Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group June quarter 2016 result conference call. At this time, all participants are on listen-only mode. After management prepared remarks, there will be a question and answer session. I would now like to turn the call over to Rob Lin, Head of Investor Relations, Alibaba Group. Please go ahead.
Hello, everyone, and welcome to Alibaba Group's June quarter 2016 earnings conference call. With us are Joe Tsai, Executive Vice Chairman, Daniel Zhang, Chief Executive Officer, and Maggie Wu, Chief Financial Officer. As you know, we distribute our earnings release through Alibaba Group's investor relations website located at www.alibabagroup.com. Please refer to our IR website for our earnings releases as well as the supplementary slides that accompany the call. You can also visit our corporate website for the latest company news and updates. Please check it out. This call is also being webcast from the IR section of our corporate website. A replay of the call will be available on our website later today. Let me quickly cover the safe harbor. Today's discussion will contain forward-looking statements made under the safe harbor provisions 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. 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, segmental adjusted EBITDA, non-GAAP net income, 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 press release. With that, I will now turn the call over to Joe.
Thank you, Rob Lin. Thank you all for joining us. We're extremely pleased with our results this quarter. This is not only because we deliver 59% unprecedented revenue growth since we became a public company. It is also because when I look at each of our business segments across the board, we have established strong competitive positions and firm foundations for future growth. On our Investor Day in June, we share with you plans and insights into our businesses as well as the strong management team that's behind them. I'm happy to report that we are executing well against our plan and that each of our businesses has positive momentum and sustainable traction. Before Daniel Zhang discusses our performance driven by the massive scale and leverage of our ecosystem, I'd like to share a few observations with you.
My first observation is about the tremendous value proposition of our e-commerce platform, which is the destination for 434 million highly engaged, active consumers in China. Our China retail revenue growth rate at 49% year-on-year might have surprised many given economic headwinds and reduced expectations from the industry. We never had any doubt that we would be able to deliver increasing monetization of our users. In other words, this is a decoupling of revenue growth from GMV, which is something we started to communicate to you Q2 ago. We gave you the heads-up because we had confidence in building a platform with consumer engagement of the highest value in the industry. Features that focus on community, sharing, originality, immediacy, and data-driven customization are capturing the imagination of today's generation of young consumers.
Just for reference, 75% of users on the Taobao app are below 35 years of age. In turn, our high-value and highly engaged users attract brands and merchants who increasingly rely on our online marketing solutions to reach and engage with these consumers. Finally, we enable transactions to happen on our platform, so the entire e-commerce loop from the marketing funnel to the final purchase as well as the related data are captured by Alibaba. In a nutshell, this is the value proposition that enables long-term sustainable revenue growth. My second observation is related to the high-quality presentation of our information through segment reporting. In this quarter, we are breaking out the Core Commerce segment as well as our newer businesses in Cloud Computing, Digital Media and Entertainment, and Innovative Initiatives.
I have previously referred to these businesses as, quote-unquote, "core cash flow" or "emerging traction" or "long-term strategic bets." With today's earnings report, we show you the revenue growth trajectory, margin, and operating leverage of each business. You will find that our core commerce segment generates CNY 2.5 billion in quarterly operating profits before non-cash items. This business is running at a healthy 61% operating margin. This alone could explain our current valuation. The strong cash flow generated from core commerce enables us to continue to build a moat around our core business as well as aggressively invest in new businesses and innovation. Some of these new businesses are already building strong traction. We're excited by the prospects of our cloud computing business, which is the numberone cloud player in China, growing revenues at 156% year-on-year and moving towards break even.
We're making good progress in integrating the synergistic components of our Digital Media and Entertainment Group, combining UCWeb's large monthly active user base of 420 million with a highly engaging video platform of Youku Tudou, as well as our OTT TV business. My last observation is about transparency. We have worked hard to make it easy to understand Alibaba. We provided you with more detailed information about our company so that you can better analyze our business. With respect to our equity investees, we are providing extra data points. For example, in our annual report and on our Investor Day, we provided information on how our logistics affiliate, Cainiao Network, can leverage data technology to enable its logistics partners to deliver 42 million packages per day on average.
