Alibaba Group Holding Limited (BABA) Q1 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Alibaba Group's June quarter 2015 results conference call. [Operator Instructions] I would now like to turn the call over to Jane Penner, Head of Investor Relations of Alibaba Group. Please go ahead.

Good day, everyone, and welcome to Alibaba Group's June quarter 2015 earnings conference call. With us are Joe Tsai, Executive Vice Chairman; Daniel Zhang, Chief Executive Officer; and Maggie Wu, Chief Financial Officer. Also, as you know, we distribute our earnings 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 margin 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 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 to GAAP to non-GAAP measures can be found in our earnings press release. With that, I will now turn the call over to Joe Tsai.

Thank you, Jane. Good evening or good morning, depending on where you are. Thank you all for joining. I will kick-off with a few brief comments, before Daniel and Maggie take you through this quarter. We had a very good quarter with strong growth across our four operating metrics. In the June quarter, the GMV of our China retail marketplaces reached RMB673 billion, which is US$108 billion, representing year-on-year growth of 34%. For an ecosystem of our scale, we continue to see robust growth. To put things in perspective, the absolute dollar amount of additional GMV growth we had in June compared to the same period last year was about US$28 billion in just one quarter. Our growth was driven not only by an increase in the number of consumers coming to our marketplaces to shop, but also the frequency and breadth of their consumption activity across more and more product categories. This reflects our ability to deliver excellent customer experience and demonstrates that our platform is truly a part of everyday life of the Chinese consumer. We also experienced robust growth in mobile and encouraging progress in mobile monetization. In the June quarter this year, we achieved 307 million monthly active users on our mobile commerce apps, which is a net increase of 18 million from March and a 63% year-on-year increase from the same period last year. Our monetization, our mobile revenue from China retail marketplaces was nearly RMB8 billion, representing year-on-year increase of 225%. Next, I would like to just say a few words about our strategic alliance with Suning, which we announced on Monday. Suning is the leading consumer electronics retail chain in China with more than 1,600 stores in 289 cities. Under our agreement, Alibaba will invest US$4.6 billion for 19.9% in Suning, and Suning will establish an online flagship store on Tmall focusing on consumer electronics, home appliances and baby products. The strategic implications of this partnership are threefold. First, Suning's online store on Tmall will offer an extensive selection of high-quality consumer electronics products, providing an unparallel shopping experience on Tmall. This reinforces Tmall as the premier platform for brands and retailers that wish to establish their online presence and direct engagement with customers. Second, Suning has an extensive nationwide logistics and after-sales service network with 65 national and region distribution centers, 353 city forwarding centers and over 1,700 last-mile delivery stations. This covers almost all of the 2,800 counties and townships in China as well as over 3,000 after-sales service locations and over 5,000 affiliate serving partners in 320 cities. This extensive network will tap into the intelligent data network of our logistics affiliate, Cainiao, and offer logistic services to customers on Tmall. With this partnership, we will enhance our consumer experience, as customers can expect to receive their orders in as fast as two hours. Third, because of the large user base on our mobile commerce apps, we are able to leverage this customer base and data technology to bring the right customer to the right store location at the right time. In addition, consumers can have an in-store experience to try products and enjoy after-sales service, while ordering and making payment and appointments on a mobile device in a seamless offline-to-online experience. Our strength in mobile makes Alibaba the best partner to work with in terms of offline retailers, such as Suning, to develop the omni-channel strategies. Now, Daniel will take you through an update of our major strategic initiatives and business developments.

