Good day, ladies and gentlemen. Thanks for standing by. Welcome to Alibaba Group December quarter 2016 results conference call. At this time, all participants are on listen-only mode. After management's prepared remarks, there will be a Q&A session. I'd like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.
Good day, everyone, welcome to Alibaba Group's December quarter 2016 earnings conference call. With us today are Joe Tsai, Executive Vice Chairman; Daniel Zhang, Chief Executive Officer; Maggie Wu, Chief Financial Officer. This call is also being webcast from our IR section of the corporate website. A replay of the call will be available on our website later today. Now, let me quickly cover the safe harbor. Today's discussion will contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties and they cause actual results to differ materially from our current expectations. To understand 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 measure that we use on this call, such as adjusted EBITDA, segment 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 on GAAP and non-GAAP measures can be found in our earnings press release. With that, I will turn the call over to Joe.
Thanks, Rob. Thank you all for joining us. With 54% year-on-year revenue growth and $4.9 billion in free cash flow, our numbers speak for themselves. As Maggie will go through with you, we're increasing our revenue growth guidance for the full fiscal year from 48% to 53%. To put this in perspective, fiscal year 2016 revenues grew by 33% versus the prior year. This means our revenue growth in fiscal 2017 is expected to accelerate by 20 percentage points to 53%. Let me provide a qualitative perspective on our organic value creation, which is allowing us to accelerate growth on an even bigger base. There are two primary reasons. First, as we have said, our marketplaces are much more than distribution channels for brands and merchants.
As we transform to a high-value marketing platform, we are increasingly capturing more merchant spend on both distribution and marketing services. The shift to mobile has also created new ways to engage with users, which generates significant additional value, not only on the existing platform, but also new opportunities by integrating mobile internet with physical retail outlets. Second, Alibaba is a data company. We leverage data to better engage consumers, personalize their experiences, and create value for brands and merchants doing business on our platform. Few companies have the rich dataset we have because of the diversity of our businesses. Moreover, we benefit from synergies between business units because of common data structures. For example, our Core Commerce and Digital Media and Entertainment units work together to leverage comprehensive consumer profiles to deliver a differentiated experience for our users and enhance customer loyalty.
Higher personalization of content and more engaged users translate into incremental monetizable value to producers of goods, services, and content who wish to access these users within our ecosystem. I also think our mentality plays a role. We're constantly looking for the next technology breakthroughs that could disrupt our business, and we embrace them rather than shy away from them. Our mindset is constantly paranoid, which we believe is the hallmark of a great technology company. Now, I would like to turn it over to Daniel. Thank you.
Thanks, Joe. Hello, everyone, and thank you for joining our earnings call today. We enjoy another quarter of robust growth. This is a result of our focus on long-term forward-looking strategies, combined with strong execution capability. Our results also demonstrate the continuing prosperity and expansion of the Alibaba ecosystem. Our Core Commerce business continues to maintain substantial growth, with the total revenue increasing 45% year-over-year. Sophisticated personalization based on our data analytics, as well as content-driven and interactive social engagement, have strengthened user acquisition and stickiness on our China retail marketplaces. Mobile MAUs this quarter grew by 43 million to reach a total of 493 million. Our cloud business made significant gains in customers and market penetration. The cloud computing unit added 114,000 paying customers during the quarter to a total of 765,000 customers.
At the same time, we expanded our global footprint by launching data centers internationally, following our Chinese customers to new markets, as well as acquiring new customers outside China. Our digital media and entertainment business, the strategic big picture is taking shape as we integrate Youku and other investments in film, music, and sports. We are excited by the possibilities of an integrated approach between entertainment and commerce as we enhance customers' experiences and loyalties through offering that making shopping fun and entertainment affordable. This past quarter, we hosted the world's biggest shopping day, the 11.11 Global Shopping Festival, where for the eighth years in a row, we continued our tradition of delivering new highs.
