Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group December Quarter 2014 Results Conference Call. At this time all participants are on a listen-only mode. After management’s prepared remarks there will be a Q&A session. I would now like to turn the call over to Jane Penner, Head of Investor Relations of Alibaba Group. Thank you. Please go ahead.

Hello, everyone, and welcome to Alibaba Group December Quarter 2014 Earnings Conference Call. With us today are Joe Tsai, Executive Vice Chairman; Jonathan Lu, Chief Executive Officer; Daniel Zhang, Chief Operating Officer; Maggie Wu, Chief Financial Officer. Also, as you know, we distribute our earnings press release through Alibaba Group’s Investor Relations website located at www.alibabagroup.com, so please refer to our IR website for our earnings releases as well as the supplementary slides that accompany the call. You can also visit our corporate website for the latest company news and updates. Please check it out. This call is also being webcast from the IR section of our corporate website. A replay of the call will be available on our website later today. Now let me quickly cover the safe harbor. Today’s discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. Factors that could cause actual results to differ materially are set forth in today’s press release. To also understand these risks and uncertainties please refer to our Form F-1, as amended, originally filed with the U.S. Securities and Exchange Commission on May 6, 2014. Any forward-looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligation to update these statements, except as required under applicable law. Please note that certain financial measures that we use on this call such as non-GAAP EBITDA, including non-GAAP EBITDA margin and non-GAAP net income are expressed on a non-GAAP basis. We have also adjusted our net cash provided by operating activities to remove purchases of property and equipment and intangible assets, excluding the acquisition of land use rights and construction in progress, and adjust for changes in loan receivables relating to microloans of our SME loan business, which we refer to as free cash flow. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I will now turn the call over to Joe.

Thank you, Jane. Good evening, or good morning, depending on where you are. Thank you all for joining. Jonathan, Maggie, Daniel and I look forward to discussing our business review today. In the quarter that ended in December which is our fiscal third quarter, I’m pleased to report that we saw continued strong growth across our core operating metrics. Those who follow our company closely know that we analyze the health of our business by focusing on a few select core metrics. On each of these metrics we continue to see strong growth. We grew Gross Merchandise Volume across our China retail marketplaces because of robust growth of active buyers. We continue to expand our strong position and competitive advantage as the unrivaled leader in mobile commerce across China. Our business continues to perform well and our results this quarter highlight both the strength of our ecosystem and the strong foundation we have for sustainable future growth in China and beyond. My colleagues will provide you with a more in-depth look at our business operations and financial results, but before they do that, I want to highlight a few of our key growth areas. We grew gross merchandise volume across our China retail marketplaces by 49% year-on-year, driven by strength in both Taobao marketplace and Tmall. In just three months ended December 31, 2014, we achieved a US$127 billion in China retail GMV. For the calendar year 2014, we achieved US$370 billion in China retail GMV, which demonstrates the unparalleled scale we have been able to achieve. A key reason for the strong GMV growth is the continued growth in active buyers across our platforms. An active buyer is someone who came to our retail marketplaces to make at least one purchase during the period of measurement. For the 12…

Thank you, Joe. Hello, everyone. Joe discussed our key operating metrics for the December quarter. And now I’ll walk through the details of monetization and our financial performance. First the highlight. GMV grew 49% year-over-year to RMB787 billion, and was up 42% sequentially. Active buyers in the last 12 months grew to 334 million, up 45% year-on-year. Mobile MAU grew to 265 million in the month ending December, a record high, that adds 48 million MAUs in three months’ time. Revenue grew 40% year-over-year to RMB26.2 billion, and was up 56% sequentially. Non-GAAP EBITDA margin was 58%, down from 60% in the year ago period, and up from 51% in the September quarter. Non-GAAP net income grew 25% year-over-year to RMB13.1 billion. Diluted and non-GAAP EPS, excluding SEC and amortization of intangible assets et cetera was RMB5.05, an increase of 13% compared to RMB4.45 in the same quarter of 2013. Year-over-year, our revenue grew 40% to RMB 26 billion. China commerce retail revenue grew 33% to RMB21 billion and accounted for 83% of total revenue. The lower revenue growth rate relative to GMV growth rate is mainly a result of the greater percentage of total GMV coming from mobile GMV, which monetizes at a lower rate than PC GMV. Long-term, we see this as a positive trend for our business. These Mobile devices are extremely data rich and we’ll eventually offer much better buyer experience, both organic and commercial, that we believe, we’ll create significant long-term value for merchants and for others. So rapid growth of a mobile GMV may give us some near-term volume pain that is bodes well for the future success of our entire ecosystem. In addition to a mix shift to mobile, lower monetization on PC interface also contributed to the slowdown of China commerce retail…

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Thank you. Your first question comes from the line of Dick Wei from Credit Suisse. Please ask your question.

