Earnings Call: Q3 2016

Jan 28, 2016

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group Group December Quarter 2015 Results Conference Call. At this time, all participants are on listen only mode. After management's prepared remarks, there will be a Q and A session. I would now like to turn the call over to Jane Penner, Head of Investor Relations of Alibaba Group. Please go ahead. Good day, everyone, and welcome to Alibaba Group's December quarter 2015 earnings conference call. With us are Joe Tsai, Executive Vice Chairman Daniel Zheng, 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 www.alibabagroup.com. So 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. Now let me quickly cover the Safe Harbor. Today's discussion will contain certain 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, 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 non GAAP EBITDA, including non GAAP EBITDA margin and non GAAP net income are expressed on a non GAAP basis. We have also adjusted our net cash provided by operating activities to remove purchases of property and equipment and intangible assets, excluding acquisition of land use rights and construction in progress and adjust for changes in loan receivables relating to micro loans of our SME loan business, which we refer to as free cash flow. 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, Jane. Thank you all for joining us today. We had an excellent quarter with strong growth across all of our operating and financial metrics. Total revenue growth in the quarter was 32% year on year. I want to point out that our core business, the revenue growth in China retail marketplaces was even stronger at 35% year on year. Daniel and Maggie will discuss more detail on the quarter, but before they do that, I wanted to give you a few thoughts on the macroeconomic conditions in China, since I know it is something that you are watching very closely. The Chinese economy is going through a structural shift from high growth to more moderate, but more sustainable growth. China is still one of the fastest growing economies in the world, and we have no reason to think anything different in the foreseeable future. We are witnessing 2 significant trends consistent with Chinese government reforms that provide the secular drivers to Alibaba's business. 1st, China is moving from an investment driven economy to a consumption driven economy. Consumption driven growth is clearly more sustainable and this plays to the strength of Alibaba with more than 400,000,000 Chinese consumers shopping on our platforms. 2nd, China is moving from an industrial manufacturing economy to a service economy. While the manufacturing sector lost jobs in 2014, the service sector added 17,000,000 jobs. Job growth is taking place and it is driven by the services economy. People now have more employment opportunities in technology, commerce, logistics, entertainment, leisure, travel and finance. This is good for Alibaba because our platforms enable millions of small businesses and service providers to capture the growth of this new economy. So many of you may wonder how our business is being impacted by the Chinese economy. I think the strong top line growth numbers we released today speak for themselves. But let me provide 2 important data points for context. 1st, consumer retail sales in China grew 10.7% in 2015. And second, and largely because of Alibaba, online penetration of retail grew from 10.6% in 2014 to 12.9% in 2015. Taken together, these two factors helped drive 30% year on year GMV growth on our China retail marketplaces in calendar 2015. Obviously, our business benefits from secular rather than cyclical trends as consumers shift to the Internet to purchase goods, services and entertainment. We continue to play a proactive role in transforming China's economy. We accomplished this by enabling business using Internet and data technology and in doing so we believe we will continue to drive the growth of Chinese consumption and increase our share of this consumption. Now I would like to turn to Daniel, who will discuss the developments in the past quarter. Thank you, Joe. I'm very excited to update our progress with you. As Joe mentioned, we had a great quarter with overall revenues of RMB34.5 billion, achieving a year on year growth of 32%. Revenue of our core China retail business was even stronger with 35% year on year growth at RMB28.7 billion. This strong top line growth is driven by 2 things: 1, the increasing engagement of users on our platforms, especially on mobile 2, our ability to increasingly monetize user activities on our platforms. In the 12 months ended December 2015, annual active buyers grew to 407,000,000. In December, we had 393,000,000 monthly active users on our mobile e commerce apps. This represents a net addition of 47,000,000 mobile MAUs from the prior quarter. These users are engaging our mobile shopping apps to buy goods and services on Tmall and Taobao marketplaces. A very strong user growth as well as our continued focus on merchant quality supported high quality GMV growth of 23% year on year to RMB964 1,000,000,000 for the December quarter. To put things into perspective, this growth represents an absolute year on year increase of US27 $1,000,000,000 in GMV compared to the same quarter in the prior year. We believe Alibaba has a significant opportunity that will be realized by the growth of the Chinese consumption