Behind the $17.4 billion of GMV is a massive mobilization of infrastructure and resources across our ecosystem with our network of partners working together in a highly collaborative fashion to provide consumers around the world a highly unique shopping experience. Double Eleven showcased the extraordinary competitive advantage of our platform model, as well as important emerging trends in the digital economy, which I will highlight below. First, entertainment and interactive engagement are part of the consumer commerce experience. During November 11, we saw plenty of examples of interactive features and entertainment contents in driving user engagement and ultimate spurring purchases. Programs such as Tmall Collection Fashion Show, live streaming, interactive AR, and location-based games, and the Countdown Gala, in aggregate, provided approximately 20 billion consumer interactive engagements with one another and with our platform.
Consumers discovered that through our innovative products and technology, the mobile interface is not just a digital shelf for inventory, but rather an access point to a fun and entertaining shopping experience. Through this, we are seeing new ways in which this generation of young consumers making their buying decisions. Second, data-driven personalization is an immense competitive advantage. Drawing on our tremendous volume of consumer data, we are providing each user with a highly personalized shopping environment and product recommendations. Meanwhile, availability of customer data enables merchants to implement the customization backend tools to manage their storefronts to effectively segment their customers and display more relevant products on an individualized basis. During November 11, more than 400,000 merchants employed our technology to customize their store display for different consumer demographics.
Third, the combination of China's emerging middle class and enabling technologies are making the world smaller. The demand for high-quality imported products for Chinese consumers has accelerated with ongoing evolution in consumer taste and lifestyle. What has made this consumption-driven growth possible in years of real wage increases and a high level of savings in recent years. During this Double Eleven, more than 47 million consumers on our platform bought goods from close to 15,000 international brands. Looking ahead, as we enter a new year, I want to share with you my observations about change in the retail sector as well as outlook on our cloud and the digital media and entertainment business. We have coined the term New Retail to describe a world where the distinction between online and offline commerce becomes obsolete.
This is possible because of Internet user behavior is changing from desktop computers to mobile. New Retail will result in new value creation from the integration of traditional retail with mobile Internet innovation. Relationships among the consumer, merchandise and the retail space will be restructured to offer a better value propositions to consumers, as well as enhanced operating efficiencies for merchants. This is a trend that will be inevitable, and we will turn theory into action along these lines. Recently, we completed an investment in the regional supermarket chain, Ningbo Sanjiang, and make an offer to acquire the department store group Intime Retail. Both transactions are highly strategic in purpose, and we look forward to updating you in the future regarding our execution of the New Retail strategy.
Our cloud business is in a unique position to leverage the foundation of technology developed for our e-commerce platforms to serve new non-e-commerce clients. These sophisticated proprietary technologies include the security, middleware, and content delivery network. We are also optimizing the enormous server capacity created for e-commerce and to serve third-party clients through a load balancing system. We will continue to grow our cloud ecosystem by working closely with independent software vendors, developers, and other technology and service providers in our PaaS and the SaaS layers. Looking forward, we will continue to invest in our cloud business to enhance market leadership and scale. We will continue to invest in our digital media and entertainment business. We believe digital contents will make up an increasingly large proportion of total consumption volume by young consumers.
Enabling hundreds of millions of consumers to simultaneously shop on our commerce platforms and consume digital contents on our digital media and entertainment platforms enhances both our user value proposition and user stickiness. Through the support of big data, our e-commerce merchants will be able to target and engage consumers seamlessly across our digital media and entertainment platforms and vice versa, resulting in the perfect unification of brand building, marketing, and sales. 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 set of excellent results this quarter. Total revenue grew 54% year-on-year to CNY 53.2 billion, with revenue from the core commerce segment growing 45% year-over-year. Our core commerce segment EBITDA margin was 64%. Mobile contribution continues to climb, reaching 80% of total China commerce retail revenue as we added 43 million mobile MAUs to a total of 493 million MAUs in December. Cloud computing revenue grew 115% year-over-year, and the segment adjusted EBITDA margin was - 5%. This quarter, we generated $4.9 billion in free cash flow on non-GAAP basis.
Total revenue grew 54% year-on-year, mainly driven by the robust revenue growth of our China commerce retail businesses, Ali Cloud, as well as the consolidation of newly acquired businesses, mainly Youku Tudou and Lazada. The biggest component of the core commerce segment is the China commerce retail business, its revenue growth was primarily driven by online marketing service revenue, which increased to 47% year-over-year. China commerce retail also recorded accelerating commission revenue growth of 32% year-over-year, which is mainly driven by strong Tmall GMV growth. Talk about monetization. Our ability to monetize the users on our platform continues to improve. Revenue per annual active buyer has continued its increase, reaching $35 in December quarter.
