Earnings Call: Q4 2020

May 22, 2020

Good day, everyone, and welcome to Alibaba Group's March Quarter 2020 and fiscal year 2020 results conference call. With us are Dan Deong Zhang, Executive Chairman and CEO Zhou Cai, Executive Vice Chairman Hu, Chief Financial Officer. This call is also being webcast from 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, including revenue guidance. These forward looking statements involve inherent risks and uncertainties that may cause actual results to materially form our current agents, including risks and uncertainties related to the COVID-nineteen pandemic. For detailed discussions of these risks and uncertainties, please refer to our latest Annual Report on Form 20 F and other documents filed with the U. S. SEC. They were announced on the website of the Hong Kong Stock Exchange. Any forward looking statements that we make on this call are both 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 EBITDA, adjusted EBITDA margin, marketplace based core commerce adjusted EBITDA, non GAAP net income, non GAAP diluted earnings per share, or ADS, and as well 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 a year on year growth versus the same quarter last In addition, during today's call, management will give their prepared remarks in English. A third party translator will provide simultaneous Chinese translation at another conference line. Please refer to our press release for details. During the Q and A session, we will take questions in both English and Chinese, and the 3rd party translator will provide consecutive translation. All translations are of convenience purpose only. In the case of any discrepancies, management statement in their original language will With that, I will now turn the call to Daniel. Thank you, Ron. Hello, everyone. Thank you for joining our earnings call today. We have finished an extraordinary quarter and delivered an outstanding fiscal year. Despite the impact of COVID-nineteen pandemic, Alibaba achieved a historical milestone of US1 $1,000,000,000,000 in GMV across our digital economy this fiscal year, a strategic goal that we set for ourselves 5 years ago. We at Alibaba have always been aiming for the stars while keeping our feet on the ground. The $1,000,000,000,000 GMV milestone reflects the vitality of Alibaba's digital economy and as well as strong execution against the clear strategic vision. Our scale has now reached onesix of China's total retail sales, which was about US6 $1,000,000,000 last year, and we believe there is still tremendous potential of growth. Digital adoption and transformation in retail are accelerating due to the COVID-nineteen pandemic, reshaping consumer behavior and enterprise operations. On the consumer side, shopping online has become a habit for more people and in more product categories. On the retail side, online sales is no longer an option but a necessity for the brake and motors. We believe there is a new normal that will stay ever stay even after the pandemic is over. I would like to review the past quarter's performance in the context of the impact and recovery from the COVID-nineteen pandemic. On January 23, right for the Chinese New Year holiday, China announced the lockdown of Wuhan, the center of the pandemic. The lockdown measures implemented in other provinces and cities led to large scale economic disruption in late January February, which negatively affected our domestic e commerce business during the period. However, China quickly contained the pandemic by implementing measures such as strict social distancing, vast testing coverage, centralized mobilization of medical resources, and started to reopen the country for business in late February. By March 9, Cainiao announced full recovery of logistic operations nationwide, except for Hubei Province, where Wuhan is, and a normal life began to return for most of people in the country when Wuhan 10 week lockdown was lifted on April 8. Since March, we have seen a healthy recovery in our China retail marketplaces. As of March 31, 2020, annual active consumers on our China retail marketplaces reached 726,000,000, a net increase of 15,000,000 versus the previous quarter. Mobile MAUs of our China retail marketplaces reached 846,000,000 in March 2020, an increase of 22,000,000 dollars over December 2019. This reflects our strongest user to grow our new retail business in fresh food and cost rate. Rachel and Odena, which have played an important role in applying daily necessities to people impacted during the pandemic and have become widely popular among consumers. In the past quarter, both Fishbowl and Taoxanda delivered stellar growth of more than 100% year on year. Approximately 60% of free ship post GMV came from online orders, up by 10 percentage points year over year. As lockdown measures eased in China starting in April, demand and popularity of our grocery business have remained strong. We believe the consumer habit of buying fresh food and groceries online will continue after the pandemic, and online and offline integration will drive the new retail model to the next stage of development. We have been investing for years to build a new retail technology infrastructure, which will help us further strengthen our market leadership import platform in China, Tmall Global has become an ever more important destination for Chinese consumers to buy imported products as they could not travel abroad during the pandemic. In markets outside of China, our international retail marketplaces, such as Lazada and AliExpress, attracted over 180,000,000 annual active consumers as of March 2020. Lazada's order volume grew by grew more than 100% year on year during the fiscal year and