Earnings Call: Q2 2021

Nov 5, 2020

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba's Group September Quarter 2020 Results Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. I'd now like to turn the call over to Mr. Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead. Good evening and good morning, everyone, and welcome to Alibaba Group's September quarter 2020 results conference call. With us today are Daniel Zhang, Chairman and CEO Joe Tsai, Executive Vice Chairman Maggie Wu, CFO. This call is also being webcast from the IR section of our 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 may contain forward looking statements. Forward looking statements involve inherent risks and uncertainties and may cause actual results to differ materially from our current expectations. For a detailed discussion 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, which are 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, adjusted EBITDA, adjusted EBITDA margin, marketplace based whole 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 reconciliations of GAAP to non GAAP measures can be found in our earnings press release. Unless otherwise stated, growth rate of all stated metrics mentioned during this call refers to year over year growth versus the same quarter last year. In addition, during today's call, management will give prepared remarks in English. A third party translator will provide simultaneous translation in Chinese on 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 a third party translator will provide consecutive translation. All translations are for convenience purpose only. In the case of any discrepancies, management's statements in the original language will prevail. With that, I will now turn the call to Daniel. Thanks, Rob. Hello, everyone. Thanks for joining our earnings call today. Alibaba has delivered another strong quarter, thanks to digital adoption accelerated by COVID and the rapid economic recovery in China following its effective control of the pandemic. According to National Bureau of Statistics, China's economy continued to recover in the September quarter, with GDP growth reaching 4.9% year over year and retail sales is resuming positive growth year over year. Digitalization is now universally recognized as a way forward in the post pandemic world. And as I shared during Investor Day, Alibaba is best positioned to enable everyone to capture the opportunity of digitization. Our China retail marketplaces continued its healthy growth this quarter. Annual active consumers on our China retail marketplaces reached 750 7,000,000 for the 12 months ended September 30, 2020, representing a quarterly net increase of 15,000,000, while our mobile MAUs reached 881,000,000. This reflects Taobao's continuing strong consumer mindshare, healthy user stickiness and engaging user experience as a leading consumer community globally. Our Tmall online physical goods GMV, excluding unpaid orders, grew 21% year over year this quarter. FMCG continued to be the fastest growing category with 28 GMV growth year over year, of which Food and Healthcare increased 38 percent 50% year over year, respectively. In addition, growth rate of Tmall apparel is now higher than what it was during the pre COVID December quarter. For Tmall Electronics, GMV growth slowed down during the quarter, partially due to the delay in iPhone's new model release date this year relative to last year. In October, we saw growth of over 50% year over year in Tmall's mobile phone category. This past quarter, we upgraded the Taobao mobile app homepage for user feedback has been incredibly positive. The new homepage features a more immersive user experience and enhanced content distribution in the recommendation feed. We saw a marked increase in both user time spent as well as page views of both product listings and contents in response to the changes, which set the stage of potential monetization opportunities in the future. How about Deals, our marketplace for value conscious consumers, continued its strong growth during the quarter. Mobile MAU exceeded 17,000,000 in September, which represents net adds of 30,000,000 MAU since June. Consumers who use both Taobao app and the Taobao deal app to make purchases showed faster growth in purchase frequency and average spending compared to those who only use Taobao app. We kicked off the 2020 November 11 Global Shopping Festival, and this year, we extended the festival from 24 hours to a 11 day campaign with 2 shopping windows. The first window is from November 1 to November 3, and the second is November 11. We have made this change for a number of important reasons. We want to give consumers more time to browse and get the deal while easing pressure on the logistic infrastructure. This helps consumers receive their package sooner and enjoy a better shopping experience. Our merchants will also benefit from more exposure and selling opportunities that will help them recover from the impact of pandemic. November 11 this year goes beyond online shopping for physical goods. Alipay, together with our local service platforms, will also offer digital vouchers for services and experiences such as dining, beauty treatments, travel and entertainment. Our youthful and fun interactive engagement features this year aim to create a delightful shopping experience for our consumers and a better