Alibaba Group Announces March Quarter and Full Fiscal Year 2019 Results
Alibaba Group Holding Limited (NYSE: BABA) today announced its financial results for the quarter and fiscal year ended March 31, 2019.
“More and more, Alibaba is becoming synonymous with everyday consumption in China, growing our base to 654 million annual active consumers and extending our penetration in less-developed cities,” said Daniel Zhang, Chief Executive Officer of Alibaba Group. “Our cloud and data technology and tremendous traction in New Retail have enabled us to continuously transform the way businesses operate in China and other emerging markets, which will contribute to our long-term growth.”
“We delivered another strong quarter and excellent fiscal year, led by fiscal year revenue growth of 51% as well as robust user growth and engagement across our ecosystem. Excluding the effects of consolidating acquired businesses, revenue would have increased by 39% year-over-year,” said Maggie Wu, Chief Financial Officer of Alibaba Group. “Over the years, our steady profit growth and cash flow have enabled us to strengthen our core business, invest in new businesses and create unique value for our customers. These investments have expanded our total addressable market and positioned us well for long-term growth. Looking ahead to fiscal 2020, we expect revenue to be over RMB500 billion, reflecting our confidence and positive momentum going forward.”
In the quarter ended March 31, 2019:
- Revenue was RMB93,498 million (US$13,932 million), an increase of 51% year-over-year.
- Annual active consumers on our China retail marketplaces reached 654 million, an increase of 18 million from the 12-month period ended December 31, 2018.
- Mobile MAUs on our China retail marketplaces reached 721 million in March 2019, an increase of 22 million over December 2018.
- Income from operations was RMB8,765 million (US$1,306 million), a decrease of 5% year-over-year mainly due to our US$250 million settlement of a U.S. federal class action lawsuit. Adjusted EBITDA increased 29% year-over-year to RMB25,166 million (US$3,750 million).
- Adjusted EBITA for core commerce was RMB27,484 million (US$4,095 million), an increase of 24% year-over-year. Our marketplace-based core commerce adjusted EBITA (see definition at the end of this results announcement), a non-GAAP measurement, increased 38% year-over-year to RMB34,688 million (US$5,169 million).
- Net income attributable to ordinary shareholders was RMB25,830 million (US$3,849 million), and net income was RMB23,379 million (US$3,484 million). Non-GAAP net income was RMB20,056 million (US$2,988 million), an increase of 42% year-over-year.
- Diluted EPS was RMB9.84 (US$1.47) and non-GAAP diluted EPS was RMB8.57 (US$1.28), an increase of 50% year-over-year.
- Net cash provided by operating activities was RMB18,553 million (US$2,764 million) and non-GAAP free cash flow was RMB10,714 million (US$1,596 million).
In the fiscal year ended March 31, 2019:
- Revenue was RMB376,844 million (US$56,152 million), an increase of 51% year-over-year. Excluding the effects of consolidating acquired businesses, revenue would have increased by 39% year-over-year.
- Annual active consumers on our China retail marketplaces reached 654 million, an increase of 102 million from the 12-month period ended March 31, 2018.
- Mobile MAUs on our China retail marketplaces reached 721 million in March 2019, an increase of 104 million over March 2018.
- GMV transacted on our China retail marketplaces was RMB5,727 billion (US$853 billion) for fiscal year 2019, representing a year-over-year growth rate of 19%. Excluding unpaid orders, total physical goods GMV from our China retail marketplaces grew 25% year-over-year, Tmall physical goods GMV increased 31% year-over-year and Taobao physical goods GMV increased 19% year-over-year.
- Income from operations was RMB57,084 million (US$8,506 million) and adjusted EBITDA increased 15% year-over-year to RMB121,943 million (US$18,170 million);
- Adjusted EBITA for core commerce was RMB136,167 million (US$20,290 million), an increase of 19% year-over-year. Our marketplace-based core commerce adjusted EBITA, a non-GAAP measurement, increased 31% year-over-year to RMB161,589 million (US$24,078 million).
- Net income attributable to ordinary shareholders was RMB87,600 million (US$13,053 million) and net income was RMB80,234 million (US$11,955 million). Non-GAAP net income was RMB93,407 million (US$13,918 million), an increase of 12% year-over-year.
- Diluted EPS was RMB33.38 (US$4.97) and non-GAAP diluted EPS was RMB38.40 (US$5.72), an increase of 17% year-over-year.
