Earnings Call: Q2 2020

Nov 5, 2019

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's September Quarter 2019 Results Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, we will be a Q and A session. I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead. Hello, everyone, and welcome to Alibaba Group's September quarter 2019 results conference call. With us are Daniel Zhang, Executive Chairman and CEO Joe Tsai, Executive Vice Chairman 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 our website later today. Now let me quickly cover the Safe Harbor. Today's discussion will contain forward looking statements. These forward looking statements involve inherent risks and uncertainties and 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 the Form 20 F and other documents filed with the U. S. SEC. 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 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 stated metrics mentioned during this call refers to year on year growth versus the same quarter last year. With that, I will now turn the call to Joe. Thanks, Rob. Thank you all for joining us. In past earnings calls, we have kicked off company management remarks with my overall observations on strategic issues or macro trends. Starting this quarter and going forward, Daniel Zhang, who has assumed our Executive Chairman role, will deliver the overall strategic and macro state of affairs as well as his usual discussion of business operations. I will continue to make myself available for Q and A after our prepared remarks. Daniel, please go ahead. Thanks, Joe. Hello, everyone, and thank you for joining our earnings call today. In September, Alibaba just celebrated our 20th anniversary. We truly appreciate our shareholders' support in the past years. Today, I'm honored to speak to you in the role of the Executive Chairman of Alibaba Group for the first time. I'd like to take this opportunity to share my thoughts about the opportunities and our strategy over the next several years. Our mission has not changed since day 1. It is to make it easy to do business anywhere. Today, our consumers, merchants and partners are entering a new journey in the digital era. We will continue to create value for them by leveraging the power of data technology to make it easy to do business for them anywhere for the decades to come. We have set a goal for the near term to serve over 1,000,000,000 consumers and achieve at least RMB10 1,000,000,000,000 consumption by fiscal year 2024. Geopolitical uncertainties have placed additional pressure to global growth. We believe this is both a challenge and opportunity for the Chinese economy and finding more opportunities in such an uncertain environment is the key to our business and strategy. I would like to point out 2 long term developments that are in Alibaba's favor. 1 is to consumers to see and the other is to business to be. In terms of the to see, we see great potential in domestic consumption as an important driver for Chinese economy. The overall size of consumption keeps growing with increasing penetration of digitalization. Specifically, China retail sales reached around RMB30 1,000,000,000 in the 1st 9 months of 2019, growing at 8.2% year over year. This outpaced the overall GDP growth at 6.2%. More importantly, onlinecomecommerce is still the key driver of China consumption, growing faster at 17%. We are growing even faster than the overall online e commerce sector. Alibaba is the only platform to meet the diverse range of consumers' demands in physical goods, local consumer services and digital entertainment. As we disclosed in our Investor Day, these 3 consumer facing businesses as a whole already served 730,000,000 unique consumers in the Alibaba Digital Economy. Over the next several years, we will continue to grow our user base and at the same time drive user synergy by enabling merchants to cross sell products and services in the digital economy. Our new retail strategy further enlarged our addressable market. We aim to enable the digital transformation of brands and retailers, empowering them with data technology and consumer insights to better serve their customers. Another secular growth driver is enterprise digitization. IT spending in China for Internet companies amounts to around US80 $1,000,000,000 while the spend for public sectors and the various industries is over US300 $1,000,000,000 according to our estimate. This represents huge opportunity for enterprise facing business. We leverage Alibaba's cloud computing technology and big data insights to empower the enterprise. The adoption of cloud services in China will be driven by not only the need of lower IT costs, but also by digital transformation of business models and processes. As a digital technology company, we are uniquely positioned to provide businesses with more intelligent and cost effective cloud services. We call our solutions for enterprises as Alibaba Business Operating System as we provide not just technology, infra services, but rather business as a service solutions. Now, I will turn to the highlights of this quarter. We had another outstanding quarter with excellent business performance. We enjoyed robust revenue growth of 40% as we capture significant growth opportunities to reach an increasingly wide group of Chinese consumers. During the quarter, we continued to invest in user experience and technology solutions to create tremendous benefits for our customers. We have delivered solid profit growth for the quarter, benefiting from measures to improve our operating efficiency. For China retail marketplaces, our strategy is very clear and unchanged. We want to add value to consumers and the sellers through consumer segment, product enrichment and the platform innovations. This strategy has provided us the ability to scale and grow our consumer base. In September 2019, our China retail