Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's June quarter 2017 results conference call. At this time, all participants are on listen only mode. After management'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, everyone, and welcome to Alibaba Group's June quarter 2017 results conference call. With us today are Joe Tsai, Executive Vice Chairman, Daniel Zhang, Chief Executive Officer, Maggie Wu, Chief Financial Officer. This call is also being webcast from our IR section of our corporate website. A replay of the call will be available on the 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 risk 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. 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 note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, non-GAAP net income, non-GAAP diluted EPS, 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. With that, I would now turn over to Joe.
Thank you, Rob. Thank you all for joining us. I was wondering what I would say on this quarter's earnings call. The first words that jumped to my mind was that the numbers speak for themselves. In short, we had a great quarter. However, I want you to know that these exceptional results did not come from anything specific we did during the quarter. The reason we are able to deliver these results is that we sowed the seeds years ago by investing in technology, by investing in innovation, by investing in people, and by being bold with a vision that nobody thought was possible. Today, the Alibaba economy is self-reinforcing, and it is as strong as ever. It is in this spirit of vision that I want to share with you a couple of things to look forward to in the future. First, let's talk about New Retail.
The macro way of looking at the landscape is e-commerce accounts for 15% of total retail in China. The retail segment in China is about a $5 trillion U.S. economy in value. 15% of e-commerce still leaves 85% of retail that is offline. Whether this is just something to look at or presents tremendous opportunities for us depends on our ability to innovate. Our goal is not to simply ride a wave of converting purchases from offline to online. Our New Retail strategy is an invention that anticipates and catalyzes changes in consumer behavior, where time, place, and method of purchase and consumption will be different from what we were used to before. In this new world of consumption expectations, the distinction between online and offline would disappear. I'll give you a couple of examples.
In traditional retail, the shopper goes into a store and buys what's only available on the shelf, and they come away with bags of stuff that they have to carry home. Imagine a store where you can pick items from the shelf and then at the same time purchase other items, not from the shelf, but from your mobile phone. Then you tell the store to send everything you just bought to your home because you need to go to catch a movie. Another example. You buy groceries from your nearby supermarket. You only shop for what you need for dinner that night because you have no idea what you want to eat for the rest of the week. The next day, you remember seeing something from the same store, but you had no time to go because you had to rush home.
You order on your mobile phone on the way home. The same store, that is the one that you visited yesterday, is the same store that handles your online order today and delivers the item to your home. That's the kind of spontaneity, convenience, and speed that modern-day consumers are going to expect. Alibaba is setting the standard for fulfilling this high expectation. What makes New Retail possible are Alibaba's scale, technology, consumer insights, and ability to innovate. With New Retail, satisfying ever-increasing consumer expectations is no longer an incremental gain. It is a disruptive gain in the sense that you will have to disrupt e-commerce first and embrace the physical world. Next, I have a few words about the Alibaba economy. Alibaba has a number of businesses, from commerce to cloud computing to digital entertainment.
As a financial reporting matter, we break out our business into segments for transparency and ease of investor understanding. In addition, we have affiliate companies and investees in financial services, logistics, and local services. I have no doubt that you're interested in the P&L of those businesses. We show that to you very clearly in our reporting. As an investor, your perspective is how you put a value on each piece of the business in order to understand the value of the entire company. That's not how our customers look at us. As a platform, the question we need to focus on is how do our businesses work together to create more value for consumers and enterprises than if these units were just standalone entities.
Synergy creation is easier said than done, Our management needs to have both strategic vision and execution discipline in order to achieve synergies. What unifies the businesses in the Alibaba economy is our mission: to make it easy to do business anywhere. We believe the path to value creation becomes extremely clear when we focus on a single mission. In the next five, 10, 15 years, you will see an unfolding of how we execute the New Retail strategy as it becomes an integral part of the Alibaba economy. Shareholder value will follow when we create value for our customers. Understanding this is important to understanding a long view of Alibaba. Now I will turn it over to Daniel for his comments.