economy. Specifically, we see increased consumption from the 2 key segments. Number 1, an expanding middle class, particularly those living in urban areas, who are undergoing lifestyle change and upgrading to higher quality products and services Number 2, young people who have strong appetite for spending but little interest in saving compared to their parents. Today, 100 of millions of consumers come to Taobao Marketplace and Tmall to browse for ideas, looking for new trends, receive merchants and product updates, compare products, sharing shopping experiences, and be entertained. Data generated from their activity is incredibly valuable because this provides meaningful insight into the behavior and preferences of Chinese most important consumer population. The value presented in the user data is not captured by GMV, but it is reflected in the online marketing dollars that brands and merchants are increasingly spending on our platforms for brand building and customer acquisition and engagement. On our platforms, marketing activities contribute relevant content that enriches the consumer experience. Brands invest on our platform to build relationships with customers that defer lifetime value in the form of repeat purchase and brand royalty. This lifetime value creation extends beyond the online channel, as brands are also seeing positive and lasting effects on their entire business. Investments in online marketing on our platform influence and shape consumer behavior offline. Accordingly, brands are beginning to embrace and integrate online to offline strategies, a trend we believe will be a key driver of our online and marketing services revenue growth. The 35% year on year revenue increase from our core China retail business this quarter is a validation of our theme. In a few minutes, Maggie will go into more details about our increasing ability to monetize our growing user base. The future of our retail business will be driven by 3 key growth engines. Number 1, rural development. Approximately half of China's population live in rural areas. Our platform can reach rural villages very efficiently. So far, we have expanded our rural service centers to 12,000 villages. Our strategy to sell goods from urban areas to villages as well as help farmers sell farmer products to people living in the cities. Number 2, globalization. We are focused on cross border commerce that allow international brands and retailers to sell online to Chinese consumers. On Singles' Day, 30,000,000 active buyers purchased products from over 16,000 international brands. Tmall Global, our channel dedicated to global imports, saw 179% year on year growth in the December quarter. More than 200 international brands, including Coca Cola, Woolworths an opening flagship store on Tmall. Services. Kobei, the local service joint venture we recently established with M Finance, is gaining strong momentum and winning market share, generating RMB15.8 billion in GMV transacted through Alipay during the quarter. In closing, I'd like to say a few words about our cloud computing business. Aliploud has made exciting progress in the development of customers, products and technology. We now have a full portfolio of products over the entire technology stack, providing services to international to Internet companies, government entities, corporate enterprise and international customers. In the December quarter, revenue from the cloud computing and Internet infrastructure business continued to grow rapidly, with a year on year increase of 126 percent to RMB819 1,000,000. I will now turn to Maggie, who will walk you through more specific financial and operating metrics. Okay. Thank you, Daniel. Hello, everyone. Here are some financial highlights from the December quarter. Our revenue grew 32% year over year to RMB34.5 billion. The year on year growth performance was driven primarily by the continued rapid growth of our China retail business as well as the growth of our cloud. Non GAAP EBITDA margin was 55%. Non GAAP net income grew 25% year over year to RMB16.4 billion. Diluted non GAAP EPS was RMB6.43, an increase of 27% compared to 5.05 in the same quarter of 2014. User growth and increasing user engagement on our China retail platforms have become important drivers of our long term revenue growth as our marketplaces deliver a broader value proposition to sellers in addition to sales generation. As a result, the blended monetization rate of our China retail marketplaces reached 2.98% in the quarter ended December 31, 2015, meaningfully higher than 2.7% in the December 2014 quarter. We have witnessed a positive trend of both revenue per annual active buyer and mobile revenue per mobile user. Both of the above mentioned metrics have been increasing for several quarters, reaching RMB184 and RMB108 in this quarter. We believe improving monetization in the future will be driven by the increasing value we created for customers. A growing percentage of our China commerce retail revenue will likely come from the monetization of user engagement that helps brands and merchants build long term relationships with consumers. Accordingly, we expect revenue to grow faster than GMV for the foreseeable future. Year on year, our revenue grew 32% to RMB34.5 billion. This growth was primarily due to the continued strong growth of our core China commerce retail business. Cloud Computing and Internet Infrastructure revenue grew 126% year on year, reflecting