Alibaba Group Holding Limited (NYSE: BABA) today announced its
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 insights.”
“We outpaced all industry peers by again delivering robust
revenue growth of 54% this quarter,” said Maggie Wu, Chief
Financial Officer of Alibaba Group. “While the growth of our
overall profitability this quarter has been tempered by significant
investments in local services, logistics, entertainment and
international expansion, our core marketplace business continued to
show strong profit and cash flow growth, which enables us to
re-invest into strategic areas and our technology.”
BUSINESS HIGHLIGHTS
In the quarter ended September 30,
2018:
- Revenue was RMB85,148 million
(US$12,398 million), an increase of 54% year-over-year.
- Revenue from core commerce increased
56% year-over-year to RMB72,475 million (US$10,553 million).
- Revenue from cloud computing increased
90% year-over-year to RMB5,667 million (US$825 million).
- Revenue from digital media and
entertainment increased 24% year-over-year to RMB5,940 million
(US$865 million).
- Revenue from innovation initiatives and
others increased 20% year-over-year to RMB1,066 million (US$155
million).
- Annual active consumers on our
China retail marketplaces reached 601 million, an increase of 25
million from the 12-month period ended June 30, 2018.
- Mobile MAUs on our China retail
marketplaces reached 666 million in September 2018, an increase of
32 million over June 2018.
- Income from operations was
RMB13,501 million (US$1,966 million), a decrease of 19%
year-over-year, primarily due to the consolidation of Ele.me and
Cainiao Network, investments in digital media and entertainment and
other strategic initiatives, as well as an increase in share-based
compensation and depreciation expenses. Adjusted EBITDA
increased 7% year-over-year to RMB26,710 million (US$3,889
million).
- Adjusted EBITA for core commerce
was RMB29,807 million (US$4,340 million), an increase of 13%
year-over-year. Our marketplace-based core commerce adjusted
EBITA, a non-GAAP measurement, increased 27% year-over-year to
RMB35,642 million (US$5,190 million).
- Net income attributable to ordinary
shareholders was RMB20,033 million (US$2,917 million), and
net income was RMB18,241 million (US$2,656 million),
representing a year-on-year increase of 13% and 5%,
respectively.
- Non-GAAP net income was
RMB23,453 million (US$3,415 million). Diluted EPS was
RMB7.62 (US$1.11) and non-GAAP diluted EPS was RMB9.60
(US$1.40).
- Net cash provided by operating
activities was RMB31,407 million (US$4,573 million) and
non-GAAP free cash flow was RMB16,033 million (US$2,334
million).
BUSINESS AND STRATEGIC UPDATES
Core Commerce
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
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.
Share Repurchase
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$1.33 billion.
Revenue Guidance
Looking ahead, we are revising our fiscal year 2019 revenue
guidance to a range of RMB375 billion to RMB383 billion. The new
guidance range reflects a 4% to 6% adjustment to the original
revenue guidance. In light of current fluid macro-economic
conditions, we have recently decided not to monetize, in the near
term, incremental inventory generated from growing users and
engagement on our China retail marketplaces. We expect this
decision to benefit SMEs on our marketplace platforms.
KEY OPERATIONAL METRICS*
September 30,2017
June 30,2018
September 30,2018
Net adds YoY QoQ China
Commerce Retail: Annual active consumers(1) (in millions) 488
576
601
113
25
Mobile monthly active users (MAUs)(2) (in millions) 549 634
666
117
32
__________________
* For definitions of terms used but not defined in
this results announcement, please refer to our annual report on
Form 20-F for the fiscal year ended March 31, 2018. (1) For the
twelve months ended on the respective dates. (2) For the month
ended on the respective dates.
SEPTEMBER QUARTER SUMMARY FINANCIAL
RESULTS
Three months ended September 30,
2017 2018 YoY % RMB
RMB
US$(1)
Change (in millions, except percentages and per share
amounts) Revenue 55,122 85,148 12,398 54 % Income
from operations 16,584 13,501 1,966 (19
)% (3)
Operating margin 30 % 16 % Adjusted EBITDA(2) 25,031 26,710 3,889 7
% Adjusted EBITDA margin(2) 45 % 31 % Adjusted EBITA(2) 23,018
23,155 3,371 1 % Adjusted EBITA margin(2) 42 % 27 % Net
income 17,408 18,241 2,656 5 % Net income attributable to ordinary
shareholders 17,668 20,033 2,917 13 % Non-GAAP net income(2) 22,089
23,453 3,415 6 % Diluted earnings per share/ADS (EPS) 6.78
7.62 1.11 12 % Non-GAAP diluted EPS(2) 8.57 9.60 1.40 12 %
__________________
(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 RMB6.8680 to US$1.00, the
exchange rate on September 28, 2018 as set forth in the H.10
statistical release of the Federal Reserve Board. The percentages
stated in this announcement are calculated based on the RMB
amounts. (2) See the sections entitled “Information about
Segments,” “Non-GAAP Financial Measures” and “Reconciliations of
Non-GAAP Measures to the Nearest Comparable GAAP Measures” for more
information about the non-GAAP measures referred to within this
results announcement. (3)
The year-over-year decrease was primarily
due to the consolidation of Ele.me and Cainiao Network, investments
in digital media and entertainment and other strategic initiatives,
as well as an increase in share-based compensation and depreciation
expenses.
SEPTEMBER QUARTER INFORMATION BY SEGMENTS
The table below sets forth selected financial information of our
operating segments for the periods indicated:
Three months ended September 30, 2018
Digital media Innovation
Core Cloud and initiatives
commerce computing entertainment and
others
Unallocated(1)
Consolidated RMB RMB RMB RMB
RMB RMB US$ (in millions, except
percentages) Revenue 72,475 5,667
5,940 1,066 — 85,148 12,398
Income (loss) from operations 24,290
(1,165) (4,805) (2,201) (2,618)
13,501 1,966 Add: Share-based compensation expense
3,292 928 710 952 1,161 7,043 1,025 Add: Amortization of intangible
assets 2,225 5 293 8 80 2,611 380
Adjusted EBITA
29,807 (232) (3,802) (1,241)
(1,377) 23,155 3,371 Adjusted EBITA
margin 41% (2) (4)% (64)%
(116)%
27% Three months ended September 30, 2017
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 46,462 2,975 4,798 887
— 55,122 Income (loss) from operations
23,836 (697) (3,383) (1,456)
(1,716) 16,584 Add: Share-based compensation expense
1,987
531
594
930
644
4,686 Add: Amortization of intangible assets 591 4 1,040 30 83
1,748
Adjusted EBITA 26,414 (162)
(1,749) (496) (989) 23,018 Adjusted
EBITA margin 57% (5)% (36)% (56)%
42%
__________________
(1) Unallocated expenses are primarily related to
corporate administrative costs and other miscellaneous items that
are not allocated to individual segments. (2)
Adjusted EBITA margin is lower than the
prior year period mainly due to the consolidation of Ele.me and
Cainiao Network, strategic investments in New Retail and Lazada.