platform for brand expression for our merchants. On November 1, 1st day of November 11, over 100 brands each surpassed over RMB 100,000,000 GMV within the first 111 minutes. On the same day, 357 new brands on our platform become the top seller in their respective subcategories. Our new retail businesses, Free Shippo and Taoxanda continued their rapid growth during the quarter. Many consumers started ordering fresh produce and groceries online from their neighborhood stores during the pandemic, and this has become a habit in the post pandemic environment. Serving the local neighborhood through online channels has become a necessity for all brick and mortar businesses. In October, we invested USD 3,600,000,000 to acquire a controlling stake in Sunnage. The purpose of this investment is to further strengthen our explorations in new retail by driving deeper digital transformation of the hypermarket model to leverage Sunart's competitive advantage in supply chain and to create more synergies between Sunart and Alibaba's digital ecosystem. Ele. Me's average daily number of paying customers in December quarter grew 45% year over year due to the acquisition of high quality merchants and addition of highly engaged content. Alipay continued to play an important role in Ele. Me's new user acquisition. Through category expansion and service differentiation, Ele. Me is also expanding from a food delivery platform to a destination for on demand delivery service and in store consumption services. Our businesses related to international markets continue to enjoy rapid growth. As the leading cross border import platform in China, Tmall Global GMV grew 37% year over year during the quarter, excluding unpaid orders. The number of brands and merchants on Tmall Global as of December 30, 2020, grew at a double digit rate year over year. In October, we announced an investment in Dufry, an international travel retailer, to set up a strategic joint venture in China to explore the travel retail market. Lazada, our leading e commerce platform in Southeast Asia, continued to grow over 100% year over year in order volume despite new waves of COVID-nineteen in many markets. AliExpress, our international cross border marketplace, continued its business recovery aimed at the ongoing impact of the pandemic. Hanyou Network continued to expand both its domestic services and global small logistics infrastructure. Its consumer facing services in China include Cainiao Post, which operates a network of community stations, campus stations and smart pickup blockers and Cainiao Gogu, which offers crowdsourced parcel pickup and delivery service through its mobile app. These two services continue to grow rapidly during the quarter. Overseas, Cainiao has established in market local logistic networks in 15 countries and regions by collaborating with global partners. During our Investor Day, we announced that Cainiao is expected to achieve positive operating cash flow this fiscal year. We are happy to see the progress of Cainiao's business development and improvement in its financial results. At the same time, Sanyan will continue to invest for the future to create long term value. Alibaba Cloud delivered strong revenue growth at 60% year over year during the quarter, with public sectors and financial services contributing the highest growth. We announced at our Investor Day that Alibaba Cloud is expected to turn profitable by the end of this fiscal year. We believe cloud computing is fundamental in the digital era, but it is still in early stage of growth. We are committed to further increasing our investments in cloud computing. As you may know, Ant Group closed its IPO subscription on October 30 with oversubscription from institutional and retail investors. However, on November 3, Ant Group announced that it was notified by the relevant regulators that its proposed A share listing on the Shanghai Stock Exchange was suspended due to the material matters relating to the regulatory interview of its Ultimate Controller, Executive Chairman and the Chief Executive Officer by the relevant regulators and the recent proposed change in the fintech regulatory environment. Consequently, the concurrent proposed Ah share listing on the Hong Kong Stock Exchange was also suspended. As Ant Group's major shareholder, Alibaba is actively evaluating the impact on our business in response to the recent proposed change in the FinTech regulatory environment and will take appropriate measures accordingly. During the Investor Day, I had shared my view that digitalization is the biggest opportunity of our time. Alibaba is fully prepared to capture the opportunity with a solid foundation that we built over the past 20 years. Looking forward, we will continue to drive our business with our 3 strategies: domestic consumption, cloud computing, and data intelligence and globalization. We look forward to exploring the future of this digital era together with you. Now I will turn it over to Maggie, who will walk you through the details of our financial results. Thank you. Thank you, Daniel. Thank you, everyone, for joining us. Let me start with financial highlights for the quarter. During the September quarter, we continued to acquire new users and consumers from both top tier cities and less developed areas in China. Average spending of consumers on our China retail marketplaces continued