On the mobile front, mobile revenue per mobile user has also been increasing for several quarters, reaching $24 in December quarter. Our mobile commerce platforms have become the destiny for social commerce and brand engagement. We have accumulated a wealth of user behaviors beyond conducting transactions and demonstrated the substantial marketing value of the platform to brands and merchants. Quarterly cost trends. Cost of revenue excluding stock-based compensation was CNY 18.5 billion. As a percentage of revenue, it increased year-over-year, primarily due to an increase in content acquisition cost of Youku Tudou, cost of inventory of Lazada, and the logistic costs associated with Tmall Supermarket. Other cost items excluding SBC as a percentage of revenue all decreased slightly year-over-year, including product development, sales and marketing expense, and G&A.
The percentage of revenue decreases reflect operating leverage in a seasonally strong quarter and solid revenue growth. Non-GAAP net income in the quarter was CNY 22.5 billion, an increase of 36% year-over-year. Free cash flow, capital expenditures, and cash. We continue to generate significant free cash flow. In the December quarter, we generated CNY 34 billion or about $4.9 billion 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 capital expenditures in December quarter were CNY 7.3 billion, in which CNY 4.1 billion is related from the acquisition of land use right and the construction in progress. This is mainly our campus in the cities other than Hangzhou.
As of December 31st, 2015, our cash equivalents and short-term investments were CNY 138.5 billion, or $20 billion. This is an increase of CNY 31 billion from the end of September quarter, primarily because of free cash flow generation from our operations. Segment reporting. Core commerce revenue increased 45% year-over-year. China commerce retail revenue grew 42%, primarily due to strong growth of 47% year-over-year in online marketing services revenue. The growth of online marketing service revenue was driven by increases in volume of clicks from strong traffic growth and better click-through rate. This is a reflection of our ability to deliver more relevant content to consumers through our improved data technology. This growth resulted in higher average spending our online marketing services by an increasing number of brands and merchants.
Commission revenue representing 30% of our China commerce retail revenue in the quarter grew by 32% year-over-year, reflecting strong Tmall GMV growth. International commerce retail revenue increased 288% year-over-year, mainly due to the consolidation of Lazada starting in mid-April and the re-acceleration of the revenue growth from AliExpress. The adjusted EBITDA margin of the segment was 64% this quarter, a slight decline from the same quarter last year. This was, as communicated earlier, this is primarily due to the consolidation of Lazada and our investment in Tmall Supermarket. Mobile MAU growth was again very robust this quarter. Our China retail marketplaces added 43 million MAUs. We are encouraged by the level of user growth as well as engagement on our mobile platforms, as our marketplaces have become the destination for social commerce and brand engagement.
The average annual spend per active buyer for 12 months ended December continued to increase both year-over-year and quarter-over-quarter. Our consumers purchased more and more frequently across more categories on our platforms. Cloud computing revenue grew 115% year-on-year. The growth was primarily due to an increase in the number of paying customers, which have doubled since a year ago quarter to 765,000, and also to an increase in their usage of more complex offerings. We announced a number of price cuts of our cloud computing products during the quarter, actually at the beginning of the quarter. That had some impact to the top line growth. Overall, the top line is still growing strongly. We're committed to pass to our customers the benefits from cost saving achieved through improved technology and scale.
Our cloud computing paying customers across a variety of industries and our businesses ranging from startups to large corps. Cloud revenue from related parties only contributed a single digit percentage of our total cloud computing revenue. Adjusted EBITDA margin of the cloud computing segment significantly improved from - 41% in the prior year's quarter to - 5% this quarter. Our cloud computing business's top priority remains expanding market leadership. We will continue to invest in customers through more cost efficient, effective solutions for standard products as well as developing and deploying more sophisticated value-added products and services. Digital media and entertainment. Digital media and entertainment segment revenue increased 273% year-over-year, primarily due to the full effect of consolidating Youku and also to an increase in revenue from mobile value-added services provided by UCWeb.