Excluding the effect of the above-mentioned long-term investments,
marketplace-based core commerce adjusted EBITA increased 27%
year-over-year to RMB35,642 million (US$5,190 million).
SEPTEMBER QUARTER OPERATIONAL AND FINANCIAL RESULTS
Revenue
Revenue for the quarter ended September 30, 2018 was RMB85,148
million (US$12,398 million), an increase of 54% compared to
RMB55,122 million in the same quarter of 2017. The increase was
mainly driven by the robust revenue growth of our China commerce
retail business, the consolidation of Ele.me and Cainiao Network,
as well as strong revenue growth of Alibaba Cloud.
The following table sets forth a breakdown of our revenue by
segment for the periods indicated:
Three months ended September 30, 2017
2018 % of % of
YoY % RMB Revenue RMB US$
Revenue Change (in millions, except
percentages) Core commerce: China commerce retail - Customer
management 26,272 48% 32,920 4,793 39% 25% - Commission 10,059 18%
13,136 1,913 15% 31% - Others 3,226 6% 8,095 1,179 10% 151% 39,557
72% 54,151 7,885 64% 37% China commerce wholesale 1,714 3% 2,497
364 3% 46% International commerce retail 2,878 5% 4,464 650 5% 55%
International commerce wholesale 1,651 3% 2,022 294 2% 22% Cainiao
logistics services
— — 3,206 467 4% N/A Consumer
services
— — 5,021 731 6% N/A Others 662 1% 1,114 162
1% 68% Total core commerce 46,462 84% 72,475 10,553 85% 56%
Cloud computing 2,975 5% 5,667 825 7% 90% Digital media and
entertainment 4,798 9% 5,940 865 7% 24% Innovation initiatives and
others 887 2% 1,066 155 1% 20% Total 55,122 100% 85,148 12,398 100%
54%
Core commerce
- China commerce retail
businessRevenue – Revenue from our China commerce
retail business in the quarter ended September 30, 2018 was
RMB54,151 million (US$7,885 million), an increase of 37% compared
to RMB39,557 million in the same quarter of 2017. This robust
revenue growth reflected 151% year-over-year growth of others
revenue, which consists primarily of our New Retail initiatives,
mainly Hema fresh food grocery business, Tmall Import and Intime
Department Stores.In addition, revenue from our China retail
marketplaces continued to see strong growth. Combined customer
management and commission revenues grew 27% year-over-year, which
represented an increase of 25% in customer management revenue and
an increase of 31% in commission revenue. The growth of customer
management revenue was driven primarily by increases in the volume
of paid clicks and to a lesser extent average unit price per click,
reflecting continuous mobile user growth and our ability to deliver
highly relevant search results to consumers through personalization
technology. The growth of commission revenue was primarily due to
strong year-over-year growth of 30% in physical goods GMV
(excluding unpaid orders) on Tmall. Others revenue was RMB8,095
million (US$1,179 million), a significant increase compared to
RMB3,226 million in the same quarter of 2017, primarily driven by
contributions from Hema and Tmall Import.Annual active
consumers – Our China retail marketplaces had 601
million annual active consumers in the 12 months ended September
30, 2018, compared to 576 million in the 12 months ended June 30,
2018, representing a net addition of 25 million from the prior
quarter, and a 23% increase from 488 million in the 12 months ended
September 30, 2017. The increase in annual active consumers is
primarily due to better new customer acquisition in less developed
areas. 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 666 million in September 2018, compared to 634
million in June 2018, representing a net addition of 32 million
MAUs in the quarter, a 21% increase from 549 million in September
2017.
- China commerce wholesale
businessRevenue from our China commerce wholesale business in
the quarter ended September 30, 2018 was RMB2,497 million (US$364
million), an increase of 46% compared to RMB1,714 million in the
same quarter of 2017. The increase was primarily due to an increase
in the average revenue from paying members on our 1688.com
platform.
- International commerce retail
businessRevenue from our international commerce retail business
in the quarter ended September 30, 2018 was RMB4,464 million
(US$650 million), an increase of 55% compared to RMB2,878 million
in the same quarter of 2017. The increase was primarily due to the
growth in revenue generated from Lazada and AliExpress.
- International commerce wholesale
businessRevenue from our international commerce wholesale
business in the quarter ended September 30, 2018 was RMB2,022
million (US$294 million), an increase of 22% compared to RMB1,651
million in the same quarter of 2017. The increase was primarily due
to increases in the number of paying members and average revenue
from paying members on our alibaba.com platform.
- Cainiao logistics
servicesRevenue from Cainiao logistics services, which
represents revenue from the domestic and international
one-stop-shop logistics services and supply chain management
solutions provided by Cainiao Network, after elimination of
inter-company transactions, was RMB3,206 million (US$467 million).
We started to consolidate Cainiao Network in mid-October 2017.
- Consumer servicesRevenue from
consumer services, which represents revenues from platform
commission, provision of food delivery services and other services
provided by Ele.me, was RMB5,021 million (US$731 million). We
started to consolidate Ele.me in May 2018.
Cloud computing
Revenue from our cloud computing business in the quarter ended
September 30, 2018 was RMB5,667 million (US$825 million), an
increase of 90% compared to RMB2,975 million in the same quarter of
2017, primarily driven by revenue mix shift towards higher
value-added products and services and robust growth in paying
customers.
Digital media and entertainment
Revenue from our digital media and entertainment business in the
quarter ended September 30, 2018 was RMB5,940 million (US$865
million), an increase of 24% compared to RMB4,798 million in the
same quarter of 2017. The increase was primarily due to an increase
in subscription revenue from Youku and an increase in revenue from
mobile value-added services provided by UCWeb, such as mobile
search and game publishing.