completed the March quarter with a strong finish despite the impact of the COVID-nineteen pandemic. February March 2020, our cross border marketplace, Hardie Express GMV growth was negatively impacted, mainly by supply chain and the logistics disruptions caused by COVID-nineteen pandemic. We are seeing signs of recovery in certain major markets starting in April, but there are still uncertainties ahead. Revenue in our local consumer services business decreased by 8% year on year in the past quarter due to the impact of COVID-nineteen. In April, year on year growth of our food delivery GMV turned positive as lockdown measures eased, restaurants began reopening, and people began returning to work in China. Alibaba Cloud continued its rapid growth in the past fiscal year, with revenue reaching RMB40 1,000,000,000, an increase of 62% year on year. During pandemic, our public cloud business grew rapidly, driven by increased consumption of video content as well as web adoption of remote working and learning. Our cloud computing infrastructure and big data business have also played a key role in enabling business to quickly resume operation and production. We believe the pandemic will further accelerate digital transformation of enterprises. All industries, including public sectors, will choose to move their technology infrastructure to the cloud. SingTalk, our digital collaboration platform for enterprises, played a key role during the pandemic. Millions of more enterprises and users in China are now using DingTalk to stay connected and work remotely. DingTalk also made significant penetration in the education sector as schools adopted the platform for their teachers and students. In March 2020, SingTalk conducted an average of over 1,000,000 active classroom sessions on each school day. SingTalk's number of daily average active consumers during working day grew significantly to 155,000,000 in March. As offices and schools reopened in China, Zincoc's number of active businesses came down from the peak level but still maintained at more than 100,000,000 DAU. In the past quarter, our digital media and entertainment business delivered healthy growth in paying subscribers and user time spent as users' consumption of video content increased significantly during the pandemic. Youku will continue its focus on production and distribution of original and exclusive content, while ensuring cost efficiencies and return on investment. During the past quarter, we leveraged our platform technology and other resources across the Alibaba ecosystem to support populations impacted by COVID-nineteen pandemic within China and around the world. We also implemented a comprehensive set of financial and business support measures to help alleviate the near term challenge faced by our business customers and partners. As of March 31, 2020, Alibaba, together with N Financial, have contributed approximately RMB3.4 billion in value in the form of donations, subsidies and tech support. To name a few examples, we waived fees, reduced commissions and offered logistic subsidies to our merchants. We worked with N Financial and other partners to advance working capital funds to our merchants to provide liquidity and to facilitate 1 year loans with preferential interest rates. We used the RMB 1,000,000,000 special fund we established in January to procure medical and related supplies for parts of China affected by pandemic. Our logistics subsidiary, Cainiao, offered free delivery of medical supplies to destinations around the world through its extensive global logistics network. Our self operated fresh food and grocery chain, Fish Shippo, committed to more than 200 remaining open for business even during a period where lockdown measures were in effect. Shipho also worked with the supply chain to keep our commitment to not raising prices as well as maintaining liquid stock on the shelves. We made available AI technology to over 5 50 hospitals in China to help improving the speed and efficiency of their COVID-nineteen digesters during CT lung scans. The Alibaba Foundation, through combined efforts with Jack Ma Foundation and the Zhou and Clara Thai Foundation, donated over 200,000,000 units of personal protective equipment, testing kits and ventilators to over 150 countries and regions. In April 2020, we further announced the 2020 Spring Thunder Initiative, which aims to help export oriented SMEs explore opportunities in the China domestic market through our China retail marketplaces and expand into new markets through our international wholesale and retail marketplaces such as alibaba.com and AliExpress to develop digitalized manufacturing clusters to accelerate the digital transformation of China's agricultural sector and alleviate financial financing challenges faced by SMEs by working with N Financial and its partners. The battle against the COVID-nineteen pandemic is not over. Although China has made good progress in fighting and controlling the spread of the coronavirus, with most business reopening and people returning to normal life, the threat of the pandemic is still looming in rest of the world, and the timing and the pace of recovery is still uncertain. At the same time, tensions between the U. S. And China have added another layer of uncertainty to the post COVID-nineteen world. Despite the uncertainties in the macroeconomic and the geopolitical environment, there is one thing we can certain. The world is moving towards digital first and digital everything. In the past 2 decades, Alibaba has developed comprehensive infrastructure and capabilities built on digital technology for business, financial services, logistics, cloud computing and big data to prepare for this