We also continue to provide key financial information about Cainiao and Koubei, among other investees, so that you can assess the impact to Alibaba's financials. We are pleased with the performance of our business and its long-term growth trajectory. I believe you will appreciate that our increased disclosures in segment reporting will bring important insights into the strength of our business. I would like to turn the mic over to Daniel. Thank you.
Thank you, Joe. Hello, everyone, and thank you for joining our earnings call today. As Joe mentioned, we delivered an outstanding quarter. Even as we are producing strong financial results, we remain more focused than ever on our mission to make it easy to do business anywhere. We started our first business, Alibaba.com, 17 years ago to leverage the power of internet to help businesses make connections. We successfully captured the opportunity to help make transactions through our retail platforms, Taobao and Tmall. We invested in the development of our marketing services and cloud computing business, together with payment and logistics from our affiliate companies. We believe these forms the fundamental infrastructure necessary for success in digital transformation. In recent years, we have invested in digital entertainment and local services that will lead transformation in consumer lifestyle. Data is the core asset of Alibaba.
Our core business is the source of generation of precious real user data, which is then translated for further application and refueling the entire ecosystem. Taobao has fully evolved from a transactional platform into a social commerce platform driven by China millennials. Mobile Taobao enjoyed a DAU versus MAU ratio of 40% in June, which points to a high degree of stickiness among our mobile user base. On average, users launch the app seven times a day. Users keep coming back to scrolling through visual product discovery features curated by data-driven algorithms to contribute answers to questions from fellow users, to share and browse product recommendations in communities, and to watch one of the over 1,000 sessions of live streaming that take place daily on mobile Taobao. We see users responding very well to a highly personalized experience on mobile Taobao.
Product recommendations and the banner displays are automatically customized in accordance with individual user profiles. Merchants have also been empowered with the capability to customize the in-store displays by individual user profile. The useful energy and vibrant social dynamic of this digital world was brought to life at the first Taobao Maker Festival. The festival showcased the technological innovation, artistic creativity, and originality that's flourished on Taobao. More than 10 million users watched live streaming of this event. Users expressed their enthusiasm through more than 200 million likes on mobile Taobao. Tmall is enabling merchants to do much more than just selling. As a result, we continue to have more and more brands committed to Tmall as their strategic partner of choice on brand building, customer relationship management, channel management, and product innovation.
More than 8,700 new brands opened new stores on Tmall during the quarter. Our Super Fans Festival in June yield solid GMV growth. Our partnership with Suning contribute to an exceptionally robust performance in the smartphone category, which saw 70% year-over-year gain, while FMCG category was up 67% year-over-year. We were mostly pleasantly surprised by Tmall Supermarket, which grew 202% year-over-year in GMV. More than 270 brands use the opportunities to drive development of their own customer base through the digital fan club function for ongoing customer engagement. Our two wings of globalization and rural development continue to help lift our Core Commerce business higher. Tmall Global GMV grew by 130% year-over-year.
We hosted merchants events in Australia, New Zealand, and South Korea, and celebrated the launch of our Japan merchandising center to support Japanese business in cross-border sales. We continue to make progress in our coverage across rural China. Village service stations have increased to over 17,700 locations. Cloud computing continues to climb at a healthy pace. Paying customer grows to 577,000, and the revenue increased 156% year-over-year. It is expanding overseas service coverage through collaboration with local partners, including a joint venture formed with SoftBank. We consolidate management of digital media and entertainment assets, including Youku Tudou, UCWeb, Alibaba Pictures, Ali sports, AliMusic, and our OTT TV set-top box business are now under the leadership of the newly formed Digital Media and Entertainment Steering Committee.
We believe this streamlined management structure will accelerate development of our digital media strategy and catalyze further growth. In fact, we are already realizing benefits from synergies between our digital media matrics and the retail platforms. Through user recognition by a single unified ID across our retail marketplaces and the digital media matrics, we offer brands an incredible unique value proposition as the only platform in the world, allowing brands to manage their customers' life cycle from awareness, to interest, to purchase, to loyalty by connecting media exposure with retail conversion. I want to upgrade on one of our innovation initiatives, the mobile operating system, YunOS. We believe Internet of Things is an important opportunity that will bring about the next wave of disruption. YunOS actively pursuing projects relating to televisions, smartphones, small appliances, and cars.