the accelerated growth of our cloud computing business. Other revenue declined year on year due to a tough comparison to December quarter last year when we booked interest income from the SME loan business to this line. We no longer book the SME loan income to other revenue pursuant to the restructure of our relationship with ANS Financial completed in February 2015. Excluding the revenue related to SME loan business for both periods, other revenue would have increased 62% year on year. In December quarter, our non GAAP 58% in the December quarter of last year due to our investments in the new business initiatives, which we have discussed in the previous quarters. Please note that just like what we have discussed during December quarter last year, a certain percentage of our costs and expenses are fixed, which gives us operating leverage in seasonally strong quarters such as the December quarter that can pressure margin in seasonally weaker quarters. Now let's talk about our operating expenses. Non GAAP cost of revenue was RMB9.5 billion. Non GAAP product development expense was RMB2.2 billion. Non GAAP sales and marketing expenses was RMB3.1 billion. Non GAAP general and administrative expense was RMB1.7 billion. Non GAAP cost of revenue as a percentage of revenue increased year over year, primarily due to an increase in costs associated with our new business initiatives, mainly our mobile operating system, over the top TV services and entertainment and also to an increase in traffic acquisition costs. Non GAAP product development expense and the sales marketing as a percentage of revenue decreased slightly year over year due to operating leverage. Non GAAP G and A as a percentage of revenue was flat year over year. Free cash flow generated was robust at RMB23.7 billion. Total cash capital expenditure in December quarter were RMB4.9 billion, increasing from RMB3.2 billion last quarter. As of December 31, 2015, our cash, cash equivalents and short term investments were RMB118 1,000,000,000 versus RMB106 1,000,000,000 in September quarter. That concludes our prepared remarks. Operator, we are ready to begin the Q and A session. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer And your first question comes from the line of Carlos Kirchner from Bernstein. Please ask your question. Thank you for taking my questions. I have 2. First about the deceleration of GMV. Some of it is presumably related to the ongoing quality improvement efforts, but the numbers suggest that Timol decelerated significantly too. Do the quality efforts impact Timol as much as Taobao? And if we were to look at the conceptual cleanup GMV net of this quality efforts, net of returns and taking into account all monetizable transactions, would it also have decelerated as much? And second on the monetization rate, it came very close, I think 7 bps below your December 2013 monetization and one could argue that is a good benchmark for your historical monetization rate. You talked generically about mark for your historical monetization rate. You talked generically about delivering more value and hence increasing monetization, but can you be a bit more specific about how this will occur? And why would sellers be willing to pay more? And can their P and L support that? Thank you. Thank you. This is Daniel. I will take the first question and I will leave the second to Joe. In terms of Tmall growth, actually when we look at our big picture, in this quarter, we generated 946,000,000,000 GMV and with a net adds of 177,000,000,000 compared to the quarter 1 year ago. So we think this is a huge base and the amount is massive and we are happy with the result and we believe that this is very important to at this stage and with such a huge scale, we can continue to grow our user base and grow our active especially our active annual buyers to 407,000,000. And in terms of growth, actually, I have to mention that actually the when we look at the weather in the Q4, the weather is quite warm and the temperature is unusually high in the Q4, especially in November December. And what we observe is that the heavier clothing items with higher ASP actually is not sitting as well, but we are happy to see that in January, most areas in China and Hong Kong experienced the coldest winter. And we observed that the harvest clothing items selling quite good actually in the past few weeks. Okay. Carlos, this is Joe Tsai. I'll take your second question about monetization rate. Thank you for the setup. I think you mentioned December 2013 take rate that was our highest. But if you look at our take rate in this quarter 2 0.98%, that is significantly higher than the take rate of 2.7%. That's 28 basis points higher than the December 2014 take rate. And in fact, this take rate is the highest take rate we've ever achieved in the last 8 quarters. So I just wanted to make sure that everybody gets that. So the question I think is whether take rate can continue to go up. So if you look at take rate, it's just a mathematical result of our revenue in China retail market place divided by the GMV of our China retail marketplace. But as Daniel has mentioned in his remarks, today our GMV is no longer captures all the value proposition that we deliver on our platforms to the merchants and brands. So today, the brands and merchants are using the platform to acquire customers and engage with users. This goes far beyond generating the next sale. What they're