Innovation initiatives and others
Revenue from innovation initiatives and others in the quarter
ended September 30, 2018 was RMB1,066 million (US$155 million), an
increase of 20% compared to RMB887 million in the same quarter of
2017. The increase was mainly due to an increase in revenue from
Tmall Genie and Amap.
Costs and Expenses
The following tables set forth a breakdown of our costs and
expenses, share-based compensation expense and costs and expenses
excluding share-based compensation expense by function for the
periods indicated.
Three months ended September 30,
%
ofRevenueYoYchange
2017 2018 RMB
% ofRevenue
RMB US$
% ofRevenue
(in millions, except percentages) Costs and expenses:
Cost of revenue 22,002 40% 46,786 6,812 55% 15% Product development
expenses 5,083 9% 8,365 1,218 10% 1% Sales and marketing expenses
6,266 11% 9,106 1,326 10% (1)% General and administrative expenses
3,439 6% 4,779 696 6% 0% Amortization of intangible assets 1,748 4%
2,611 380 3% (1)% Total costs and expenses 38,538 70% 71,647 10,432
84% 14%
Share-based compensation expense by function:
Cost of revenue 1,369 2% 1,566 228 2% 0% Product development
expenses 1,686 3% 3,078 448 4% 1% Sales and marketing expenses 501
1% 746 109 0% (1)% General and administrative expenses 1,130 2%
1,653 240 2% 0% Total share-based compensation expense 4,686 8%
7,043 1,025 8% 0%
Costs and expenses excluding
share-based compensation expense: Cost of revenue 20,633 38%
45,220 6,584 53% 15% Product development expenses 3,397 6% 5,287
770 6% 0% Sales and marketing expenses 5,765 10% 8,360 1,217 10% 0%
General and administrative expenses 2,309 4% 3,126 456 4% 0%
Amortization of intangible assets 1,748 4% 2,611 380 3% (1)% Total
costs and expenses excluding share-based compensation expense
33,852 62% 64,604 9,407 76% 14%
Cost of revenue – Cost of revenue in the quarter ended
September 30, 2018 was RMB46,786 million (US$6,812 million), or 55%
of revenue, compared to RMB22,002 million, or 40% of revenue, in
the same quarter of 2017. Without the effect of share-based
compensation expense, cost of revenue as a percentage of revenue
would have increased from 38% in the quarter ended September 30,
2017 to 53% in the quarter ended September 30, 2018. The increase
was primarily due to (i) our consolidation of Ele.me and Cainiao
Network, (ii) inclusion of the cost of inventory and logistics from
our New Retail businesses and Lazada, as well as (iii) an increase
in content spending by Youku on original content.
Product development expenses – Product development
expenses in the quarter ended September 30, 2018 were RMB8,365
million (US$1,218 million), or 10% of revenue, compared to RMB5,083
million, or 9% of revenue, in the same quarter of 2017. Without the
effect of share-based compensation expense, product development
expenses as a percentage of revenue would have remained stable at
6% in the quarter ended September 30, 2018 and the same quarter
last year.
Sales and marketing expenses – Sales and marketing
expenses in the quarter ended September 30, 2018 were RMB9,106
million (US$1,326 million), or 10% of revenue, compared to RMB6,266
million, or 11% of revenue, in the same quarter of 2017. Without
the effect of share-based compensation expense, sales and marketing
expenses as a percentage of revenue would have remained stable at
10% in the quarter ended September 30, 2018 and the same quarter
last year.
General and administrative expenses – General and
administrative expenses in the quarter ended September 30, 2018
were RMB4,779 million (US$696 million), or 6% of revenue, compared
to RMB3,439 million, or 6% of revenue, in the same quarter of 2017.
Without the effect of share-based compensation expense, general and
administrative expenses as a percentage of revenue would have
remained stable at 4% in the quarter ended September 30, 2018 and
the same quarter last year.
Share-based compensation expense – Total share-based
compensation expense included in the cost and expense items above
in the quarter ended September 30, 2018 was RMB7,043 million
(US$1,025 million), an increase of 50% compared to RMB4,686 million
in the same quarter of 2017. Share-based compensation expense as a
percentage of revenue remained stable at 8% in the quarter ended
September 30, 2018 and the same quarter last year. The following
table sets forth our analysis of share-based compensation expense
for the quarters indicated by type of share-based awards:
Three months ended September
30, 2017 June 30, 2018 September 30,
2018 % Change % of % of
% of RMB Revenue RMB
Revenue RMB US$ Revenue YoY
QoQ (in millions, except percentages) By type of
awards: Alibaba Group share-based awards granted to:
- Our employees
3,697 7% 4,416 6% 6,060 882 7% 64% 37%
- Ant Financial employees and other
consultants(1)
469
1%
168
0%
105
15
0%
(78)%
(38)%
Ant Financial share-based awards granted to our employees(1)
266
0%
11,477
14%
438
64
0%
65%
(96)%
Others 254 0% 317 0% 440 64 1% 73% 39% Total share-based
compensation expense 4,686 8% 16,378 20% 7,043 1,025 8%
50%
(57)%
__________________
(1) Awards subject to mark-to-market accounting
treatment.
Share-based compensation expense related to Alibaba Group
share-based awards granted to our employees increased in this
quarter compared to the previous quarter. The increase reflected
the full quarter effect of the expense arising from the annual
performance-based awards granted in the middle of the previous
quarter and 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.
Share-based compensation expense related to Ant Financial
share-based awards granted to our employees decreased significantly
in this quarter compared to the previous quarter, mainly due to the
revaluation of the fair value of such awards in the previous
quarter. Furthermore, we expect that our share-based compensation
expense related to these awards will continue to be affected by
future changes in the valuation of Ant Financial, although any such
changes will be non-cash and will not result in any economic cost
or equity dilution to our shareholders.
Amortization of intangible assets – Amortization of
intangible assets in the quarter ended September 30, 2018 was
RMB2,611 million (US$380 million), an increase of 49% from RMB1,748
million in the same quarter of 2017, primarily due to an increase
in amortization of intangible assets acquired from business
combinations.
Income from operations and operating
margin
Income from operations in the quarter ended September 30, 2018
was RMB13,501 million (US$1,966 million), or 16% of revenue, a
decrease of 19% compared to RMB16,584 million, or 30% of revenue,
in the same quarter of 2017, primarily due to the consolidation of
Ele.me and Cainiao Network, investments in digital media and
entertainment and other strategic initiatives, as well as an
increase in share-based compensation and depreciation expenses.