Adjusted EBITDA margin of this segment was -6 0%, primarily due to aggressive content acquisition and development costs of Youku partially offset by improvement in UCWeb's margin. We will continue to invest in content, user acquisition, and infrastructure for the segment. Going forward, on full- year basis, we expect the segment revenue would continue to fast grow, and we expect the negative EBITDA margin for Digital Media and Entertainment segment to narrow. Innovation Initiatives and Others. Revenue from Innovation Initiatives and Others segment increased 61% year-over-year. Adjusted EBITDA margin of this segment was -9 3%, reflecting our continuing investment in AutoNavi, YunOS, and DingTalk. As said earlier, our different businesses are in different development stages. The Core Commerce segment has delivered another quarter of strong revenue growth with a strong EBITDA margin.
The substantial profits and free cash flow generated from the Core Commerce segment has been and will be reinvested back into new growth drivers such as Cloud Computing, Digital Media and Entertainment, and new businesses of the Core Commerce segment. Our Cloud Computing business will continue to focus on talent, technology investment to further strengthen our leading industry position in China. Our Digital Media and Entertainment business will continue to invest in a combination of licensed premium content and original programs to drive user growth and increase market share. Overall, we will continue to make investment in these strategic businesses, and the investments made from time to time outpace operating leverage. Guidance change.
With revenue coming in ahead of expectations in the first three quarters of the fiscal year and the good revenue visibility of the March quarter, we are adjusting up our full fiscal year revenue guidance from 48% to 53% growth year-over-year. That concludes our prepared remarks. Operator, we're ready to begin the Q&A session. Thank you.
Thank you. Ladies and gentlemen, we'll now begin the question-and-answer session. Your first question comes from the line of Alan Hellawell of Deutsche Bank. Please ask your question.
Thank you very much. Tremendous results, and congratulations. It looks as though Core E-commerce is clearly going from strength to strength. I was just interested in the media and entertainment arm. Maggie just mentioned expectations that negative margins might narrow, I think, going through the end of the fiscal year. Does that speak more to accelerating revenue growth or moderating increases in content pricing? Also, if you don't mind, do we think that margin trend will continue throughout calendar year 2017? Thank you.
Hey, Alan Hellawell. I said that just now. We expect the revenue for the digital media entertainment segment will continue to grow fast, and we do expect the negative EBITDA margin will narrow for the following years, you know, on a full- year basis. Of course, there are some seasonality, you know, there are some flashes quarter- by- quarter. We're talking about the full- year comparison. The reason we have that expectation, one thing is that we do expect, you know, after integration of that sector, you know, especially Youku, we're gonna see some synergy, and we're gonna see the power for the growth of that sector. The revenue of that sector will continue its fast growth. That's reason one.
At the same time, we're gonna continue to invest in the content, you know, and also user acquisition, technology infrastructure. Investment won't be held back. We still see great potential for us to invest and to grow.
Fantastic. Sorry. My second question is, we've often given some very useful insights on the marketing services side around the interplay between paid clicks and CPC. Can you just give us an update? And forgive me, maybe you mentioned this in the prepared remarks. If we think about the growth in marketing services revenues, to what extent was it paid clicks, and what might have CPC inflation been? Thank you very much.
Sure. Alan, the increase in the online marketing revenue, if we look at the reason from the technical point of view, it's due to the increase in the number of clicks and also higher conversion. There is another angle to look at it, which is, you know, the strategic angle that we have more users, spend more time and more merchants, with higher spend in our platform. This is what we see the power of the data technology we have been talking and working on that start to deliver results. When you look at the direct driver, you know, number of merchants and average spending of the merchants are growing. From the consumer side, number of the clicks, which is traffic, and the conversions are growing.
Thanks so much.
Thank you. Your next question comes from the line of Eddie Leung of Merrill Lynch. Please ask your question.
Hi. Good morning and good evening. Many congratulations on a very strong quarter. As regarding to 2017, could you talk about your main objectives for this year? What are some of the things that you would like to achieve in 2017? Separately, could you also give us an update on your product mix? I understand that you won't disclose GMV anymore, but just I want to get a sense on some of the faster-growing product categories and, you know, some of the underlying trends. Thank you.
