Alibaba Cloud Revenue Rises 90%
November 5 2018
Alibaba reported financial results for the quarter ended September 30, 2018.
“Alibaba had another strong
quarter of rapid growth. In particular, annual active consumers
increased by 25 million to reach 601 million in the 12 months ended
September 30, 2018,” said Daniel Zhang, Chief Executive Officer of
Alibaba Group. “We generated synergies across our businesses,
demonstrating the power of the Alibaba digital economy, which will be
further showcased during our upcoming 11.11 Global Shopping Festival.
Under our New Retail strategy, we are realizing our vision to enable
renewed growth for traditional retailers through digitizing their
store-based operations, powered by Alibaba’s technology and consumer
In the quarter ended September 30, 2018:
BUSINESS AND STRATEGIC UPDATES
Taobao – New user interface enhancing user experience and adding value for merchants. During the quarter, we rolled out a new user interface on the Taobao App, with the aim to further customize the shopping experience by segmenting users based on their shopping behavior, and including more recommendation feeds to enhance product and content discovery. In turn, the new interface enhances the ability of merchants to target, engage and retain consumers. This improvement in user experience and merchant value proposition would not have been possible without our deep consumer insights and our proprietary technology backed by AI algorithms.
In September 2018, the Taobao app continued to experience strong user growth, with a quarterly net increase of 32 million MAUs on our China retail marketplaces to a total of 666 million MAUs. Annual active consumers increased 25 million to 601 million for the 12 months ended September 30, 2018.
Tmall – extending B2C market leadership. Tmall continued to expand its B2C market leadership and gain consumer wallet share. Excluding unpaid orders, physical goods GMV grew 30% year-over-year in the quarter ended September 30, 2018. The strong growth was driven by continuous improvement in conversion rates and increases in traffic, reflecting strength in the fast-moving consumer goods (FMCG), home furnishings and apparel categories.
Tmall demonstrated its strong value proposition to brands and merchants as the leading brand-engagement and distribution platform in China. During the quarter, brands such as Qeelin (a member of Kering Group), Stella McCartney, Theory and Sergio Rossi launched flagship stores on Tmall and joined the Tmall Luxury Pavilion, our customized premium shopping experience for consumers.
In October, we announced a partnership with Swiss luxury group Richemont, the parent company of luxury brands including Cartier, to launch a China joint venture with Richemont-owned Yoox Net-a-Porter (YNAP), the world’s leading online retailer for luxury goods. This partnership will bring Chinese consumers unprecedented access to the world’s leading luxury brands. China is the largest luxury market in the world, and through this partnership, Alibaba will be even better positioned to capture this market opportunity. Under the partnership, YNAP and Alibaba will establish a joint venture to launch two mobile apps for YNAP’s NET-A-PORTER and MR PORTER multi-brand online stores for consumers in China. In addition, the JV will launch NET-A-PORTER and MR PORTER online stores on the Tmall Luxury Pavilion. The JV will focus on serving consumers in China and will also serve Chinese consumers travelling abroad.
On November 11, 2018, we will celebrate the 10th anniversary of the 11.11 Global Shopping Festival, which will offer high-quality products, entertainment and fast, reliable services to hundreds of millions of consumers in China and around the world. As in past years, we will demonstrate the power of our commerce infrastructure and the Alibaba digital economy at scale. This year’s festival will feature 180,000 participating brands. In addition, we will unleash the synergies of online/offline integration as we deploy the New Retail business model and technologies in 200,000 smart stores in China across multiple retail categories.
New Retail – redefining consumption patterns for the future. Our New Retail strategy is transforming 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.
Our self-operated Hema grocery/restaurant stores continued to expand and introduce new initiatives that enhance consumer experience. As of September 30, 2018, there were 77 Hema stores in China, primarily located in tier 1 and tier 2 cities. Consumers are fully embracing Hema’s 30 minute on-demand delivery service that delivers fresh foods and groceries for their busy urban lifestyle. Mature Hema stores (i.e., those in operation for at least 1.5 years) continued to show high sales productivity, with online sales accounting for over 60% of total sales in the quarter.
We are making good progress in digitizing partner retailers and enabling their New Retail model. For example, our partner Sun Art, the largest hyper-mart chain in China, has adopted our technology and is working closely with us in on-demand delivery, joint procurement and supply chain management. As of the end of the quarter, we have enabled over 350 of approximately 470 Sun Art stores to fulfill online orders by connecting these stores and their warehouse systems to Taobao’s fresh food and general merchandise delivery channel (Taoxianda). Consumers living within a three-kilometer radius of a connected Sun Art store can purchase groceries for on-demand delivery from their Taobao App.
