Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's December quarter 2019 results conference call. At this time, all participants are in the listen-only mode. After management's prepared remarks, there will be a question -and -answer session. I'd like to turn the call over to Mr. Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.
Good day, everyone, and welcome to Alibaba Group's December quarter 2019 results conference call. With us today are Daniel Zhang, Executive Chairman and CEO, Joe Tsai, Executive Vice Chairman, and Maggie Wu, 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 the website later today. 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 Form 20-F, and other documents filed with the U.S. SEC, or announced on the website of the Hong Kong Stock Exchange.
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, marketplace-based Core Commerce Adjusted EBITDA, non-GAAP net income, non-GAAP diluted earnings per share or ADS, and free cash flow, are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings press release. Unless otherwise stated, the growth rate of all of the stated metrics mentioned during this call refers to year-over-year growth versus the same quarter last year. In addition, I want to let everyone know that today's Q&A session will be conducted in both Chinese and English.
A third-party translator will provide consecutive interpretation for the Q&A session, and our management will address your question in the language you asked. Please note that the translation is for convenience purposes only. In the case of any discrepancy, our management's statement in the original language will prevail. With that, I'm going to pass to Daniel.
Thank you, Rob. Hello, everyone. Thank you for joining our earnings call today. We delivered an outstanding quarter for a strong finish to the 2019 calendar year, and celebrated three major milestones, especially important to Alibaba. First, we successfully held our 11th 11.11 Global Shopping Festival . Second, we successfully listed on the Hong Kong Stock Exchange. Thirdly, Dr. Wang Jian, Chairman of the Alibaba Technology Steering Committee, was the first ever representative from the private sector to be appointed as a member of the Chinese Academy of Engineering. However, like all the other companies in China, we are confronted with a black swan event soon after the start of 2020, the novel coronavirus. The outbreak is having a significant impact on China's economy and may potentially affect the global economy. It will present near-term challenges to the development of Alibaba's business across the board.
At the same time, we will see opportunities created by the forces of change. Before further elaborating, I will share an overview of our performance for the December quarter. According to the China Ministry of Commerce, total retail sales across China increased by 8% year-over-year in 2019 for a total of RMB 41 trillion. Consumption contributed 58% of China's economic growth and accounted for 3.5 percentage points of China's GDP growth. Online retail sales of physical goods for the year were RMB 8.5 trillion, up 19.5% year-over-year. From these figures, it is clear that consumption has become the major driver of economic growth in China, and online retail is the engine driving consumption growth. Over the past quarter, our China retail marketplaces continued to maintain rapid growth in both GMV and user base.
As of December 31st, annual active consumers reached 711 million. Representing a net increase of 18 million over the previous quarter. Over 60% of new AAC came from less developed areas. China retail marketplaces MAU reached 824 million, up 39 million from the previous quarter. We noticed stronger user engagement and buying frequency as measured by DAU growing faster than MAU. This reflects healthy user stickiness on Taobao. Tmall physical goods GMV grew 24% year-over-year, further consolidating our leadership position as the top consumer engagement and distribution platform for brands in China. Our 11th 11.11 Global Shopping F estival set a new GMV record of RMB 268.4 billion. This is equivalent to 2.3 x the combined online sales of Black Friday and Cyber Monday in the U.S. It reflects the strength of Alibaba's digital economy and of Chinese consumers' robust consumption power.
More and more merchants are leveraging 11.11 to acquire new customers, launch new products, and develop new categories. During this year's November 11th, 15 brands surpassed RMB 1 billion in their total sales, 215 premium brands launched their new products and new categories, and 120,000 merchants each acquired over 10,000 new customers. Our globalization strategy enjoyed solid progress this quarter. Lazada and AliExpress continue to grow rapidly as a result of effective strategies in user acquisition and merchant onboarding. Lazada's quarterly orders increased 97% year-over-year, and AliExpress DAU grew by 56% for the month of December. Tmall Global's paid GMV grew by 45% year-on-year, and it continued to consolidate its leading position in China's cross-border import market.
With the ongoing optimization of bonded warehouse import logistics solutions, Tmall Global's end-to-end order delivery time has further improved by 2.78 days, which is a 10% reduction in delivery time compared to the same period last year. Cainiao Network continued to go from strength to strength. During this November 11th, Cainiao processed a record-breaking 1.29 billion number of packages. Of those, 690 million packages were delivered within one week, an improvement of 30% year-over-year. As a result of ongoing platform optimization and collective efforts with our logistics partners, we also saw a preference for using Cainiao Post, our last-mile service stations in residential areas and campuses. The number of packages collected by our Cainiao Post increased by 88% year-over-year. In November 2019, we invested RMB 23.3 billion to raise our equity stake in Cainiao from 51% to 63%.
This investment is a demonstration of Alibaba's commitment to the development of a smart logistics backbone as one of the core pieces of infrastructure for digital commerce. Alibaba Cloud continued its rapid rise with 52% year-over-year revenue growth. We celebrated two meaningful milestones this quarter. The first milestone is that Alibaba Cloud revenue surpassed RMB 10 billion in a single quarter for the first time. The second milestone was the successful migration of our e-commerce business core systems onto the public cloud. During 11.11 , our public cloud infrastructure and technology helped us to power the creation of over 544,000 orders per second at peak, process 970 PB of data without any disruption, and defend against 6 billion cyberattacks, all within the 24-hour period. We believe the migration of Alibaba's core e-commerce system to the public cloud is a watershed event.
Not only will we ourselves enjoy greater operating efficiency, but we believe it will also encourage others to adopt our public cloud infrastructure. Now, I would like to speak to the coronavirus situation on three areas. First, the responsibilities and duties that we assumed towards the community immediately upon the outbreak. Second, our relief measures to support SMEs. Third, the potential challenges and opportunities that we see for Alibaba's business in connection with the outbreak. Let me start with our actions related to our community. We took every effort to protect the health and safety of our employees through a flexible work policy and remote office collaboration using our proprietary technology. At the same time, we leveraged Alibaba's powerful forces of commerce and technology to deliver supplies to the affected regions. This is our responsibility to our community.
