Alibaba Zhang Yong Summary 2015 Outlook 2016

Alibaba group released its earnings for the third quarter of fiscal year 2016 (fourth natural season in 2015) as of December 31, 2015, with a revenue of 34 billion 543 million yuan (US $5 billion 333 million) in the fiscal quarter, an increase of 32% over the same period last year.

Net profit was 12 billion 456 million yuan (US $1 billion 923 million), up 108% from 5 billion 983 million yuan in the same period last year.

Based on non US GAAP, net profit was 16 billion 358 million yuan (US $2 billion 525 million), up 25% from 13 billion 115 million yuan a year earlier.

After the release of the financial report, Zhang Yong, chief executive of Alibaba, chief financial officer Wu Wei, executive vice chairman of the board of directors Cai Chongxin and other executives attended the subsequent conference call, read the key points of earnings and answer questions from analysts.

Below is the main content of Q & a session.

Analysts: I have two questions. First of all, the slowdown in the growth of total GMV, I think part of the reason should be the company's regulation of the quality of platform products. But it seems that the total volume of Tmall's growth is also decreasing. And the rectification of the quality of commodities should be mainly influenced by Taobao. I want to know if the factors such as the quality of products are rectified and so on, will the growth rate of the total volume of pactions be reduced by the same magnitude?

Regarding the liquidity rate, you mentioned that this data will increase. Can you tell us specifically why businesses will spend more money? Can your future financial data support the growth rate of liquidity?

Zhang Yong: about the growth of Tmall, in fact, if you look at the big trend, our total paction volume in the last quarter has reached 964 billion yuan, a net increase of 177 billion yuan compared with the same period last year. This is a very large base. We are very satisfied with the earnings data. We feel that under such a large base, we can continue to increase the number of users, and the number of active buyers has reached 407 million.

One of the factors that I need to mention is the weather. In the fourth quarter, especially in November and December, the weather in China is warmer than before. We observed that the sales of winter clothing products with relatively high prices were also affected.

But we are pleased to see that in January, many places, including Hongkong, experienced a drop in temperature and even experienced a cold winter compared with previous years. So in the past few weeks, the sales of clothing in winter were good.

Cai Chongxin: regarding the issue of liquidation rate, you mentioned the highest Take Rate in December 2013 (the proportion of the total income that the platform gets from a certain paction volume). In the last quarter, our Take Rate was 2.98%, while the Take Rate in the third quarter of 2014 was only 2.8%. In fact, 2.98% is the highest in the last eight quarters. I hope you will notice this.

What you ask is whether Take Rate will continue to rise. In fact, if you look at Take Rate, it itself is just a calculated figure, that is, the total income of our Chinese retail platform is divided by the total paction volume of China's retail platform.

Just now, Zhang Yong also mentioned that at the beginning of the game, the total amount of pactions can no longer fully reflect all the values that we bring to businesses and brands on the platform. Now, brands and businesses can use our platform to get users and interact with users, which is beyond the order of a paction. After establishing the user base, these brands and businessmen want to seize the consumer value of their lifetime, hoping that these users will continue to buy their products repeatedly and remain loyal to their brands.

These values can not be measured simply by the total amount of our pactions.

So, I think what we should pay attention to in the future is our cash flow to users. Today we have published two data in our earnings report: first, the average per active user income, but the average monthly active user income of mobile terminals. The former tells us that our total income from each user can reflect the level of our cash flow to each user, and second data tell everyone about the mobile terminal. Now the performance of our mobile terminals is amazing.

On the whole, we have confidence in the improvement of liquidity.

Deutsche bank analyst: how do you look ahead to the company's 2016 year tax rate depreciation and EBITDA margin? What are the favorable and unfavorable factors facing the new year?

In addition, as for cross-border electricity business, I would like to know how much of Tmall's paction amount is counted as cross-border business pactions? What is the proportion of cross-border pactions in C2C Taobao business, that is, the amount of pactions between purchasing agents and Hai Tao businesses? How much do you expect the final Take Rate to reach in cross-border electricity suppliers?

Wu Wei: our profit margin forecast has not changed. The profit margin of the core business segment is still the highest, and it will continue to grow with the expansion of the scale. In the long run, we will continue to increase strategic investment in the new and old businesses, so as to ensure the growth of revenue and profit.

Profit margins may vary slightly every quarter, because the cost is basically fixed, and revenue may show a nonlinear change due to the different peak seasons.

But we have been emphasizing that profit margin is not the goal of company operation.

Zhang Yong: Tmall international has actually provided channels for foreign suppliers to enter the Chinese market.

Although the scale of Tmall international is still at the initial stage of development, compared with the overall size of Tmall, the growth rate is very fast. The year-on-year growth rate of Tmall international is 179%.