Hi, thanks for taking my questions, and congrats on the very strong GMV and active buyers growth. My first question is on the take rate. I guess, on the take rate, I guess, the primary reason is mobile shift, as well as PC takeaway is lower. I wonder how long does this lower take rate is going to last, and what was the rationale for the changes during the quarter, compared to prior quarters? And then I have follow-up questions. Thanks.

Yes. Hey, Dick, this is Maggie. [Technical Difficulty] take rate, the decrease is coming from two reasons. One thing is like we said mobile monetization rate, although it’s continue to improve, but as the take rate level is lower than PC. While you see, we have a much higher mobile GMV as a percentage of total GMV, so that’s number one. And number two is the PC, all the efforts we made on PC, which improves user experience that made the impact take rate. I think, we’re going to continue to make assets user experience improvement. And so in terms of how that turns up, as I mentioned earlier, we believe that long-term, this will benefit the whole ecosystem and then the take rate will reflect - reflect the interest user experience and merchant return. We’ll then - then it’s hard to - for us to say which quarter, it can be and also in the following quarters there are also seasonality, for example, in Q1 normally the low season. Yes.

Okay, sounds good. Maybe just a quick follow-up and how about the - for the commission rate itself, if I just do a simple math on the commission rate revenue, it seems to come down as well year-over-year. Was it mainly due to some of the category changes? What are the reasons behind it? And maybe lastly, just wonder, I mean, I guess, Joe commented on the - on some of the press, some of the news on the SAIC issue, I wonder, is there an impact maybe in the Q1, or in the near-term? Thank you.

Yes. The commission rate changes it reflects certain tax rate mix changes, so that’s truly the reason.

Hey, Dick. So the - as you saw the SAIC report we believe was based on floor methodology and we have been very vocal about protesting and we’re prepared to file the complaint about that. Obviously, anytime you have a situation like this, it doesn’t help. But I think we want to take a step back and look at the bigger picture. In Q4, we added 27 million new active buyers, so now we have a base of 334 million active buyers. These people win and come to our website to purchase things if they’re saying bad quality stuff on a site. It’s really a vote of confidence from our consumers that we’re seeing. And the other thing is, we’re seeing very good mobile growth. We’re generating 265 million monthly active users. If you compare that to the last quarter, that is a net add of 48 million new monthly active users on mobile, just in three months. So we’re very excited about that. And this long term - this is long term positive for the business.

Next question please.

Great. Thanks a lot, Joe and Maggie.

Thank you. Your next question comes from the line of Angela Moh from Morgan Stanley. Please ask your question.

Thanks. I just have a couple of questions on - more in the top line and users. So first on the GMP, could you provide a little bit more color on the trends? Given Double-11 your renminbi would be able to potential pull-forward, could you comment a little bit on December quarter? Do you see any general slowdown and also the trends in January so far? So that’s the first thing.

Angela, it’s Jane Penner. We’re having very hard time hearing you, I’m [Audio Gap] not sure if your connection is bad. Could you try that again?

Yeah, sorry. Is this better?

Yes, it is better.

Okay. So first question on the GMV, if you could provide a little bit more color on the general trends on a monthly basis, given your Double-11 probably resulted in a little bit of a full quarter in demand? Do you see any like slowdown in December and the trend so far in January? I guess, looking out into the March quarter, given Chinese New Year is later this year. Do you expect that to add on a little bit of a boost for the quarter?

Yes, actually the GMV in Double-11, we hit a new high and in that say we achieved RMB57 billion in the Singles Day. And we do see some seasonality in the Q1, because actually the Chinese New Year in this will be in February. And actually what we see the - the trend is actually is in line with what happened in the previous years. So we believe that our GMV will continue to grow in light of our continuous acquisition of the new customers, especially in the low tier cities.

Okay.

Thanks, Angela. Next question.

Yes, the second question.

I’m Sorry.

Sorry, just one other question on the CPC rate. I think you mentioned that, that was down. And Maggie had talked about increasing the user experience et cetera. I mean, is this sort of related to the more targeted sort of - is that the customization of the webpage is right, so essentially your merchants improve their conversion rate. And as you do and leverage of the data more going forward, should we continue expect this to essentially result in a little bit pressure on the monetization rate?

Yeah, actually the CPC…

The personalization of the webpage.

