Earnings Call: Q2 2017

Nov 2, 2016

Good day, ladies and gentlemen. Thank you standing by, and welcome to Alibaba Group's September Quarter 2016 Results Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. I would now like to turn the call over to Mr. Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead, sir. Good day, everyone, and welcome to Alibaba Group's September quarter 2016 earnings conference call. With us today are Zhou Cai, Executive Vice Chairman Daniel Zhang, Chief Executive Officer Maggie Wu, Chief Financial Officer. Also, as you know, we distribute our earnings release through Alibaba Group's Investor Relations website located at alibabagroup.com. So please refer to our IR website for our earnings release as well as supplementary slides accompanying the call. You can also visit our corporate website for the latest company news and updates. This call is being webcast at our IR section of corporate website. A replay of the call will be available on our website later today. Now let me quickly cover the safe harbor. Today's discussion will contain forward looking statements made under the Safe Harbor provision of the U. S. Private Securities Litigation Reform Act of 1995. These forward looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. Factors that could cause actual results to differ materially are set forth in today's press release. To also 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 measures that we use on this call, such as adjusted EBITDA, 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 reconciliation of GAAP to non GAAP measures can be found in our earnings press release. With that, I will turn the call to Joe. Thank you, Rob. Thank you all for joining us. We delivered another terrific quarter with 55 percent year on year revenue growth and $2,100,000,000 in free cash flow. All of our business segments saw robust growth. And for those of you who have tracked us for a long time, you would observe that beginning in the last quarter, we have accelerated our revenue growth compared to growth rates in the prior year. I want to provide my perspective on why Alibaba is growing faster this year than last year, even off of a bigger base, and more importantly, why we think significant growth is sustainable into the future. First of all, our core commerce segment continues to be very robust with year on year revenue growth of 41%. On a basis of a very healthy China retail marketplace, now with 450,000,000 mobile MAUs, we see tremendous opportunities for us to increase monetization of our user base. This is because user engagement of our platform is growing, and this generates strong value for branding and distribution to brands and merchants coming to our platform to reach consumers. In addition, we see significant upside in building out our international marketplaces, where penetration of Internet enabled commerce is still relatively nascent. 2nd, the core commerce business fills off tremendous cash flow to enable us to make investments in important strategic areas. 2 of these strategic areas are cloud computing and digital media and entertainment. Both segments are coming into their own in terms of scale and market position, each seeing triple digit revenue growth this quarter. 3rd, we're extremely patient when it comes to developing potentially high impact initiatives. A couple of quarters ago, I talked about investing for the long run and how we focus on initiatives with long gestation periods. In our experience, the investment cycle for incubating businesses that eventually become massive value drivers could take 7 to 10 years. We've seen this pattern in the case of Taobao, Alipay, cloud computing, etcetera, all of which we have developed organically in house. As I said before, having the ability to remain patient and the strategic flexibility to invest with a long view is a huge competitive advantage. Now, I would like to turn the mic over to Daniel. Thank you. Thanks, Joe. Hello, everyone, and thank you for joining our earnings call today. We enjoyed a stellar quarter and our businesses continue to thrive. Our mission to help make it easier to do business anywhere is more relevant today than ever before. Consumer behavior is evolving dramatically as the population getting younger and more proactive in upgrading their lifestyles. At the same time, merchants' increasing formality with latest technologies inspires them to embrace new ways to improve business efficiency and serve customers. We believe the convergence of these factors will bring about a significant disruption of the existing commercial landscape and emergence of a new retail model. Over the last 10 years, development of online shopping in China has been disconnected from brick and mortar retail. RMB3 1,000,000,000 in online sales was an important milestone because it was the clear inflection point that called for us to leverage the fundamental infrastructure for commerce that Alibaba has built. Marketplace, payments, logistics, cloud computing, big data to transform the RMB30 1,000,000,000,000 China retail economy. The most important opportunity on the horizon is helping traditional business to upgrade into a new retail model and not continuing to grow online business in isolation. Online and offline will be a single seamless experience, not just in consumer interaction, but also in the entire business operation and execution. We want to improve efficiencies across the entire value chain of product design, manufacturing, distribution and services. Powerball continued to flourish as a social commerce platform for China's millennials As our mobile MAU expanded to 450,000,000, we are pleased that the DAU on MAU ratio and average daily time spent remains robust and constant. This is a resounding endorsement by users of an increasingly relevant and entertaining experience shaped by