- Net cash provided by operating activities was RMB150,975 million (US$22,496 million) and non-GAAP free cash flow was RMB104,478 million (US$15,568 million).
BUSINESS AND STRATEGIC UPDATES
Our Core Commerce segment delivered robust revenue growth of 51% year-over-year in fiscal year 2019. The strong performance of the Core Commerce segment was primarily driven by:
- effective user acquisition and penetration into less developed cities;
- solid revenue growth of China retail marketplaces reflecting higher user engagement driving improving click-through rate and better purchase conversion; and
- expansion of our total addressable market by investing in local consumer services and New Retail businesses that captured additional consumer wallet share and improved user loyalty.
China Retail – Solid increase in annual active users catalyzes GMV growth; improved merchant sentiment in allocating marketing spend.
In March 2019, our China retail marketplaces had 721 million mobile MAUs, representing an annual and quarterly net increase of 104 million and 22 million, respectively. Annual active consumers on our China retail marketplaces was 654 million for the 12 months ended March 31, 2019, representing an annual and quarterly net increase of 102 million and 18 million, respectively. This robust growth reflects successful user acquisition programs, such as referrals through the Alipay app, and has been a leading indicator of increased consumption activities on our platforms. In fiscal year 2019, more than 70% of the increase in annual active consumers was from less developed cities.
During fiscal year 2019, our China retail marketplaces recorded total GMV of RMB5,727 billion (US$853 billion), up 19% year-over-year, primarily driven by an increase in the number of annual active consumers, putting us on track to achieve our US$1 trillion total GMV target by fiscal year end 2020. Total physical goods GMV from our China retail marketplaces, excluding unpaid orders, exhibited strong growth of 25% year-over-year in fiscal year 2019. Tmall physical goods GMV, excluding unpaid orders, grew 31% year-over-year, which continued to exceed the sector average. Taobao physical goods GMV, excluding unpaid orders, delivered healthy and accelerated growth of 19% in fiscal year 2019.
The number of paying merchants that generate customer management revenue increased during the quarter, which we believe reflects improved merchant confidence in allocating marketing spend. We are making progress on the monetization of recommendation feeds and enhancing recommendation algorithms. During the quarter, we allocated more traffic for testing of recommendation monetization, which generated incremental customer management revenue in a quarter with seasonally lower revenue.
Taobao – fast growing consumer community and new shopping experience. Taobao is a fast growing consumer community that continues to redefine the shopping experience through content innovation and intelligent personalized recommendations. We are improving the user experience and adding greater value to merchants with our proprietary consumption knowledge graph.
In fiscal year 2019, we successfully launched a new Taobao app interface, which delivers a customized shopping experience by segmenting users based on behavior data and providing them with more recommendations to enhance product and content discovery. The new interface also includes Taobao’s innovative content, such as curated posts, short-form videos and live-broadcast events. These initiatives drove strong growth in user engagement, purchase conversion and annual active consumers.
Tmall – the leading consumer engagement and distribution platform for brands in China. Tmall continues to gain wallet share and grow faster than the sector average. The growth of physical goods GMV, excluding unpaid orders, accelerated to 33% year-over-year in the quarter ended March 31, 2019, compared to the year-on-year growth rate of 29% in the previous quarter. This robust growth was driven primarily by strong performance of fast-moving consumer goods (FMCG), apparel, electronics and home furnishing categories during the March quarter.
In fiscal year 2019, Tmall extended its leadership position as the consumer engagement and distribution platform of choice for brands in China. We have had great success in identifying new consumption trends in China that drove robust sub-category growth within consumer electronics and personal care product categories. To help brands build awareness of new products with our large base of annual active consumers, we developed a suite of product-launch marketing solutions, including tools that assist brands to measure the effectiveness of new product-launch campaigns along the full consumer journey, from discovery to purchase.
As an example of Tmall’s powerful capabilities to enable brands to build their business in China, Alexander McQueen and Mulberry launched flagship stores on Tmall and joined the premium Luxury Pavilion channel during this quarter. As of March 31, 2019, our Tmall Luxury Pavilion had more than 100 luxury brands, all of which have also opened Tmall flagship stores.
New Retail – digital transformation of brick-and-mortar retailing. Through our New Retail strategy, we are at the forefront of transforming the retail industry by digitizing all aspects of store-based operations. We enable traditional retailers to deliver an unrivalled consumer experience and achieve operating efficiency through our consumer insight technology, on-demand delivery, inventory tracking, supply chain management and mobile payments.