Thanks, Joe. Hello, everyone, Thank you for joining our earnings call today. We delivered another set of exceptional results this quarter, which we believe is a clear reflection of the tremendous appeal and potential of Alibaba's platform economy. The robust revenue growth in our core commerce business is driven by our continuous innovation in data technology, improvements in algorithm, Widespread application of big data. It is also propelled by our customers' increasing appreciation and validation for Taobao and Tmall's unique value proposition as consumer media and customer management platforms. Mobile Taobao is a Chinese consumer's leading destination for online shopping, The total MAU for mobile apps which access to our China retail marketplaces has grown to 529 million. No other commerce app in the world compares to Mobile Taobao's consumer engagement and user stickiness.
Our user stickiness, measured by the DAU divided by MAU ratio, continues to remain above 40% due to our relentless focus on more content and community-driven engagement on the app, allowing consumers to enjoy the fun of discovery and exploration. We not only satisfy existing user needs, but more importantly, we are able to stimulate new demand. As the user experiences has become more content driven, a community of consumption-related content generators, such as influencers and key opinion leaders, have merged alongside buyers and sellers in the ecosystem. Through personalized data-driven user content features such as Taobao Headlines, livestream, and short-form videos, consumers are exposed to a wide range of content and are inspired by product recommendations during the course of content engagement. As such, we started our journey in fulfilling the existing needs of users, but have since developed the ability to stimulate new consumption demand.
Tmall enjoyed rapid growth this quarter Gained market share in B2C market with 49% year-on-year growth, GMV growth for physical goods. We continued to solidify market leadership in fashion and accessories, Also saw year-over-year growth of 50% and 57% in home electronics, including mobile phones and FMCG categories respectively. We are very pleased by the overwhelming positive response from consumers to our proactive marketing and user engagement strategy. Moving forward, we will continue to prioritize market leadership and share gaining for Tmall. We intend to fully leverage the competitive advantage of our marketplace platform being a profitable business, Reinvest these profits into new user acquisition and customer satisfaction, including exceeding customers' expectation in delivery and after-sales services. As our B2C business expands market leadership, we are pursuing a wide range of retail innovations and transformations in our New Retail initiatives.
The successful privatization of Intime Group is part of our strategy for transforming the department store shopping mall retail experiences. At the same time, we have created New Retail models like the incredibly popular Hema Supermarket by redefining the key components of traditional retail: customer flow, merchandise, space, which attracted much attention throughout the industry. We made solid progress in our globalization strategy. Our international commerce retail business reached meaningful scale and revenue grew 136% year-on-year on the strength of AliExpress and Lazada. We continue to be confident in the potential and growth of the Southeast Asia market, increasing our ownership in Lazada to 83%. We also led the latest round of investment in Tokopedia, one of the leading C2C marketplace platforms in Indonesia.
Our cloud computing business continues to enjoy high growth at scale, with annualized revenue well exceeding $1 billion USD, while paying customers surpassed 1 million, an important milestone. In a landscape where every industry is seeking to migrate to the cloud, we believe 1 million customers is merely its starting point. Our digital media and entertainment metrics has made significant progress in improving operational efficiency and user experience by leveraging Alibaba's proprietary technology platform. Investments in content acquisition and production following our acquisition of Youku are starting to bear fruit. Exclusive content and variety shows have been very effective in attracting new paying customers to Youku, in addition to providing new opportunities for advertising and other commercial innovations. In closing, a few thoughts. Over the past few quarters, we have consistently delivered superb results, and the market is gradually recognizing the significant value created by Alibaba economy.
This is a result of our unwavering focus on the long-term strategy and a persistent innovation, coupled with a capability to consistently translate ideas into reality through strong execution and create real value for our customers. Alibaba will soon be celebrating our 18th anniversary. We will continue to invest and plan for the future, and we are committed more than ever to build a data-driven infrastructure for commerce in the area of the digital economy. 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 quarter of excellent results. Here are some financial highlights. In June quarter, major operating and financial metrics recorded strong performances. Mobile MAUs, our China retail marketplace, reached 529 million, and representing a net add of 22 million over March quarter. Our core marketplace revenue grew 58% year-over-year. Number of paying customers of our cloud business surpassed 1 million. This is a very important milestone. Cloud computing revenue grew 96% year-on-year, and the segment adjusted EBITDA margin narrowed to -4%. Our non-GAAP free cash flow was $3.3 billion USD for the quarter, demonstrating the strong cash generation capability of our business. Look at the quarterly revenue. For the quarter, total revenue grew 56% year-on-year. This was led by robust growth in our core commerce business and Alibaba Cloud.