to improve across all city tiers, which was primarily driven by increase in purchase frequency, reflecting our ongoing success in broadening product offerings, improving user engagement and meeting diverse customer needs. Our total revenue was RMB155 1,000,000,000, up 30% year on year. The increase was mainly driven by the robust growth of our China Commerce Retail, Cloud Computing and Cainiao Logistics. Our GAAP net income in September quarter was RMB 26,500,000,000. The year on year decrease was mainly because in the same quarter last year, we booked a significant one time gain upon the receipt of a 33 percent equity interest in Ant Group. Excluding one time gain and other items, non GAAP net income in September quarter was up 44% to RMB 47,000,000,000. Our free cash flow in the quarter increased by 33% to RMB 41,000,000,000. Our solid revenue and robust profit growth reflect the value we created for our customers and enable us to reinvest into our business for the longer term. Now let's look at our revenue in more details. We continue to strengthen our multi engine drivers to sustain long term revenue growth. Our businesses have become more diversified and more integrated as we provide more value added service to merchants on our retail marketplace globally. The value we added is reflected not only in our main revenue sources such as CMR, but also other revenue drivers such as Cainiao, cloud, local service and international retail. Overall CMR, which now includes commission revenue, grew 20%. The increase was mainly driven by growth in average spending per merchant and the number of paying merchants. CMR accounts for 45% of overall revenue since revenues from other new business grew even faster. So within CMR revenue, search revenue continued to show healthy growth And we've also seen growth in number of clicks, PPCs, which is and also the greater bidding intensity among merchants. Revenue from feed recommendations as a percentage of total CMR has increased to mid teens. The increase is due to greater paying merchants adoption as we improve the user experience that drove higher CTR and accelerated growth in consumer numbers. International Commerce Retail Businesses revenue was up 30% for the quarter. The increase was primarily driven by revenue growth from Lazada and Trendyol. For the September quarter, Lazada order volume grew 100 percent year over year. Revenue from Cainiao grew 73% year on year. This growth was mainly due to the increase in both average revenue per order and volume of orders fulfilled from our fast growing business, mainly cross border and international commerce retail businesses. Revenue from local consumer services was RMB8.8 billion, up 29%. This growth was due to an increase in average revenue per order and ongoing recovery in on demand delivery GMV growth after pandemic. Our merchant acquisition continued to accelerate after COVID-nineteen. By onboarding high quality merchants and upgrading membership benefits, our paying membership experienced continuous and rapid growth. Ali Cloud continued its solid revenue growth. Revenue grew 60%, primarily driven by growth in the Internet, finance and retail industry customers' contribution and the penetration rate of Ali Cloud among China Chinese listed companies continue to increase and ARPU growth accelerated too. Let's look at our cost trends. We continue to improve operating efficiency and maintain a healthy cost structure. We reinvest the savings from operating efficiency improvements and this was invested into strategically important businesses with strong long term growth potential. Now let's move on to our segment reporting. For the core commerce segment, marketplace based core commerce profitability maintained healthy growth. It increased by RMB5.3 billion to RMB50.9 billion. We continue to invest in our new seed businesses in our China retail marketplaces such as Taobao Life and Taobao Deal, both of which are showing solid growth. At the same time, developing businesses such as local consumer service, Lazada, New Retail and Cainiao continue to show solid revenue growth and improving operating efficiency. The combined losses of these developing businesses narrowed by RMB2 1,000,000,000 from RMB7 1,000,000,000 to RMB5 1,000,000,000. The cloud computing business revenue growth is very strong, we just talked about. And then the adjusted EBITDA loss narrowed year on year to around RMB 156 1,000,000, which represents only 1% loss margin. Again, we expect Alibaba to turn profitable in the second half of this fiscal year. For DME, we continue to focus on reducing losses in Youku through content costs control while increasing paying subscriber growth. Losses reduced by about RMB 1,700,000,000 to RMB10 1,000,000 for the DME segment. For innovation initiatives and others, increased losses were mainly due to our investment in technology, research and innovation. Overall, our businesses continue to deliver robust revenue growth and strong profit growth. The incremental profits generated are invested in key strategic businesses that increase our addressable market and drive our overall growth. Share of results of equity method investees in the quarter was RMB4.2 billion. We record our share of results of all equity method investees 1 quarter in arrears. The share of profit of other equity method investees in the quarter compared to a share of losses of