Earnings Call: Q4 2017

May 18, 2017

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March Quarter 2017 and Full Fiscal Year 2017 Results Conference Call. At this time, all participants are on 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 Lin, Head of Investor Relations of Alibaba Group. Please go ahead. Good day, everyone, and welcome to Alibaba Group's March quarter 2017 and full fiscal year 2017 results conference call. With us today are Mr. Joe Tsai, Executive Vice Chairman Daniel Zhang, Chief Executive Officer Maggie Wu, Chief Financial Officer. This call is being webcast from our IR section of the corporate website. A replay of the call will be made available on our website later today. Now, let me go 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 and 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, 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 release. With that, I will turn the call over to Joe. Thank you, Rob. Thank you all for joining us. We had a great quarter. Before we get into the details of our business, I want to give some perspective on the China macro environment as well as our vision of new retail. Both of these are important to understanding a long view of Alibaba. On China macro, there is an important secular trend underway. Chinese consumers are driving the shift of the Chinese economy from an export and investment led to a consumption led economy. When looking at investing in China, this secular trend is absolutely important to pay attention to. And that is what we focus on when we plan our strategy rather than on quarter to quarter cyclical trends. There are a few underlying reasons for this secular shift to a consumption economy. And these reasons are why we think the trend will be long term and sustainable. First, China's GDP per capita is now more than US8000 dollars For context, when I started at Alibaba in 1999, China's per capita GDP was US870 dollars So at the current 8,000 level, people's basic needs for shelter and food are satisfied. So consumption is moving up the hierarchy of economic needs. In other words, people are spending more on discretionary goods and services. We believe the growth of per capita GDP in China will continue for years to come and eventually approach advanced economies such as the United States where GDP per capita is over US50000 dollars 2nd, over the past several years, among Chinese urban employees, wages have increased over 10% per year, year on year. So people have disposable income to spend. And lastly, the high savings rate in China means that Chinese consumers have a lot of cash on hand. Net cash on the Chinese household balance sheet, that is total cash deposits minus debt, is nearly US4 $1,000,000,000,000 In addition, Chinese household debt as a percent of GDP is 45% as compared to 80% in the United States. The potential levering up of the Chinese consumer, especially among the younger Chinese population, will provide a powerful driver of consumption for many years into the future. Proof of the strength of the Chinese consumer is reflected in the 2006 retail sales growth in China at 10.4%, which outpaced GDP growth. Now what does all this mean for Alibaba? Our view is the traditional thinking that pits e commerce against physical retail no longer holds. The distinction between online and offline retail is quickly going away because of the mobile phone. Traditional e commerce is about you sitting at a home in your office buying stuff on your desktop computer. But Chinese consumers today are equipped with a mobile phone and they can buy anything, anytime, anywhere. Now let's focus on the concept of anywhere. Because of the mobile shopper, this is changing the way we think about customer traffic, retail space, inventory location and logistics. Let me give you an example. Under our new retail model, if you walk into a grocery store at lunchtime with your mobile phone, you can do any of the following three things. 1st, you can eat in by ordering fresh items from the counter and have them cook it for you right there. And second, you can buy a fresh lunch box to take back to your office. 3rd, you can order some fresh seafood and vegetables that don't that you don't want to lug back to your office and ask the store to deliver them to your home before dinner time. You can do all of the above by selecting items and paying with your mobile phone and all of your consumption activity is being captured digitally. So now the store knows your preferences and can give you a personalized selection of products on your mobile app no matter where you are. It knows you and can predict your needs. And Alibaba is best positioned to capitalize on this digital transformation. Here's why. Number 1, we have the consumer scale with more than 500,000,000 mobile active users engaged in commerce activity monthly. Because of this, we are the partner of choice for operators with physical retail footprint. Number 2, we have continuous fresh data generated by activity of these users across our ecosystem of Internet services from shopping to local services to entertainment. Number 3, we have the technology. Our cloud computing technology gives us the proprietary capability to manage massive amounts of data and our development in artificial intelligence gives us the brains to get value out of that data. With that, I would like to turn it over to Daniel. Thank you. Thanks, Joe. Hello, everyone, and thank you for joining us on our earnings call today. We enjoyed an outstanding quarter and fiscal year. Over the past year, our businesses have prospered through innovation and the realization of synergies between our various platforms in commerce, digital entertainment, logistics and cloud computing. Our business is more than making connections. We are transforming existing business models through helping