Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March Quarter of 2019 and Full Fiscal Year 2019 Results Conference Call. [Operator Instructions] I'd now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Good day and good evening, everyone, and welcome to Alibaba Group's March Quarter and Full Fiscal Year 2019 Results Conference Call. With us are Mr. Joe Tsai, Executive Vice Chairman; Daniel Zhang, CEO; Maggie Wu, CFO. This call is also being webcast on our IR section of the 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. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest Annual Report on the Form 20-F and other documents filed with the U.S. SEC. 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 adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margins, marketplace-based core commerce adjusted EBITA, non-GAAP net income, non-GAAP diluted EPS and free cash flow, are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. Unless otherwise stated, growth rate of all stated metrics mentioned during this call refers to year-on-year growth versus the same quarter last year or the previous year. With that, I will now turn the call to Joe.

Thanks, Rob. Thank you all for joining us. We had a great quarter with operations, revenues and profits beating expectations. This shows the resilience of our business in the face of complex geopolitical and economic conditions. Before Daniel and Maggie take you through our exciting quarter, I want to address the elephant in the room, which everyone calls the trade war. Let's distill the complexity of U.S.-China relations to what it means for Alibaba. In short, the trade talks put Alibaba on the right side of all the issues on the table. First, the reduction of the U.S. trade deficit. China's commitment to purchase more American products means China will, over the next several years, become a net importing country. Consumers in China would benefit from the availability of quality imported products from all over the world, including from American farmers, brands and small businesses. Alibaba is set up to benefit from the secular trend of growing imports into China. We are the platform of choice for global producers of products and brands selling into China because we have the reach and deep insights on over 650 million active Chinese consumers on our platform. The scale and effectiveness of our access to Chinese consumers is simply unrivaled. In cross-border e-commerce, our Tmall Global platform is China's #1 platform for overseas brands and merchants to sell to Chinese consumers directly without physical operations in China. Well-established global retailers and brands that have built an online presence out on Tmall Global include nutritional supplement vendors, Chemists Warehouse and Blackmores, baby products brand Pampers and apparels brand Emporio Armani. Second, the trade negotiations will lead to China opening its markets to more foreign businesses in order to satisfy the massively growing demands of domestic consumers. We're not concerned about slowing China exports affecting…

Thanks, Joe. Hello, everyone, and thank you for joining our earnings call today. We enjoyed an outstanding quarter and fiscal year. Over the past year, we achieved many important milestones across our entire businesses. We enjoyed exceptional revenue growth in our core commerce business while successfully expanding our product and service offering from [ city ] focus to local consumer services and to digital entertainment content. In the past 12 months, we had phenomenal user growth. Our China retail marketplaces had 654 million annual active consumers, representing an annual net increase of 102 million. Our GMV reached over RMB 5.7 trillion with an annual net increase of approximately RMB 1 trillion, demonstrating the unrivaled prosperity and vitality of our Alibaba digital economy. We have a proven track record of execution and of delivering long-term growth. We are on track to achieve our USD 1 trillion total GMV target by fiscal year 2020, which was set 5 years ago. Looking ahead in the new fiscal year, we will continue to focus on expanding our user base and gaining more wallet share from both existing and new consumers on our platforms. Our user acquisition strategies worked successfully in the past year. By cooperating with Alipay, we have been able to acquire, engage and retain our consumers effectively. In the past year, over 70% of the increase in annual active consumers on our China retail marketplaces came from less-developed areas. In fiscal year 2020, we will continue to have new initiatives that cater towards a broad base of users and expand into products and services that will increase purchase frequencies, enhance user stickiness and increase our wallet share. In our core commerce business, Tmall continued to strengthen its market leadership in the B2C market. Tmall physical goods paid GMV grew 33% year-on-year in…