other equity method in previous quarter was mainly due to a general improvement in financial performance of our equity method, investees. For the quarter, free cash flow was RMB41 1,000,000,000, which increased by 33%, mainly due to our robust profitability growth. And cash, cash equivalents and short term investments were RMB406 1,000,000,000, approximately US60 $1,000,000,000 Our solid balance sheet allows us to invest not only in organic growth, but also invest in business that will empower and enrich the Alibaba Digital Economy. Recently, we invested approximately US3.6 billion dollars to acquire a controlling stake in Sun Art Retail, which is the largest hypermarket retail chain in China. Our new retail initiatives have developed the business and technology to enable our offline retail partners to offer seamless omni channel experience for consumers. Through this investment, we expect an even deeper collaboration with Cenar that include increasing digitization of offline traffic and activities, synchronizing online and offline channel inventories, broadening our supply chain network and increasing Sun Art's addressable market through greater online purchases. We expect to start consolidating Sun Art Financials in the coming December quarter. In the long run, we will focus on better serving our customers and carrying out our mission to continuously grow our business. Thank you. So let's open for the Q and A. Hi, everyone. Similar to prior quarters for today's call, you are welcome to ask questions in Chinese or English. A third party translator will provide consecutive interpretation for the Q and A session, and our management will address your questions in the language you asked. Please note that this translation is for convenience purpose only. In the case of any discrepancies, our management statement in the original language will prevail. So operator, now please connect speaker and SI conference lines. Please start the Q and A session when ready. Thank you. Thank you. Our first question comes from the line of Binnie Wong from HSBC. Please ask your question. Hi, good evening management. Congrats on another solid quarter. The question here is that on Sunart, what is the ultimate goal of the integration here? And second is that as we are expanding into more a self operated direct sales business, what are the challenges we see? Say, how do you manage like traffic allocation to our 3rd party merchants? Say, when a third party merchant also selling the same category or even same SKU with our 1P products, how do we manage that? Thank you. Thank you. This is Daniel. Let me answer your questions. First for SunR, as I said in my script, I think the purpose of our investment is to leverage SunR's footprint across the country and leverage their supply chain to generate more synergies with the multiple business in Alibaba. And also we want to further upgrade some other business model to a more digital fully digitalized operations. And today, we also want to even upgrade the existing hyper mod model to a model of more community driven and to attract more young people back to stores. So that's the primary reason these are primary reasons why we further invest in Cenard. As you know that if you want to try to rebuild such a footprint across the country, actually, it's obviously, it's very difficult, and we believe this is a very important physical network across the country, which will could be further integrated with a digital network, a digital platform. And this supply chain also highly complementary to our business. In terms of the 1P and the 3P conflict, I will say, actually for Alibaba, we always believe in marketplace model. We always believe in partnership. So 3P is our priority. And we do see in some categories, in some of the categories, actually, we can leverage the power of retailers and to create a more integrated experience for our customers, such as fresh foods, fresh produced, such as groceries, because with many bulky groceries, the logistic cost is quite high, while it's very, very difficult to do a 3rd party model and based on a fast delivery network, country fast delivery network. So So in this case, we will further integrate our 1P with our offline partners and to give people better experiences. So it's a mixture, but we still believe in partnership and we think to enable the merchant is our first priority. And even in the 1P business, our model is quite different with other 1P. What we do is work closely with our suppliers, with our brand partners and not only help them to sell, but also help them to market their product and market their brand. And we'll also share some of the sales data to our supplier and to our brand partners when we help them to do the retail sales. So it's quite different a 1P model. Congratulations for having a very solid set of results. My question is about community group purchase. Given that a lot of the industry players are spending a lot of resources in this area, How should we think about our strategies in this initiative? And my second question is about cloud computing. How should we think about the profitability trend in the second half? And in terms of the margin profile, how should we compare with overseas peers in the long run? Thank you. For the first question, community buying, As you said, today the market is very hot and many players are already entering into this