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Alibaba Group Announces March Quarter and Full Fiscal Year 2020 Results

Alibaba Group Holding Limited (NYSE: BABA and HKEX: 9988, "Alibaba" or "Alibaba Group") today announced its financial results for the quarter and fiscal year ended March 31, 2020.

"Alibaba achieved the historic milestone of US$1 trillion in GMV across our digital economy this fiscal year," said Daniel Zhang, Chairman and Chief Executive Officer of Alibaba Group. "Our overall business continued to experience strong growth, with a total annual active consumer base of 960 million globally, despite concluding the fiscal year with a quarter impacted by the economic effects of the COVID-19 pandemic. The pandemic has fundamentally altered consumer behavior and enterprise operations, making digital adoption and transformation a necessity. We are well positioned and prepared to help large and small businesses across a wide spectrum of industries achieve the digital transformation they need to survive this difficult period and eventually prevail in the new normal. By focusing on the long term and investing in value creation for our consumers and business customers, we believe we will emerge from this crisis stronger and be ready to capture more growth in the future."

"Despite a challenging quarter due to reduced economic activities in light of the COVID-19 pandemic in China, we achieved our annual revenue guidance of over RMB500 billion. Revenue growth of 35% year-over-year was driven by solid performance of our domestic retail businesses as well as robust cloud computing revenue growth," said Maggie Wu, Chief Financial Officer of Alibaba Group. "Our adjusted EBITDA grew 29% year-over-year, reflecting our discipline in allocating resources to key strategic growth areas while optimizing costs and improving efficiency. Although the pandemic negatively impacted most of our domestic core commerce businesses starting in late January, we have seen a steady recovery since March. Based on our current view of Chinese domestic consumption and enterprise digitization, we expect to generate over RMB650 billion in revenue in fiscal year 2021."

BUSINESS HIGHLIGHTS

In the quarter ended March 31, 2020:

  • Revenue was RMB114,314 million (US$16,144 million), an increase of 22% year-over-year.
  • Annual active consumers on our China retail marketplaces reached 726 million, an increase of 15 million from the 12-month period ended December 31, 2019.
  • Mobile MAUs on our China retail marketplaces reached 846 million in March 2020, an increase of 22 million over December 2019.
  • Income from operations was RMB7,131 million (US$1,007 million), a decrease of 19% year-over-year, primarily due to the impact of the COVID-19 pandemic. Adjusted EBITDA, a non-GAAP measurement, increased 1% year-over-year to RMB25,440 million (US$3,593 million).
  • Net income attributable to ordinary shareholders was RMB3,162 million (US$447 million), a decrease of 88% year-over-year, and net income was RMB348 million (US$49 million), a decrease of 99% year-over year. The year-over-year decrease was primarily due to a net loss in investment income, mainly reflecting decreases in the market prices of our equity investments in publicly-traded companies, compared to a net gain recorded in the same quarter of 2019. Non-GAAP net income, which excludes the above-mentioned loss and gain, was RMB22,287 million (US$3,148 million), an increase of 11% year-over-year.
  • Diluted earnings per ADS was RMB1.16 (US$0.16) and non-GAAP diluted earnings per ADS was RMB9.20 (US$1.30), an increase of 7% year-over-year. Diluted earnings per share was RMB0.14 (US$0.02 or HK$0.15) and non-GAAP diluted earnings per share was RMB1.15 (US$0.16 or HK$1.26), an increase of 7% year-over-year.
  • Net cash provided by operating activities was RMB2,164 million (US$306 million), compared to RMB18,553 million in the same quarter of 2019, and non-GAAP free cash flow was an outflow of RMB4,214 million (US$595 million), compared to an inflow of RMB10,714 million in the same quarter of 2019. The year-over-year decreases were mainly due to the effect of the one-off AliExpress Payment Services Restructuring, as discussed in further detail in the section entitled "Cash Flow from Operating Activities and Free Cash Flow" below. Excluding the effect of the AliExpress Payment Services Restructuring, non-GAAP free cash flow for the quarter would have been an inflow of RMB1,977 million (US$279 million).

In the fiscal year ended March 31, 2020:

  • Revenue was RMB509,711 million (US$71,985 million), an increase of 35% year-over-year.
  • Annual active consumers for the Alibaba Digital Economy reached 960 million globally, including 780 million consumers in China and 180 million consumers outside China. Annual active consumers on our China retail marketplaces reached 726 million, an increase of 72 million from the 12-month period ended March 31, 2019.
  • Mobile MAUs on our China retail marketplaces reached 846 million in March 2020, an increase of 125 million over March 2019.
  • GMV transacted in the Alibaba Digital Economy was RMB7,053 billion (US$1 trillion) for fiscal year 2020, which mainly included China retail marketplaces GMV of RMB6,589 billion (US$945 billion), as well as international retail marketplaces and local consumer services GMV.
  • Income from operations was RMB91,430 million (US$12,912 million), an increase of 60% year-over-year. Adjusted EBITDA, a non-GAAP measurement, increased 29% year-over-year to RMB157,659 million (US$22,266 million). Adjusted EBITA, a non-GAAP measurement, increased 28% year-over-year to RMB137,136 million (US$19,367 million).
  • Adjusted EBITA for core commerce was RMB165,800 million (US$23,415 million), an increase of 22% year-over-year. Our marketplace-based core commerce adjusted EBITA, a non-GAAP measurement, increased 19% year-over-year to RMB192,771 million (US$27,224 million).
  • Net income attributable to ordinary shareholders was RMB149,263 million (US$21,080 million), and net income was RMB140,350 million (US$19,821 million). Non-GAAP net income was RMB132,479 million (US$18,710 million), an increase of 42% year-over-year.
  • Diluted earnings per ADS was RMB55.93 (US$7.90) and non-GAAP diluted earnings per ADS was RMB52.98 (US$7.48), an increase of 38% year-over-year. Diluted earnings per share was RMB6.99 (US$0.99 or HK$7.65) and non-GAAP diluted earnings per share was RMB6.62 (US$0.93 or HK$7.25), an increase of 38% year-over-year.
  • Net cash provided by operating activities was RMB180,607 million (US$25,507 million) and non-GAAP free cash flow was RMB130,914 million (US$18,489 million).