marketplace had 785,000,000 mobile MAUs, a quarterly net increase of 30,000,000. Our annual active consumers grew 19,000,000 to 693,000,000. Consumers are the core of Alibaba's digital economy. They want choices that are relevant and their spending preferences are dynamic. Today, we are China's only e commerce platform that offers the broadest and the deepest range of goods and services to Chinese consumers. We will further strengthen our suppliers in branded, imported, direct source and long tail products. During the quarter, we see strong user engagement and stickiness as reflected by higher buying frequency and accelerating order growth. We also noticed the spending of our new users from less developer areas reached about RMB2000 in their 1st year on our platform. This is a result of our diversified and a comprehensive product supplies as well as targeted recommendations to connect the right product with the right consumers. In Alibaba Digital Economy, we also provide services and entertainment to our 730,000,000 annual active consumers across the platforms. We will still we see still low penetration for Youku and the local services users in the digital economy if we compare the overlap of consumers across the platforms. Thus, we see huge opportunity in terms of synergies between these groups. We are identifying and executing new initiatives to convert the users from our China retail marketplaces to users of the local services and the digital entertainment platforms. We believe these platforms will add tremendous value to the digital economy. Local consumer service segment adds more consumption use cases, introduces more merchants and creates an on demand delivery network that benefit more location based commerce use cases. Digital Media and Entertainment segment provides a portfolio of quality content that resonates within Chinese consumers and thereby creating opportunities in digital advertising, memberships and cross selling within Alibaba Digital Economy. Let's turn to our cross border and international businesses. In September, we acquired NetEase import e commerce platform, Kaola. Tmall Global and Kaola platforms have relatively low consumer overlap. We will integrate areas such as technology, procurement and supply chain to achieve optimization. The Kaola APP will continue to operate independently. In Southeast Asia, Lazada is showing solid operational performance with order growth more than doubling for the 4th consecutive quarter. In the case of the Indonesia market, order growth more than tripled. Lazada's key priority is to maintain strong user growth and user engagement in the coming years. Our cloud computing business continues to execute strong growth. Revenue grew 46% year over year to RMB9.3 billion, primarily driven by an increase in average revenue per customer. Alibaba Cloud serves customers from a broad range of industries beyond Internet and media. Based on the most recent available data in August, 59% of China Asia listed companies are customers of Alibaba Cloud. The reason why we are widely recognized by the market is that we have developed proprietary technology and solutions which makes us different from other players in the China market. To conclude, we have a proven track record of innovation in the past 20 years. In the coming decade, we will continue to innovate with the goal of fulfilling our mission and keep investing for the long term. Now, I turn the call over to Maggie, who will walk you through the details of our financial results. Thank you, Daniel. Thank you all for joining us. We had another strong quarter. So for today's call, I will start by going over financial highlights and end with how we view the coming quarters. Now let's go over the financial highlights. In the September quarter 2019, we delivered another strong quarter of user growth with mobile MAUs reaching 785,000,000, up 13,000,000 compared to our June quarter. User engagement continues to improve with mobile DAU growing faster than MAU. In the 1st 6 months ended September, the Taobao app DAU growth accelerated as a result of healthy organic traffic growth, effective user targeting and increasing engagement with interactive and entertainment features. For the September quarter, annual active consumers on our China retail marketplace reached RMB693 1,000,000, which increased by RMB 19,000,000 compared to our June quarter. The increase in consumer growth reflected our continued penetration in both developed and less developed areas in China as we launched more effective consumer segmentation initiatives. These initiatives have been well received by consumers as evidenced by accelerating order growth from higher purchase frequencies. Our total revenue grew 40% year on year to CNY119 1,000,000,000 in September quarter. Excluding the effects of consolidated acquired businesses, revenue would have grown at 37% year on year, still very strong growth. The increase was mainly driven by robust growth of our China Commerce Retail Business and Alibaba Cloud. We are very pleased to see that our operation is running in a very efficient way. Cost and expenses are very well controlled, while our business has been continuously grow fast. Let's turn to our business segments. Our core commerce segment continued to be very strong. Core commerce revenue grew at 40% year on year to RMB101 1,000,000,000. The fundamentals of our China retail business continue to be strong. Customer management revenue grew 25% in the quarter, which primarily reflected the increase in the average unit price per click and to a lesser extent, the volume of paid click. Commission revenue increased by 24% year on year, primarily due to the growth in Tmall Physical Group GMV. China retail others, which is mainly these new retail business like Hema, Tmall import, grew at 125% year on year. So this quarter, we acquired and consolidated Cola. This is starting