Well, the CPC actually had some decline and because that we have - we’re launching a keyword recommendation tool and this tool will suggest to our advertiser some long-tail keywords. Obviously, this long-tail keywords will have lower CPC because there are less demand for them. And second reason is that we decreased the - in July we decreased the rate of the keyword bidding and more customization components in our ranking methodology. And we believe this change will improve the relevance of the keyword research. But obviously will lower the CPC. And the last reason for which might have some negative impact on CPC is that we continue to deliver personalized customization of search result in our organic search. And then people will have, actually have more - pay more attention to this organic search results because it’s more relevant to them.

Okay. Thank you.

Thanks, Angela. Next question please.

Thank you. Your next question comes from the line of Alan Hellawell from Deutsche Bank. Please ask your question.

Thank you very much. Two questions, one of them, would love to get a little more clarity on your promotional spending. I assume that ranges from subsidies on KuaiDi taxi linked to other things. Would love to get better sense as to what the magnitude of that was in the quarter and how you think about these O2O initiatives going forward. And then, I think my second question was somewhat - was larger answer, but, net-net, it looks as though ad revenues grew really kind of 20% year-on-year, and in addition to the tweaks around the pay-for-performance algorithm. Were there any other - is there any other color you can bring to bear, that would imply the commissions obviously grew much more strongly than ad revenues. Thank you very much.

Yeah, Alan, in terms of the sales and marketing spending, we see that quarter is - we can talk about the spending on promotional activities for our own core business as well as consolidation of some [indiscernible]. This is actually didn’t include the significant spending on the tax-free business, because currently that that business is promoting the online payment which is - the costs are kind of verified by the Ant Group. I think going forward as I said, we’re going to continue to invest including investments in marketing, because the new business as well as the existing business, we see the potential. And we’re going to - we do have the revenue high margins doing that. So overall, I think I do not change my message based on one quarter on the margins. So that also gives you a sense of our continuous spending in investments in the marketing. So your second question is about commissions. Yes, I think if you compare to online marketing revenue commission grow at a higher rate. So going forward as Daniel talks about, our continuous efforts on our user experience improvements, et cetera, that will more impact - put more impact on the P4P site. So yes, that’s why when you compare the - for the Q revenue item, the online marketing, which mainly improves the P4P shows the slower growth rate.

Thank you.

Thank you. Your next question comes from the line of Alex Yao from JPMorgan. Please ask your question.

Hi, good morning. And good evening, everyone. Thank you very much for taking my question. The first one is can you guys help us to understand the 2015 investment strategy and the priority. Where do you look at for the bigger opportunities and how do you want to prioritize your resource allocation? Secondly is, can you give us an update on the integration with UCWeb and AutoNavi, the financial [Audio Gap].

…334 million, that accounts for only 50% of the internet population in China and only one-quarter of the whole population in China. So that going to be continued even if our focus to keep expanding the buyer base. That actually has been the driver and will be the driver of the - of both of our GMV. So that’s how we see for the core business growth. And at this time we also have other initiatives and to integrating those private companies we acquired, invested and as well as keep exploring the globalization. In terms of the integration of the invested companies, maybe…

This is Jonathan. I give you the update of the UCWeb and AutoNavi investment. The - on the book view, the investments we use there is very strategic and important for our group. As UCWeb has good understanding of mobile users’ behavior and help our mobile traffic. UCWeb certainly masters, by now is the number two mobile searched word in China, high value in terms of unique visitors. UCWeb has more than 100 million daily active users. After acquisition, UCWeb has improved the mobile access capability and mobile experience of Taobao users. And regarding the AutoNavi, AutoNavi provides essential LPS and mapping information to our marketplace. After acquisitions, AutoNavi is the sole supplier of mapping service of Alibaba marketplace. AMS is number two mobile app, map app in China and for wide - for Taobao local service. Due to this solid navigation business, AutoNavi has strong collaboration and working relation with automakers in China, and has supported Alibaba’s Group both of Tmall, [indiscernible] installation into automobiles. Yes, that’s it.

Great. Next question please.

Thank you. Your next question comes from the line of Alicia Yap from Barclays. Please ask your question.

Hi. Good evening, everyone. Thanks for taking my questions. I actually had follow-up questions regarding the comment on the lower pay-for-performance more of transition on the PC this quarter. So, I think, Maggie, or maybe management, can I just get some more colors that when was the adjustments first to roll out? And if that seems to also impact the coming quarter, so how long should we expect that to affect marketing revenues? And then in relation to that, how should we reconcile the comment that you had last quarter then you say, you guys actually roll out the new recommendations to improve the conversion rate. And then for this quarter, we also see the Taobao GMV growth continue to reaccelerate. So I just wanted to, maybe, you guys can just share some color how should we reconcile the two different contract, one is impacting the revenue versus the other one supposed to be improving? Thank you.