Thank you, Daniel. Thank you all for joining us. I lost my voice yesterday. Please bear with me with this voice. We had another strong quarter and delivered a strong set of annual results. For today's call, I will be beginning with a review of key financials for the March quarter and recap the key financial highlights of fiscal year 2019. And then finally, I'll conclude with our outlook. In the March quarter, major operating and financial metrics continued to record very strong results. As Daniel mentioned, we delivered another quarter of strong user growth with 721 million mobile MAU and 654 million annual active consumers on our China retail marketplaces, reflecting successful user acquisition programs. At the same time, we have also been successful in penetrating in the less developed cities in China. More than 70% of our new annual active consumers added was from less developed cities in this year. Our large and actively engaged user base continues to exhibit strong growth, which provides the foundation to expand our revenue generation in the future. As I will address later in my remarks, we are committed to delivering sustainable, long-term growth. In March quarter, our total revenue grew 51% to RMB 93.5 billion. The increase was mainly driven by the strong growth of our China commerce retail businesses, the consolidation of Ele.me as well as robust revenue growth of Alibaba Cloud. Talk about the quarter's cost trends. Our costs and expenditures have been well controlled. And when you look at the segment, our core commerce segment had a very strong quarter with revenue growth of 54% to RMB 78.9 billion. The fundamentals of our China retail businesses continue to be strong. The combined customer management revenue and commission revenue showed healthy growth of 31% for the quarter. Customer management…

[Operator Instructions] Our first question comes from the line of Alex Yao of JPMorgan.

I want to follow up on Maggie's comment regarding the investment strategy in lower-tier cities. I think you guys have been doing similar initiatives such as [ Sing Tao ] for a while. And given the current change in operating environment, such as a competitive landscape, penetration rate in different cities, disposable income across different demographics, et cetera, et cetera, what do you think does it take to be competitive in the lower-tier cities in FY '20? And what kind of the financial resource you're willing to invest in these cities and consumer demographic?

Well, as you see, in fiscal year '19, we add over 100 million in new customers in our China core marketplaces, and over 77 (sic) [ 70% ] of these new customers are from low-tier cities. And we -- as we addressed in our remarks, we will continue to invest in low-tier cities and in the rural areas to acquire the new customers. And we strongly believe that these new customers will -- actually, when they are tapping to our marketplaces, when they change their lifestyles, and they will -- actually we will basically give them broader selections and -- which will -- to enlarge our addressable market. So that's why we expect to continue to invest in terms of the marketing spending, in terms of the -- a very well-planned, I mean, marketing solution. And also, as we said in our remarks, we don't want to -- for these low-tier city customers and new customers, we want to give them better experiences with organic, I mean, results of the search and recommendations and as well as to give them broader selections for their first few, I mean, purchases.

Our next question comes from the line of Grace Chen of Morgan Stanley.

Congratulations for the strong results. The question is about the guidance for fiscal year '20. Can you help -- can you walk us through the details of the sales guidance, for example the core revenue expectation, in other segments? And also, under what kind of macro conditions have we baked into the sales guidance? Maggie just mentioned that we currently do not plan to monetize feeds in fiscal '20. I'm wondering, does that imply there could still be potential changes in the plan if the business and market conditions allow us to monetize recommendation feeds in fiscal '20?

Sure. When you look at our 500 billion percent well -- RMB 500 billion revenue, it represents approximately 33% year-on-year growth. So as you see from the previous years, our significant revenue are coming from our China retail businesses, and this will also the case for the fiscal 2020. One thing I would like to mention is that we do expect the proportion of revenue from our direct sales business will continue to increase as we further implement our New Retail strategy.

So the second -- or the first is on the guidance and the breakdown. The second is what type of macro conditions have been baked into the guidance.

Yes. So macro condition, it's -- Joe talked about the U.S.-China trade war is actual -- in fact, the U.S.-China-related business, if you look at as a percentage of our total revenue per se right now, is relatively small. So the business we're talking about is the cross-border and particularly between China and U.S. So actually, the impact wouldn't be that significant if we're talking about this year. So RMB 500 billion revenue guidance has certain relevant impact, but I should say not that big.