new era. We believe our infrastructure and capabilities will play an important role in enabling all industries to embrace digital transformation and customers to embrace a digital lifestyle. In addition, we aim to empower SMEs around the world, including those in America, to access the Chinese and other global consumer markets and create new jobs. This is a hard work that Alibaba must undertake to fulfill our vision to make it easy to do business anywhere. And it is also the fundamental assurance for our sustainable growth in the future. Now I will turn it over to Maggie, who will walk you through the details of our financial results. Thank you, Meg and thank you everyone for joining us. I'd like to start my prepared remarks by addressing COVID-nineteen's impact on our financials and recent trends. Back in February, given the potential uncertainties of COVID-nineteen pandemic, we guided the market that our overall revenue growth rate would be negatively impacted for the March quarter and that some of the businesses such as China retail marketplaces and local consumer services might show negative revenue growth. I'm pleased to report we delivered better than expected March quarter results. The government took effective measures to limit the spread of the virus through lockdowns, social distancing measures and travel restrictions. With the virus spread under control in China, these restrictions started to ease in early March and this led to a recovery of supply chain and logistic delivery capacity. This in turn enabled a quick recovery for our China retail marketplaces and improving fundamentals for local consumer service businesses. For our China retail marketplaces, Tmall online physical goods GMV, this is a paid GMV, grew 10% in the March quarter. Although only 10% growth, we did see robust demand of FMCG and consumer electronics categories as homebuy consumers cooked at home and upgraded home appliance and 3C products. These two categories combined grew 25% on our Tmall platform. On the other hand, discretionary product categories such as apparel and accessories, home furnishing and auto parts experienced negative growth. Starting in April, Tmall Online Physical Goods GMV saw strong growth a strong recovery and has continued to further improve in May. Local consumer services recorded 8% decline in revenue this quarter, reflecting mass closures of restaurants and local merchants. However, social distancing measures also led to increased demand for groceries and other daily necessities. Starting in April, GMV growth of food delivery businesses, Olima, turned positive as lockdown measures eased. Restaurants began reopening and people began returning to work in China. For our international commerce business, which represents around 7% of total revenue in fiscal 2020, the timing and pace of the recovery is still uncertain as demand in countries outside China may be further impacted by COVID-nineteen. So let's take a look at the March quarter financial highlights. Our total revenue was RMB114,000,000,000, grew by 22% year over year. The increase was mainly driven by growth in China Commerce Retail Business, especially new retail businesses in grocery category and cloud computing. We continue to be successful at expanding product offerings on our platform that cater to the needs of different consumer segments. The decrease of non GAAP free cash flow was due to a one off of AliExpress payment service restructuring. So this we had a full disclosure in our earnings release. This is mainly due to the overseas regulation requirement change and that AliExpress began the process of a risk structure so that it no longer holds consumer funds before they release to the merchants. That if we take that impact out, our non GAAP free cash flow would have been over RMB 2,000,000,000. Let's take a look at the revenue in detail. China commerce retail grew 21%. Customer management revenue grew 3%. The growth in customer management revenue was primarily due to the increase in revenue from recommendation fees and top of life. These new revenue streams, partially offset by a decrease in volume, volume of clicks and average unit price per click. These are the pay click and PPC I'm talking about is for the search business, P4P. So this is impacted because of this COVID-nineteen. Commissions revenue decreased 2%, primarily due to effects of the COVID-nineteen impact. These impacts including cancellation of some orders as a result of logistics disruption in February, weakness in apparel categories, our waiver of annual service fees for the first half of twenty twenty as part of our support to merchant customers. International retail revenue grew 8% to RMB 5,400,000,000. The increase is primarily due to the growth of LADADA and Trendyol and partially offset by the exclusion of revenue from Ali Express Russia, which was no longer consolidated since October 2019. So we had a JV in Russia right now. Cainiao revenue reached RMB5 1,000,000,000 growing at 28% year on year. This was primarily due to the increase in the volume of orders fulfilled from our fast growing cross border and international commerce retail businesses. And our local consumer service experienced a negative growth this quarter I just talked about. So for Ali Cloud, it's still growing strongly at 58%. And let's take a look at the March quarter cost trends. Cost of revenue excluding SBC was 62% of revenue. The increase was primarily due to a revenue mix shift towards their excess businesses, the new retail businesses such as our new retail and also consolidation of Caola and partially offset by decreasing delivery costs of our local consumer services. Let's turn to segment profitability. Our market