data driven personalization, interactive innovations and the peer recommendations. A wide variety of original video content is being produced from brands to celebrities to entrepreneurial, adding even more richness to the Taobao universe on top of photo and text based content. Close to 170,000 live streams were offered this quarter with average view time of 11.2 minutes per user. Tmall continued to provide unique value to brands and retailers that contribute to growth of their overall business. Our Unifi ID system, which allows merchants to trust and target customers effortlessly across our integrated retail marketplaces and the digital media platforms continue to set us apart above the rest. More and more merchants are experimenting with live streaming to connect and engage with consumers. Our compelling see now, buy now feature built into the video stream technology enable merchants to provide instant gratification to customers. Merchants are increasingly leveraging celebrity assets in campaigns to attract and convert their fan base. Our leadership in branding reach and distribution capability made Tmall Apple's only third party platform partner for the global launch of iPhone 7. This year marks the 811.11 Global Shopping Festival. This year will be our most global ever with more than 11,000 international brands, including many first time participants such as Sephora, Target, Maserati, Shanghai Disneyland, and Victoria's Secret, Continuing a new tradition that started last year, we will hold a countdown gala that will broadcast live on video or live on TV across China, Hong Kong, Singapore, Macau and Malaysia in addition to live streaming on our own mobile apps. Among the innovations this year is the launch of a pilot program enabling select merchants from around the world to sell to consumers in Hong Kong and Taiwan. Consumers will also experience the world's 1st end to end VR shopping experience and an interactive mobile game that leads them on an adventure across online and a broken model location of merchants such as Suning, Yinkai, Starbucks, KFC, Uniqlo and many others. Top brands and retailers are also capturing consumers' attention with exclusive new product launches and limited edition goods. Globalization continued to be an important growth driver. During the G20 Summit held in Hangzhou, global leaders responded with overwhelming support for the formation of an electronic world trade platform that is dedicated to supporting truly free and fair trade of small businesses across global borders. We continue to expand selection of merchants with quality imported products to meet the demands of consumption upgrade. Our cloud computing continues to shine. Revenue increased by 130 percent year over year and clean customers grew to more than 651,000. We launched a new clear energy data center in Northern China, capitalizing on the regional naturally advantageous weather conditions and innovated new ways to lower operational costs. Over 40,000 developers from 58 countries attended our Annual Developers Conference for Cloud Computing and Artificial Intelligence in Hangzhou, where we unveiled a City Brain project in collaboration with Hangzhou Government to upgrade and transform citywide management and services. Our digital media and entertainment business continued to blossom. Revenue increased 302% year over year from strong content acquisition and in house original productions. Youku Tudou enjoyed blockbuster success with Chinese drama, One Smile is Beautiful, which sets new viewership records. We announced the formation of Alibaba Digital Media and Entertainment Group made up of YUKU Tudo, UC, Alibaba Pictures, Alibaba Sports, Alibaba Music, Alibaba Gaming, Alibaba Literature, and our OTT TV set top up box business, and an investment fund focused on entertainment content acquisition and development. Finally, I'm excited to share some updates on our innovation initiatives. Auto Navi is now the recognized market leader in mobile mapping and navigation in China. According to the latest data from iResearch, Auto Navi is active on more than 29,800,000 devices daily and users spend an average of 17 minutes on the app every day. We believe location based services will play an important role in consumer services delivery in the future. Our travel business was rebranded flaky, fly intake in Chinese to reflect its position as a leading leisure travel platform for Chinese millennials. To date, it has more than 200,000,000 members and 10,000,000 daily visitors to its mobile app. Now, I turn the call over to Maggie, who will walk you through the details of our financial results. Thank you, Daniel. Hello, everyone. We delivered another very strong quarter. Total revenue grew 55% year on year to RMB34.3 billion with revenue from the core commerce segment growing 41% year on year. Mobile contribution continues to climb, reaching 78% of total China commerce retail revenue, as we added 23,000,000 mobile MAUs to a total of 450,000,000 MAUs in September. Cloud computing revenue grew 130% year on year and the segment adjusted EBITDA loss further narrowed to US8 million dollars dollars Our core commerce segment generated adjusted EBITDA of US2.6 billion dollars representing 62% margin. Portal revenue grew 55% year on year due to 1st, continued accelerated growth of our core commerce business 2nd, adding Youku to our digital media and entertainment segment since the last quarter and thirdly, robust growth of cloud computing. And number 4, strong monetization of UC web users. The biggest component of the core commerce segment is China Commerce. Retail and its revenue growth was primarily driven by online marketing service revenue, which increased 47% year over year. Average merchant spending and the number of brands and merchants using our marketing services have continued to increase, reflecting the broader value position they derive from our platform. At the same time, our mobile Taobao app continues to see increases in user engagement, which combined with personalized recommendations through data technology resulted in continued year over year increase in number of clicks. Higher click through is a more significant driver to online marketing service revenue as opposed to cost per click pricing. 