Thanks. This is Daniel. I will try to answer your first question. Yes, actually, 2017 is coming. I would say in this new year, we will continue to execute our strategy, and we have three very clear strategies. First is globalization, second is rural China, third one is cloud computing, big data. I think the strategies is very clear and this is actually give us a very clear guidance for the future growth. We'll continue to execute, and we have already demonstrated excellent execution capability, and we'll continue to do so. Also, actually, I think this in the coming year, we also will try our best to realize the synergy of the investments we made and the new business we invested.
For example, in cloud computing, as I said in my remarks, we want to generate enough synergy from technologies and infrastructures and the capacities we build up in e-commerce and leverage in cloud computing. In digital entertainment, what we wanna build up is to leverage the user base we have in e-commerce platform and to convert to the digital content consumers in digital marketing platform. From the merchant perspective, Now today, all the merchants want to spend marketing dollars smartly and cross-platforms. Our digital media entertainment platform will leverage big data, consumer data we have, and to provide solutions, big data solutions, marketing solutions to help them to brand building, to build brand, to engage customer, and to make sales in one total solution.
Right. Regarding to your second question, Leung, first of all, I want to clarify that it's not correct to say that we stopped reporting GMV. We actually will continue to report GMV on annual basis. The only reason that we don't report on quarterly basis is that our value creation is already go beyond GMV in transaction, we don't manage GMV on quarterly basis. Come back to your question on the product mix going forward. Obviously the four segment business segments we have, the new business initiatives like cloud computing, digital media entertainment, will grow fast. Cloud computing shows much faster growth than the core business. This business is gonna show, demonstrate in increasing importance in terms of their contribution to total revenue. Our core business is gonna still show strong growth.
within the e-commerce segment, the product mix, the big product categories of soft goods, apparel, electronics, FMCG, those categories have not, the mix have not changed over time.
Got it. Thank you very much.
Your next question comes from the line of Alicia Yap of Citigroup. Please ask your question.
My first question is related to your approach on Koubei. With the latest rounds of the equity financing and the industry landscape, you know, getting more settled, will Koubei become more aggressive in gaining market share given the competition's, you know, scaling back a little bit? Any update on that strategy will be appreciated. I have second question. Thanks.
Yes. Actually, Koubei is our joint venture with Ant Financial. We're very happy to see they made very good progress in the business expansion and in terms of payment volume and the value created for the offline retailers and the restaurants. Today, I think, they are in a very good position and gaining access to the merchants and to the offline merchants by payments with service. Looking ahead, I would say actually they will by the big data we have and data shared between AGH and Ant Financial, I think Koubei can leverage the data we have to create a lot of marketing services and value-added services to the offline merchants. I think that will give more value to the merchants.
Okay. My second question is actually related to your China retail revenue growth. I think, if we remember correctly, I think management did highlight during the last earnings call that given the lapse of the ad load benefit, we'll start to see some tough comp in December quarter. Today you reported a very strong growth in marketing service revenue. Obviously that's reflecting the merchants and brands recognition and also the increased clicks and all that, and also the strong seasonality. Just wanted to get a sense, was there still any, you know, kind of like benefit from the ad load? How should we look at these services line, marketing line, for the March quarter and also fiscal 2018? It does looks like our monetization ability could actually sustained at a very strong growth. Thank you.
Okay. First of all, we are very happy to see the strong growth of the marketing service revenue in this quarter. Like, actually this quarter we have not had even ad loads in this quarter. The main driver of the strong growth is from two things. First is from the growth in the traffic, which actually you can see from the net adds of the mobile MAU this quarter. Also people spend more time on our mobile app because of the interactive engagement. The second driver of the revenue growth is from the technical improvement, which drive higher the click-through rate. I think these two are the main drivers of the marketing service revenue growth. I think this is also very good for the future.
Okay, great. Thank you.
Thank you.
The next question comes from the line of Ken Sena of Evercore ISI. Please ask your question.
Hi, thank you. Just on the video content spend, in digital media and entertainment, you know, can you maybe just walk us through how you're thinking about the ramp there and also, you know, anything you could say on your approach to amortization as far as how we might wanna think about phasing this more into our models as this kind of steps up? Then maybe also just on the New Retail comments, can you speak to maybe how Intime fits in to that? Also you mentioned the CNY 2.8 billion in maximum cash, just, you know, how that's being determined and over what period. Thank you.
