Alibaba Group - First Quarterly Earnings Report lyrics

“We delivered a strong quarter with significant growth across our key operating metrics,” said Jonathan Lu, chief executive officer of Alibaba Group. “Our business continues to perform well, and our results reflect both the strength of our ecosystem and the strong foundation we have for sustainable growth. On our China retail marketplaces, gross merchandise volume for the quarter increased 49% and annual active buyers increased 52% year on year. We extended our unrivaled leadership in mobile with 217 million monthly active users on our mobile commerce apps in September and US$95 billion in mobile GMV for the twelve months ended September 2014. We are also encouraged by continued improvement of mobile monetization which demonstrates the strong commercial intent of our users.” “Our financial performance this quarter was robust, with revenue growing 54% year on year,” said Maggie Wei Wu, chief financial officer of Alibaba Group. “We continue to execute our focused growth strategy, and the fundamental strength of our business gives us the confidence to invest in new initiatives to add new users, improving engagement and customer experience, expand our products and services and drive long-term shareholder value.” September Quarter Operational and Financial Highlights Operational highlights: Financial highlights: GMV – GMV transacted on our China retail marketplaces in the quarter ended September 30, 2014 was RMB555,666 million (US$90,529 million), an increase of 48.7% compared to the same quarter of 2013. GMV transacted on Taobao Marketplace in the quarter ended September 30, 2014 was RMB379,832 million (US$61,882 million), an increase of 38.2% compared to the same quarter of 2013. GMV transacted on Tmall in the quarter ended September 30, 2014 was RMB175,834 million (US$28,647 million), an increase of 77.8% compared to the same quarter of 2013. The growth was primarily driven by an increase in number of active buyers. Mobile GMV – Mobile GMV in the quarter ended September 30, 2014 was RMB199,054 million (US$32,430 million), or 35.8% of total GMV transacted on our China retail marketplaces in this quarter, compared to 32.8% in the quarter ended June 30, 2014 and 14.7% in the same quarter of 2013. The growth was primarily driven by increases in the monthly active users accessing our platforms through mobile devices. Annual active buyers – China retail marketplaces had 307 million annual active buyers in the twelve months ended September 30, 2014, compared to 279 million in the twelve months ended June 30, 2014 and 202 million in the twelve months ended September 30, 2013, representing an increase of 52.0% compared to the same period in 2013. Mobile MAUs – Mobile MAUs grew to 217 million in the month ended September 30, 2014, compared to 188 million in the month ended June 30, 2014, representing a net addition of 29 million MAUs in three months, and a 138.5% increase from 91 million in the month ended September 30, 2013. Revenue – Revenue increased by 53.7% to RMB16,829 million (US$2,742 million) in the quarter ended September 30, 2014, compared to RMB10,950 million in the same quarter of 2013. Revenue from China commerce retail business increased by 47.7% to RMB12,769 million (US$2,080 million), compared to RMB8,645 million in the same quarter of 2013, mainly driven by the growth in online marketing service revenue and commission revenue. Mobile revenue increased by 1,020.2% to RMB3,719 million (US$606 million) in the quarter ended September 30, 2014, compared to RMB332 million in the same quarter of 2013. Income from operations – Income from operations in the quarter ended September 30, 2014 was RMB4,345 million (US$708 million), or 25.8% of revenue, a decrease of 17.2% compared to RMB5,248 million in the same quarter of 2013. The decrease was primarily due to share-based compensation charges (see “Share-based compensation expense” below) and an increase in amortization of intangible a**ets. Non-GAAP EBITDA – Non-GAAP EBITDA increased by 30.6% to RMB8,493 million (US$1,384 million) in the quarter ended September 30, 2014, compared to RMB6,505 million in the same quarter of 2013. Non-GAAP EBITDA margin was 50.5% in the quarter ended September 30, 2014. This was a decrease from 59.4% in the September quarter of 2013 and from 54.4% in the June quarter of 2014. The decrease in non-GAAP EBITDA margin was primarily due to (i) the consolidation of newly acquired businesses, mainly including UCWeb Inc., or UCWeb, AutoNavi Holding Limited, or AutoNavi, (ii) planned investments in new business initiatives, such as our mobile operating system, local services and digital entertainment, and (iii) increased tactical marketing spending during the September quarter. Net income – Our net income in the quarter ended September 30, 2014 was RMB3,030 million (US$494 million), a