based core commerce adjusted EBITDA reached $34,000,000,000 decreased 2%. The core commerce adjusted EBITDA grew 2% to 28 adjusted EBITDA grew to percent to 28% because of the 4 strategic comment initiatives compared to prior year due to the ongoing improvement of China logistics network, higher demand for FreshCo and the lower variable costs required for our local consumer service business. I would like to mention about the innovation initiatives. When you look at their adjusted EBITDA loss was RMB 3,100,000,000, which is up from RMB 1,900,000,000 from a year ago. The increase is primarily due to our aggressive investment in DingTalk to provide remote work collaboration capabilities to enterprises and schools free of charge during the COVID-nineteen. As a result, daily active user on DingTalk achieved a fourfold increase to over $100,000,000 The peak DAU is about $155,000,000 So March quarter other financial metrics. The share of results of Equity Investe in the quarter reached RMB 3,500,000,000. The year over year increase in share of results of equity in Mcfeen was mainly due to our share of profits in Ant Financial in December quarter as we take its profit in 1 quarter lag, partially offset by decrease in our share of results of Suning. March quarter GAAP to non GAAP net income. The GAAP net income attributed shareholders was $3,200,000,000 The year over year decrease was primarily due to net loss in investment income, mainly reflecting decreases in the market prices of our equity investments in publicly traded companies compared to net gain recorded in the same quarter of 2019. Non GAAP net income attributable to shareholders increased by 12% to RMB 25,000,000,000. Now let's look at the fiscal 2020 full year results. GMV, as Daniel mentioned, the Alibaba Digital Economy achieved an important milestone of US1 $1,000,000,000,000 GMV target. You probably remember that this is the target we committed to do 5 to 6 years ago. User growth. Annual active consumers in China reached 780,000,000, including 726,000,000 of our China retail marketplaces. In other words, one out of every 2 Chinese are buying our platform. 780,000,000 of annual active consumer in China accounts for around 85% 40% of the Chinese population in developed and the less developed areas. Our ability to attract users at a rapid pace reflects not only the diversity of product selection, but also the platform has become an everyday destination for entertainment and discovery of new trends. We continue to achieve strong revenue growth across all businesses, including core commerce, cloud computing and other business. So total revenue grew 35% to RMB510 1,000,000,000. Talk about the profitability. In the last 12 months, we grew adjusted EBITDA by 28% to RMB137 1,000,000,000 and generated RMB 131 1,000,000,000 in non GAAP free cash flow. This is significant firepower for our long term growth. Okay. Let's turn to our business segment. All of the revenue we talked about for each sector shows strong growth. And then when you look at their adjusted EBITDA, profit for the core are still growing strongly and the investment areas that these businesses are in the investment stage are progressing very well and loss gets narrowed. Okay. So I would like to talk about our outlook. But before that, I want to address the recent bill passed by the U. S. Senate called the Holding Foreign Companies Accountable Act. The proposed legislation would essentially prohibit a foreign issuer from being listed on a U. S. Stock exchange if the U. S. Public Company Accounting Oversight Board, this is a peekaboo, is unable to inspect all the work papers of the issuer's auditors for 3 consecutive years due to certain reasons. We closely monitor the development of this bill, and I think it's important for investors to understand Alibaba's practice and issues raised under this proposed legislation. First, there is an existing framework of the peekaboo conduct of the peekaboo and for its conduct and inspection of audits on companies with Chinese operations. In this regard, we understand that there has been ongoing dialogue among the big securities regulators, CSRC, SEC and Pick A Boo with respect to the types of information that are permitted to be exchanged on issuers with Chinese operations while maintaining compliance with Chinese laws. Number 2, Alibaba's financial statements are prepared in accordance with U. S. GAAP. And since our inception in 1999, we have been audited by PwC Hong Kong. PwC Hong Kong is the local affiliate of the worldwide PwC firm and its auditing standards are overseen by the PwC office in the United States. The integrity of Alibaba's financial statements speaks for itself. We have been an SEC filer since 2014 and hold ourselves to the high standards of transparency. Each year, we have received unqualified audit opinion on our financial statements from PwC. 3rd, trust is one of our core values, and transparency and integrity are essential components of building trust with all of our stakeholders. All these years, we have consistently aimed to grow the business for long term, maintain compliance with all applicable laws and deliver the value for our customers, employees and investors. Investors who bought our stock in 2014 IPO have tripled their investment over the past 5.5 years. Given the above, we will endeavor to comply with any legislation whose aim is to protect and bring transparency to investors who buy securities on U. S. Stock exchanges. Looking ahead, despite a challenging quarter due to pandemic, we achieved our guidance of over $500,000,000,000 in revenue and delivered healthy, sustainable profit growth in fiscal year 2020. The reason we have been able to deliver these