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 RMB 215, 32. In the September quarter, on the mobile front, mobile revenue per mobile user has also seen increasing for several quarters, reaching RMB151 in September. Quarterly cost trends. Cost of revenue excluding stock based compensation was RMB11.9 billion. As a percentage of revenue, it increased year over year, primarily due to an increase in costs associated with our newly consolidated businesses, such as UCO and Lazada, as well as the result of our investment in Timo Supermarket. Product development expenses, excluding SBC, was RMB2.7 billion, which as a percentage of revenue decreased slightly year over year. Sales and marketing expense excludes SBC was RMB3.4 billion, stable as a percentage of revenue year over year. And G and A expense, excludes stock based compensation was RMB1.7 billion also stable as a percentage of revenue year over year. Non GAAP net income in the quarter was RMB12.9 billion, an increase of 41% year on year. Free cash flow and capital expenditure and cash. We continue to generate significant 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. In the September quarter, we generated RMB13.9 billion or about US2.1 billion dollars free cash flow. Total cash capital expenditures in the September quarter were RMB3.6 billion. As of September 30, 2016, our cash, cash equivalents and short term investments were RMB108 1,000,000,000 or $16,000,000,000 This is an increase of RMB18 1,000,000,000 from the end of June quarter, primarily because of our free cash flow generation from our operations. Segment reporting. Core Commerce. Revenue from this core commerce segment increased 41% year on year. China commerce retail revenue grew 40%, primarily due to strong growth of 47% year on year online marketing service revenue. The growth on online marketing service revenue also reflected the full effect of online marketing inventory we added in September 2015. As we anniversary these impacts, we expect the subsequent quarters to face tougher comparables for online marketing service revenue. Mobile MAU growth was very robust this quarter. In September, we had 450,000,000 MAUs across our China retail commerce apps. This represents 23,000,000 in net adds from just 3 months ago. We ended this quarter with 439,000,000 annual active buyers in our China retail marketplaces. We're encouraged by the level of user growth as well as engagement on our mobile commerce platform as our marketplace have become the destination for social commerce and brand engagement. The average spending per annual active buyer continued to increase in the 12 months ended September this year, reflecting buyers purchasing more often and across more categories. We feel very comfortable with the fundamental health of our China retail marketplaces. International Commerce retail revenue increased 178% year on year, mainly due to the consolidation of Lazada starting in mid April and reacceleration of growth of revenue generated from AliExpress. Our strong margin in the core commerce segment gives us the ability to invest in our future growth. You will notice that adjusted EBITDA margin in this segment was 62% this quarter, which is the same as the same period last year and 1 percentage point higher than the prior quarter. Due to operating leverage, margin is maintained despite our aggressive investments in the 3 highly strategic areas we talked about before, rural Taobao, Southeast Asia through Lazada and Timo Supermarket. We will continue to make investments in these highly strategic business areas and the investments might from time to time outpace operating leverage. Cloud computing revenue grew 130% year on year. The growth was primarily due to an increase in the number of paying customers, which has more than doubled since the year ago quarter to 651,000 and also to an increase in their usage of more complex offerings such as our content delivery network and database services. Adjusted EBITDA margin of the cloud computing segment significantly improved from negative 13% in the prior quarter to negative 4% this quarter, which demonstrate that this business has significant operating leverage once you reach scale and the product sophistication. However, as we communicated in the past, making the business profitable is not the top priority for Ali Cloud at this stage. The top priority is to keep expanding our market leadership. Therefore, we will continuously make investments to develop our cloud business for rapid expansion. For example, during the Cloud Computing Conference in mid October, Ali Cloud announced price cuts across its product offerings, some as high as 50% cuts. Improvements in technology and economies of scale have driven our costs down and we are passing the savings on to our customers. We do not anticipate materially negative financial impact from the price cuts And from a strategic perspective, it helps us expand our market. Digital Media and Entertainment segment, revenue increased 3 0 2 percent year on year, primarily due to the full effect of consolidating Youku and also to an increase in revenue from mobile value added service provided by UCWeb, such as mobile search and newsfeed. Adjusted EBITDA margin of this segment was negative 39%, primarily due to content acquisition and development costs of the YouKu, offset by improvement in UCWabs margin. We're committed to investing in our content library and the proprietary IP as part