The primary contributors to the core commerce revenue growth were new users, increased traffic, and the effects of personalization, which we discussed with you at the Investor Day. We will come back to the underlying growth drivers for each business in more detail in the segment discussion. We continue to deepen our user engagement, this is demonstrated in our monetization growth. Our mobile commerce platforms have become the destination for social commerce, consumption of content, and brand engagement. Look at the quarterly cost trends. Cost of revenue excluding stock-based compensation was RMB 16.3 billion. Gross margins improved year-on-year due to operating leverage despite our investment in Lazada inventory costs, significant investment in digital media content, and an increase in Tmall Supermarket logistics related costs. These are areas where we will continue to invest, the cost from time to time may outpace operating leverage.
As a percentage of revenue, all major expenses decreased year-on-year, reflecting operating leverage of our business. Non-GAAP net income in the quarter was RMB 20 billion, an increase of 67% year-on-year. We continue to generate significant free cash flow. In the June quarter, we generated RMB 22.1 billion or about $3.3 billion in free cash flow. Our free cash flow allows us strategic and operational flexibility to invest in technology and acquire the resources to accomplish our goals. At the end of the quarter, our cash equivalents, and short-term investments were RMB 148 billion or close to $22 billion, slightly increased from the end of March quarter. This is primarily because of our strong free cash flow generation from operations offset by in-kind privatization, acquisition of the additional shares of Lazada, and investment in Hema and Lianhua Supermarket.
Capital expenditure in June quarter were RMB 3.6 billion, in which RMB 3.2 billion related to the non-real estate CapEx and intangible assets. Look at the segment reporting. For core commerce, our core comm segment had an outstanding quarter with revenue growth of 58% year-on-year. This was led by China retail marketplace growth. The China retail marketplace revenue accounted for around 85% of the segment revenue. As I said, the primary contributors were new users, increased traffic, and the effects of personalization, which is the digital technology we talked about all the time. More specifically, these factors contributed to an increase in conversion rate and the volume of clicks. Commission revenue grew by 28% year-over-year, while Tmall recorded 49% year-over-year growth for physical goods GMV for the same period.
The relatively lower growth rate of reported commission revenue was primarily due to the netting off of expenditures against commissions paid by merchants as a result of new promotion initiatives for customer acquisition and retention. Our China retail marketplaces had 466 million annual active consumers at the end of the quarter, representing a net addition of 12 million from the prior quarter. Average annual spend per active consumer increased from prior quarters. We continue to see that the longer consumers have been with our platform, the more they spend and the more orders placing across more product categories. Our cross-border and international consumer businesses continued to exhibit robust growth during the quarter. During the quarter, we increased our ownership in Lazada to 83%, reflecting confidence in our commitment in the long-term potential of this business in the Southeast Asian markets.
Our core marketplace adjusted EBITDA margin of the segment slightly improved to 63% this quarter, reflecting operating leverage achieved, offset by the acquisition of Intime in May and an increase in cost of inventory of Lazada. As I said earlier, we will reinvest these profits back to continue to provide competitive offerings to consumers and maximize consumer satisfaction. Alibaba Cloud reached a key milestone, exceeding 1 million paying customers, and the cloud revenue grew 96% year-over-year. This is driven by robust paying customer growth and also improving revenue mix of higher value-added services. Adjusted EBITDA margin of the cloud computing segment improved from negative 13% to negative 4% this quarter. Our digital media entertainment segment revenue in the June quarter was 4.1 billion RMB, an increase of 30% year-on-year. UCWeb maintained a robust growth driven by its value-added service, such as news feeds and mobile search.