Adjusted EBITDA and Adjusted
EBITA
Adjusted EBITDA increased 7% year-over-year to RMB26,710 million
(US$3,889 million) in the quarter ended September 30, 2018,
compared to RMB25,031 million in the same quarter of 2017, despite
adjusted EBITDA margin decreasing from 45% in the quarter ended
September 30, 2017 to 31% in the quarter ended September 30, 2018.
Adjusted EBITA increased 1% year-over-year to RMB23,155 million
(US$3,371 million) in the quarter ended September 30, 2018,
compared to RMB23,018 million in the same quarter of 2017, despite
adjusted EBITA margin decreasing from 42% in the quarter ended
September 30, 2017 to 27% in the quarter ended September 30, 2018.
Adjusted EBITDA and EBITA margins are lower mainly because of the
consolidation of Ele.me and Cainiao Network, strategic investments
in digital media and entertainment and other strategic initiatives.
Reconciliations of net income to adjusted EBITDA and adjusted EBITA
are included at the end of this results announcement.
As many of our newly developed and acquired businesses have
different cost structures, we expect that our margin will continue
to be negatively impacted by these businesses and the accounting
treatment of revenue recorded on a gross basis.
Adjusted EBITA and adjusted EBITA
margin by segments
Adjusted EBITA and adjusted EBITA margin by segments are set
forth in the table below. See the section entitled “Information
about Segments” above for a reconciliation of income from
operations to adjusted EBITA.
Three months ended September 30, 2017
2018 % of % of
RMB Revenue RMB US$ Revenue
(in millions, except percentages) Core commerce
26,414 57% 29,807 4,340 41% Cloud computing (162) (5)% (232) (34)
(4)% Digital media and entertainment (1,749) (36)% (3,802) (554)
(64)%
Innovation initiatives and others
(496)
(56)%
(1,241) (181) (116)%
Core commerce segment – Adjusted EBITA increased by 13%
to RMB29,807 million (US$4,340 million) in the quarter ended
September 30, 2018, compared to RMB26,414 million in the same
quarter of 2017, despite adjusted EBITA margin decreasing from 57%
in the quarter ended September 30, 2017 to 41% in the quarter ended
September 30, 2018. Excluding the effect of the below-mentioned
long-term investments, marketplace-based core commerce adjusted
EBITA increased 27% year-over-year to RMB35,642 million (US$5,190
million). The strategic investments include: (i) aggressive
investment in local services, such as Ele.me, (ii) international
expansion in regions such as Southeast Asia, (iii) gradual revenue
mix shift towards self-operated New Retail businesses where revenue
is recorded on a gross basis including the cost of inventory, and
(iv) inclusion of the logistics technology business of Cainiao
Network in our consolidated financial statements. A reconciliation
of adjusted EBITA for core commerce to marketplace-based core
commerce adjusted EBITA is included at the end of this results
announcement.
Cloud computing segment – Adjusted EBITA in the quarter
ended September 30, 2018 was a loss of RMB232 million (US$34
million), compared to a loss of RMB162 million in the same quarter
of 2017. Adjusted EBITA margin improved to negative 4% in the
quarter ended September 30, 2018 from negative 5% in the quarter
ended September 30, 2017.
Digital media and entertainment segment – Adjusted EBITA
in the quarter ended September 30, 2018 was a loss of RMB3,802
million (US$554 million), compared to a loss of RMB1,749 million in
the same quarter of 2017. Adjusted EBITA margin decreased to
negative 64% in the quarter ended September 30, 2018 from negative
36% in the quarter ended September 30, 2017, primarily due to our
investments in the production of original content and licensing
rights, including the rights for live streaming the World Cup games
in China.
Innovation initiatives and others segment – Adjusted
EBITA in the quarter ended September 30, 2018 was a loss of
RMB1,241 million (US$181 million), compared to a loss of RMB496
million in the same quarter of 2017. Adjusted EBITA margin
decreased to negative 116% in the quarter ended September 30, 2018,
compared to negative 56% in the quarter ended September 30, 2017,
primarily due to investments in new business initiatives, including
Tmall Genie.
Interest and investment income,
net
Interest and investment income, net in the quarter ended
September 30, 2018 was RMB6,635 million (US$966 million), which
mainly included net gains from disposal of certain investments of
RMB4,539 million (US$661 million), as well as net gains arisen from
the increase in fair value of certain equity investments.
Other income (loss), net
Other loss, net in the quarter ended September 30, 2018 was
RMB1,532 million (US$223 million), compared to other income, net of
RMB1,737 million in the same quarter of 2017. The loss was
primarily due to net loss sustained by Ant Financial during the
quarter as a result of its investments in user acquisition, product
innovation and international expansion. In the September 2018
quarter, Ant Financial strategically stepped up its investment to
acquire more users and capture growth opportunities of the offline
payment market by leveraging its technology for financial service
industries. During the quarter, domestic annual active users
exceeded 700 million, almost 70% of which used three or more
categories of Ant Financial’s services. Ant Financial’s net loss in
the quarter led to our reversal of income recognized in respect of
royalty fees and software technology service fees under our profit
sharing arrangement. The reversal of income amounted to a charge of
RMB910 million (US$132 million) in the quarter ended September 30,
2018, compared to an income of RMB1,995 million in the same quarter
last year. Other loss, net also included an exchange loss of RMB907
million (US$132 million) in the quarter ended September 30,
2018.
Income tax expenses
Income tax expenses in the quarter ended September 30, 2018 were
RMB277 million (US$40 million), compared to RMB2,719 million in the
same quarter of 2017.
Our effective tax rate was 2% in the quarter ended September 30,
2018, compared to 13% in the same quarter of 2017. The decrease in
effective tax rate was primarily due to the recognition of tax
credits of approximately RMB4.7 billion (US$684 million) during the
quarter ended September 30, 2018, compared to RMB2.3 billion in the
same quarter last year, as certain key subsidiaries were notified
of the renewal of their Key Software Enterprise status for calendar
year 2017 by the relevant tax authorities. Excluding share-based
compensation expense, investment gain/loss, impairment of
investments, as well as the above-mentioned tax credits from the
renewal of the Key Software Enterprise status, our effective tax
rate would have been 23% in the quarter ended September 30,
2018.