Thank you, Joe. Hello, everyone. I'd like to review the progress and strategy for some key areas of our business, including mobile, logistics, cloud computing, international operations, mobile internet services, local services and consumer experience on our platform. First, let's talk about our momentum in mobile. As Joe mentioned, we are having tremendous success in attracting consumers to transact on our mobile apps and also in monetizing that mobile traffic. Mobile GMV in the June quarter was US$60 billion, which represented 55% of total GMV. We expect mobile GMV as a percentage of total GMV to keep growing, as we continue to improve the user experience on our mobile apps. Mobile revenue represented 51% of our China commerce retail revenue in the June quarter, while the mobile monetization rate climbed to 2.16% in the period. As buyers move to mobile, advertisers are becoming more and more willing to commit advertising dollars to promote their product on mobile, which in turn improves auction pleasure and bidding behavior. We will continue to optimize our P4P services for advertisers and develop more sophisticated tools to help merchants to sell and promote their products on our mobile apps. Let's move on to logistics, which is a growing area of focus for us. Through our logistic affiliate, Cainiao, we have already build a delivery network of unrivaled scale. We are increasing our emphasis on service quality and customer satisfaction. Consumers now enjoy next-day delivery services in 41 cities, including Beijing, Shanghai, Guangzhou, Shenzhen and Hangzhou, and this will be extended to 50 cities by the end of this year. We have also launched same-day delivery of groceries, initially starting with Beijing and Shanghai, which has been very successful. Through strategic investments, we are making substantial progress in enhancing consumer experience in specific product categories, including white goods through our partner with RRS, the logistics arm of Haier Electronics. Our partnership with Suning will further improve user experience in consumer electronics and home appliance category. Next, I'd like to discuss our cloud computing business, which had a triple-digit growth in the June quarter. We are the number one market leader in cloud computing services in China, and we are beginning to reap the results of years of investment in this business. The acceleration of our cloud computing business during June quarter was driven by an increase in the number of our paying customers as well as an increase in their usage of our cloud computing services, including more complex offerings, such as content delivery networks and data services. In addition to having the most comprehensive service offering in China, our cloud business has a growing and a diversified customer base across public and private industries, including e-commerce, financial services, gaming and many others. Let's move on to our cross-border business. In recent months, we have made substantial progress in providing international brands access to Chinese consumers shopping on our marketplaces. More and more brands view our Tmall platform as the only e-commerce channel to develop their China business. In June, we also announced partnerships with 12 countries to launch Country Pavilions, which are curated vertical shopping sites, designed to promote popular products and authentic specialty products from selected small-and-medium businesses from each country. Last week, we appointed Michael Evans as President of Alibaba Group. He will lead the team to drive increased levels of cross-border commerce between China and the world. We are thrilled to welcome Mike to join Alibaba. Now, for mobile internet services. Mobile value-added services are critical to user experience and expanding our ecosystem. During the past year, we have successfully integrated the mobile internet business of UCWeb, the number one mobile browser in China and the most popular third-party mobile browser in India and Indonesia. UCWeb has achieved over 330 million MAUs in June 2015 on a global basis. With the scale of UCWeb's mobile users, our mobile Internet services division is well-positioned to execute growth strategies in mobile search, apps distribution and in mobile game communities. Now, I'd like to discuss recent developments in local services. During the June 2015 quarter, we announced a joint venture, operating under the trademark Koubei, with our affiliate Ant Finance to execute our strategic plan in local service sectors. Koubei services will initially cover take-out food, restaurants, other entertainment establishments, convenience stores, hospitals and the pharmacies. Users can access these services through either Mobile Taobao App or Alipay Wallet, the mobile wallet app operated by Ant Finance, which enable a closed-loop of online-to-offline interaction between consumers and the physical stores through mobile payment. We believe that combining our leadership position in mobile commerce with Ant Financial's leadership position in mobile payments will put us in a unique position to capture growth opportunity in this market, which is projected to be over RMB300 billion in GMV in 2015 according to iResearch. Finally, I want to say a few words on our continuing efforts to create an outstanding consumer experience on our platform. Our China retail marketplaces continue to be the destination for consumers to find the broadest selection of quality products. We continue to enhance the customer experience by offering efficient logistics services and increasing the number of brands selling high-quality products. In addition, we are taking steps to improve the quality and health of our marketplaces through proprietary data technology and collaboration with government agencies in China to minimize counterfeiters and the fictitious transactions. We believe the efficacy of our technology-driven approach, as well as our commitment to gain the trust of consumers and brands are increasingly driving bad actors off our platforms. Now, I will hand off to Maggie to give you a financial review.

