Earnings Call: Q1 2018

Aug 17, 2017

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 in listen only mode. After management's prepared remarks, there will be a I would now like to turn the call over to Rod 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 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 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 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. 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 ventures that we use on this 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 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 sow 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 US5 $1,000,000,000,000 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. And then you tell the store to send everything you just bought to your home because you need to go 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. So 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. And 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. And I have no doubt that you're interested in the P and L of those businesses. So 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. But 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 stand alone entities. Synergy creation is easier said than done, and 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 5, 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. So 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, and 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 and widespread application of big data. It is also propelled by our customers' increasing appreciation and validation for Taobao and Tmall's unique value proposition customer media and customer management platforms. Mobile Taobao is a Chinese consumer's leading destination for online shopping and the total MAU for mobile apps, which access to our China retail marketplaces has grown to 529,000,000. 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 satisfied 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 the key opinion leaders have merged alongside buyers and sellers in the ecosystem. Through personalized data driven user content features such as power of headlines, live stream 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, perhaps since developed the ability to stimulate new consumption demand. Tmall enjoyed rapid growth this quarter and gained market share in B2C market with 49% year on year gross GMV growth for fiscal goods. We continue to solidify market leadership in fashion and accessories and also saw year over year growth of 50% 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 and 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 the transformations and our new retail initiatives. The successful privatization of Yinkai 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 PerkoPedia, 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 US1 $1,000,000,000 while paying customers surpassed 1,000,000, an important milestone. In a landscape where every industry is seeking to migrate to the cloud, we believe 1,000,000 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 constantly delivered superb results and the market is gradually recognized the significant value created by Alibaba Economy. This is a result of our unwavering focus on the long term strategy and the persistent innovation coupled by 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 RMB 529,000,000 and representing a net adds of RMB 20 2,000,000 over March quarter. Our core marketplace revenue grew 58% year over year. Number of paying customers of our cloud business surpassed 1,000,000. This is a very important milestone. Cloud computing revenue grew 96% year on year and the segment adjusted EBITDA margin narrowed to negative 4%. Our non GAAP free cash flow was US3.3 billion dollars 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 and 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 RMB16.3 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's supermarket logistics related costs. These are areas where we will continue to invest, and 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 RMB20 1,000,000,000, an increase of 67% year on year. We continue to generate significant free cash flow. In the June quarter, we generated RMB22.1 billion or about US3.3 billion dollars 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, cash equivalents and short term investments were RMB148 1,000,000,000 or close to US22 $1,000,000,000 slightly increased from the end of March quarter. This is primarily because of our strong free cash flow generation from operations, offset by in time privatization, acquisition of the additional shares of Lazada and investment in Ele. Me and Leonhua Supermarket. Capital expenditure in June quarter were RMB 3.6 1,000,000,000, in which RMB3.2 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 that accounted for 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. So more specifically, these factors 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 466,000,000 annual active consumers at the end of the quarter, representing a net addition of 12,000,000 from 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 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 and our commitment in the long term potential of its business and 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 Yintime 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 1,000,000 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 RMB4.1 billion increase of 30% year on year. UC Web 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 Tudo consolidation in May 2016. So we will come to the anniversary. We are focused on investing in both content and products in Youku Video Business to improve user experience and live subscription business, 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. And compared to prior year's quarter, there was an increase in the negative margin, primarily due to an increase in content costs of Youku to Bell since second half of fiscal twenty seventeen. 