Share of results of equity
investees
Share of results of equity investees in the quarter ended
September 30, 2018 was a profit of RMB1,254 million (US$182
million), compared to a loss of RMB882 million in the same quarter
of 2017. We record our share of results of equity investees one
quarter in arrears. Share of results of equity investees in the
quarter ended September 30, 2018 and the comparative periods
consisted of the following:
Three months ended September 30, 2017
June 30, 2018 September 30, 2018
RMB RMB RMB US$ (in
millions) Share of (loss) profit of equity investees:
- Koubei(1)
(369)
— — —
- Cainiao Network(2)
(273)
— — —
- Other equity investees
190 (66) 1,735 252 Dilution loss (14) (108) (41) (6) Others(3)
(416) (481) (440) (64) Total (882) (655) 1,254 182
__________________
(1) We have ceased to recognize our share of losses
of Koubei as our cumulative share of losses exceeded our investment
in Koubei. (2) We started to consolidate Cainiao Network in
mid-October 2017 after obtaining control over Cainiao Network. (3)
Others mainly include amortization of intangible assets of equity
investees and share-based compensation expense.
The share of profit of other equity investees in the quarter
ended September 30, 2018 mainly include our share of profit in
Suning.
Net income and Non-GAAP net
income
Our net income in the quarter ended September 30, 2018 was
RMB18,241 million (US$2,656 million), an increase of 5% compared to
RMB17,408 million in the same quarter of 2017.
Excluding share-based compensation expense, non-recurring
disposal gains and certain other items, non-GAAP net income in the
quarter ended September 30, 2018 was RMB23,453 million (US$3,415
million), an increase of 6% compared to RMB22,089 million in the
same quarter of 2017. A reconciliation of net income to non-GAAP
net income is included at the end of this results announcement.
Net income attributable to ordinary
shareholders
Net income attributable to ordinary shareholders in the quarter
ended September 30, 2018 was RMB20,033 million (US$2,917 million),
an increase of 13% compared to RMB17,668 million in the same
quarter of 2017.
Diluted EPS and non-GAAP diluted
EPS
Diluted EPS in the quarter ended September 30, 2018 was RMB7.62
(US$1.11) on a weighted average of 2,628 million diluted shares
outstanding during the quarter, an increase of 12% compared to
RMB6.78 on a weighted average of 2,607 million diluted shares
outstanding during the same quarter of 2017. Excluding share-based
compensation expense, non-recurring disposal gains and certain
other items, non-GAAP diluted EPS in the quarter ended September
30, 2018 was RMB9.60 (US$1.40), an increase of 12% compared to
RMB8.57 in the same quarter of 2017. A reconciliation of diluted
EPS to non-GAAP diluted EPS is included at the end of this results
announcement.
Cash, cash equivalents and short-term
investments
As of September 30, 2018, cash, cash equivalents and short-term
investments were RMB171,875 million (US$25,025 million), compared
to RMB177,283 million as of June 30, 2018. The decrease in cash,
cash equivalents and short-term investments during the quarter
ended September 30, 2018 was primarily due to cash used in
investing activities, including acquisition of Trendyol and
investments in Focus Media, partly offset by free cash flow
generated from operations of RMB16,033 million (US$2,334
million).
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 was RMB16,033 million (US$2,334
million), compared to RMB22,119 million in the same quarter of
2017. A reconciliation of net cash provided by operating activities
to free cash flow is included at the end of this results
announcement.
Net cash used in investing
activities
During the quarter ended September 30, 2018, net cash used in
investing activities of RMB31,584 million (US$4,599 million)
primarily reflected (i) cash outflow of RMB23,352 million (US$3,400
million) for investment and acquisition activities, including
acquisition of Trendyol and investments in Focus Media, (ii)
capital expenditures of RMB12,394 million (US$1,805 million), which
included cash outflow for acquisition of land use rights and
construction in progress relating to office campus of RMB762
million (US$111 million), as well as (iii) acquisition of licensed
copyrights and intangible assets of RMB3,742 million (US$545
million).
Employees
As of September 30, 2018, we had a total of 93,397 employees,
compared to 86,833 as of June 30, 2018. The number of employees as
of September 30, 2018 increased by 6,564 from June 30, 2018,
primarily due to the consolidation of newly acquired businesses and
our expansion in consumer services and cloud computing
businesses.
WEBCAST AND CONFERENCE CALL INFORMATION
Alibaba Group’s management will hold a conference call to
discuss the financial result at 7:30 a.m. U.S. Eastern Time (7:30
p.m. Hong Kong Time) on November 2, 2018.
Details of the conference call are as follows:
International: +65 6713 5090U.S.: +1 845 675 0437U.K.: +44 203
621 4779Hong Kong: +852 3018 6771Conference ID: 5099548
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: 5099548).
Our results announcement and accompanying slides are available
at Alibaba Group’s Investor Relations website at
http://www.alibabagroup.com/en/ir/home on November 2, 2018.
ABOUT ALIBABA GROUP
Alibaba Group’s mission is to make it easy to do business
anywhere and the company aims to achieve sustainable growth for 102
years. For fiscal year ended March 2018, the company reported
revenue of US$39.9 billion.
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. In addition,
statements that are not historical facts, including statements
about Alibaba’s strategies and business plans, Alibaba’s beliefs,
expectations and guidance 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 expected revenue growth;
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), marketplace-based
core commerce adjusted EBITA, 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 investors identify and
understand underlying trends in our business without the effect of
certain income or expenses that are reflected in income from
operations, net income and diluted EPS. We believe that
marketplace-based core commerce adjusted EBITA is a measure that
can help investors better understand the performance of our
marketplace commerce business, which is the contributor of the
large majority of our revenue. We believe that adjusted
EBITDA, adjusted EBITA, non-GAAP net income, non-GAAP diluted EPS
and marketplace-based core commerce adjusted EBITA 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. These non-GAAP measures 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, interest expense, other income (loss),
net, income tax expenses and share of results of equity investees,
and (ii) certain non-cash expenses, consisting of share-based
compensation expense, amortization and depreciation, which we do
not believe are reflective of our core operating performance during
the periods presented.
Adjusted EBITA represents net income before (i) interest
and investment income, net, interest expense, other income (loss),
net, income tax expenses and share of results of equity investees,
and (ii) certain non-cash expenses, consisting of share-based
compensation expense and amortization, which we do not believe are
reflective of our core operating performance during the periods
presented.
Marketplace-based core commerce adjusted EBITA represents
adjusted EBITA for core commerce excluding the effects of (i)
Ele.me and Cainiao Network consolidation as well as (ii) strategic
investments in New Retail and Lazada.
