Operator:
Ladies and gentlemen, thank you standing by. Welcome to Welcome to <b>Alibaba Group Holding Ltd</b> BABA March Quarter 2016 and Full Fiscal Year 2016 Results Conference Call. At this time, all participants are in a listen-only mode. After Management's prepared remarks, there will be a Q&A session.
I would now like to turn the call over to Jane Penner, Head of Investor Relations of Alibaba Group. Please go ahead.
Jane Penner:Vice President, Investor Relations:
Good day everyone and welcome to Alibaba Group's March quarter 2016 and full fiscal year 2016 earnings conference call. With us today are Joe Tsai, Executive Vice Chairman; Daniel Zhang, Chief Executive Officer; and 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 forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. These forward-looking statements involve inherent risks and uncertainties that may cause the actual results to differ materially from our current expectations. Factors that could also 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 20S and other documents filed with the US 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 expect 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 purchases of property and equipment and intangible assets, excluding acquisition, land use rights, and construction in progress, and to adjust for changes in loan receivables relating to microloans 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.
Joseph Tsai:Executive Vice Chairman:
Thank you, Jane. Thank you all for joining us. Today we reported excellent results. Our revenues grew 39% year-on-year for the quarter.
There are now 423 million shoppers who have bought something on our China retail platform in the past year and 410 million mobile users who were active on our China retail mobile apps during the month of march. In these challenging times for the global economy, Alibaba is bucking the trend. Why? I want to offer a couple of perspectives, one macro and the other one that is specific to Alibaba.
First, take a look at the Chinese consumer. Chinese households today has aggregate net cash reserves of over $4.6 trillion. This accumulated wealth and liquidity is the result of real double wage growth over the past decade. In contrast, in early 2008, on the eve of the global financial crises, household debt in the United States was 98% of GDP and the average American family was in heavy debt.
Chinese consumers have a healthy balance sheet and ability to spend. This will propel China's shift from an export and investment light economy to a consumption driven economy. Alibaba drives the secular tide as we enable more products and services whether they are domestic or import to reach the consumer.
Another perspective comes from looking at Alibaba's businesses. We have a balanced portfolio of businesses in our ecosystem that are in various stages of growth-profit trajectory and cash generation. Depending on years and gestation, we group these businesses into what I call, first; core cash flow, second; emerging traction, and third; long-term strategic paps. So I will go through each of them.
First, core cash flow. Our core commerce business is strong and extremely cash generative. We achieved 41% year-on-year revenue growth in China retail marketplaces for the quarter with high and sustainable operating margins. On the strength of our core business, we delivered $8 billion in free cash flow in fiscal 2016.
This enables us to invest for the future.
Second; emerging traction. We are excited that several of our businesses have emerged with high growth traction and expanding operating leverage. AliCloud is today one of the largest cloud computing businesses in the world. In the latest quarter this business grew revenues 175% year-on-year.
It's an acceleration of the 126% growth rate from the prior quarter. Another emerging traction star is mobile internet services, including mobile search and mobile media. In this quarter, we have provided a glimpse into the potential of the mobile lifestyle in China in addition to mobile commerce as revenues from mobile internet services and mobile operating systems grew around 50% year-on-year.
Third, long term strategic bets. Alibaba has an incredible track record of making long term bets successful. Here a bit of historical perspective is important. Take Taobao Marketplace an example.
We started Taobao in 2003 when online shopping in China was virtually non-existing. For five years we didn’t generate any revenues, instead we focused on acquiring users and building an ecommerce ecosystem. Taobao didn’t produce meaningful profits until 2010. That is seven years after its founding.
History teaches us that it pays to be patient.
We are used to investing in long term initiatives with long term gestation periods. New initiatives typically take five to seven years to grow into substantial profitability and this growth usually takes on a step function trajectory rather than in a straight line. The ability to remain patient is a competitive advantage.
Going forward we are prepared to continue investing in high potential businesses that are highly strategic to Alibaba, from digital entertainment to local services to international expansion. These businesses contribute to losses in our current income statement. However, we invest in them so that they can graduate to emerging traction and then on to core cash flow businesses in the future.
Now, I would like to turn to Daniel who will discuss recent exciting developments and offer a strategic view of the future.
Daniel Zhang:Chief Operating Officer:
Thanks Jo. Hello everyone and thank you for joining our earnings call today. I am pleased to report that we ended the fiscal year on a very strong note. We had strong execution in our three key strategies as globalization, rural development and big data cloud computing.