decrease of 38.6% compared to RMB4,937 million in the same quarter of 2013. The decrease was primarily due to the share-based compensation charges and increased amortization expense as discussed above, and an increase in our effective tax rate. Non-GAAP net income – Non-GAAP net income increased by 15.5% to RMB6,808 million (US$1,109 million) in the quarter ended September 30, 2014, compared to RMB5,893 million in the same quarter of 2013. Diluted EPS and non-GAAP diluted EPS – Diluted EPS in the quarter ended September 30, 2014 was RMB1.24 (US$0.20) on 2,438 million diluted shares outstanding, a decrease of 41.8% compared to RMB2.13 on 2,317 million diluted shares outstanding in the same quarter of 2013. Non-GAAP diluted EPS in the quarter ended September 30, 2014 was RMB2.79 (US$0.45) on 2,438 million diluted shares outstanding, an increase of 9.4% compared to RMB2.55 on 2,317 million diluted shares outstanding in the same quarter of 2013. September Quarter Financial Results Revenue – Revenue for the quarter ended September 30, 2014 was RMB16,829 million (US$2,742 million), an increase of 53.7% compared to RMB10,950 million in the same quarter of 2013. The increase was mainly driven by the continuing rapid growth of our China commerce retail business. China commerce retail business – Revenue from China commerce retail business in the quarter ended September 30, 2014 was RMB12,769 million (US$2,080 million), or 75.9% of total revenue, an increase of 47.7% compared to RMB8,645 million in the same quarter of 2013. The increase was mainly driven by the growth in online marketing services revenue and commission revenue. Commission revenue accounted for 33.5% of China commerce retail revenue in the quarter ended September 30, 2014, compared to 24.8% in the same quarter of 2013. Revenue growth during this period occurred in the context of and reflected an increase of 48.7% in GMV transacted on our China retail marketplaces, which was primarily driven by a 52.0% increase in the number of active buyers. Monetization rate remained stable at 2.30% in the quarter ended September 30, 2014, compared to 2.31% in the same quarter of 2013. Mobile revenue in the quarter ended September 30, 2014 was RMB3,719 million (US$606 million), representing 29.1% of China commerce retail business revenue, compared to 19.4% in the quarter ended June 30, 2014 and 3.8% in the same quarter of 2013. Mobile revenue increased as a result of increased mobile GMV and increased mobile monetization rate to 1.87%, up from 1.49% in the quarter ended June 30, 2014 and 0.61% in the same quarter of 2013. China commerce wholesale business – Revenue from our China commerce wholesale business in the quarter ended September 30, 2014 was RMB790 million (US$129 million), an increase of 39.1% compared to RMB568 million in the same quarter of 2013. The increase in revenue was due to an increase in paying members and an increase in average revenue from paying members. International commerce retail business – Revenue from our international commerce retail business in the quarter ended September 30, 2014 was RMB419 million (US$68 million), nearly doubling from RMB210 million in the same quarter of 2013. The main reason for this increase was an increase in GMV transacted on AliExpress. International commerce wholesale business – Revenue from our international commerce wholesale business in the quarter ended September 30, 2014 was RMB1,198 million (US$195 million), an increase of 24.0% compared to RMB966 million in the same quarter of 2013. The main reason for this increase was an increase in the number of paying members. Cost of revenue – Cost of revenue in the quarter ended September 30, 2014 was RMB5,596 million (US$912 million), or 33.3% of revenue, compared to RMB3,001 million, or 27.4% of revenue, in the same quarter of 2013. The increase was primarily due to (i) an increase in share-based compensation expense caused by the re-measurement at period end to fair value of share-based awards granted to the employees of Zhejiang Ant Small and Micro Financial Services Company, Ltd., or Ant Financial, and (ii) an increase in co-location, bandwidth and depreciation expenses as a result of our investments in Alibaba Cloud Computing and our data platform. Product development expenses – Product development expenses in the quarter ended September 30, 2014 were RMB2,581 million (US$421 million), or 15.3% of revenue, compared to RMB1,168 million, or 10.7% of revenue in the same quarter of 2013. The increase was primarily due to an increase in payroll and benefit expense including share-based compensation expense. Our product development headcount increased as we continue to focus on new and existing product development and as a result of our acquisitions of UCWeb and AutoNavi. Sales and marketing expenses – Sales and marketing expenses in the quarter ended September 