manufacturers, brands and retailers cope with digital transformation. In this ever changing environment, where impact of the Internet continues to move up the retail chain from sales and marketing to supply chain, manufacturing and even product design. Our mission of making it easy to do business anywhere is more relevant than ever. Our core commerce business sustained very healthy growth. It is defining modest expectations about the Chinese economy and even our own law of large numbers. Today, we have more than 500,000,000 mobile active users as a result of our continued excellence in capturing the consumers' time and wallet share with discovery, personal recommendations and entertainment. Taobao has transformed into a consumer community, powered by a rich mix of content and interactive features such as live streams, news feeds, short form videos, photos generated by everyone from influencers to celebrities to brands. Even as our active user base grew, average time spent per user continued to remain robust, while user stickiness as measured by DAU divided by MAU ratio has increased to 41%. Powerwall is moving from satisfying demand to creating demand through the continuous improvement to our algorithm driven personalization and the rollout of differentiated merchandising for different user segments. Tmall remains the partner of choice for brands, serving as cornerstone of their China online retail strategy and operations. The value that it brings to merchants encompass sales, marketing and brand building, customer management, new distribution channels to the lower tier cities and the rural areas and even new markets outside of China. Tmall continues to be the primary engine for the ongoing consumption upgrade from daily items to high quality discretionary goods among Chinese consumers. Our global strategy achieved a key milestone with the launch in Malaysia of the first EWTP hub outside of China. We are working together with the Malaysia government to develop logistics, payments, training and a turnkey export services dedicated to supporting local business to grow through cross border e commerce. We continue to develop Lazada in order to grow more access to Southeast Asia consumers. Together with the accelerated growth in AliExpress, we now have 83,000,000 annual active buyers globally besides China. Our cloud computing business continued to grow at a fast pace. We now have more than 807,000 paying customers with revenue growth of 121% year over year during fiscal 2017. As our paying customer base continues to grow, we are also introducing cloud based applications and services that deliver new value to customers. We have completed the initial phase of integration of our digital media and entertainment assets, forming a closed loop metrics with a mix of both content distributors and content generators. The successful data integration between our retail commerce platforms and our digital media and entertainment metrics now allows brands to track, engage and manage the whole lifecycle of their customers in our ecosystem. Upon this foundation, we have introduced a solution to brands that we call unit marketing that is unmatched in its potential to optimize digital brand building and marketing campaigns By facilitating brand into accumulate and analyze customer activity data for ongoing management, we will help brands to convert marketing spending from an expense into an investment. Today, Alibaba Group is an economy with 507,000,000 active mobile users and RMB 3,800,000,000,000 in GMV. And the opportunities ahead for our business is brighter due to the network effects and possible synergies across our ecosystem. We are excited by the multiplied effects that can be gained through collaboration between our different platforms. There is immense potential for growing the user base of our core commerce platforms through conversion of users in our digital media and entertainment metrics as well as through the payment platform of our affiliate company Alipay. The opportunity for cross selling to users across the various platforms is clear. We have long empowered businesses in digital sales and marketing and today, we are progressing up the retail chain to support them in intelligent manufacturing and product design as well as cloud infrastructure. As business increasingly digitalize their entire operations, we can leverage the combined technology and infrastructure of our retail, logistics and cloud platforms to offer a solution that maximizes the value of digitalization. In globalization, the manufacturers and the merchants represented on our China retail platforms are eager to address the expanding and evolving consumption demands globally through our platforms. We will focus on leveraging the competitive advantage of our China retail platform, logistic platform, and global retail platforms to work towards serving 2,000,000,000 global consumers. At the same time, China's commitment to importing US2 $1,000,000,000,000 worth of goods as part of the One Bell, One Road initiative presents a significant opportunity for our platforms to broaden selection of high quality products to meet the demand of the world's largest consumer market. We will continue to invest significantly in AI technology such as voice recognition, machine learning and natural language processing for application to our technology in real use cases such as product discovery, personal recommendations and customer services. It will contribute to meaningful improvements in operating efficiency across all our platforms. Further technology developed to serve our own business needs can be open to our customers, both existing and new. 