Reconciliations of GAAP measures to non-GAAP measures presented above are included at the end of this results announcement.

BUSINESS AND STRATEGIC UPDATES

Alibaba Digital Economy

The consumer commerce businesses of the Alibaba Digital Economy, mainly comprised of our China retail marketplaces, international retail marketplaces and local consumer services, reached RMB7,053 billion (US$1 trillion) of GMV in the twelve months ended March 31, 2020. In September 2019, on the occasion of Alibaba’s 20th anniversary, we set our strategic goals for the next five years, consistent with our mission "to make it easy to do business anywhere," to:

  • Continue to expand our globalization efforts;
  • Serve more than 1 billion Chinese consumers; and
  • Facilitate more than RMB10 trillion of consumption on our platforms.

These five-year goals are guide posts that will help us achieve our vision for 2036 to:

  • Serve 2 billion global consumers;
  • Enable 10 million businesses to be profitable; and
  • Create 100 million jobs.

We manage our consumer-facing businesses as one integrated platform serving one user base with access to our various offerings. For the twelve months ended March 31, 2020, 780 million consumers in China purchased goods or services on our China retail, local consumer services and digital media and entertainment platforms. These consumers account for around 85% and 40% of the Chinese population in developed and less developed areas, respectively. We have also expanded into international markets, with over 180 million annual active consumers on our international retail marketplaces. Our digital infrastructure, such as smart logistics and cloud computing, which cuts across platforms to serve our major commerce, local services and entertainment businesses, gives us unparalleled and unique insights to meet changing consumer demands. Through the Alibaba Business Operating System (ABOS), we offer our data technologies and analytics to help our enterprise customers and partners achieve digital transformation.

COVID-19 Pandemic

Business Customer Support Programs

Starting in late January 2020, the COVID-19 pandemic triggered a series of lockdowns, social distancing requirements and travel restrictions that drastically reduced economic activities in China. In the initial phase of the crisis in China, the most pressing concern of all enterprises was business continuity – solving for issues like minimizing supply chain disruptions, cutting costs, identifying new revenue opportunities, improving cash flow and managing a remote workforce. We helped our merchant customers to overcome these challenges and took proactive measures to fulfill our mission.

Starting in February, together with Ant Financial, we implemented a comprehensive set of financial and business support measures to help alleviate the near-term challenges faced by our business customers and partners.

  • Financial support – We worked with Ant Financial and other partners to advance RMB128 billion to provide liquidity to our merchants and to facilitate over RMB12 billion in 12-month loans with preferential interest rates (each as of April 30, 2020) to merchants who sell through our China retail marketplaces.
  • Business support – Alibaba’s domestic and international businesses provided billions of Renminbi in value in the form of subsidies and technical support to our merchants and users, including waivers of platform technology fees, annual service fees and warehousing fees, reduction of commissions and logistics costs, as well as free support for remote work and education programs through DingTalk, our digital collaboration platform for enterprises and schools all over the world.
  • New initiatives – In April 2020, we launched our "2020 Spring Thunder" initiative, which aims to:
    • help export-oriented SMEs to explore opportunities in the China domestic market through our China retail marketplaces, as well as expand into new markets through our international wholesale and retail marketplaces, such as Alibaba.com and AliExpress;
    • develop digitalized manufacturing clusters;
    • accelerate the digital transformation of China’s agriculture sector; and
    • alleviate financing challenges faced by SMEs by working with Ant Financial and its partners.

Social Responsibility

We leveraged our platform technology and other resources across our ecosystem to support those impacted by the COVID-19 pandemic within China and around the world.

  • Donations of PPE and equipment – Through their combined efforts, the Alibaba Foundation, the Jack Ma Foundation and the Joe and Clara Tsai Foundation donated over 200 million units of personal protective equipment, testing kits and ventilators to over 150 countries and regions. Tmall Global, Tmall Supermarket, Alibaba.com and Lazada sourced, verified and procured many of these scarce supplies.
  • Delivery of medical supplies – Our logistics subsidiary Cainiao delivered medical supplies to destinations around the world through its extensive global logistics network of airport hubs, customs clearance operations, trucking companies and local delivery personnel.
  • Knowledge sharing – The Alibaba Foundation and Jack Ma Foundation jointly established an online exchange called the Global MediXchange for Combating COVID-19 (GMCC) to facilitate sharing of best practices and knowledge for fighting the pandemic among medical professionals around the world in real-time in 11 languages. Close to 10,000 healthcare workers from 120 countries and regions have joined the GMCC.
  • Fund for medical and related supplies – Within China, we established a new RMB1 billion special fund to procure medical and related supplies for parts of the country affected by the COVID-19 pandemic.
  • AI technology – We made available AI technology to over 550 hospitals in China to help improve the speed and efficiency of their COVID-19 diagnosis using CT scans.
  • Jobs – Freshippo, Ele.me and Koubei launched employee-sharing initiatives to temporarily hire furloughed employees of businesses in negatively impacted service sectors, including restaurants, hotels, movie theaters and department stores.

Financial and Operational Impact on our Businesses

During the quarter, businesses in China and around the world, including merchants on our platforms and logistics companies, have been unable to conduct normal activities due to disruptions in supply chain and workforce availability. The substantial decline in business activities starting in late January in China negatively affected most of our domestic core commerce businesses, such as our China retail marketplaces and local consumer services businesses, while our key international commerce businesses began to experience a negative impact in February.

During the March quarter, some of our businesses experienced slowing or negative year-over-year growth due to the pandemic.