We reached two important milestones this fiscal year.
First; our annual GMV surpassed RMB3 trillion and we became the world’s largest retail commerce company. Second; our annual revenue surpassed RMB100 billion. The continued strength of our business is reflected in the growth of our annual active buyers which has to reached 423 million. The total revenue growth rate this quarter is the highest over the past four quarters and the revenue growth rate of China retail marketplaces is the highest in the past six quarters.
We are on a path to realizing our vision of achieving $12 trillion in GMV by fiscal year 2020 and we to serve 2 billion consumers. Today we are laying down solid foundations by transforming our e-commerce business and investing in rising businesses such as cloud computing and media and digital entertainment platforms to achieve our ambitious vision.
Over the past year, our retail commerce business has executed by significant and a successful transformation on PC to mobile front. At the time of our IPO, mobile contributed less than 40% of our GMV, less than 20% of our China Retail commerce revenue and we had only 188 million mobile monthly active users. Today 73% of our GMV comes from mobile and our mobile MAU has reached 410 million. We have completely reinvented the user experience and the services to capitalize on the unique relationships that consumers have with their mobile phones in daily life. Today our merchants and consumers engage seamlessly across a multi-screen socio-commerce platform driven firmly by user interaction and --.
Taobao has long involved beyond just for shopping. Consumers come to Taobao for discovery and entertainment and to socialize in virtual community for each other which shared interests or lifestyle during their shopping journey. Internet celebrities, merchants, trend-setters are among the growing active population contributing rich and relevant content in the form of photos, videos, live streaming, recommendations, reviews, and the lifestyle guides which encourage conversations between users through sharing, comment, and the liking features.
Tmall is now positioned more clearly than ever as the engine of digital transformation of the retail landscape in China. Friends and retailers continue to turn to Tmall as a trusted partner and its definition for consumer engagement, customer relationship management, and brand building. We remain focused on category expansion and a sharpening brand mix for consumers. We continue to grow core e-commerce business by increasing our consumer base and evolving our product assortments namely through our two wings of globalization and the rural development.
Tmall global GMV have increased 180% year-over-year. We continue to work closely with business partners to help sell their top quality products to China.
Our acquisition of a controlling stake in Lazada, a leading online retail marketplaces operator in Southeast Asia will allow access to 550 million consumers in one of the most promising markets for ecommerce.
Our rural development continued to be growing. Rural Taobao service stations have expanded to over 14,000 rural locations. We capitalize the most important family holiday of the Chinese calendar to help spotlight rural products and encourage rural consumption and held the first Alibaba Chinese New Year Shopping Festival. More than 70% of orders were completed by mobile and more than 2.1 billion items were sold during the five day campaign.
Revenue for the core ecommerce business grew extremely well in March quarter with a 39% overall growth rate and the 41% year-over-year growth rate for China commerce retail revenue. The robust growth in China retail commerce revenue was driven by online marketing service revenue particularly on mobile. Online marketing revenue was driven by both increased traffic and improving CPCs on our marketplaces, trends that we believe will continue.
Why do we believe this? Traffic is increasing because our desktop visitors remain very robust while mobile MAU and the traffic continue to grow driven primarily by mobile Taobao App.
We are confident about pricing because merchants and brands are willing to bid more and more on our key Alimama platform. In addition to increasing their online sales, it is also helping them acquire new customers, drive repeat purchase, and build royalties ultimately benefiting their overall business online and off line.
Our Cloud computing business remains on its path of rapid growth with more than 500,000 paying customers and the revenue growth of 175% year-over-year. -- a platform that is one-stop shop for big data related solutions such as computing engines, data analytics, machine learnings, and data applications. We are benchmarking against international players.
Lastly, our media and digital entertainment ecosystem is coming together nicely. We closed our acquisition of Youku Tudou in April which will anchor our video content and the distribution reached. Our mobile browser, UCWeb is now a powerful media distribution channel with its mobile search, mobile app delivery and the UC Headlines newspeak services. In combination with our OTT set-top box, we now have robust multi-screen digital-content distribution.
Very importantly when combined with our retail commerce platform, we now offer unprecedented capacity, capability for multi-screen cross platform integrated digital marketing. Data integration across our network for media assets and partners allow brand and marketers to convert numerous traffic during marketing campaigns into identifiable users that can be tracked across our network of media assets and partners. Merchants will be able to more effectively engage and manage their customers and convert into sales on our retail commerce platforms.