from September. For International Retail segment, revenue was RMB6 1,000,000,000, which grew at 35% year on year. Revenue growth was driven by AliExpress and Lazada's growth. For Lazada, as Daniel has mentioned, we continue to perform well. For the 4th consecutive quarter, it achieved over 100% year on year order growth, reflecting strong consumption demand in apparel, accessory and FMCG categories. AliExpress revenue growth remained strong due to increased number of consumers and the robust GMV growth. As an update, on October 9, we completed the formation of a social commerce joint venture in Russia with local partners. In terms of the financial impact, AliExpress businesses in Russia will be deconsolidated next quarter because we own just less than 50% of the JV. For our local consumer services, revenue grew 36% year on year to RMB6.8 billion. The robust revenue growth was primarily driven by strong order volume and increasing user order frequency. We have also been penetrating in the new markets in less developed areas with strong growth potential. During the quarter, GMV from less developed areas grew 45%. Local consumer service segment is strategic to Alibaba Group and we're committed to invest in the business and create long term value. We're focused on increasing average spending per consumer as well as acquiring new users by leveraging assets within the Alibaba digital economy. In the quarter, about 39% of new food delivery customers came from Alipay mobile app. The potential for further penetrating uses in Alibaba Digital Economies is significant as only 25% of our annual active consumers from our China retail marketplace have used our local service consumer services. We're going to continue to take a targeted and systematic approach to investing in this business. Let's look at profitability. In our commerce segment, we continue to generate strong marketplace based core commerce adjusted EBITDA. Compared to a year ago, we have increased adjusted EBITDA by RMB10 1,000,000,000, while the losses in 4 strategic areas only increased by RMB1.2 billion. So this reflects our targeted approach to allocate resources in key strategic growth areas, while also systematically optimizing costs and improving efficiencies. After incorporating these losses, our core commerce adjusted EBITDA grew strongly at 29% year on year to RMB38.6 billion. Cloud computing revenue increased by 64% year on year to RMB9.3 billion. This was primarily driven by an increase in average revenue per customer. Adjusted EBITDA was a loss of RMB 521,000,000, reflecting small widening losses versus the same quarter last year because we continue to invest in talent and technology infrastructure. Revenue from digital media entertainment business increased by 23% year on year to RMB7.3 billion. Excluding the consolidation of Alibaba Pictures, revenue would have increased 8% year over year. Despite industry rationalization and tighter regulations on content, we continue to enrich our portfolio with original content that appeal to Chinese audiences. During the quarter, Youku was able to launch popular drama and variety shows with high viewership that resulted in 47% year on year growth in average daily subscribers. Adjusted EBITDA for DME was a loss of RMB 2,200,000,000, which narrowed year on year as we continue to focus on cost efficiency and return on investment for content spending. Revenue from innovation initiatives and others increased by 14% year on year to CNY1.2 billion. Adjusted EBITDA for innovation initiatives was a loss of CNY1.9 billion. The increased loss was primarily due to our investment in technological research and new business initiatives, such as XingDing, Tmall Genie, AIMA. Look at the free cash flow and CapEx. Our business continued to show strong profitability and cash flow. As of September 30, cash, cash equivalents and short term investments were RMB235 1,000,000,000. For September quarter, free cash flow was RMB30.5 billion, which is US4.3 billion dollars which increased by 90% year over year. The increase in free cash flow was due to our robust profitability growth, timing of capital expenditure spending and less content costs. So let's quickly go over the major items that impact GAAP and non GAAP net income calculations. GAAP net income during the quarter was CNY 70,700,000,000, up 2 88% year on year. The year over year increase was primarily due to a one time gain of CNY 69,200,000,000 recognized upon the receipt of the 33 percent equity interest in ANZ, partly offset by impairment charges and net losses from changes in fair value relating to certain investments and goodwill. Excluding these gains and losses and certain other items, our non GAAP net income would have increased by 40% year on year. Looking ahead, last year this time, Daniel and I spoke about our commitment to deliver robust revenue growth and healthy sustainable profit growth. We have delivered. In the 1st 6 months of fiscal year 2020, our revenue grew 41% that outpaced global technology peers and at the same time, we achieved 36% adjusted EBITDA growth. We were able to achieve these results by achieving robust growth of active consumers, enhancing user experience and generating operating efficiencies through synergies within the Alibaba economy. Looking into the second half, we will continue to execute our strategy. Specifically, we will be very focused on 3 things. Number 1, improving user experience, which will result in higher engagement and customer spend. Number 2, aggressively reinvesting our discretionary profit in strategic areas to further our competitive advantages. Number 3, leveraging the synergies of Alibaba Economy to achieve operating efficiencies. We believe a commitment to invest and deepen our mode will ensure robust revenue growth and deliver healthy profit growth in the long term. Now let's turn to Q and A session. Thank you. Thank you. Operator, we're ready. Yes. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Your first question comes from the line of Alicia Yap of Citigroup. Please go ahead. Hi, good evening. Thanks for taking my questions. Congratulations on the strong quarter. My question is related to the upcoming Singles Day this year. So does management view these as any big difference than the previous year? For example, in terms of the countries and the platforms that will be participating in the event and in terms of product category, any specific product that management believes will be a big traction for consumer? And it also seems like there will be so many platforms are throwing more discount to consumer this year. So do you think that the consumption demand will be there to absorb the spending and allow all the platforms to win and gain? So any colors on the upcoming events would be helpful. Thank you. Thanks. This is Daniel. Let me answer this question. Everybody understand that we are approaching to the 11th single day, 11th day. So after the past 10 years, I think first of all, I think this November 11 has become a consumer shopping day and people widely recognize that shopping day and that's why we have a very organic momentum for the consumers to join to enjoy that day. So people ready to shop on a day. So this is the basically, this is a habit people form in the last 10 years. And the other side of the coin is the supply. And after 10 years' efforts and all the merchants, all the brand companies, retailers, they are actively preparing for these upcoming shopping festival. So, they will provide the best products with the best price and services to the consumers. And commercial wise, they view this as more like a commercial Olympic Games and everybody want to be the champion in their sector. So that's why we get the momentum from both demand and supply side. And this year, I think we all the actually we have many new and tailor made products for this November 11. And we even work with many brand companies to tailor made products exclusive for November 11, but with limited edition. So this is not only a shopping day, but also a marketing day for brand to market their brand and also engage the new customers. In terms of the market, I think not only China, but also our cross border and international marketplaces, Lazada and AliExpress, all of them will participate this shopping festival, but we localize the operation to meet the local demand of the customers. So we do see the synergies in terms of the product supply because most of the supply from China can be consumed by the people in other markets as well by cross border export. And we apply many, many new technologies into this November 11 preparation. And so far, we see a very, very good progress in terms of the warm up activities. And we were the interactive features we created in our mobile Taobao app and other mobile apps in Alibaba ecosystem. We so far we have achieved a very good user engagement for these upcoming shopping festival. So, we are ready for that day and we will do all we can do to make sure we have another success on that day. Thank you. Thank you. Thank you. Our next question comes from the line of Eddie Leung of Bank of America Merrill Lynch. Please go ahead. Good evening. Thank you for taking my question. I'm curious to hear your thoughts on the competitive environment you see today in the less developed areas versus a few years ago when you competed in the Tier 1 and Tier 2 cities? At the moment, it seems to us that one similarity is the heavy discounts on certain standardized products. So just wondering how do you compete differently today versus a few years ago? Thank you. Well, actually, if you look at our customer base today, and we have nearly 700,000,000, I mean, N electric consumers, 693,000,000 N electric consumers as of September in our China retail marketplaces. These customers not only come from the top tier cities and many, many of them are from low tier cities. So, we have got wide coverage. And I think today, I think for the new customers on our platform and our advantage is that we have the rich we have in-depth directions covering all those categories, covering all the price point, price range, which are available for all the customers. So in this case, technology play a very important role in terms of matching the right demand with the right price. So, so far, as I shared with you in my script and for the new customers on our platform within 1 year, we saw very, very robust growth in ARPU and that's a very good signal for us to show the power of our platform. And I will say and for the newcomers, they may spend a lot of so called marketing dollars to subsidize the customers, subsidize the merchants. But as a marketplaces, I always believe that the key thing is generate the sustainable value for both merchants and customers. And as a platform, if the buyers that as they transact between each other, but as a platform, you always subsidize. I don't see this is a sustainable model in the long run. I'm sure all the investors will agree this. And from our side, we invest to acquire new customers as we always do. And so that's why we see a very robust user growth and we add another 30,000,000 MAU in this quarter. But we care more about the retention of the customers. And so technology play will continue to play a very important role to improve the thickness of the users. Understood. Thank you, Tandi. Thank you. Our next question comes from the line of Binnie Wong of HSBC. Please go ahead. Hi, good evening management. Thank you for taking my question. My question is also on the less developed market strategy. I recall company disclosed the percentage of new users coming from low end has been over 70% in the past several quarters. Just wonder if there's any update? And also, as we expanded into the lower tier products, how do you see that our