market. And we are actually we are also tracking the progress to target the change of the market very closely. And we think this is a very, very interesting model. But as we always said, at the end of the day, we have to evaluate the effectiveness of our business model by customer experience and customer value. So for Alibaba, we strongly believe this is highly relevant to consumption and relevant to the low tier cities, even rural areas. So we are very committed to the new initiatives and also evolving the new models to serve the customers in these areas. And if you look at what we have in Alibaba Ecosystem, actually we have a lot of infrastructure, which is very, very critical for the penetration of the low tier cities and even rural areas with a new model including the community buying. So I think now is still early stage and all the people are trying to target the customers first. But I think the customers always easy to change if somebody come and give them better value. So we are well positioned and we will go after this. Thank you. Regarding your second question of go ahead, Angie. Okay. Thank you. Okay. So Thomas, this is Maggie. Regarding to your second question of the cloud profitability, first, as you can see from our September quarter reporting, cloud computing is very close to be profitable. So this quarter, we reported a loss of around RMB 150 million, which represents negative 1% of EBITDA margin. So we definitely expect to see the profitability in the following two quarters. You asked about the longer term margin level. As Ed talked about during the Investor Day, we don't see any reason that for a long term Alibaba Cloud Computing cannot reach to the margin level that we see in other peer companies. Before that, we're going to continue to focus on expanding our cloud computing market leadership and also grow our profit. Thank you. Thank you, operator. Next question please. Thank you. Our next question comes from the line of Mark Mahaney from RBC. Please ask your question. Thank you. Two questions, please. You talked about this recent acquisition in the travel retail space. Big of an opportunity do you think this is for the company and how can Alibaba differentiate itself in that sector? And then secondly, can you just address the question of whether pre online retail growth trends, do you think that they are sustainably back to pre COVID levels? Thank you very much. Thanks for the questions. I think for the first question, as you may know that China announced a master plan to transform the entire island of Hainan into a free trade port. I think this is a very important step to grow Hainan to another free trade port. So for Alibaba, we strongly believe that in a free trip port, our duty free business, travel retail business is very, very important and because it's obviously more convenient for Chinese consumers to go to Hainan instead of go to other destinations to enjoy the shopping. So that's why we invested in duty free. We are very happy to partner with duty free to work with them to build a JV in China to leverage their supply chain in travel retail and to grow the business together with them in China. Of course, we are also working closely with the local partners to make sure we have the right setup to grow the travel retail business. And in Alibaba, as I said, we have a lot of infrastructure relevant to any new opportunities, including this travel retail, because we have digital wallet, we have our travel platform and we have our China retail marketplaces, which is a huge interface for the 100 of millions of consumers. Many of them could be a traveler and to a delivery store in a fleet report. So I think we will try to leverage what we have in our big family to grow the travel retail business. Thank you. For your second question, I would say, obviously, this pandemic accelerated the digitalization pace and the online shopping become a necessity for more and more citizens. And if you look at their purchase categories, even expanded from apparel, consumer electronics, FMCGs to food, beverage, fresh produce, so on and so forth. So we do believe this pandemic actually accelerate and the further penetrated the customers to encourage them to shop in a digital way. And if you look at the results in recent quarters, in this quarter, actually, we believe that we have already in China, because of the effective control of the dynamic, people's lifestyle come back to normal, but the habit is not leading us away. So people continue and even enhance their purchasing behaviors online. This is what we observed. Thank you. Thank you. Operator, next question please. Thank you. Next question comes from the line of Gregory Chow from Barclays. Please ask your Thank you. My first question has to do with 11. I'm looking at the top of our guidelines. I'm wondering if you can speak to any impact that there may be on advertising or revenues without development? And as a follow-up question, I'd like to understand more about the impact. You spoke of the new regulations being worked out for microlending in China. I'm wondering what percentage of GMV on your retail platforms is funded by HUABI and XIABI and if the tightening potential tightening of restrictions may have an impact on GMV growth. Thank you. Well, Double 11 is not just a shopping festival per se. It's also about engagement. It's about creating fun and interactive