Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's December Quarter 2017 Results Conference Call. At this time, all participants are in 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 Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Thank you. Good day, everyone, and welcome to Alibaba Group's December quarter 2017 results conference call. With us are Joe Tsai, Executive Vice Chairman; Daniel Zhang, CEO; Maggie Wu, CFO. This call is also being webcast from our IR section of 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. These forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report on Form 20-F and other documents filed with the U.S. Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumptions as of today and we do not undertake any obligation to update these statements, except as required under applicable law. Please note that certain financial measures that we use on this call such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, non-GAAP net income, non-GAAP diluted EPS and free cash flow, are expressed on a non-GAAP basis. Our GAAP results and the reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I will now turn the call to Joe.

Thank you, Rob. Thank you all for joining us. Alibaba had one of the best quarters in the company's history with 56% year-on-year revenue growth. We ended the quarter with 515 million annual active consumers on our China retail marketplaces. Compared to the 12 month period ended in the prior quarter, we added 27 million annual active consumers, this is the largest number of active consumer additions in the last three years. We've made tremendous progress in the execution of our New Retail strategy. As a result, revenues from New Retail initiatives are starting to make meaningful contributions to the growth of our China commerce revenues this quarter. I want to say a few words about New Retail. Since Jack Ma coined the term New Retail in 2016, the term has been widely adopted in China by traditional retailers and internet companies alike. New Retail has become the most talked about concept in business. However, very few people appreciate what New Retail really means, much less what exactly is needed to accomplish true conversions of the online and offline consumer experience. In my view, Alibaba has three unique success factors that is enabling us to realize the New Retail vision. First, Alibaba's marketplace platforms handle billions of transactions each month in shopping, daily services, and payment. These transactions provide us with the best insights into consumer behavior and shifting consumption trends. This puts us in the best position to enable our retail partners to grow their business. Second, Alibaba is a deep technology company. We contribute expertise in cloud, artificial intelligence, mobile transactions, and enterprise systems to help our retail partners improve their business through digitization and operating efficiency. Third, Alibaba has the most comprehensive ecosystem of commerce platforms, logistics, and payment to support the digital transformation of the retail…

Thanks, Joe. Hello everyone and thank you for joining our earnings call today. We delivered another outstanding quarter and our business is performing stronger than ever. This is the seventh consecutive quarter that our revenue has grown by more than 50%. It is the direct result of our long-term forward-looking approach of investing in new user acquisition, new technology, and creation of new retail experiences. The data we're able to generate from user activity at scale is used to refuel and improve consumer experience and business operation across our ecosystem. We will continue to invest for the future, not only to grow existing business but also to nurture new business innovations. Taobao continued to thrive as the top online consumer media and the retail destination for Chinese millennials. Growth of our monthly mobile app users accelerated this quarter. 580 million users now visit our China retail marketplaces via our mobile app monthly, an increase of 31 million users over the previous quarter. Our unique plan of highly relevant, personalized content with a community driven experience continues to attract new users while keeping existing users deeply engaged on a daily basis. Tmall continues to expand its market leadership in B2C and enjoy robust growth across all major categories. Physical goods GMV grew 43% year-over-year. We're especially pleased with the accelerated growth in the mobile phone category, more than 75% year-over-year achieved through securing exclusive access to the industry's top premium smartphone launch, market leadership, and a share gain will continue to be our priority and we'll continue to reinvest into the Tmall business. We celebrated our ninth November 11 Global Shopping Festival this past quarter, and once again we showcased extraordinarily competitive advantage of our platform model. Our commerce technology infrastructure continued to set new benchmarks in real time processing power.…

Hello everyone. We delivered another strong quarter. Here are some of the financial highlights. In the December 2017 quarter, major operating and financial metrics continued to record very strong performances. Total revenue grew 50% year-over-year to RMB83 billion, revenue from core commerce grew 57% year-over-year to RMB73 billion. Mobile MAUs reached 580 million, an increase of 31 million over September quarter. Annual active consumers reached 515 million, an increase of 27 million from 12 month period ended September 2017. Revenue from cloud computing increased 104% year-over-year, to RMB3.6 billion. Our non-GAAP free cash flow was RMB46 billion which is US$7.1 billion for the quarter compared to RMB34 billion in the same quarter of last year. For the quarterly revenue, the 56% year-over-year growth was led by robust growth in our China commerce retail business, international commerce retail business, Alibaba Cloud as well as the consolidation of Cainiao Network. So excluding Cainiao, total revenue growth would have been 14% year-over-year. Quarterly cost trends; cost of revenue excluding share based compensation was RMB33.8 billion. Excluding the effect of SBC expense, cost of revenue as a percentage of revenue increased from 35% in the quarter ended December 2016 to 40%. I would like to provide color on changes to our gross margin due to the business mix shift. First, the consolidation of Cainiao affects our overall gross margin because logistics is a lower margin business compared to our original core business. Second, significant growth of our newly held businesses, in particular Intime Department Stores and Hema fresh grocery store means that new retail revenues were including -- on a gross basis include the cost of inventory and therefore would have the effect of lowering our overall gross margins. Third, constant development and acquisition costs of our digital media entertainment segment, is accounted for…