results is that we sold seeds years ago by investing in technology, in innovation and in businesses that require foresight and long term patience. Today, the Alibaba Digital Economy remains strong and growing. Looking ahead, we will continue the same strategy of delivering robust revenue growth and sustainable profit growth. Although it is difficult to predict the uncertainty of global economic and geopolitical development, Based on our current view of Chinese domestic consumption and enterprise digitization, we expect to generate over RMB 650,000,000,000 in total revenue in fiscal year 2021. We believe our commitment to invest and deepen our value proposition to customers, thereby ensuring robust revenue and profit growth. That concludes our prepared remarks. Let's open for Q and A. Thank you. Thank you, Maggie. Hi, everyone. So for today's call, you are welcome to ask questions in Chinese or English. 3rd party's translator will provide consecutive interpretation for the Q and A session, and our manager will address your questions in the language you asked. Please note that the translation is for convenience purpose only. In the case of any discrepancies, our management statement in the original language. So operator, I'd like to open it up for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Binnie Wong from HSBC. Please ask your question. Thank you, Daniel, Maggie and Rob. My question is regarding your strategy in lower tier cities. I know that last week you issued a new release, a new patch release for Taobao providing new support for merchants as well as other new features and 70% of the uptake for that new patch release has in fact been from the lower tier cities. So can you please speak to us about your strategy going forward for the lower tier cities? Thank you. I will take that question. Given the size and the scale of Taobao as a retail platform and where it's at today, 700,000,000, The fact is that we've penetrated all segments of the market from the high end down to the low and the increase in the user base over the past year is 70,000,000. 70% of that came from the lower tier cities. Thank you. So what we're doing in the lower tier cities is deploying a more diverse and broad range of different services, including on Taobao with more value for money offerings as well as live streaming and other kinds of engagement that are targeted for those users, especially those who are looking for good value for money. And as you've noted, we have a new special price edition of Taobao, which is targeted for those users in lower tier cities with a focus on giving them value for money offerings. At the same time, we see significant potential for further growing our user base. The current figure for annual active consumers of 780,000,000 represents only 45 penetration 45% penetration of the population in lower tier cities and in the rural areas of China. So there still is lots of room to grow in those regions and we intend to do so together with Alipay in driving a digitalization strategy in those areas that will convert people into consumers. Thank you. Thank you. Our next question comes from the line of Eddie Leung from Bank of America. Please go ahead. Thank you. My question is regarding the long term impact of live streaming on the industry and in particular celebrity host and KOL live streaming. The question is if merchants need to pay these celebrities, these KOLs, will that impact on the profitability of platforms going forward? Thank you. And that's a really good question. What we're seeing really is the emergence of live streaming as a new kind of sales methodology or a new kind of sales channel with the emergence of these KOLs and celebrity influencers online, the role that they're really playing in the context of retail is sales. They're serving as salespeople and they make money by way of a sales commission. In the long term, how this trend will play out, I think really comes down to whether the intrinsic commercial value in terms of having online influencers and KOLs do live streaming be fully captured in an efficient and effective way. If you have a one off sales event with a celebrity influencer, you get user to make a one off purchase, fine, but the question is can you then keep that user in the long term and continue to market to them and get the full value out of that relationship. So I think it's important if you're paying money to these online influencers or celebrities that you're convert in part that's about supplanting existing channel costs and saving costs there. But more importantly, it's about getting the new consumer into your ecosystem so they can become a long term consumer. And this is critical to Alibaba because we are a diversified ecosystem with multiple channels and formats for engaging consumers. So that's precisely what we're looking at doing with these kinds of live streaming approaches. It's just one part of an overall integrated approach through which we hope to develop those long term relationships and create long term value. Okay. Next question. Thank you. Next question comes from the line of Yush Mubayi from Goldman Sachs. I have one question with regards to the guidance you provided for next year. What are the drivers of that growth assumption or guidance you provided? And in particular, what are the underlying macro assumptions you've made? And more generally, the platform mix that you're likely to 1P versus 3P mix that you're likely to see that's underpinning that guidance? Thank you. I'll go back to the queue afterwards. Okay. Piyush, this is Maggie. Let me try to answer your question. So we all know that we're facing risks and uncertainties, right? So many of which we're not able to predict