I would just like to add that macro conditions that we look at are all long-term secular trends. Those are the more significant drivers of our business as opposed to kind of quarter-by-quarter GDP growth or industrial production and things like that. In fact, if you look at the -- most of the markets looking at China's macro being too focused on the manufacturing sector, and I've just referred to the Chinese economy shifting toward a service-oriented economy with last 5 years losing manufacturing jobs but adding a lot more service jobs, and those kind of continuous job growth are the factors that are driving disposable income and continuous consumption. So that's a -- that's one big macro trend. We've also referred to the shift toward a domestic consumption economy. That's a big macro trend that will last for many, many years as well as in the future China importing a lot more with the government commitment as well as reaction to the trade negotiations, China will make commitments to import more. So these are the macro factors that we actually factor into our business. And in fact, the -- we -- if you're looking at our business as a sort of swimming in a stream, if you will, we're swimming, flowing in the direction of the tide as opposed to going upstream against the tide because all those long-term secular macro factors are actually providing the tailwind to push our business forward.

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

Congratulations on a clean beat. Could I ask, of the RMB 900 billion increase in GMV you've seen in the last 1 year, how much has come from the 100 million new annual active consumers on your platform? And what is the sort of continued increase you've seen in your existing buyer base? This is basically extension of the data you shared with us, Maggie, at the Investor Day. That's my first question. And second again, Maggie, you -- I realized you mentioned that Alibaba will continue to invest in local services, digital entertainment, logistics and cloud services. But could you give us a sense of -- going down the P&L into FY '20, whether the magnitude of spend that we saw in 2019 will likely come down to margin improvement?

Right. So Piyush, I could share that. If you look at the cohort, right, this 100 million new adds are -- majority are from the lower-tier cities, so if you look at these first-year consumers, their spending levels are lower than the group's -- the same-age group in previous years but not that significantly low. I think I should say it's comparable to those first-year consumer in the past. That gives you a sense of the spending level of these less-developed-area consumers. And talk about the margins -- or I will say you're more interested to get to know the spending in those business which are still in a loss situation. I think for digital entertainment, local services, these are the 2 biggest loss-making business units. As I said, we are going to continue to be disciplined. However, at the same time, we do prepare to fight for competition to extend our market share. So I think we, during the business plan, have a quite balanced approach to achieve the -- our business goals with efficient spending.

Our next question comes from the line of Eddie Aliyun of Bank of America Merrill Lynch.

I hope, Maggie, get well soon. And we see Taobao and Tmall are coming under the same President recently. So could you talk about if there's any new idea or new strategy on the positioning of Taobao and Tmall going forward? Any possible differentiation? And how could it be different than in the past?

Actually recently, we have Jiang Fan in charge of both Taobao, Tmall. And I think the reason why we made this change is because actually, Taobao and Tmall essentially is 2 highly integrated marketplaces. And Taobao -- mobile Taobao is a very important entry point for consumers to navigate both -- to explore both Taobao and Tmall products. So we need a very integrated product architectures and to serve the different consumer purposes. So I think Jiang Fan as a new leader of both Taobao and Tmall, I mean, businesses, he has very strong product interface -- I mean, background. And I think as a -- he will be -- he will serve as the chief architecture of these 2 integrated marketplaces and -- to enhance our -- enhance -- and differentiate the positions for both Taobao and Tmall. And I think Taobao is still positioned as a consumer community, and the value proposition is in-depth selections and discovery -- and the fun of discovery while Tmall try to give people a very high-quality product and services and with a lot of -- with a high degree of certainty. So I think in Taobao marketplaces -- in Taobao interface, Tmall's supply is also be very, very critical to enrich the Taobao selections. So I think that this, I mean, organization change will enhance the positions of both Taobao and Tmall.

Our next question comes from the line of Gregory Zhao of Barclays.

Joe, Daniel, Maggie and Rob, so congrats on a strong quarter. So my question is about your investment plan in your non-e-commerce business such as food delivery, digital media, logistics, and implication to margin and EBITA growth trend in next year. And also, a quick follow-up for -- on Alex question. So we know you have some of your affiliated company and investment company such as Ant Financial and [indiscernible]. So you have pretty strong presence in the lower-tier cities. So just want to understand how will you utilize these resources to expand your user growth in the lower-tier cities?

Yes. In terms of investment, I really care about the -- whether the law is going to be expanded, et cetera. As I said, what we're going to ensure is that our spending will be more efficient and effective. And we're very committed to expand the market share and the market leadership in those new business areas like local service as well as digital media, entertainment.