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 the of the segment was negative 98%, reflecting ongoing investments in our new business initiatives. Now 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% to 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 1st mover advantage and will keep expanding our market leadership by continuously providing value added services. Our technology advantage and the team's drive 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 we'll 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 and A. Thank you. Thank Your first question comes from Piyush Mubaya of Goldman Sachs. Please ask your question. Thank you for taking my question and 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? And how much of this is still dependent on pay click that we like to think about in the past? That'd be greatly appreciated. Hi. Thanks for the question, Piyush. So for growth in our customer management revenue, the unique marketing efforts actually right now is still in the initial stage. So we don't see significant contribution from unit marketing right now. I think that, as I said, the growth driver actually are mainly coming from the new users and increased traffic and the effect of personalization. So this is not just 1 quarter's efforts, it's over time. I would like to mention about that a year ago in September, we made a technology change to enhance personalization. And when we get to anniversary of that change later of 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? Yes. Actually, prior year quarters, we also see quite strong growth. But talk about the current quarter. Main reason is that more merchants who are paying more, right? So why are they what are they paying for? That is the growth of new user and also the technology dividend we get from the personalization enhancement we launched last September. Yes. Piyush, maybe let me add to that. If you see that our monthly active users have grown by 22,000,000 sequentially to 529,000,000. So that means the number of people coming to our platform in the become more of a content rich app, the people are becoming more engaged. So 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 discussed is 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. So those are the effects. Thank you. Moving on to the next question 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 that in the last quarterly result call. I remember the management discussed a bit on how to help the small and medium sized merchants, especially those started at online shops perhaps early on Taobao to handle these changes in the new retail era. So just wondering if the management could give us some update on some of the initiatives you guys have been implementing and thinking about? And along the same lines, I think, Joe, you mentioned it 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 SMEs? And 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 community not only for the 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. And what we do to help the small business is probably driven by product innovation. And all we do is to innovate in product tools and service tools to empower the small business to business easier. Today, what we do is that we evaluate very successful user interfaces in content, in data driven. And I think today for small business, if they have unit products, they can create a unit contents. They can have enough exposures to acquire new customers. Let me take an example of our Maker Festival. Hold this event. Actually, this is the 2nd year we hold the event. And this is a very successful event. We have a lot of small business and young startups and they create business in Taobao and they produce very, very unique products. And because of the tailor, because of the technology innovation, because of product innovation, now they get the tool to display their unit product to their target audiences rather than they buy traffic and to the general audience. So I think that's our good try and we will continue to work on this to make sure and in Taobao, we are not only and to make people to win, but also to help small business to have their start ups successful. And for new retail, I think this is also relevant to the first question. I think we never we always believe new retail is not only about omnichannel. New retail is not only relevant to onlineoffline integration. New retail is about how to create a new business in a new way and how to 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. So today in our platform, we have we identified a lot of new business. They create they design the product based on very prompted feedback from the market, from their customers. And they tailor the products, maybe not in the large scale, but very small scale, but very, very efficient supply. And they follow the fashion and actually decrease the fashion, they lead the trend of the fashion. So I think new retail is a broad concept and also help us to identify under this concept, we also try to identify more and more 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. And congratulations on the outstanding results. My question is about your cloud business. I remember the management previously set a target to achieve 1,000,000 paying customers and this target has been achieved in the current quarter. So I'm wondering what's your next target and what's the implication on margins after achieving 1,000,000 paying customers? And in addition, in the 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 SaaS market and how Alibaba Cloud is positioned in this market? Thank you. Yes. This quarter, we hit the milestone of 1,000,000 paying customers in our cloud business. We are very happy with that, but we believe this is a starting point. The cloud actually has huge potential in China and in the world, And every single business is going to the cloud. So we actually, we are trying our focus still the market expansion, still trying to leverage our 1st move advantage to have a big scale business in cloud. So we will continue to invest very heavily in cloud business and try to sign up more paying customers in the future. And also, I think relative to your second question, yes, actually the cloud actually, we view cloud business not only an 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. And this include CRM, include ERP and include even a customer service software. So actually, this cover a wide range of industries. And I do believe now is just early stage of cloud business. We look forward to a very bright future in cloud. Thank you. And moving on, the next question is from Alex Yao of JPMorgan. 