Local Services – integration of Ele.me and Koubei. In October 2018, we combined the operation of food delivery service Ele.me and online restaurant guide business Koubei under a single management team. Ele.me served over 167 million annual active consumers in 676 cities in China for the 12 months ended June 30, 2018. Together, Ele.me and Koubei served 3.5 million registered merchants as of June 30, 2018. The combination of Ele.me and Koubei will accelerate the integration of consumer insights and restaurant management with enhanced operating efficiency, as well as improve cooperation with other Alibaba businesses.
Cainiao Network – digitizing the logistics industry. Cainiao facilitates the digitization of the entire fulfilment and delivery process, improving consumer experience and lowering costs. Together with our partners, we provide comprehensive logistics solutions to our customers to meet the different demands across different product categories and various consumer use cases. These include point-to-point delivery used by merchants in online marketplaces, hub-and-spoke warehouse network for merchants and retailers, on-demand delivery for groceries and FMCG products, and cross-border delivery for international brands and consumers. We have also made substantial investments in alternative forms of last-mile delivery through a network of Cainiao Post collection stations and self-pick-up lockers.
International – further investments for long-term growth. Our cross-border and international retail businesses continued to show promising growth. Revenue from our international commerce retail business reached RMB4,464 million (US$650 million) in the quarter ended September 30, 2018, representing 55% year-on-year growth.
In September, Alibaba partnered with Russian Direct Investment Fund (RDIF), the sovereign wealth fund of the Russian Federation, MegaFon, a pan-Russian operator of digital opportunities, and Mail.Ru Group, the leading Internet and IT company in Russia with growing international exposure, to form a new strategic partnership to integrate Russia’s key consumer Internet and e-commerce platforms and launch a leading social commerce joint venture that will serve Russia and the rest of the Commonwealth of Independent States (CIS). The joint venture will leverage the existing business of AliExpress Russia and will offer unmatched value proposition for merchants, consumers and Internet users across Russia and the CIS.
Cloud computing revenue grew 90% year-over-year to RMB5,667 million (US$825 million), driven by improving revenue mix of higher value added services and robust paying customer growth. During the quarter, Alibaba Cloud launched over 600 products and features, including those related to big data analytics and AI application innovation, security, and IoT service enhancements.
In September, Alibaba Cloud launched Apsara 2.0, a comprehensive upgrade of our cloud computing operating system based on our proprietary distributed computing architecture. The system enables enterprises with enhanced computation performance, flexible hybrid cloud implementation and more efficient network connection. With the upgrade, developers can leverage Alibaba Cloud IoT solutions to bring edge computing capability to connected devices at scale and seamlessly integrate with cloud networks.
Digital Media and Entertainment
Our strategy is to integrate entertainment 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.
Growth of Youku's daily average subscribers continues to be robust, increasing over 100% year-over-year during the quarter. We will continue to invest in original content production capability in order to attain better control over content quality, format and scheduling. We are seeing positive results from our investment in original content with five self-produced shows ranking among the top 10 original scripted series during the period from January 2017 to July 2018, according to Douban, a top commentary community in China. During this quarter, our original reality show “Slam-dunk of China” became a new hit among young audiences in China. Fox Networks Group has purchased the rights to the show for countries and regions outside of China.
Innovation Initiatives & Technology Development
Amap (formerly AutoNavi) is the largest map app and location-based technology platform in China. The Amap app offers users a comprehensive set of mobility and destination information services. Amap integrates data such as weather, traffic, tourism destinations and curated point-of-interest information to offer users the best experience during each phase of their journey. On October 1, 2018, the first day of the week-long National Day holiday in China, Amap set a record high by reaching over 100 million daily active users.
Cash Flow from Operating Activities and Free Cash Flow
Net cash provided by operating activities in the quarter ended September 30, 2018 was RMB31,407 million (US$4,573 million), an increase of 4% compared to RMB30,121 million in the same quarter of 2017. Free cash flow, a non-GAAP measurement of liquidity, in the quarter ended September 30, 2018 decreased by 28% to RMB16,033 million (US$2,334 million), from RMB22,119 million in the same quarter of 2017, primarily due to an increase in capital expenditures (excluding acquisition of land use rights and construction in progress relating to office campus) by RMB6,310 million and an increase in acquisition of licensed copyrights and intangible assets by RMB1,062 million. A reconciliation of net cash provided by operating activities to free cash flow is included at the end of this results announcement.
In September 2018, we announced an ADS repurchase plan to implement the previously announced US$6 billion share repurchase program. As of November 1, 2018, we have repurchased approximately 9.12 million of our shares for a total purchase price of approximately US$1.33 billion.
Looking ahead, we are revising our fiscal year 2019 revenue guidance to a range of RMB375 billion to RMB383 billion. The new guidance range reflects a 4% to 6% adjustment to the original revenue guidance. In light of current fluid macro-economic conditions, we have recently decided not to monetize, in the near term, incremental inventory generated from growing users and engagement on our China retail marketplaces. We expect this decision to benefit SMEs on our marketplace platforms.