doing is building customer base and focusing on the lifetime value of these customers so that these customers can come back and make repeated purchases and become loyal to their brands. So all that value is not captured in the denominator in the GMV. And what you're seeing monetization rate going up is revenue is reflecting this value proposition that we're delivering to the to look at how we monetize the users. So, so, to look at how we monetize the users. So today in our release, we have presented 2 more metrics, which can be derived from what our existing disclosed metrics, which is revenue per active buyer and also revenue mobile revenue per monthly active user. So the former gives you a sense of the total revenue generating capability and how we have been able to monetize the user base in terms of active buyers and the latter focuses on mobile and we're crushing it on mobile. So I think this is all good and we feel very confident that the monetization trend will continue. Okay. Operator, we're ready for the next question. Your next question comes from the line of Alan Hellawell from Deutsche Bank. Please ask your question. Great. Thank you very much and congratulations on a very solid result. I guess my first question would probably be directed to Maggie. Would love it if you could update us on what the puts and takes or the headwinds and the tailwinds to EBITDA margin might be for instance calendar year 2016? And then secondly, with regard to cross border, was just wondering what percent of Tmall GMV might reclassify as cross border or Tmall Global, I guess? And then what might be an educated guess around how much of C2C might be what you might call Daigo or Hytau? And sorry, just going back to cross border, can you hazard a guess as to what the at least hypothetical take rate or monetization rate might be of that business? Thank you very much. Okay. So your first question, Alan, about this margin, I think our margin message remain unchanged. If you look at our core business, core business continues to generate high margins and also some operating leverage. And we will continue our strategic investment into the new and existing business for longer term revenue and profit growth. So margin for different quarters could be lumpy and nonlinear since certain percentage of total cost is fixed, which gives us operating leverage in seasonally strong quarters, but can pressure margin in seasonally weaker quarters. So like we said, we don't manage this business by managing margin. We have a very good cost control. Okay. The second question about the cross border. First, I would say Tmall Global today serve as a gateway for the overseas suppliers to access to the Chinese consumers. Today, actually, if you look at the size of Tmall Global, actually still compared to Tmall, actually still in the early stage. But we are happy to see that Tmall Global enjoyed very rapid growth. As I said in my my script, actually the year on year growth in December quarter was 179%. And actually at this stage, what we see is that the overseas vendors as they are actually they are rushed to us and try to onboard our platform, try to get access to Chinese consumers. So this stage is quite early and the main job for Tmall Global is sign up new accounts and get them onboarding. But we will see a very actually based on our experience in Tmall and we will give them good service and help them to grow our platform and to generate a very hopefully to generate good same store growth in the years. And having said that, actually Tmall Global actually is just part of the our international business. Actually, there is a very big portion which in Tmall and which is actually the product is imported in the normal importing processes. So as you said, actually we also have a very good C2C cross boarding business, which is mainly serve the purpose for the discovery and sharing. And we have a global buy business in Taobao and a lot of our Haitao fans actually like this very much. Thank you. Operator, we're ready for the next question. Your next question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question. Good morning and good evening. Thank you for taking my questions. Just two questions. The first one is about GMV. You highlighted the word high quality GMV in the quarter. So just wondering if you could provide us some outlook in the timing of perhaps some normalization of your GMV growth as the transitions to higher quality GMV by and large kind of like stabilized? So that's my first question. And then secondly, if you could provide us more updates on your cloud computing business, especially on the growth drivers for the quarter. Are we seeing more clients or are we seeing the clients upgrading to higher end services? Any color would be helpful. Thank you. Thanks. This is Daniel. I will answer the first question. And for the higher quality of GMV, actually, when we look at this GMV growth, today we focus very much on the user experience. So that's why we said high quality GMV. And we're trying to not only to grow our business very rapidly, but also try to ensure the user end to end user experiences. So we are happy to see that even on November 11, actually with such huge scale and our user experience and especially in logistics side as people can get their products actually much faster than previous years. So actually, that's the result of our continuous efforts on the quality of the user experience. And actually, if you look at the future and the GMV the scale growth is mainly driven by 3 things. As I said in my script, actually first is the rural areas and we will try to sign up the new customers in the rural areas. And this, we believe that will have a huge potential in the future. 