Earnings Call: Q4 2018

May 4, 2018

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March Quarter 2018 and Full Fiscal Year 2018 Results Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a Q and A session. I would now like to turn the call over to Rob Lynn, Head of Investor Relations of Alibaba Group. Please go ahead. Thank you, operator. Good day, everyone, and welcome to Alibaba Group's March quarter 2018 and full fiscal year 2018 results conference call. With us are Zhou 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 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 Form 20 F and other documents filed with the U. S. Securities and Exchange Commission. 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 also note that certain financial measures that we use on the call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, adjusted EBITDA margin, 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 call earnings press release. With that, I will turn the call over to Joe. Thank you, Rob. Thank you all for joining us. We had an excellent year in fiscal 2018. Overall, revenues grew 58% year over year and Taobao and Tmall GMV accelerated its growth from the 22% growth last year to 28% growth this year. I want to thank our team for a truly exceptional year. On these great results, I want to highlight a few things that demonstrate the success of our strategy and execution. There are 3 things worth noting. First, we gained incremental market share and a larger share of the consumer e commerce wallet despite the law of large numbers. How is that possible? Because through technology and consumer insights, we put the right products in front of the right customers at the right time. We also executed tailored strategies in supply chain, product and merchant curation and logistics for key categories including apparels, FMCG, home appliances and consumer electronics. The combination of our superior technology and operating excellence means that we can continue to achieve substantial growth at scale, conquering the law of large numbers. The second thing worth noting is that our new retail initiatives are substantially growing Alibaba's total addressable market in e commerce. In retail, we're anticipating changing consumer behavior and increasing expectations of quality and convenience, whether these consumers shop online or in offline stores. Through our proprietary technology and operational implementation, we're enabling our retail partners to meet and even exceed these consumer expectations and capture incremental sales and operating efficiency. In this process of digitizing the entire retail operation, we are driving a massive transformation of the traditional retail industry. It is fair to say that our e commerce platform is fast becoming the leading retail infrastructure of China. With this transformation, China's US5 $1,000,000,000,000 in retail sales will be available to Alibaba as our total addressable market. The third thing worth noting is that Alibaba is well positioned to capture more discretionary spend of Chinese consumers through entertainment and local service offerings beyond e commerce. Over the past year, we made substantial investments in our digital media and entertainment business. We strengthened our offerings in streaming content and subscription video services for an expanding viewership. We also made a key strategic acquisition to take full control of Alama, an online food ordering and delivering business that comes with a comprehensive local fulfillment and delivery network, which will help to power our new retail strategy. The substantial assets in entertainment and local services can leverage our user base of over 550,000,000 annual active consumers in e commerce. We're extremely excited by the potential flywheel effects of expanding the wallet share of these 550,000,000 users across our ecosystem, as well as the synergies and consumer insights that can be achieved through a platform built on the Alibaba technology infrastructure. Now I will turn the call over to Daniel for his comments about the quarter. Thanks, Joe. Hello, everyone, and thank you for joining our earnings call today. We delivered another outstanding quarter and the fiscal year. Today, our business is stronger than ever because of our focus on delivering unit value propositions to our customers. Over the past year, we achieved many important milestones across our entire businesses. We enjoyed exceptional revenue growth in our core commerce business. We are successfully activating new synergies between platforms and setting up solid foundations for next stage of growth in strategic areas such as new retail and globalization. We were guided and will continue to be guided by a long term forward looking approach to investing in new user acquisition, new technology and the creation of new retail experiences. As we have said from day 1, we work for today, invest for tomorrow and incubate for the future. Taobao continue to be the leading consumer media platform and the starting point of any retail journey for Chinese consumers. We achieved consistently higher user engagements due to AI enhancements that delivered greater precision and relevance in user experiences, both in merchandise selection and in the mix of digital contents. Mobile MAUs on our China retail marketplaces reached a total of RMB617 1,000,000, which grew by 22% year over year. Our successful new user acquisition campaign during Chinese New Year, which culminated during the annual televised CCTV Spring Festival Gala