Taobao or Tier Mall merchants are spending on their advertising budget would behave differently? And I guess also a quick follow-up on Maggie's comments on that, the 25% cross selling on the local consumer services. How do we tap in what is our strategy to tap into the incremental, the 75% cross selling from our China retail marketplace into our consumer services? Thank you. Okay. In terms of the low tier user adds, overall, we're still showing very strong in the user acquisition. After several quarters of strong acquisition from lower tier cities, if you look at users coming from lower tier cities as a percentage of total, it come down a little bit. But I think overall, it's very strong growth. We're not only acquiring users from lower tier, top tier CCs, we're also continuously to add consumers. I think one thing that's very important is that it's not only the user growth, but also the ARPU growth is very healthy. And one more thing is very important is the retention. So as I talked during the Investor Day, if you look at our customers retention, it's very high. Take an example of our high end customers who spend over $10,000 per annum, there are like over $100,000,000 of them $130,000,000 actually for this year. And then when you look at the percentage staying on our platform, it's like 98%. So that gives you a sense that we're fast, not only fast growing, but a more balanced, more healthy growth. The other question was about cross selling to the other 75% of the users. I think this is the synergies we are in the process of realizing in the local consumer services and we have integrated consumer marketplaces. And today, 25% of the China AAC and active users from the China retail marketplaces are the users purchases in local services. We see huge synergies to improve this penetration. So that's why we make continuous efforts to integrate our product and technology infrastructure to make the whole platforms, entire platforms in Alibaba Digital Economy fully integrated. And going forward, we will continue to have more to strengthen our supplies from the local cities to have more coverage in the local cities to make sure we have the good supply to the local base to the location based consumers, which we know very clearly about their profile. Just one other question was the ad spending of the Taobao or HMO merchants in the lower tier cities, how do we target them? I think the fundamentals are still user growth and consumer experience. And then like we said several times in past that our model is that merchants, they themselves make decisions on how much budget they want to allocate to the platform and they bid for the price they're willing to pay. So that's if you look at our revenue growth, it's the ultimate proof of the value we've provided to not only the consumers, but also the merchants. So I think it's not a lower tier city merchants across the country, right, or the brands, I think they have been making decisions to advertise this and increase their spending on our platform. Thank you. Our next question is from the line of Grace Chen of Morgan Stanley. Please go ahead. Thank you. Thank you for taking my question. My question is about the differences in Alibaba's approaches to capitalize on opportunities in the affluent middle class and urbanization in lower tier cities. It would be great if the management can talk about the differences in the consumer behaviors, preferences in these two segments and thus your strategies and also the differences in the combined landscape in these two segments? If possible, can you use the coming Double 11 promotion as an example to elaborate your strategies, especially in the last developed regions? And a follow-up is that we see the growth of users have been coming from the incremental user growth have been coming from the developed less developed areas. What will be the implications on the financial numbers or cost structure with more users now coming from less developed areas? Thank you very much. Well, I would say, if you look at the users' habits from different tier cities, I think that this is highly relevant to their local lifestyle and their addressable income. But I think in the different shopping events, especially like November 11, I think all the people want to get their best products even from the maybe some of them, they don't spend in the day to day on the brand products, but in the shopping festival, they will because of the good prices and the good products available on the platform, so most of people will try to explore the branded products. But at the same time, I think for the day to day necessities for a lot of categories, which are not focused, people make shopping divisions, don't focus on brands. So, people will care more about the functions and of course the price advantage. So, that's why we strongly believe the technology is so important to reflect this customer needs on a real time basis. So, I think that's the important successful factor in both the Big O Day operation and also in the big events like November 11. In terms of the spending from the lower tier cities and high end, so I talked about the high end consumer spending pattern, very strong spending power and high retention. Lower tier CV, we actually observed that ARPU from the lower tier city consumers are not as low as people imagine. The spending, I think, is more tied to the user experience, the consumer experience. Experience also includes that they can find whatever they want. So we talked about the product supply, different supplies, and we talked about segmentation of the consumption. I think we have addressed very well in our top apps of different demands from different level of consumers. Next question? Thank you. Our next question is from the line of Zachary Schwartzman of RBC Capital Markets. Please go ahead. Great. Thank you. Profit growth trends across the business as a whole