Now I turn the call over to Maggie who will walk you through the details of our financial results.
Maggie Wu:Chief Financial Officer:
Thank you, Daniel. Hello everyone. We had a very strong quarter. Revenues grew 39% year-over-year to RMB24.2 billion with China retail marketplaces revenue growing 41% year-on-year.
Activity on the platform is robust with 423 million annual active buyers and 410 million mobile. We have completed a successful mobile transition with mobile revenue as a percentage of total China commerce retail revenue reaching 71%.
Here are some financial highlights. Our March quarter year-over-year revenue growth rate of 39% was the highest annual growth rate in the past four quarters and it was driven primarily by the robust growth in our online marketing service revenue and exceptional growth of our call completing businesses which grew 175% year-on-year.
We believe this growth in our China retail marketplace clearly demonstrates a recognition of the broader value proposition we provide to our merchants and brands. For full fiscal year 2016, revenue grew 33% to over in RMB100 billion. Our ability to monetize the users platform continues to improve . Revenue per annual active buyer has been increasing for several quarters reaching RMB189 in March quarter.
On the mobile front, mobile revenue per mobile user has also been increasing for several quarters reaching RMB123 in march quarter. We believe the monetization improvements this quarter are driven and that it will continue to be driven by two trends in our business. First, the increased engagement of users on a commerce media platform as we launched social and community product on Taobao marketplace.
Second; the broad value proposition created by this engagement that we will offer to merchants and brands. This includes not just sales generation but also marketing, brand engagement, customer acquisition and retention and the future opportunity for up-sell.
So let's take a look at the quarterly revenue breakdown. Cloud computing and Internet infrastructure revenue grew 175% year-on-year. The growth was primarily due to an increase in the number of paying customers which have more than doubled since a year ago quarter to more than 500,000, and also to increase in their usage of more complex offerings such as our content delivering network and database services.
Other revenue increased to 14% year-on-year. The growth was primarily driven by the increasing revenue from mobile Internet services provided by UC Wap and other.
Excluding revenue related to the SME loan business from both this quarter and the March quarter 2015, other revenue would have increased 51% to RMB1.5 billion this quarter. Please recall that the year ago quarter includes the interest income from the SME loan business that would be told to Ant Financial in February 2015.
You can see that our non-GAAP EBITDA margin was 48% slightly lower than 49% in the March quarter of last year. Full year fiscal 2016 non-GAAP EBITDA margin was 52% versus 53% in full year fiscal 2015.
We did see operating leverage from our core business offset our strategic investments. Our core market risk business continues to be very healthy with EBITDA margin at around 68% reflecting operating leverage. We will continue to develop and consolidate new businesses. For example we will be consolidating Lazada in the coming quarter.
And they have information in public disclose which you can tell they are still loss making but they are strategically important to us. Going forward we will be giving you further transparency on our core marketplace performance as well as our new business performance.
Cost of revenue excluding stock-based compensation was RMB8.5 billion. As a percentage of revenue, it increased year-over-year primarily due to increase in costs associated with our new business initiatives mainly our mobile operating system, entertainment and OTT service. In addition, logistic costs relating to fulfillment of services provided by affiliated Cainiao Network increased. On a full year basis, we paid Cainiao Network around RMB2.4 billion related to logistic services of which RMB689 million occurred during the March quarter.
Process development expense excluding stock-based compensation was RMB2 billion which as a percentage of revenue was flat year-over-year. Sales and the marketing expense excluding SBC was RMB2.3 billion decreasing slightly as a percentage of revenue due to operating leverage. G&A was RMB1 billion also a slight decrease as a percentage of revenue due to operating leverage.
The non-GAAP net income in the quarter was RMB7.6 billion, a decrease of 1% compared to RMB7.7 billion in March quarter 2015. Net income was negatively impacted primarily because of foreign exchange loss of approximately RMB500 million to related to our hedging of US dollar obligation in connection with our M&A activities. Additionally this quarter we had a loss share from Ant Financial instead of a profit share. This is due to the net loss sustained by Ant during the quarter as a result of its proactive marketing and promotional activities to user growth and engagement.
