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