Earnings Call: Q3 2019

Jan 30, 2019

Good day, ladies and gentlemen. Thank you for standing by, and welcome to Alibaba Group December Quarter 2018 Results Conference Call. At this time, all participants are in a listen only mode. After the company's prepared remarks, there will be a question and answer session. I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead. Good day, and good evening, everyone, and welcome to Alibaba Group's December quarter 2018 results conference call. With us today are Joe Cai, Executive Vice Chairman Daniel Zhang, Chief Executive Officer 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 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. 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 EPS 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 refer to year on year growth versus the same quarter last year. With that, I will now turn over to Joe. Thank you, Rob. Thank you all for joining us. We had another good quarter with excellent business performance and sound execution against our overall strategy. But we live in an environment where external factors seem to drive investor sentiment regarding Alibaba's business. I would like to address 3 macro issues that may be on your minds. First is how to look at Alibaba in the context of the Chinese economy. Daniel later will offer his insights on the current state of the Chinese economy from the vantage point of Alibaba's business. I want to refresh your memory about 3 secular developments that I refer to in the last earnings call. 1, consumption look great by China's 300,000,000 middle class consumers continues its course. By OECD's projection, the Chinese middle class will grow to 850,000,000 people by 2,030. 2, the increasing availability of credit will fuel consumption 3, Alibaba's active role in digitizing the retail sector expands our total addressable market to the entire US5 $1,000,000,000,000 retail economy in China. The size of the Chinese economy is US13 $1,000,000,000,000 In the future, obsessing on the rate of growth is not meaningful because of the law of large numbers. The reality is the absolute dollar amount of new wealth creation in the the Chinese economy will be well over US800 $1,000,000,000 each year. We have conviction that e commerce and digitization of retail will continue to grow at a faster rate than the overall economy. While the overall economy grew in single digits, e commerce sector GMV grew at 20% to 30% over the last several years. That is because technology innovation and improved productivity are driving sustained growth over a long period of time. The second issue I want to address is the trade war. Concerns about trade tensions might affect sentiment, but Alibaba's exposure to the tangible effects of trade tariffs and cloud computing, the primary growth driver is not exports, but domestic consumption and corporate transformation. Digitization of retail sector and the resulting productivity and efficiency gains will accrue to Alibaba with or without a trade war. Alibaba is well positioned to help solve the structural trade deficit issue vis a vis the United States. With nearly 700,000,000 Chinese consumers shopping on Panobao and Tmall, we are the platform of choice for American companies and farmers to gain access to the Chinese market. The 3rd issue is regulation. Recently, investors have asked us about perceived regulatory tightening of Internet businesses. Of all the economies in the world, China is at the forefront when it comes to the confluence of rapid technology development and large scale wealth creation. Our perspective is that China's regulatory landscape should be expected to evolve along with the rapidly changing developments in the new economy. We have witnessed the government becoming more adept at calibrating the interplay between regulation and economic growth. I would like to point to several policy directions that provide assurance to businesses operating in China. First, the government has implemented fiscal policy initiatives that are business friendly. VAT rates were lowered in 2018 and are expected to be cut further in 2019. The government also introduced lower Social Security contributions, which especially benefited small businesses. 2nd, the government raised the threshold for personal income tax exemption, giving lower income groups more to spend. This is expected to provide a broad based spending stimulus as lower income groups devote a higher percentage of their disposable income to consumption. 3rd, in early January, the State Council announced new initiatives to support small enterprises by reducing corporate income tax rates and raising the monthly sales threshold for VAT exemption. With these policies, it's clear to us that the government intends to ignite business confidence and encourage business investment as well as consumer spending. It is also clear to us that the government recognizes the importance of small businesses as the backbone of the economy and job creation. We believe that anything that's good for business confidence and in particular good for consumers and SMEs will be good for Alibaba. Now I turn to Daniel for his remarks. Thanks, Joe. Hello, everyone, and thank you for joining our earnings call today. During this call today, I will share our observation of the Chinese economy and how our investments in new businesses will support our long term growth. Based on data from the National Bureau