Soon after the outbreak, we also began to procure medical supplies from around the world. To date, over 40 million units of medical supplies worth RMB 468 million are on their way or have been donated to Wuhan and other affected cities. Cainiao has teamed up with our global industry partners to launch a fast-track logistics channel that facilitates the delivery of over 26 million units of medical supplies into Wuhan and other cities to date. We also worked to ensure the supply of food and other consumables for the residents in affected regions. Our self-operated grocery chain, Freshippo, is committed to a policy of remaining open for business, not raising prices, and remaining stocked, particularly in the 18 stores across Wuhan. Freshippo became a lifeline for many local residents.
Additionally, Freshippo and Ele.me team up with restaurant chains to provide free meals and necessities to the hospital staff in Wuhan and emergency response teams. Alibaba also contributed the power of our advanced technologies to combat the outbreak. DAMO Academy provided a free AI voice chatbot service to government and epidemic prevention agencies to efficiently keep a daily health record of those who might have close contact with affected patients. Our enterprise communication and collaboration app, DingTalk, introduced a digital health check-in feature to help companies maintain up-to-date health monitoring of their employees. To date, there have been more than 150 million daily health check-ins recorded in DingTalk. About our relief measures in support of SMEs. Together with Ant Financial, we announced a comprehensive set of relief measures that fall under six categories. One, reduction of business operation costs on our platforms.
Two, financial support by waiving or lowering interest rates. Three, subsidies for delivery personnel and raising the level of logistics efficiency. Four, provision of flexible job opportunities to guarantee income. Five, additional tools for businesses to accelerate digitalization. Six, remote working management for enterprises. We will support our merchants to overcome this challenging time and are taking proactive measures to fulfill our mission to make it easy to do business anywhere. Lastly, the potential impact on our business. We are closely monitoring the challenge as well as identifying opportunities for Alibaba's business as the situation evolves. For our e-commerce business, the delay in employees returning to work following the Spring Festival holiday is preventing merchants and logistics companies from resuming operations.
For the first two weeks after the Chinese New Year holiday, we have observed a negative impact on our commerce business as merchant operations have not returned to normal, and a significant number of packages were not able to be delivered on time. In our new retail business, Freshippo and Taoxianda's average basket size increased significantly as a result of consumer migration to online purchasing of fresh goods, groceries, and a broader selection of daily necessities. Limitations in delivery capacity are preventing order volume from fully recovering. For the local consumer services, restaurant visits and food delivery orders declined noticeably year-over-year because many restaurants have not resumed normal operations. Other categories , like grocery shopping , have increased sharply. Our travel booking service, Fliggy, received material levels of cancellations for air tickets, hotel reservations, and tour packages.
In accordance with government regulations, Fliggy provided unconditional and penalty-free cancellation to our customers. DingTalk has experienced explosive growth in DAU and the number of corporate users. It is providing businesses with remote working features to maintain their operation and accelerate their digitalization. In addition, DingTalk also saw increasing popularity over virtual classrooms that helped schools and students resume their studies via live streaming classes. We are closely monitoring the impact of the ongoing outbreak on our business, and we'll take necessary measures to ensure our business operations. Our mission is to make it easy to do business anywhere, and we are being tested. True to our mission, we will stand together with all of our merchants to overcome the current challenges and facilitate our users and our communities to fight against the virus. 17 years ago, the e-commerce business experienced tremendous growth after SARS.
We believe that adversity will be followed by a change in behavior among consumers and enterprises, bringing ensuing opportunities. We have observed more and more consumers getting comfortable with taking care of their daily living needs and working requirements through digital means. We are confident in the ongoing digitalization of China's economy and society, and are ready to seize the opportunity to build the foundation for the long-term growth of Alibaba's digital economy. Now, I will turn the call over to Maggie, who will walk you through the details of our financial results.
Thank you, Daniel. Thank you, everyone, for joining us. Before we start, I would like to say that our thoughts and prayers go to those families deeply impacted by the coronavirus outbreak. At the end of my prepared remarks, I will also share with you our current assessment of the effects of this epidemic. Before talking about this quarter's financial results, let me give you a quick summary of this Hong Kong listing. November 26th, we successfully listed on the Hong Kong Stock Exchange. We offered 575 million new ordinary shares with proceeds of about HKD 100 billion, or about $13 billion . Our shares are multiple times oversubscribed. We view Hong Kong as strategically important to us. Overall, this is a very successful listing. Let me review our financial highlights. We had another strong quarter.
We achieved strong results for our Core Commerce segment, reflecting our strategic focus on user acquisition and engagement, as well as enhancing product varieties and increasing our offerings of price-competitive products. Mobile MAU were up 39 million, reaching 824 million. Annual active consumers on our China retail marketplace increased by 18 million to 711 million. Over 60% of new annual active consumers were from less developed areas. The increase in consumer growth reflected continuous improvement in our consumer segment initiatives. These initiatives have been well received by consumers, as evidenced by higher purchase frequency for our China retail marketplace business. When we look at the December quarter revenue, our total revenue grew 38% to RMB 161 billion. Excluding the effects of consolidating acquired businesses, mainly Kaola, total revenue would still have grown at 33%.
The increase was mainly driven by the robust growth of our China commerce retail business and Alibaba Cloud. Our operation continues to run efficiently. When you look at the quarter's cost trends, costs are well controlled while our business has continued to grow. Let's turn to the segment reports. Core Commerce continued to be very strong. Revenue grew 38% to RMB 141 billion. The fundamentals of our China retail business continued to be very strong, and customer management revenue grew by 23% in the quarter. This growth was primarily the result of an increase in the average unit price per click and an increase in the volume of paid clicks from improving the click-through rate. The growth also reflects strong growth in the number of paying merchants during the quarter.