Okay, this is Daniel. I will try to answer the New Retail question first. Actually, we elaborate our New Retail strategies very clearly. We strong believe that online, offline, will be highly integrated and will create a brand new user experience in the future. So as part of our efforts to execute the New Retail strategy, we are making an offer to acquire Intime. The purpose of the acquisition is to make a full-scale test of the online, offline New Retail format. We strong believe the unique and value creation and user experience will form a redefinition of the retail format.
This will create, will reposition the people, the merchandises and the consumer retail space. I think this will create a lot of new experience. Over the past two years, we have done a lot of exercise to prepare the technology infrastructure. For example, today, we have made to make technically, we can support the sharing of the inventory online, offline, and we can help the merchants to connect their online, offline loyalty membership program. We also can connect the online, offline service and make online purchase enjoy the offline service, vice versa. I think that's very important, but basic preparation for the omni channel for the new for the integration. Having said that, to create a new experience, it's all about the restructuring the elements of the retail outlets. That's why we want to privatize Intime and to do the full-scale test.
Right. Regarding your first question on the investment in content, we will continue to invest in a combination of licensed and premium contents and also original programs to driver the user growth and increase the market share for our digital media entertainment business. Talk about amortization schedule, we charge the, you know, it's to P&L when the content get broadcasted. Normally it's within a year time.
Okay. Just, you know, any color on the, the, maximum cash output for Intime, can you just as far as how that's being determined or over what period?
Uh- If you're referring to the CNY 2.6 billion we have announced in terms of the cash outlay, that is just the our share of the acquisition price to take control of the company. Basically, that cash is going to the existing shareholders of Intime, for us to acquire the company.
Okay. Got it. Thank you.
Operator, next question.
Thank you. Your next question comes from the line of Ming Zhao of 86Research. Please ask your question.
All right. Thank you. I have two questions. The 1st question is, can you elaborate a little bit more about your New Retail strategy and the potential financial impact in your revenue and margin? Acquisition of Intime seems to indicate that you'll buy more offline retailers. Is that correct? You know, because online, you are a 3P platform, but offline you're doing 1P direct retail. We want to get more color about that strategy. The second one is, can you comment on the margin outlook for the cloud computing business? You have cut some prices in the foutth quarter. It seems like the break-even time is delayed a little bit, so any color would be helpful. Thank you.
Thanks, Ming. This is Daniel. I answer your first question. I have to say that actually, we operate online business using the platform model. Actually today, for take Intime's example, this is also a platform, but offline, our shopping mall platform. When you look at the merchants, the clients we have in each of our platforms, actually they are largely overlapped right now. This make it possible for us to do this online, offline integration because we have some merchant base, and we have some brand connection. That's the first point.
The second point is that, actually today, when we look at the growth of the retail business, online retail business, we are strong believe that our job is to upgrade, to empower the offline retail to upgrade, to make the total $4.8 trillion addressable market, retail market to be digital. That's our mission. Actually, we believe this will give us a very big space to grow our current GMV from current stage to a higher stage. We believe that as a data company, our consumer data, our technology can empower the offline retail to experience a successful digital transformation.
Right. I mean, talking about the financial impact from Intime particularly, Intime is a profit-making business. It will be in, you know, adds up to the top line, bottom line. There might be a slight drag down on the margins, but not significant at all if you look at the overall business. To answer your second question about the cloud profitability, we do see great potential in this cloud area, and we are very confident that with the data, with the technology and the team we have, we're going to quickly extend our market leadership and extend the customer base. Profitability is not our priority, although it's not a very difficult thing or, you know, seeing the profitability will not be in the very far future.
Thank you very much.
Operator, next question.
Thank you. Your next question comes from the line of Erica Werkun of UBS. Please ask your question.
Good evening, management. Congratulate for the strong quarter. This is Ming Xu asking on behalf of Erica. I have two questions. The first is on the active buyer growth and engagement. Your China retail revenue grew by 42% in this quarter on back of a 9% year-on-year growth of buyers. Just want to maybe understand more on this side. What do you see as maybe the ceiling for or the next step for user growth? Also, on engagement side, I remember in previous quarters you mentioned that every user opened the app seven times a day and spent around 20 minutes on the app. Is it possible for you to maybe give us an update on the quantitative measures of the user engagement? I have a follow-up. Thanks.