Well, for the second question, yes, we are working very closely with our partners, I mean, including media partners like [indiscernible] and other people to penetrate customers in low-tier areas. As people can imagine, and I think for the new Internet users, they will start with the social network or start with the consumption of the very basic Internet content. Well, going forward, they start the first trial of shopping and of spending money on Internet. So I think it's good for us to navigate with our media partners, especially who are -- who has very broad user base in the low-tier areas and to help us to grow the -- our new customers in that area.

Yes. Talk about efficiency of spending -- maybe I could give you an example to further explain. For example, like local service, right now, we see these -- first of all, the total orders from lower-tier cities are just approximately 20% of our total orders, which means there's a high potential for us to grow in these less developed cities. And when you look at our spending for top-tier cities, the spending efficiency are pretty much the same as the peers', but we haven't really get into the lower-tier cities. When we get into it, and it could enhance -- give us a chance to increase the efficiency. Another thing is that the leverage, the synergy among our group companies, such as user and traffic acquisition efforts, will see the efficiency come out. Total orders from Taobao and Alipay for Ele.me represent -- now represent around 30% of Ele.me orders. So this is what our strengths and uniqueness compared to peers in this business could really utilize the assets from our other group companies to cross-sell.

Our next question comes from the line of Alicia Yap of Citigroup.

Congrats on the strong results. So Maggie, I wanted to make sure I hear it correctly and did not hear it wrong. I think you mentioned a little bit that during the quarter, the March quarter, you guys have been allocating more traffic to testing on the monetizations of the recommender feed, which contributed to the incremental CMR revenue growth this quarter. And is that correct or I heard it wrong? And if you mentioned -- and then you also mentioned you have no plan to extending the recommender feed testing to 2020 fiscal. So is that mean we should expect to see some potential decelerated growth in the coming quarters? Or is it depending on if you continue to test out the recommender feed from quarter-to-quarter, we may see some fluctuations of the CMR growth in fiscal 2020?

Yes. Alicia, you heard it correctly. Yes, we did have -- did allocate more traffic to -- for the monetization test for recommendation feeds. I also said that we do not have a plan to extending the monetization of recommendation feeds in the coming fiscal year. So to translate it, when you see the customer management revenue growth for this quarter, it's very high, right, 31% versus 26%, 27% in previous quarters. So this is because -- partially because we extended -- we allocate more traffic for the recommendation feed test. And for the reason that we are not going to extend that monetization test, it's just similar how we invested in the B2C share -- market share expansion, right? So what we are telling people is that if we want to monetize this, we can increase the revenue and extend the CMR quickly. But we're targeting for long-term growth. We want to acquire user from less developed cities first and provide them with best user experience and also attract merchants to come and develop merchandise and to cater to these users for longer-term growth. So that's the plan.

Our next question comes from the line of Binnie Wong of HSBC.

Maggie, I hope you also get some -- more rest post results. In terms of the food delivery strategy in Ele.me, so as we are 1 year over now since we acquired Ele.me, can you give us some update in terms of how we see the competitive landscape has changed it, our market share has evolved it? Also, when we look at this quarter, revenue of this segment is relatively flat, but the losses here, is it also narrowed it? How should we be thinking about it? And on longer term, because -- can you also share with us how do you think this will add value to our ecosystem and also our logistics strategy?

Well, yes, actually this April, actually we just celebrated our 1-year anniversary of -- after Ele.me joined Alibaba big family. And when we look at the past year, I mean, what we experienced in past year, we -- all of us believe that this is the right decision, to have Ele.me in Alibaba digital economy. I think first of -- first, it's like a -- it's about category expansion. I think today, food delivery is a necessity of the -- of all the consumers' lifestyle in China. And it all depend on the frequency, but you have -- at least you have to try. I mean you need a -- from time to time, you need food delivery services. So I think this is part of consumers' lives today. So I think -- which is very, very important to make sure we can meet order demands of our customers. So second, Ele.me also bring us a very important on-demand delivery network, which today not only serve Ele.me business but also serve other business in Alibaba ecosystem, including our recent collaboration with Starbucks. So I think Ele.me actually play a very important role and 2 roles in Alibaba. First is like a -- it's a new category killer. Second is a on-demand logistic infrastructure. And if you'll look -- if we review what the -- we did in the past year, I think we've already integrated Ele.me's technology platform with Alibaba technology. And we -- I mean in new year, we'll continue to expand our coverage across China on the food delivery business. Today, we are -- I think most of our Ele.me operation are focused on major cities, but we will continue to move ahead to cover more cities, especially low-tier cities, where we see a growing demand and market need. So we will -- I think we have -- we're well prepared to move forward to win the battle in this sector.