experiences for consumers. And with the new upgrade, consumer time spent on the platform and page views have increased, which of course is good for users, for engagement and is also a good opportunity to drive higher conversion as well. Now when it comes to search and browsing, these are 2 services that really serve different kinds of consumers. Search serves consumers who come with a clear purchase to a clear intention to make a particular purchase. They could be looking for mobile phones. They could be looking for a winter coat. Whereas recommendation feeds are there to create or to stimulate new consumption demand, things that the consumer didn't necessarily have on their mind when they came on the platform. So the two functions are mutually complementary. As you heard from Maggie in her earlier presentation, growth in advertising revenues continues to be healthy and performance of our recommendation feeds is good with higher click through rates and good opportunities for monetization going forward. Thank you. And on your second question, throughout the entire history of Alibaba and with the creation of Alipay, something fundamentally important has been options available to consumers. They're free to make their choices to how they want to make their payments and fund their payments. It could be from their debit card, is linked to their account from a credit card. Later on, we came up with Youebao and also Huabei. So on Alipay, consumers have a whole range of different options and they can freely choose whatever option they like to fund their purchase. And the same is also 2 of the Alibaba marketplaces. We're providing a broad range of options and choices for consumers and providing them with a convenient and a good shopping experience. And we'll continue to focus on providing that kind of optimal experience and freedom of choice. Now you asked about the percentage of GMV that's funded by Huawei. That's not actually something that we track. What we do track is the success rate of payments and the purchases and also the existence of that diverse range of different options and freedom for our users. Thank you. Operator, next question please. Thank you. Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Please go ahead. Thank you for taking my questions. Just two quick questions. The first one is on Taobao deal. I'm just wondering when you talk about the new ads, how many of the users actually historically already shopping on Taobao? Because it seems like you hinted that there is actually not much cannibalization between the two channels. Just wondering if you can share more color on the user profile of the new ads and how that interacts with the traditional Tmall and Taobao channel? And then the other quick question is on perhaps R and D spending. I think that you mentioned about the investment in R and D. I don't know whether it's by coincidence because we look at your innovation initiatives EBITDA margin, it seems like it came down a bit. So just wondering if that's one of the reason and if so, what are some of the projects you guys are investing in under that segment? Thank you. Thank you, Eddie. Let me answer your first question. I think Maggie will address your second one. In terms of the Taobao Deals user base, I would say actually when we grow this new business, we view this from operating perspective, we view this as an independent business. So we never try to attract people from existing Taobao mobile app to Taobao deal. Instead, we do online marketing, we do interactive user engagement features, so on and so forth to attract the relative users to the Taobao deal app. And the value proposition of Taobao deal is value for money. So it's very clear and well positioned. So people go to Taobao Deals, they can enjoy their experiences with a lot of selections, but all value for money. So as a result, actually, we do see the very fast growing of Taobao Mobile Taobao deal, mobile MAU. So as I said, this September, the MAU reached 70,000,000 net adding 30,000,000 as compared to 3 months ago. So if you look at the user base of Taobao, actually, in Taobao, we cover a very high percentage of China Internet users. So back to your question, the overlap, I do believe there is some overlap. I think it's impossible for Taobao deal to attract a brand new 100% brand new customers, because Taobao Mobile already have a very high penetration in China Mobile Internet. But I think what we focus is the total spending. If we add together the spending of Taobao when people have if they have both Taobao mobile app and Taobao deal app, how their spending changed. And we are happy to see people tend to spend more if they have both apps. But at the same time, we do have a lot of customers who are newly recruited by our Taobao deal app And we will continue to make our efforts. At the end of the day, the valuation is the total spending and how can we have more water share if we can serve people with very different value proposition services. Thank you. Okay. Eddie, on your second question about the R and D, the answer is yes, we continue to increase our investment in R and D areas. This is reflected in product development call. And also, like you said, if you look at the innovation initiatives, the losses in that sector, although it's a small segment, the losses expanded. So By that time, the goal was that Daimler should be focusing on