The slower year-over-year growth of digital media entertainment revenue in this quarter reflected the full effect of Youku Tudou consolidation in May 2016. We will come to the anniversary. We are focused on investing in both contents and products in Youku video business to improve user experience and drive subscription growth. The investment resulted in strong daily average subscribers growth that increased over 100% year-over-year during the quarter. We believe subscribers' growth will continue at a relatively fast pace. Adjusted EBITDA margin of this segment was negative 43% this quarter. Compared to prior year's quarter, there was an increase in the negative margin, primarily due to an increase in content costs of Youku Tudou since the second half of fiscal 2017. We will continue to increase our competitive position in digital entertainment through a combination of licensed premium contents as well as self-produced and jointly produced programming.
Revenue from innovation initiatives and other segment increased 21% year-on-year. Adjusted EBITDA margin of this segment was negative 98%, reflecting ongoing investments in our new business initiatives. Looking ahead, we remain optimistic about the growth perspectives of fiscal year 2018, driven primarily by robust growth of core business and cloud computing. Based on solid performance so far this fiscal year, we reiterate our fiscal year 2018 revenue growth guidance range of 45%-49%, which we provided during our Investor Day in June. We will continue to invest incremental profits to improve user experience and expand consumer base. We expect to step up investments in the second half of this fiscal year to further gain B2C market share, as well as developing our new businesses. Our cloud computing business enjoys first-mover advantage, and we'll keep expanding our market leadership by continuously providing value-added services.
Our technology advantage and the team's strong execution have strengthened our market position. As reflected in expanding customer reach, spanning many industries, deepening existing customer relationships, and increasing adoption of innovative and value-added products by customers. In the future, we will see more and more synergies between digital media and entertainment and our core commerce business that complement each other in terms of consumers, content, and commercialization. We have seen early success and will continue to leverage the cross-selling opportunities between the two businesses presented by the vast consumer base of our ecosystem to drive long-term value. I would like to reiterate that Alibaba is a company that always invests for the long term and invests for future. We will continue to provide value to our customers through technology innovation and consumer insights to ensure healthy and sustainable growth of the Alibaba economy. That concludes our prepared remarks.
Operator, we're ready to begin the Q&A. Thank you.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or the hash key. To give more people the opportunity to ask questions, please keep to no more than two questions at a time. Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your first question comes from Piyush Mubayi of Goldman Sachs. Please ask your question.
Thank you for taking my question, congratulations. On customer management revenue, that's a huge number you've gotten for the quarter. How much of it has been contributed by the new Uni Marketing product? How much of it is because of the complete change in how brands are perceiving the value you're providing? How much of this is still dependent on pay click, that I used to think about in the past? That'd be greatly appreciated.
Hi. Thanks for question, Piyush. For our growth in our customer management revenue, the Uni Marketing efforts actually right now is still in the initial stage, we don't see significant contribution from Uni Marketing right now. I think that, as I said, the growth driver actually are mainly coming from the new users and increase of traffic and the effect of personalization. This is not just a one quarter's effort. It's over time. I would like to mention about that a year ago in September, we made a technology change to enhance personalization. When we get to anniversary of that change later this year, things will be more normalized and overall revenue will be in line with our revenue guidance.
Okay.
Hope that answers your question.
Was there any other reason why you saw such a sharp acceleration in the quarter versus the prior quarter?
Yeah. Actually, prior quarters, we also see quite strong growth. Talk about the current quarter, main reason is that more merchants who are paying more, right? What are they paying for? That is the growth of new user and also the technology dividend we've get from the personalization enhancement we launched last September.
Piyush, maybe let me add to that. If you see that our monthly active users have grown by 22 million sequentially to 529 million. That means the number of people coming to our platform in the e-commerce context to look for things, to also consume content. As we become more of a content-rich app, the people are becoming more engaged. You now have the effect of more users that are more engaged on a daily basis, which has the effect of obviously increasing the clicks. The other effect of increasing clicks is what Maggie discusses, the personalization, where we use AI technology to improve the content that people see so that they are more personalized to you, the shopper, and that also increases the clicks. Those are the effects.