of our digital entertainment strategy. Revenue from innovation initiatives and other segments increased 78% year on year, primarily due to an increase in revenue from new initiatives such as in OS, our operating system for mobile phones, automobiles and Internet of Things. Adjusted EBITDA margin of the segment was negative 110%, reflecting our continued investment in automating and new business initiatives such as Zintog. The valuation of our company. So finally, I'd like to provide an update on this of the value of our various business segments. As you can see, different businesses are in different development stages. So the approach to value each of these should be different. For example, our core commerce business has high profit margin and can be measured using metrics such as profitable multiples, while our other businesses are currently in the investment stage. So investors can approximate their valuation using revenue models and operational metrics. In terms of the value of our portfolio of strategic investments, we have updated the valuation of our stake or economic interest in these investee companies. That concludes our prepared remarks. Operator, we're ready to begin the Q and A session. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. The first question comes from the line of Shi Huang from HSBC. Please ask your question. Great. Thank you very much. Congratulations on a very strong set of results across the board. I have two questions. Firstly, can you walk us through some of the drivers of revenue growth and engagement for the China retail business, please? And secondly, can you address the New York Post article on the SEC inquiry? Thank you. Right. So for the drivers of the revenue growth, we talked about the engagement. It's actually not one effort or 2. There are many things we have been making effort on. If you look at our TAO app, you probably have noticed that there are a lot of new products and functions that including like live broadcasting reviews, seek for your advice and etcetera that brings tremendous new attraction to these users. So this you can tell by looking at not only the daily active user growth, but also when I look at DAU versus MAU, it still stays at very high levels. The last quarter we reported 40%. It's quite high level. And also when you look at the time spent, actually time spent, we talked about it's about 20 minutes, it's even higher than some of the social platforms. So, Daniel, do you want to comment? Yes. Actually, I would like to add more color on the revenue growth engine, especially in the China retail market basis. I think the first engine is the continued growth of our traffic, Today, I think most of our traffic now is on the mobile, and we are happy to see our mobile MAU continue to grow very rapidly. The net adds in this quarter is about 23,000,000. This is a very strong net adds, add. At the same time, the user stickiness will continue to be very constant and robust. So, actually, I think this is the first engine. 2nd, as Maggie mentioned, on our Taobao mobile app, actually, it's not only a today is not only a shopping app, it's a social commerce app. So, we had a lot of new products and features in the app, like social, like recommendations, peer recommendations, like video streams. We also have a lot of leading leaders to have their own actually mini sites on our mobile app to broadcast, to share their experience, fans. So, all of these create incremental inventory to be monetized. So, today, actually, in terms of the percentage of the inventory monetized, it's still very low percentage. So, we have enough inventory in reserve in the future and to consider, but we will consider to use a native approach to monetize this inventory and make sure the consumer experience is growing up. The last one actually is an improvement in technology, and it's quite an improvement in our Pay Search technology, improvement in our advertising technology, not only in our retail market business, but also across platforms to digital content platforms, we can effectively improve the ROI of the advertisers, but also to improve the critical operating metrics like CPC, cost per click, in our P4P business, and cost to display per impression in our display ads. So, I think all these factors give us enough space to continue to grow our revenues and our core business. I'll address the second question. As you know, we've been in the process with the SEC. They've sent us a letter inquiring us through a number of issues. On this, we've been very transparent with you guys about what's going on. We disclosed all the issues involved and the fact that we're voluntarily cooperating with the SEC in their inquiry. We don't think there's any factual basis to the New York Post story. So on that score, when we have real news, we will update everyone. I just want to say, I'm not surprised that in days leading up to Singles' Day, our detractors will want to divert people's attention. But we're not going to be distracted. Instead, we are going to focus on what's really important, bringing the best single day experience to our customers. Thanks. The next question comes from the line of Mr. Robert Beck from SunTrust. Please ask your question. Yes. Hi. Thank you very much. Two questions, please. 