[Operator Instructions] Your first question comes from the line of Eddie Leung of Merrill Lynch. You can ask your question.

Thank you for taking my questions. The question is about Ant Financial. At the operating level, how will this deal change the cooperation? Is there anything you can achieve now that you couldn't in the past? And then just quickly, perhaps also some color on the retention rates of your users. There has been very fast growth in users like in the past year or two. Just curious how has been the retention rate given this fast growth period?

Yes, Eddie this is Joe Tsai. I'll take your question about Ant Financial. We are -- with our equity stake in Ant Financial, this will align our interests further in a number of areas. For example, Ant Financial as you know is the number one payments company in China, and in the execution of our New Retail strategy, a very important component of working with physical retailers is that they are enabled with mobile payments. So that a customer can go to the store for -- and without a mobile phone and pay, so there's a lot of cooperation there that we can have with them. Another example is to be able to interact with -- between -- for example our e-commerce apps like Taobao App and also the Alipay Wallet, so that we can have established presence for example of our e-commerce presence within the Alipay Wallet. This actually helps us to increase user acquisition in terms of new users because there are users that are using the Alipay App but are not buying on our Taobao platform. And another example of cooperation is in international expansion, in -- where in new markets e-commerce presence will need to have a payment solution and payment growth, payment expansion into new markets will be looking for new use cases. So these are just a few examples of cooperation with -- equity stake, I think there is going to be tighter cooperation between the two. Your second question about user retention; I think we have been able to retain the users very well. I assume that's a question addressing Alipay. As you know, in the fourth quarter, the growth of daily active users of Alipay have gone up more than doubling of our daily active user,s and going substantially into January, we just passed January in the last month that the level of daily of active users and engagement have remained. So we don't see any sort of drop off, so retention is very good.

Your next question comes from the line of Alicia Yap with Citigroup. You may ask your question.

Hi, good evening. Management thanks for taking for questions and congrats on the solid quarter. My question is related, can you share with us if there is any trends on or any ongoing technology advancement or improvement of the Taobao App that you are working on and any chance for potentially increasing the monetization on some of our pages, for example, by adding the inventory or potentially adjusting the app loads on the search result? Thank you.

Taobao App is now, actually is positioned as a shopping, as a consumer community, and a company-drive platform, and we apply our most recent new technologies like the personalized technologies, algorithms, and the real-time timing and behavior driven algorithm on Taobao. And so that's why today people will see a very personalized experience on mobile Taobao. And going forward, we will continue to do so and apply our new technology in Taobao. And with expansion of our categories and services and expansion of our user base, we will have more and more consumer data and behavior, which will also enhance our understanding of people's demand. What we want to do to make our algorithm more intelligent, which is not only to meet the existing demand of the customers, but also help to create a new demand of the customers. So that's all about how to make the technology marry with commerce. And in terms of the monetization, actually we have a very clear strategy in monetization. We always believe that the most important thing is to enhance the user experience and make people spend more time and more people to come to our site. Actually today, as a shopping -- as a commerce mobile app, actually all the content could be monetized, and today we only monetize a very low percentage of the inventory -- of the pages on our mobile app. And all the content and the recommendations and the search results actually is relevant to and -- is relevant to consumer, I mean what consumers need and what the customers want promoted. So we have a very clear schedule to monetize our pages, but we still want to make sure we have a very native experience for our customers.

Your next question comes from the line of Alex Yao of JPMorgan. Please ask your question.

Hi, good evening, management and thank you for taking my question. I have a follow-up question on Ant Financial. Can you elaborate a bit more on the sharp decline in Ant Financial's profitability in this quarter? For example, is it because the competition in domestic offline payment market is intensifying or is it because our spending to expand overseas market share and usage? If the competitors in these markets react with even more aggressive marketing strategy, how do you think about the competition strategy and the financial outlook for this as in 2018? And then related to that will the new investment strategy in Ant Financial apply to the New Retail strategy as well? Thank you.