of Statistics, China's GDP growth rate was 6.4% year on year in the Q4 of 2018 and the full year growth rate was 6.6%. China's overall retail consumption grew around 8 percent year on year in the Q4. The slowdown of macro might cause concerns in the market. However, what we see from Alibaba's platforms is that Chinese consumption growth is still strong, driven by a growing base of increasingly affluent young consumers. We saw aspirational Chinese consumers look for a rich shopping experience and high quality products and services on our platforms. Our Tmall physical goods grew 29% year on year this quarter, while China's overall online physical goods grew 21%. The robust growth was driven by strength in the FMCG, apparel and home furnishing categories, reflecting strong secular consumption trends. Our single stage shopping festival generated US30.8 billion dollars in GMV, representing a growth rate of 27% year on year. During the event, among the 100 of millions of consumers that made purchases, 46% was born after 1990 and over 40% made purchases from international brands. This young generation of consumers continue to be the main power of consumption growth in China. In addition, we saw the ongoing urbanization continue to be the engine of China's technology growth. Over 70% of the increase in our annual active users in this quarter was from Tier 3 and below cities. From a category perspective, due to cooling off of the real estate market, large ticket categories like white appliances have experienced a slower growth. And due to lack of technology term growth near term. While categories in consumer staples, apparel and home furnishing executed resilient growth in this quarter. We also observed subcategories like electronic toothbrush and beauty electronic devices grow fast in our platform, representing Chinese consumers continue to upgrade their lifestyle. We believe as China seeks to generate sustainable high quality growth, it has to transform from an export and investment oriented economy to a consumption driven economy. And it may result in softer near term economic performance. But we believe the consumption power of 1,400,000,000 Chinese population is the growth engine of Chinese economy in the future. Now let's talk about Alibaba. Our core business has been exhibited robust and sustainable growth. In December 2018, our China retail marketplaces had 699,000,000 mobile MAUs, representing a quarterly net increase of 33,000,000. Annual active consumers were 636,000,000, reflecting successful user acquisition programs such as referrals through the RUpay app and is an early indicator of transition activity on our platforms. In October, we fully rolled out the new Taobao interface, which drove effective user engagement and improved traffic operating efficiencies in mobile Taobao. We are also proactively working on improving recommendation algorithms and making preparation for future monetization. We have exhibited robust marketplace based core commerce profitability as measured by adjusted EBITDA of US7.9 billion dollars growing 31% year on year. This allows us to invest in the strategic areas for the long term prospects for the long term prosperity of Alibaba Digital Economies. These areas include cloud, logistics, new retail, digital entertainment, local consumer services and globalization. We started our cloud business 9 years ago. And over the last few years, our cloud business delivered solid top line growth and established a leading position in China's nascent cloud market. In November, we made an organization change to appoint Jason Zhang as President of Alibaba Cloud, adding his responsibility on top of his role our Chief Technology Officer. We believe under this framework, we can make available of our data technology used in our own businesses to our enterprise customers to accelerate their digital transformation. We continue to invest in Cainiao to build the logistics infrastructure of commerce. Through digitizing the entire fulfillment and the delivery process, Pangyou continues to improve consumer experience and lower industry costs. Our new retail business consists of 2 major directions, reforming old and creating new, both of which a large addressable market. On one hand, we continue to make good progress in digitalizing partner retailers and enable their new retail transformation. On the other hand, Peroma, our proprietary grocery retail chain, continue to expand its footprint, optimize its existing stores and introduce new initiatives that improve consumer experience. We continue to expand consumption use cases within the Alibaba Digital Economy through the investments in digital media and the local consumer services. These businesses are critical to drive future customer acquisitions and retention with our ecosystem. We will be competitive and at the same time continue to improve our operating efficiency. We are committed to globalize our business. 