or control. So whether there's going to be a second wave or when will the vaccine come, how much impact would the geopolitical issue bring, we it's hard for us to factor in. So the guidance we give basically reflects assumptions that we believe to be reasonable today. So then you talked about the recovery seed of each of our businesses and particularly for like China retail, local service and international business, etcetera. So based on what we've seen today and we see this quarter to date transaction volume and also user activities, etcetera, has already experienced similar growth at a similar rate to the December quarter level. So that's a basic assumption that we use. And you mentioned about 1P, 3P. So you can see from our revenue breakdown, sort of 20, 20 fiscal year, 1P business as a percentage of the total revenue already went up to around 16%, 17%. And we believe that percentage is going to continue to go up, but not dramatically. But the important thing is that people are thinking about your revenue content, bigger portion of 1P. The 1P normally represents low margin. But look at our profit growth. I think this is another point I want to make is that we are a group that has such a strong growth for the core and also has a multiple engine, not only Taobao, Tmall, China Retail Marketplace, but also cloud, new retail, local services, logistics. So strong revenue growth brings in the powder for us to invest in those strategically important areas. And these investment areas, they are doing better and better, which reflects into our profit growth. Sorry, interpreter, I gave a long answer. Next question, please. Thank you. Next question comes from the line of Alex Yao from JPMorgan. Please go ahead. Thank you. I noted in the earlier remarks your comments about advertising revenue in the Q1 performing well, driven by good performance of recommendation feeds. And in that context, I'd like to ask about your plans for monetization of recommendations. I imagine that in your answer, you'll talk about the need to balance the interest of merchants against the desire for monetization. So given that perhaps I could go ahead and just ask the second part of the question. Namely, is there any technical or technological method that could be adopted on the one hand so as to fully protect the merchants' interests or even better serve those interests, while at the same time also providing more opportunity for monetization? And if so, is that something that could happen this year? Thank you. Well, I'll start with the latter part of your question and the answer is yes, there is technology that can do precisely that and the technology is AI, artificial intelligence, which can be applied and we are already working on applying it in a way that can ensure a good user experience in terms of balancing advertising content versus free content for users and also leveraging that technology for merchants to drive better return on their investment. So we're working in this direction and I think we're already making good progress. So in general, we are moving forward cautiously in working on growing revenues from recommendation feeds and it is our hope that we can find ever better ways to do precisely what you mentioned in your question, namely finding the best possible balance, leveraging on technology between user experience and creating value for merchants. Thank you. I'd just like to add a couple of points on top of Daniel's already very clear answer and the keyword I'd like to add in is multi engine approach. So if you look at our revenue over this 3 year period, revenue from CMR and commissions accounted for 70% compared against 40%. And what this means is that our strategic investments are starting to produce new channels of revenue, new sources of revenue. So you can see this in our figures over the 3 year period for CMR as well 90% and that's down now by 20% to about 70%. So you have all of these different new revenue areas that can be tapped into including recommendations that we've talked about, but also live streaming, also Xinyu and many other new sources of revenue. So thirdly, and in conclusion, going forward, yes, we will continue to, as we said on Investor Day, to take a prudent approach in moving forward with monetization. Thank you. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead. Hi, good evening. Thanks management for taking my questions. My question is more about the spending power of the buyers post virus. Can management comment about the overall spending power of consumers these days? And with that, can you comment about the trend in ASP and all the frequency that we would expect as people speeding up the migration to online? Thank you. Okay. Let me answer this question. First of all, I think on our platform, we are such a huge consumer platform. We have different tiers of consumers around us. So what we see that consumers, they engage with us and find what they want in different categories, in different pricing range. But we do see some shift of the product categories in this quarter because of the pandemic. For example, we see a very strong growth of food and grocery business. And because people when people stay at home, they have to cook at home, they don't they are unable to go to the restaurant, so they need more food and more groceries, which are all daily necessities. So that's why we see very strong growth in our FMCG categories and food categories. Our FMCG categories grow like take example, like starting from the new fiscal year, our FMCG categories in Tmall grow nearly like 40%, I remember 40%, around 40%, which is a very strong indicator that people spend more on our platform in these categories. Well, because of the