Hey, Alex, I'll address that. Ant Financial is a profitable business. They're profitable in all three major lines of business and that is credit products like consumer credit and SME loans and then the third is wealth management in terms of distributing other people's wealth management products on the platform. So it's profitable in all three of those business lines. What it means is that it has the luxury of reinvesting profits and cash flow into very strict areas of growth. And during the fourth quarter what we've seen is that Ant Financial embarked on a very aggressive new user acquisition strategy and that was very successfully. They were able to grow new users by more than doubling the active users on the platform, on the Alipay Wallet platform. And we have also communicated in our earnings release that we expect Ant Financial to continue this fairly aggressive plan to continue to gain more new users and take market share. So it's clear that I think if you look at third-party research data, Ant Financial has claimed market share away from competition over the last quarter. As far as your question about how we think about the growth of our own e-commerce business, maybe, Daniel can address that question.

Actually we do see a lot of synergies between AGH and Ant Financial. And today -- and because of the very active, I mean, new user acquisition strategy, we see a lot of new customers going to Alibaba ecosystem by firstly doing a mobile payment, and we are actually -- work closely with Ant Financial to transform these new users to be buyers on our ecosystem. But having said that, actually, we are -- we see a great -- a broader, I mean, opportunities in New Retail landscape. And for people, for the retail partners what they want is a all-in-one solutions to help them to improve the user's experience and improve the operating efficiency in their exiting retail formats. So payment obviously is one of the advantages and people want to -- because of the digital payment and the retailers can digitalize the -- to have the data of the payers. And from AGH perspective, we will go even further to help the merchants -- to help the retailers to digitize their entire product assortment and the entire footprint in the physical store, so which will bring even more data. So together, actually we can help -- Ant Financial and AGH can help the retailers to transform to a totally digital operation, which will bring a lot of that for their operation in the future.

The next question comes from the line of Piyush Mubayi at Goldman Sachs. Please ask your question.

My first question is does the Ant stake mean that the Honk Kong IPO partner ownership part is open? Also theoretically, would you invest more into Ant and to own more of it? And second question if I might slip in one, customer management revenue growth drivers have reversed this quarter from volume of clicks to price by click on higher conversions. Could you give us a sense of how much further the price by click improvements could be in the next couple of quarters if possible? Thank you.

Hi, Piyush, this is Maggie. Okay. So Ant hasn't talked about any IPO plan yet. So that's Hong Kong, Asia, we don't know yet. And for our -- whether we are going to further invest in Ant, so 33% is the equity swap arrangement that's stated in the 2014 agreement. So that's pretty much the shareholding we will get from Ant based on this arrangement. And in terms of customer management revenue, well, we're talking about PBC growth is stronger. And to a lesser extent that we see the number of clicks growth and so the reason is that basically the technology, one thing is that the technology improvement brings better conversion. Merchants are willing to play for higher clicks because they are calculating their ROI and it must be whatever the pay it got a return -- reasonable return before making that decision to invest. And how much further this we can grow, I think -- okay, first of all, you have seen this growth for customer management revenue 39% year-over-year compared to previous quarter shows, appears to be a slower growth. We talked about the anniversary. But there is another reason that we proactively give to merchants. We leverage our technology enhancement and there are a couple of projects maybe we can talk more about later in our meeting. But this is voluntarily give returns to merchants which has impacted a little bit on our monetization to revenue. And going forward, I think it's -- when you look at the technology reserves, we do have many technology initiatives in our pipeline and these are the potential assets for future monetization and we will launch these whenever it's ready in the due course. So we are quite confident about the longer term growth for our ecosystem, since the data technology do bring value to merchants.

Your next question comes from the line of Youssef Squali of SunTrust Robinson Humphrey. You may ask your question.

Thank you very much and congrats on a good quarter. Maggie just a quick question for you. I may have missed this, but ex-China and ex-New Retail what was the organic growth in core commerce? And I guess related to that as we look out to fiscal 2019, in terms of both of revenue growth and margin, can you just help us, think through, or how do you guys thinks through the framework of organic growth and margin? I think in 2017 we have seen about a 400 basis points compression in 2016 -- 2018 we saw or we're likely see about 600 basis point compression in margins. Just how do we think through it for 2019? Thank you.