This is especially during the Chinese New Year holiday. Ant continues to invest to enhance their market leadership which we believe is very positive thing given the enormous ahead of it.
Despite a quarterly loss at Ant Financial, we believe we will derive long term value from our economic interest and our rights subject to regulatory approval to convert into 33% equity in Ant Financial which recently completed a $4.5 billion round of financing from third parties at a post evaluation of US$60 billion.
We see in our now results announcement that we have provided additional disclosure on share of results from our equity investment. We believe this is useful disclosure for investors to understand the performance of our major investing company. Our share of Koubei, reflects Koubei's high investment and promotional spending during its start-up phase in December quarter which will pick up on a quarter lag basis.
We expect that share of loss to decrease in the future. China's business continues to grow as well. As recent fund raising validates this business progress and the future potential. We expect China to continue invest in this business.
Regarding free cash flow, CapEx, and cash, we continue to generate significant free cash. Our cash flow allows strategic and operational flexibility to invest in technology and acquire the resources to accomplish our strategic objectives.
In March quarter, we generated RMB4.4 billion in free cash flow and in fiscal year 2016, we generated RMB51 billion or about $8 billion free cash flow. Total CapEx spent entering the March quarter were RMB683 million a slight decreased from RMB700 million during the same quarter last year.
As of March 2016 our cash, cash equivalents, and short-term investments, were RMB112 billion a slight decrease from RMB118 billion at the end of December quarter due to net cash used for our investment decision activity and share repurchase. The RMB112 billion cash balance is as of the March 31 this year.
Strategic investment portfolio. As a final note, we update our slide with regard to our major investing companies for investors to better understand their respective values.
Looking ahead, our ecosystem keeps expanding and our business becomes big and more complex. In the new fiscal year, we plan to provide a greater degree of disclosure and insight in our business. This will include few areas. First, we will provide annual revenue guidance.
We believe annual revenue guidance will take some of the guess work and uncertainties out of the investors effort to model our growth trajectory.
Second, we continue to invest for the long term with the priority on achieving our longer term strategic goals. These new businesses may have different cost structure and margins especially when they are in development stages. In order to help investors better understand our core businesses as well as the development of our in new business, we will report first quarter fiscal 2017, we plan to provide more clarity on financial performance of our core business versus new businesses.
Third, on Cainiao Network has been developing rapidly and we have already provided more disclosure today in this area to help investors better understand Cainiao business, specifically how it is doing financially and how its performance impact Alibaba's financial statement. We plan to share more about the business in the future.
Additional information about these three areas will be shared at our investor day which will be held next June. For those not attending in person, the presentation materials will be available on our IR website.
That concludes our prepared remarks. Operator, we are ready to begin the Q&A session. Thank you.
Question & Answer
Operator:
Thank you, Ma'am, ladies and gentlemen we will now begin the question and answer session. We have the first question from Erica Paul. Welcome from UBS. Please ask your question.
Erica Paul: UBS:
Yes, Thank you very much. My two questions -- my first question is about your value adding to merchants. I think you have been talking about how Alibaba's stroke with merchants has been evolving from one of the sales channel to become more of a holistic marketing channel. Could you just share with us how many and what type of your merchants are working with Alibaba on these marketing initiatives? And my second question is in the earlier remarks, Joe talked about bringing key initiatives from investment phase to cash generation.
Just wonder if you can share with us where you are in the investment cycles for these strategic initiatives like cloud computing, digital entertainment, and local services and wonder if you can frame the size of investments for these initiatives in fiscal '17? Thank you.
Daniel Zhang:
Thanks Erica. This is Daniel. I would like to answer the first question. As you know that actually today on our China retail platform, we have in both Taobao and Tmall we have, together we have hundreds of millions active sellers on our platform and all these sellers are our active marketers and they spend not in dollar on our P4P on our display ads and also in our affiliate network.
And today their evaluation of the effect of the marketing dollar spending is not only to look at the immediate sales and immediate ROI, on our marketplace, for a lot of retailers and the brands they have offline business. They also look at the effectiveness of this marketing spending in terms of acquisition of the new customers, in terms of the managing existing customers, and lifting customers.
So actually this will as I said in my script, this will ultimately benefit their entire business both online and offline. So actually today we have -- this is our solid marketer base and we expect that they will continue to do so in our enhanced ecosystem not only in our marketplace today but also in our in shape of media and entertainment ecosystems.