2nd, we will try to continue to acquire the wallet shares of existing customers, especially through the in people more selection of the products and services. Hey, Eddie, this is Maggie. Regarding cloud computing business growth, we're first of all very proud of this business development and the growth is coming from several factors. We keep growing our customer base, especially paying customer base and our product offerings. So in one quarter time, we launched 19 new products and also our technology further upgrading our technology and as well as ecosystem development. So now we have over 20,000 of developers are working at our cloud computing ecosystem. Got it. Thank you very much. Thanks, Eddie. We're ready for the next question, operator. Certainly. Your next question comes from the line of Robert Flynn from Morgan Stanley. Please ask your question. Hi, good morning and good evening everyone. So I have two questions here. Daniel, I think you mentioned about improving user experience in Tier 1 Citi. Obviously, I think that entails a lot of things, particularly I think a smart logistics where you've done a lot in the late last year before Double 11. Can you give some examples on how a smart logistic will improve this or even tuning cooperation will improve this year in the Tier 1 cities? And second question maybe is for Joe. You guys specifically talked about GMV of Kobe. If I do a rough calculation, that's about $5,000,000 transaction a day during the quarter, which is probably higher than your top 2 competitors in the delivery side. Obviously, twofold question here is, how big do you think this business could be? And obviously, I think a lot of investors are worried about potential subsidy war in this business this year and potential impact of the P and L. Can you provide a little more color on the investments in the GMV side for this business? Thank you. Okay. For the first question, yes, logistics and user experiencing logistics service is very important to our customers. And actually via Cainiao, we work closely with our partners in logistics side, including warehouse operating companies, delivery last mile delivery companies, etcetera. And just to give you a few examples, in large appliance category, we work closely with our investee company, our higher electronic, the RRS, the logistics company. And today, they help us to fulfill the orders generated on the platform and via their 4 tier 4 layers network, which cover home actually close to 100 warehouses and we can get the products fulfill and deliver to the customer very efficiently. And as a result, what we observed is that larger appliances are one of the fast growing categories in our Tmall business in December quarter. And the second example is about growth rates. And we actually, our Tmall market business growing very rapidly with a year on year growth about 2 79% year on year and which is heavily driven by the upgrade of the logistics service. Because for this grocery stuff, people buy for convenience and people want to on demand service and same day and second day delivery. So we greatly expand the areas of second day delivery and the same day delivery and to as a result our business growing very rapidly. And also actually via the integration of the system with the delivery companies and we get the logistics data and which make us possible to help our delivery company partners to upgrade their process. This also actually reflects in the as I said in the November 11 single stage promotion. And that's one of the reasons why we can our partners can speed up their delivery. Thank you. So Robert, I'll talk about this O2O. As you know, we have a joint venture, Cobay, which is a JV between us and Ant Financial. We're very committed to this business. And we disclose metrics, GMV metrics for this business close to RMB16 1,000,000,000 in quarterly GMV. And so when you analyze that and then you size it to some of the other market players, we're already very, very significant. And in fact, CoBay's GMV is growing faster than the competition. For a business that's only been in operation for just a few months, it started earlier this year, in fact earlier 2015. Relative to some of the other players in the market that have been in business for many, many years, this is a very, very good achievement. And as you said, 5,000,000 orders per day, that's we're pretty excited about that. So going forward, we're going to be very committed to this business. The O2O space, a lot of that is related to food. That is restaurants, restaurant guide and also food delivery. So if you look at the whole restaurant sector, it's about a $1,000,000,000,000 economy. And so for people to make aggressive investments in this to capture the upside, I think that's first question about Suning. Actually, after our investment in Suning, today, we are in the progress of to realize the synergy between us, especially in the logistics part. And today, Suning help us to fulfill part of our grocery orders, and we leverage their network to get the package delivered to the end customer very quickly. Thank you. Ready for the next question operator. Your next question comes from the line of