Thank you, Daniel. Hello, everyone, here are some financial highlights. GMV grew 34% year-over-year to RMB673 billion, excluding the effect of the suspended lottery business GMV would have increased by 36% year-over-year. Revenue grew 28% year-over-year to RMB20.2 billion without the suspension of the lottery sales and the transfer of our SME loan business to Ant Financial, which we already communicated in earlier quarters, our year-on-year revenue growth would have been 36%. Non-GAAP EBITDA margin was 52%, down from 54% in the year-ago period, representing increase in the strategic investments as we communicated in previous quarters. Non-GAAP net income grew 30% year-over-year to RMB9.5 billion. Diluted non-GAAP EPS, excluding SBC and amortization of intangible assets and certain other items was RMB3.68, an increase of 21% compared to RMB3.05 in the same quarter of 2014. Now, let's get into the details. In the June quarter, our blended monetization rate was 2.33% versus 2.52% in the year-ago period. The year-on-year decrease was primarily caused by the higher percentage of total GMV contributed by mobile GMV, which has a lower monetization rate. It was also driven by a decrease in PC monetization rate, which was partially offset by the year-on-year increase in mobile monetization rate. Our mobile monetization rate improved significantly to 2.16% from 1.73% in March quarter. This was due to our great achievements on development of our mobile business and efforts on our improved monetization, so PC monetization declined from year-ago quarter. We expect this trend to continue, but given our confidence and our long-term ability to monetize mobile traffic, we do not see it as a significant or a lasting headwind to our business. Going forward, we expect improvements in mobile monetization to be driven by our proven ability to deliver value to buyers on mobile devices and increase their engagement on our platform. This will in turn incent advertisers to allocate more of their budgets to mobile on our platform, a trend we're seeing already. Remember improvement in mobile monetization may not always be linear, given the seasonality and other factors that change each quarter. We continue to believe that in the long-term the mobile monetization rate will approach or even exceed historical PC monetization rates. Year-on-year, our revenue grew 28% to RMB20.2 billion, primarily driven by increase in new active buyers. The lower year-on-year revenue growth was due to three factors: number one, the suspension of the online lottery business in late February 2015; a decrease in revenue from the SME loan business that were transferred to Ant Financial; lower pricing for ads on Juhuasuan, a change we made in April to acquire high quality merchants. If we exclude lottery sales and SME loan business revenue from year the ago period, total revenue would have increased by 36% year-on-year in June quarter. China commerce retail revenue grew 24% year-on-year in June quarter, but adjusting for the lottery sales, it would have grown 29% year-on-year. Commission revenue would have grown 42% year-on-year. Cloud computing and internet infrastructure revenue grew 106% year-on-year, reflecting the accelerated growth of our cloud computing business. Other revenue grew 82% year-on-year in June quarter, driven by the consolidation of UCWeb and AutoNavi. Also, please note that in June quarter last year, we had interest income from SME loan business and we no longer book this revenue pursuing to restructuring of our relationship with Ant Financial completed in February. In the June quarter, our non-GAAP EBITDA margin was 52%, lower than 54% in the year-ago quarter. The lower margin is consistent with our message of previous quarters that we will continue to make significant investment into new and existing business to view our long-term revenue and profit growth. We continue to believe that our non-GAAP EBITDA margin in our core business in the high 50s will remain stable going forward. In fiscal year 2016, we will continue to invest a portion of our free cash flow in new businesses and the growth of our new investment spending to grow as a percentage of revenue. Now, let's talk about our operating expenses. Non-GAAP cost of revenue was RMB5.7 billion. Non-GAAP product development expense was RMB2 billion. Non-GAAP sales and marketing expense was RMB1.7 billion. Non-GAAP general and administrative expense was RMB1 billion. Non-GAAP cost of revenue as a percentage of revenue increased year-over-year, primarily due to an increase in traffic acquisition cost as result of expansion of our third-party affiliate marketing ecosystem and the increase in costs associated with our new businesses initiatives, mainly our mobile operating system and over-the-top services. Non-GAAP product development expense as a percentage of revenue decreased slightly year-over-year, as we stopped paying royalty fees to Yahoo! after our IPO in mid-September. Excluding that factor, non-GAAP product development expense and non-GAAP G&A as a percentage of revenue were stable year-over-year. Sales and marketing expense as a percentage of revenue increased due to the investment mentioned above. We generated strong free cash flow of RMB9.5 billion in June quarter. Capital expenditures in the June quarter were RMB1.8 billion, an increase from RMB1.3 billion in the year-ago period and from RMB1.5 billion in the March quarter. Our cash and cash equivalent position as of June 30, 2015, is very strong at RMB104 billion. In addition, we have RMB11 billion in short-term investments. Finally, you will notice that we've added a new slide this quarter that shows the value of our major strategic assets, which is US$33 billion. So that's end of our prepared remarks. Operator, please open the phone lines for Q&A.