Thank you. Moving on to the next question. It is from Eddie Leung of Merrill Lynch. Please ask your question.
Good evening. Thank you for taking my questions. I have a follow-up question on a topic the management team addressed in the last quarterly result call. I remembered the management discussed a bit on how to help the small and medium-sized merchants, especially those started their online shops perhaps early on Taobao, to handle these changes in the New Retail era. Just wondering if the management could give us some update on some of the initiatives you guys have been implementing and thinking about. Along the same lines, I think, Joe, you mentioned about the New Retail strategy. Is it fair to assume that at the beginning, we would be looking at the benefits mainly going to the large merchants which have their offline as well as online presence rather than the, again, the SMEs?
If so, how should we think about the long-term benefits, not only limited to the large merchants, but also to the SMEs? Thanks.
Okay. Thanks, Eddie. This is Daniel. Let me answer your question. I think for the first one, actually, Taobao is a marketplace, not only for the big customers. Actually, Taobao focus on small business, and this is our mission, to help small business to do business easier. All we do is to innovate in product tools and service tools to empower the small business to do this easier. Today, what we do is that we develop a very successful user interfaces in content, in data-driven. I think today for small business, if they have unique products, they can create a unique content. They can have enough exposures to acquire new customers. Let me take example of our Taobao Maker Festival. We hold this event.
Actually, this is second year we hold the event. This is a very successful event. We have a lot of small business and young startups. They create business in Taobao. They produce very unique products. Because of the technology innovation, because of product innovation, now they get the tool to display their unique product to their target audiences, rather than they buy traffic and to the general audience. I think that's our good try, and we will continue to work on this to make sure in Taobao, we are not only and to make people to win, but also to help small business to have their startups successful. For New Retail, I think this is also relevant to the first question. I think we always believe New Retail is not only about omni-channel. New Retail is not only relevant to online-offline integration.
New Retail is about how to create a new business in a new way. For example, how to design product according to the intensive consumer insights. How to make a very flexible, soft supply chain and a product manufacturing process. Today in our platform, we identified a lot of new business. They design the product based on very prompted feedback from the market, from their customers. They tailor-made the products, maybe not in the large scale, but very small scale, but very efficient supply. They follow the fashion, then actually they create the fashion. They lead the trend of the fashion. I think New Retail is a broad concept and also help us to identify under this concept. We also try to identify more and unique small business and help them to grow on our platform.
Thank you. Moving on to the next question, we have Grace Chen from Morgan Stanley. Please ask your question.
Hi. Thank you. Thank you, Joe, Daniel, and Maggie. Congratulations on the outstanding results. My question is about your cloud business. I remember the management previously set a target to achieve 1 million paying customers. This target has been achieved in the current quarter. I'm wondering what's your next target and what's the implication on margins after achieving 1 million paying customers? In addition, in Investor Day, we talked about expansion into the SaaS market software as a service market. Can you share with us the competitive landscape in China's SaaS market and how Alibaba Cloud is positioned in this market? Thank you.
Yes. This quarter we hit the milestone of 1 million paying customers in our cloud business. We are very happy with that. We believe this is a starting point. Cloud actually has huge potential in China and in the world. Every single business is going to the cloud. Actually we are trying our focus still the market expansion, still trying to leverage our first-move advantage to have a big scale business in cloud. We will continue to invest very heavily in cloud business and try to sign up more paying customers in the future. Also, I think relevant to your second question, yes, actually the cloud business, not only a infrastructure service provider. We work very closely with SaaS service provider in different industries, in different segments, try to help them to develop their application, tailor-made applications for their clients on our cloud.
This include CRM, include ERP, and include even a customer service software. Actually, this cover a wide range of industries. I do believe now is just early stage of cloud business. We look forward to a very bright future in cloud.
Thank you. Moving on, the next question is from Alex Yao of J.P. Morgan. Please ask your question.