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're very happy to announce that we delivered another quarter of excellent results. In terms of quarterly revenue, this quarter, the total revenue growth accelerated to 60%, the highest growth rate we have achieved since IPO. This was led by robust growth in our core commerce, Alibaba Cloud as well as digital media and entertainment businesses. Our non GAAP free cash flow was US1.2 billion dollars for the quarter, demonstrating the strength of our business. Revenue from China Commerce Retail Business now represents 67% of total revenue, down from 76% for the same period last year. We now have a more diversified revenue base with multiple growth drivers, including Alibaba Cloud, Digital Media and Entertainment and International Businesses. Our ability to monetize the users on our platform continues to improve. Annual revenue per annual active buyers continued to increase, reaching RMB251.36 in the March quarter. Mobile revenue per mobile user reached RMB179 or US0.26 dollars in the March quarter. Our mobile commerce platforms have become the destination for social commerce, consumption of content and brand engagement. Quarterly cost trends. Cost of revenue excluding stock based compensation was RMB14.3 billion. As a percentage of revenue, it increased year over year, primarily due to the increase in content acquisition costs of Yiquituo, costs of inventory of Lazada and the logistic costs associated with Tmall Supermarket as we talked about in previous quarters. We continue to see strong operating leverage from our China Commerce business. This operating leverage allows us to make strategic investments, which positions us for long term revenue and margin expansion. Our effective tax rate, excluding SBC and one off items was 23% in the quarter ended March 31, 2017, up from 14% in the same quarter of 2016. The lower tax rate a year ago was primarily due to our investment in Suning, which was treated as reinvestment of earnings in China, and that's not subject to withholding tax. This quarter, we are accruing the withholding tax on all the distributable earnings by our PRC operations, which lead to an increase in our effective tax rate, which is actually a normalized tax rate. We expect our in the future normalized annual effective tax rate excluding SBC one off items will be in the range of 20% to 25%, assuming that no significant impact from Evelsnor acquisition, etcetera. Non GAAP net income in the quarter was RMB10.4 billion, an increase of 38% year over year. Free cash flow, capital expenditures and cash. We continue to generate significant free cash flow. In the March quarter, we generated RMB8 1,000,000,000 or about US1.2 billion dollars in free cash flow. Our cash flow allows us strategic and operational flexibility to invest in technology and acquire the resources to accomplish our strategic objectives. Total CapEx expenditures in the March quarter was RMB 3,400,000,000, in which RMB 575,000,000 related to the acquisition of land use rights and the construction in progress. At the end of March quarter, our cash, cash equivalents and short term investments were RMB146.7 billion or US21 $1,000,000,000 This is an increase of RMB8 1,000,000,000 from the end of December quarter, primarily because of free cash flow generation from our operations. Segment reporting. For our core commerce, revenue increased 47% year on year. China commerce retail revenue grew 41%, primarily due to strong growth of online marketing service revenue. Online marketing service revenue in our China retail marketplace grew 46% year over year, which is driven primarily by mobile user growth and our ability to deliver more relevant content to consumers through our improved data technology. This growth resulted in higher average spending on our online marketing services by increasing number of brands and merchants. Commission revenue grew by 34% year over year, reflecting robust GMV growth on Pmall. Our consumers purchased more frequently across more categories on our China commerce retail marketplaces. The average annual spend per active buyer for the 12 months ended March 31, 2017, continued to increase both year on year and we continue to see healthy consumer cohort growth on spending. International Commerce Retail revenue increased 312%. This is a year on year increase, mainly due to the consolidation of Lazada starting in mid April and reacceleration of revenue growth from AliExpress. Our AliExpress and Lazada businesses had about 83,000,000 annual active buyer combined globally for 12 months ended March 2017. Our core commerce core marketplace adjusted EBITDA margin of the segment remains flat year over year at 59%, still very high, taking into the account of operating leverage generated of the business and investment we have made. Cloud computing revenue increased 103% year on year. This was led by an increase in the total number of paying customers, partially offset by a number of price cuts during the quarter as we continue to pass cost savings to our customers through improved technology and scale. We reached a record 874,000 paying customers this quarter. We continue to see strong new customer additions across a variety of industries and businesses. Our more established customers are increasing usage of higher value added services and applications as well. Adjusted EBITDA margin of the cloud computing segment improved from a negative 16% in the prior year's quarter to negative 8% this quarter. Our cloud computing business top priority remains expanding market leadership. We will continue to acquire in customers through more cost effective solutions for standard products as well as developing and deploying more sophisticated products and services. Our Digital Media and Entertainment segment revenue increased 2 34% year over year, primarily due to the consolidation of Youku and to an increase in revenue from mobile value added service generated by UCWeb. Adjusted EBITDA margin of this segment improved slightly