Piyush Mubayi from Goldman Sachs. Please ask your question. Thank you for the opportunity. I've just got one question. When I look at the numbers for the quarter for GMV, it's a very decent growth of 23%. If I was to take out Singles Day, for example, then you're left with a number that's shy of 20%. May I just clarify that the run rate that you're seeing at the December quarter or if you could shed any color on what the visibility you have for the Q1 of calendar 2016. Could you give us a sense of what sort of growth rate are you seeing? And Joe, you talked about the secular drivers in the economy that's driving the economy. Are we comfortable seeing the secular drivers continue to play in our favor into 20 16 calendar year? Thank you. Yes. For the GMV, actually, we in the Q4, we the year on year growth is 23%. And as I said, actually, the Q4, actually, the apparel category, especially the heavier apparel items, the sales of these items are affected by the warm temperatures. And in the Q1 2016 and we so far we have seen that the winter times finally comes and people buy more heavier clothing items. And looking ahead, actually, what we see is that today, we are very still very active and very good at acquiring new customers. And we believe over time, these new customers can be a royalty customer and we can increase the wallet share of them. Thank you. And may I just ask what the GMV growth would have been in theory if you hadn't had that blip in temperature for the quarter? Or is that to academic a question? Piyush, this is just beginning of the quarter and we don't give any market guidance and forecast on No, no, I mean for the December quarter. No, we're not going to give any detailed information beside what we discussed. All right. Thank you. Operator, we're ready for the next question. Your next question comes from the line of Dick Wei from Credit Suisse. Please ask your question. Hi. Thank you for taking my questions and congrats on a strong quarter. My first question is on maybe for this 2016, what are some of the key areas of investment that we should think about for the company, particularly maybe with the Cobay or in terms of content investments? And the next question is on the logistics front. I understand that we are doing logistics more by the verticals by verticals basis. I mean after the appliances and grocery sectors verticals, what are some of the others verticals that we will be focusing on for like improving logistics experience? Thank you. Hi, Dick. Regarding the investment area for the following years, it's still going to be our strategic important areas. So for these strategic investment, it will definitely not be only in 1 year. So we're talking about areas like digital entertainment, operating in OS and cloud, rural, cross border business. Yes. For the second question the overall user experience on logistics. And specifically, we will continue to develop the category specific solutions in the important categories. For example, we will develop heavily develop the solutions in fresh foods and in furnitures and in large appliance and also in cross borders. I think these actually three areas are very with very specific requirement of the in logistic and the user experience. So we will try to develop the specific solutions with our partners. Great, thanks. Ready for the next question, operator. Your next question from the line of Eric Sheridan from UBS. Please ask your question. Thank you so much for taking my question. Going back in time, in the summer of 2014, you made noticeable changes on the monetization front around advertising, balancing sort of engagement versus monetization on the platform with a tilt towards desktop. So maybe 2 questions about that. 1, what have you learned as we've moved past the 1 year anniversary of those changes? What that's meant for desktop monetization? And as mobile monetization rates start to sort of become closer to desktop, what is the appetite to experiment on the mobile side of the equation with respect to the formats and engagement? Thank you so much. This is Daniel. I would like to answer this question. Actually, the mobile actually, as you can see, we experienced a very successful mobile transition. And we're also very happy to see mobile give us a very good opportunity to create the new value for our merchants and brands to help them to acquire, to manage and to serve the customers. The key reason is that in the PC time, actually people not they get connected only when they get in touch with PC and they will stay away when they just go actually, they will stay away from the PC in most of their times. But on the mobile time, actually anywhere, anytime. And actually mobile is just one component of the body. So this give us a very good opportunity to help them our merchants and brand to get to interact with their target customers. And because of the huge user base we have, actually today we can help them to cover the target customers and especially to acquire new customers. So that's why our brands and partners and our merchants recognize the value and continue to increase their spending on our platform. Yes, just to add 2¢ to Daniel's answer. First of all, I mean, we have successfully transited to a mobile business. Mobile GMV and mobile revenue accounts for a very high percentage of the total GMV and revenue. So people should really focus on our overall monetization rather than separate PC and mobile. And second point