Non-GAAP net income represents net income before
share-based compensation expense, amortization, impairment of
investments, gain or loss 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, licensed copyrights and
intangible assets (excluding acquisition of land use rights and
construction in progress relating to office campus).
The section entitled “Information about Segments” and the table
captioned “Reconciliations of Non-GAAP Measures to the Nearest
Comparable GAAP Measures” in this results announcement have more
details on the non-GAAP financial measures that are most directly
comparable to GAAP financial measures and the related
reconciliations between these financial measures.
ALIBABA GROUP HOLDING LIMITED UNAUDITED
CONSOLIDATED INCOME STATEMENTS Three months
ended September 30, Six months ended September
30, 2017 2018 2017
2018 RMB RMB US$ RMB
RMB US$ (in millions, except per share
data) (in millions, except per share data)
Revenue 55,122 85,148 12,398 105,306 166,068 24,180 Cost of
revenue (22,002) (46,786) (6,812) (39,462) (90,506) (13,178)
Product development expenses (5,083) (8,365) (1,218) (9,779)
(19,875) (2,894) Sales and marketing expenses (6,266) (9,106)
(1,326) (11,116) (18,027) (2,625) General and administrative
expenses (3,439) (4,779) (696) (7,118) (11,424) (1,663)
Amortization of intangible assets (1,748) (2,611) (380) (3,734)
(4,715) (686)
Income from operations 16,584 13,501
1,966 34,097 21,521 3,134 Interest and investment income, net 3,435
6,635 966 4,907 13,881 2,021 Interest expense (747) (1,340) (195)
(1,547) (2,553) (372) Other income (loss), net 1,737 (1,532) (223)
3,624 (1,615) (235)
Income before income tax and share of
results of equity investees 21,009 17,264 2,514 41,081 31,234
4,548 Income tax expenses (2,719) (277) (40) (7,372) (5,942) (865)
Share of results of equity investees (882) 1,254 182 (2,270) 599 87
Net income 17,408 18,241 2,656 31,439 25,891 3,770
Net loss attributable to noncontrolling interests 260 1,892 275 912
2,962 431 Net income attributable to Alibaba Group Holding
Limited 17,668 20,133 2,931 32,351 28,853 4,201 Accretion of
mezzanine equity — (100) (14) — (135) (20)
Net income
attributable to ordinary shareholders 17,668 20,033 2,917
32,351 28,718 4,181
Earnings per share attributable to
ordinary shareholders Basic 6.92 7.75 1.13 12.70 11.12
1.62 Diluted 6.78 7.62 1.11 12.43 10.93 1.59
Weighted
average number of share used in calculating net income per ordinary
share Basic 2,552 2,584 2,547 2,582 Diluted 2,607 2,628 2,603
2,627
ALIBABA GROUP HOLDING LIMITEDREVENUE
The following table sets forth our revenue by segments for the
periods indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 RMB RMB US$
RMB RMB US$ (in millions) (in
millions) Core commerce(1) 46,462 72,475 10,553 89,489 141,663
20,627 Cloud computing(2) 2,975 5,667 825 5,406 10,365 1,509
Digital media and entertainment(3) 4,798 5,940 865 8,879 11,915
1,735 Innovation initiatives and others(4) 887 1,066 155 1,532
2,125 309 Total 55,122 85,148 12,398 105,306 166,068 24,180
__________________
(1) Revenue from core commerce is primarily generated
from our China retail marketplaces, 1688.com, AliExpress,
Alibaba.com, Lazada.com, Cainiao logistics services and consumer
services. (2) Revenue from cloud computing is primarily generated
from the provision of services, such as elastic computing,
database, storage, network virtualization services, large scale
computing, security, management and application services, big data
analytics, a machine learning platform and IoT services. (3)
Revenue from digital media and entertainment is primarily generated
from Youku and UCWeb. (4) Revenue from innovation initiatives and
others is primarily generated from businesses such as Amap, Tmall
Genie and other innovation initiatives. Other revenue also includes
SME annual fee received from Ant Financial and its affiliates.
ALIBABA GROUP HOLDING LIMITEDINFORMATION ABOUT
SEGMENTS
The following table sets forth our income (loss) from operations
by segments for the periods indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 RMB RMB US$
RMB RMB US$ (in millions) (in
millions) Core commerce 23,836 24,290 3,537 48,644 47,312 6,889
Cloud computing (697) (1,165) (170) (1,229) (3,239) (472) Digital
media and entertainment (3,383) (4,805) (700) (6,771) (9,095)
(1,324) Innovation initiatives and others (1,456) (2,201) (320)
(3,068) (5,976) (870) Unallocated (1,716) (2,618) (381) (3,479)
(7,481) (1,089) Total 16,584 13,501 1,966 34,097 21,521
3,134
The following table sets forth our adjusted EBITA by segments
for the periods indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 RMB RMB US$
RMB RMB US$ (in millions) (in
millions) Core commerce 26,414 29,807 4,340 53,384 62,604 9,115
Cloud computing (162) (232) (34) (265) (720) (105) Digital media
and entertainment (1,749) (3,802) (554) (3,497) (6,934) (1,009)
Innovation initiatives and others (496) (1,241) (181) (1,130)
(2,443) (356) Unallocated (989) (1,377) (200) (1,956) (2,850) (415)
Total 23,018 23,155 3,371 46,536 49,657 7,230
The table below sets forth selected financial information of our
operating segments for six months ended September 30, 2018:
Six months ended September 30, 2018
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 141,663 10,365
11,915 2,125 — 166,068 24,180
Income (loss) from operations 47,312
(3,239 ) (9,095 ) (5,976
) (7,481 ) 21,521 3,134
Add: Share-based compensation expense
11,387 2,509 1,528 3,516 4,481 23,421 3,410 Add: Amortization of
intangible assets 3,905 10 633 17 150
4,715 686
Adjusted EBITA
62,604 (720 ) (6,934 )
(2,443 ) (2,850 ) 49,657
7,230 Adjusted EBITA margin 44 %
(2) (7 )% (58 )% (115
)%
30 % Six months ended September 30,
2017 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 89,489 5,406 8,879 1,532
— 105,306 Income (loss) from operations
48,644 (1,229 ) (6,771 )
(3,068 ) (3,479 ) 34,097
Add: Share-based compensation expense
3,547
959
1,096
1,746
1,357
8,705 Add: Amortization of intangible assets 1,193 5
2,178 192 166 3,734
Adjusted
EBITA 53,384 (265 ) (3,497
) (1,130 ) (1,956 )
46,536 Adjusted EBITA margin 60
% (5 )% (39 )% (74
)% 44 %
__________________
(1) Unallocated expenses are primarily related to
corporate administrative costs and other miscellaneous items that
are not allocated to individual segments. (2) Adjusted EBITA margin
is lower than prior year period mainly due to the consolidation of
Ele.me and Cainiao Network, strategic investments in New Retail and
Lazada. Excluding the effects of the above-mentioned long-term
investments, our marketplace-based core commerce adjusted EBITA
increased 29% year-over-year to RMB72,598 million (US$10,570
million).