quarter on quarter to negative 44% this quarter. We will continue to invest in content, user acquisition and infrastructure for the segment. Going forward, on a full year basis, we expect the business will continue its fast growth and we expect the negative EBITDA margin for the digital media entertainment segment to narrow. Revenue from innovation initiatives and other segment increased 88 percent year on year. Adjusted EBITA margin of this segment was negative 74%, reflecting ongoing investment in Autonavily, UOS and Bingtok. Full fiscal year 2017 financial highlights. Total revenue in fiscal year 2017 grew 56% year on year to RMB 158 1,000,000,000, driven by the healthy and sustainable growth of our China commerce retail business, triple digit revenue growth of Alibaba Cloud as it continues to drive market leadership. The inclusion of Youku, Tudou and Lazada in our financial statements also contributed to revenue growth on a year on year basis, but we are at the end of the full anniversary effect of this. GMV transacted our China retail marketplace in fiscal year 2017 with about RMB3.8 trillion, an increase of 22% compared to RMB3 100,000,000 in fiscal year 2016. Our China GMV growth was primarily driven by increasing spending per user growth with fast growth in order frequencies among active buyers. New active buyers continue to drive GMV growth. Besides the GMV, our China retail marketplace, we also see strong growth in GMV of our global businesses. We are on track to reach our RMB6 1,000,000,000,000 GMV goal by 2020 fiscal, implying CAGR of 17% year on year CAGR. Annual active buyers in China reached 454,000,000, an increase of 31,000,000 from the 12 month period ended March 2016. We had 83,000,000 annual active buyers on our AliExpress and Lazada marketplace combined globally during fiscal year 2017. We have successfully capitalized on the transition of users from desktop to mobile. For fiscal 2017 year end, our mobile MAU reached R507,000,000. Mobile GMV transacted our China retail marketplace grew strongly by 49% year on year to RMB2.898 trillion, which equals to US433 billion dollars and represented 79% of total GMV. Mobile revenue growth was even stronger, showing 80% year on year growth and represents 80% of total revenue for China Retail Marketplace. Since our IPO, we have shared with you our belief that mobile monetization rate would exceed that of desktop, and this has become a reality now. Our cloud computing segment maintained strong growth in fiscal 2017, with revenue increasing 121 percent year on year to RMB6.7 billion. Adjusted EBITA margin improved to negative 7% from negative 41% in the previous year, primarily due to the robust revenue growth and the economies of scale. In fiscal 2017, we repurchased and canceled approximately 27,000,000 of our shares for about US2 $1,000,000,000 Our Board of Directors has authorized a new share repurchase program in an aggregate amount of US6 $1,000,000,000 Looking ahead, we are very excited about the prospects for fiscal year 2018. We expect a healthy and sustainable growth of our China Commerce Retail Business. Our revenue base is now more diversified with businesses such as cloud computing, digital media entertainment. They're becoming more meaningful revenue growth drivers. Same as last year, we intend to give our fiscal 2018 revenue guidance, which will be simultaneously webcast in the upcoming Investor Day. Our Investor Day will be held on June 8, 9 in Hangzhou. For those who are unable to attend in person, we will make presentation materials available on our corporate IR website. That concludes our prepared remarks. Operator, we're ready to begin the Q and A session. Thank you. Ladies and gentlemen, we will now begin the question and answer session. So your first question comes from the line of Piyush Mubai from Goldman Sachs. Please ask your question. Thank you and congratulations on outstanding top line growth, a record since the IPO, Joe, Daniel and Maggie. My first question is with regards to 46% growth in online marketing services we've seen. Would you be able to split that between the brand and paper performance advertising? And if possible, the growth that you've seen in paid click and cost per click? And while you talk through that, if you could give us a sense of for how much longer we can expect this very quick pace of growth to be maintained? Thank you. Hi, Lish. Thank you for the question. The strong growth we've seen in our China retail market place, especially online marketing service, actually, when you look at these drivers, the number of clicks, click through rate, all of these shows very healthy growth. And this actually due to our continued efforts in providing the relevant content to our data and technology to attract more users and buyers to our platform. So in terms of going forward, we are very confident that all of these efforts we made will generate good results going forward. And things like our algorithm improvement, personalization and the use of data, Right now, we see this is still at a starting point at the early stage. Dheos, I just want to supplement that you asked about the distinction between brand and Pay for Performance advertising as though those 2 are different types of coming from different types of advertising budgets. We actually don't see it that way. If you take a typical FMCG company, they will use pay for performance, in other words, click based type of advertising even to promote their brand because the landing page of the click could fall on something that is a brand promotional page as opposed to a detailed product item to be purchased. So they're seeing our suite of potential online marketing products from Pay for Performance to CPM based advertising to special sort of customized brand promotional campaigns using our data sets. So I don't think