pandemic, people spend less on like apparel, like fashion, because people wear face masks and they don't even need these makeups. So I think the spending is still there, but the focus are quite different. But in terms of the general spending power, I would say different China is a famous high saving rate country, and we do see people remain in their consumption remaining a very strong consumption power to continue their to maintain their lifestyle. Class. So far, we haven't seen any big change in terms of the consumption power. But as I said before, I think the product categories they try, we do see some difference. Let me clarify one point. When we talk about beauty, what we see is like skincare still remain very strong. For makeup, because as I said, when ladies wear face masks, they may the need for makeup is getting lower. So that's the specific situation. Next question. Operator, next question. Thank you. Our next question comes from the line of Jason Elfstein from Oppenheimer. Please go ahead. Thank you. I just want to go a little bit deeper into that last point. You said that online physical good GMV grew 10% and then you did break down that you saw 25% in these categories that benefited or were more COVID related offset by areas where they didn't spend money. What do you think is kind of more reflective of consumers have the ability right now to spend more, they're just not because they don't need the items, consistent to what you talked about not needing makeup if you're wearing a mask, for example? And maybe talk about how that relates to your outlook for the next quarter? Thank you. Okay. Let me answer this question. As we said before, our China retail our Tmall grow like 10% in the March quarter. And in Tmall, we have our FMCGs and consumer electronics. The combined growth rate in March quarter for these categories on Tmall was about 25%. If you want to get a big picture of the future development, I think in my remarks, I gave you a very clear, I mean, latest indicator, which is starting from the New Year and the quarter to date, overall speaking, our China retail marketplace growth rate is similar to those in December quarter. So I think that's basically the big picture of where we are today. But we do all the people realize understand that there is still uncertainties about containing the pandemic. So we will closely monitor the situation, but we strongly believe that the consumption power in China is still very strong, and we will take our advantage in the digital platform to continue our leading position. Yes. Let me add one more point, which is like if you look at the past fiscal year, we generate a 1,000,000,000,000 dollars GMV in Alibaba Ecosystem. But if you look at our China retail marketplaces, the GMV we generated last fiscal year is about like RMB6.5 1,000,000,000,000. And if we look at what happened in the March quarter, I think we should have achieved a higher GMV without this pandemic, obviously. But we are very confident that in the New Year, I think we will achieve another net adds of like at least RMB1 1,000,000,000,000 in our China retail marketplace, which is, I think, a still very strong number compared to the size of our business in China. Next question comes from the line of Gregory Zhao from Barclays. Please go ahead. Thank you and congratulations on the strong performance. My question relates to cloud services. We know that internationally players like Microsoft and Google who have already achieved significant scale in terms of the size and the revenues continue to be able to maintain rapid growth in their revenues and even acceleration. Looking at China, however, in the cloud space, Alibaba and its competitors seem to be seeing a different trend where things are somewhat slower. So I'm wondering if you could compare for us please the China market versus the international market for cloud. What are the differences underlying that picture and what are the short term bottlenecks and how would it be possible potentially to make a big leap forward in terms of accelerating revenue and profit growth in cloud? Thank you. Well, first I'd like to say that in the past year, Alibaba Cloud Intelligence hit a very important milestone, namely reaching revenue of $40,000,000,000 and even in the March quarter, achieving 58% growth. So we don't see a slowdown at all. Conversely, we think the growth is good. We see this growth coming from several different areas. One is the demand across all sectors of the economy to get onto the cloud. And if you look at Chinese IT spending in the future, we can expect to see more and more spending going forward as our organization get themselves on the cloud. The second thing I would point to is that the cloud is not just a way of providing infrastructure on the cloud to lower IT related operating costs, it's also an opportunity for companies to leverage on big data and cloud enabled computing capacity to achieve better efficiencies and drive value for the business. And different kinds of algorithms and analytics will be developed in the cloud for different sectors, for different verticals, different product solutions to meet those needs and unleash new value for them. So it's not just about saving costs on IT infrastructure, it's about driving value as well. In Ali, the value proposition that we offer is cloud plus intelligence. So we're not just about providing cloud services, it's a combination of cloud plus intelligence. Now in different countries, cloud services are defined differently. It's true in China and internationally as well. There are different definitions. But to us, if it's just about shifting traffic onto the cloud to save costs. That's kind of a low value added