[Operator Instructions] Our first question comes from the line of Alicia Yap from Barclays.

I have a questioned related to your marketplace. So I wanted to get a sense on the balance between the Tmall and the Taobao. It does looks like you guys are preparing all this on Tmall national more and then attracting a lot of the cross-border as well as the brands. So wanted to get a sense, is that where you will be preparing to give more resources to support this bigger brands on your Tmall platform. And if so, will there be any impact to the smaller merchants on your platform? How would you be balancing between the commission revenue versus the search advertising revenue?

For our marketplace strategy, I think we have very clear strategy in our marketplaces. And Tmall and Taobao have different positions. And on Taobao we want to render our consumers this experience of in-depth selections, and we are entering to enjoy a fun of discovery. So in Taobao actually we have a RMB100 billion of items in Taobao, and Taobao itself serve as a shopping destination. So today, in Taobao, what we are doing is trying to help more and more manufacturers and small business to create their own brands on Taobao, and to start their direct business to build their direct sales to the ultimate customers. While, on Tmall, our strategy is that this is a marketplace, which brands and also where distributors do their business direct to the consumers. So we're focused on the quality products and quality services. So Taobao and Tmall, as they share the entrance, especially in the shopping search, but they have different position. And we think both are very important to Chinese consumers, because they can find different variety into two marketplaces.

And then second question is regarding the Juhuasuan. So after adjusting your pricing and reallocating the resources support, have you any seen any meaningful [ph] impact on the merchants' tractions and the transaction value that you could share with us? And what is the overall strategy for Juhuasuan going forward?

We definitely see a very positive trend after this adjusting of the pricing, the trend of attracting more high-quality merchants down to our Juhuasuan platform. Maybe Danny you want to share about the Juhuasuan strategy?

Our Juhuasuan strategy is very clear, and we position Juhuasuan as a promotion platform for our merchant to promote their hot selling items. So today what Juhuasuan is doing is work with the merchants to have a detailed plan across the year to design on which day they will do a good promotion for a particular stuff and/or a particular selection of products. So we match this, because of the low price, because of the heavy promotion in Juhuasuan, so Juhuasuan has unique value among the consumers. So everyday Juhuasuan enjoy the independent huge traffic to the products, which create a lot of value to the merchants to help them to gather people as a first try, and to promote their products and further to bring the traffic back to the store front, which will be benefit for their day-to-day operation.

Our next question comes from the line of Robert Lin of Morgan Stanley.

So I have two questions here. Obviously, I think we talked about our Tmall differentiation relative to Taobao marketplace and its very clear year-to-date on products. Just wanted to get a bigger sense on the strategy, the mobile Tmall app, for example. We have talked about getting a lot of brands, talking about the Netflix-like business for Tmall. Can you put in context, what the progress of Tmall app and how we intend to differentiate relative to Taobao, going forward? And then, I guess, the second question is on mobile monetization rate. We noticed that in the second quarter you were able to increase mobile ad load. So just wanted to see management comment on how effective that mobile ad load increase was? And what was the potential for increase in the second half of this year?

