2
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. Thestrategic 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。