Joseph Tsai:
Okay. Hey Erica. Thanks for your second question. So I, both myself and Maggie will cover that.
You mentioned the different businesses in different investments phases and you wanted to sort of understand the sizing of investments. I think you mentioned cloud computing , I will cover that and then I'll let Maggie talked about the digital entertainment.
As so as you can see, they could computing business grew 175% revenue year-on-year. In absolute dollars terms it's also coming into a significant dollar level. So we are very, very excited about this business. As I said in my prepared remarks, we are now already one of the largest cloud computing businesses in world.
So we're benchmarking not just in China but also against the world and the business as you know can gain tremendous scale, when it reaches tremendous scale, it has tremendous amount of operating leverage. So we are looking at over the course of this year that this business will not require a lot of additional investments into the business as its generating cash flow. So that is how we look at the cloud computing business, high growth and also coming into a high trajectory in terms of operating leverage. I'll turn the mic over to Maggie to talk about digital and entertainment.
Maggie Wu:
Right. So digital entertainment is a revenue area that we invested. The way you look at it, the major asset there right now is Youku. We also have a music and sports, that's relatively small.
So we just closed the Youku transaction in April. It is very recent and then if you look at the market consensus to Youku, before our acquisition, Youku was also a public company. You will notice that there are going to be a couple percentage point of margin dilution to ours.
But the thing is that like Joe said in his remarks, when you look at our past business, we have history of investing long term initiatives with patience.
So, new initiatives, they're interestingly typical it takes like 5% to grow in the substantial profitability. So, we in a near term continue to invest in this digital entertainment area. This is just the beginning of the business.
We'll take the next question operator.
Operator:
Thank you Ma'am. We have the next question from the line of Sean Zhang from 86Research. Please ask your question.
Sean Zhang : 86Research:
Thank you. Congratulation on a strong quarter. We recently noticed you are rolling out product level and store level chain a 1000-people interface initiative, wondering what the time table for a full launch and so far in your testing phase, what kind of results you have seen maybe management can share with us color there? And also we also noticed increased effort to core trend such as the search portal on top approximately is changed into highlight Tmall and personalization. Wondering what's the soft profit's here and will be the trend for Tmall G&A going forward? Thank you.
Daniel Zhang:
This is Daniel. As for the first question, we as a platform our, actual our merchant is that enable them to operate effectively. Today what we are doing is to use the Big-data we have to help the merchant to -- and took to the right audience and in the right location. So, so far we are still actually in the beta test and we work closely with couple of -- to do that and so far it's very encouraging because of that piloting, because of the data driven service achieved the effectiveness of the ROI of the traffic.
ROI of the traffic actually improved very much and we will continue to monitor the progress and hopefully we will pretty soon roll out this service tool to all our users and to all merchants on our platform. And we expect the merchants can utilize these big data weapons to maximize their return of the traffic.
For the second question actually we always manage our business as a whole and Taobao is a separate brand but in Taobao mobile app, people can find the items posted and from Tmall and we do not give any preference in mobile Taobao to promote mobile Taobao apps especially to promote Tmall products. So actually what we changed is basically for the convenience of the user because a lot of people want to select the items from Tmall directly. So we have given a short pack people can easily skip a scan and they get results directly from Tmall So that's all I want to do all we want to do and for the purpose of this again is to improve the user experience. Thank you.
Maggie Wu:
Next question please.
Operator:
Thank you Ma'am. We have the next question from the line of Robert Lin from Morgan Stanley. Please ask your question.
Robert Lin: Morgan Stanley:
Good morning and good afternoon everyone. Congratulations on the very strong results. I guess, I have two questions here. I guess one is on the international.
We announced the acquisition of Lazada and we also noticed that the international retail as accelerated after our restructuring of the AliExpress platform. Can you provide some insight on how we plan to integrate the two platforms more in the that medium terms about separate operate it at potentially cross sell with our merchants. I guess, in terms of the timing and I tell you point out of that these are long term bets and there is three of them. What you say international is one of those that will likely be more, be profitable quicker than the others within those tree mentioned.
I guess the second question is more on the Cainiao logistics. We do appreciate the improved disclosure. In the cost of sales line, we talked about 3% of revenue RMB689 million for the merchants, can you provide additional insight on what that is and how should we think about a cost going forward.