contributed a net increase of 37,000,000 annual active consumers this past quarter, largely from Tier 3, Tier 4 cities and rural areas. This was the largest user net add over the course of the last 13 quarters. Tmall continued to experience robust growth across all categories and it expands its market leadership. Physical goods GMV grew 40% year over year in this past quarter, mainly driven by accelerated growth in fashion and FMCG categories as well as robust demand in consumer electronics. Many brands launched on Tmall this quarter, including H&M, YSL Beauty and Valentino. Over the past year, Tmall has been able to solidify the growth market share through its unique value proposition to brands and reach new customers and to retain and serve existing customers online, offline. Market leadership and user share gains continues to be our priority for Tmall and we will continue to invest in our business. Over the past year, we made excellent progress in our new retail strategy. So both fostering in house innovations and investing in opportunities right for change. During this past quarter, we expanded into 2 new cities in China and added 13 new Hema stores, bringing the total store locations to 37. On average, more than 50% of orders processed by Hema stores were placed online for home delivery. We began to leverage proprietary in store technologies and the digitalized supply chain system incubated at Hema for deployment in select Sanar retail properties across China. Our acquisition of Ele. Me will expand our service offerings to include on demand food delivery. This is strategically valuable for strengthening user stickiness on our platform as well as our last mile delivery network range and penetration. Our investment in EasyHome is an entry point to redefine the home improvement shopping experiences to meet the needs of the rising population of middle class homeowners in China. We made great strides in our globalization strategy. Revenue for our international retail business increased by 94% year over year. Our cross border import business, Tmall Global enjoyed a 113% year over year growth in GMV this past quarter, driven by top selling categories of beauty, baby and maternity and health supplements. To further accelerate Lazada's development and market share growth, we successfully integrate our entire technology platform across the 6 markets into the main Alibaba infrastructure and we will invest an additional US2 $1,000,000,000 into the business. Our deep long term commitment to Lazada and the Southeast Asia market was further demonstrated by the appointment of Lucy Peng, Alibaba Co Founder and Partner as Chief Executive in addition to her role as Chairwoman. Over this past fiscal year, Cainiao made solid progress in expanding delivery network and improving industry wide operational efficiency and service quality through digitization. More than 90% of all delivery orders generated on our China retail marketplaces now use e way bills pioneered by Cainiao. Additionally, more than 70 logistic partners use Cainiao's logistic cloud service to improve efficiencies of collection and delivery services through data technology. Next day delivery service coverage expanded to 211 cities and nearly 1500 counties. For cross border service, successful system integration with all key ports of entry and exit in China ensures customer clearance are now processed in seconds and BotooDos then delivery between major global destinations is no more than 10 days. Our cloud computing business continued its rapid growth over the past year. Alibaba Cloud is a market leader for infrastructure as a service in China. Revenue grew 103% year over year this past quarter, driven by the growth of paying customers and the subscription of higher value added products. Our acquisition of C Sky Microsystems, a leading Chinese supplier of embedded CPU cores, together with our previous investment into this sector will solidify in house chip capabilities that will be integral to our cloud based IoT business strategy. We continue to introduce new product and service and features, including a perpetually edge computing software that enables the development of IoT ecosystems. We opened a new data center in Indonesia, raising our global presence to a total of 18 countries and regions. Our digital media and entertainment business continued to gain momentum. Subscribers on Youku grew over 160% year over year this past quarter, As we continue to gain consumers' mind share through acquisitions and developments of quality, licensed and original contents such as Hit Reality Show Street Dance of China. I also want to provide an update on our innovation initiatives. Auto Navi is now the largest provider of mobile digital map, navigation and real time traffic information in China with approximately 16,000,000 daily active users. Its digital map platform also serve as the infrastructure for many major mobile apps in a wide variety of sectors such as food delivery and rideshare. Our voice control assistant, Tmogini, positioned as a centerpiece in homes to serve the needs of day to day family life, has sold more than 2,000,000 units. The latest operating platform upgrade for tmogini is equipped with visual recognition capability in addition to Chinese voice recognition. As we surpassed a new milestone with a total GMV of 760 $8,000,000,000 for this past fiscal year. I remain confident that we are on track to reach our goal of $1,000,000,000,000 GMV by fiscal 2020. Looking forward, we will continue to invest in new user acquisition and expand