In fiscal year 2019, Alibaba Group and Starbucks Coffee Company jointly announced a comprehensive strategic New Retail partnership to enable a seamless Starbucks Experience and enhance the way customers enjoy their food and beverages. By the end of April 2019, we had enabled on-demand delivery of Starbucks offerings in more than 2,100 stores across 35 cities throughout China. We have also helped accelerate membership acquisition for its new Starbucks Reward program through the Alipay and Taobao apps.
At the end of March 2019, we had digitized about 470 Sun Art stores with our New Retail know-how and proprietary technology. The transformation enables these stores to accelerate the integration of their various retail systems, while allowing consumers to place orders through the Taobao app and secure delivery through our on-demand delivery platform operated by Ele.me.
Our self-owned-and-operated grocery retail chain Freshippo (known as “Hema” in Chinese) continues to achieve robust same-store sales growth, expand its footprint, optimize its stores and introduce new initiatives to improve customer experience. As of March 31, 2019, we had 135 self-operated Freshippo stores in China, primarily located in tier one and tier two cities.
Local consumer services – ecosystem synergy and focus on market share gains in less developed cities.
In fiscal year 2019, we acquired the on-demand food delivery platform Ele.me and integrated it with restaurant and local service guide platform Koubei to create a business which revenues are reported under “local consumer services” within the core commerce segment. Our strategy for the local consumer services business is to leverage the 654 million annual active consumers on our China retail marketplaces and our data technology to expand our offerings from shopping to services, further tapping into new addressable markets for consumption in China.
We are focused on gaining market share by integrating the local consumer services business with the Alibaba ecosystem and penetrating into less developed cities. For example, the local consumer services business has acquired users and increased orders by leveraging the Alipay and Taobao apps, which have more than 600 million MAUs each and have gained a significant number of users in less developed cities in recent quarters. Approximately 30% of Ele.me platform’s total orders are generated through these two mobile apps.
Cainiao Network and logistics investments – achieving progress in last-mile solutions as well as international and cross-border fulfillment. During the 2019 fiscal year, Cainiao Network focused on delivering a comprehensive last-mile solution to consumers through both organic growth and strategic investments. In urban areas, Cainiao Network has developed neighborhood delivery solutions with a combination of community and campus stations and residential self-pickup lockers, which we call Cainiao Post. These solutions have become an important complement to the last-mile delivery network of Cainiao’s express delivery partners. In March 2019, these Cainiao Post stations handled over 10% of total daily packages generated by our China retail marketplaces. In addition, during the fiscal year, we enhanced our relationship with the express delivery industry through our investments in ZTO Express and STO Express, two of the major express delivery companies in China.
In international logistics, Cainiao Network and the logistics arm of Lazada have developed a strong and growing network of assets and partners to support our international commerce retail businesses (AliExpress and Lazada). In March 2019, our proprietary fulfillment and logistics solutions served over 75% of AliExpress packages and about 80% of Lazada packages were delivered out of its own sortation centers. From a China import standpoint, Cainiao Network is focused on developing cross-border fulfillment solutions for Tmall Global, utilizing a combination of bonded warehouses in China and direct shipping from foreign countries. In March 2019, these cross-border fulfillment solutions served over 90% of all Tmall Global packages.
International – building foundation for long-term growth. Our cross-border and international retail businesses continue to show promising growth. In the twelve months ended March 31, 2019, Lazada and AliExpress had a total of more than 120 million annual active consumers.
In fiscal year 2019, we strengthened Lazada’s third party marketplace business, management team and technology infrastructure. At the same time, Lazada reduced its exposure to direct product sales of low-margin categories, such as electronics, as we believe this strategy will better position Lazada for sustainable, scalable and less capital-intensive long-term growth. Lazada will continue to invest in logistics infrastructure in order to improve user experience and reduce delivery cost, as factors such as delivery speed and convenience have become key competitive advantages in the Southeast Asian market.
To address increasing Chinese consumer demand for international products and brands, Tmall Global serves as the premier platform that helps overseas brands and merchants reach Chinese consumers directly, build brand awareness and gain valuable consumer insight that inform their overall China strategy. Some of the brands and merchants that have a presence on Tmall Global are well established names, such as nutritional products from Chemists Warehouse and Blackmores, baby products from Pampers, accessories from Emporio Armani and nuts from Kirkland. Tmall Global was the number one e-commerce import platform in China based on transaction value in calendar year 2018, according to Analysys.