Daniel Zhang:
Thanks. This is Daniel Zhang. I would like to answer the first question about international expansions. Yes, Lazada is a very important acquisition and as people know, Lazada now has a very good brand recognition in Southeast Asia countries and especially in five or six countries they are all in the leading position and to this market actually have over 500 million consumers and so that's why we think this a good vehicle for us to expand to this area and yes in our portfolio we also have our self operated self build up AliExpress business and we are happy to see that there is good synergies between AliExpress and Lazada and in terms of the countries coverage, as AliExpress is now is very strong in the strip but very strong in European countries and in the US while Lazada is very strong in Southeast Asia.
So actually we just gave us a wider coverage and this is good for us to achieve total consumer mission and internal synergy we can generally from these businesses is obvious. So what we want to do is actual first to lobby the merchant base we have not only in AliExpress but also our China retail platform to help more Chinese merchants on-boarding Lazada and help them to access to the consumers in Southeast Asia. Actually we are happy to see that after our acquisition a lot of clients actually call me and asked this question and showed their interest. And we expect that we will kick off this process but as a very important component of the integration.
And in terms of profitability, I will say as we always do, we will invest in this international business and actually what we will care about is the mind share in the local country and the custom engagement and retention and we believe that customer will rise and merchant will be with us and we will generally value we can provide value to the merchant who access to the customer than we can generate enough economics from this international business. Thank you.
Maggie Wu:
Rob this is Maggie. Regarding to your question about the logistics costs we take in Cainiao, when you look at the total cost for the full year, RMB2.37 billion which was about 2% of our revenue paid to Cainiao. That's mainly associated with a time logistic fulfillment services Cainiao provided to the Ali Group for certain businesses conducted. Business such Tmall supermarkets.
So as you look forward this area is still in early stage. So we are gonna keep expanding and then Cainiao also gonna continue provide these services. So if you look at the total logistic costs we are going to pay in the future, it will grow. Our next question.
Operator?
Operator:
Thank you. We have the next question from the line of Eddie Leung from Merrill Lynch. Please ask your question.
Eddie.Leung: Merrill Lynch:
Good evening. Thank you for taking my questions. Two questions, the first one is about product categories. Would you mind sharing more color of those the recent performance of some of your key product categories because we have read articles and sometimes even press releases about the performance of some categories in certain regions.
So wondering if you could summarize some of the trends and share with us. So that's the first question. And then secondly, also a follow up question on Cainiao. So, the funds what Maggie mentioned about for example the geographical coverage in rural areas.
So just wondering where we would see Cainiao falling beyond Cainiao, because we have been seeing more activities on AliExpress as well as some of these are new regions actually taking some of those pieces. Thanks.
Daniel Zhang:
Okay, this is Daniel. For the product categories development, let me add try to give you some color on this. First actually, what we can see that the main categories such as apparel and the consumer electronics and still show very strong growth and especially Q1 apparel on actually winter plant this year actually quite unusual, is not that cold in December and in January, but it quite cold in February and March. Actually this drives sales of apparel to some extent but not dramatically.
The reason is because and the most of the sellers actually their stock is not enough in late Q1 to support the sales of the winter products and for consumer electronics we are doing very well in consumer electronics especially in the large ticket items and supported by our affiliate network. And for cell phones in March I will say the entire market as a big picture is not that good because actually the supply chain for the entire business suffer, actually had a big headache in Q1 so what we can share that in Q2 the business growth actually warm up but having said that the entire market almost by smart-phone and the total shipment for this year for the entire cell-phone business or cell-phone industry won't show a dramatic growth. But I will expect that e-commerce will continue to taking share from the entire business and the last one is fast growing categories. What we can see today especially in Q1 also driven by the Chinese New Year consumption what we can see the food and specially the fresh food and SMPG products, personal and healthcare show very good growth and I think in terms of penetration by category food and especially fresh food still is at lower penetration and we can expect the rapid growth in the coming quarter in the coming years.
Maggie Wu:
And Eddie regarding that Cainiao question, I want to make it clear that Cainiao is not a traditional logistics service provider. So by the time we set it up and reinvest it, we have right now 47% shareholding in Cainiao. It tends to be data, logistic data company information company. So when you look at now that you have like certified million packages been delivered, Cainiao is only like less than three years old.
Before Cainiao, the packages have been handled but never been handled at this efficiency that we have seen today and what Cainiao has been focused is to line up and set up this information hub information center and utilizing the data it has to improve the efficiency in the whole logistics chain rather than just providing fulfillment and delivery services.