we are seeing the online marketing business as a brand versus P4P type of split. Understood. Thank you. Operator, next question. Thank you. Your next question comes from the line of Mark Mahaney from RBC Capital Markets. Please ask your question. Great, thanks. I just want to ask about international. You had that data point in there about how you've now achieved 83,000,000 active buyers. When you think about overall investment priorities for the company, where does and since the IPO, has international now become a much more material investment area for you in terms of potentially strategic actions or organic growth? Just lay that versus the other growth initiatives that you have now. How does international rank? Thank you. This is Daniel. Yes, international is our core strategy for the next 5 to 10 years, and we are very happy to see we made a complete progress in Southeast Asia. Actually, last April and since our investment in Lazada last April, actually their business grew very well, and together with the existing AliExpress, which is a cross border export business, Actually, we are happy to see in terms of the GMV, in terms of the annual active buyer, we see a robust growth, but we do believe this is just the early stage of the new game in the market outside China. What we want to do is to leverage what we call the China engine to empower the growth in other markets. China is famous for the manufacturing and we have so many local brands, China local brands and retailers and small OEM factories on our China retail platforms. Today, they are eager to go with us to the new market outside China. We believe this gives us a unique value proposition and a unique advantage to grow the new market outside China. Thank you, Daniel. Operator, thanks for that. Thank you. Your next question comes from the line of Alan Hellawell from Deutsche Bank. Please ask your question. Thank you and again congratulations. I was hoping to gain further color on margin profile for core e commerce and media and entertainment as we move into FY 2018. It's very well profiled that in core e commerce, you have countervailing trends, which is the extremely profitable and leverageable core retail business. And for the time being at least, the impact of growth businesses such as Lazada and Tmall Supermarket. And so I'm just curious how we should think about the interplay of those 2 broad pieces in Commerce as we from an EBITDA margin perspective as we move into FY 2018. And then similarly, Maggie had very helpfully pointed out or suggested that there is scope for negative margin compression or margin improvement in digital media and entertainment. And I'm just wondering whether you could just outline the basic content spend plans for iQIYI and then maybe top line related progress in subscriptions? And then finally, so much just a big picture question, so much of the story and the success story of marketing services seems to crystallize in the experience of key account Tmall storefronts. They get the branding value proposition that Joe and Company have been talking about over the past year. I'm just wondering the guys in the middle and the bottom of the pyramid, what are we doing for them? Because it's been said at times that we have more than 1,000,000 advertisers, and I'd love to find out how they're achieving success. Thank you. Thank you, Alan. In terms of the margin, as we as you have seen that our China retail business continues to see very strong margin and that is the result of healthy operating leverage offset by our investments in those new areas. So going forward, we continue to see this huge potential in each of our business development. So high probability of our core commerce will support our investment in new businesses such as cloud computing and digital media entertainment. In the long run, we do expect to see cross segment synergies that will further deliver overall leverages in the entire business. Having said that, like we mentioned before that we don't manage the business to manage our overall margin profile. We will ensure the growth of the whole business and profitability. That's how we look at business margin. Yes. I want to have a few more comments on the first question. I think in terms of T Mobile Supermart and Lazada, I would say like Tmall Supermarket, we never view this as a separate independent business and we view this as a very important piece of the entire Tmall operation. And for this Tmall Supermall operation, we very effectively improved the user stickiness and improved the user experience and because they are all buying the daily necessities on T Mobile Supermarket. Today, our fresh product business also went very well through our T Mobile Supermarket. So, even we have a lot of investment in T Mobile Supermarts, on a general basis, you can see we have very robust growth in profitability and we do believe this is a model, it's a very healthy model. We will continue to invest on this. In terms of Lazada, actually today is still at an early stage, but we are very happy to see the fast growth of your business, but we do see a strong synergies between the overseas market and China market. On top of the China supply to the world, I mentioned just now, and we're also trying to leverage the fulfillment network Lazada build in Southeast Asia and to leverage this network to ship the product from China to that region and for multiple retail platforms of Alibaba. So, that's the synergy we can see in our globalization. Alan, I'll address your second question about kind of the content spending layout for the Youku business. The first thing to say is that we don't think this is a winner take all market. This is an entertainment market that is large enough that can accommodate several players. And the market has basically settled to 3 main players, as you know. And we think