1 of the key regions we will stay focused on in the near term is Southeast Asia, which is the 4th largest region by GDP after U. S, Europe and China. It has over 650,000,000 in population that are relatively young. Online shopping penetration is still at low single digits. Leveraging our unrivaled technology and strengthening in management, we believe Lazada will well position to continue to capture shares in this growing market. China's economy is facing some uncertainties, but we do see opportunities. The opportunities lies in strong consumption power, emerging disruptive technologies and innovative business models that drive the next growth phase of Digital China. Over the last 10 years, Alibaba has built a broad range of platform businesses, including retail, marketing, financial, logistics and cloud computing services enabled by our advanced data technology. These form the core of the Alibaba Business Operating Systems, which are important to the digital transformation of our enterprise customers and allow us to become the leading partner of businesses within China and around the world. Now, I turn the call over to Maggie, who will walk you through the details of our financial results. Thank you, Daniel. Hello, everyone. In the December 2018 quarter, our major financial metrics continued to record strong results. Our total revenue grew 41% to RMB117 1,000,000,000. This is actually the Q1 of our quarterly revenue surplus to RMB100 1,000,000,000. The increase was mainly driven by the robust revenue growth of our China Commerce Retail business, 10% to RMB117 1,000,000,000. This is actually the Q1 of our quarterly revenue surplus of RMB100 1,000,000,000. The increase was mainly driven by the robust revenue growth of our China Commerce Retail business, the consolidation of Ele. Mex, as well as strong revenue growth of Alibaba Cloud. Even stripping our acquired businesses, our revenue growth during the quarter continues to outperform that of almost all global technology peers. As a percentage of revenue, without the effect of SPC expenses, Both our operating expenses, including product development, sales and marketing and general and administrative expenses remained stable year on year during the quarter. Excluding the effect of SBC, cost of revenue as a percentage of total revenue increased by 10 percentage points to 50% this quarter. The increase was primarily due to, of the cost of inventory and logistics from our self operated new retail and direct import businesses 3rd, an increase in content spending by Youku on original content as well as an impairment charge on licensed copyright. Now, let's turn to the segments. Core Commerce. Our Core commerce segment had another strong quarter with revenue growth of 40% year over year. When I look at China commerce retail, the fundamentals of our retail business continue to be solid. The combined customer management revenue and the commission revenue distributed healthy growth of 27% year over year for the quarter. Customer management revenue grew 28% in the quarter. The growth was primarily the result of increases in volume and paid clicks driven by higher click through rate. Of course, these are all backed by the increased user base and enhanced user engagement. We continuously expand this user base and continuously improve our user experience. Commission revenue grew 24% in the quarter. The growth of commission revenue was primarily due to strong growth in Tmall paid physical goods GMV of 29%. The discrepancy of the growth rates between the commission revenue and the Tmall physical goods GMV is primarily due to our adoption of the new accounting requirement, which has the effect of the spreading out recognition of revenue from annual service fees received from Tmall merchants, whereas we previously recognized these fees at the end of each calendar year. Others from China Commerce Retail was up 122 percent to RMB11 1,000,000,000. Rapid growth was primarily driven by contributions from Freshippo, also known as Homa, Tmall direct import and other direct sales businesses. As of the quarter end, there were 109 Hema Hema stores in China, and the retail chain continued to achieve robust same store sales growth. Revenue from local customer services was RMB5.2 billion. The growth of daily on demand orders continued to be strong during the quarter. In December 2018, we combined our on demand food delivery platform, Ele. Me, with our service platform, Koubei, to create a local consumer service business segment. Koubei had a very limited impact to our local consumer service revenue this quarter. We believe we have a strong management team in our local consumer services to execute our strategy to gain market share. Revenue from our international commerce retail business in the quarter was up 23% year over year to RMB 5,800,000,000. The increase was primarily due to the consolidation of Trendyoo, Turkey's leading e commerce platform. During the quarter, Lazada strengthened its core marketplace businesses and reduced exposure to direct sales in merchandise categories. This business model shift resulted in accelerating marketplace GMV growth, with direct sales revenue decline during the same period. As a result, the revenue growth of Lazada was slower than prior quarters due to a decrease in revenue generated from our direct sales business, where revenue is recorded on a growth basis, including the cost of inventory. We believe the shifting model towards capital light marketplace business will solidify a healthier foundation for scalable growth in the future. Now, let's look at the drivers of core commerce profitability. We continue to generate solid market based core commerce EBITDA that grew 31% to RMB54 1,000,000,000 during the quarter. This core profit growth was the main driver of our free cash flow for the quarter, which came in at RMB51.4 billion, which is US7.5 billion dollars Because of the strong profit and cash flow