ALIBABA GROUP HOLDING LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEETS
As of March 31,
As of September 30,
2018
2018
RMB
RMB
US$
(in millions) Assets Current assets: Cash and
cash equivalents 199,309 164,375 23,933 Short-term investments
6,086 7,500 1,092 Restricted cash and escrow receivables 3,417
7,878 1,147 Investment securities 4,815 9,662 1,407 Prepayments,
receivables and other assets 43,228 48,468 7,057 Total current
assets 256,855 237,883 34,636 Investment securities (1)
38,192 132,467 19,287 Prepayments, receivables and other assets
26,274 26,156 3,808 Investment in equity investees (1) 139,700
86,823 12,642 Property and equipment, net 66,489 87,025 12,671
Intangible assets, net 27,465 50,684 7,380 Goodwill 162,149 203,729
29,664
Total assets 717,124 824,767 120,088
Liabilities, Mezzanine Equity and Shareholders’ Equity
Current liabilities: Current bank borrowings 6,028 9,022 1,313
Income tax payable 13,689 12,361 1,800 Escrow money payable 3,053
6,202 903 Accrued expenses, accounts payable and other liabilities
81,165 104,785 15,257 Merchant deposits 9,578 9,101 1,325 Deferred
revenue and customer advances 22,297 26,625 3,877 Total current
liabilities 135,810 168,096 24,475
ALIBABA GROUP
HOLDING LIMITED UNAUDITED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
As of March 31,
As of September 30,
2018
2018
RMB
RMB US$ (in millions) Deferred
revenue 993 1,205 175 Deferred tax liabilities 19,312 19,628 2,858
Non-current bank borrowings 34,153 35,477 5,166 Non-current
unsecured senior notes 85,372 93,717 13,645 Other liabilities 2,045
5,296 771
Total liabilities 277,685 323,419 47,090
Commitments and contingencies
— — —
Mezzanine equity
3,001 6,001 874
Shareholders’ equity:
Ordinary shares 1 1
— Additional paid-in capital 186,764
212,682 30,967 Treasury shares at cost (2,233) (1,412) (206)
Restructuring reserve (361) (229) (33) Subscription receivables
(163) (179) (26) Statutory reserves 4,378 4,535 660 Accumulated
other comprehensive income (loss) (1) 5,083 (1,685) (245) Retained
earnings (1) 172,353 207,847 30,263 Total shareholders’
equity 365,822 421,560 61,380 Noncontrolling interests 70,616
73,787 10,744
Total equity 436,438 495,347 72,124
Total liabilities, mezzanine equity and equity
717,124 824,767 120,088
__________________
(1) We adopted ASU 2016-01, “Financial Instruments —
Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities” beginning in the first quarter of
fiscal year 2019. After the adoption of this new accounting update,
equity investments other than those accounted for under the equity
method or those that result in the consolidation of the investee
are required to be measured at fair value, with subsequent changes
in fair value recognized in the income statement. We have adopted
this new accounting update using the modified retrospective method.
For available-for-sale securities, RMB8,196 million in unrealized
gains, net of tax recorded in accumulated other comprehensive
income as of March 31, 2018 was reclassified into retained earnings
upon the initial adoption as of April 1, 2018. Investments measured
under the cost method of RMB59,942 million as of March 31, 2018 was
reclassified into investment securities as of April 1, 2018. The
consolidated balance sheets as of March 31, 2018 was not
retrospectively adjusted.
ALIBABA GROUP HOLDING
LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS Three months ended September 30,
Six months ended September 30, 2017
2018 2017 2018 RMB RMB
US$ RMB RMB US$ (in
millions) (in millions) Net cash provided by
operating activities(1) 30,121 31,407 4,573 55,994 67,524 9,832 Net
cash used in investing activities(1) (25,561) (31,584) (4,599)
(39,484) (103,254) (15,034) Net cash (used in) provided by
financing activities (416) (3,477) (506) (9,310) 804 117 Effect of
exchange rate changes on cash and cash equivalents, restricted cash
and escrow receivables (1) (812) 1,670 244 (1,904) 4,453 649
Increase (decrease) in cash and cash equivalents, restricted cash
and escrow receivables 3,332 (1,984) (288) 5,296 (30,473) (4,436)
Cash and cash equivalents, restricted cash and escrow receivables
at beginning of period 148,355 174,237 25,369 146,391 202,726
29,517 Cash and cash equivalents, restricted cash and escrow
receivables at end of period 151,687 172,253 25,081 151,687 172,253
25,081
__________________
(1) We adopted ASU 2016-18, “Statement of Cash Flows
(Topic 230): Restricted Cash,” beginning in the first quarter of
fiscal year 2019. As a result of adopting this new accounting
update, the consolidated statements of cash flows were
retrospectively adjusted to include restricted cash and escrow
receivables in cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
consolidated statements of cash flows. The impact of the
retrospective reclassification on cash flows from operating
activities, investing activities and effect of exchange rate
changes for the six months ended September 30, 2017 was an increase
of RMB176 million, an increase of RMB111 million and a decrease of
RMB1 million, respectively.