So having said that look at what the cost we paid we paid to Cainiao these are services providers that Cainiao made alliance to our like the Tmall supermarket and rural distances. This is a kind of testing field for Cainiao to further set up its information kind of hub and also to have this -- towards data usage to improve the efficiency for us and also for the commerce in the logistics area.
Our next question operator.
Operator:
Thank you. Next question's from the line Vivian Hao from JPMorgan. Please ask your question.
Vivian Hao:JPMorgan:
Hi. Thank you for taking my question. I have two questions here. My first one is regarding the later impact from recent tax policy change and also more strict custom tax cycle for both Taobao and Tmall platform.
Can we get a rough sense of percentage of our total GMV. My second question is regarding the outperformance of cloud computing. Is it possible if we can get a penetration or adoption rate of other cloud services and out merchants. Also, where should we expect is the margin profile going for given the division scales are quite impressively.
Thank you.
Daniel Zhang:
Thanks Vivian for the first question. Actually on our Taobao and Tmall business we have two main businesses relating to the cross-border import. The first one actually is Tmall Global which is not -- which is B2C model and we have a lot of following partners, slowing brands and retailers on our Tmall global platform and to do the cross border sales.
And the recent change in foreign policy will have some impact on Tmall Global business and also I think that entire focus of industry also has some impact and but having said that actually we are happy to see the government regulate this cross-border import because actually we do we do observed that there was activities in the warehouse solutions. So the changing government policy actually -- all this activity and we can, we believe that Alibaba can benefit from this and to do a whatever business model under the regulations. Actually today warehouse and change of outlook tax rate and CIT requirement et cetera will do have some impact. But actually government will -- general trade model and this is all actually cross-border general trade warehouse solutions are all actually basically pursuing all the models available in the market and we believe that the consumption is always there and people want to buy high quality product from overseas market.
So the demand is so solid and we believe the business will continue to grow and we're also happy to see that foreign policy change government is actively monitor the market action. Actually our team is now working very closely with the government and the regulators to share our -- and give our feedback and for the other part of the cross-border actually as you said is cycle and in our Taobao marketplace we have a global buy business trends will go in Chinese. Actually this a personal cycle.
Actually visitors have been there for many years and actually we see them better active trading in this global buyers and we also see a very magic phenomenon which is a lot of social network and the talent opinion leaders arises in this global buy business and I think this a very unique strength for Taobao to do this cross-border social commerce and because most of Chinese citizens they are not aware of international products.
Actually they need a opinion leader they need to share their experience and share their experience of a product and the service to them so then they will follow and the two consume so this a magic of Taobao and we will continue to this to enable our consumers to find to enjoy the fun of cross-border and enjoy the fun in our Taobao marketplace. Thanks.
Maggie Wu:
Regarding the cloud question which seem that our cloud business grew very rapidly. If you look at the top line its growing at three digit and we expect that growth kind of continues and I should say that AliCloud is getting very close to the breakeven point. So if we want to turn this business into profit then we can do it very soon. And I think that the growth is mainly coming from number one; increased number of paying customers.
We reported we have over 500,000 paying customers at the end of the March compared to 240,000 we reported a year ago. So very rapid growth and these customers across outside and across different industries and another growth driver is continuous expanding variable products and services and also continued enhancement of the technology and the quality of these products and service.
So we are very optimistic. We have seen that at the beginning breakeven and then 16% and 18% of the margin and then continue expanding. We don't see any big difference from the iPods and other players.
Joseph Tsai:
Just to supplement what Maggie said, Vivian you also asked about the adoption rate of cloud computing from our merchant base. So the cloud computing business is a business that its customer base is very wide well beyond just the e-commerce merchants that are doing business on our platform. So we see lot of potential in different segments; in corporate, in SMEs and also on government segments, and then in vertical segments like financial services, healthcare, games' developers, So it runs the gamut. So you should think about the customer base of cloud computing is well beyond our existing customer base.
Now our merchant base right now a lot of them are using service effectively for free because they are using the service in sort of one time situations. For example on November 11 when there is a surge in volume and traffic and their business, they will come down to our platform to enjoy the cloud computing service for free and so in terms of adoption, a lot of them are already on our cloud computing platform but in terms of paying potential I think there is lot of room to grow.