generated, we're able to invest in 4 strategic areas, and number 4, Cainiao. The losses generated from these investments was RMB 8,200,000,000. We have already started to see efficiency gains and greater synergies from this business inside Alibaba Digital Economies. We will continue to invest and work towards delivering enhanced financial return from these businesses in the long term. After incorporating the losses from these investments, our core commerce EBITDA grew 20% to RMB46 1,000,000,000 during the quarter. Cloud computing revenue grew 84% year over year to RMB6.6 billion, primarily driven by increased spending from enterprise customers. Adjusted EBITDA for cloud computing segment was a loss of RMB274 million, reflecting a negative 4% EBITDA margin, improving from negative 5% from the same quarter last year. Digital Media and Entertainment revenue grew 20% year over year to RMB6.5 billion. The increase is primarily due to an increase in revenue from mobile value added service provided by UC web, such as mobile search and game publishing and an increase in subscription revenue from Youku. Adjusted EBITDA was a loss of CNY6 1,000,000,000. This loss figure included impairment charges taken on licensed copyright that did not generate the expected returns following a regular evaluation programming. The evaluation resulted in a $2,800,000,000 impairment charges during the quarter. During the quarter, we made the necessary changes to management, who we expect to drive more efficient content strategies and synergies with the rest of our business. Revenue from innovation initiatives and others grew 73% year over year to RMB1.3 billion mainly due to an increase in revenue from Tmall Genie and AMAP. Adjusted EBITDA was a loss of RMB1.6 billion. Now let me highlight a few financial metrics that impact net income during the quarter. Other income was CNY 387 1,000,000 compared to a loss of CNY348 1,000,000 in the same quarter last year. The increase in other income was primarily due to a decrease in exchange loss incurred during the quarter. We did not recognize any profit sharing from Ant Financial during the quarter. Ant Financial continued its strategic investment to acquire new users and capture growth opportunities in the offline payment market. Currently, Alipay and its affiliates have over 1,000,000,000 annual active users globally. As of December 31, 2018, cash, cash equivalents and short term investments were RMB 192 1,000,000,000, US28 billion dollars The increase in cash is primarily due to free cash flow generated from operations, partially offset by cash used in investments and acquisition activities and share repurchase. We generated robust operating cash flow of RMB65 1,000,000,000 and free cash flow of RMB51 1,000,000,000. Please note that we have deducted content spending when measuring FCF, even if such content spend was capitalized. We're committed to enhance value for our shareholders through share repurchases. Since September 2018, we have repurchased approximately $10,860,000 of our ADS for a total of approximately $1,570,000,000 as of yesterday. Looking ahead, as Daniel discussed, the demand of products and services China marketplace continues to be solid. Our new Taobao interface is driving effective user engagement and improving traffic operation efficiencies. We're testing the potential monetization of recommendation fees. We need to ensure improved merchants' ROI the our solid execution. We expect our core, core profit growth to remain healthy. At the same time, we will continue to invest in strategically important areas to increase our addressable market and capture long term growth opportunities. Let's now turn to the Q and A. Thank you. Our first question comes from the line of Grace Chen from Morgan Stanley. Please ask your question. Thank you. Thank you very much. My question is about investments in various new ventures. I'm wondering as we get into the new fiscal year, how do we rank this initiative in terms of priorities, this investment including retail, local consumer services, digital media entertainment and Lazada. Should we expect the loss from these ventures to be narrow in the new fiscal year, especially Entertainment in which we see investment widen substantially in the December quarter? Also, will there be any strategic potential strategic changes or adjustments? For example, are we investing more aggressively into the Industrial Internet segment? Thank you. Thank you. This is Daniel. Let me answer your question. I think as I said in my script, I think that we are because based on the very solid core of core businesses, and we have the flexibility to invest for the future. And I think in the New Year, we will focus on how to generate the synergies of the new areas we invest to build a strong connection and synergies with the core business of Alibaba Ecosystem. I think for the digital content for the local consumer services, we view these two areas as the expansion of categories of our consumer needs to leverage the 700 consumer base we have, and we believe that we need to provide with them a very comprehensive supplies ranging from physical goods to content and to local services. We think this is very important for the prosperity of our ecosystem. And actually, when we're doing this investment, on one hand, we try to make ourselves to be competitive in the market. And in each of the areas of the new business, you can see that in the