Commission revenue grew by 16%, primarily due to the strong 24% growth of Tmall online physical goods GMV. When you look at the growth for revenue and GMV, there is a gap. This is primarily because of two factors. Number one, more merchants, particularly in those strategically important categories, received preferential commission rates. Second, the revenue mix shift within Tmall Supermarket from commission-based revenue towards direct sales continued to have an impact, as we discussed in the previous quarter. As you know, in our direct sales business, we do not receive commissions from third-party merchants, but rather realize our economics from product margins. The increase in direct sales volume helps us improve our supply chain and operational efficiency for the business. China R etail Others' revenue—this is mainly our new retail business revenue—is still growing very strongly, 128%.
This increase was driven by our direct sales business, including Tmall Supermarket and Freshippo . This quarter is also the first full quarter of the consolidation of Kaola, which we acquired in September 2019. International retail. Now let's take a look at the details. As Daniel mentioned, we experienced strong growth in our global markets. Lazada and AliExpress continue to deliver robust growth in orders and active merchants. Revenue for our International Retail business grew 27% to RMB 7.4 billion . The increase is primarily driven by growth in revenue from Lazada. It's partially offset by slower revenue growth from AliExpress because we deconsolidated the Russian business of AliExpress in October 2019 because we set up this JV with the local partners, as we reported in the previous quarter. If you look at Cainiao, the fast growth across border businesses supported the increased adoption fulfilled by Cainiao's service.
This growth contributed to strong revenue growth for Cainiao. In the quarter, Cainiao revenue reached RMB 7.5 billion, growing at 67%. For our local consumer service, revenue grew 47% to RMB 7.6 billion. During the quarter, we continued to achieve strong growth in GMV, driven by robust order growth and an increase in average order value. We will continue to take a targeted and systematic approach to investing in local consumer service. Alibaba Cloud. Cloud computing revenue grew at 62%, reaching RMB 10.7 billion. This is the first quarter that cloud business revenue surpassed RMB 10 billion. The robust cloud revenue growth was primarily driven by increased revenue contribution from both our public cloud and hybrid cloud businesses. Let's look at the profitability. In our Commerce segment, we continue to generate strong market-based Core Commerce Adjusted EBITDA, which reached RMB 66 billion, growing at 22%.
Comparing to a year ago, we have increased Adjusted EBITDA by RMB 12 billion in absolute amount, while the combined losses in our four strategic areas were all flat year-over-year. This reflects our targeted approach to allocation of resources and investment in key strategic growth areas, while also optimizing costs and improving efficiency. After incorporating these losses, our Core Commerce Adjusted EBITDA grew strongly by 26%. Look at the Cloud Computing segment. Adjusted EBITDA was a loss of RMB 356 million. The EBITDA margin improved slightly during the quarter, and the loss margin narrowed. Our Digital Media and Entertainment segment Adjusted EBITDA loss was RMB 3.3 billion. This loss has been significantly reduced from RMB 6 billion in the same quarter last year. Excluding content impairment impacts, EBITDA losses would be RMB 1.2 billion, a reduction from RMB 2.8 billion in the same quarter last year. Innovation I nitiatives.
Adjusted EBITDA for Innovation I nitiatives was a loss of RMB 1.9 billion. Look at the free cash flow and capital expenditures. Our business overall continued to show strong profitability and cash flow. As of December 31st, cash, cash equivalents, and short-term investments were RMB 352 billion or approximately $50 billion. For the December quarter, free cash flow was RMB 78 billion, which increased by 52%. This is mainly due to our robust profitability growth as well as a decrease in capital expenditure. This is a kind of seasonal reason. Other financial metrics. The share of profit of other equity investees in the quarter reached RMB 2 billion, which mainly includes our share of profit from Suning under equity accounting , as Suning completed a transaction related to their financial businesses that created a one-time gain.
In addition, given that we received a 33% equity interest in Ant Financial on September 23rd, 2019, we recorded a share of profits of RMB 250 million from Ant Financial for the period of September 24th to September 30th. As a reminder, our equity account for a stake in Ant Financial is on a one-quarter lag basis, as in the case of our equity investees. There was no other income arising from our prior 37.5% profit-sharing arrangement with Ant Financial during this quarter, as it was terminated in September and replaced by this equity pickup. GAAP net income during the quarter was RMB 50 billion, up 62%. To reconcile GAAP net income to non-GAAP net income, we made the following adjustments. First, the exclusion of RMB 17 billion in investment gains and others.
These gains primarily include a one-time gain related to our contribution to the AliExpress Russia businesses into a JV, as well as a gain in the fair value of our equity investments. Second, the exclusion of an additional RMB 2.3 billion one-time gain related to 33% equity interest in Ant Financial that we received in September. Excluding these gains and losses and certain other items, our non-GAAP net income would have increased by 56% to RMB 46.5 billion. Now we've finished the cash flow discussion, and that's pretty much the other financial metrics and non-GAAP. Now let's take a look at this impact from the recent coronavirus outbreaks. We ended the calendar year 2019 on a high note. We successfully listed on the Hong Kong Stock Exchange and delivered a strong set of results in the December 2019 quarter.
The strong performance continued in the month of January , with our major business maintaining solid revenue growth. As Daniel mentioned in his remarks, some of our major businesses were negatively impacted in February due to the coronavirus outbreak and the resulting business disruption that followed in most parts of the economy. At the same time, we have announced together with Ant Financial 20 major initiatives and relief programs to help our customers and partners. While it's too early to quantify the financial impact of the coronavirus on our business, I would like to provide some qualitative observations on the situation. Okay, first, let me talk about the macro and how we think about what happened recently. The epidemic has negatively impacted the overall Chinese economy, especially the retail and service sectors.
While demand for goods and services is there, the means of production in the economy has been hampered by the delayed opening of offices, factories, and stores after the Lunar New Year holiday. We, like other businesses, are not immune to this imbalance of supply and demand. However, we see this unfortunate situation as an opportunity to provide value and support to our customers in order to help them recover production and supply capability as soon as possible. Their recovery and long-term success will translate into sustainable long-term growth for Alibaba Group. This is similar to what we experienced during the SARS outbreak in 2003. Okay. Number two, let me talk about what happened in our business. Daniel mentioned the operational impact of serious disruption to the supply chain, manufacturer activities, and logistics so far in February. At the same time, we are supporting our customers by waiving fees.