ALIBABA GROUP HOLDING LIMITEDRECONCILIATIONS OF
NON-GAAP MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES
The table below sets forth a reconciliation of our net income to
adjusted EBITA and adjusted EBITDA for the periods indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 RMB RMB US$
RMB RMB US$ (in millions) (in
millions) Net income 17,408 18,241
2,656 31,439 25,891 3,770 Less:
Interest and investment income, net (3,435) (6,635) (966) (4,907)
(13,881) (2,021) Add: Interest expense 747 1,340 195 1,547 2,553
372 Less: Other income (loss), net (1,737) 1,532 223 (3,624) 1,615
235 Add: Income tax expenses 2,719 277 40 7,372 5,942 865 Add:
Share of results of equity investees 882 (1,254) (182) 2,270 (599)
(87)
Income from operations 16,584 13,501
1,966 34,097 21,521 3,134 Add:
Share-based compensation expense 4,686 7,043 1,025 8,705 23,421
3,410 Add: Amortization of intangible assets 1,748 2,611 380 3,734
4,715 686
Adjusted EBITA 23,018 23,155
3,371 46,536 49,657 7,230
Add: Depreciation and amortization of
property and equipment and land use rights
2,013
3,555
518
3,619
6,412
934
Adjusted EBITDA 25,031 26,710 3,889
50,155 56,069 8,164
ALIBABA GROUP HOLDING LIMITEDRECONCILIATIONS OF
NON-GAAP MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES
(CONTINUED)
The table below sets forth a reconciliation of adjusted EBITA
for core commerce to marketplace-based core commerce adjusted EBITA
for the periods indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 RMB RMB US$
RMB RMB US$ (in millions) (in
millions)
Adjusted EBITA for core
commerce
26,414 29,807 4,340 53,384
62,604 9,115 Less: Effect of Ele.me and Cainiao
Network consolidation and strategic investments in New Retail and
Lazada
1,550
5,835 850 2,964 9,994 1,455
Marketplace-based core commerce
adjusted EBITA
27,964
35,642 5,190 56,348 72,598
10,570
ALIBABA GROUP HOLDING LIMITEDRECONCILIATIONS OF
NON-GAAP MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES
(CONTINUED)
The table below sets forth a reconciliation of our net income to
non-GAAP net income for the periods indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 RMB RMB US$
RMB RMB US$ (in millions) (in
millions) Net income 17,408 18,241
2,656 31,439 25,891 3,770 Add:
Share-based compensation expense 4,686 7,043 1,025 8,705 23,421
3,410 Add: Amortization of intangible assets 1,748 2,611 380 3,734
4,715 686 Add: Impairment of investments 389 358 52 1,341 358 52
Less: Gain on deemed disposals/disposals/revaluation of investments
and others (2,297) (5,297) (771) (3,386) (10,705) (1,558) Add:
Amortization of excess value receivable arising from the
restructuring of commercial arrangements with Ant Financial 66 66
10 133 132 19 Add: Immediate recognition of unamortized
professional fees and upfront fees upon termination of bank
borrowings — — — 92 — — Adjusted for tax effects on non-GAAP
adjustments(1)
89
431
63
50
(258)
(37)
Non-GAAP net income 22,089 23,453
3,415 42,108 43,554 6,342
__________________
(1) Tax effects on non-GAAP adjustments comprise of
tax provisions on the amortization of intangible assets and certain
investment gains, as well as tax benefits from share-based awards.
ALIBABA GROUP HOLDING LIMITEDRECONCILIATIONS OF
NON-GAAP MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES
(CONTINUED)
The table below sets forth a reconciliation of our diluted EPS
to non-GAAP diluted EPS for the periods indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 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
17,668 20,033 2,917 32,351
28,718 4,181 Dilution effect on earnings arising from
option plans operated by an equity investee (3) (12) (2) (6) (15)
(2) Net income attributable to ordinary shareholders – diluted
17,665 20,021 2,915 32,345 28,703 4,179 Add: Non-GAAP adjustments
to net income(1)
4,681
5,212
759
10,669
17,663
2,572
Non-GAAP net income attributable to ordinary
shareholders for computing non-GAAP diluted EPS 22,346
25,233 3,674 43,014 46,366 6,751
Weighted average number of shares on a diluted basis
2,607 2,628 2,603 2,627 Diluted
EPS(2) 6.78 7.62 1.11 12.43
10.93 1.59 Add: Non-GAAP adjustments to net income
per share(3) 1.79 1.98 0.29 4.09 6.72 0.98
Non-GAAP
diluted EPS(4) 8.57 9.60 1.40
16.52 17.65 2.57
__________________
(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 LIMITEDRECONCILIATIONS OF
NON-GAAP MEASURES TO THE NEAREST COMPARABLE GAAP MEASURES
(CONTINUED)
The table below sets forth a reconciliation of net cash provided
by operating activities to free cash flow for the periods
indicated:
Three months ended September 30, Six months
ended September 30, 2017 2018 2017
2018 RMB RMB US$
RMB RMB US$ (in millions) (in
millions) Net cash provided by operating
activities(1) 30,121 31,407 4,573
55,994 67,524 9,832 Less: Purchase of property
and equipment (excluding land use rights and construction in
progress relating to office campus) (5,322) (11,632) (1,694)
(6,535) (16,637) (2,423) Less: Acquisition of licensed copyrights
and intangible assets
(2,680)
(3,742)
(545)
(4,629)
(8,496)
(1,237)
Free cash flow 22,119 16,033
2,334 44,830 42,391 6,172
__________________
(1) We adopted ASU 2016-18, “Statement of Cash Flows
(Topic 230): Restricted Cash,” beginning in the first quarter of
fiscal year 2019. As a result of adopting this new accounting
update, the consolidated statements of cash flows were
retrospectively adjusted to include restricted cash and escrow
receivables in cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
consolidated statements of cash flows. The impact of the
retrospective reclassification on cash flows from operating
activities for the six months ended September 30, 2017 was an
increase of RMB176 million.
ALIBABA GROUP HOLDING LIMITEDSELECTED OPERATING
DATA
Annual active consumers
The table below sets forth the number of active consumers on our
China retail marketplaces for the periods indicated:
Twelve months ended Dec 31, Mar
31, Jun 30, Sep 30, Dec
31, Mar 31, Jun 30, Sept
30, 2016 2017 2017 2017 2017
2018 2018 2018 (in millions) Annual
active consumers 443 454 466 488 515 552 576
601
Mobile
The table below sets forth the mobile MAUs on our China retail
marketplaces for the periods indicated:
The month ended Dec 31, Mar 31,
Jun 30, Sep 30, Dec 31,
Mar 31, Jun 30, Sept 30,
2016 2017 2017 2017 2017
2018 2018 2018 (in millions) Mobile
MAUs 493 507 529 549 580 617 634
666
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Alibaba Group Holding LimitedInvestor Relations ContactRob
Lininvestor@alibabagroup.comorMedia ContactsBrion
Tinglerbrion.tingler@alibaba-inc.comorKatie
Leek.lee@alibaba-inc.com
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