consumer wallet share through category expansions of physical products, digital content and local services. We will continue to invest and further expand the considerable gains we have achieved in B2C market leadership this past year. China's commitment to import US8 $1,000,000,000,000 worth of goods in the next few years is a significant opportunity for our platform. We will work with producers and merchants to bring the best products from around the world directly to consumers in China. We will continue to scale new retail formats that we have been incubating such as HERMA. We will work closely with committed partners to transform and upgrade traditional retail formats, ensuring that they join 1st mover advantage in the changing environment. And as our customers digitize their business, we will provide comprehensive solutions to address their evolving needs across commerce, marketing, cloud computing and more. Cainiao will continue to focus on building a global digital logistics infrastructure and accelerate the development of smart delivery solutions to address the evolving needs of new retail. Last but not least, we will continue to invest aggressively in new innovative initiatives for the future. Now, I turn the call over to Maggie, who will walk you through the details of our financial results. Thank you, Daniel. Hello, everyone. We delivered another strong quarter and one of the strongest annual results since our IPO. In March 2018 quarter, major operating and financial metrics continued to record very strong results. Total revenue grew 61% year over year to RMB 62,000,000,000. Revenue from core commerce grew 62% year over year. Mobile MAU, our China retail marketplaces, reached $617,000,000 in March, an increase of $37,000,000 over December quarter. Annual active consumers on our China retail marketplace reached 552,000,000, the net increase of 37,000,000 from 12 months period ended December 2017, represents the largest net adds in the last 13 quarters. Revenue from cloud computing increased 103% year over year to RMB4.4 billion. Core Commerce EBITDA margin was 43%, excluding investments in new retail, investment in Lazada and Cainiao, core commerce EBITDA margin would have been similar to the previous years. Our non GAAP free cash flow was RMB 8,600,000,000 for the quarter compared to RMB 8,000,000,000 in the same quarter of last year. When we look at the quarterly revenue, for the quarter, total revenue grew 61% year on year. This was led by robust growth in our China Commerce Retail Business, Alibaba Cloud and International Commerce Retail Business. The consolidation of Cainiao and Yintan also resulted in greater revenue. So if you take out the revenue growth coming from consolidation Cainiao, our revenue would still have grown over 50% year over year. Cost of revenue excluding SBC was 30 $800,000,000 Excluding the effects of SBC, cost of revenue as a percentage of revenue increased from 37% in the quarter ended March to 50 March last year to 50% in quarter ended this month March quarter. The increase is primarily due to the cost of inventory in our new retail businesses and Lazada as well as investment in Cainiao and our spending growing user base and improving user experience. Sales and marketing expenses exclude SBC were RMB7 1,000,000,000 in the quarter. Without the effect of SBC, sales and marketing expenses, percentage of revenue would have increased from 10% in quarter, quarter ended March last year to 11% this quarter, primarily due to an increase in our discretionary advertising and promotional spending for user acquisition that led to significant increase in annual active buyer and MAU during the quarter. As a percentage of revenue without the effect of SBC, all other major operating expenses remained stable year on year. Let's take a look at the net income. So non GAAP net income in the quarter was RMB 14,000,000,000, an increase of 35% year on year. Reconciliation of non GAAP measures to comparable GAAP measures can be found in our press release. And by looking at this quarter's net income, GAAP net income, it shows a decrease of 33%. This is primarily due to non recurring disposal gain from sales of certain investments last March quarter. So that's if you take that out, that's the net income going to show growth of around 27%. So free cash flow. In March quarter, we generated CNY8.6 billion in free cash flow compared to RMB8 1,000,000,000 last year. As of March, cash, cash equivalents and short term investments were RMB205 5,000,000,000 compared to RMB 220,000,000,000 as of December last year. This decrease during the quarter was primarily due to cash used in investing activities, including investments in Quanda, Cinema's Easy Home and cash used to acquire additional shares of Yintai, partly offset by free cash flow generated from operations. Capital expenditures in this quarter were RMB 7,000,000,000, in which about RMB 1,500,000,000 related to the acquisition of Lenny's Horizon Construction progress. Let's turn to the segment report. Core Commerce segment had another strong quarter with revenue growth of 62% year on year. The robust performance was mainly driven by the China Commerce Retail Business that grew 56% year on year and represents 7% to 8% of the segment revenue. Let's look at the key components of China Commerce Retail Business. Customer management revenue grew by 35% year over year, driven largely by further increase in average unit price per click and to a lesser extent the volume of click. Increasing price per click was set our ability to