1, Maggie, maybe could we give a little more color on the revenue drivers? We had a tough time hearing some of your answers there with the analysts typing away loudly. What I particularly wanted to see if we get a breakout of what's driving revenue between CPCs, click through rate and ad load? And then as part of that, and we know on Slide 5, you gave us a helpful chart on revenue per active buyer as well as revenue per mobile MAU. Can you help us equate those two numbers? Can we know what percent of mobile MAUs are active virus? If we can compare those two numbers and the eventual take rate uplift we can get? Thank you so much. Sure, Rob. So when you look at the revenue drivers, I think we see growth in many of these detailed drivers. So we talked about the continued year over year increase in the number of clicks, right. This is basically coming from originally from the increase in DAUs. And the higher click through is more significant driver to online marketing service revenue as opposed to cost per click pricing. So regarding your question on the MAUs versus annual exit buyer. So MAU is actually user. So the purpose of we are showing that revenue per mobile revenue per MAU is to demonstrate the monetization ability on our mobile platform. It cannot be really it's kind of a different measures if you look at the active buyers. So those are the overall so there are overlaps and I think it's just we're trying to present different things. So our ability to monetize these things represents the value provided and being recognized by merchants and the value actually originally coming from buyer and user, number of buyer and user as well as the engagement of these groups of people. So the revenue another way to look at this revenue growth is that these are the 2 direct drivers we talked about. 1 is the number of merchants, the other is the average spending of these merchants. We see both have shown growth in a very healthy way. The reason we're presenting both charts, revenue per active buyer and also mobile revenue per mobile MAU, is that the monetization model, as you know, with online marketing services, does not require someone to actually buy something. It is click based and it's basically marketing service revenue and it is relevant for you to look at MAUs on mobile, these mobile users that are coming in. And we now have 78% of our revenues in China retail marketplace that's coming from mobile, so that is growing very robust. Daniel? Yes, actually, in terms of how many active buyers how many MAUs are active buyers, I think this quarter, what we disclosed is that 78% of our GMV, our transactions are from mobile. I think this number, 78%, can well address your question. Thank you. Operator, next question. Thank you. Thank you, sir. The next question comes from the line of Wendy Huang from Macquarie. Please ask your question. Thank you, management. So first, can you give us some update on the cloud WANU models? I understand that it appears you have 600,000 paying customers on the service provider or partner you're working with, what kind of partners you're working with? Also, what kind of revenue models are you charging on the cloud? Are you still having the membership with those service providers at the moment? Certainly, you mentioned in your press release that there is a We can't hear you clearly, Wendy. Sorry, the line seems not very good. Can you repeat? Okay. Can you hear me better now? Yes. Right. Is it better now? Much better. Thank you. Yes, sure. My first question is about the cloud business model. You mentioned about the price cutting and also the large paying customer base. I just wondered if you can give us some update on the service provider you're working with? And also, are you doing any revenue share with those service providers, just like what you're doing with the e commerce merchant? And secondly, it's about the UCI Web. You mentioned about the strong monetization of the UCaaS users. Can you elaborate the revenue models of the UCaaS at the moment? Is the running mainly from the new suite or other type of running streams? Thank you. Okay. For the first question, cloud business revenue engine, I think there are basically 2 engines for the cloud revenue model. 1st is obviously the number of paying customers, and because cloud is such a pervasive fundamental infrastructure this quarter reached this quarter reached over 651,000, but we think we have a lot of room to grow, and it can cover a wide range of the business, starting from the female enterprise, government agencies to developers and to third party business. The second one, I think even more important is that we try to deliver first the in house development services tools to our clients on the cloud. For example, we successfully convert our middleware services, which we get a very strong expertise from our e commerce business. Actually, we convert this middleware service from an in house service to a 3rd party service to our client on the cloud, and we also leverage our expertise in the security service. Now, security service is one of the main services in our cloud business. Looking ahead, we will continue to develop more services and to put it in our cloud. On the other hand, we will work with a lot of ISVs, partners to power their services on our cloud, and basically we can serve our mutual clients more successfully. In terms of reaching customers, there's a number of different models of service providers of sales agents where they get an agency commission, but also resellers where they are basically systems integrators and they buy the service from us and resell to the end customers. So, there's a range of different models to reach the customers. We also obviously have direct customers that come to our platform. There's a question on Thank you. And how about UCweb? UCweb monetization. Right. UCWeb, we talked in our announcement that the growth of the business is very strong. It also shows in the revenue shows in both revenue and profitability. So by the time we acquired that business, it was a browsing business. Nowadays, if you look at the business, it's been added many new elements, including mobile search and news feeds. They also have a small gaming business. For mobile search, we are talking about it. We already become the number 2 mobile search service provider in China and it continues to grow very well, although we haven't disclosed with the daily search query, etcetera, but