and on the core marketplace have stabilized or even accelerated. I guess giving you some more flexibility as you said in discretionary investing to strengthen your strategic moats. Maggie, can you comment more on expense discipline and operating efficiencies as you expand some of the recently integrated businesses in core commerce? And then just to confirm, was there any change in priority here with your final comments in your prepared remarks for the second half of the year? Thank you. Yes. I mentioned that we're going to focus on 3 key things, right, and improve user experience is always the most important thing, and this will result higher engagement in customer spending. And so I also talked about reinvesting back to these competitive areas. Just like what we did in previous years to expand our B2C market leadership, I think we have been very successful on that round of reinvestment and expand our market share. So we're going to continue to do that in this strategic important areas. And number 3, I also talked about the discipline, right, operating efficiency. I think it's very important because Daniel mentioned this, we don't believe continued subsidizing or just tremendous spending the marketing would bring a sustainable business. We're going to be smart, spend our money and continues to focus or emphasize on operating efficiency. Yes. And also, Zachary, I just want to address sort of the seeming conflict between expense, operating efficiency with discipline versus being aggressive reinvesting our profits into strategic areas that are discretionary. I'll give you an example. In terms of acquiring new users, for example, in lower tier cities, we can now acquire users in our for the Taobao China retail marketplace, but the same user could also potentially be a user for our local service business. So we only have to spend the marketing dollars once to acquire that user, but then use our cross selling with our multiple platforms to further penetrate those users that have not used, for example, local services before. So the discipline is a result of the synergies, because we have multiple platforms and multiple services targeting the same user base. And that creates those synergies create operating efficiencies. But we could be at the same time aggressively investing into the lower tier cities. Okay. Next question? Thank you. Our next question is from the line of Alex Yao of JPMorgan. Please go ahead. Hi. Thank you, management, for Congratulations on a very strong quarter. I would like to follow-up with the previous question specifically regarding Maggie's comment, you guys plan to reinvest in the discretionary profit in second half backing the strategic areas. I think if we take a look at your first half financial results, the financial impact from new initiatives under core commerce continue to be narrowing, which leads to very strong profit growth. So we think that you will be incrementally more aggressive in those initiatives in the second half such that the financial trend in the first half cannot be extrapolating to the second half? And also, can you talk about your priorities across the 4 initiatives, I. E, local consumption, international, logistic and the new retail? Thank you. Sure. Firstly, I want to highlight again to investors that if you look at our revenue growth and profit growth, those are very strong, right, way ahead of our almost all of our global peers. So we do have this luxury, if you recall, to reinvest because strong core and very good management of managing the business. And so talk about second half. In those areas, things like local consumer service, things like globalization and also the DME, also logistics, we're going to continue invest. At the same time, if you look at the competitive landscape, right, so we've seen competitors have been very aggressive investing in the China retail commerce business, also in the local service businesses. So we it's not reactive to competition, but also for our own needs to expand the user base, also to depart this user base, we're going to it's a good time for us to reinvest. And profit trend, etcetera, although we don't guide on profitability, but I mentioned that we do care about the efficiency of the business and also the big profit growth. So I think this is a very important measure among our senior management of the business growth. Yes, I think the prioritization of investment we missed out on this our PPT, the investment areas. I would say that these areas are equally important, not only the cloud and the DME, but also the local consumer service and like logistics, new retail and global acquisition. Okay. Next question. Thank you. Our next question is from the line of Gregory Zhao of Barclays. Please go ahead. Hi, management. Very strong quarter. Thanks for taking my question. So a question to Daniel. Whoever you highlighted during the prepared remarks and at the Investor Day, so BABA is enhancing the digital economy strategy and you split the economy into 2 groups, the 2 consumer and 2 business segments. And given the difference between the two business, the nature, I just want to understand more about the execution and how do you coordinate between the two segments as globally we see several successful examples like Amazon, like Microsoft and how's your strategy different from these peers? And also very quick follow-up on the single state. So we see some delivery companies announced to increase the delivery fee during the Double 11 promotion this year. So can you help us understand what's the implication to you and your competitors? Thank you. Okay. I think the first one is very good question. I think when we said that we are having 2 flying wheels, 2C strategy and 2D strategy, I think these two strategies are relevant to different type of businesses, which requires different skill sets and even DNA of the team. So that's why we said Alibaba