  • China retail marketplaces – Tmall online physical goods GMV, excluding unpaid orders, grew 10% year-over-year, driven by growth of fast-moving consumer goods ("FMCG"), including daily necessities and household goods, and resilient demand for consumer electronics, which together grew approximately 25% year-over-year, offset by negative growth in other major categories such as apparel and accessories, home furnishing and auto parts. Combined customer management and commission revenues grew 1% year-over-year, reflecting an increase of 3% in customer management revenue and a decrease of 2% in commission revenue.
  • Local consumer services – Our local consumer services business recorded an 8% year-over-year revenue decline during the quarter ended March 31, 2020, reflecting mass closure of restaurants and local merchants.
  • International retail marketplaces – AliExpress revenue growth was significantly slower year-over-year, primarily due to supply chain and logistics disruptions that negatively impacted GMV growth from sales to North and South America and Europe. Lazada experienced some negative impact in certain countries beginning in March, but order growth remained strong.
  • Other businesses – Our businesses that involve travel, transportation and offline entertainment, including Fliggy, Alibaba Pictures, Damai and Amap, have all been negatively impacted by the pandemic.

While the magnitude of near-term financial impact differs by business, the growth of our domestic businesses started to recover in March. Tmall online physical goods GMV, excluding unpaid orders, saw a strong recovery in April and continue to further improve in May. Similarly, Ele.me food delivery GMV growth turned positive in April as lockdown measures eased, restaurants began reopening and people began returning to work in China. For our international commerce businesses, which represented 7% of total revenue in fiscal year 2020, the timing and pace of recovery is still uncertain as demand in countries outside China remains soft. It is not possible to determine the ultimate impact of the COVID-19 pandemic on our business operations and financial results, which is highly dependent on numerous factors, many of which we are not able to predict or control. See the section entitled "Guidance" below for further details.

Business Opportunities

The COVID-19 pandemic created opportunities for consumer adoption of a broader digital lifestyle and the shift to online purchase of daily necessities. More businesses are adopting new digital tools and solutions to grow and manage their operations. Over the years, Alibaba has pioneered and developed businesses that allow us to capture the long-term benefits of these trends, including:

  • Accelerated merchant on-boarding – We have seen a growing range of offline merchants going online, as well as increased adoption by existing merchants of new ways to engage with and sell to consumers. For example, daily active merchants using livestreaming on Taobao Live grew 88% year-over-year for the three months ended March 31, 2020.
  • New Retail (grocery category) – Freshippo’s revenue showed strong growth in February and March driven by an increased number of online customers, higher purchase frequency and larger order size. For the quarter ended March 31, 2020, online purchases represented approximately 60% of Freshippo’s GMV, up by 10 percentage points year-over-year. Our Taoxianda (淘鲜达) business, which enables on-demand delivery for our partner grocery retailers with physical stores, also generated increased online revenue for these stores.
  • DingTalk – DingTalk is a platform that offers new ways of working, sharing and collaborating for modern enterprises and organizations. Millions more enterprises and users in China are now using DingTalk to stay connected and work remotely. In the month of March, DingTalk’s average daily active users on workdays reached 155 million. DingTalk also made significant penetration in the education sector as schools adopted the platform for their teachers and students. In March, DingTalk conducted on average over one million active classroom sessions each workday.
  • Cainiao Post – Cainiao Post, which operates a network of neighborhood stations, campus stations and smart pick-up lockers, helped consumers and delivery personnel during this period of logistics disruptions. In March, as social distancing measures remained in place, we saw robust adoption of Cainiao Post by consumers who needed convenient and contactless pick-up and delivery options in their neighborhoods. In March 2020, daily packages handled by Cainiao Post's neighborhood stations grew over 100% year-over-year.

Core Commerce

China retail marketplaces – broad product selections and enhanced user experience result in higher purchase frequency from a large-scale consumer base.

Consumers – the largest consumer platform in China with improving purchase frequency

In fiscal year 2020, our China retail marketplaces achieved strong results reflecting our strategic focus on user acquisition and engagement as well as on increasing our offerings of value-for-money products. In March 2020, our China retail marketplaces had 846 million mobile MAUs, representing an annual and quarterly net increase of 125 and 22 million, respectively. Annual active consumers on our China retail marketplaces was 726 million for the 12 months ended March 31, 2020, representing an annual and quarterly net increase of 72 million and 15 million, respectively. In fiscal year 2020, over 70% of new annual active consumers were from less developed areas.

The longer consumers have been with us, the more orders they place, across a more diverse range of product categories, and as a result we experience increasing average spend per user on our China retail marketplaces. In fiscal year 2020, GMV growth of our China retail marketplaces was driven by robust increase in annual active consumers and greater purchase frequency per consumer.

Product Supply – largest online physical goods platform in the world with the most comprehensive product offering that caters to the needs of different consumer segments

The Alibaba Digital Economy has a comprehensive range of products and services made available by tens of millions of merchants and ecosystem partners to meet the diverse demands of our large-scale consumer base. We continually work to secure relevant and new products, such as increasing our range of branded and imported products, going upstream to directly source fresh agricultural products, and expanding the breadth of selection of value-for-money and long-tail products. Having a broad product range is the key to our consumer segmentation and category expansion strategy.

Tmall online physical goods GMV, excluding unpaid orders, grew 23% year-over-year in fiscal year 2020. In addition to Tmall, we have multiple fast growing platforms, including Juhuasuan (聚划算) and Taobao Deals (特价版), that offer attractively priced products from brands, retailers and factories. Idle Fish is the largest C2C community and marketplace in China for long-tail products, including second-hand, recycled, refurbished and for-rent products, with approximately RMB200 billion GMV in fiscal year 2020.

Engagement – the largest digital commerce platform in China enabled by unrivalled consumer insights and proprietary data technology

In March 2020, over 300 million daily active users came to our China retail marketplaces to browse and purchase from billions of listings. The massive amount of user and merchant activities taking place every day on our China retail marketplaces generate significant consumer insights. By leveraging proprietary AI and data technology, we are able to build on these deep consumer insights to provide more accurate search results and relevant recommendation feeds that enhance the shopping experience for our consumers.