Together with Shanghai automobiles, we unveiled the world first internet car powered by YunOS early this quarter. Our vision is to elevate the driving experience through seamless integration of internet, big data, and cloud computing. 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 had a very strong quarter. Here are some highlights. Number one, revenue growth accelerated from last quarter, growing at 59% year-on-year to RMB 32.2 billion, with China retail marketplace revenue growing 49% year-on-year. Number two, about mobile monetization. I still remember that during IPO roadshow, this was the question that we got asking every single investor meeting. You wanted to know whether our mobile take rate would approach PCs, and was it even possible for mobile take rate to exceed PCs. What we said at that time was that we were very confident this could happen. Today, I'm very glad to report to you that our mobile take rate reached 2.8%, surpassing PCs take rate for the first time. This is a very important milestone.
Number three, Cloud Computing revenue grew 156% year-on-year, and the segment adjusted EBITDA loss narrowed to $24 million. Number four, our Core Commerce segment generated adjusted EBITDA of $2.5 billion, increase of 38% year-over-year, representing 51% margin. Starting from this quarter, we will report to you our segment financials. Here is a summary chart. We now have four reporting segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others. We present the segmental information to reflect how we manage our business to maximize efficiency in allocating resources. It also provides further transparency to our various businesses that are executing in different phases of growth and operating leverage trajectories. The report is after elimination of the intercompany transactions.
Before we move to a detailed segment discussion, I'm going to present to you our consolidated results first. On year-on-year basis, the growth rates for both our total revenue and China Commerce Retail revenue this quarter were the highest among all the reported quarters since our IPO. Total revenue grew 59% year-on-year due to first accelerated growth of China Commerce Retail. Second, robust growth of cloud computing. Third, strong monetization of UCWeb users. Fourth, consolidation of Youku. As discussed in detail, during our recent investor day, our China Commerce Retail platform is characterized by high user engagement through our Taobao mobile app and the social and community products on Taobao marketplace powered by rich data.
Brands and merchants recognize the broader value proposition created by this engagement and are using our platforms for more than just distribution, but also for marketing, branding, customer acquisition, engagement, retention, et cetera. We believe this help drive our monetization levels. We have seen strong year-on-year growth in number of clicks and to a lesser extent, growth in CPC, reflecting the power of our platform to utilize data to serve highly relevant results. Our ability to monetize the user on platform continues to improve. Revenue per annual active buyer has been increasing for several quarters, reaching RMB 202, which is $30 in the June quarter. On the mobile front, mobile revenue per mobile user has also been increasing for several quarters, reaching RMB 140, which is $21 in June quarter.
We have completed a successful mobile transition. I just said the mobile monetization rates already surpass PCs for the first time. Cost of the revenue, excluding stock-based compensation, was RMB 10.9 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 Youku and Lazada, as well as in our Tmall Supermarket investment. Product development expense excluding SBC was RMB 2.7 billion, which was, as a percentage of revenue, stable year-over-year. Sales and marketing expense excluding SBC was RMB 3.2 billion, increasing slightly as a percentage of revenue year-on-year due to consolidation of Youku. GA exclude SBC was RMB 1.7 billion. Also a slight increase as a percentage of revenue, due to consolidation of Youku and Lazada.
Non-GAAP net income in the quarter was RMB 12.2 billion, an increase of 28% year-on-year. The non-GAAP diluted EPS was growing at 33% year-on-year, a great example of our commitment to strong capital management. Share of loss of equity investees increased sequentially, primarily because we had a dilution gain from Cainiao at a higher valuation in last quarter, while for this quarter there is a loss related to a dilution of our ownership interest in Weibo as a result of its issuance of SBC to its employees. Okay, free cash flow. We continue to generate significant free cash flow. Our cash flow allows us strategic and operational flexibilities to invest in technology and acquire the resources to accomplish our strategic objectives.
In June quarter, we generated CNY 12.7 billion or about $2 billion free cash flow. The total cash, capital expenditure and intangible spending in the June quarter was CNY 3.3 billion. As of June 30, 2016, our cash equivalents and short-term investments were CNY 89 billion, a decrease from CNY 112 billion at the end of the March quarter due to net cash used for investments, acquisition and share repurchase in the quarter. Turning to the segments. For the core commerce, revenue from core commerce, which is comprised of marketplaces operating in retail and wholesale in China and international, increased to 47% year-on-year. China retail revenue grew 49% year-on-year.