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 that 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? And then how should we think about your ability to monetize and generate a profit during this disruptive period and after? And then secondly, I think, Maggie, you mentioned 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 box to disrupt the existing offline retail model and even if to disrupt the existing e commerce model. But I would say, actually, our e commerce 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. And we know for this over 500,000,000 customers, we know who they are and we know where they live. We know their preference in consumption pattern and their favorite brands. So, we have enough consumer insight. But today, these 500,000,000 customers, actually, they are not only online, they are everywhere. And but anytime, anywhere, they are always online at the same time. So today, actually, this online advantage gave us a very good chance to understand more about customers, then give us the chance to innovate in the retail format. And we do believe the innovative retail model and retail format is a necessity for the new retail. And this is not only to drive traffic from online to offline or drive traffic from offline to online, this is trying to create incremental value for the customers as well as to the business. So actually, we have recently people discussed a lot about our innovative Hema model, and we started to incubate this Hema 2 years ago, and then we made a lot of efforts to make this thing as a unique one, because this is not a supermarket, this is not a food mart, this is a brand new model. So actually, but this model can bring people the value which they cannot get in the traditional retail business. For example, they can get order they can place order online and get 30 minutes on demand delivery, And they can enjoy the food in the spot on the spot and that time they can buy at home. So but going forward, I would say actually this just as a Homer just as an example, real example to get people know and how we can innovate, how we can upgrade the existing offline business and the potential to address the 85% of offline retail. And we will continue to work on this and leverage what we have most important assets we have data to build a new business. Yes. 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 and then that consumer says, well, I'm going to a movie, so I don't want to carry a bag with me, so I'm going to have it delivered to my home within a very short period of time. That's where logistics can 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. So the expectation becomes 30 minutes and not overnight or 24 hours. So that's going to be very, very disruptive to existing infrastructure and investments that have been made. Right. Alex, regarding your question on the commission revenue, this quarter, our commission revenue shows slower growth, which is 28%. This is because our commission revenue were netted off by the expenses to subsidies we paid during the quarter. This we see this as an investment. So 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. So you've seen we reported 49% year on year growth on Tmall physical goods GMV. So going forward, how we look at it, we're going to continue to invest. So the investment may not necessarily all on this top line, but also on the cost and expenditures and marketing spendings and other expenses that could include enhancing the consumer experience. So by the way, the commission revenue accounted for around 18% of total revenue, So just for your reference. Thank you. Moving on to next question. We have from Alan Helliwell of Deutsche Bank. I believe that profit sharing from Ant was up more than 100 and 40% quarter on quarter. I was just giving 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? And then 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? And how does that ratio evolve going forward? Thank you. Allen, yes, we shared a higher profit from ANZ this quarter. ANZ 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 continued strong growth, but with aggressive investments in the following quarters. Our video business actually today, actually most of the subscribers are paying customers. And we seldomly do the bundle sales. And so but actually that shows a huge potential in the future to winning the development of the contents and especially in exclusive contents, we are very confident to attract more paying subscribers on our video business. And 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 question, we have from Xu Xie of HSBC. Please ask your question. Hi, good evening, everybody, and 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. And 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 Tokapedia. How did these businesses evolve over time? And importantly, how they might compete with Amazon when they expand into Auzumab? Thank you so much. Yes. This quarter, Tmall recorded a 49% year on year growth in physical goods. And we as Maggie said, actually, we invest we made a good investment in Tmall, and we made great efforts in acquiring new customers and improving the experience of existing customers. And we will and on top of that, actually, we do a lot of teams do a great job. And in terms of expanding the product selections, especially to have the units exclusive selection product selections on Tmall, including to give more or 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 and we will continue to invest in user experience, in acquisition of new customers as well as expanding our footprint in different categories, especially in low polypept categories like fresh and frozen and imported products. Then for the second question, yes, actually, we international globalization is our long term strategy. We are very, very committed to the global expansion. And you know that we made investment in BAZADA. And in Singapore, we have another good investment in Rema, which is which focus