The Taobao app is the largest social commerce platform in China, offering rich, highly relevant and curated content and features that enable merchants to engage with consumers through live-streaming, short-form videos, interactive games and microblogs. For example, Taobao Live, where merchants and key opinion leaders ("KOLs") use live-streaming to market to their fans and customers, has become one of the fastest growing sales formats on our China retail marketplaces. In the fiscal year ended March 2020, GMV generated from live-streaming grew over 100% year-over-year.

New Retail – developing new business models to enable digital transformation of brick-and-mortar retailing.

Creating the new – Our self-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. In fiscal year 2020, Freshippo strengthened its direct procurement of agricultural products and built a nationwide cold chain logistics network in order to support its rapid growth. As of March 31, 2020, we had 207 self-operated Freshippo stores in China, primarily located in tier one and tier two cities.

Transforming the old – Taoxianda, our online-offline retail integration service provider for grocery retailer partners with physical stores, puts us at the forefront of transforming the retail industry by digitalizing all aspects of store-based operations. By digitalizing SunArt’s hypermarket stores, Taoxianda has contributed to an increase in SunArt’s online revenue. In the twelve months ended March 31, 2020, Alibaba commerce platforms – primarily Taoxianda – generated and enabled around 10% of SunArt’s total revenue.

Local consumer services – ecosystem synergy and focus on market share gains in lower tier cities.

Our local consumer service business continues to expand our China retail offerings from shopping to services, further tapping into new addressable markets for consumption in China. We are leveraging resources and technology in the Alibaba Digital Economy to benefit our local consumer services business. For example, in the fiscal year and quarter ended March 31, 2020, over 40% of new food delivery customers came from the Alipay app.

Cainiao Network – enabling greater efficiency and cost savings for merchants and other Alibaba businesses. Cainiao Network continues to focus on improving domestic and international one-stop-shop logistics services and supply chain management solutions for the Alibaba Digital Economy. We are seeing increased adoption of "Fulfilled by Cainiao" services from our fast growing cross-border businesses, including AliExpress and Tmall Global. Cainiao Network has developed robust import fulfilment solutions for Tmall Global by utilizing a combination of bonded warehouses in China and direct shipment from foreign countries. During fiscal year 2020, Cainiao Network used data insights and improved efficiency to lower fulfillment costs per order for our direct sales businesses, such as Tmall Supermarket, as these businesses increased their logistics volumes.

International – building foundation for long-term growth. Our cross-border and international retail businesses continued to show strong growth in fiscal year 2020, as we only started to experience the negative impacts of the COVID-19 pandemic in February. In the twelve months ended March 31, 2020, Lazada, AliExpress and other international retail businesses had a total of more than 180 million annual active consumers.

Lazada – In fiscal year 2020, Lazada, our Southeast Asian e-commerce platform, saw robust growth momentum in its marketplace business, driven by strong order volume, which increased over 100% year-over-year, reflecting strong user growth and improved purchase conversion rate as we continued to broaden our product assortment. Lazada’s order growth remained strong despite movement control orders imposed by governments in response to the COVID-19 pandemic. Lazada introduced a stimulus package across Southeast Asia to help SMEs start online businesses. There was strong adoption of consumer engagement tools, especially livestreaming, by brands and sellers to engage with consumers and diversify revenue channels to compensate for drop in offline retail activities.

AliExpress – AliExpress delivered robust user and GMV growth in the first ten months of fiscal year 2020. Starting in February 2020, AliExpress GMV growth declined as a result of the COVID-19 pandemic, primarily due to supply chain and logistics disruptions that impacted GMV growth in North and South America and Europe.

Cloud Computing

Alibaba Cloud has maintained its leadership position in Asia Pacific’s cloud computing market by developing technology and business solutions that enable the digital transformation of businesses across industries in the public and private sectors. According to Gartner (April 2020), Alibaba Cloud is the largest cloud computing service provider in the Asia Pacific region, as measured by market share for IaaS (Infrastructure as a Service) and IUS (Infrastructure Utility Service).

Cloud computing revenue grew 58% year-over-year to RMB12,217 million (US$1,725 million) in the quarter ended March 31, 2020 and 62% year-over-year in fiscal year 2020 to RMB 40,016 million (US$5,651 million), primarily driven by increased revenue contribution from both our public cloud and hybrid cloud businesses.

Digital Media and Entertainment

The digital media and entertainment segment revenue grew 5% year-over-year in the quarter ended March 31, 2020 and 12% year-over-year in fiscal year 2020 as the industry underwent rationalization and tighter regulatory scrutiny on content. Youku continued to focus on delivering a superior user experience and increasing paying subscribers. Youku’s daily average subscriber base continued to grow at a healthy rate, increasing over 50% and 60% year-over-year during fiscal year 2020 and the March 2020 quarter, respectively. The increases in paying subscribers were driven by our offerings of original and exclusive content, our effective targeting of new subscribers and a greater contribution from the 88VIP membership program on our China retail marketplaces. We invested in original and exclusive content while ensuring cost efficiencies and return on investment, which resulted in narrowing annual adjusted EBITA losses year-over-year in fiscal year 2020.

Cash Flow from Operating Activities and Free Cash Flow

In the fiscal year ended March 31, 2020, net cash provided by operating activities was RMB180,607 million (US$25,507 million), an increase of 20% compared to RMB150,975 million in the fiscal year 2019. Free cash flow, a non-GAAP measurement of liquidity, in fiscal year 2020 increased by 25% to RMB130,914 million (US$18,489 million), from RMB104,478 million in fiscal year 2019, primarily due to our robust profitability growth.

In the quarter ended March 31, 2020, net cash provided by operating activities was RMB2,164 million (US$306 million), a decrease of 88% compared to RMB18,553 million in the same quarter of 2019. Free cash flow, a non-GAAP measurement of liquidity, was an outflow of RMB4,214 million (US$595 million), compared to an inflow of RMB10,714 million in the same quarter of 2019. The year-over-year decreases of RMB16,389 million in net cash provided by operating activities and RMB14,928 million in free cash flow, respectively, were primarily due to a decrease of RMB7,651 million in connection with the AliExpress Payment Services Restructuring (as further explained below), as well as an increase in the amount of total refunds of annual service fee deposits from merchants of RMB2,688 million because more merchants achieved their agreed GMV targets in 2019. Excluding the effect of the AliExpress Payment Services Restructuring, non-GAAP free cash flow for the quarter would have been an inflow of RMB1,977 million (US$279 million).