At this stage, foreign suppliers are coming to us. We hope to enter the Chinese market through Tmall international. The focus of Tmall's early international operation is to increase the number of customers. We hope to help these international sellers increase sales in the coming years.

Tmall international is just part of our cross-border business. This part of the product is in the hands of Chinese buyers through normal import and export channels, while Taobao's global purchase channel is our C2C cross-border e-commerce business. Many sea fans like this very much.

Bank of America Merrill Lynch analyst: regarding the total amount of pactions, you released the data of "High Quality GMV" in your earnings report. I would like to know when some of the total pactions will become high quality and meet your high level of cash demand. After all, you improve quality clean-up action to slow down the total volume of pactions last quarter.

In addition, can you introduce some progress in cloud computing business? What are the driving factors for the growth of cloud computing business in the last quarter? Is the number of customers increasing or first customers upgrading to more advanced services?

Zhang Yong: our focus has always been to enhance the user experience. A good user experience is part of the total volume of high quality pactions. We are glad to see that the sales of double eleven is huge, but the user experience is very good, because the delivery time of logistics is much faster than the previous years.

In the future, the total volume of Alibaba's pactions will be driven by three factors: first, the rural market; we are developing more and more users in the rural market; the two is to increase the consumption amount of the existing users, especially by providing more high-quality imports; third, we hope to continue to expand the category, especially to provide more service products.

Wu Wei: we are very proud of the development of cloud computing business. The growth sources of cloud computing business are mainly composed of several channels, one is the growth of the number of customers, especially the number of paying customers, the two is the increase of product types, we launched 19 new products in the last quarter, three is the upgrading of technology and the development of ecosystem, the number of developers in our cloud computing business ecosystem has exceeded 20 thousand.

Morgan Stanley analyst: first, you mentioned that to improve the user experience of consumers in the first tier cities, I think this includes several initiatives, first of all, intelligent logistics. You have done a lot of work in this area in the past year, especially before the double eleven. What plans do you have in this area this year? Please highlight the cooperation part with Suning.

Second, according to the data you released, I have roughly calculated that the daily orders of word of mouth business in the last quarter are about 5 million. This figure may be higher than the largest two competitors in the field. So how big is the scale of the business in the future? Investors may be more worried that this year's price subsidy war will affect the company's earnings data. Can you tell us about your plan to increase the turnover of word of mouth business?

Zhang Yong: logistics has great impact on our user experience. Through the rookie, Alibaba maintains close cooperation with many logistics companies, including warehouses on behalf of operation and management companies, one kilometer delivery company, etc.

For example, in the field of logistics, we cooperate with Haier electric, an investment company, to deliver large and medium-sized cities through the sun. We have nearly 100 warehouses and have very high distribution efficiency. The large household appliance business is also one of the fastest growing businesses in the last quarter of the company's Tmall platform.

In addition, the growth of Tmall supermarket is also very fast. The growth rate of the third quarter has reached 279%. The main driving factor is the upgrading of the logistics system.

Because for supermarket products, people buy is convenient, they want to get the service that day or next day.

Moreover, through docking with the cooperative logistics company, we also get a lot of logistics data, so that we can help logistics partners to upgrade their business processes. The effect has been reflected in the improvement of logistics efficiency of double eleven.

Cai Chongxin: I would like to talk about the issue of O2O. Word of mouth is a joint venture between Alibaba and ant gold clothing. We pay great attention to the business development of this company. The amount of word of mouth pactions reached nearly 16 billion yuan last quarter. If you calculate the annual turnover, you can see that although the development is relatively late, the scale of word of mouth has been very large compared with the competitors, and the growth rate is faster than that of the competitors.

We are very excited about the number of orders per day exceeding 5 million.

In the future, we will continue to attach importance to this business. Many industries in the O2O industry are related to food, including restaurant recommendation and food takeaway. However, the restaurant market has a scale of 1 trillion US dollars, so it is natural for us to invest heavily in this field.

Zhang Yong: our cooperation with Suning is gradually achieving the stage of synergy, especially in terms of logistics. In fact, Suning has already delivered some supermarket products for Ali.

Goldman Sachs analyst: your trading volume increased by 23% in the last quarter, but if you cut out double eleven sales, the growth rate may be less than 20%. Can you predict the next quarter's turnover and growth rate?

In addition, how will this year's economic situation affect the growth of the company's turnover?

Zhang Yong: as I mentioned just now, the weather in the first quarter will have a positive impact on the total volume of our pactions. Besides, we are also actively increasing the number of users, hoping to develop it into a loyal user.

Credit Suisse analyst: what areas will you invest in 2016? Will it increase investment in word-of-mouth and content?

In addition, I understand that the logistics business of Ali is divided by vertical industries. What are the areas of logistics that the company is focusing on in addition to household appliances and business super?