market, there are a couple of players. So, we have to make ourselves competitive. But on the hand, we will continue to improve our operating efficiency, and we set a lot of disciplines to improve our to make sure we can deliver the solid results in each of these areas. Next question. Thank you. Next question comes from the line of Alicia Yap from Citigroup. Please ask your question. Thank you. Good evening, management. Thanks for taking my questions. I have a question regarding your commission be this quarter if there were no change of the accounting adoption? And should that translate to higher commission revenue growth than the GMV growth in the next three quarters? Lastly, any update on the timing of the rollout for the new recommender FEED monetization? Thank you. Sure. Alicia, this is Maggie. So your first question regarding the commission revenue growth, if we exclude the impact of the just the accounting treatment, the growth would have been just mix commission rate has not been changed that much. And for the recommendation fees monetization, as Daniel and I mentioned during the call, we're testing and have been working on this, but merchants ROI as well as the user experience. Next question? Thank you. Our next question comes from the line of Piyush Mubayi from Goldman Sachs. During Q3, what drove the higher click through rates, which led to the higher paid clicks and the acceleration in customer management revenue that we saw? Was this on the search side and a function of the evolution of the algorithm? Or was it the new Taobao app design that made the difference? And if I can sneak a question on feed, I understand that it's an update we can receive from you in due course. But is it going to be linked in any way to the a quarter ago you talked about the fluid macroeconomic conditions. Is it in any way going to be linked to a recovery in the economy? That's my question. Thank you. Right. When we look at the customer management revenue growth, we said that the growth is coming from the growth of the paid clicks, which is driven by the click through rate growth. So it's coming from actually several things. When you look at the active user base being expanded and engagement being enhanced, at the same time, we're optimizing our search. And all of these contribute to the growth of the CTR. For the second monetization recommendation linked to a recovery of the economy? Actually, we don't tie this monetization process with the economic condition. I think we do have to take care of the merchants' ROI. But I think if we give them more flexible marketing tools, it's also good for them to do more business and acquire new customers for each of the merchants. But today, as we said, we are actually making preparations from the tech perspective to make sure we can have the right algorithms and right technology and to make sure we have the native ad in the recommendation to ensure the user experiences. But at the same time, we can ensure a good return, a good ROI for the advertisers. Okay. Next question. Thank you, Maggie, Daniel. Thank you. Next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question. Hey, thank you for taking my question. I have kind of a question on the smaller merchants. Have we seen any differentiation in the business activities between the small sellers and large merchants recently given the external change in economic conditions? And similar to that, could you share more color with us on the potential impact of e commerce laws on the smaller merchants? Thank you. Eddie, I think this is a very good question. I think the very beautiful effect in Taobao marketplaces is like every year we generate a lot of new merchants. But actually today when you look at our ecosystem, in recent years, we do have a lot of new merchants. They are not like a traditional reseller on the platform. And I don't think they are the traditional small merchants just in terms of size. Actually, a lot of merchants today, they are doing the live streaming on the platform. Same time, they are good sellers. So, I think we do encourage the selection of the merchant types. And we also try very hard to provide them with technology and tools to help them to show their uniqueness to the customers. So I think that's the long term growth driver and that's the long term guarantee of the prosperity of Taobao Marketplaces. Eddie, I wanted to address the potential e commerce law. In fact, I referred to this in my opening script. There is a the State Council just announced a tax relief for small businesses. So the e commerce law, the fundamental point there is that the SAIC require registration of all the merchants about what the effect of registration is because the concern is that the tax enforcement will be tightened. Now on the other hand, with this tax relief for SMEs, this basically offsets that concern. Specifically, the tax relief involve 2 aspects. Number 1, the tax exemption threshold for VAT tax has been raised from RMB30000 per month to RMB100000 per month. In other words, if you're a small business that's doing less than RMB100000 per month in sales, you will be exempt from the VAT regime. And the second aspect of the tax relief is corporate tax rate has come down from 25%. That's the normal corporate tax rate in China. But for small businesses, it has come down to 5% for the first RMB1 1,000,000 in profits and then 10% for the next from RMB1 1,000,000 to RMB3 1,000,000. So