that over time, the market will become more rational. Although in the near term, there's still going to be pretty fierce competition for licensed content. But I think just like other players, we have moved towards not just licensing content that we don't produce, but also to develop ways for developing proprietary content and working with talent and directors for proprietary content. So over time, the cost of content should come down. Obviously, we're not going to telegraph to you how much we're going to spend over the next 12 to 18 months. This is a very competitive market, and we will find content that we want to spend on accordingly. This is Daniel again. For the last question about the small scale business on our platform, I would say that's very important question. And these group of businesses are very, very important to Alibaba because our mission to help SMEs to make it easier to do this anywhere. So, in terms of how to help them to do this better, today, what we do is to leverage the data and technology. We develop a lot of tools and services to enable them to do business efficiently. For example, today, the small scale business, they can maybe they don't afford to do a very big brand activities, but they do have the tool, a very efficient tool to tailor their storefront homepage, which could be driven by big data and for the visitors to the store, and they can see the different selections and different views, even different views. We also give a lot of promotion and marketing tools to these small merchants. I think this is the growth the continuous growth of our small merchants is very, very critical to the long term success of our business. Thank you. Operator, next question please. Thank you. And your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question. Hi, good evening. Two questions. The first one is about the product mix on your Chinese e commerce platform. I'm just wondering if we have seen a shift of product mix from highmargined products to low margin business or the other way around? And how would that affect the ability of your merchants to pay for your marketing and other services? So that's my first question. And then the second question is also related to your overseas business. So just wondering, broadly speaking, are we at the moment, are we going deeper in the existing markets? Or are we thinking more about increasing our geographical coverage to more countries? Thanks. In terms of product mix, I would say, actually, we are such a big platform and we have over 500,000,000 monthly mobile active users. So, we cannot give 500,000,000 people the consistent high value or low value product, low priced product. So, that's why the data driven business is so important to us. So, today, what I can share with you is that we have already accomplished the 100% data driven personalization page in all of our major user interface and our mobile app. We rank this not only based on the price, but most important thing is based on the lifestyle, based on the demographic of our customers. That's the core of our operating methodology. In terms of the international strategy, as I said before, this is a long term commitment. This is a long term strategy. We start with Southeast Asia. We believe that this is a very, very important region with very big population, but close to China and enough Chinese population there. The Chinese products are very popular in this market, so that's why we start with Southeast Asia. Our cross border export platform, AliExpress, will also cover a lot more countries, and we will continue to invest in this international market, but this is a long that's a long way to go. Thank you. Operator, next question. Thank you. Your next question comes from the line of Eric Sheridan from UBS. Please ask your question. Very much for taking the questions. Maybe the first, I was curious how short form video or video around brand awareness or selling might become a bigger part of the platform longer term, sort of merging the worlds of video consumption with e commerce and what that might mean for bandwidth or infrastructure costs longer term? 2nd question would be following up on Joe's comment from the presentation, Maybe an update on how your leading advantage on mobile commerce is accelerating your efforts to blur the lines between offline and online retail? Thank you so much. This is a very interesting question. For the short form video, we believe this is a very important content format and in the future in mobile commerce. And we do see actually in our mobile ecosystem, actually before we have buyer and seller, but now we have a lot more roles, a lot more partners in this ecosystem. Some of them are the content providers and celebrities, influencers or even brand sales, but Compared to other content formats, actually short form video in e commerce, actually, they have some advantage. The biggest advantage is that a lot of content are evergreen. A lot of contents can be repeatedly consumed and which will give us a lot of operating leverage. And in the longer run, we do see some cost increase in short form video, but if we look at the overall user experience and the merchant tools, the video as a merchant tools to promote their brand and broadcast their new content, new products, we believe this will definitely enrich the user experience and enrich the ROI of the merchants' operation. Eric, on your second question, I think there's a digitizing the offline retail sector is a very, very complex question. So it's probably would take some time to get into all the details. But I think to get people a better understanding of this is to understand that we are the partner of choice right now because of our large scale online presence and hundreds of millions of consumers coming to our platform and all the data we have on these consumers so that