Sure. Ming, to your first question, the annual active buyer growth, it will continue growth definitely. What we see as a cap, I think we should be able to, you know, expect to see a active buyer base that's over, definitely over 500 million, maybe 600 million. At this stage, we're very happy to see that active buyer shows increasing engagement and higher spending level. That is the quality of buyer and the, you know, the activeness and the spending power of the buyer getting out from that buyer base.
In terms of the consumer user engagement, you can see that this quarter we add 43 million mobile MAU. With such a rapid growth of MAU, what I can share with you is that the time people spend on mobile app is not diluted. I think that is a very good trend. That proves our product experience and stickiness in our mobile app.
Thanks, Maggie and Daniel. My second question on the content cost of the media and entertainment business. I think you recently mentioned that you will spend around CNY 50 billion in the next three years on content. Could you maybe elaborate more on the pacing of the spending and also maybe the rough split between different kind of, spending, particularly on the online video side, which I think is particularly competitive given the landscape? Thanks.
Okay. CNY 5 billion.
CNY 50 billion.
Sorry, CNY 50 billion commitment actually demonstrate our strong commitments to the digital entertainment business. I would say in this very fast-changing industry landscape and very intense competition, I would say actually our, we believe that, we still believe the content is a key, content is a king to acquire customers and keep customers stay with us. But obviously, we have to develop our content generation strategies very smartly. First of all, I think we still have to invest in the great hits, you know, hot hits, in the great hits. The great hits is a very important to acquire and especially to acquire the big fans, a big group of fans.
In the past few months, actually, the great hits of the like Wei Wei Yi Xiao, like Jin Xiu Wei Yang also, all proves that. We will continue to make good judgment and make good investment in hot, in great hits. Secondly, we are going to develop our self-produced ecosystem and together with the internal schedule and with the internal studio and the contracted studios, and to create self-developed, self-produced good contents. This is unique to the customers on our platform. The last one is to build up a ecosystem and it create a lot of PUGC contents. This contents will give us a solid base of the selection of the contents, it can give people a very different experiences.
Yeah. One clarification to make, Ming, is that when our media and entertainment group talk about CNY 50 billion investment over the next three years, content investment is a major component, but it's not only about content, but also about user acquisition and also investment in infrastructures.
Great. Thanks, thanks Daniel and Maggie.
Operator, next question.
Yes. Thank you. Your next question comes from the line of Evan Zhou of Credit Suisse. Please ask your question.
Hi. Good evening, management. Thank you for taking my questions. Congratulations on a very strong set of quarters and happy early Chinese New Year. For questions, regarding the quick follow-ups on media entertainment as well, I was wondering if we can talk about the paid subscriptions progress within Youku. I think Youku have a decent set of paid subscription numbers, and there has been some news around like a collective disclosure of a decent number also. I think our competitors have been pretty vocal about that as well. I was wondering like if you can provide an update on that and how do we compare the unit economics of paid subscription monetization model versus the traditional ad model down the road?
Is this like a main reason why we think the profitability for media segment is actually getting better rather than getting worse in the coming quarters? That's my first question. I have follow-up. Yeah.
Subscription model is very important in digital and entertainment business. Actually, when we look at our opportunity, we will see definitely our potentials to convert our hundreds of millions of consumers in our E-commerce platform to be the subscriber, to be the users, loyalty customers in the digital platform. That's exactly the synergies we can see in Alibaba Group. We are very happy to see we have made some progress in this respect. In the past November 11, digital media business worked closely with Tmall and with E-commerce to develop the paid customers. For example, we give the loyalty buyers in November 11 some award and to test the membership program in Youku.
We receive very good feedback, and we see a very good retention rate after the experiment, after the testing period is over. We will continue to do so to convert our existing buyers group in e-commerce to digital business.
All right. Thanks, Daniel. My second question is regarding the recently announced Olympic spending. I was wondering, like if you can share some thoughts around how we could kind of leverage that influential power to our globalization initiatives. Is that categorized into our branding or marketing dollar spend budget or into the more broadly speaking kind of content spending budget? Thank you.