Yes, this is Daniel. Let me first of all give you more color of our pay-for-performance business. And as I said before, we did a lot to try to improve the ROI of the advertisers rather than just look at the revenue. And we try to make sure that people spend money on our places, we can get a better result, better ROI. So that’s the principle of our P4P business. So that’s why we try to continue to personalize our P4P results and to add more features of the personalization and also consider the quality of the automotive items. So that’s - the result is that the bidding process is only one of the components in the, to win the P4P and we also have to consider other factors. But the main purpose of this is to ensure, the merchant can get the benefit and continue to spend money on our platform in the longer run. So we believe that P4P is actually - is discovering mechanism by the market. So we believe as long as our market can continue to bring value to our merchant, our consumers can stay with us, continue to - our user base continued to grow. The merchants are willing to pay, spend more money on our platform.

Okay. So then how long should we expect these to affect the marketing revenues in the coming quarters, how long should we expect that to normalize on the year-over-year basis?

I mean, it’s hard for us to give near-term guidance everything, how long that. Okay, what we believe is that, eventually as long as we are seeing the benefits in merchants, they were kept there over there on near-term impact since we’re just staring this off, personalization effort and other efforts improve. So there will be some impact for us in the near-term.

Okay. I see, okay, understood. Thank you.

Thank you. Your next question comes from the line - yes, comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question.

Thank you. In the December quarter, you’ve benefited from new category such as option transactions. Could you talk about new categories that we could see it come onboard in the near future, such as pharmaceuticals, and if possible, give us a sense of how large these new categories could be? And my second question address to Maggie is, Maggie, we see margins - EBITDA margins on a non-GAAP basis bounce around in the past three quarters. May be if you could help us quantify the impact of consolidation for the quarter, and if possible give us a sense of how we should be thinking over the next few quarters? Thanks.

This is Daniel. Let me answer your - the first question. In the past actually what we can see in Q4 is that, our cost saturates and furnitures and decorations, and also the other model, I would say, experience a high growth. And as you can see when we look at these categories actually the - they generally have a lower internet penetration in China. So we can see a great potential in the future for the further growth. And in terms of the pharmaceutical, and again in China now the pharmacy, among sales of pharmaceuticals is quite - is actually very low compared to what in the US. And you may know that we have a - our pharmaceutical business and today we - our app platform, we have a lot of merchants, who have the license to fill the forms online, actually the online forms. But today the only sale the OTC trust, but what we are doing right now is try to work with the government and with the partners to see, is it possible to sell the drugs and prescription. So what we can see is that, these new categories will continue to grow in the future. Thanks.

Regarding the EBITDA margin, I will not change my message of EBITDA margin just based on this one past quarter. If you look at our fixed cost like our payroll qualification et cetera. They have interest, this case operating leverage is seasonally strong quarters. So, for example, December quarter when we look at the revenue at RMB76 billion versus previous quarters not higher. So revenues are seasonally strong quarters and [indiscernible] raise the margin weaker quarters, because there is some cost based already. Furthermore, we can see that the discretionary market spending on new initiatives such as local service, mobile OS, [indiscernible] these are strategic priority to drive future growth. And as such the spending will likely continue at a similar or in greater levels. So we indicate you to remember that, we don’t manage to our margin targets rather we invest in new and existing business all to play long-term growth.

Thank you.

So, overall - yes, EBITDA margin remain changed for the year.

Thank you. Your next question comes from the line of Thomas Chong from Citigroup. Please ask you question.

Hi, thanks for taking my questions. I have two questions. The first one is your MAUs initiative. Can management give us some color, what’s the goal in 2015 above the [indiscernible] penetration. And my second question is about the expansion in product categories, apart from healthcare, what other product categories do management think will further penetrate in 2015. And also how should we think about your digital entertainment initiative for this year? Thank you.