Together with Ant Financial, we're providing interest-free or lower-interest loans. The situation is to help normalize our merchants' operations. Talk about the impact. Because we're only halfway through the March quarter, and because there's still uncertain ongoing development of this coronavirus, it is really difficult for us to have an accurate estimation for the full financial impact for this March quarter. As of today, what we've seen, particularly in the past 12- 13 days since the start of February. Our overall revenue growth rate, we believe, will be negatively impacted for the March quarter. Some of our businesses that rely on physical means of production on the supply side would even show negative revenue growth for the quarter, such as the China retail marketplace and local consumer services. Overall, we remain optimistic about consumption growth in China and continue to be confident about our long-term growth prospects.
Whatever we're seeing right now, we believe this is a one-off occurrence. By helping our customers through difficult times, we and they will emerge even stronger and will have greater opportunity to drive long-term sustainable growth. That ends my remarks. Let's go to the Q&A. Thank you.
Thank you.
Operator, before we start, I just want to remind all the analysts that you can ask a question in Chinese or English, and our management will respond to you in the language you asked. With that, operator, let's open to questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to ask a question now, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. To give more people the opportunity to ask questions, please keep yourself to no more than one question at a time. Once again, ladies and gentlemen, if you wish to ask a question now, please press star one on your telephone. Our first question comes from the line of Thomas Chong from Jefferies. Please go ahead.
Hi. Good evening. Thanks , management , for taking my questions. I have a question about the migration to online. Post the coronavirus, would our digitization strategy further speed up , given that offline merchants realize the significance of going online and data insights from our ecosystem? The other question I have is about the synergies with Ant Financial in local services. What are the strategies to further unlock the potential of Ele.me on top of food delivery? Thank you.
Okay. Thank you, Thomas. This is Daniel. Let me answer these two questions. For the first one, I think in this outbreak, many residents, many consumers, they change their way of living , and for many offices, many workers, they change the way of how to work. People now work remotely from home. People buy food, buy fresh products, buy groceries, and buy necessities from home. I think this is a very big challenge. The crisis is a very big challenge to society, also, as I said in my remarks, give people a chance to try a new way of living and a new way of work. I think after all is done, I will expect that this is an inevitable trend that more and more businesses and more and more customers will have a digital life or digital working style.
This , obviously, in the long term, will be good for the digital pace of the whole society. For your second question. Okay, for the second question, I think local service is a very important sector in consumption. You all know that Alibaba has a strong commitment to this sector, and we don't view this as a business, but we think this is a foundation for consumption. I think in the previous month, we were happy to have Simon Hu, the new CEO of Ant Financial, also taking the Chairman role of our local service company, which gives us a good chance to realize more synergies between Alipay and the local service business. Alipay today, starting from a payment tool, is evolving and upgrading to a very strong consumer interface.
好，那么关于第二个问题，本地生活服务我们认为是消费当中非常重要的一个领域。大家也知道，阿里巴巴是有长期的决心和承诺要来发展我们的本地生活服务。我们并不认为它是一个业务，更多的它是一个支持消费的基础。所以我们很高兴，现在我们的Simon Hu，胡晓明，他是我们本地生活服务的主席。他可以更好地来驱动支付宝和本地生活服务之间的协同的效应。那么支付宝一开始是一个支付的工具，但是现在它日益成为一个非常强大的消费者的媒介。
Thank you.
Thank you.
Next question.
Next question comes from the line of Eddie Leung from Bank of America. Please go ahead.
Good evening. Wish everyone well。希望大家身体健康。有一个问题关于Tmall跟淘宝的。刚才听Daniel跟Maggie都讲过，我们的供应跟物流在疫情底下受到影响。可是我想问一问，从需求方面可以跟我们讲一讲不同产品的品类，跟我们用户在大城市跟所谓一些less developed areas，他们的需求有没有一些不一样的地方？举个例子，比如说服装、家电各方面的一些大的品类，那个需求的变化是，起码从一个direction是怎么样的？谢谢。
Thank you. Good evening, and I'd like to wish everyone well and trust that everybody is healthy. My question is regarding Tmall and Taobao. We heard both from Daniel and from Maggie that there's an impact on both supply and on logistics being brought about, of course, by this coronavirus outbreak. My question, however, goes to the demand side. I'm wondering if you're seeing any different impact on demand, for example, in different categories or in different markets, for example, first-tier cities versus the less developed markets, at least from a direction perspective. Could you tell us about any impact you're seeing on the demand side, for example, in categories like clothing , white goods , or others? Thank you.
谢谢Eddie，谢谢你的祝福。针对你的问题，确实在这段时间我们看到确实品类之间出现很多变化，像食品、生活用品、快消品这些品类还是有非常快的增长。当然这个增长一方面来自于通过原来的，我把它叫为传统电商的销售，现在这些产品基于附近地面门店的销售也是非常火爆。
Well, thank you very much for your question and also for your best wishes. The answer is yes, we certainly are seeing some relatively large changes in demand in different categories. For example, in the category including food and daily necessities, fast-moving consumer goods , we're seeing relatively rapid growth. Of course, part of that growth is coming from the traditional retail sales sector with delivery from nearby shops.
对于其他的像服装和像消费电子这些产品，确实会有一堆挑战。这个挑战我想首先还是来自于供给，同时是来自于在疫情最严重的过程当中，消费者毫无疑问在这样的环境下，购买这些品类的意愿也会有暂时的下降。但是我相信在这个过了以后，情况会得到一些好转。
Secondly, when you look at categories like clothing and consumer electronics, of course, there's a big challenge there, including on the supply side, also including reduced willingness on the part of consumers to make those kinds of purchases at the height of the epidemic. Of course, I'm confident that that will turn around as the situation improves.
至于地区的变化，我们可以看到这次的疫情也让很多低线城市的、低级别城市的比较新的网上用户也开始在购买日常的很多的必需品。我想这是对未来来讲非常好的一个变化。
In terms of regional differences, one new thing that we are seeing in the face of the epidemic is increased uptake by online users in the lower-tier cities or the less developed regions of China, in terms of going online to purchase daily necessities. We think in the long term that will be a favorable trend.