For Tmall app we launched two new versions in last quarter, and the purpose of the launch on the new version is to try to give the unique services and contents on Tmall app, which could be different from Taobao, for Taobao mobile app, so that people can have a unique value in the Tmall app. And we observed good feedback and the users, in terms of user stickiness and frequency of visiting. But on the other side actually, because we position Taobao app as a super app, so you can find entrance in Taobao app, which is the entrance to Tmall, and a lot of people also enter into Tmall app via Taobao super app. So this also bring Tmall a lot of traffic. But we will continue to work on the Tmall app to bring more and more independent traffic to Tmall mobile app.

Rob, I'll answer your question on the mobile take rate. So we're very happy to see that a strong progress was made on mobile take rate. As buyers move to mobile, advertisers are more and more willing to commit advertising dollars to attract them, which improves auction dynamics and bidding behavior. So we made a lot of efforts in improving the user experience in mobile. And overall, we remain bullish on mobile monetization and that mobile take rate should approach PCs or even higher.

Our next question comes from the line of Ming Zhao from 86Research.

This is Sean Zhang asking question on behalf of Ming Zhao. We have two questions. First one is on monetization as well. We are very encouraged that the mobile monetization jumped in the quarter, at least well with our expectation. But just we have a question on the PC take rates. It seems like PC take rate actually dropped q-on-q, even with higher contribution from Tmall. Can we get some color on the reason behind that? Second question would be a follow-up on the Tmall, as independent traffic portal. Is there anything you can share with, how do we approach that? We know both PC and mobile, Taobao is a super-traffic kind of portal. Do we have any strategy to promote independently Taobao app, sorry, Tmall app or Tmall PC?

And for the first question, for PC take rate, first, we do observe an increasing shift of consumers to mobile. But we still observe that on PC, we still have huge traffic on PC. And if we look at the search [ph] PV and on the PC, we are still flat compared to previous quarter. And the reason why the PC take rate declined is because of a less marketing revenue on the PC side, which is driven by the -- actually the reason is that on our organic search, we add more and more features in the personalization, which greatly improve the CTR in the organic search. And this will have adverse impact on the P4P, so which finally result in a decline in the P4P revenue on PC. And for the second question, first, Tmall -- actually, we are in a very unique position. Tmall and Taobao are integrated marketplaces. In PC times, they are integrated. In the mobile time, they are still integrated, because as I said before, visitors can enter into Tmall from Taobao mobile app. They can click the first button in Taobao mobile app, which is Tmall and enter into Tmall homepage in the mobile side. But on top of that, we still continue to promote Tmall apps. And the most important thing is we try to create the unique experience on the Tmall's mobile app, which include product new launch, which include a lot of services, which people cannot find on the mobile Taobao app. And we think the unique experience is the key to attract people to visit Tmall mobile app independently. But we are happy to promote Taobao and Tmall mobile app to position these two apps to meet the different demands of consumers.

Our next question comes from the line of Eric Sheridan from UBS.

My question is around the macro environment in China. I was curious, as the June quarter developed, the June quarter developed, what you might have seen in terms of end-demand and consumption patterns in China, whether that impacted the business and caused any headwinds or some of the sector the tailwinds you're seeing as e-commerce penetration grows and what that might mean for the rest of the year?

We closely monitor the Chinese economy and consumer behaviors. But as we always said, we manage our business and we execute our growth strategy for the long-term, and short-term movement won't affect our long-term strategy. If you look at our number we reported this quarter and we still enjoy very strong growth. And if you look at our active buyers, actually averagely these active buyers make purchases more than 50 tons a year on our platforms, which illustrate the strengths of our echo system. Actually, people will buy a large wide product assortment on our platform for their daily lives. They are not only coming here for shopping with a very specific shopping purpose, more often they just come here to enjoy lifestyle. So on the micro-economy, we will continue to closely monitor the change of micro-economy and consumer behaviors, but we are confident to grow our business in a long-term.