deliver highly relevant paid search to consumers through personalization technology, which drove increased conversion. We're seeing higher average spending per merchants on our customer management services. The 35% growth rate of customer management revenue in March quarter also reflects a normalized growth trend as we take a measure of the approach to monetize. We continue to have multiple monetization levers that support our customer management revenue, including implementation, technology improvements, as well as ad load and inventory increases. Commission revenue grew by 39% year over year, primarily due to a strong 40% year over year growth in the physical goods GMV on Tmall. Other revenue was RMB 5,800,000,000, up over 1,000 percent year over year and represents the fast growth of our new retail business, which includes Hema, Timo Import and Inkay. Our core marketplace adjusted EBITDA margin was 43% this quarter as compared to 59% in the same quarter last year. Excluding the gross revenue accounts effect of new retail Lazada, Tanyong. Adjusted core commerce EBITDA margin was similar to that of previous years. Cloud computing grew 103% year on year. This is primarily driven by an increase in number of paying customers and increase in their usage of our cloud services. Digital Media Entertainment segment shows revenue of RMB 5,300,000,000, an increase of 34% year on year. This increase is mainly driven by increase in subscription revenue from UQudo and mobile value added service revenue from EasyWeb. Uku's daily average subscriber maintains strong momentum with over 160% year over year growth, driven by successful launch of several hits, reality TV shows and dramas. Adjusted EBITDA margin of the Digital Media and Entertainment segment was negative 49% this quarter compared to a negative 44% the same period last year. It was mainly due to the increase in content costs of Ikutodou. Revenue from Innovation Initiatives and Other segment was CNY 988,000,000 in this quarter. Adjusted EBITDA margin of this segment was negative 87%, primarily due to the investment in these new business initiatives. Let's take a look at the full year financial highlights. The total revenue growing 58% year on year to RMB 250,000,000,000 exceeding our original guidance in a big time. So even excluding the consolidation of Cainiao, organic revenue growth still remains strong growth at over 50% year on year growth, which is still much higher than the original guidance that I gave last June. The strong revenue growth is driven by robust growth of our core commerce segment and another year of triple digit revenue growth of Alibaba Cloud as it continues to drive market leadership. The core commerce delivered one of the strongest years since IPO with overall revenue growth of 60%. And GMV transacted our China retail marketplace in fiscal 2018 was about RMB4.8 trillion, an increase of 28% year over year. By the way, this GMV doesn't include the GMV from our new retail yet. So going forward, we will report new retail GMV on annual basis as well. The growth acceleration reflects Tmall's continued expansion in B2C market leadership with Tmall physical goods GMV growth growing at 45% year over year during the fiscal year. This number by the way is a lot higher than our competitors. Annual active consumers in China reached 562,000,000 and we talked about that strong growth, so that's the MAU growth. And our cloud computing business has doubled its revenue and has shown revenue of RMB 13,400,000,000. And our business has shown strong profitability and cash flow generation ability. For fiscal 2018, we generated RMB 99,000,000,000, which is US16 $1,000,000,000 in free cash flow, compared to US69 $1,000,000,000 in fiscal 2017. Today, now let's take a look at the margin. I know a lot of people have question on margin and how we look at the margin. If we step back and look at core commerce on pure like to like business year over year, we would have enjoyed improved margin of core commerce EBITDA margin. When you look at this table, if we exclude new strategic initiatives, New Retail China and Lazada, adjusted core commerce EBITDA margin would have been 63% versus 62% for 2017 fiscal, reflecting operating leverage. This 63% margin already reflects a year on year step up in investment within pre existing China retail marketplace business, I. E. Our spending on user experience, B2C market leadership expansion. This investment has led to faster user growth and greater market leadership gain for China Marketplace. And the development of new retail business will have different financial and margin impacts to core commerce over the next several years, because passive for new retail revenues are accounted for on a growth basis, where we operate, own and sell inventory directly. By the way, please note that this is not same as a traditional brand sale first tee business, because the reason we're doing this is to figure out the ways to improve the efficiency of the whole retail value chain is for the restructure and transition of this retail field. And later on, we're going to use this methodology to enable use our technology to enable the offline retailers to reform their business. So this is our create new and reform old new retail strategy. And we expect new retail to become a more meaningful revenue contributor to the core commerce over long term. And when you look at the increasing mix of new retail revenue, this will structurally change the margin profile of core commerce segment. However, we believe new retail will have a more