International commerce retail revenue increased to 123% year-on-year, mainly due to the consolidation of Lazada starting in mid-April. Excluding revenue from Lazada, the international commerce retail revenue would have been growing at 26%. Adjusted EBITDA was 61%, which is $2.5 billion, representing 33% year-on-year growth. Cloud computing. Cloud computing revenue grew 156% year-on-year. The growth was primarily due to an increase in the number of paying customers, which have more than doubled since the year ago quarter to 577,000, 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 cloud computing segment significantly improved from negative 76% in the year-ago period to negative 13% this quarter due to a robust revenue growth in economies of scale. We're getting closer to the break-even point for cloud. Digital Media and Entertainment Group is mainly comprised of operation of our media properties, including UCWeb, Youku, OTT TV service, AliMusic, Ali Sports. This revenue used to be accounted as part of our other revenue line in the prior quarters. Digital Media and Entertainment Group revenue increased 286% year-on-year, primarily due to the consolidation of Youku and also to an increase in revenue from mobile value-added service provided by UCWeb, such as mobile search, news feeds.
Adjusted EBITDA margin of this segment improved from negative 67% to a negative 32%, primarily due to the improvement in UCWeb's margin. Innovation Initiatives and Others. Revenue for Innovation Initiatives and Others segment increased 30% year-over-year, primarily due to an increase in the 2.5% fee from Ant Financial in relation to the SME loan business and to the increase in YunOS revenue. Adjusted EBITDA margin of this segment was negative 166%, reflecting our continued investments in AutoNavi, YunOS, new business initiatives such as DingTalk. Valuation of our company. We have included in this slide a graphical representation of our segments and our strategic investments. I would like to make some observations.
We have built an ecosystem of businesses and assets that all work together to bring the best user experience to our customers and the best value to our merchants. No other company in this world has the complete collection of the businesses we have built working synergistically and generating tremendous data like this. This is where the ultimate value of our company lies. Up until now, we have only provided you with the information as a single entity. Now, with segments, we're providing you with the components of our future growth and value creation. Hope this also helps on your understanding and valuation of our businesses. That concludes our prepared remarks. Operator, we're ready to begin the Q&A session. Thank you.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. To give more people the opportunity to ask questions, please keep yourself to no more than two questions at a time. Please note that there may be a short pause as the questions are being collected. We thank you for your patience. Your first question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question.
Good evening. Thank you for taking my questions. You have mentioned it quite a bit, the reasons behind the strong growth of your marketing revenues. I'm just curious on your commission revenues. There has been some decent growth as well. It has been tracking faster than your GMV growth. Wondering if you could share some color on the decent commission revenue growth. Secondly, a little bit about the recently launched advertising regulation. Should we expect any impact on your business, say related to the tax rate or the format of advertisements? Thank you.
Thank you, Eddie Leung. For your two questions, number one, commission revenue growth. The strong growth is coming from mainly two things. First of all is the strong growth of the GMV, especially Tmall GMV. Second thing is the category mix. We have, you know, those really higher commission level category growing faster than some of these lower ones such as top-up fees. Your 2nd question about the SAIC new rules impact. I think when we talk about impact possibly coming from two things. one is tax, the other is conversion rate after we put this advertisement logo on our website.
For the tax part, if all the P4P revenue are to pay 3% cultural construction fee, we've said this, we will have a very minimal impact. We have approximately 1% tax impact because our revenue are more diversified than the other players. Secondly, talk about the impact on the conversion rate and then further to the revenue. We're currently testing the impact. You know, on this conversion CTR, we'll provide more updates. So far as what we've seen, we don't see any significant impact coming from that direction. Hope that helps.
Thank you, Maggie Wu.
Next question, please.
Your next question comes from the line of Eric Sheridan from UBS. Please ask your question.
Thank you very much for taking the question. Thank you also for all the additional disclosure and color. I think investors are gonna find that helpful. I wanted to come back to a topic that all the speakers discussed, which is the effort around branding and marketing. Maybe you can give us some sense of some of the key investments that need to be made to attack that opportunity over the next couple of years. Also sort of what the state of conversations is with big partners, how far along we are in terms of acceptance of Alibaba broadly as a branding and marketing platform, and what that might do for growth for the medium to long term. Thank you so much.