offering, and that's not really what Alibaba is about. We're looking at focusing on higher value added cloud enabled offerings that can truly create value for clients in different sectors. And finally, on your question as to the differences that we see in the Chinese cloud market versus the cloud market overseas, I would say that in the U. S. And in other more developed markets, the SaaS and the whole ecosystem developers are more mature already, whereas in China, that developer ecosystem and SaaS is just starting to get going. Alibaba very much looks forward to partnering with developers to jointly create a very robust ecosystem in China. Okay, next question? Next question comes from the line of Alicia Yatra of Citigroup. Evening, management. Thanks for taking my questions. Congrats on the strong results. My question is on, so if you could give us some colors that on the subsidy measure that you help provide merchants, do you think that is actually more effective through the commission rebate or merchants actually prefer more free traffic and given recommended seats actually becoming quite effective for merchants. So is that mean over the next few quarters, we don't have to provide more preferential commission rate over time? Or is that is a separate thing and the CMR and commission grow election will still be a bit diverged? Thank you. Alicia, let me first answer your question. I think, first of all, we are trying to help our merchants, especially SMEs, during this pandemic. First of all, we have to give a very fair and transparent policy to all the merchants on our platform. So that's why we decided to use the subsidy to waive the annual fees and also give some reduced commissions in some of our business. But this is applied to all the merchants on our platform. And in terms of the free traffic, this is a very interesting question. I would say when we decided to give this support to the merchants, we have to consider the user experience on our platform, because we are a marketplace platform we are a marketplace, we are platform model. So we have to consider the interest of both merchants and consumers. So if we give free traffic to certain merchants, I think their conversion rate, their click through rate of the product may or may not be good enough to the customers. So that's why we don't want to do this one-sided effort. So we have to ensure the good user experience on our platform. But at the same time, we want to share we want to service our merchants to relieve their financial pressure. So that's how we think about these policies. Yes. Let me just supplement a little bit, Alicia. So for the subsidy and preferential commission rate, these are 2 separate things. Subsea, we're talking about like waiving of a merchant's annual fee on Tmall platform. That supports during COVID-nineteen, right, to help them to go into this difficult time. And this preferential commission rate is an ongoing effort that we have this practice all through the years. And talk about either subsidy or preferential rate. I think our operational philosophy is that we're not a believer of just burning money to grow the GMV. We believe that whatever investment we make, it should be the supporting the sustainable growth rather than just burn and throw away the dollars. So if you look at our profitability, right, this year, we're talking about somewhere over RMB140 1,000,000,000 and we have like US50 $1,000,000,000 cash on our account. So they are money to invest that we are emphasizing on helping merchants in an efficient and effective and sustainable way. Thanks. Operator, last question. Okay. Thank you. Our final question comes from the line of Mark Mulherny from RBC. Please go ahead. Thank you very much. If you were to talk about the biggest structural changes you think that will occur to your business or to the digital economy because of the COVID-nineteen crisis? What would you say they are? You highlighted increased shopping for groceries online, but including that, other things, just step back. What do you think are going to be the biggest structural changes, permanent changes in the way that consumers around the world interact digitally because of this crisis? Thank you very much. Okay. I think on top of the new category penetration like in the food and groceries, I think the other very important change is the education and the penetration in the customers who are not a very experienced internet user or online shoppers before COVID-nineteen. For example, what we see is that during the pandemic, many, many elder people, they move to online and buy everything needs. And so it's not only about the category penetration, it's also about the user penetration. So we do see this change the lifestyle of many, many people. And the second thing is not about consumption, it's about change the way of working and change the way of education. So that's why in my remarks, I said that our theme book experienced a very, very robust growth during the quarter because they become a very important platform for people, for working people who stick to that and to improve the working efficiencies. And for students and schools and Singtel become a very efficient platform for online classrooms. So I think this is all about change of the lifestyle, change of the way of working, change of way of education. This is a very, very fundamental these are very fundamental change. I would say this will stay ever I mean, even after the pandemic. Okay. Thanks everyone for joining the call today. If you have any further questions, please feel free to contact the Alibaba IR team. Thank you very much. Thank you. Thank you. Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may all disconnect.