effectively, you're lowering corporate tax rates by a lot. So the combination of these two tax relief measures have basically offset the concern about the e commerce law relating to registering small businesses. Thank you, Daniel and Joe. Next question. Thank you. Next question comes from the line of Binnie Wong from HSBC. Please ask your question. Good evening, management. Thank you for the opportunity to take my question or just the question. I have a question on this on the improvement in margins and also the investment cycle. So we see an improvement in the margin side, especially in your marketplace core commerce, which clearly show strong operating leverage and efficiency. So how should we think about the stage of company's investment cycle, especially in terms of can management elaborate more on is the efficiency coming more on like the local customer services on new retail? And also can you comment on the competitive landscape in our local services? And how our strategy has evolved in response to competition, say in terms of take rate or promotions? And just very lastly is that if we look at our longer term as our ecosystem has been expanding and we are penetrating into different business segments. How have we been seeing the cross selling across the different products within our ecosystem to go deeper into customers' pockets? Thank you. Several questions from Binny. Let me answer the margin and profitability in investments first, and then Binny could answer you on the local service growth progress in the cross selling question. So when you talk about margin, as we talked through all of these quarters, we encourage people to look at the possibility, because while we are growing into such a big size of the business, right, the absolute dollar profit is meaningful to the EPS and calculate your returns on capital? Okay. So that question, basically, the substance of that question is how much more we're going to invest and our profit growth. I understand that investors have questions, concerns or even worried about how much are you guys going to invest in those strategic initiatives, how much more you're going to spend. I want to talk about 2 things. Number 1, we invest in these strategically important areas by spending money that's generated from our core business, while our other competitors just spent money from what they raised from the investors from the market. And how strong is our core core? When you look at our customer management revenue and commission revenue, if you add them together, it gives you like RMB70 1,000,000,000 in the quarter's time. And then when you look at our core, core profit, which we reported 54,000,000,000, right, so mostly are coming from China retail. You can tell the margin, if you will, and you can tell the powerfulness of our core core. So this provides strong support for us to invest in those strategic areas. Number 2, when we look at investment, we emphasize a lot on the operating efficiency, investment efficiency. So we do have internal measures on each of these investments. All of these investments are still in the stage of that, which is early to talk about financial returns, right, profit. However, their business progress, which we are very well on local services business, later last year, as we said, we merged the Koubei and Earl of our business and form a new local consumer service company. And we strongly believe that by doing this, we can reduce the overlap of the spending in customer in client acquisition and client services. And today, if you look at this food business, actually for each of the restaurants and the in store business and the food delivery business are equally important to every single restaurant. So today, by combining these two business, we anticipate a lot of synergies in the UCO. And I think back to your last question about the cross selling opportunity, I think this is really our advantage of Alibaba Ecosystem. And we try very hard to try to build synergies across business and bring new customers to each of the business, winning Alibaba ecosystem. Take example, in November 11, not only our China retail platform is the main driver, actually all the user interface of Alibaba Big Family participate. There are around 20 business participate. And we do a lot of customer engagements through different mobile interface, which also bring a lot of new customers, not only to our retail business, but also to other business like Youku, like mobile browser, like travel, so on and so forth. And we'll continue to do that. The 700,000,000 active customers is our the most important asset in Alibaba Ecosystem. And we'll try to leverage this power and unlock the potential of the consumption. Okay. Before the next question, I would just encourage the analysts to limit to one question for the opportunity for others. Next question? Thank you. Next question comes from the line of Mark Mahaney from RBC Capital. Please ask your question. Hi, thank you. It's Zachary Schwartzman on for Mark. Outside of your market based core commerce segment, are any of your newer investments in core commerce between local consumer services, international, new retail direct import and logistics growing more quickly from a profitability perspective than you were initially expecting? And can you please provide a ranking here in terms of profitability or loss contribution? And any recent learnings from this quarter from these consolidations? Thank