the advanced technology, research development and it should live longer than even the group where we said we aim to live 102 years. And what projects are in it, of course, we can't open all of these project books. But in September, we did have the clock conference held in Hangzhou. And there are some introductions, Danmo Research as well. So we can talk about that afterwards. Daimler Academy has many labs. We have approximately 15 labs and doing research in many advanced technology areas. We mentioned about the logistics robots are Xiaomali Liu, right, AI related and voice recognition. So they have a full list of research projects going on. Thank you. Operator, next question please. Thank you. Our next question comes from the line of Alex Yao from JPMorgan. Please ask your question. Thank you, management for taking the question and congrats on the very strong bottom line growth. If I look at the quarterly numbers from very high level, my read is there are 2 different trends that drive the numbers. Number 1 is a moderate growth for the marketplace based e commerce business with perhaps a 4 to 5 percentage point margin decline, I. E. The platform such as Taobao and Tmall are growing low teens of the profits because the margin is going down. And then the second trend is pretty much everything else contribute more profit or less loss. So blended result was very healthy. So my question number 1 is to what extent is the marketplace e commerce margin decline structural versus a one off? Perhaps is there still lingering impact from the COVID or is it more because of the step up in new initiatives such as Taobao deal or Jihuahuan? The second part of the question is to what extent is the noncore, nonmarketplacebusinessmarginimprovement structural, I. E. They are moving into the financial return stage versus just a group level financial budget allocation to balance the group level financial performance? Thank you. Okay. To answer your question, I think first of all, I want to reiterate that we look at the business as a holistic business. The group is becoming so big. We have so many business lines. But when we talk about aducagon and e commi growth, we do look at overall. At the same time, of course, we have the targets, operating the emphasis on each of different businesses. So you talked about core market based adjusted EBITDA growth. I think before I address that, people should look at our overall profit growth of 28% year on year. So that is probably one of the few among the peers, global technology peers that still has over 20% growth nowadays. So and then market based business adjusted EBITDA, I should say that the growth rate for that part of the EBITDA also reflects our investment in our core core. So if you look at our, right, and also you mentioned Juhua Shen, also our investment in sales and marketing to acquire customers, new buyers. These are all the investments we voluntarily make to expand the business. And so I think whether it's structural, I should say that they're a big part of that investment discretionary. And then for the non core business, you've seen that within the core commerce, right, there are many new initiatives, including local consumer service, like data new retail, direct import, logistic, high net, etcetera. Almost every one of these businesses, they're showing narrowing of the losses. So this is why when you look at the combined losses for this non core business also core, but non Taobao and Tmall. This part of the combined loss was approximately RMB5 1,000,000,000 compared to RMB7 1,000,000,000 the same quarter last year. And then we go beyond our core commerce to the other areas like cloud computing, DME, innovation initiatives, the combined losses also decreased quite significantly because of these business either getting the scale effect or the operating efficiency, the leverage come out. So the combined loss for this part was RMB4.7 billion versus RMB6.5 billion the same quarter previous year. Okay. Thank you. Operator, we'll take the last question now, please. Certainly. Our last question comes from Alicia Yap from Citigroup. Please ask your question. Hi. Thank you. My question has to do with GMV growth, in particular on Taobao. We noted from your press release that in the September quarter, you reported GMV growth on Taobao as being in the high as being in the teens. I'd like to know if that includes Taobao Deals or not. I'd also like to know on Taobao Deals what the monetization model is there. Are you currently monetizing Taobao Deals? Are you still in an early period of development where you're trying to make things easier for the merchants and there's little or no monetization happening today? And how many further quarters do you think you can sustain that relatively high rate of growth in Taobao's GMV? Thank you. Thank you. So when it comes to GMV and the way we look at GMV, we have Taobao and Tmall, and we look at that GMV separately. And there may be some merchants on Taobao who are also present on Taobao deals, but they would have been separately recruited and onboarded onto there. So that's how we look at GMV and it's not by mobile app. In terms of where Taobao Deals is at today in the overall China retail marketplace, it's growing. It's in a phase of very fast growth in terms of user acquisition. The numbers there are growing fast and we're working now on driving GMV growth.