Our next question is from the line of Carlos Kirjner from Bernstein.

I have two questions. The first one, I wanted to ask you to compare a specific driver of mobile versus PC GMV. Can you help us understand if the portion of GMV driven by ads on your site versus organically for sellers is fundamentally different for PC versus mobile? In other words, are people going to sell their items through organic link more on PC or more on mobile or similarly for advertising links? And second, following up Daniel's comments on the impact of personalization on the PC monetization, why can't personalization also benefit the CTR of paid links? In other words, shouldn't your paid search team be catching up with the organic one and stop this erosion of PC monetization?

Yes, in terms of efforts on the GMV growth for PC and mobile, we are more focused on the people, the buyer/consumers rather than just treating this PC mobile as two separate marketplaces. So people's behavior is that they could use both. They search and click on mobile, they make get transaction done on PC or vice-versa. So all of our efforts attracting the consumers is mainly related with the improvement of user experience.

For the second question, actually we do add a lot of personalized features in our ads business, but we still primarily focus on actually the P4P business, primarily based on the bidding of -- that the bidding price. We too observe that the personalization will narrow down the product pool of who participating in bidding and will affect the bidding behavior. So the P4P business is still primarily driven by bidding, but actually we are adding more personalized features to make sure people get the relevant recommendation.

Our next question comes from the line of Alan Hellawell from Deutsche Bank.

I was hoping to go back first to the new relationship with Suning. I assume that 3C is maybe our second largest category behind apparel, and assumingly extend Suning as wider berth as it might seek on our platform and with Suning at least initially offering probably materially better logistics capabilities compared to its other neighbors on Tmall. How do we think about the many 3C merchants that are already on our marketplace and how might this impact them?

It's a good question. Actually, everybody understands Suning has very strong strengths in consumer electronics, home appliance. And Suning participate in our marketplaces, opening a Tmall operation will bring us a large selection of the products and the premium services. And we think, this is good for the consumers and this will bring a lot of additional traffic and demand to our marketplaces and this will ultimately share by the merchants who already are on our platform. And also we do believe that with the strong supply chain capability, we can work well with Suning to leverage this supply chain expertise and get better supply on our platform, which will be ultimately benefit to our consumers. So we are confident that Suning's participation will bring us the net ads of the business and additional traffic, because of the premium product and service they brought to us.

My second question is regarding the exploration of the lockup on September 19, SoftBank seems to have reiterated recently its intentions to remain a long-term shareholder and we meanwhile generally have a grip on what scenarios might play out vis-à-vis Yahoo! I was wondering whether there might be any other color you can share regarding the intention of other shareholders who unlock next month.

There were four shareholders that will unlock next month. There is a SoftBank, there's Yahoo!, which you talked about, and then that leaves Jack Ma and myself in terms of getting unlocked next month. I usually don't speak on behalf of Jack, but on this one, he's authorized me to talk on his behalf. Jack and I have zero intention to sell other than a small amount that are in our charitable trust that if we sold we would be making charitable donations.

Our next question comes from the line of Dick Wei from Credit Suisse.

First question is on logistics. First of all, on the warehouse side, I wonder what adoptions by the base merchants on our warehouses? And also, how are the merchants adoptions in, for example, next day or same-day delivery, given that it's probably high costs for them?

For our logistics services, actually we developed the logistics solutions based on the nature of the products and the categories. So we closely work with our partners to render the logistics services to the relevant merchants in their category. For example, for white goods, today what we do is we work with the Haier Electronics and on Tmall all of the merchants are selling white goods products, they are enjoying these services and they ship their products first to the warehouse operated by RRS and then we together will handle the fulfillment and last-mile delivery. And we also deliver the services in other categories, such as groceries, such as fresh produced goods and cross-borders. So we don't want to give people a unified solution, because actually it's very difficult to develop a unified solution, because the physical product is totally different, so we have to develop the solution by categories and by business.