Daniel Zhang:
Actually...I am Daniel. I have one more comment on the first question. Yes, actually the government policy change actually do have some impact on our cross border import. But I have say that today the internal scale this is driven in a low based and this won't have any material impact on our retail business.
And for our C2C global buy, actually this policy change does not have any impact.
Operator:
Thanks. We have the next question from the line of Carlos Kirjner from Bernstein. Please ask you question.
Carlos Kirjner:Bernstein:
I have two questions one about your Ant losses and one about loyalty, customer loyalty. Can you talk a little bit about the losses in Financial. Shouldn't that business be at a large enough scale to acquire customers grow and also make money at this point. I know you said in the press release and Maggie reinforced the view that -- - valuation round.
Can you add some color on any operational business metrics that help us understand why you think there is going to be a lot of value from that business. Secondly on a separate topic, do you believe there will ever be room for some type of loyalty program like Amazon does on your platform or is the type of program just not practical in a marketing construct and if you don't have something like prime and you think of beautiful centers do you think it will be able to attract sellers to centers and scale then and make money with that business. Thank you.
Maggie Wu:
Hi Carlos. This is Maggie. The Ant question, if you look at in this quarter we shared some losses from Ant. Actually in previous quarter we have always sharing profit that quarterly loss is mainly as a result of this marketing promotion activities that to drive their user growth and engagement especially during this Chinese New Year holidays.
So Ant we are very happy to see that Ant has been progressing very nicely and there are customer base and they are business expansion, very healthy. This also can be evidenced by their recent round of finance which indicates the I mean the valuation is already over $60 billion, so we think that overall actually if you look at the whole year 2016 fiscal for Ant, they are a profit making business. We believe that this can be the case. So there is some seasonality there.
Also the strategic investment decisions to make for the next round of growth.
Joseph Tsai:
We are going to do our deep dive on Ant Financial on our Investor Day in June.
Daniel Zhang:
For the question of customer loyalty program. Yes, customer loyalty is so important in our retail business and today we have over 400 million active buyers on our retail platforms and one of the key operating targets is to maximize their customer spending cost categories and especially today right after our acquisition of our digital entertainment business Youku and also our investment in -- and how to cross sell our physical products with the digital entertainment products and local service actually this could create a lot of good opportunities for us and also to do the cross sales.
So, we are very actively working on this but we won't just replicate the loyalty program for any other companies. Because actually we are such a unique landscape and our user base is huge enough and also we have grow our platform and we have unique strengths which is, we cannot how we not only us who can do this cross sales and to enhance customer loyalty. We have so many merchants, so many brands with us. Each of them has a strong desire to have their own customer loyalty program, have their own cross sell tool and services.
So, we will try to maximize these synergies to improve the user stickiness and the loyalty for the entire platform. Thank you.
Maggie Wu:
Operator, we're ready for our final question.
Operator:
Thank you. We have the final question from the line of Robert Peck from SunTrust. Please ask your question.
Robert Peck: SunTrust:
Yes, thank you. Two question please. The first is on Ant Financial and Maggie you talked about a 33% equity ownership. Can you just walk us through that process and how you go from the economic relationship to the equity ownership and how we should track that.
And then number two, Joe if you wouldn't mind just touching base on your thoughts on the Yahoo! process and the 384 million shares they own in your view on those shares. Thanks so much.
Joseph Tsai:
Okay, hi Rob. On the process of Alibaba Group to further participating in the actual equity ownership of Ant Financial is a process of regulatory approval. So in order for us to hold a direct stake we have to get specific approval from the regulators from the financial regulators in China. And that is because ownership in financial institution by foreign companies is very limited and there are no precedents for an entity like Ant Financial and so the regulators are going to be looking at this as a case of first impression.
But we are having a very constructive dialogue with them about this. So that's the process. In the absence of a conversion into direct equity, Alibaba Group will continue to share 37.5% of profits of Ant Financial. So that's an either / or situation.
Your second question relates to Yahoo! process which is something that is a little bit unknown to us because they are running their own process of selling the core business. We're not in that process. We expect that if they sell the core business, then they will continue to be a company that will continue to be a 15% shareholder in our company so nothing will change.
Robert Peck:
Thanks so much Joe. Congratulations.
Maggie Wu:
With that we conclude the call operator.
Operator:
This concludes our presentation. Thank you for your participation. You may all disconnect.
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