Thank you. Actually, for this, because our platform actually now is well-recognized by our brand partners and merchants as a user's engagement, customer engagement platform rather than only a sales platform. People want to actually spend more marketing dollar on our platform rather than just a free marketing dollar. Actually, from our perspective, we don't expect a very big investment in terms of dollar investment to make this happen. Because the things we are doing is more like to try to upgrade our platform, especially in building up the unified ID program, which can help our merchants to recognize, reach, and interact with the customers cross-platforms. That's maybe the major efforts we are making and to make it happen.
Today we are working very well with a lot of brand partners on Tmall, which who have been with us for a long time on Tmall. All these brands are now experiencing digital transformation. All of them, they want to spend their marketing dollar in a digital way. What they, what we can help them is not only just, for example, to switch their TV ads to a online TV ads, but most importantly, to not only to help them gain exposure, but also help them to engage with customer and finally convert to the real sales. That's the value we provide to our customer, to our partners and the people.
Over time, they recognize this, and they are moving forward to working closely with us on the customer engagement. Thanks.
Next question, please.
Your next question comes from the line of Robert Peck from SunTrust. Please ask your question.
Yes, thank you so much. two questions, please. One is I was wondering, Maggie, if we could dig just a little further into the monetization side. Could you give us a little more color around the core advertising, ad loads, net growth, CPCs and growth, clicks and growth, effective CPMs? I think you did give us a little bit of data on the advertisers, but more of the components that's building up the marketing side of that. Question number two on cloud. Could you just talk to us about how big you think this could be and how we should think about the cadence of that growth and as we think about run rate margins on that business, what that could look like? Thanks so much.
Thank you. For the revenue growth, obviously, you know, we see this robust growth coming from the China retail marketplace. It's mainly from online marketing services. I think fundamentally this growth reflects our broader and deeper value proposition to both buyers and sellers, just as we, you know, discussed in-depth during the Investor Day. Our value proposition already go beyond distribution to marketing, branding, you know, customer acquisition, retention, et cetera. This reflected in many aspects. For example, if you look at our Taobao app, the daily active user level grow very nicely. You can also look from the technical point of view, where this online marketing revenue growth is driven by, you know, these number of paying merchants and their increased spending with us.
Why they are willing to spend more? They have their own calculation of the ROI, right? That's because, you know, they recognize the higher consumer engagement, this kind of value we provided to them. That is, you know, their recognition of this. In terms of the Alibaba Cloud, we talked about, you know, cloud right now still growing at three digits, and it gets very close to the break-even point. Having said that, I think at this stage of time, our first priority is still continue to expand our market leadership rather than chasing after, you know, making profit, higher profitability level. We believe, eventually this business profit will, you know, shown and it will grow. Operator, next question, please.
Your next question comes from Alex Yao from JM Morgan. Please ask your question.
Hi, good morning and good evening, everyone. Thank you for taking my question. Just two quick ones. Number one is, can you talk about what is driving the second consecutive quarter of Taobao GMV acceleration? Secondly, with the increasing consumption of content and social elements on your platform, particularly China retail platform, what will be the key impact of how operation? For example, will this lead to an increase of buying content from external parties or a reduction in buying traffic from external sources?
Lead to more cross-sell activities across the entire group. Thank you.
Thank you. This is Daniel. I will answer these two questions. For first one, for Taobao GMV growth, actually, we always view Taobao, again, as not a transactional marketplace. especially in the after successful mobile transition, we think Taobao is a very effective customer engagement platform. We add more and more social features and services into our mobile app, which effectively to improve the visiting frequency. As I said in my script, and today, averagely people come to Taobao mobile app 7x a day, and which very greatly improve the stickiness of the users.
This actually, if people come more, they can discover more, which give the highly likelihood of conversion to the final sales. I think this is one of the main reasons for the growth of the continuous growth of the GMV. This is also relevant to your second question, which is the social features. The adding the social features. Actually, we try to build up the connections not only between buyer and sellers, but also between buyers, and especially the buyers with different buyers with same hobbies and preference. They can comment with each other, and they can share with each other, and this create a lot of new demand from the customers.