I'll just add a little bit on this logistic. We see logistic as a must to the e-commerce business. It's a utility. It's a commodity. So we have been handling, as you know, approximately 30 million packages per day, which is the 10 times of our competitors. And in our press release, we're also talking about our efforts on improving the logistics service. Now, the consumers, on our platform, can enjoy next-day delivery services in more than 40 major cities and that number is going to be extended to 50 cities by the end of this year. And then we also launched the same-day delivery service, which has been very successful. So we have seen grocery sales in Beijing, increasing 740% year-on-year, while 90% of the orders came from mobile devices. And in addition, through our partnership with Suning, as just recently announced, their consumer in over 150 cities will be able to enjoy two-hour delivery services for consumer electronics and home appliances.

My next question is on the mobile take rate dynamics. Obviously, we've seen a pretty good pickup. I wonder if the current take rate on mobile, if we compare to PC, do we see more upside in terms of maybe the commission side or on the advertising side. And maybe down the road, when the mobile take rate is higher than PC, which is the area that we think that would surpass PC? Is that the advertising or the commission? So I just wanted to see how maybe management thinks about the dynamics, going forward

Dick, I think first, our mobile take rate will continue to grow, and I was surprised that it will surpass PC. And second, I think this growth was driven by both mobile commission revenue, because more and more GMV is generated from mobile, and second also driven by the increasing growth of the online marketing service on mobile, because more and more advertisers they observe this consumers shift to mobile, so now they are willing to spend more marketing dollar on the mobile side.

Our next question comes from the line of Douglas Anmuth from JPMorgan.

Two things I wanted to ask. First, if you could just comment on the RMB1 billion dollars in incremental investment in Aliyun, the cloud business, over what timeframe that might take place? And then also how do you think about the international opportunity there? And then second, with the appointment of Michael Evans recently to President and heading up globalization, do you expect any kind of change in the global strategy there or still just very focused from a cross-border perspective?

For the first question, we announced that we will invest RMB1 billion in Aliyun, because Aliyun is one of our core strategies in the coming years. And today, we're really the number one market leader in cloud computing services in China. And we observe a substantial potential in the future and we are now serving a growing number of public and private company to render them the storage computing or computation and the data management services. And our investment will help us to create ecosystem in Aliyun, including upgrading our technologies and bring more talents people to us and also to help our partners in this ecosystem to grow, so which will ultimately help us to build up a comprehensive ecosystem around Aliyun and we together with our partners could deliver the high-quality services to our mutual clients.

Our next question comes from the line of Eddie Leung from Merrill Lynch.

I've two questions about your mobile business. The first one is about user behavior versus PC. Could you give us an update on, for example, the conversion rate, the basket size and order frequency on mobile versus PC? Any interesting trend you observed it? And then secondly, just a question on your mobile take rate expectations. You mentioned that you would expect the take rate to go up and close the gap with PC, coming both from advertising and commissions. So just wondering about your commissions, because I think the commission rates could be the same at the moment. Do you plan to have a different commission rate on mobile versus PC? If not, how comes the mobile take rate on commissions would be different than PC?