Evan, can you repeat the question? You got cut off on the which component of the content you're referring to.
Oh, sorry. So the question is regarding the recently announced Olympic sponsorship. I was wondering how it can resonate with our globalization strategy when it comes to implementation in the following quarters or the next 8 years. Also in terms of that the announced amount, should that fall into the category of our branding or marketing dollar OpEx or kind of related to the broadly defined content related spending pool? Thank you.
We are very happy and very honored to be partner of IOC and to sponsor the Olympic Games for the next 12 years. As we announced, our sponsorship will cover two categories. First is e-commerce platform service. Second is cloud computing services. We believe that Alibaba can bring a lot of innovation and technology to empower IOC to have a successful digital transformation. Of course, being a partner of Olympic Games, this also can greatly promote Alibaba as a global brand in the global stage.
Actually, over the collaborations with IOC, actually there is one content, one business related to digital entertainment, which is Olympic Channel. We are authorized to operate Olympic Channel for Chinese audience. On top of the E-commerce Merchandise business and the Cloud Computing Service to IOC. People can easily understand that Olympic Games has a lot of very precious, very valuable digital contents in the current and in the previous years. We are very happy to consolidate and to operate these contents and to make it available to Chinese people, and to make more Chinese young generations to be Olympic fans.
On your question of what category would the sponsorship fit into in terms of potentially our costs, one thing I wanted to say is that none of the so-called reported numbers are accurate. When you look at it, the sponsorship has a cash component, but also has a barter component when it comes to us providing cloud computing services to the IOC and also all of their programs. In reality, as we assess a 12-year deal with the potential cash cost spread over that period, we find the deal quite attractive to us and quite reasonable.
Got it. Thanks, Joe. Thanks, Daniel, for the comment.
Operator, the last question, please.
Yes. Thank you. The last question comes from the line of Piyush Mubayi of Goldman Sachs. Please ask your question.
Thank you, Maggie, Joe, Daniel, Rob. Looking at the tremendous growth in online marketing spend, I wonder if you could talk through what percentage of marketing spend by merchants is on marketing technology, as well as where you think this figure could go to. That's my first question.
When you look at our marketing services today and the value we provide to our, to our merchant, to our advertisers is different with what it was several years ago. Day one, when we developed marketing service is more for the merchants to promote their goods on our platform to making media sales. Today, what we build up together along with our development of the mobile platform, mobile commerce platform as a consumer engagement platform, consumer community, and the merchants discover that this is a good place not only to do the trade marketing, to make immediate sales, but also very good to do the consumer engagement and even brand building.
That's why, which can address why people want to tend to spend more dollar on our platform. I always actually asked by people that how to look at the P&L of the merchant on our platform, what the feeling of the marketing services. Is it as a marketing service, as a percentage of revenue, is it too high? Today, actually, I would say the story is not like that. We cannot just compare the marketing dollar spend on our platform with the GMV generated by this storefront. Instead, we have to look at this marketing dollar spent on our platform, how to benefit of their entire business.
We have to look at as of the entire revenue of the client online, offline. That's the measurement we look at. In this regard, we believe that there are very strong, very big space in the future, especially when we fully integrate our digital media platform with the e-commerce platform, and we can see great potential.
Thank you, Daniel. My second question is on Cloud. After quarter- after- quarter of growth, as well as an extension of your own services and offerings, and finally global branding, what's your updated thinking around the TAM for this segment?
Well, yeah, Piyush. I think we have said on a couple of conference calls before that we think the TAM is measured the way You know, there's not a lot of third-party reliable reports because cloud computing is such a nascent industry in China. Total IT spend in China is $200 billion a year, and if you assume, let's say a 20% penetration of the traditional IT spend and moving that spend onto the cloud, that is a $40 billion number. We have talked about previously that if you To attract people to the cloud, you obviously have to provide a, you know, a more affordable option than the traditional spend.
Take a 25% discount off of that CNY 40 billion number, we get to a TAM of CNY 30 billion. That's the math that we have given you before, we have not changed that thinking at this point. We feel very positive about the potential growth of the entire cloud computing sector in China.
Joe, that's just the China market, right?
Correct.
Okay. Thank you very much.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.