谢谢。
Thank you.
Thank you. Your next question comes from the line of Alex Yao from JPMorgan . Please go ahead.
Thank you , management , for taking the question , and best wishes for working through the challenging environment. I would like to clarify with Maggie your comment about the financial implications to the quarter from the current situation. Did you say that the business with a strong connection to physical production and fulfillment will decline? Specifically, I heard you talk about China commerce retail revenue will decline from March, which means your CMR and the commission revenue will decline? That's the first part. The second part is if we assume this coronavirus situation is short-lived, just like what happened in 2003 with SARS. Should we be expecting a V-shape recovery or a U-shape recovery? Is there anything that prevents business back to normal immediately after the situation is gone? Thank you.
OK, thank you , Alex.
非常感谢管理层，我也给大家送上我最良好的祝福，希望可以度过这样富有挑战的一个环境。那么我想请Maggie帮我们澄清一下刚才说的，这是关于疫情给本季度的财务带来的影响。刚才是不是听到您说，是和实体的生产和配送有密切关系的这些业务，它业务量可能会有所减少。然后是不是听到你说中国的零售市场的收入，从三月份这个季度它会有所下降，包括CMR和佣金收入都会有所下降，是不是听到您说了这样的话，请你稍微澄清一下。另外第二个问题的话，就是说如果这次的疫情结果它是一个短暂的影响，就像03年的非典这样，那么您认为疫情过后的复苏将是一个V型还是一个U型的这样一个复苏的曲线？或者是换句话来说，疫情结束，有没有什么因素会妨碍我们立即加以恢复？
OK, maybe I will first answer this question on the financial impact, and then Daniel could give his view on the shapes, V or U. Okay. So , for financial impact, Alex, I talked about what could impact our financials for the March quarter, right? There are two things. One thing is that the coronavirus outbreak has impacted our own business. The other thing is that we are also offering these relief programs to help our merchants. OK, let me talk about the overall impact. I said two things. Number one is that we estimated the March quarter revenue growth would experience negative impacts, which means that the growth rate will come down.
It's possible that the growth rate comes down significantly. We just don't know yet, because this is just mid of February. Number two, I said that the business in our China commerce retail , these production-related , which means China retail marketplace, which means Taobao and Tmall, which is CMR and commission, as well as the local consumer service, would likely experience negative revenue growth. That's to clarify.
好，我先来回答您关于财务影响的这个问题，那么后面关于复苏曲线是U型还是V型，我还是交给Daniel来回答。那么刚才的话，我们是讲到疫情对我们三月季度的财务影响。我就指出了两个方面的影响，一个是疫情直接的影响，第二个的话就是我们给到商家的这些扶持和资助的项目。那么总体的影响来说，我们预计三月季度的收入增长的话会受到负面的影响。也就是说增长率会有所放缓，那么有可能不排除它是一个较大幅的放缓，但是现在我们还不知道，因为现在才是2月中旬。那么第二点的话，我刚才讲到中国零售市场的这些业务，那么当然这是淘宝。天猫当然也涉及到CMR和佣金收入这两块。那么还有我们的本地生活服务，它们可能也会使出现收入增长为负。
This is Daniel. Let me answer the second question. I think whether it will be a U-shaped correction or a V-shaped correction is highly dependent on how long it will take to finish this outbreak. The longer it takes, I think it will take even longer time to recover. Because I think many service sectors are disrupted during this outbreak. I think if we can recover , as we see in recent days , and we see some good indication in major cities except for Wuhan, I think let's take time to see how quickly we could recover.
好，我是Daniel，我来回答第二个问题。那么到时候是一个U型还是V型的调整或者是复苏，我觉得主要看还需要多少时间这个疫情才能结束。如果说需要很长的时间疫情才能结束，那可能需要更加长的时间才可以恢复、复苏。因为现在很多的服务业都是中断了。但是近几天的话，我们也看到除了武汉之外，一些大城市情况似乎也是有好转的迹象。那么下面我们还要再看一看这个情况的发展，才能知道恢复的一个时间。
Next question, operator.
Thank you. Next question comes from the line of Binnie Wong from HSBC. Please go ahead.
Hey again, best wishes to everyone , and hope the situation will improve very soon. My question is actually on the local services. If you look at the loss drag to the Core Commerce EBITDA, the line that adjusts for the effects in the losses in the local services, we see is positive that the loss margin percentage is actually narrowing. Should we expect a similar trend is going to continue? I guess in this round of press release, the company especially mentioned that Ele.me acquired a 48% of new customers from the Alipay app. Can we expect that the competition in local services is rationalizing and then move beyond just like a price competition as we saw last year? That's the number one question.
Second question, just the housekeeping as to whether we see meaningful operating leverage in the product development expenses. Just want to understand what the positive reasons are we have seen for the improvement. Thank you.
好，谢谢。第一个问题是关于本地生活服务，我们看到EBITDA亏损率收窄，那么想要知道这是不是一个趋势，会不会一直延续下去？我们也知道饿了么现在有48%的新增用户是来自于支付宝的APP，这是不是说明这个领域的竞争现在是趋于理性化了，就不光是靠价格来竞争。那么第二个问题就是想了解一下，我们看到在这个产品研发费用当中，你们这个运营杠杆率是有所提高的，可不可以稍微介绍一下？
For the first question, actually , local service business is our long-term commitment , and we don't manage the business purely by the EBITDA ratio. We focus on creating value for both the customers and merchants. I think today all the service sectors are in the process of digitalizing their business, and the consumers are already enjoying their digital life. I think we will work even harder, try to identify the value for both merchants and consumers, and try to create incremental to them.