Starting in the quarter ended September 30, 2019, because of a change in regulatory requirements, AliExpress began the process of restructuring payment related services provided to merchants on its platform (the "AliExpress Payment Services Restructuring"). Pursuant to this restructuring, AliExpress will no longer hold consumer funds before their release to merchants upon completion of the relevant transactions. Starting in the September 2019 quarter, as a result of the restructuring, we started to de-recognize these client fund balances from our balance sheet. This de-recognition, a significant portion of which were completed during this quarter, resulted in cash outflows from operating activities. We expect the restructuring will be substantially completed in the quarter ending June 30, 2020. The client fund balances accounted for RMB8.4 billion and RMB3.1 billion (US$438 million) of restricted cash and escrow receivables on our balance sheet as of March 31, 2019 and March 31, 2020, respectively.

A reconciliation of net cash provided by operating activities to free cash flow is included at the end of this results announcement.

Guidance

The guidance below is a forward-looking statement that reflects assumptions that we believe to be reasonable as of the date of this announcement and involve inherent risks and uncertainties, many of which we are not able to predict or control. In particular, it is not possible to determine the ultimate impact of the COVID-19 pandemic on our business operations and financial results, which is highly dependent on numerous factors, including: the duration and spread of the pandemic and any resurgence of COVID-19 in China or elsewhere, actions taken by governments, domestically and in international relations, the response of businesses and individuals to the pandemic, the impact of the pandemic on business and economic conditions in China and globally, consumer demand, our ability and the ability of merchants, retailers, logistics service providers and other participants in the Alibaba Digital Economy to continue operations in areas affected by the pandemic and our efforts and expenditures to support merchants and partners and ensure the safety of our employees.

Based on our current view of Chinese domestic consumption and enterprise digitization, and subject to the uncertainties highlighted above and those under the section entitled "Safe Harbor Statements" below, we expect to generate over RMB650 billion in revenue in fiscal year 2021.

KEY OPERATIONAL METRICS*

 

March 31,
2019

 

December 31,
2019

 

March 31,
2020

 

Net adds

   

 

YoY

 

QoQ

 

 

 

 

 

 

 

 

 

 

China Commerce Retail:

 

 

 

 

 

 

 

 

 

Annual active consumers(1) (in millions)

654

 

711

 

726

 

72

 

15

Mobile monthly active users (MAUs)(2) (in millions)

721

 

824

 

846

 

125

 

22

______________________

*

For definitions of terms used but not defined in this results announcement, please refer to our annual report on Form 20-F for the fiscal year ended March 31, 2019.

(1)

For the twelve months ended on the respective dates.

(2)

For the month ended on the respective dates.

MARCH QUARTER SUMMARY FINANCIAL RESULTS

 

Three months ended March 31,

 

 

 

2019

 

2020

 

 

 

RMB

 

RMB

 

US$(1)

 

YoY %
Change

 

(in millions, except percentages and per share amounts)

 

 

 

 

 

Revenue

93,498

 

114,314

 

16,144

22

%

 

 

 

 

 

Income from operations

8,765

 

7,131

 

1,007

(19

)%

Operating margin

9

%

6

%

 

 

Adjusted EBITDA(2)

25,166

 

25,440

 

3,593

1

%

Adjusted EBITDA margin(2)

27

%

22

%

 

 

Adjusted EBITA(2)

20,757

 

19,827

 

2,800

(4

)%

Adjusted EBITA margin(2)

22

%

17

%

 

 

 

 

 

 

 

Net income

23,379

 

348

 

49

(99)%(3)

Net income attributable to ordinary shareholders

25,830

 

3,162

 

447

(88)% (3)

Non-GAAP net income(2)

20,056

 

22,287

 

3,148

11

%

 

 

 

 

 

Diluted earnings per share(4)

1.23

 

0.14

 

0.02

(89)% (3)

Diluted earnings per ADS(4)

9.84

 

1.16

 

0.16

(88)% (3)

Non-GAAP Diluted earnings per share(2) (4)

1.07

 

1.15

 

0.16

7

%

Non-GAAP Diluted earnings per ADS(2) (4)

8.57

 

9.20

 

1.30

7

%

______________________

(1)

This results announcement contains translations of certain Renminbi ("RMB") amounts into U.S. dollars ("US$") and Hong Kong dollars ("HK$") for the convenience of the reader. Unless otherwise stated, all translations of RMB into US$ were made at RMB7.0808 to US$1.00, the exchange rate on March 31, 2020 as set forth in the H.10 statistical release of the Federal Reserve Board, and all translations of RMB into HK$ were made at RMB0.9137 to HK$1.00, the middle rate on March 31, 2020 as published by The People’s Bank of China. The U.S. dollar amounts of annual GMV for fiscal year 2020 presented in this results announcement represent the sums of GMV in U.S. dollars for the quarters ended June 30, September 30 and December 31, 2019 and March 31, 2020, each converted from the RMB amounts at the average daily exchange rate for each relevant quarter. The percentages stated in this announcement are calculated based on the RMB amounts and there may be minor differences due to rounding.

(2)

See the sections entitled "Information about Segments," "Non-GAAP Financial Measures" and "Reconciliations of Non-GAAP Measures to the Nearest Comparable GAAP Measures" for more information about the non-GAAP measures referred to within this results announcement.

(3)

The year-over-year decrease was primarily due to a net loss in investment income, mainly reflecting decreases in the market prices of our equity investments in publicly-traded companies, compared to a net gain recorded in the same quarter of 2019.