is a digital economy, which have a diversity of the skill set of people and even the way of working. So from the consumer business, as we always said, we encourage young people to take more responsibility to innovate the product features, which fit for the needs of the young customers. So we always do this top to do this bottom up innovations. But for the enterprise services and actually, while the past 10 years' efforts in Tmall, we've already built an enterprise services model to serve big brands and retailers. And now we roll this over to more categories even into cloud services to corporate clients. And we've already built a very good team in terms of the cloud services and also to integrate multiple services from Alibaba to 1 corporate client. So we will continue to do so and we believe to have 2 flying wheels, 2C and 2B, but with a good connection and with a good chemistry is the core value of Alibaba and the core competitive advantage of Alibaba. And in terms of the legit company's performance or pricing strategies in November 11, I don't so far, I don't hear any big pricing change, project change from my logistic partners. Actually, we are working very, very closely with all these legacy partners and we prepare for a long time to make sure we have the right capacity and the right service available for the upcoming shopping event. Thank you very much. Next question. Thank you. Your next question is from the line of Tina Long of Credit Suisse. Please go ahead. Hi. Thank you. Thank you, Manish, for taking my question. Congratulations again on the results. I have one quick question on the live streaming. As the format of live streaming gets increasingly popular, can you give us updates on the GMV contribution for this format in first half this year? And also, I want to understand the monetization for this format, especially when the live streaming is native versus those from 3rd party sites? Thank you. Sure. Live streaming, if you look at the GMV size, this is already what we call this new swimming lane that generates over RMB 100,000,000,000 per annum. So if you look at our the merchants who have been using this service, over 50% of them are using live streaming. So this is very popular and value added service to these merchants. And in terms of the monetization, we haven't really started. They're very early stage test. So there are multiple ways we can monetize the service. And we'll give you update when we start the formal monetization. Our next question is from the line of Jerry Liu of UBS. I have two quick ones. One is, at the Investor Day, we talked about multiple new revenue drivers, whether that's live streaming, that's a secondhand platform. Just thinking ahead into next year, as we look at these opportunities in addition to the FEED, is the FEED still the primary one we're looking to monetize? Are some of these other opportunities also possible as we head into next year? Thank you. Sure. In terms of growth driver, as I mentioned, happy that you heard that we have so many new business and services that already generate quite big size of business. And there are opportunities for us to monetize these businesses such as Adelfish as the biggest secondhand platform in China and also like a live streaming platform also like Taobao factory. If you look into next year, yes, we do have opportunities where I should say it's possible that we start to monetize because these are substantially big businesses that we can start thinking about that. Monetization on the recommendation fees. I think the way we look at this is that, like we have been always doing, we tend to rather under monetize than over monetize. We already have a test and extended a little bit on the test on monetizing recommendation fees. But whether we're going to expand it, we'll see and decide later on. Overall, we already have shown 40% year on year revenue growth, right, so for the past two quarters. And our guidance shows like 30 ish, which is way ahead of a lot of our global peers. So we're going to have a more balanced approach on monetization to look after consumer experience, merchants ROI as well as our revenue growth. Thank you. Thank you. Our next question is from the line of Youssef Squali of SunTrust. Please go ahead. Excellent. Thank you. Two quick questions. First, can you provide us with an update on the food delivery traction in lower tier cities, maybe number of cities and competitive intensity there? And second, kind of a broader question for either Joe or Daniel. We've seen some conflicting data on the Chinese economy recently. NBS for July September suggests a slowdown in the economy in general and even online. This morning, there was a new private survey that showed actually manufacturing expanded, I think, in October much faster than expected. So just what do you make of it? And just generally, how much of a predictor is this of demand for BABA services when particularly from us looking at this from the outside? Thank you so much. Let me answer the first question. Actually, in the local service food delivery business, actually, we are expanding our coverage in the low tier cities in terms of the local supplies. And in the past 1 year, we've already successfully expanded to many low tier cities, but I think that's not enough. We will continue to do so to strengthen our supply, which we believe very important in the local service business. We have huge advantage in the consumer side and we can leverage a lot, as we said, in the digital economy in terms of the cross sell to the consumers in the ecosystem. But I think from supply side, we have done a lot and so far we see it's very good, I mean, opportunities and very good trend if we have the right supply in a particular region. But we will continue to do so and have a more strong local supply. Yes. On the other question about sort of whether the total macroeconomic data is a