Today, Taobao is more like a social commerce app rather than a marketplace.
Next question, please.
Your next question comes from the line of Alan Hellawell from Deutsche Bank. Please ask your question.
Great. Thank you very much. Sorry, to go back to a number that's been repeated a couple times now. The average Taobao user launching the app 7x per day, can you give us a sense as to how that compares year-on-year? Maybe reflect on any particular overlay, social overlay that really drove that increased frequency of launch? Secondly, with regard to the monetization of UCWeb users, would love to get a sense as to maybe how much comes from search, display, app download, and how we should think about that contributing to the Digital Media and Entertainment Group going forward. Thank you.
We do see people come more often and over time after we adding more and more features to our Taobao mobile app, because people get a lot of things more than they expected, so they can come more often. Having said that, in mobile phone, people come more frequently, but spend for every single visit, they spend less time. Overall speaking, people, actually we can engage people with longer time, and which give us a lot of opportunities to realize the commercial value.
For your second question, actually today, we help the buyers, they spend time on our mobile app, and they will actually not only to find for the listings, but also to a lot of contents, including the live stream contents. By this kind of consumption, people will find a lot of fun. That's why we said Taobao is a platform for entertainment.
Alan, to answer your question on monetization of UCWeb users, they are, as you know, the second-largest mobile search platform in China. Mobile search is definitely one source of revenue, and the second source of revenue is coming from newsfeeds. They have built this product over the past few months that is gaining a lot of traction. Those are the two main sources of monetization of the users. As you know, if you, the newsfeed as well as search, the, as more users come, the, inventory that's gonna be created is going to expand.
Next question, please.
Your next question comes from the line of Mark Mahaney from RBC. Please ask your question.
Great. Two questions, please. Congratulations on getting your mobile monetization rates above desktop. You're right, that was the single biggest issue at the time of the IPO. The follow-on question has to be, can you talk about where you think those monetization rates can go long term? I'm sure that they can rise, but are there any governors to how high those monetization rates can go? Maggie, also, you talked about the break-even point for cloud. I assume there's a lot of discretionary decisions behind that, but is there an obvious level to you at a volume level at which the cloud computing segment reaches break even and starts sliding up into profitability, or is it purely discretionary for the next year or two? Thank you.
Sure, Mark. Thank you for remembering that IPO's popular question. For the take rate, as we mentioned during the investor day that our value proposition is much broader than distribution. We're already providing other values like branding, marketing, you know, all of that. That it would be incomplete to use the revenue divided by GMV, which is the take rate, to, you know, as a measure for our monetization level. The GMV only represents our value proposition on the distribution part of the value, right? Literally speaking, since we provide more value, the revenue gonna come in from the other value we provided, the take rate will go up.
How further it will go, you know, I don't have an exact answer to that, but we're very confident that it will definitely move up, you know, in the future. For the cloud, I think when would be the, you know, point for break even and the threshold? As I said, currently the whole team is still focusing on keep expanding the market leadership, expanding our customer base. The customer base is one important, actually, measure for you to tell the progress of the business. The other thing, of course, is expansion of product service. Right now, we have 577,000.
I think when we get to 1 million, it would be a pretty good point that we have a quite solid customer base. You know, the profitability, et cetera, will start to show.
Yeah, just wanted to supplement.
Thanks.
Maggie's comments regarding cloud computing. You know, this is a very, very long game. To just take a step back, the entire IT sector in China is a CNY 200 billion opportunity, hardware and software. If you take 20% penetration and say 20% of that IT sector is going to eventually be on the cloud, that's CNY 40 billion. If you say that cloud brings about, you know, 25% savings to the companies that use it, you still have CNY 30 billion potentially of potential market size, but that's way into the future. As you can see, we are at a stage where we've generated CNY 187 million in revenues this quarter in cloud.
That is still small relative to the size of the market. We're in this for the very, very long game. When you know, start to think about, gee, should I start to harvest and generate lots of revenue versus investing more to create more products and features in the Cloud to serve our customers, I think on balance, we want to invest in the near term and the medium term to continue to drive our leadership. Leadership in Cloud is about technology and is about products. In the last quarter, we launched 319 new products and features in the Cloud, and we believe that is a pace that nobody can catch up to us in the China market. Very much focused on driving leadership, as Maggie said.