Thank you, management, for taking my question and congrats on a good quarter. Two questions. One is a follow-up on Joe's comment. The development of New Retail will be a disruptive gain in the economy, and it will disrupt the e-commerce first. Can you elaborate more about how do you think about the New Retail will interplay with the current e-commerce consumer behavior? Then how should we think about your ability to monetize and generate the profit during this disruptive period and after? Then secondly, I think, Maggie, you mentioned that the reason for commission revenue underperformed the GMV of Tmall is because you guys are basically rebating the commission back to merchant for adoption. Can you elaborate a little bit more and help us understand how to think about the future trend for commission revenue? Thank you.
This is Daniel. Let me answer your first question. In terms of New Retail, I think first, as you said, we have to think out of the box to disrupt the existing offline retail model and even to disrupt the existing e-commerce model. I would say, actually, our existing e-commerce platform, our core commerce platform, actually generate tons of consumer data, which is incredibly valuable for us to get insight of customers. We know for these over 500 million customers, we know who they are, and we know where they live. We know their preference in consumption pattern and their favorite brands. We have enough consumer insight. Today, these 500 million customers, actually, they are not only online, they are everywhere. Anytime, anywhere, they are always online at the same time.
Today, actually, this online advantage gave us a very good chance to understand more about customers, give us the chance to innovate in the retail format. We do believe the innovative retail model and retail format is a necessity for the New Retail. This is not only to drive traffic from online to offline or drive traffic from offline to online. This is trying to create the incremental value for the customers as well as to the business. Actually, we have recently, people discussed a lot about our innovative Hema model, we start to incubate this Hema 2 years ago, we made a lot of efforts to make this thing as a unique one. This is not a supermarket, this is not a food mart, this is a brand-new model.
Actually, this model can bring people the value which they cannot get in the traditional retail business. For example, they can place order online and get 30 minutes on-demand delivery. They can enjoy the food on the spot and next time they can buy at the home. Going forward, I would say, actually, Hema just as an example, real example to get people know how we can innovate, how we can upgrade the existing offline business and the potential to address the 85% of offline retail. We will continue to work on this and leverage what we have, most important assets we have, data, to build a new business.
Just to follow up, just quickly on Daniel's comment regarding 30-minute delivery. As an example of where New Retail can be very disruptive to existing e-commerce. When your consumer demand is generated from an in-store experience, then that consumer says, "Well, I'm going to a movie, I don't want to carry a bag with me, I'm gonna have it delivered to my home within a very short period of time." That's where your traditional e-commerce logistics infrastructure can be disrupted because you will need to fulfill out of that retail location as opposed to out of a warehouse that is not even in the city center. The expectation becomes 30 minutes and not overnight or 24 hours. That's gonna be very disruptive to existing infrastructure and investments that have been made.
Alex, regarding your question on the commission revenue. This quarter, our commission revenue shows a slower growth, which is 28%. This is because our commission revenue was netted off by the expenses, the subsidies we paid during the quarter. We see this as an investment. Basically, we recognize less commission revenue to improve consumer acquisition, retention, and also consumer experience, in turn, resulted in strong transaction growth in Tmall GMV. You've seen we reported 49% year-on-year growth on Tmall physical goods GMV. Going forward, how we look at it, we are going to continue to invest. The investment may not necessarily owe on this top line, but also on the cost and the expenditures, the marketing spendings and other expenses that could include enhancing the consumer experience. By the way, the commission revenue accounted for around 18% of total revenue. Just for your reference.
Thank you. Moving on to next questions we have from Alan Hellawell of Deutsche Bank. Please ask your question.
Hi. I believe that profit sharing from Ant was up more than 140% quarter-on-quarter. I was hoping you could give us a sense as to the factors behind that sharp increase and what we might expect through the rest of the financial year. Just going back to video, subscribers are up 100% year-on-year, but revenues from the group were up only 30%. I was just wondering how many of these subscribers are indeed paying subs, and how many of them might be bundled at this point in time. How does that ratio evolve going forward? Thank you.
Hey, Alan. Yes, we shared a higher profit from Ant this quarter. Ant's business grew very well. Not only they have laid a great consumer foundation and their payment business is growing well, but also, they have strong growth in the other value-added services such as financial services, technology services in the wealth management, in the consumer loan areas. We do expect to see its continuous strong growth, but with aggressive investments in the following quarters.