is, like Joe and Daniel mentioned earlier, our value creation go way beyond the GMV. So there are other values not captured by GMV that we'll be able to monetize. Thanks, operator. Can we get the next question? Next question comes from the line of Vivien Hao from JPMorgan. Please ask your question. Hi, management. Thank you for taking my question. My first question is still regarding our O2O strategy. So do we have any plan for a strategic fine tuning of CoBay after Meituan and Denping have merged? Also, I don't know if this is appropriate to ask, but do we plan fully exit the new Meituan DNP entity and dedicate to Kobe only? Also, do we have any plan to integrate Ele. Me to our OTO system? This is my first question. And the second question is, can you elaborate a little bit more on our plan in 2016 on collaborating with our 3rd party network partners, especially with Weibo and Youku? Thank you. Hey, Vivian, I'll address the O2O question. So as I said, CoBay has been a relatively new business, and we're seeing very good growth trajectory and very good momentum in that business. So even though the rest of the market may be consolidating a little bit, as I mentioned, this is a US1 $1,000,000,000,000 market in O2O. So there's a lot of potential upside and this is a multiyear effort. So you should expect that our investments are not going to be we're not going to be looking at quarter to quarter sort of results from our investments, but we're looking at a long term several year, multi year outcome on this. And we feel very positive about the long term prospects of this business. When it comes to which horse we're backing, clearly, Kobe is the horse that we're going to back. We've had a very successful financial investment in Meituan, but we believe that a better allocation of our capital is to put our resources into Kobe and exiting Meituan is just a matter of time. Okay. This is Daniel. I will answer the second question about Weibo and Youku. First of all, Youku actually is acquisition of privatization of Youku is not yet closed. And when we look at these 2 companies, these 2 businesses, actually, we can see a very clear synergies between us. First is users, actually for social media and the video. And it's a very important sector, which where consumers spend their time, especially on the mobile side. So actually, if we compare the user base between our retail platforms and Weibo and Youku and material portion is overlap. So actually, while the collaboration with Weibo and Youku and WeCan actually have our actually have to enhance our understanding and know how of the consumers and get more consumers' data not only from the consumption side, but also from entertainment side and from social side. I think this will give a very big potential on the marketing and on the advertisements. And actually, via Weibo and Youku actually which give us also give us a good opportunity to work with them to distribute digital content. And we believe that digital content is very important in the future, actually, with the lifestyle upgrade and more and more people enjoying consuming more digital content rather than physical products in the future. And with the data cross platforms and integrated and what we can see that there's a huge synergy between the e commerce, between the merch and the brand on our retail platforms and the advertisers, marketers on the media platforms. And what we can do is to use the data to help these marketers to track and to engage again to manage the customers in our platform also cross platforms. Thank you. We're ready for the next question, operator. Your next question comes from the line of Mark Mahaney from RBC Capital Markets. Please ask your question. Thanks. Just one question please, Daniel. In terms of the 3 growth areas, you mentioned rural development. Could you help just size that opportunity versus your current opportunity and talk about how material that rural market is already for Alibaba? Thank you. Well, actually China is so big. And when we today, when we talk about rural areas, we talk about the rural village in China. And there are actually, there are about 600,000 rural villages across China and maybe with every single village with a household less than 1,000 people. So actually, this is a highly diversified population. And today, actually, when we look at the traditional distribution channel in China and few people can penetrate this rural village via Internet, via our retail platforms, actually we see we observe a very good opportunity and a very efficient way to help our brand partners and merchants to get into this rural village and serve and the customers in this area. So we can see that the potential is huge, but also this is a very tough progress. And in the past year, actually, we have made good progress in our rural Taobao, village Taobao program, and we will continue to do so to try to build up a countrywide network covering the major village in China. Next question, operator. Next question comes from the line of Chi Chiang from HSBC. Please ask your question. Hi, thank you very much for taking my question. My first question is about Tynanau in your sort of your last mile, you've made a of progress. I was wondering if you can give us sort of some targets for sort of same day or next day delivery for this year? And secondly, getting back to sort of the macro question, in terms of G and P, you've talked about the weather. So I'm wondering