Wu Wei: we will invest in some important strategic areas in the coming years, such as digital entertainment, operating systems, cloud computing, rural businesses and cross-border electricity providers.

Zhang Yong: logistics, the company is committed to improving the overall speed of logistics and user experience, specifically, the company will strengthen the logistics capabilities for key categories, such as fresh food, cross-border electricity suppliers and furniture, household appliances, etc., these areas require higher logistics, so we will work together with partners to develop logistics solutions specifically for these categories.

UBS analyst: since the summer of 2014, Alibaba has begun to increase its commercialization efforts through advertising. At the same time, it is hoped that efforts can be made to ensure the activity of PC end users. At present, what is the effect? Do you find a balance before you can ensure that PC users are active and cash in?

In addition, as the commercialization of mobile terminals has gradually increased to the level of the PC side, how does PC end experience in the form of advertising and user experience contribute to mobile terminals?

Zhang Yong: we are very satisfied with the progress of the company's pition to mobile terminals. For brands and businesses, mobile terminals are helping them create new value, helping them get more users, and managing and servicing these new users.

In the age of PC, people only buy online when they are using computers. In fact, most of the time they do not use computers. In the mobile era, mobile phones have gradually become an extension of the body, and people are using it anytime, anywhere, so we can help businesses to contact and acquire target consumers in real time.

This is our value. Businesses agree with this and are willing to pay for it.

Wu Wei: I hope you should pay attention to the whole.

Without distinction between PC and mobile terminals.

Moreover, as we mentioned before, the value of Alibaba for businesses and brands is not only reflected in the volume of pactions, but also has many values.

JP Morgan analyst: about O2O, have you adjusted the strategy of word-of-mouth after the merger of the US group and the public comment? Are you now completely withdrawing from the new company after the merger of the US public comment, and intend to focus on the development of word of mouth in the future?

In addition, do you have plans to integrate hunger into the company's O2O business?

Finally, what is the Alibaba's cooperation plan with the third party related companies this year, especially Sina micro-blog and Youku potatoes?

Cai Chongxin: O2O, word of mouth is a relatively new business of the company, and the growth momentum is amazing.

Although other companies in the market are now integrating, I mentioned just now that the scale of the catering market alone is 1 trillion dollars, so this is a very potential market. If it is invested, it will be a long term and many years. Our investment in this field should not be based on one or two quarters' conclusion. On the whole, we are very optimistic about the prospect of this business.

As to how we can bet on this field, it is obvious that we should take it in custody.

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Alibaba's financial investment in the US group has been very successful. However, in order to better configure the company's capital resources, we believe that increasing resources for word of mouth is a better choice.

Zhang Yong: cooperation, now Youku privatization has not yet been completed, we think Ali and Sina micro-blog and Youku no matter in social interaction or video synergy effect is very obvious, Ali and Sina micro-blog and Youku users to a large extent also overlap, so through cooperation and data sharing, we can have a deeper understanding of the company's users, whether in consumption, but also in entertainment aspects of users to deepen understanding.

In addition, Sina micro-blog and Youku have brought a good channel to distribute digital entertainment content for the company. Digital entertainment will be very important in the future. With the upgrading of lifestyle, people may consume more digital content than physical goods.

With data from Sina micro-blog and Youku, we can help marketers to promote cross platform and cross marketing.

Royal Bank of Canada analyst: can you compare it?

What is the potential scale and the size of the existing business of Alibaba? What is the contribution of rural businesses to Alibaba?

Zhang Yong: China is very large. There are 600 thousand villages. The average population of each village is less than 1000.

In current China, the traditional channel system is unable to infiltrate the products into these villages, even though the penetration rate of the retail platform through the Internet is not high.

So on the one hand, we feel that Alibaba has great opportunities to help brands and partners sell products to the countryside. On the other hand, the potential of this field is enormous and the task is very arduous.

Last year, our rural Taobao project has made good progress.

HSBC analyst: my first question is about the rookie network and the last mile delivery. Does the rookie network set goals for this day and the next day to reach the logistics service?

In addition, with regard to the slowdown in the total volume of pactions, you only mentioned the impact of the weather. What kind of impact will China's economic slowdown have on consumer behavior in second tier cities and remote areas?

Zhang Yong: we will not announce the goal of logistics service. In fact, the most important goal of logistics is to achieve the expectation of consumers, especially speed. Because speed is not only a pursuit of speed, but they will be more cost-effective.

For some specific commodity categories, speed is sometimes important, so what we have to do is to understand the needs of users and strive to achieve different expectations of consumers.

Cai Chongxin: in macroeconomic terms, China's total retail sales increased by 10.7% over the past year, and its growth rate was higher than that of 2014. It is also higher than the GDP growth rate. That is to say, although the economic growth is slowing down, the growth rate of consumption is actually rising because China's economic growth is changing from investment drive to consumption drive.