these operating metrics showing very encouraging growth trend. And for so the monetization on that business is pretty much the same as other mobile search business. The other new areas that we developed very well is the news feeds. So if you look at when we compare our DAU for that business, it's already become one of the top 3 newsfeeds platform or news distribution platforms in China. So the way we monetize that, there are multiple ways. That it could be paid per it displays and also pay per many ways, per display per impression. So this is the early stage that is we see good potential to grow. Another thing worth to mention is the Globalization of UC Web Day have been into Indonesia, India and a couple of other countries. They already become the number 1 dozen business service provider in Indonesia and India. So later on, once the business get expanded, we're going to monetize substantially on those business growth as well. Operator, next question please. Thank you, sir. The next question comes from the line of Eric Sheridan from UBS. First one really on the competitive landscape, wanted to know if I could get an update on the way you're looking at the competitive landscape as we go into Singles Day, as we come in and out of the end of the calendar year? And the follow-up question will be on logistics, Maybe a little bit of discussion on the pace and velocity of the need to invest in logistics medium to long term and how that improves the platform ecosystem and strength you're currently sitting with? Thank you so much. Okay. First question, and I think competition always exists. Actually, as a market leader, what we will always do is to we rely on innovation and we will meet the customers' demand to enhance our market leadership, and we will continue to do so. 8 years ago, we created November 11, and now we are very happy that November 11 becomes a shopping festival for the consumer across the world, and we are also very happy to see that a lot of players online, offline, and they all view November 11 as a shopping festival. I think this is all good for our mutual customers. But obviously, when you ask people November 11, the mind share of November 11 belongs to Tmall, belongs to Alibaba. For the second question on logistics, I would say actually as we always do, we continue our partnership model in logistics, and recently we are very happy to see a couple of our logistics partners, delivery companies, they successfully got listed, which proves again the magic of the ecosystem. We not only actually try to serve our customers by ourselves, but also leverage the expertise of our partners and we will continue to do so. We believe that with the mutual success of our business and our ecosystem will be more prospectus. Next question please. Thank you. The next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question. Good evening. I have two questions. The first one is about your commission revenue. We have seen a bit of slowdown in the commission revenues in the quarter. Could you comment on that? There's only one time factor behind it. And then secondly, about international strategy. Just wondering how you guys decide on the timing and the pace of expanding into a new country? And how that could affect your investment and margins going forward? Thank you. Right. Eddie, I'll answer your first question and then Daniel will talk about the second one. So the commission is mainly commission revenue from Tmall marketplace. We see Taobao and Tmall as well integrated marketplace. And our value position has already gone beyond the GMV. So commission kind of reflect one thing, but online marketing revenue growth also showing the other values we provided, which you can tell 47% year on year growth on online marketing. So overall growth for the China retail marketplace is 40% year on year revenue growth. So to us, it's overall one marketplace providing different values, eventually we're going to monetize all of them, not only one thing, but also others. So We're satisfied with the overall revenue growth for our China retail marketplace. In terms of international strategy, when we look at opportunities in new markets, we usually consider a couple of factors. First is population. Is there any is there enough a big enough population? 2nd is about the mix of the population, about young generations and how big is the growth of the young generation. Next one is about the retail landscape, and is retail sophisticated and actually fragmented? The next one is about the mobile penetration. I think mobile first is critical in developing the business in the new markets. Having said that, globalization is a long journey and we have a great vision to serve 2,000,000 consumers in next 20 years, and we are now just at the beginning stage, and we will continue to invest in the international business as we just did in Lazada, and so far we are very happy about the integration process, and we are very happy to see the business growing very rapidly after our investment, and we will continue to look at other opportunities in other markets. Operator, next question. Thank you, sir. The next question comes from the line of Scott DeRidt from Stifel. Please ask your question. Yes, hi. Thanks. Google and Facebook have used a combination of price and volume to drive effective monetization in a very long duration of high rates of revenue growth. And you've done a very good job of kind of articulating the opportunity, more similar to them than being tied directly to transactions over time. And so be interested in your view, and how investors should think about some of the benefits to monetization annualizing here in the coming year versus having a very long runway to drive monetization similar to those companies? And then secondly, on cloud, if you could maybe break down or help us understand better the customer