For the first question, as I said before, we manage our business as a whole and we don't separate the PC behavior and the mobile behavior, because a lot of people do their shopping across the screens. Sometimes they search and they navigate on PC and then put something on the shopping cart, then they buy on the mobile. And sometimes people bookmark on the mobile and they buy on the PC, so it's a cross-screen behavior. But if we compare, if we analyze further the behavior of the consumers, we still can see some change. First, on the mobile side, people tend to visit us more frequently, but for every visit they spend less time than PC, but they come to us more frequently. Second, if we analyze the GMV by category on the mobile versus on PC, we will see people -- on the mobile side, actually the average basket value on the mobile side still smaller than on PC. And the people, especially for those big-ticket items, people still tend to buy on PC. And for the second question of the take rate, I would say, first, the commission is same on PC and on mobile. But the take rate could be different, because while mobile take rate will increase, because more and more revenue, more and more GMV will be generated on the mobile side, which will contribute a lot of mobile commission revenue and will increase in the mobile take rate. Question from Doug, which is cross-border strategy. I just want to add a few more words on the cross-border strategy. Actually, we have a very clear international strategy and this is the core strategy for the coming decades. And today, we start from cross-border and we want to still put one leg in China and leverage what we have today in China market. So today, when we talk about cross-border, the first thing is import. We want to help the overseas suppliers to sell their products, which do not exist in China right now to the Chinese consumers through our platform. Second, actually today that's why we have heavily promoted our Tmall Global platform. And secondly, we are trying to help the Chinese SME to export their product and do the direct sales to the consumers in other countries. So today actually the vehicle for the export business is AliExpress, and we will continue to promote AliExpress in other countries. And ultimately, we want to build out a global trading platform and to enable the buyer and sellers from different countries to trade in this global platform. I think this is a long-term vision of our international strategy.

Our next question comes from the line of Mark Mahaney from RBC.

I wanted to ask about the logistics. I'm trying to put the Suning investment in context. When you think about expanding your nationwide logistics network, do you think you've already reached enough scale or you think this is going to be an ongoing five to 10-year investment with more of these types of deals going forwards, either direct investments or building up more of your infrastructure directly?

Actually, we have build up an unrivalled scale in logistics with our logistic partners, and every day we handled over 30 million packages a day. So this is a huge scale. And this is done by our logistic partnership strategy. And on top of scale, today we pay more attention to the service quality and customer satisfaction. So that's why we work with our partners in different product categories and in different business to try to deliver or to render this, for example, the second-day delivery service in 41 cities, and we want to roll it out to 50 cities by the end of this year, and also for groceries because people buy groceries online, mainly for the purpose of convenience. So that's why we render the same-day delivery, starting from Shanghai, Beijing for grocery sales. But looking ahead, we will continue to expand our service and try to give people different selections in product services in logistic services, and to improve the consumer experience on the logistic side.

Yes. Mark, you asked about our further investment in the infrastructure. So while we're utilizing these asset infrastructures from our partners, we're going to also at the same time through Cainiao, our logistic vehicle, to invest in certain infrastructure area. That's mainly for the purpose of implement our data strategy. So eventually, we're going to have these hubs and link up with data and to further improve the utilization and efficiency for the whole logistics system.

Our next and last question comes from the line of Piyush Mubayi from Goldman Sachs.

Could I ask on mobile take rate for the advertising side, do you see mobile ad inventory at all a bottleneck? That's my first question. Second, could you, I realize there is limited time, talk briefly about the other large GMV opportunities, one of which is prescription pharmaceuticals and the other the prospects of lottery business coming back?

In terms of mobile take rate, as you see that right now that the slot we have been monetized on the mobile front is still limited. And we commented earlier that the difference between us and social network is that, literally speaking, the buyers/consumers come to our site looking for goods, so they come for the ads, as long as the relevancy are there. So that's the first priority. So we do believe that there a lot of inventories that we could utilize. However, our first priority is to keep up the momentum of growth of mobile business, because we believe the penetration could further grow. And we did have a test, a certain slot on our mobile platform. Although the revenue contribution is not that significant, we're going to keep this kind of testing. And eventually, this is a balance of user experience and monetization. So your second question, you asked about the lottery impact, when will that come back. So first of all, I want to remind people that the lottery impact actually is particularly for this quarter and next quarter, since we have this work-up event last year, which made our June quarter and September quarter big sales on lottery. And when it will come back, there is no time table. So we're going to just closely watch how government is going to organize. So there is no reason for that once the government allows that other players come in and we're not there, so we're just going to wait for it to reopen.

And one more question about the prescription pharmacies. I would say, today on our platform we sell the OTC drugs, and we will strictly follow the government policy and to the prescription pharmacist. End of Q&A

That's all the questions we'll have for today. Just want to thank everyone for joining the call. You can close the call, operator.

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