how the economic slowdown is impacting some of the online shopping habits you're seeing in the 2,122 cities and some of the rural places? Thanks so much. First, I think I would say we don't disclose the target of the delivery business. And but what I can share with you is that in logistics side, we believe the most important thing is to manage the expectation of the customers in terms of logistics speed, especially the speed. So actually not people not always want to faster delivery and they will compare the price they pay and the service they get. So the most important thing is to manage expectation. But for certain category and for certain business, actually the speed is very important because people buy stuff for on demand consumption. So in these areas, we will actually set the high criteria for the speed and to ensure the user experience. I'll address the macro question. So the one thing that I mentioned in my talk earlier remark was that Chinese retail sales grew 10.7% in 2015 and it's actually a higher growth rate than the prior year. So retail sales is going against the grain of what many consider to be a decelerating economy. And that's because the shift of the Chinese economy is going from investment driven to consumption driven. So consumption as a share of GDP is becoming higher. So we benefit from that. But the thing that's really important to understand is e commerce penetration continues to grow. And that is largely because Alibaba is behind driving that penetration of online commerce. And we've seen a very massive shift of users going online. That's because of the advent of the mobile device. Today with a smartphone, you can buy from anywhere, any time. And Alibaba with our leadership in mobile is capturing that activity. So we are underlying our business is a very significant secular trend and that is really decoupling from the larger economy, okay? And with more specific color, we're seeing strength in electronics in the sale of cell phones. For example, we sold more than 3,000,000 units cell phone units on single day. We're also seeing strength in the large ticket items, for example, large appliance, white goods category, and that's because of our category specific logistics strategy providing not just the delivery, but also good installation services through our logistics partners. And we also see a lot of good growth in the 1st tier cities in the grocery area with buying groceries and everyday staple items. So there's strength in parts of the categories that we're seeing and set against this larger context of high retail sales growth and also increasing online penetration. Operator, we're ready for our final question. And the final question comes from the line of Ken Sena from Evercore ISI. Please ask your question. And just to follow-up on Carlos' question just in the beginning, on the topic of branding and advertiser relationships and lifetime value, how are advertisers realizing the higher lifetime value? Is it due in part to the measurements that you're making in terms of conversion tracking? Or is it theirs? Or is something else really happening? And then our understanding is that advertising in China has shown some signs of slowdown. So I guess the timing in terms of advertisers willingness to kind of increase their brand spend just seems to come at an sort of an unusual point. So maybe if you can just elaborate on that a bit more. And then finally, if the brand to volume divide continues, is there any consideration at this point to changes in how you may begin to disclose? Thank you. Thank you. This is a very good question. Actually for the advertisement, traditionally people view this as actually as 2 types. 1st is brand advertisement 2nd, performance based advertisement. Advertisement. But here within Alibaba Ecosystem, with our retail platforms and our media platform we are building up, actually we can do a very unique combined effect of the attachment, which means the action driven and interaction driven attachment. So today actually brands are actually more and more brands are realizing the value of this advertisement and because they can not only catch the eye box of the audience, but also to drive them to the back to the retail platforms and to make interaction. So this will create a lot of opportunities to acquire new customers and to get the repeat purchase. So that's actually the opportunity people have seen. And very important thing in this shift, which is to build the measurement and the closed loop measurement for the advertisers and marketers. And that's exactly the job we are doing right now to build a new set of measurement together with our partners for the brand for the advertisement and the marketers. And as you said, actually today is a tough time in terms of macro economy and it's not that good. And the brands are usually more cautious about spending marketing dollar. And that's also the good time for us because actually when people are cautious, people are care more about the effectiveness of the marketing dollar usage. So that's why we can they continue to spend more dollar on our platform because that's the actually the one of the few platforms they can find to get a closed loop consumer track and to consumer interaction. Thank you. Thank you very much. And then just on the disclosure question? Operator, I think that is the end of our call. There are no other questions. So ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.