Yeah. Our video business today, actually, most of the subscribers are paying customers. We seldomly do the bundle sales. Actually that shows a huge potential in the future to building the development of the contents and especially in exclusive contents. We are very confident to attract more paying subscribers on our video business. We also see a good chemistry between our loyalty customers on our e-commerce platform and to give them access to the video, and this is also the expansion of their consumptions.
Thank you. Moving on to the next questions we have from Chi of HSBC. Please ask your question.
Hi, good evening, everybody, thanks for taking my question and congratulations on the very nice set of results. I have two questions. First question, very strong growth in Tmall GMV. I was wondering if you can give us a bit more color on sort of what's driving that. Obviously, you had some promotional activity, but any additional color would be very informative. Secondly, you also had very strong growth in international. I was wondering if you can sort of help us understand and maybe tie together Lazada and RedMart and your recent investment in Tokopedia, how do these businesses evolve over time? Importantly, how they might compete with Amazon when they expand into ASEAN. Thank you so much.
Yeah. This quarter in Tmall recorded a 49% year-on-year growth in physical goods. As Maggie said, actually we made a good investment in Tmall, and we made great efforts in acquiring new customers and improving the experience of existing customers. On top of that, actually our teams do a great job in terms of expanding the product selections, especially to have the unique exclusive product selections on Tmall, including to get more import products on our platform and inclusive new product launch on our platform. I think we will continue to work on this, we will continue to invest in user experience, in acquisition of new customers, as well as expanding our footprints in different categories, especially in low categories like fresh and frozen and imported products.
Sorry. Yeah.
For the second question, yes, actually, international globalization is our long-term strategy. We are very committed to the global expansion. You know that we made investment in Lazada and in Singapore we have another good investment in RedMart, which focus on fresh and frozen and the dry groceries, which we believe these two categories created a very high and very frequent consumption, and high-frequency consumption. We think this is a combination. Actually, we view this as part of the category expansion of Lazada in Singapore. Actually, I just mentioned in my script that we love investment in Tokopedia in Indonesia because Indonesia is a very, very important market. We are very happy that Lazada have very strong performance in Indonesia. In this market, I think not only B2C has opportunity, but C2C also has good potential.
That's the reason why on top of Lazada, we made a very important move in C2C, which is Tokopedia. We anticipate that we can generate a lot of synergies and chemistries in Indonesia market in both B2C and C2C.
Yeah. While we are talking about investment, we also emphasize the efficiency of our investment. When you take a look at the returns in the growth of GMV and the revenue, our investment drive, when you talk about investment, look at the sales, marketing expense, other expense, it shows when compared to the peers
It shows that our investment into the growth, drive the growth, is a high efficient investment.
Thank you. Moving on to the next question is from Jialong Shi of Mizuho. Please ask your question.
Hi, good evening, guys. Just a couple of questions for me. As you transfer more and more into this social commerce platform, can you give us some color on what kind of incremental conversion or click-through you're seeing from some of the channels, such as live broadcasting, news feed, personalization, perhaps what channel is more effective than the other? Second of all, Maggie, you mentioned that part of your growth is driven by new users. Is it safe to say that, are you guys seeing newly added users today, initial ramp in spending is faster than ever? That'll be it for me. Thanks, guys.
Mobile Taobao platform actually transformed from a sales platform, to a sales marketplace, to a social commerce and content-driven, community-driven platform. Actually, we see a very interesting change of the ecosystem, which is on top of the buyer and seller on our platform. Today, we have a lot of key opinion leader influencers, which actually create a lot of tons of contents associated with consumption, associated with products on our platform. Our customers today, when they are on our mobile app, they are not only consuming the goods but also consuming the contents. By consuming the contents, they creating new demand from the customers. Actually today our platform, actually we don't have a unified content social commerce products. Actually, we have a lot of user interfaces on our mobile app.