(4)

Each ADS represents eight ordinary shares. See the section entitled "Share Subdivision and ADS Ratio Change" for more information.

MARCH QUARTER INFORMATION BY SEGMENTS

The table below sets forth selected financial information of our operating segments for the periods indicated:

 

Three months ended March 31, 2020

 

 

Core
commerce

 

Cloud
computing

Digital media
and
entertainment

Innovation
initiatives
and others

 

 

Unallocated(1)

 

 

Consolidated

 

RMB

RMB

RMB

RMB

RMB

RMB

US$

 

(in millions, except percentages)

Revenue

93,865

 

12,217

 

5,944

 

2,288

 

 

114,314

 

16,144

 

 

 

 

 

 

 

 

 

Income (loss) from operations

20,166

 

(1,757

)

(4,491

)

(4,022

)

(2,765

)

7,131

 

1,007

 

Add: Share-based compensation expense

4,353

 

1,570

 

726

 

936

 

1,067

 

8,652

 

1,222

 

Add: Amortization and impairment of intangible assets

3,607

 

8

 

387

 

23

 

19

 

4,044

 

571

 

 

 

 

 

 

 

 

 

Adjusted EBITA

28,126

(2)

(179

)

(3,378

)

(3,063

)

(1,679

)

19,827

 

2,800

 

Adjusted EBITA margin

30

%

(1

)%

(57

)%

(134

)%

 

 

17

%

 

 

 

 

 

 

 

 

 

Three months ended March 31, 2019

 

 

Core
commerce

 

Cloud
computing

Digital media
and
entertainment

Innovation
initiatives
and others

 

 

Unallocated(1)

 

 

Consolidated

 

RMB

RMB

RMB

RMB

RMB

RMB

 

(in millions, except percentages)

Revenue

78,894

 

7,726

 

5,671

 

1,207

 

 

93,498

 

 

 

 

 

 

 

 

 

Income (loss) from operations

21,632

 

(1,036

)

(3,854

)

(3,270

)

(4,707

)

8,765

 

 

Add: Share-based compensation expense

3,054

 

869

 

691

 

1,318

 

1,178

 

7,110

 

 

Add: Amortization of intangible assets

2,798

 

3

 

335

 

20

 

47

 

3,203

 

 

Add: Settlement of U.S. federal class action lawsuit

 

 

 

 

1,679

 

1,679

 

 

 

 

 

 

 

 

 

Adjusted EBITA

27,484

(2)

(164

)

(2,828

)

(1,932

)

(1,803

)

20,757

 

 

Adjusted EBITA margin

35

%

(2

)%

(50

)%

(160

)%

 

22

%

______________________

(1)

Unallocated expenses are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments.

(2)

Marketplace-based core commerce adjusted EBITA decreased 2% year-over-year to RMB33,990 million (US$4,800 million). A reconciliation of adjusted EBITA for core commerce to marketplace-based core commerce adjusted EBITA is included at the end of this results announcement.

MARCH QUARTER OPERATIONAL AND FINANCIAL RESULTS

Revenue

Revenue for the quarter ended March 31, 2020 was RMB114,314 million (US$16,144 million), an increase of 22% compared to RMB93,498 million in the same quarter of 2019. The increase was mainly driven by the solid revenue growth of our China commerce retail business and robust revenue growth of cloud computing.

The following table sets forth a breakdown of our revenue by segment for the periods indicated:

 

Three months ended March 31,

 

 

2019

2020

 

 

RMB

% of
Revenue

RMB

US$

% of
Revenue

YoY %
Change

 

(in millions, except percentages)

Core commerce:

 

 

 

 

 

 

China commerce retail

 

 

 

 

 

 

- Customer management

30,119

32

%

30,906

4,365

27

%

3

%

- Commission

14,790

16

%

14,500

2,048

13

%

(2

)%

- Others(1)

13,532

15

%

25,499

3,601

22

%

88

%

 

58,441

63

%

70,905

10,014

62

%

21

%

China commerce wholesale

2,547

3

%

2,787

394

3

%

9

%

International commerce retail

4,944

5

%

5,353

756

5

%

8

%

International commerce wholesale

2,133

2

%

2,458

347

2

%

15

%

Cainiao logistics services

3,861

4

%

4,951

699

4

%

28

%

Local consumer services

5,266

5

%

4,841

684

4

%

(8

)%

Others

1,702

2

%

2,570

362

2

%

51

%

Total core commerce

78,894

84

%

93,865

13,256

82

%

19

%

 

 

 

 

 

 

 

Cloud computing

7,726

8

%

12,217

1,725

11

%

58

%

Digital media and entertainment

5,671

6

%

5,944

840

5

%

5

%

Innovation initiatives and others

1,207

2

%

2,288

323

2

%

90

%

Total

93,498

100

%

114,314

16,144

100

%

22

%

______________________
(1)

"Others" revenue under China commerce retail is primarily generated by our New Retail and direct sales businesses, comprising mainly Freshippo, Tmall Supermarket, direct import and Intime.

Core commerce

  • China commerce retail business

    Revenue from our China commerce retail business in the quarter ended March 31, 2020 was RMB70,905 million (US$10,014 million), an increase of 21% compared to RMB58,441 million in the same quarter of 2019. Combined customer management and commission revenues grew 1% year-over-year, reflecting an increase of 3% in customer management revenue and a decrease of 2% in commission revenue. The growth of customer management revenue was primarily due to the increase in revenue from recommendation feeds and Taobao Live, partly offset by a decrease in volume of paid clicks and average unit price per click in search monetization as a result of the impact of the COVID-19 pandemic.

    Although Tmall online physical goods GMV, excluding unpaid orders, grew by 10% year-over-year, commission revenue decreased by 2%. The decline in commission revenue was primarily due to the impact of the COVID-19 pandemic, including the cancellation of orders as a result of logistics disruption in February, weakness in the apparel category and our waiver of annual service fees for the first half of 2020 as part of our support to merchant customers.

