level of engagement
with the device. Tmall Genie is our gateway to link customers with new
services and experiences to be generated by IoTs and Smart Homes.

Updates on Equity Investees and Others

Focus Media – In July 2018, we announced our agreement to invest
RMB9.63 billion (US$1.46 billion) to acquire a 6.62% equity stake in
Focus Media, which operates the largest advertising screens network in
China that can be seen in elevators, on the streets, in subways and in
office buildings across 300 cities. In connection with this investment,
we and Focus Media will jointly explore innovative digital marketing
initiatives tied to our New Retail strategy. The strategic partnership
with Focus Media allows us to extend our digital advertising network to
the traditional offline environment, leveraging our consumer insight and
data technology.

Updates on Ant Financial

In June, Ant Financial completed its Series C equity financing totaling
approximately US$14 billion, which reflected a significant increase in
Ant Financial's valuation.

Cash Flow from Operating Activities and Free
Cash Flow

Net cash provided by operating activities in the quarter ended June 30,
2018 was RMB36,117 million (US$5,458 million), an increase of 40%
compared to RMB25,873 million in the same quarter of 2017. Free cash
flow, a non-GAAP measurement of liquidity, in the quarter ended June 30,
2018 increased by 16% to RMB26,358 million (US$3,983 million), from
RMB22,711 million in the same quarter of 2017, primarily due to our
increase in purchase of property and equipment, intangible assets and
licensed copyrights by RMB6,597 million. 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*

 
   

June 30,
2017

   

March 31,
2018

   

June 30,
2018

    Net adds
YoY     QoQ
 
China Commerce Retail:
View Comments and Join the Discussion!