meaningful profit contribution to core commerce. Sustainable profit growth. So instead of a blended margin rate, which is not meaningfully understanding the true profitability of our business, we're focusing on growing our business and absolute profit, which we think investors should focus on as well. Back in fiscal year 2014 to 2016, even during a period of investments, we were still able to deliver strong and healthy EBITDA growth of over 40% in past 2 years. We had gone through a period of investment to expand our mobile strategy in 2015 2016 fiscal that had proven to be very successful. Our further investments in technology and content for the ecosystem over the last several years continue to improve monetization and added significant value to our customers and users and to our profit growth. Looking ahead, we continue to be very excited about Alibaba's growth prospects. We expect revenue growth for fiscal year 2019 to be over 60% year over year. Excluding the consolidation of Ele. Me and Cainiao network, because Cainiao, we only had half year revenue last year. We expect revenue growth for fiscal 2019 to be over 50%. We have shown a track record of delivering robust profit growth by identifying new growth opportunities that is supported by solid execution. We will continue to invest our operating free cash flow to generate long term sustainable profit growth. That concludes our prepared remarks. Operator, we're ready to begin the Q and A session. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from the line of Eddie Leung from Merrill Lynch. Go ahead. Please ask your question. Good evening. I have a question on new retail. Could you give us some insights on how the operating and financial metrics of some of your more mature Hema stores comparing with the best in class offline retailers in the same category? Thanks. Thanks, Eddie. Let me add more color on the Hema store operation and your question about new retail. Actually, when we plan the Hema model and what we want to achieve that is that we want to build a new retail format, which is which can have more efficient operation for food and fresh products and FMCG products. And so today, what we have seen is that, as I said in my script that we generated 50% of the orders in Hema's store and which are from mobile users and the products are fulfilled by Hema store and deliver to their home, which means by this way we extend the Hema coverage of the customers and improve the store operating efficiency, because as you can imagine that the fixed cost operating cost for a store is remain stable, while if we can have extra coverage to the consumers, not only in the store, but also nearby, And we can generate orders and via this mobile reach, this especially help us to improve the operating efficiency and improve the productivity of the stores, which we strongly believe is very good for these for the radio business. And the second thing is about the delivery costs. Actually today, when we build our Hema model, what we want to achieve is that we want to upgrade the e commerce logistics from a hub and spoke model to a more, I mean, an integrated offline online integrated, registered for film model. Today, when we generate the orders from online and people expect a on demand delivery to home. And but why we can achieve that and when people may know that we can achieve that even within 30 minutes is because we can fulfill by the nearest store and people can get their product as they expect it on demand. So I think that's the other advantage of this new retail format. Thank you. Got it. Thank you. Operator, next question. Your next question comes from the line of Grace Chen from Morgan Stanley. Go ahead. Please ask your question. Yes. Thank you. Thank you for taking my question. My question is about the drivers for strong growth in revenue in the coming fiscal year 2019. In the beginning of fiscal 2018, I remember that the management made it clear that Alibaba will focus on market share gains and reacceleration of GMV growth. And the result was great because we see Tmall deliver very strong growth in GMV and then we also see reacceleration in user growth. But at the same time, we'll also spend more to improve user experience. So as we enter fiscal 2019, I'm wondering whether market share gains will continue to be on top of your priority, so we will continue to see you guys spend more aggressively. Thank you. Okay. Grace, thank you for the question. So we guided over 60% year on year revenue growth for fiscal 2019. That strong growth is going to come in from pretty much all the businesses, mainly our core commerce and Ali Cloud. So of course, we're going to continue investing to expand our B2C market leadership. And at the same time, our strategic initiatives will also drive the growth. And the people may ask about the 60% seems to be very high. You have newly added businesses. So that wouldn't be apple to apple. That's why we gave a 50% year on year growth if you take out RoLima and partially Chinao, Chinao is only consolidated half year last year. And then for new retail initiatives, that also contribute to the revenue growth. However, if you look at the core the China retail revenue, that new retail only accounts for somewhere about 10% of total. So main revenue growth can still coming from our core China retail commerce. Hey Grace, this is Joe Tsai. And your second question about whether market share gains will be a priority. I think with our new retail initiatives, the definition of the market has expanded into $5,000,000,000,000 of