关于您的第一个问题，就是本地生活服务这个业务，我们是承诺和决心于推动它的长期的一个发展。我们管理这个业务并不是说盯着EBITDA比率来进行管理，我们的重点就是要为商家和消费者客户能够创造价值。那么现在确实也是这样的一个趋势，越来越多的企业都在拥抱数字化，越来越多的消费者的生活也都在拥抱数字化。所以作为我们来说，我们就是努力地来探讨，找到在哪些方面，以什么方式我们可以为商家，为消费者创造更多更好的价值。
Binnie, let me answer your second question regarding the product development leverage. So if you break it down, the staff cost is mainly the item that brings this leverage. So basically, the growth of this payroll is not at the same growth of the same pace as the revenue growth. We have been quite aggressively looking for these top data scientists, engineers, etc. But we're, in terms of this quarter, what we've seen is that since the revenue growth is very strong, the recruiting for this quarter is actually not at the same pace. We have been recruiting, you know, throughout the past quarters. So I guess along with the business growth, some of the fixed costs wouldn't grow. This is where the operating leverage comes from.
关于第二个问题，就是关于产品研发方面的杠杆率。你如果分项来看的话，你会看到这里面很大的一块就是员工的费用。那么随着我们业务的增长，我们也是不断地在物色聘请，希望聘请很多顶级的数据科学家。反正这个季度我们也是录得了很强劲的收入增长，但是我们招募员工方面没有达到同样的一个速度。所以你可以这样理解，就是业务增长有它的一个速度，但是随着这个速度的加快，有些固定成本不会相应加快，从而形成了你所说的这种leverage。
Next question.
Thank you. Next question comes from the line of Tina Long from Credit Suisse. Please ask your question.
谢谢管理层。我有两个小问题。第一个问题就是想问一下，因为我们三季度的这个commission revenue和GMV有一些差异，有给到一些merchants和一些category有些preferential的一个rate。我想问一下，这个是双十一一次性的呢，还是说这个会变成一个ongoing的exercise，然后大概会是什么样的category会有这样的一个discount。第二个小问题就是想问一下，因为现在的这个四季度关于疫情的进展，Maggie刚才也提到了，有可能我们的收入增长会有一些负面的影响。所以我也想问一下，就是在这种情况下，像我们成本端，除了一些固定的成本必须要花的，我们一些比较variable变动的成本，比如说sales marketing，或者是一些其他的不是非要花的这些东西，会不会相应地也有一些减少，能够让我们整体的earnings的增速不会受太大的影响呢？谢谢。
Thank you. Thank you, management. Just a couple of small questions. My first question relates to the information received regarding differences in commission revenue and also in GMV for different merchants in different categories where preferential pricing was applied. I'm wondering if that's a one-off thing for the 11.11 Singles' Day Shopping Festival, or if that differential pricing is going to be an ongoing exercise going forward. If you could tell us which categories are enjoying the preferential rates. That's the first question. The second question has to do with the impact of the coronavirus outbreak. Maggie has already indicated that for the coming quarter, revenue growth is likely to be negatively impacted. I'm wondering what your thinking is on the cost side of things.
Obviously, you have fixed costs that you can't do much about, but when it comes to variable costs, non-essential spending, things like marketing, are you giving any consideration to throttling back there so as to try to come out with earnings that aren't too badly hit?
Tina，谢谢你的问题，我来回答一下。第一个问题是关于佣金的优惠费率，主要是有没有双十一的影响，在哪些类目上。今年双十一表现也非常的亮眼，确实有一些影响。我们整体来讲，在类目上，有佣金优惠费率增量比较多的是在大快消、消费电子这几个主要类目。这些商家在GMV的增长上也都有了非常良好的表现。那根据我们的佣金优惠费率的这些政策，我们给予了他们一些优惠。第二个问题是关于我们在现在情况下，成本和费用支出是不是有一些会有节约。的确是的，有一些会有节流。比如说比较典型的像是线下的这些会议，像是差旅，这些肯定不会是像跟一般季度一样了。当然这次我们也非常快速盘了节流的这些方案，因为这个是坏事，但是里边也有一些可以变成好事的因素。我们从年前就开始管理层都线上办公，员工也线上办公了，我们在家办公，等于远程办公。实际上我们每天，Daniel我们这些总裁都会远程，其实工作效率也还是非常不错的。整个经营和运营也handle得非常好。所以我们趁着这一次，其实也有一些总结，那有些东西其实你也不用非得要physical，非得要线下。线上我们也可以搞得很好，所以确实有一些节约。但你后面要问的，其实是说这个对利润增长是不是还是会有帮助？我觉得是这样看。利润第一就是要看收入，因为确实有一些收入是越用越大。我们收入有我刚才讲的那些影响。第二，我们也拿出来了扶持计划给我们的商家，我们扶持计划力度还是非常大的，我觉得市场上或者全世界可能找不到一家公司，有这么大的力度，在这个最困难的时候来扶持商家。所以这些对利润肯定会有负面影响。然后节流是正面的影响。我觉得这件事儿我和Daniel都讲到过的，我们觉得疫情过去以后，该回来的还会回来。我们看到的就是一过性的影响。
Thank you. Well , on your first question regarding commission discounts offered in the 11.11 Global Shopping Festival for different categories. It's true. 11.11 was performed excellently this year. Those discounts are being offered to eligible merchants in key categories , including FMCG and electronics. These are merchants who have performed very robustly in terms of their GMV, hitting GMV targets , and therefore , in line with our commission discount policy, they're receiving a discount. On your second question as to what we are doing around cost and expenses in the current climate affected by the epidemic, the answer is yes, certainly there are some areas in which we can and will achieve some cost savings, for example, by having more offline meetings and , of course , reducing travel.
Many of our staff, management staff, and frontline staff are now working remotely from home. Daily meetings between Daniel and the various business presidents are being held, again on a remote basis. It's a good learning for us , actually , as a company, because we're finding that efficiency is okay. Operations and management are being well handled even without having physical and face-to-face meetings. That certainly could be a takeaway for us going forward to do more things online and reduce physical meetings. Yes, certainly there are some savings in connection with that. Your question is, can this help with profit growth? My answer to that is that profit really comes down to revenue. The most important thing when it comes to profits is revenue.
Our revenue is being affected in the various ways we've already described to you. There will be some savings from the areas I've described. The other thing to remember is that we have very robust support programs that we've mentioned for merchants. Probably these are the most robust support programs ever offered by any company in this market or around the world in the face of such difficult circumstances. That again will have a negative impact, as we've said, on our profit. Some of the learnings and outcomes will be good and result in improvements. Overall , that is the situation.