these physical retailers, retailers with physical footprint are very, very interested in working with us, trying to figure out how to increase their foot traffic as well as obviously increasing their sales per square foot, how to better leverage their real estate to make their operations more efficient and also more sales. They are now a lot of the retailers are with physical footprint are not doing great, but they see an opportunity, those that are willing to sort of disrupt themselves and adopt changes working with us will come out ahead. And that's why we're pushing the strategy of new retail very, very hard. And I think if you come to our investor today, we'll be able to develop a more sort of comprehensive understanding of new retail. It is a complex area. We think we're the only people that have the capability and understanding and the know how to execute it. Operator, next question. Thank you. Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question. Hi. Thank you. Good evening, management. Congrats on the strong results. Thanks for taking my questions. I have a question. Can management share with us among the big brands on your platform, how much of the percentage of ad budgets that you believe Ali is now capturing? And how much higher the overall ad budget percentage you could ultimately capture over the medium to long term? And then a quick question is that, is there any plans for investing or partnering into the autonomous driving technology? Thank you. Yes. Today, on our retail marketplace, we have a lot of brand partners. They are not only sales products on our platform, but also doing brand building activities, customer management activities, promotions. And we do see they spend more and more dollar on our platform, but we do see a very interesting changing trend, which is before they spend more like a dollar in nature of trade marketing because the people who are running the business on our platform are traditional e commerce team, we call e commerce team, but today, more and more companies connect that e commerce team with the digital marketing team. So, today, especially after our development of the digital media and entertainment platform, we established a very good connection between digital marketing and commerce, and we are very confident that over time, people will spend more and more marketing dollar and branding dollar for the data driven cross platform solutions on our ecosystem. On the autonomous driving question, I think you have to understand, a lot of technology companies are doing this. Obviously, the long term commercial opportunities are very murky. Nobody has figured out the long term economic model for this, but people are doing it because there are some very interesting artificial intelligence related technology in an autonomous driven car that gets all the technology companies very intrigued, things like computer vision, LiDAR technology, simultaneous localization and mapping. And all those technologies are very interesting and that's why companies are all investing in those technologies. And the same is true in the case of Alibaba. We may not be investing those technologies to create a driverless car, but we are investing in all those component technologies for other applications. Operator, next question please. Thank you. Your next question comes from the line of Tse Chieng from HSBC. Please ask your question. Great. Thank you very much and good evening everybody. I wanted to ask you about your rural strategy. If you can give us an update on your plans to expand coverage also to drive demand in rural China? And I'm also wondering if you can give us an idea of what percentage of your China retail business is being driven by retail in terms of whether it's buyers or sort of spending and how fast that's growing? Thank you so much. Yes. Rural strategy is very, very important. During the past 2 years, we have already developed a very we have very rapid growth in rural areas. We have a rural Taobao strategy, which today covers close to 30,000 villages across China. And today, what we do see that the traditional brick and mortar chains cannot effectively and efficiently cover the rural areas. Internet do give us a new way to serve the people in the village. So, what we are doing right now is to help our merchants, brands on our retail marketplaces to work closely with them to serve the people in the village. We even do tailor made products with our brand partners to eliminate all the distribution channels to serve the end customers in the village. But looking ahead, we are not only trying to sell more from urban city to the rural areas. Actually, in rural villages, we also can have a very good organic agricultural product supply, and what we want to do is to again use our retail platform. We want to help them, help the farmer to sell more to the people in the city. Regarding to your question on the revenue driver for China retail marketplace revenue, if you look at the direct driver, the people who are paying us are these merchants and brands. So the number of paying merchants and brands are increasing as well as their spending level at our platform. So what makes them paying more and more people coming to us is what we have done on our marketplace, both on user and user experience side. So I mentioned about the growth driver of revenue, increases in the number of users coming to our platform. We reported 507,000,000 MMUs by the end of this quarter. And so that the volume of the clicks and also the conversion of all these matches all showing a very positive growing trend. This reflects that our ability to deliver more relevant content to consumers to improve the data and technology. So this is the so by the end of the day, when merchants and brands look at the value we provided to them, they vote at their feet, right? They started