retail sales in China. So that's our total addressable market. So of course, we would prefer to see this as a market further market penetration on a much bigger TAM. But having said that, we're going to be extremely competitive when it comes to competition and your traditional sort of perspective on market share gains. Operator, next question. Your next question comes from the line of Alicia Yap from Citigroup. Go ahead. Please ask your question. Hi. Good evening, management. Thanks for taking my questions. I wanted to ask in terms of can you remind us how much you have budgeted to spend on the various investments, for example, the amount or the percentage on the user experience improvement, your user acquisition, your globalization, your new retail and even for the digital content as well as the China logistics. In addition to that, from the consolidations of Ele. Me, how much should we be expecting that you're going to invest to spend further on the Ele. Me? So any color that you could give us in terms of the rough dollar amount or the percentage would be helpful? Alicia, your phone is breaking up. Maybe you can restate your questions more clearly and let me take just one question. Yes. So, hi. Can you hear me okay now? Yes. Okay. Yes. So, I think my question is regarding the budget. Like if you can give us some color in terms of the areas of the investment that you guys will be planning to for fiscal 2019 in areas that you have been talking about, which is the user acquisition, globalization and all these new retail and also Ele. Me that would be helpful. Yes. Alicia, I think you're asking about our spending in 2019. Okay. 1st of all, let's take a look at the spending in 2018, right, where we talk about new initiatives and while we still have operating leverage on the core, core. So when you look at our slides where it shows the margin analysis, We had 62% margin last year and for the core, it shows 62% and then our investment turns percentage point on these new initiatives. So and regarding the spending in 2019, I think we're going to continue invest in these areas because these are strategic important business areas that it won't just last 1 year investment. So new retail, China, Lajada, U. S. We're going to continue to expand the business by investing. And how much? That's the question basically talking about margin. Again, like I said, our focus is to expand the business and put the absolute profit growth rather than looking at a margin. Having this new retail kicked in and becoming more important, Our margin structure may shift. However, the profit growth, we expect to be sustainable and healthy in the longer term. Okay, great. Thank you. Operator, next question. Your next question comes from the line of Gregory Zhao from Barclays. Go ahead, please ask your question. Hi, management. Thanks for taking my question and congratulations on the strong quarter and strong guidance. So I have a quick question on the advertising business side. So the personalization algo, I think substantially dropped your advertising revenue growth last year. So would you please give us an update of your recent progress or development of your customer management and your advertising and marketing business? And what kind of new algo or some new advertising format like news ad newsfeed ad you may launch this year to, I mean, utilize your user traffic or ad inventories and especially considering the high comp of your customer management revenue growth in fiscal 2018? So can you share some like outlook and growth trend of your advertising and customer management revenue growth for this year? Thank you. Sure. For the customer management revenue growth, you've seen us for the last fiscal year, the 1st two quarters shows very high growth rate that we talked about mainly driven by the algorithm changes. And now that change reaches anniversary. In March quarter, we had several initiatives to improve merchant ROI. For example, we talked about Chuxin, right, where consumer can enter into the stores without click on product listing. This is kind of a giving back returns to merchants. This could lead to less click, but at the same time could help on GMV. So when the customer management revenue growth may slow down a little bit, commission revenue could go faster. So people should look at our overall revenue growth rather than just one line of the revenue growth. And for future customer management revenue growth, we are confident about our value provision to merchants, given the data technology and efforts and user experience and merchants ROI. We do have reserves, technology reserves in the pipeline that we're going to update you later on at due course. Thank you. Thank you very much. Next question please. Next question comes from the line of Filus Mubayi from Goldman Sachs. Go ahead. Please ask your question. Thank you for taking my question. Congratulations on your guidance, Maggie. It was very strong. I had a question on CDRs, if you could comment on CDR, any plans there? Also, if you could comment on the growth you've seen in Ant as the quarter ended, if possible, now that it's a 33% owned entity? And if you could confirm that too. Thank you. Satish, you're asking for CDR progress, right? Yes. I can share with you that we are actively exploring possibilities of a CDR listing in China in all aspects. Right now, we don't have any timetable or details to talk about. We'll update you later on. Is there any update with us the process that it entails? Yes, like I said, I think that we're very actively exploring how