30, 2014 were RMB1,749 million (US$285 million), or 10.4% of revenue, compared to RMB657 million, or 6.0% of revenue in the same quarter of 2013. The increase was primarily due to an increase in tactical advertising and promotional spending mainly to promote our China retail marketplaces during this quarter when intense global interest in Alibaba enhanced the effectiveness of marketing campaigns. Additionally, the consolidation of marketing expense in acquired businesses, including UCWeb and AutoNavi, and an increase in promoting new business initiatives (including local services and digital entertainment) also contributed to the increase of sales and marketing expenses in this quarter. General and administrative expenses – General and administrative expenses in the quarter ended September 30, 2014 were RMB1,960 million (US$319 million), or 11.6% of revenue, compared to RMB793 million, or 7.2% of revenue in the same quarter of 2013. The increase was primarily due to an increase in share-based compensation expense. Share-based compensation expense – Share-based compensation expense included in respective cost or expense items above in the quarter ended September 30, 2014 was RMB3,010 million (US$490 million), or 17.9% of revenue, an increase of 248.4% compared to RMB864 million, or 7.9% of revenue, in the same quarter of 2013. Share-based compensation expense as a percentage of revenue increased due to performance-based and retention grants of share-based awards to our employees and members of executive management prior to our initial public offering, with vesting periods ranging from four to six years, as well as the re-measurement charge relating to share-based awards granted to the employees of Ant Financial as described under Cost of Revenue above. Amortization of intangible a**ets – Amortization of intangible a**ets in the quarter ended September 30, 2014 was RMB598 million (US$97 million), a significant increase from RMB39 million in the same quarter of 2013. The increase was primarily related to the strategic acquisitions, including UCWeb and AutoNavi. Income from operations – Income from operations in the quarter ended September 30, 2014 was RMB4,345 million (US$708 million), or 25.8% of revenue, a decrease of 17.2% compared to RMB5,248 million, or 47.9% of revenue, in the same quarter of 2013. The decrease was primarily due to an increase in share-based compensation expense and an increase in amortization of intangible a**ets. Non-GAAP EBITDA – Non-GAAP EBITDA increased by 30.6% to RMB8,493 million (US$1,384 million) in the quarter ended September 30, 2014, compared to RMB6,505 million in the same quarter of 2013. Non-GAAP EBITDA margin was 50.5% in the quarter ended September 30, 2014. This was a decrease from 59.4% in the September quarter of 2013 and from 54.4% in the June quarter of 2014. The decrease in non-GAAP EBITDA margin was primarily due to (i) the consolidation of newly acquired businesses, mainly including UCWeb and AutoNavi, (ii) planned investments in new business initiatives, such as our mobile operating system, local services and digital entertainment, and (iii) increased tactical marketing spending during the September quarter. A reconciliation of income from operations to non-GAAP EBITDA is included at the end of this release. Interest and investment income, net – Interest and investment income, net in the quarter ended September 30, 2014 was RMB468 million (US$76 million), an increase of 47.2% compared to RMB318 million in the same quarter of 2013. The increase in net interest and investment income was primarily due to a net gain recognized with respect to the revaluation of previously held equity interests relating to the merger of AutoNavi, and an increase in interest income as a result of higher cash balance during the period, partially offset by losses recognized with respect to the revaluation of convertible bonds in connection with our strategic investments in publicly traded entities. Interest expense – Interest expense in the quarter ended September 30, 2014 was RMB521 million (US$85 million), an increase of 39.3% compared to RMB374 million in the same quarter of 2013. The increase in interest expense was primarily due to an increase in average loan amount outstanding during the period following the drawdown in April 2014 of the remaining US$3.0 billion under a US$8.0 billion credit facility. Other income, net – Other income, net in the quarter ended September 30, 2014 was RMB378 million (US$62 million), a decrease of 2.8% compared to RMB389 million in the same quarter of 2013. For the quarter ended September 30, 2014, other income, net, primarily included royalty fees and software technology service fees received from Ant Financial which increased to RMB430 million (US$70 million) in the quarter ended September 30, 2014 from RMB204 million in the same quarter of 2013, and