Thank you. This is Jonathan. Regarding to the rural areas strategy, I’d say it’s in - right now it’s in the early stage. As you know that 34% of Chinese people in urban area use e-commerce, so only 9% of Chinese people in the rural areas do, so this is a big opportunity for long-term and our vision is that will enable the farmers to serve their farm product to city people. And at the same time, will encourage - China 600 million farmers to buy online on Taobao. We have also an opportunity to bring some large agriculture categories that are currently offline, including fertilizer and farm increments. And right now, we are starting to bring village office to unify local residents, who are not our prospects on commerce. These village office managers get commission from the sellers. This we could buy on behalf of the local committee. Tell them [indiscernible] products and arrange payments because the villagers often do not have Alipay or Internet, which Western pay has to village office who pay the Alipay. They then tell them to also tell them to receive the package. And Alibaba will establish operating center managed by our staff in managing this village office and in charge of making campaign locally. Yes, so we just begin this rural strategy and we have already established village office in some province. So in terms of the fast growing categories in 2015, I will say, in addition to the furniture and decorations and car accessories, I said that large electronic appliance and food and groceries and these categories will continue to grow online, because as we for large appliance, actually now experience a transition to the small equipment. So over the large electronic plants are will be the internet equipment, a small equipment,…

Thank you. Your next question comes from the line of Carlos Kirjner from Bernstein. Please ask your question.

Thank you. I have two questions, if my math is correct, Taobao GMV accelerated 400 bps, while Tmall decelerated 1,800 bps sequentially. Can you help us understand the drivers for both the Taobao GMV acceleration, but most importantly the Tmall GMV deceleration? Secondly, over the last few weeks we saw - several events that suggested Ant Financial and Alibaba will build some type of on consumer credit business including the notice about the preparation of personal credit rating by the PBOC to Ant Financial and the launch of Sesame Credit by Alipay. Can you tell us what are your aspirations in consumer credit? And maybe help us understand the road that Alibaba will play versus Ant and if you are going to take credit risk can be potential implications on the balance sheet? Thank you.

For the first question, the growth of Tmall, actually on an actual dollar basis Tmall GMV still grows of RMB 110 billion year-over-year, and RMB 117 billion sequentially. So actually this is very clear that Tmall still experiences a robust growth. I think in Q4 we have November 11, and the year-over-year growth of GMV on November 11. And also the Double-12, December 12, actually - compared to what’s happened in year ago, actually the growth rate in 2014 is lower compared to the previous year, because the size already there are huge, so we cannot - actually we didn’t achieve same growth rate in November 11 and December 12. So this has some impact on our year-over-year growth rate. And the deceleration of Tmall, GMV growth is also affected by the people shift to the mobile. Actually when we look at our mobile strategy and we promote very heavily our Taobao mobile app in the past year. As a result our users tend to use Taobao app, even though they want to find Tmall listings, because they can find Tmall listing on Taobao app. So actually that resulting in the fact that Tmall actually gets less organic mobile traffic on this mobile app compared to on the PC5. So looking forward we will work very hard to promote the Tmall mobile app and to get more and more organic traffic on the mobile site. Thank you.

Yes, Carlos, first the thinking on financial services, first of all, all the financial services business will be carried out through Ant Financial so Alibaba Group will benefit from that through our profit share arrangement with Ant Financial. So if we get into our credit business where credit risk is being undertaken, being underwritten, Ant Financial is going to do that and any loans, consumer credit, or SME credit will be on the Ant Financial balance sheet. But Alibaba group will participate in the profitability of Ant Financial. So sitting where we are at Alibaba Group you should get the best in both of those. Now, the thinking on financial services for Ant Financial there are really two reasons why we believe an Internet business can execute a sound financial services strategy. Number one, Internet businesses has a lot of data on users. So with e-commerce related data and payments data you can create very good credit profiles of potential borrowers, that is, merchants and also consumers. And number two Internet platforms are very good distributors of financial assets. So we have already seen the success of Ant Financial in distributing in money market fund products. So we think having those advantages of data and distribution capabilities Ant Financial is very uniquely position to execute its financial services strategy.

All right. Thank you. Your final question comes from the line of Erica Poon Werkun from UBS. Please ask your question. Erica, your line is open, please ask your question.

Yes, hi. Thank you. My first question is for Joe, just wanted to ask you in three years’ time, how much do you think, the mobile world contribute to your overall GMV in sort of rough term? And do you expect that after all the efforts in improving the user experience and the advertisers that your mobile take rate at that point will be closer to your PC take rate, that’s the number one question. And the second question is, we’ve been hearing recently potential changes in the VIE structure. Just wanted to check what do you think the potential changes for Alibaba? Thank you.

way: And we - so we see people buying stuff on mobile that are more impulse buy items. But over the longer-term, we think that there, probably most of our users will have both purchased on PC, but also have purchased on mobile. We now have 335, sorry, 334 million active buyers, and our monthly active user base on mobile is already at 265 million. So, I think, the future is very much mobile. On your VIE question, these are draft rules that we - that the regulators are proposing and various employers and parties are going to submit comments, we are taking a wait-and-see approach. We are not going to comment further on that question at this point.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.