    "Others" revenue under China commerce retail business was RMB25,499 million (US$3,601 million), a significant increase compared to RMB13,532 million in the same quarter of 2019, primarily driven by contributions from direct sales businesses, including Freshippo and Tmall Supermarket, as well as our consolidation of Kaola starting in September 2019.

    We expect that the proportion of revenue of our direct sales businesses will continue to increase as we further implement our New Retail strategy.
  • China commerce wholesale business

    Revenue from our China commerce wholesale business in the quarter ended March 31, 2020 was RMB2,787 million (US$394 million), an increase of 9% compared to RMB2,547 million in the same quarter of 2019. The increase was primarily due to an increase in revenue from Lingshoutong, a digital sourcing platform that connects FMCG brand manufacturers and their distributors directly to local mom-and-pop stores in China, as well as an increase in average revenue from paying members on 1688.com, our domestic wholesale marketplace.
  • International commerce retail business

    Revenue from our international commerce retail business in the quarter ended March 31, 2020 was RMB5,353 million (US$756 million), an increase of 8% compared to RMB4,944 million in the same quarter of 2019. The increase was primarily due to the growth in revenues generated by Lazada and Trendyol, which was partially offset by the exclusion of revenue from the AliExpress Russia businesses, which we deconsolidated upon the formation of a Russian joint venture in October 2019. In addition to the exclusion of revenue from the AliExpress Russia businesses, AliExpress revenue growth during the quarter was significantly slower year-over-year, primarily due to supply chain and logistics disruptions caused by the COVID-19 pandemic that negatively impacted GMV growth from sales to North and South America and Europe.
  • International commerce wholesale business

    Revenue from our international commerce wholesale business in the quarter ended March 31, 2020 was RMB2,458 million (US$347 million), an increase of 15% compared to RMB2,133 million in the same quarter of 2019. The increase was primarily due to an increase in the number of paying members on Alibaba.com, our global wholesale marketplace.
  • Cainiao logistics services

    Revenue from Cainiao Network’s logistics services, which represents revenue from its domestic and international one-stop-shop logistics services and supply chain management solutions, after elimination of inter-company transactions, was RMB4,951 million (US$699 million) in the quarter ended March 31, 2020, an increase of 28% compared to RMB3,861 million in the same quarter of 2019, primarily due to the increase in the volume of orders fulfilled from our fast growing cross-border and international commerce retail businesses.
  • Local consumer services

    Revenue from local consumer services, which primarily represents platform commissions, fees from provision of delivery services and other services provided by our on-demand delivery and local services platform Ele.me, was RMB4,841 million (US$684 million) in the quarter ended March 31, 2020, a decrease of 8% compared to RMB5,266 million in the same quarter of 2019, reflecting mass closure of restaurants and local merchants in China due to the COVID-19 pandemic.

Cloud computing

Revenue from our cloud computing business in the quarter ended March 31, 2020 was RMB12,217 million (US$1,725 million), an increase of 58% compared to RMB7,726 million in the same quarter of 2019, primarily driven by increased revenue contributions from both our public cloud and hybrid cloud businesses.

Digital media and entertainment

Revenue from our digital media and entertainment segment in the quarter ended March 31, 2020 was RMB5,944 million (US$840 million), an increase of 5% compared to RMB5,671 million in the same quarter of 2019. The increase was primarily due to an increase in subscription revenue from Youku driven by an increase in number of paying subscribers.

Innovation initiatives and others

Revenue from innovation initiatives and others in the quarter ended March 31, 2020 was RMB2,288 million (US$323 million), an increase of 90% compared to RMB1,207 million in the same quarter of 2019. The increase was primarily due to an increase in revenue from online games and other business initiatives.

Costs and Expenses

The following tables set forth a breakdown of our costs and expenses, share-based compensation expense and costs and expenses excluding share-based compensation expense by function for the periods indicated.

 

Three months ended March 31,

 

% of
Revenue
YoY
change

 

2019

 

2020

 

 

RMB

 

% of
Revenue

 

RMB

 

US$

 

% of
Revenue

 

 

(in millions, except percentages)

Costs and expenses:

 

 

 

 

 

 

Cost of revenue

55,610

60

%

72,502

10,239

64

%

4

%

Product development expenses

8,659

10

%

10,587

1,495

9

%

(1

)%

Sales and marketing expenses

9,649

10

%

12,179

1,720

11

%

1

%

General and administrative expenses

7,612

8

%

7,871

1,112

7

%

(1

)%

Amortization and impairment of intangible assets

3,203

3

%

4,044

571

3

%

0

%

Total costs and expenses

84,733

91

%

107,183

15,137

94

%

3

%

 

 

 

 

 

 

 

Share-based compensation expense by function:

 

 

 

 

 

 

Cost of revenue

1,951

2

%

1,857

262

2

%

0

%

Product development expenses

2,801

3

%

3,484

492

3

%

0

%

Sales and marketing expenses

764

1

%

1,017

144

1

%

0

%

General and administrative expenses

1,594

2

%

2,294

324

2

%

0

%

Total share-based compensation expense

7,110

8

%

8,652

1,222

8

%

0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses excluding share-based compensation expense:

 

 

 

 

 

 

Cost of revenue

53,659

58

%

70,645

9,977

62

%

4

%

Product development expenses

5,858

7

%

7,103

1,003

6

%

(1

)%

Sales and marketing expenses

8,885

9

%

11,162

1,576

10

%

1

%

General and administrative expenses

6,018

6

%

5,577

788

5

%

(1

)%

Amortization and impairment of intangible assets

3,203

3

%

4,044

571

3

%

0

%

Total costs and expenses excluding share-based compensation expense

77,623

83

%

98,531

13,915

86

%

3

%

Cost of revenue – Cost of revenue in the quarter ended March 31, 2020 was RMB72,502 million (US$10,239 million), or 64% of revenue, compared to RMB55,610 million, or 60% of revenue, in the same quarter of 2019. Without the effect of share-based compensation expense, cost of revenue as a percentage of revenue would have increased from 58% in the quarter ended March 31, 2019 to 62% in the quarter ended March 31, 2020. The increase was primarily due to an increase in revenue mix shift towards direct sales businesses such as New Retail and Tmall Supermarket, which resulted in increased cost of inventory, as well as our consolidation of Kaola, partly offset by a decrease in delivery costs of our local consumer services.