more and more people started to realize that the value we provided are not only the transaction value, but also help them acquire consumer and make the consumers buy and then retain the consumer, the loyalty, basically the whole customer operation in the entire customer life. So that's the driver for the growth in China retail marketplace. Thank you for that. I was actually referring to framing that question around rural, trying to get an understanding of how much rural is impacting your China retail business in terms of buyers or in GMV or something like that? Yes. Rural right now is still a small very small business compared to our entire China retail. So not significant nothing significant. Operator, we will take the last two questions, please. Okay. So thank you. Your next question comes from the line of Jason Helfstein from Oppenheimer. Please ask your question. Thanks. Perhaps a longer term question, specific to the 2020 goal of a trillion of GMV and 2,000,000,000 customers, generally, how do you see that broken down between domestic and international just as you're thinking long term about our global strategy? Thank you. Well, we do have a goal in 2020. We want to achieve RMB6 1,000,000,000,000 in GMV by year 2020. But I think to serve 2,000,000,000 consumers is an even longer term goal, And we are working very hard towards that goal, but I think we just are at the beginning stage to get our business globalized. Southeast Asia is the first area we are exploring, and we want to make sure that we understand the local culture and the local people because shopping is highly relevant to the culture and lifestyle. So, actually, this also gives us a lot of opportunities to train our people upgrade our team to be a real global team. I think that's the most important thing at this stage. With a more powerful team and people, we can serve more consumers around the world. Last question, please. Your last question comes from the line of Evan Zhao from Credit Suisse. Please ask your question. Hi, good evening. Thank you for taking my questions. My question is regarding our media related revenue. Just wondering whether we can have some more colors on kind of the breakdown for that revenue because I think UCGRAPH has been doing really well besides the YouKu business. And also within YouKu, I think the industry trend is that the pace of subscription related revenue has been surpassing the added data revenue. So I was wondering whether we kind of see the similar trend? And also, are there any other sort of like user pay related revenue like live streaming or music related revenue that we can have some more colors on? And then finally, on our succeeding buyback program, I think traditionally we do this to kind of offset the establishing impact on SEC, but as we see our SEC also being kind of trending down, both on actual numbers and as a percent of revenue. So I was wondering that whether we're kind of seeing the program the buyback program as another way to kind of reach value to shareholders? Thank you. For the first question, actually, view UCO, we view UCWeb and our assets in digital media sector not a standalone asset again. We view this as an integrated part of our consumer media platform, which is our mobile, Taiwan, Tmall. So, actually, we do see a big advantage to leverage our existing advertiser base on our China retail platform and to help them to promote their products and build their brand cross platform to Youku and to Youku to UC web, but using the organic ad format consistent with the content in both of the in each of the apps. So today, we are in a very unique position to have a consumer media. We have a video site. We have the mobile search plus news feeds and ads format, which is all in one solution to our advertisers. But most important thing is that back end, we have our Unifi ID in place to help our advertisers to track the footprints of the advertisers and all the data could be collected and used further in their future operations. This is a unique position of our UCWeb and Youku revenue operation. Yes, I'll comment on the buyback program. So I think you need to look at the buyback program in the context of what we've already done over the last two and a half years since we became a public company. Over that period, we spent a total of $5,100,000,000 and bought back approximately 3 percentage points of our shares. And the reason that we had communicated very clearly was that we want to prevent dilution. So I'm very happy to say that since the IPO, our share count, our outstanding share count has not increased despite our stock based compensation programs. So the primary reason for buyback is to sterilize the dilutive effect of our stock based comp program. And I think this $6,000,000,000 buyback is no different. For that main purpose. But when you say return value to shareholders, it is in a buyback anytime you counter the dilutive effects, you are it's not returning value to shareholders, you're preserving value to shareholders. But obviously, cash is going out the door to some shareholders in a buyback program. But we are not saying that, oh, we have cash sitting on the balance sheet we don't know what to do with. There are a lot of very important strategic activities where we have $20,000,000,000 of cash on the balance sheet that we want to deploy. And the buyback is part of our capital allocation thinking, but it's not the only thing. There are plenty of strategic areas and opportunities we would want to be able to deploy our cash. Okay. Thanks everyone for joining. If you have further questions, please reach out to the Investor Relations team. Thank you. Thank you, ladies and gentlemen. Unfortunately, we have run out of time for further questions. That does conclude our conference for today. Thank you for participating. You may all disconnect.