good predictor of Alibaba's performance. Well, I think you have seen that we have just multiple quarters where Alibaba's business outperforms the whole economy and even outperforms total retail sales. So currently we're looking at total retail sales growing at around 8% and yet e commerce based on the NBS data is growing in the high teens in the latest data that's available. Alibaba's growth is we're outgrowing the entire retail sector as well as the e commerce sector. I think there's a secular trend. Obviously, e commerce is taking share away from the traditional retail economy. So, Alibaba is very much driving that secular trend. But vis a vis peers, we're also outgrowing the peers in e commerce because now as Daniel has referred to many times, we are getting synergies from a few areas. Number 1, technology, being able to match a variety of product supply in different formats and also different types from standardized products to long tail products, our technology will match the right products to the right consumers. That is giving us a leg up vis a vis competitors. And the other area of synergy is that now we have close to 700,000,000 annual active consumers in our China retail marketplace that we're able to do the cross selling of additional services like local services and entertainment to our base of close to 700,000,000 active consumers in the China retail marketplace. So these synergies are now starting to come through and that's also giving us an advantage over our peers. Okay. Thank you both. Thank you. Our last question comes from the line of Piyush Mubay of Goldman Sachs. Please go ahead. Thank you for taking my question. Maggie, on the points you made about improving user experience that will result in high engagement in customer spend and the customer spend factor. Can I just ask where you are on user experience in terms of how you're defining that and where do you want to take it? And second, does that not mean and I know that Joe talked about the contradiction, assuming contradiction here. Where does this what does this mean for the ability for you to control or to bring down your spend in particular in the second half? And there was a specific word you used there that was aggressively reinvesting. Just wanted to ask why that word aggressively was used. And I'm sorry, I'm being very picky. Thank you. That's fine. That's fine, Keith. So in terms of user experience, we have many measures actually. But on the once for your easy understanding that we've seen user expansion, first of all, it's word-of-mouth. Besides our marketing activities, they're also word-of-mouth. And more importantly, it's user retention and also user spending and also user time spent on our platform and also across platform time spending by the users. So there are many ways. And the other metrics I'm very interested is the conversion, right? It's how many just users convert into buyers and then the buyers convert into the repeat buyers. So and then the loyal customers where we have 88 VIP members on our platform who actually are spending levels very high. So this is what we are very happy to see. And in terms of our spending and why we use the question, I think okay, this is a question very interesting. If I thought about this, if I we say, we're very disciplined in spending, right? Some people may worried about you might lose you might give more room to the competitors because they're spending very aggressively and you're emphasizing on discipline. But if we're talking about aggressive spending, then other group people worried about how this is going to impact your profit margin, etcetera. So actually, this is a game that we play every day. This is a decision we need to make every day. So this where, first of all, when you look at our strong profit growth, that gives us the bullets, if you will, to fight. So we do have a very strong profit and cash flow to U. S. And secondly, well, in the past several quarters, we've seen the efficiency out of our platform. When you look at the marketing spending as a percentage of revenue, when you look at SG and A, when you look at all of these spendings as total revenue, we have very good control on these spendings and we measure our eyes at very at different levels. So I think today, we still see the potential in so many areas. And we do believe we have we are the one that have the best in the best position to expand our service across all of these areas in commerce and to help merchants and consumers. So I think it's we're in a good position to spend. Aggressively, I think we have said that several times, like in the past year when we expand our when we invest in our cost business, we talk about aggressive spending. When we invest into our B2C business, we also talk about aggressive spending. The key thing is that we spend aggressively, but the return should be ensured. So that's our thinking on that. I think what Maggie means is simply that we can afford to be aggressive when we want to be. And there's market conditions may change from quarter to quarter and but we have the luxury. So if you look at our quarterly earnings before interest tax and amortization, the EBITDA measure, this quarter we have RMB45 1,000,000,000 of EBITDA and we're taking about 15% of that number to aggressively invest into the core commerce areas like local services, international, new to retail and logistics. And so we could be very aggressive, but still just spend 15% of our EBITDA in those core areas. I think we simply mean we've got the luxury to do that. Right. Well, some companies spend like 50% of the revenue, right, in the marketing. Okay. Thank you, everyone. That was the last question. And if you have any questions, feel free to reach out to the Alibaba IR team. Thank you. Thank you. Ladies and gentlemen, that does conclude the conference for today and thank you for participating. You may now all disconnect.