You know, I think the question of whether break even is a discretionary question or not, it's kind of moot. We wanna focus on product, technology, and market leadership.
Thank you, Joe. Thank you, Maggie.
Your next question comes from the line of Alicia Yap from Citigroup. Please ask your question.
Hi. Good evening, management. Thanks for taking my questions. Two questions here. Number one, regarding the China retails revenue. Just try to get a sense the robust 54% growth in the online marketings service revenue. How much of the improvement is due to higher spending on the P4P ads versus higher tractions to the display ads? How should we look for this line going forward? Given you topping the Q1 revenue growth, is that mean there is potential upside for the full year guidance that you provided earlier? The second question is on the cloud. Just a follow-up. Who do you think would be the potential biggest competitions in cloud for you? Will that be the AWS, or will that be another Chinese company? Thank you.
All right, Alicia. For your first question on China retail marketplace revenue growth, the online marketing revenue growth actually coming from both P4P and display ads, P4P growing more. Since just now Bob also asked for a little bit more, you know, color on this growth, I kept saying that the fundamental reason for the growth is the, you know, broader value proposition, broader and deeper value provided to user and the buyers and sellers, because that is the reason. At the surface, you could say, see things like, if you remember that last year in May and September, we added some inventory slots for ads. Right now, this quarter, we start to see some full effect of that.
If you think about it, the deep reason for that is, you know, we have been operating and manage to increase the user engagement and to help merchants by utilizing the data, give them the tools to better manage these consumers and improve the efficiency of their business. That's where, you know, the spaces we opened is more valuable. So that these merchants are willing to pay more. That is the reason. You're asking about the revenue guidance. I give the guidance of a 48% plus year-on-year growth for total revenue of the group for the fiscal 2017. I gonna remain that guidance unchanged. We'll not adjust. Why? Because, I mean, this is our of this year.Q1.
We're still in the early stage in terms of growth and the integration of new businesses. When I give this 48% plus guidance to the market, we already largely exceeded the market expectation. It is a pretty high goal. We would rather remain it unchanged for now. For your second question-
Yeah, the second question, Alicia, I'll answer the second question on cloud. I think the question is who's our competitors? You know, there are a lot of competitors. I mean, there are real competitors, and there are pretenders in cloud computing. Obviously, you know, globally, you have some really serious players like AWS and Microsoft Azure, as well as Google getting into the space. I would like to take a step back because I don't think That's the right question. I think the right question is, what does it take to be competitive in cloud? We've been in this business for seven years, all right? The reason we're in it is because Alibaba is the biggest internal customer of a cloud computing infrastructure.
We got into it because we have use cases. We have huge amounts of data. We have massive amounts of storage needs. Therefore, we developed the cloud products for ourselves first, and then they are strong enough and good enough to be open up to third-party customers. I think if you look at the history, the real winners are gonna be those that have really real use cases themselves and also use the cloud platforms efficiently themselves, because that's how you can gain operating scale economies, as well as cost efficiencies. It's also the pre-condition for the cloud player to continue to develop and invest in technology and products.
As I said, that is absolutely the total priority for our cloud computing business to launch new products and features. At the rate of launching 319 in a quarter, I don't think anybody in China is going to be able to match that. Otherwise it'll just take them massive amounts of investment and costs to catch up. I think it's important to understand what it takes to be competitive.
Next question, please.
Your next question comes from the line of Chi Tsang from HSBC. Please ask your question.
Good evening and good morning, everybody. Thanks for taking my question. Congratulations on a great set of results and a really, really good disclosure. I had twice questions. Getting back to your value proposition to brands and merchants, can you help us understand how much your brands and merchants are spending on your platform today as a percentage of their revenue, and what benchmark we should use to gauge how high this figure can go? Secondly, I wanted to ask you a little bit about margins. Margins for the core commerce business was 61%, very, very strong versus, you know, sort of high fifties previously. This is clearly demonstrating high operating leverage for this business. Does this mark a new level of sustainable profitability for your business, or might you spend some of those margins going forward? Thank you.