you. Sure, Mark. We mentioned in earnings that the investment we made within the core is mainly in these four areas, Ele. Me, right? Lazada, New Retail and China. So we make this in the order of standing from high to low or the loss level from high to low. Next question. Thanks. Thank you. Next question comes from the line of Gregory Zhao from Barclays. Please ask your question. Hi, management. Thanks for taking my question. So based on the guidance you updated last quarter, last earnings conference call and your first three quarters earnings results. So this implies some accelerated total revenue growth in your physical 4Q. So would you please help us understand the key acceleration drivers behind and also do we have any updates to the full year guidance? And also very quick follow-up, we noticed you already launched some promotions and activities such as a red envelope during the Chinese New Year celebration. So would you please help us to understand how the promotions are compared to last year and what's the implication to your user growth and margin? Thank you. Right. So when you look at the revenue growth for the quarter, which is 41% year on year, is a big quarter, and we think this 41% is very strong. And when you look at the customer management revenue, which shows acceleration in the growth rate, that's mainly because of the increase in the volume paid clicks driven by higher click through rate. So that's if you look at the driver for that, that's basically our continuously expanded user base, increased engagement and also the optimized search. I think today from a business perspective, we continue to enhance our leadership position in the market. So, that's why the new customer acquisition to us is very, very strategic. So, that's why so far we focused a lot on this new acquisition and retention. And as we said in the script, and we have done a lot together with N Finance, Alipay to acquire new customers. And in terms of the Chinese New Year promotion, I think we are Eve campaign, and this become a new IP, super IP in China, and we anticipate a lot of consumers will participate. And from A and H perspective, we view this as another building opportunity to acquire new customers. So, that's the synergies we have validated, and we will continue to do so. You also asked about the guidance. We don't have any update on guidance. Next question comes from the line of Youssef Squali from SunTrust. Excellent. Thank you very much. Good morning. Quick question for Joe, if I could. Talking about the government stimulus, I was just wondering if you can point to or share any proof points in recent past that some of these stimulus work that the government has done so far has actually had a positive impact or the desired impact, how quickly it may have taken shape. One example recently is that in cars and household appliances, it looks like the National Development Reform Commission told state broadcaster CCTV that the government will be rolling out some measures to boost that. I was just wondering if you can provide any kind of color you may have on that since you guys have talked about how household appliances saw some slowdown? Thank you. Okay. Well, I think the most recent tax relief for small business has just been announced very recently, just a few days ago. So the effect of that, obviously, we anticipate that to work through, but we haven't seen any actual effect yet at this point. But over the course of the last year, there's also some discussion on the lowering of the VAT rate itself as well as raising the tax exemption level for personal income tax, which improved the disposable income level, especially the lower income groups. We think that those will all work through. But the bigger point here is that the Chinese government is now getting quite sophisticated in terms of targeting the government measures more towards fiscal policy. We've seen in previous cycles that there is an overall sort of pumping of more liquidity into the system using monetary policy. But in the previous cycles that might have worked at previous sort of debt levels, but currently we have debt levels in the economy that's it's not extremely high, but it's sort of at a fairly high point. So the government is turning into fiscal policy to stimulate the economy. We think it's the right thing to do. We think tax cuts will be is right on point. And so we anticipate that these various cuts on both individual spending cuts that encourage both individual spending and also on small businesses will work through economy over time. Next question. Thank you. Next question comes from the line of Alex Yao from JPMorgan. Please ask your question. Hi, good evening management. Thank you for taking my question. Can you P and L impact from the recent Fan Bingbing scandal and the celebrity tax situation? Thank you. So, Ruvi, so the question is our content strategies the content spending strategy this year. And then how do we view the I guess, there's various scandals among the celebrities. How do we view that in terms of our for this business? We have very consistent content strategies, and we will closely monitor the effectiveness of these content strategies. And so far, as you said, I think the market is quite is cooling down. And I think this is good for the market and for the whole content market. And the cost of the production, the cost of the actors and actresses actually are reducing. I think