makeup, SMB, mid market, enterprise and how you see that changing over time as the capabilities of that platform get stronger and stronger? Thank you. Yes. Scott, here. I'll try to answer your first question. I think it's when you look at a marketplace where a big part of the monetization relates to online marketing services, sort of performance based marketing. You have to look at the nature of the marketplace. I think we have a superior marketplace in that there's really no church and state when it comes to content and ads, because when the user comes to our marketplace, they have very high commercial intent. So when you look at an ad listing versus a organic listing in our marketplace, it's basically the same thing. It is basically an item that a merchant has put up for sale that they want to sell. So that has implications for ad load, for example. In a Google or Facebook context, ad loads are quite limited because if they start to load in a lot of ads, then that really affects the user experience. So they have to be very careful about it. Now, we philosophically are very careful about layering ad load. And as you have referred to last year, we had an ad load increase by increasing one slot in our P4P advertising. And now we're we've seen the full effect going forward. And Maggie referred to sort of the let me just say this, for let me just say this, for those users for those of you who actually use our app and our user interface, there's actually not a lot of ads. So, we're still being very, very conservative when it comes to ad load. And obviously, that is a that has implications to the volume question. The other driver of volume, which is clicks, is technology. If your recommendations for the ads are more relevant to the user, then the click through rates can increase and you get more clicks. So with our ability to basically personalize every single user interface, So every person, every consumer coming to the platform can see different products and different recommendations. That drastically increases our ability to generate relevant clicks and drive performance on the online marketing platform. So that's another driver to the volume question. As Maggie has referred to before in her script, I think this quarter, mainly we are getting the revenue increases in online marketing from the volume side of things. In other words, clicks and click throughs, increasing click throughs as opposed to price increase of the ads. So, I hope that answers your question. Right. So, in terms of cloud customer base, Yifeng reported 651,000 paying customers at the end of this quarter, which doubled the same period as last year's. And we still see great potential for this paying customer base growth. And our next milestone goal is going to be 1,000,000. And then when you look into the customer base, it actually shows a great variety. It's not only the Internet startups, but also financial institutions, also healthcare, public transportation, energy, manufacturing, the government agencies. And if you look at the ownership of this business, it varies from the private company, listing company, state owned. And our major customer base, although it's SMB, we do see the big guys coming to us recently and more of more companies like Cinnopac, a state owned enterprise coming to us. So there is one data point. We've seen that over 50% of the unicorn companies in China are paying for Ali Cloud Services. So these are the companies that grows really fast and gets to a certain size in a very short period of time, they are more than half of them are using Ali Cloud service, which is very encouraging. Operator, last question please. Thank you. Hey, sir. Ladies and gentlemen, in the interest The last question comes the next question comes from the line of Alex Yao from JPMorgan. Please ask your question. Hi, good morning and good evening, everyone. Thank you for taking my question. The first question is on the China retail marketplace. We understand that you guys have stopped disclosing the quarterly GMV starting from this quarter. Can you qualitatively give us some color on what's driving the 40% revenue growth for this segment? Is it more on GMV or take rate? And then also can you share more insight in terms of how sustainable is the take rate improvement trend, particularly with the higher revenue based comp into the next couple of quarters? And then secondly, you guys talked about the Tmall is playing an increasingly important role in large brands, brand building, channel expansion and new product launches in the prepared remarks. Can you help us understand the commerciality of those ready for position from monetization standpoint? Thank you. Yes. For the first GMV question, yes, we will report GMV on an annual basis. The GMV so far looks good and growth is on track. For the second question about the growth of the big brands on Tmall. I would say, actually, today, all the brand companies, they are in the process of transforming to a digital operation. What they have done is that they decided to switch their marketing dollar budget from the traditional media to digital media. So, that's give us a very good prospect to help them to spend their dollar, marketing dollar smartly. And via our Unifar ID and via our synergies between the retail marketplace and the digital media platform, we can successfully help our brand partner, which both our merchants on our retail platform and the advertiser on either retail or the digital media platform to manage the customers effectively and in a digital way. This actually we believe has great potential, and so far we have a lot of very pleased examples and successful stories, and we will continue to roll this out to many more clients and to help them to do the digital transformation. Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may all disconnect the lines now. Thank you.