Next question.
Next question comes from the line of Mark Mahaney from RBC Capital Markets. Please ask your question.
Thank you. I , too , wish you the best wishes. I wanted to ask a broad question about online retail penetration in China. Those numbers that you mentioned at the very beginning of the call suggest that perhaps 27% or 1/4 of retail activity in China occurs through online channels. I would imagine that there's a big discrepancy within the country. There are some markets where that percentage is much higher and some where it's much lower. Do you have a sense of what that range is like? Most interesting is how high penetration rates you have seen? How high have you seen online as a percentage of total retail sales in China? Thank you very much.
好，非常感谢，我也送上我的最良好的祝愿。我想提一个比较宏观的问题，就是关于中国总体零售当中，线上零售的普及率，或者是它的占比是多少？一开始的话，你们给到了一些数字，似乎显示现在中国的总体零售当中有27%，或者说1/4，现在是线上的零售。那么我想中国这么大一个国家，地区差异很大，会不会有些地方线上的比率很高，有些地方比率还是比较低？那么你见过的一些地区，它的最高的比率能够达到多少？就作为总体零售的一个比率，最高有多大？
This is Daniel. Thanks for your wishes. Let me answer your question. I think for online retail penetration, we have to look at this from different angles. First, as you said, it's about the region. And in top-tier cities today in China, online penetration is already quite high, but we do see the growing demand in the lower-tier cities. That's why in this quarter, we observed like over 60% of the new customers were actually from the less developed areas. Because of the penetration of 4G and going forward, 5G, and the infrastructure is there, so people can enjoy the same digital life as people in urban cities. But let me share with you my thoughts on the second angle, which is the category. I think today, even in the top-tier cities in China, the online penetration by category is quite different. And before this coronavirus, what we saw is that for apparel, for consumer electronics, the online penetration is relatively high, but for the food category, especially for fresh food, the penetration is low even in urban cities. As I said in my remarks, in the past, more and more people are getting used to shopping online for food and for daily necessities, and they may shop from an e-commerce website, or they shop from a mobile app operated by a store nearby. I think the shop from home and store delivery or a store model delivery, going forward, will have more penetration, I mean, after this outbreak.
好，谢谢你的问题。那么关于线上零售的普及率，还是要看不同的地区。现在我们的一线城市，最发达的城市，线上零售的普及率还是非常的高。但是的话，在低一些县级的城市，需求的话还是在快速的增长的。刚才我们也报告说，我们有超过60%新增的客户是来自于欠发达的地区。那么不光是低县级的城市，包括农村地区都有条件，因为有4G，未来会有5G的这样的基础设施来加以支撑，所以农村地区的人们可以享受和都市居民同样的数字生活。那么第二个的问题的话，是关于品类方面。确实线上零售按不同的品类来看，还是有蛮大的差异。在这次的疫情爆发之前，像服装和消费电子品这方面，需求还是比较高的。但是的话，在食品，尤其是生鲜这一方面，它的普及率还是偏低。但是最近的话，由于疫情爆发，我们看到有越来越多的人他们愿意到线上来进行日常生活物资，包括生鲜、食品的购买，要么是电商平台，或者是用一个手机的移动APP，从附近的门店那里来购买。所以我们认为在疫情过后，可能人们还会更加地愿意在线上购买这些日常的必需品。
Next question.
Thank you. Next question comes from the line of Alicia Yap from Citigroup. Please go ahead.
谢谢管理层。晚上好，Daniel、Maggie、Joe，谢谢。这是我的提问，也很感谢管理层之前给了比较detail的docs，关于virus的impact。我其实有几个小的follow up。一个是Maggie你这边没有提到菜鸟，所以我想知道，三月份这个quarter，菜鸟会不会像local service跟China retail也是经历这个negative revenue growth的情况？然后cloud因为这个疫情是一个benefit，我们能不能，会不会看到快过之前的预期的一个增长，还是说这个是之后比较长期的一个benefit？然后另外就是follow up Tina的一个question，就是那些important category，像快消跟electronic，我们有个preferential rate。我想double check，这个是一个一次性跟双11有关的，所以如果这个March quarter是一个normal quarter，这些important category是不是就没有拿到这个preferential commission rate？然后就是因为现在有疫情的影响，你会不会觉得像fashion或者更多的一些category，现在我们其实也很愿意给preferential treatment，beyond这个March quarter，就是说除了March之外，如果真的要给，是不是会延长接下来的这几个quarter？谢谢。
Thank you very much. Thank you , management , for the presentations and for your detailed thoughts that you've shared on the impact of the current situation. A few follow-up questions, if I may. My first goes to Maggie, and it regards Cainiao, because I don't believe you mentioned Cainiao. Can we expect that in the March quarter, the growth of Cainiao will also be negatively impacted? As you said, the China commerce retail and other businesses will be affected as a result of this outbreak. Conversely, in the cloud, could we expect there to be any benefit from the epidemic in the March quarter? Or would you expect the benefit to be more of a long-term benefit?
Secondly, I'd like to follow up on the previous question regarding the preferential commission rates that are being offered for certain categories, such as FMCG and electronics. Were those preferential rates only for the 11.11 Shopping Festival or over a longer period of time, and will they continue in the March quarter? Finally, still on preferential commissions. In the face of this epidemic, will you consider offering preferential commissions for a broader range of categories, for example, fashion, but also other categories, and perhaps continuing those preferential rates beyond the March quarter and in the longer term?