this is good for the health growth in the future. And we will continue to monitor closely monitor the operating efficiency of the content production and the content distribution. And the key thing is like we want to leverage the user base several 100,000,000 on the consumer user base we have in the digital media and digital content area. Okay. Next question? Thank you. Next question comes from the line of Hansung Kim from Deutsche Bank. Please ask your question. Great. Thank you for the chance to ask a question. I wanted to follow-up on the Digital Media business. And I think, Daniel, you just mentioned that we have a fairly consistent strategy. But as we integrate this with Follett Pictures as well, how do we think about the KPIs for this business? And should we be anticipating that the current level of losses kind of continue or perhaps widen or perhaps narrow, just kind of a framing. What are the key KPIs that you generally care about for Hanjin, you were breaking off. So maybe you can I believe the KPI that you're looking for this business, right? Yes. The key focus of the KPI as the business gets restructured or merged with other pictures. Well, I think we focus on the user growth in our digital content business. So actually, we see quite robust growth of the number of subscribers this quarter in our content in our DME business. And I think that's very important that we can distribute the content to the broad based consumers we have in Alibaba family. And also we are trying to enhance our user experiences also to give them multiple consumption categories in both physical goods, in order of the physical goods, local services, as well as digital contents. Yes. So, I think just to supplement and also local services. So the entertainment business, we don't look at the entertainment business as a standalone business in terms of KPIs, because if you are offering good content and that increases retention for our e commerce business and also increase per user spend in e commerce or local services, that is cross selling and that improves the KPIs in our other segments. So we need to look at those KPIs as a whole. So thanks. Great. Thank you very much. Last two questions. Thank you. Next question comes from the line of Thomas Chong from Given that we have already achieved 50% in terms of the market share, what's our next milestone? And is there any timeline that we can think about the breakeven timing? Thank you. Actually, we have very clear cloud strategy. We are very happy to see the progress we've made. Today, we are obviously the market leader in cloud based in China. But if you look at the cloud market in China today, we still believe today is in the very early stage. In the digital era, every single business need to go to cloud. And also, I think we have when people have a definition of cloud, people have various I mean talk about various services. So actually, in Alibaba Ecosystem, we have already built a very strong cloud interrupt in terms of IaaS as service. But in terms of PaaS and in terms of SaaS, we also have a lot of expertise. And for example, our middleware and database services are very, very important, very critical in parts. And our retail technologies, actually our marketing technologies, our technologies in N Finance and our technologies in Cainiao are also relevant to all the financial institutions and the logistics companies. So, we are trying to share this SaaS based technology through our Alibaba Cloud into the market. And so that's why in our recent organization upgrading and we even renamed the BU of cloud into cloud and intelligence. So we believe cloud is not only about infrastructure. Cloud is all about data technology and data intelligence capability. So we want to share this data technology and data intelligence capability into the whole market. Okay. Operator, last question. Thank you. Next question comes from the line of Jerry Liu from UBS. Please ask your question. Hi, thanks guys. Appreciate the earlier comments on macro and regulation. I wanted to see if we can get some similar comments on the outlook for the advertising market this year, especially as some of the larger advertisers reset budgets at the beginning of the year? Thanks. Well, actually when we look at the advertisement market, actually we don't view this as a separate market. We view this as a part of our core commerce ecosystem. So today, most of the merchants, most of the brand partners, advertisers on our platform, they don't view us as only a sales platform and neither only a marketing platform. Actually, we are the only platform in the world, which people can tie marketing, tie branding into the end sales. So how to make this end to end value chain from brand building, from awareness into attention, into purchase and into loyalty customer. This AIPL is the customer lifecycle management opportunities we want to offer to our both merchants, brand partners and advertisers. So we are continuing to strengthen our unique role in this advertisement world. But again, we are not trying to be one of the advertisement platforms to our advertisers. We try to give them all in one ecosystem to help them to generate sustainable growth in the new digital era. Okay. Thank you everyone for joining. And if you have any questions, please contact the IR team at Alibaba. Thank you. Thank you. This concludes our conference for today. Thank you all for participating. You may all disconnect.