Okay, let me answer the first question. Actually, today, for most of the brands on our platform, when they spend marketing dollar, they don't just measure the effectiveness of the marketing dollar by the immediate sales. On top of it, they measure this by the cost of customer acquisition. That's why more and more people wanna spend more dollar on our platform and to engage the customers. This is also very important for our brand to digitalize, to transform, to get a successful transformation of their entire business into a digital business.
Not only has a e-commerce channel and that has a separate sales channel and have a separate trade marketing dollar to promote their products and get the immediate sales. That's why we see great potential when we integrate our retail platforms with our newly acquired media matrics. This, we believe can bring a huge value to the brands in their digital transformation.
Right. Regarding to your second question about the margin, obviously, we have a very, very high margin for our core business. Even with some investments we made in this quarter, it still, you know, stays 61%. Whether that margin level gonna be sustainable, how we think about this margin, I think, first of all, the core business do have operating leverage.
Secondly, you know, it stays at very high margin level. Secondly, we are very, you know, we are pretty much sure that we're gonna further invest because we have that luxury. If you look at, you know, the business that we're talking about today, even for the core business, marketplace business, we have tremendous growth potential. You know, the international, the globalization, the rural areas, the FMCG, it, you know, we wouldn't be hesitant to invest them all. For, you know, Tmall Supermarket, for FMCG, while the other company is talking about a CNY 1 billion investment, we are willing to invest multi times of that number because this is just a category that we think we should be in and with great potential, and we are the one could provide better service in this area.
Next question, please.
Your last question comes from the line of Ken Sena from Evercore ISI. Please ask your question.
Hi. Thank you. Thank you for the questions. Just going back to maybe the seventh times launch day for the DAUs, you also provided the DAU over MAU measure of 40%. Are you willing to provide any sort of time lapse on that as far as maybe prior year for that DAU/MAU measure? Also, in terms of your traction outside of China, you know, your 40% of revenues now, very nice growth. There's a bit of inorganic in there. Maybe could you say a little bit more of just how, where you are and how pleased you are with the traction that you're having in markets outside of China? Thank you.
Yeah, today, our DAU versus MAU is 40%. Actually, what we are very happy to see that this actually, this is a result of a very continuous upward trend in the past few quarters. Having said that, actually this trend is actually DAU versus MAU, actually, the trend is upward, it takes time to grow, because you have to get a continuous engagement interaction with the customer during a very long time life cycle, and the people can get used to come back more frequently.
We are confident that of our continuous upgrade of our services and especially data-driven services with social features, and we can get more people to come back and sign up in the future.
I wanna answer your second question. First of all, you referred to the proportion of revenue that's coming from international. I wanted to point out that there's a very big part of our international activity that's generating revenues, but that is not captured in the so-called international segment. That's because that's a cross-border activity with us bringing in imports from all over the world for Chinese consumers. You know, in terms of our expansion internationally, that cross-border activity is very much part of our globalization efforts as we see it, even though that's not captured in our financial results.
With respect to the import business, we have established many locations in Europe and as well as the U.S., as well as Japan, Korea, to source and bring in brands and merchants onto our platform. We have a ready-made platform that's Tmall Global for them to come in initially. There are a lot of brands that are very curious about the China entry, but they're very in a way, you know, worried about coming into the China market without any data, without any testing, and this is where we can really help them because we can bring them consumers, and we can bring them data. All that international activity is going very well.
The other aspect of international is that, as you see, we've made some acquisition and investments in the emerging markets. We acquired the majority control of Lazada in an effort to start to serve local consumers in Southeast Asia. That's something that we've decided that that's going to be a very important potential market for us. It's a market with over 500 million potential consumers, and Lazada is operating in 6 different countries. So far, we've started to integrate that business, starting this past quarter, and so far, the integration efforts have been going very well. The other emerging market is in India, where we have decided to place some very strategically located assets in that market.
We invested jointly with Ant Financial into a company called Paytm, which is the largest mobile wallet company in India. We think mobile and payment are going to be important strategic assets for us in that market. As you probably know, UCWeb also has the number 1 position as the mobile browser in India. I think we're very well strategically positioned in these emerging markets, and that's the start of our international activity.
This concludes the presentation. Thank you for participation. You may all disconnect.