to compact the possibilities and how to implement that return to China project. Thank you. So, Piyu, on the your question on the Ant Financial, we are we have not closed on the conversion of our equity stake into Ant Financial yet. And we are currently not going to give guidance on the growth of that business. But having said that, just qualitatively speaking, we've seen a very robust acquisition of users and also engagement of the users on specifically on the Alipay Wallet platform over the last two quarters and has been very aggressive extending into not just the online payments, but also offline using a mobile device offline in offline establishments. And we're very encouraged by those developments. Yes. Maybe Biju, adding to the CDR discussion, right now there is no basically no detailed rules coming out, rules and regulations. The only thing came out is the end of March, a state council had the CDR guidelines. I can share on the principle of this CDR thing is that we would only come back if this is going to help our development business development and expansion of our business and consumers. The other thing is that we're going to make sure that our investor interest get protected. Thank you. Your next question comes from the line of Alex Yao from JPMorgan. Please ask your question. Hi, good morning and good evening everyone. Congrats for a strong quarter and a very strong revenue guidance for FY 2019. I have a question on Southeast Asia growth strategy. Apparently, this is early stage market with a low e commerce penetration and already some local competitors in the space. What does it take to be the winner in this market on a 3 to 5 years' view? And what incremental resource you need to put in to make that happen? Thank you. Yes. As you said, actually the Southeast Asia market, I mean, today is in a very early stage in e commerce growth. And but we have very strong commitment in this market. As we shared in this morning and we accomplished the technology re platform and basically we upgrade the entire I mean Lazada's platform with Alibaba infrastructure. And we also send not only Lucy as CEO and Chairwoman of Lazada, but also we send our best people in Alibaba who has a tremendous operating experience and technologies and to Southeast Asia market. And what we expect is that again, this is all about to build a new ecosystem in a new market and to build the infrastructure, for example, the payment infrastructure, logistics infrastructure and the partnership and in this market. So we are actually we are forward looking and we will remain confident to grow I mean to achieve the high growth in the market I mean in the future. And we were also very commitment, it's very committed to invest and continue our investment in this market. Maybe Daniel, I'll just add a little bit more color on the Southeast Asia. I think if you look at specifically, you look at one of the largest markets like Indonesia, total industry GMV is going to be less than $10,000,000,000 this year. And so, we're really at the not probably the first pitch of the first inning of the game. It's very, very early to tell, too early to tell really. But to your question of what it takes to be successful, I think if you look at it from the user experience standpoint, also from the merchant standpoint, as Daniel referred to, we have just completed our re architecting of the technology platform, which will enable us to very quickly launch products, user facing features and products on the mobile platform. And that would lead to better user experience and very quick response to the market changing dynamics. On the merchant side, many of the Southeast Asian countries are not large or strong manufacturing countries. So the promotions are still looking for sourcing opportunities back to China where there is a manufacturing base and that's where we feel we believe that having a connection to China, the manufacturing base here with the Alibaba relationship would be very helpful to these merchants. Next question. Operator, next question. Next question comes from the line of Mark Mahaney of RBC Capital Markets. Go ahead. Please ask your question. Thank you. Daniel, you mentioned artificial intelligence, AI investments. Could you at a high level talk about the application of AI across all of Alibaba maybe with a 5 to 10 year perspective and talk about the potential impact of artificial intelligence on the business, both in terms of cost efficiencies and in terms of either new revenue opportunities or greater personalization of the services? You've got such broad platforms, multiple platforms at such scale. I would think there'd be enormous opportunity for AI, but it's hard sometimes to figure out what it would actually look like. So any color you have on what kind of impact you could see on both the cost side and on the revenue side from the application of AI? Thank you. Actually, we have such a extensive, I mean, ecosystem. We have a lot of business use cases, which are relevant to AI technology. But to us, as we always said, AI is not about the future. AI actually, we have been working for this, I mean, apply AI technologies. Maybe previously we never called this AI, but we apply these data driven technologies to our real business for many years. And that's also the reason why we can enjoy such a robust growth in the past few years. And going forward, we will continue our investment in AI and apply the technology to many business areas such as the user experiences, such as the I mean advertising products and services. But I have