Cloud computing revenue grew 76% year-over-year to RMB7,726 million (US$1,151 million) during the March 2019 quarter, primarily driven by an increase in average spending per customer. We are seeing significant traction and diversification of customers and revenue. In fiscal year 2019, Alibaba Cloud served more than half of the A-share listed companies in China. We will continue to invest to further expand our market share by developing value-added products and features.
During the March 2019 quarter, Alibaba Cloud launched major products in the areas of graph database, anti-bot protection, blockchain-as-a-service and real time communications. We continue to use our scale to lower the pricing of products and services in the areas of content delivery network, security, database and network infrastructure so that we are able to pass on cost savings to our customers.
According to Gartner (April 2019), Alibaba Cloud is the largest cloud computing service provider in Asia Pacific, as measured by market share for IaaS (Infrastructure as a Service) and IUS (Infrastructure Utility Service).
Digital Media and Entertainment
Digital Media and Entertainment is a key piece of our [email protected] vision and an extension of our strategy to capture consumption beyond our core commerce businesses. In fiscal year 2019, we emphasized developing our original content production capabilities in order to attain greater control over content quality, format and scheduling. We will continue to execute this strategy as we believe original content will drive paying subscriber and advertising revenue growth. Youku’s daily average subscriber base continues to grow at a healthy rate, increasing about 88% and 50% year-over-year during fiscal year 2019 and March 2019 quarter, respectively.
In March 2019, we increased our shareholding in Alibaba Pictures to 51% and aligned the management of Digital Media and Entertainment and Alibaba Pictures. Alibaba Pictures is principally engaged in the production, promotion and distribution of theatrical entertainment, serving consumers, studios, and cinema operators. Alibaba Pictures was involved in the production, promotion and distribution of highly popular films, including Chinese box-office hit The Wandering Earth, which to-date is the second highest grossing domestic film in China, and the Oscar-winning movie Green Book. We believe the alignment of management and content strategy between Alibaba Pictures and our Digital Media and Entertainment businesses will support and enhance our original content strategy in the future.
Innovation Initiatives & Technology Development
Amap app is the largest provider of mobile digital map, navigation and real-time traffic information in China by daily active users. Amap also operates a leading open digital maps platform that powers many major mobile apps in different industries, such as food delivery, ride service, taxi-hailing and social networking.
Tmall Genie, our AI-powered smart speaker, connects consumers with interactive services offered by participants in our digital economy. Since Tmall Genie’s official launch in August 2017, more than 10 million units have been activated.
Cash Flow from Operating Activities and Free Cash Flow
In the quarter ended March 31, 2019, net cash provided by operating activities was RMB18,553 million (US$2,764 million), an increase of 29% compared to RMB14,383 million in the same quarter of 2018. Free cash flow, a non-GAAP measurement of liquidity, in the quarter ended March 31, 2019 increased by 22% to RMB10,714 million (US$1,596 million), from RMB8,767 million in the same quarter of 2018.
In the fiscal year ended March 31, 2019, net cash provided by operating activities was RMB150,975 million (US$22,496 million), an increase of 20% compared to RMB125,805 million in the fiscal year 2018. Free cash flow, a non-GAAP measurement of liquidity, in fiscal year 2019 increased by 4% to RMB104,478 million (US$15,568 million), from RMB99,996 million in fiscal year 2018, primarily due to an increase in capital expenditures (excluding acquisition of land use rights and construction in progress relating to office campus) by RMB16,735 million and an increase in acquisition of licensed copyrights and other intangible assets by RMB3,953 million.
A reconciliation of net cash provided by operating activities to free cash flow is included at the end of this results announcement.
In September 2018, we announced an ADS repurchase plan to implement the previously announced US$6 billion share repurchase program. As of the end of March 2019, we had repurchased approximately 10.9 million of our ADSs for a total of approximately US$1.57 billion.
Looking ahead, we are confident about our value proposition to consumers and merchants, and we will focus on solid execution to build our businesses. In fiscal year 2020, we expect to generate over RMB500 billion in revenue.
KEY OPERATIONAL METRICS*
|China Commerce Retail:|
|Annual active consumers(1) (in millions)||552||636||654||102||18|
|Mobile monthly active users (MAUs)(2) (in millions)||617||699||721||104||22|
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