好的。Alicia，我来回答一下你两个问题。第一个问题是关于菜鸟被这次疫情的影响，是不是也会呈现一个负增长？像中国零售、淘宝、天猫和本地生活那么大。那菜鸟的情况其实在财务上的体现还可以，但实际的影响挺大。为什么这么说呢？背后有原因，从2月初到现在，我们也观察到，由于快递员也没回来，运力不够，也有包裹积压。其实在前面这十几天，运力只有10%几，不到20%。但这种情况下，为什么在收入上没有体现那么大的影响？是因为两个原因。第一个原因，菜鸟今年的收入增长其实非常好。你看到了，因为有一些包括他们技术性的产品开始慢慢收费，包括我们这些末端的服务，收入增长非常好。那这个其实整体来讲，比去年的基数来看还是会增长。第二个，就是我们国内的这些服务，由于菜鸟是被合并的公司，比如说它提供给我们天猫、猫超这些服务，它的收入其实是内部抵消的，intercompany的elimination。所以它一大部分收入虽然受到影响，但是其实不体现在收入那行上面。我先停顿一下，等翻译完再回答第二个问题。
Thank you for the two questions. I'll start with the question about the impact of the coronavirus epidemic on Cainiao. You were asking whether there could be negative growth there, similar to what we've talked about expecting to see with Taobao, Tmall , and local services. The answer is that there is a very real impact on the business of Cainiao as a result of the epidemic, but less of an impact on the financial side of things.
I'll explain why that is. With many couriers not being able to return to work, capacity remains very low. It's around 10%+, less than 20% of capacity availability. Revenues are not changing that much despite the situation. This is because we have technology products for which we're now charging fees, as well as good revenue performance from the last-mile services that Cainiao is providing. This represents an increase in the revenue base for Cainiao compared to last year. The second reason is that Cainiao is an acquired company, so it's now subject to adjustment for intercompany elimination in terms of its cooperation with Tmall Supermarket. For these reasons, you don't expect to see such a big impact on the revenues of Cainiao as on its actual operations.
那关于第二个问题，就是关于优惠运营费率的事情。其实我们优惠运营费率政策一直是有的，也不是今年加，也不是这个季度加的，也不是单指为双11。我们这个program主要是为了鼓励做得好的商家，所以我们会持续地提供，跟以往一样。那类目上其实最主要还是跟商家挂钩，只不过我们这一次的很多重点的类目，我们也会重点考虑。那将来在疫情过了以后，我们会继续这个优惠费率的安排。
Your second question had to do with the preferential commission policy. To clarify, this is not a new policy. It wasn't new this year, and it wasn't just for the 11. 11 Shopping Festival. It's there to encourage and reward good merchants with good performance who meet targets defined in the policy. We will continue to have this policy to reward merchants, and we'll certainly consider expanding into new kinds of categories.
Operator, let's have the last question.
Thank you. The final question comes from the line of Piyush Mubayi from Goldman Sachs. Please go ahead.
Thank you. We sincerely hope that all the families that the Alibaba ecosystem touches are safe. I wonder, Daniel talked about, I thought, an improvement over the last 12 days. Could you just take us through qualitatively what the degree of improvement we've seen over the 12- 13 days? I think initially, Daniel also talked about the opportunities that get created out of a period like that. I know we talked about DingTalk and how that's seen such a transformation with more than 200 million folks working from home. What are the top three features in DingTalk that have proven to be very popular, and how do we see this product evolve in terms of size, scale, MAU, DAU, for example, since CNY? Thank you.
Thank you, Piyush , for your kind words. Okay. Thank you. Actually, things changed very fast in the past 10 to 15 days. I think before this week, most of the merchants they don't have access back to work. Since this Monday, I think in big cities in China, like Shanghai, Beijing, Guangzhou, Shenzhen, and more and more companies' staff, they are back to work partially. Also, we see the logistics network start to resume operation, especially in the sortation centers in big cities and big hubs. That's why I'm saying that situations are getting slightly better, but it takes time to get back to normal. I think the key thing is all about supply. The supply of the products, the supply of the delivery, and the supply of the services.
The demand, I think, is still there. I strongly believe that after the virus leads away, I think consumers have a strong desire, because they have been home for a long time, and they will go out anyway to consume. For DingTalk, yes, I think DingTalk experienced explosive growth during the outbreak. Via DingTalk, we facilitate people to work from home and to study in virtual classes online. Also, we facilitate, as I said in my remarks, many companies to do a healthy check-in every day with their employees. We have video conference, like AI Minutes, like the virtual classroom. I think all are very popular among the workers, office managers, office staff, as well as in the education sector. We do see very big popularity among the teachers and students in terms of the virtual classroom.
We will continue to extend our capacity. I can share with you that in the past 10 days, we have been extending our capacity. Even with the capacity increase, we have to conquer some difficulties that are in the data center, and we may be prohibited from accessing some data centers in some regions because of the anti-coronavirus measures. I think that things are getting better after many, many people go back to work.
就是说疫情的爆发，这15天、10天以来是带来很大的影响，直到本周开始。那么从周一开始的话，在很多的大城市，包括北京、上海、广东、深圳，有很多公司的员工或者是部分员工开始重新上班。所以我是从这个意义上，物流网络也开始有所恢复，在这个意义上，情况可以说开始有一些好转了。但是关键还是看供给方面，包括产品的供应，包括物流运力，包括服务的供应。需求还是在那里的。那么我坚信经过这个疫情结束之后，消费者他肯定是很愿意出去进行消费，因为这段时间一直是待在家里。那么钉钉在疫情爆发期间得到了爆发性的增长，很多人可以用它，而且你问到主要的性能，主要的性能是可以帮助人们从家里进行远程办公，也可以进行虚拟的会议，包括做虚拟教室，学生与老师可以进行互动。那么刚才我也讲到了第三点，就是说我们钉钉是推出了一个健康状态的打卡服务，大家可以在钉钉上报平安。这些功能现在是受到很多公司、很多学校、很多单位的欢迎。那么面对需求方面的爆发性的增长，我们也是这10天一直在大力地提升钉钉的容量。但是要增加它的容量，我们也面对一些瓶颈需要来加以克服，因为需要用到一些数据中心。有一部分数据中心还不能使用，因为它属于是在疫区当中，它是受到管控的。那么总体来说，我认为现在人们恢复上班了，这个是好事。
OK, thank you , everyone , for joining our earnings call today. If you do have any additional questions, please feel free to contact anyone on the IR team. Thank you.
Well, thank you , ladies and gentlemen. That does conclude our conference for today. Thank you for participating. You may all disconnect.