Our next question comes from the line of Zachary Schwartzman of RBC Capital Markets.

A little expansion on that previous question with Ele.me. Clearly, core business very healthy. Seven point sequential acceleration in marketplace core commerce adjusted EBITA growth that allows you to invest more in the strategic businesses. But 2 questions here. The first is how much do you see core commerce initiatives becoming as a percentage of total commerce revenues for the upcoming fiscal year? And then I know you don't manage the business on a margin basis, but gross margins were notably down this quarter in fiscal year. How much was just due to seasonality this quarter and -- if any? And if not, how much do you expect this to continue as you invest in gaining market shares over peers? Specifically, just trying to get a better sense of how much you're using incentives for drivers and maybe even consumers for local consumer services and if they're temporary or permanent as you expand into Tier 3 cities and below.

Yes, I -- in our IR deck, the PPT that was put on our website, it shows that -- where the spendings are and how our EBITA profitability grow for our core as well for the core and also for the overall AGH. So that could give you a better sense on where is -- the money goes. That's on Page 12 of the material. So in terms -- rather than talking about margins, yes, we talk about our profitability growth. In the past year, you could tell from our -- the presentation I just mention that we did spend or invest in the areas not only in those cloud computing, digital media and entertainment but also within core, we have several areas that we have invested and also showed a very positive business progress. So these areas -- including local servicing, international business, Lazada, New Retail and logistics. So I think overall, we're looking at this business for down -- 3 to 5 years is our next milestone rather than the next quarter or next year. As I said, although we committed to invest, at the same time we're also committed to enhance the efficiency of the investments, which means that for every dollar we spend, we look at ROI internally. So that's how we decided whether we're going to extend the spending on certain businesses.

Our next question comes from the line of...

Oh, marketplace -- right, the question on marketplace revenue as a total revenue is still going to contribute -- if you look at our core commerce, first of all, core commerce is still going to contribute a significant part of the total revenue. I think previous years, we have shown like somewhere around 80%. In the coming year, the percentage wouldn't change that significantly. The percentage will be pretty much at the same range.

Our last question comes from the line of Han Joon Kim of Deutsche Bank.

I just wanted to round up with a question on the guidance. So based on everything that you guys have said and based on the fourth quarter numbers, which was running at a pretty high rate, it would seem to me that the kind of a 33% rate would be more of a kind of a minimum number that we start off with that we want to work north of. Would that be a fair assessment?

Han Joon, could you repeat the question? You were breaking up in the middle. I assume you're asking a question about revenue guidance being the minimum, is that right?

Yes. I mean you guys sound pretty confident into this fiscal year, this fiscal '20. And we exited last year north of 50%. So just on that cadence, I feel like a 33% Y-o-Y would be -- or reflects more of a kind of a minimum threshold that we set and try to move up from that throughout the course of the year.

Yes. Let me explain on that. So if you look at the fiscal 2019, our overall revenue year-on-year growth was 51%. However, we did have some newly acquired business that we added in this fiscal year, which means that there was 0 base for fiscal 2018. For example, Ele.me, right, finalized -- just added late 2018. So if you take those out, our revenue growth -- the organic revenue growth would have been 39%. So this is the starting point. And now we're talking about CNY 500 billion-plus, which is 33%, is actually comparable to last year's organic growth. The key is that 33%, we believe this growth will continue to outperform all of our global peers. I hope that helps.

Well, thank you everyone for joining tonight. If you have any questions, please feel free to reach out to the IR team of Alibaba. Thank you.

Thank you. Ladies and gentlemen, that does conclude the conference call for today, and thank you for participating. You may now all disconnect.