on fresh and frozen and the dried groceries, which we believe these two categories created a very high and very frequent consumption and high frequency consumption. So we think this is a combination. Actually, we view this as part of the category expansion of Lazada in Singapore. And we just actually, I just mentioned in my script that we love the investment in TacoPedia in Indonesia because Indonesia is a very, very important market. And we are very happy that Lazada have very strong performance in Indonesia. But in this market, I think not only B2C has opportunity, but C2C also has great potential. So that's the reason why we on top of Lazada, we made a very important move in C2C, which is Toko Video. We anticipate that we can generate a lot of synergies and chemistries in the retail market in both B2C and C2C. Yes. While we are talking about investment, we also emphasize the efficiency of our investment. So when you take a look at the returns, growth of GMV and the revenue, our investment drive when you talk about investment, at the sales and marketing expense, other expense, it shows when compared to peers, it shows that our investment into the growth, drive the growth is a high efficient investment. Thank you. Moving on to next question is from Jin Yong 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 script you're seeing from some of the channels such as live broadcasting, newsfeed personalization? Perhaps what channel is more effective than the other? And 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 as faster than ever? That'd be it for me. Thanks, guys. Mobile Taobao platform actually transformed from a sales platform to a sales marketplace to a social commerce and e 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 becomes actually they create a lot of tons of contents associated with consumption, associated with products on our platform. So 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 are creating new demand from the customers. So actually, today, our platform, we don't actually, we don't have a unified content social commerce products. Actually, we have a lot of user interfaces on our mobile app. And for different user products like a live streaming, short form video product recommendation. Actually, they have different advantage and disadvantage. And 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. Actually, normally speaking, just to give you a real sense, actually, we see a lot of makeups, makeup categories and kitchen products. Actually, this is very good for the live streaming because people a young lady just make a do a live streaming to show people how to make up and how to cook the meal and then create a lot of curiosity of the food and also for the electronics in the kitchen. Right. So 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 them actually grow very healthily. And number of clicks comes from both new users and existing users. So basically, why the clicks grow is because we provide more relevant contents and consumer engagements growing. They just stay here, enjoy shopping and window shopping and social commerce in Taobao. So what backup that more relevant content is our data technology. We talked about the personalization, a lot of efforts we made that make the user experience better and better. So that's the real driver behind. And 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, 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'll take 2 more questions. Thank you. Your next question comes from Gregory Zhu Hou 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 2 quick questions. So the first one is actually about our margins and steady marketing expense. Before the earnings, we heard some concerns about the competition during the 6/18 event, which was expected to weigh on our margins. But actually, we are seeing some deceleration in our steady marketing expense and can help us understand the reason behind. And it's also about margin. So this quarter we have quite a strong core commerce margin. Shall we expect we can maintain such trending through the year? Thank you. Right. So our spending and investment in marketing and sales, so our investments are not only reflected in the marketing expense, it could also be offsetting some of the commission revenue. So but having said that, the investment we're going to make in the following quarters will be increased. So 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, expanding the B2C market share and enhancing our leadership. So 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 Yao of Citigroup. Please ask your question. Hi, thank you. Good evening, management. Thanks for the questions and also congrats on the strong set of results. I have a follow-up questions on the commissions, the Tmall commission revenue line. So is this the Q1 that we actually start to net off the promotional expense out of the commission revenue? And then 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? And related to that, given obviously very strong operating leverage there 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 Baobao platform? Side and also how the accounting treatment, how will we book the revenues and audit costs on the P and L? Thank you. Right. So the commission revenue growth is offset by our promotional investment during the quarter. This is actually a trial is a new test of different ways of investing into the business. When you asked about what if not we exclude that investment from that commission revenue, how would the revenue growth be, It will be higher than previous quarters. So that's Yes. I think that also as you pointed out, it really demonstrates our ability to 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. Alicia, I think you were asking about how we account for home revenue. Okay. First of all, we had this statement in the press release that 1st of all, in the past, it was included in our Innovative Initiatives segment. And now we reclassify it to the core business because we think after 2 years, that business should come out of that incubator. It becomes into a real business. And then right now, it's still relatively small. So the way we counted 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.