Product development expenses – Product development expenses in the quarter ended March 31, 2020 were RMB10,587 million (US$1,495 million), or 9% of revenue, compared to RMB8,659 million, or 10% of revenue, in the same quarter of 2019. Without the effect of share-based compensation expense, product development expenses as a percentage of revenue would have decreased from 7% in the quarter ended March 31, 2019 to 6% in the quarter ended March 31, 2020.

Sales and marketing expenses – Sales and marketing expenses in the quarter ended March 31, 2020 were RMB12,179 million (US$1,720 million), or 11% of revenue, compared to RMB9,649 million, or 10% of revenue, in the same quarter of 2019. Without the effect of share-based compensation expense, sales and marketing expenses as a percentage of revenue would have increased from 9% in the quarter ended March 31, 2019 to 10% in the quarter ended March 31, 2020.

General and administrative expenses – General and administrative expenses in the quarter ended March 31, 2020 were RMB7,871 million (US$1,112 million), or 7% of revenue, compared to RMB7,612 million, or 8% of revenue, in the same quarter of 2019. Without the effect of share-based compensation expense, general and administrative expenses as a percentage of revenue would have decreased from 6% in the quarter ended March 31, 2019 to 5% in the quarter ended March 31, 2020, primarily due to our US$250 million settlement of a U.S. federal class action lawsuit in the quarter ended March 31, 2019.

Share-based compensation expense – Total share-based compensation expense included in the cost and expense items above in the quarter ended March 31, 2020 was RMB8,652 million (US$1,222 million), an increase of 22% compared to RMB7,110 million in the same quarter of 2019. Share-based compensation expense as a percentage of revenue remained stable at 8% in the quarter ended March 31, 2020 and 2019.

The following table sets forth our analysis of share-based compensation expense for the quarters indicated by type of share-based awards:

 

Three months ended

 

 

 

March 31,
2019

December 31,
2019

March 31,
2020

 

% Change

 

RMB

% of
Revenue

RMB

% of
Revenue

RMB

US$

% of
Revenue

YoY

QoQ

 

(in millions, except percentages)

By type of awards:

 

 

 

 

 

 

 

 

 

Alibaba Group share-based awards(1)

6,099

7

%

6,587

4

%

6,832

965

6

%

12

%

4

%

Ant Financial share-based awards granted to our employees(2)

435

0

%

347

 

 

0

 

 

%

259

37

 

 

0

 

 

%

 

 

(40

 

 

)%

 

 

(25

 

 

)%

Others(3)

576

1

%

896

0

%

1,561

220

2

%

171

%

74

%

Total share-based compensation expense

7,110

8

%

7,830

4

%

8,652

1,222

8

%

22

%

10

%

______________________

(1)

This includes awards granted to our employees, Ant Financial and other consultants. Awards granted to nonemployees were subject to mark-to-market accounting treatment until March 31, 2019. Beginning on April 1, 2019, we adopted ASU 2018-07, "Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting" under US GAAP. As a result of adopting this new accounting update, these awards are no longer subject to mark-to-market accounting treatment. Commencing upon the receipt of the 33% equity interest in Ant Financial on September 23, 2019, the expense relating to Alibaba Group share-based awards granted to Ant Financial employees are recognized in share of results of equity investees.

(2)

Awards subject to mark-to-market accounting treatment.

(3)

Others primarily relate to share-based awards underlying the equity of our subsidiaries.

Share-based compensation expense related to Alibaba Group share-based awards granted to our employees remained stable in this quarter compared to the previous quarter. Share-based compensation expense related to share-based awards underlying the equity of our subsidiaries increased in this quarter compared to the previous quarter, mainly due to the impact arising from the cash settlement of such awards in this quarter.

We expect that our share-based compensation expense will continue to be affected by changes in the fair value of our shares, our subsidiaries’ share-based awards and the quantity of awards we grant to our employees and consultants in the future. Furthermore, we expect that our share-based compensation expense will continue to be affected by any future changes in the valuation of Ant Financial, although such changes will be non-cash and will not result in any economic cost or equity dilution to our shareholders.

Amortization and impairment of intangible assets – Amortization and impairment of intangible assets in the quarter ended March 31, 2020 was RMB4,044 million (US$571 million), an increase of 26% from RMB3,203 million in the same quarter of 2019, primarily due to an impairment loss of intangible assets recorded in the quarter ended March 31, 2020.

Income from operations and operating margin

Income from operations in the quarter ended March 31, 2020 was RMB7,131 million (US$1,007 million), or 6% of revenue, a decrease of 19% compared to RMB8,765 million, or 9% of revenue, in the same quarter of 2019, primarily due to the impact of the COVID-19 pandemic.

Adjusted EBITDA and Adjusted EBITA

Adjusted EBITDA increased 1% year-over-year to RMB25,440 million (US$3,593 million) in the quarter ended March 31, 2020, compared to RMB25,166 million in the same quarter of 2019. Adjusted EBITA decreased 4% year-over-year to RMB19,827 million (US$2,800 million) in the quarter ended March 31, 2020, compared to RMB20,757 million in the same quarter of 2019, primarily due to the impact of the COVID-19 pandemic. A reconciliation of net income to adjusted EBITDA and adjusted EBITA is included at the end of this results announcement.

Adjusted EBITA and adjusted EBITA margin by segments

Adjusted EBITA and adjusted EBITA margin by segments are set forth in the table below. See the section entitled "Information about Segments" above for a reconciliation of income from operations to adjusted EBITA.

 

Three months ended March 31,

 

2019

 

2020

 

RMB

 

% of
Segment
Revenue

 

RMB

 

US$

 

% of
Segment
Revenue

 

(in millions, except percentages)

 

 

 

...