to say that this is not relevant to the consumer interface, but also highly relevant to the many other aspects of the business. For example, the supply chains, the supply chain management and how to enable the flow of the inventories more efficiently and with the data and with the intelligence of the customer demand and how to even produce the products, which can not only meet the existing demand of the clients of the customers, but also create the new demands. So it's all relevant to AI. Having said that, actually we have the broader business cases to apply AI technology. We will fully leverage what we have today to continue to not only develop the technology, but also generally try to generate the real business economics from the technology. Thank you, Daniel. Operator, next question. Your next question comes from the line of Youssef Squali from SunTrust Robinson. Please ask your question. Thank you very much. In terms of the new retail, can you just help us contrast and compare your strategy relative to your main competitor in the market, where you think you have sustainable competitive advantage? And Joe, very quickly, as a global player, what is the risk to BABA from this trend of Verizon protectionism worldwide, especially with the potential of the trade war between China and the U. S? How does Alibaba protect itself? Thanks. In terms of the new retail strategy, actually this is the core one of the core strategies for Alibaba And we strongly believe we have big advantage in structuring and executing new retail strategy. First of all, actually we had the during the past, I mean, 19 years, we have built up the largest, I mean, consumer retail marketplaces, which is the largest consumer interface and which I think we have so many consumers around us and we know their behavior, we know their preference, we know their demographics. And today, all these I mean, consumers are not people living in the air, but they are everywhere. So when we go to the offline, when we talk about new retail, talk about integrated omnichannel operation, this which the data the consumer data we have, the consumer interface we have, we bring us a lot of insights and possible to impact with them in the integrated operation. 2nd is that we have been operating the retail marketplaces for so many years and we have experienced not only to connect people, but also to create the retail to create the value and for our merchants as well as our customers. So today, we're working very we are working very hard, not only to actually to develop the online platform, but also to incubate the new retail formats and enable the existing retail formats to be upgraded. I think that's actually exactly what we do and we strongly believe that with this, I mean, technology and together with the retail experiences we have and we can bring our retail partners a lot of space to grow. In terms of how the trade war will impact our business or broadly just overall economy, You could view Alibaba as a very large platform for producers from all around the world to access Chinese consumers. Now we have over 550,000,000 annual active shoppers on our platform. That's a very attractive platform for these brands and retailers and producers including farmers, SMEs to come. Now the trade war right now is really just between the United States and China. So it's really limited to that trade flow. So when Chinese consumers look abroad to buy things from overseas, there could be replacements. So for example, if we can't import food items from the U. S, we could be importing food items from Southeast Asia, from Thailand, Malaysia, from Taiwan, where they grow a lot of fruit. And so there will always be alternative channels for us to bring in imported products to satisfy Chinese consumers. So we are obviously a trade war is not good for anybody. And in particular, we feel we've already publicly communicated been very public on that to say that the trade war actually will hurt small businesses in the United States. And but our Chinese consumers are going to find alternative ways to bring imports into the country through our platform. Great. Thank you, Bill. Operator, last question. Last question comes from the line of Jerry Liu of UBS. Please go ahead, please ask your question. Hi, thank you. My question is around the investment in Bivio and payments over the next year. We've heard from your major competitor about incremental investments there. So can we think about as you gain scale in those areas, do investments into margins improve or can we still see a longer period of investment? Thank you. We have very strong commitment in digital media entertainment sector and we don't view this as a separate new business. We view this as a category expansion for our existing and newly acquired customers. So this is an integral part of our ecosystem. And as we always said, for Chinese people and when their lifestyle changing and their life quality changing and upgraded, they not only need more physical products, vocal services, but also they need more digital contents. So that's why we enter into this area and we think this is to meet their growing demand, I mean, for today's 550,000,000 annual active shoppers, but tomorrow I think this will also bring a very important stickiness for our customers to stay along with us. Okay. Operator, that is the last question. Thank you everyone for joining today's call. If you have any questions, please refer to our IR website and contact the IR team. Thank you. Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may now all