RMB195 million of expenses relating to the sale of shares by existing shareholders in our initial public offering. Income tax expenses – Income tax expenses in the quarter ended September 30, 2014 were RMB1,339 million (US$218 million), an increase of 110.2% compared to RMB637 million in the same quarter of 2013. The increase was primarily due to the increase in taxable income from our operations in China. Our effective tax rate increased to 28.7% in the quarter ended September 30, 2014 from 11.4% in the same quarter of 2013. Excluding share-based compensation expense which is not deductible for income tax purposes, and gain on revaluation of investments which are not subject to income tax, our effective tax rate would have been 17.6% in the quarter ended September 30, 2014, compared to 9.9% in the same quarter of 2013. Such increase was primarily because the enterprise income tax, or EIT, exemption period of one of our major subsidiaries expired and such subsidiary became subject to an EIT rate of 12.5% (or 50% of the statutory EIT rate) in calendar year 2014. Net income and non-GAAP net income – As a result of the foregoing, our net income in the quarter ended September 30, 2014 was RMB3,030 million (US$494 million), a decrease of 38.6% compared to RMB4,937 million in the same quarter of 2013. Excluding the effects of share-based compensation expense, amortization of intangible a**ets and certain other items, non-GAAP net income in the quarter ended September 30, 2014 was RMB6,808 million (US$1,109 million), an increase of 15.5% compared to RMB5,893 million in the same quarter of 2013. A reconciliation of net income to non-GAAP net income is included at the end of this release. Net income attributable to ordinary shareholders – Net income attributable to ordinary shareholders in the quarter ended September 30, 2014 was RMB2,976 million (US$485 million), a decrease of 39.1% compared to RMB4,883 million in the same quarter of 2013. Diluted EPS and non-GAAP diluted EPS – Diluted EPS in the quarter ended September 30, 2014 was RMB1.24 (US$0.20) on 2,438 million diluted shares outstanding, a decrease of 41.8% compared to RMB2.13 on 2,317 million diluted shares outstanding in the same quarter of 2013. Excluding the effects of share-based compensation expense, amortization of intangible a**ets and certain other items, non-GAAP diluted EPS in the quarter ended September 30, 2014 was RMB2.79 (US$0.45), an increase of 9.4% compared to RMB2.55 in the same quarter of 2013. A reconciliation of diluted EPS to the non-GAAP diluted EPS is included at the end of this release. Cash – As of September 30, 2014, cash, cash equivalents and short-term investments were RMB109,911 million (US$17,906 million), compared to RMB43,632 million as of March 31, 2014. Cash flow from operating activities and free cash flow – Net cash provided by operating activities in the quarter ended September 30, 2014 was RMB5,865 million (US$955 million), an increase of 29.6% compared to RMB4,526 million in the same quarter of 2013. Capital expenditures in the quarter ended September 30, 2014 were RMB3,396 million (US$553 million), compared to RMB1,140 million in the same quarter of 2013. Capital expenditures in the quarter ended September 30, 2014 included cash outflow for acquisition of land use rights and construction in progress of RMB1,703 million. Free cash flow, a non-GAAP measurement of liquidity, in the quarter ended September 30, 2014 was RMB8,938 million (US$1,456 million), an increase of 33.7% compared to RMB6,683 million in the same quarter of 2013. A reconciliation of net cash provided by operating activities to free cash flow, the non-GAAP measure of liquidity, is included at the end of this release. Net cash used in investing activities – During the quarter ended September 30, 2014, net cash used in investing activities of RMB32,555 million (US$5,304 million) mainly included disbursements for short-term investments of RMB13,807 million (US$2,249 million), capital expenditure of RMB3,396 million (US$553 million) as well as investment and acquisition activities of RMB15,912 million (US$2,592 million). The cash outflows related to our previously announced investment and acquisition activities included: (i) the merger of AutoNavi, a leading provider of digital map content and navigation and location-based solutions in China, of RMB6,348 million; (ii) investment in Intime Retail (Group) Company Limited, one of China's leading department store operators, of RMB4,264 million; (iii) investment in Singapore Post Limited, the national postal service provider in Singapore and a leading provider of ecommerce and logistics solutions in the Asia-Pacific region, of RMB1,548 million; and (iv) investment in Guangzhou Evergrande Football Club, China's first-ever winner of the Asian Football Confederation Champions League Cup, of RMB1,200 million.