Alibaba Group Announces September Quarter 2016 Results

Alibaba Group Holding Limited (NYSE:BABA) today announced its financial results for the quarter ended September 30, 2016.

"Alibaba Group had a great quarter. Our results reflect our increasing ability to monetize our 450 million mobile users through new and innovative social commerce experiences," said Daniel Zhang, Chief Executive Officer of Alibaba Group. "Beyond the strong performance of our core commerce business, we are pleased with the continued rapid growth of our cloud computing business. We also see huge potential in our newly integrated digital media and entertainment unit. By combining engaging online experiences with highly relevant content, we delivered impressive financial and operational results in the quarter across the company."

"We reported robust revenue growth of 55% this quarter, with strong growth in each of our four reporting segments," said Maggie Wu, Chief Financial Officer of Alibaba Group. "Our highly profitable and cash flow generative core commerce business enables us to invest in our future growth areas of cloud computing, digital media and entertainment and innovation initiatives. We expect each of these businesses to drive long-term value for both our customers and shareholders."

BUSINESS HIGHLIGHTS

In the quarter ended September 30, 2016:
  • Revenue was RMB34,292 million (US$5,142 million), an increase of 55% year-over-year.
    • Revenue from core commerce increased 41% year-over-year to RMB28,493 million (US$4,273 million).
    • Revenue from cloud computing increased 130% year-over-year to RMB1,493 million (US$224 million).
    • Revenue from digital media and entertainment increased 302% year-over-year to RMB3,608 million (US$541 million).
    • Revenue from innovation initiatives and others increased 78% year-over-year to RMB698 million (US$104 million).
  • Mobile MAUs on our China retail marketplaces reached 450 million in September, an increase of 23 million over June, while annual active buyers on our China retail marketplaces reached 439 million, an increase of 5 million from the 12-month period ended in June.
  • The number of paying customers of our cloud computing business grew to 651,000 from 577,000 in the previous quarter. Operating loss from cloud computing was RMB398 million (US$60 million) this quarter, and adjusted EBITA loss narrowed from RMB158 million in the previous quarter to RMB57 million (US$8 million) this quarter.
  • Income from operations was RMB9,045 million (US$1,356 million) and adjusted EBITDA was RMB15,875 million (US$2,381 million). Operating margin was 27%, adjusted EBITDA margin was 46% and adjusted EBITA margin for core commerce was 62%.
  • Diluted EPS was RMB2.97 (US$0.45) and non-GAAP diluted EPS was RMB5.26 (US$0.79).
  • Net cash provided by operating activities was RMB17,206 million (US$2,580 million) and non-GAAP free cash flow was RMB13,943 million (US$2,091 million).

BUSINESS AND STRATEGIC UPDATES

Core Commerce

Taobao - Highly engaged social commerce platform empowered by content and data. The Taobao App continues its success as the leading social commerce platform, serving creative content, social engagement opportunities and personalized, relevant shopping recommendations to consumers. Taobao App's highly relevant and engaging content helped drive growth in active users this quarter. For example, the live streaming on mobile of product demonstrations for fashion apparel, cosmetics, maternity/baby products, sports and active wear proved to be extremely popular with consumers, generating millions of daily views with robust user engagement. We also achieved high social engagement on the mobile Taobao platform. For example, in September, over six million Taobao App users shared their shopping experience with friends on a daily basis.

Tmall - partner of choice for brands.
  • Consumer electronics - We continue to see strength in the consumer electronics category, with robust growth in smartphones and large appliances. In September, Apple recognized our branding reach and distribution capability by appointing Tmall the third-party online platform for the simultaneous launch of the iPhone 7 with Apple in China. In the large appliance category, we continue to work with Haier's logistics subsidiary RRS, one of Cainiao Network's logistic partners, to ensure a high quality consumer experience, and as a result orders from our marketplaces handled by RRS grew over 82% year-on-year in the September quarter.
  • Fast moving consumer goods (FMCG) - We continue to make strong progress in the FMCG category. Personal care, food and mother and baby are among the top growth categories. Tmall Supermarket continues to grow rapidly, with volumes growing triple digits year-on-year. Multinational FMCG brands are working with us as the partner of choice, not only to drive their transaction volume, but also in the areas of brand building, channel expansion and new product launches to grow their presence in China.

11.11 Global Shopping Festival. In the eighth year of what has become the world's largest 24-hour shopping event, 11.11 demonstrates the strength and scale of the entire Alibaba ecosystem. 11.11 is not only an opportunity to drive sales for our merchants, but also to help them build their brands and engage with consumers in new ways.
  • Personalization: We are leveraging our big data capabilities to create a differentiated experience for each consumer based on individual preferences.
  • Consumer engagement: This year we launched many new innovations around live-streaming, VR and AR to drive consumer engagement on our platforms. Examples include a live-streamed "see now, buy now" fashion show watched by seven million viewers on Taobao, Tmall and Youku Tudou apps; Buy+ virtual reality technology, and an augmented reality mobile game to drive traffic online as well as to offline stores and restaurants.
  • Omni-channel: We also integrated the omni-channel shopping experience at more than 60,000 offline storefronts including Uniqlo, Gap and Intime department store.
  • Globalization: This year's 11.11 will be our most global ever with more than 11,000 international brands participating, including Burberry, Target, Maserati and Apple. We also introduced a new pilot program to help global merchants sell beyond China. Hong Kong and Taiwan are the first markets outside mainland China where this is available.

Merchant services - creating value for merchants. Qianniu, our merchant services working platform, provides merchants and brands with communication and productivity tools that empower them to operate their businesses more efficiently. We continue to see a highly engaged and active merchant base with daily active enterprises (DAE) on the app at over six million in September. Because of the platform's reach, Qianniu has expanded into a platform for our merchants to access services relevant to their business operations, including recruitment, small business loans, procurement and professional training.

Cloud Computing

Paying customers for cloud computing grew to 651,000, driving revenue growth to 130% year-over-year while significantly narrowing losses. Alibaba Cloud continues to expand its customer base across a variety of industries and businesses from start-ups to large corporations. Customer segments include technology, media, financial institutions, health care, public transportation, energy, manufacturing and government agencies.

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