For different user product, like a live streaming, short-form video, and product recommendation, actually, they have different advantage and disadvantage. We are working closely with our merchants to let them to understand how to use these different services, these different tools to have higher conversion. Normally speaking, just to give you a real sense, we see a lot of makeup categories and kitchen products. This is very good for the live streaming because people, a young lady just do a live streaming to show people how to makeup and how to cook the meal. They include a lot of curiosity of the food and also for the electronics in the kitchen.
Right. The driver of the growth and how that new user impact our future growth, I think when you look at the direct driver of the growth of our customer management revenue is the number of clicks and also the CPC. Both of the metrics grow very healthily. Number of clicks comes from both new users and existing users. Basically, why the clicks grow is because we provide more relevant content and consumer engagement's growing. They just stay here, enjoy shopping and window shopping in social commerce in Taobao. What back up that more relevant content is our data technology. We talked about the personalization and a lot of efforts we made that make the user experience better and better. That's the real driver behind.
Just to supplement that, this is not just clicks, but also actual spend and purchase orders on our platform. We have said in our earnings release, and which I think we've repeated that in the past, is that the longer a customer stays on our platform, the more they spend per customer in terms of more orders, and also across more product categories.
Operator, we will take two more questions.
Thank you. Your next question comes from Gregory Zhao of Barclays. Please ask your question.
Hi, good morning and good evening. Congratulations on the strong quarter, and thanks for taking my question. I have two quick question. The first one is actually about our margins and selling marketing expense. Before the earnings, we heard some concerns about the competition during the 618 event, which was expected to weigh on our margins. Actually, we are seeing some deceleration in our selling marketing expense. Can you help us understand the reason behind? It's also about margin. This quarter, we have a quite strong core commerce margin. Shall we expect we can maintain such trending through the year? Thank you.
Right. Our spending and investment in marketing and sales. Our investment are not only reflected in the marketing expense, it could also be offsetting some of the commission revenue. Having said that, the investment we're going to make in the following quarters will be increased. I think overall, when you talk about the core commerce margin, 63% is a very high margin level. We do have this leverage to reinvest back to the business, extending the B2C market share and enhancing our leadership. We'll just, like we communicated during the Investor Day, we're going to go ahead to invest. This is an investment for future.
Last question, please.
Yes. Last question is from Alicia Yap of Citigroup. Please ask your question.
Hi. Thank you. Good evening, management. Thanks for the presentation and also congrats on the strong set of results. I have a follow-up question on the Tmall commission revenue line. Is this the first quarter that we actually start to net off the promotional expense out of the commission revenue? Any color you could share on the like-for-like basis for the commission revenue growth if we did not include the expense in this line? Related to that, given obviously very strong operating leverage on your platform, is that fair to assume that you actually have a very strong ability to continue to help out your merchants with the promotional spend, which indirectly is a way to return to your merchants and help them lower their overall operating costs on the Baba platform. Just lastly, quickly on the Hema.
I wanted to get some color on the traction from user side and also how the accounting treatment, how will we book the revenues and all these costs on the P&L? Thank you.
Right. The commission revenue growth is offset by our promotional investment during the quarter. This is actually a trial. It's a new test of different ways of investing into the business. When you ask about what if we exclude that investment from that commission revenue, how would the revenue growth be? It will be higher than previous quarters.
Yeah, I think also, as you pointed out, it really demonstrates our ability with our operating leverage to reinvest into not just capturing users, but also to invest in our merchants in terms of their ability to do business on our platform and their loyalty.
Hema.
Hema accounting.
Oh, Hema accounting. Okay.
Is that a question? Sorry, Alicia, maybe you can state the question again on Hema.
Just a moment. Alicia Yap, please press star one again to join the question queue.
Yeah. Alicia, I think you were asking about how we account for Hema revenue. Okay. First of all, we had this statement in the press release that first of all, in the past, it was included in our innovative and initiatives segment. Now we reclassify it to the core business because we think after two years, that business should come out of that incubator. It becomes into a real business. Then right now, it's still relatively small. The way we count it is we recorded the gross revenue.
I see. Okay, great. Thank you.
Okay. Thank you everyone for joining the conference call. That will be it for today. Thank you very much.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.