Okay, first of all, if you still remember like eight months ago, when we had our Investor Day, right, where I gave the revenue guidance for fiscal 2018, the market consensus for our revenue growth was somewhere around 37% -- 38% year-over-year. And we guided 45% to 49% annual growth and now we adjusted that growth level to 55% to 56%. That's pretty much like 18 percentage points higher than the original market expectation. Okay, Cainiao, right, Cainiao we are seeing that, we're talking about this quarter Cainiao added like 4 percentage points to the revenue growth. So if you take it out from the 55% to 56%, we are still growing 50% plus. And New Retail is integral part of our core commerce. We disclosed the number of the revenue amount and the percent of revenue you can derive if you take it out, but it doesn't really make sense taking it out. This business is going towards New Retail. So this is going to be a very critical part of our core commerce, it is the core commerce. And margin, yeah, I talked about the structural changes to margin, as a result of the business mix shift to New Retail, so basically New Retail may have a different cost structure, which could show a lower margin, going forward. But this is not a concern to us, because remember first of all lower margins does not necessarily equal to a lower profit, because we are making the pie much bigger. So, 60% of apple compared to 40% of watermelon, right, which one do you want. And second point is that, lower margin not necessarily equals to lower cash flow. For example, inventory can be a positive contribution to cash flow, due to negative working capital nature of the retail and the risk of the inventory can be reduced with consumer insight and data technology.

The next question comes from the line of Grace Chen of Morgan Stanley. You may ask your question.

My first question is about the potential personalization in Alibaba's platform. I will understand that the most recent key algorithm update was in September 2016. So this leads to a tough comp of the customer management revenue in the December quarter. The personalization should be in the beginning. So we're wondering, how big the tally remains coming from further algorithm upgrades in the future? And my question is about the change in dynamics in e-commerce competitive landscape. As we see fast growth in those emerging smaller social commerce players, what's your view of these recent phenomena and have you seen any impact to your ecosystem now or potentially in the future? Thank you.

Okay. So this personalization algorithm how much is that we have and how much technology can help in the monetization revenue. So I can share about is that, we do have a lot of things going on with this technology improvements and upgrading the AI, the neural network, et cetera. So later on, when we are starting the new fiscal year, we are also going to about -- revenue guidance. So by that time you will have a sense of that.

Just quickly, I just want to add to the -- Grace, your question about personalization and technology. The question is, do we still have sort of tricks in the bag, when it comes from technology to improve personalization the answer is, absolutely yes. But the one point that is not be missed, is Daniel earlier referred to this point, is the fact that, because we have a very robust user growth on higher engagement by these users we are now creating additional inventory. So when you start thinking about whether changing algorithm will drive more revenue growth, I think don't forget to look at additional expansion in terms of ad inventory that we haven't even monetized. So there is really no need to increase ad load, but think about increasing ad inventory. So I think that's a point that I missed.

Well in terms of new opportunities in social commerce and other initiatives, I will say actually what we have done in the past 18 years is always to make innovations in new initiatives and to apply the new technologies into the real commerce world, enable our merchants and retail partners to be a digital operation. And today, I would say with the development of mobile internet and all the people are living on internet and more and more players are trying to take this opportunity to try e-commerce and from different angle. And we are happy to see that, because this will make us move faster and make us continue our innovation. And we are happy to see a growing plan in terms of customer acquisition, in terms of the customer retention and in terms of the growth of our merchants. And as I've said in my script and last year's November 11th is a very typical example and how many merchants sales exceeded 100 million in one day and which is actually -- which is a very solid evidence of the prospects of our ecosystem. And we will continue to invest and innovate in our ecosystem and to make our platform valuable for both merchant and consumers and also third party service providers.

Your next question is from Gregory Zhao of Barclays. Please ask your question.

Hi, management and thanks for taking my question, and congratulation on the strong quarter. So I have two questions. First one is recently Alibaba appointed two very young -- new Presidents to Taobao and the Tmall platforms. So both guys are with pretty strong Big Data management and marketing experience. So can you share some colors and reasons of new appointment and what kind of changes they could bring to Alibaba? And a quick follow-up questions, the Chinese New Year holiday will come a little bit later this year, so would you please share some color like the potential impact to the coming quarter? Thank you.

I think we are very happy to have young people joining our Senior Executive team and we think young -- because our -- if you look at our customer base they are getting younger and younger and we do need people who understand the young customers and to serve them. So that's why we are so happy to have both Jiang Fan and Jing Jie to join our Senior Executive team and both of them have been working with us for quite a few years and have very -- also demonstrated very proven results in each of their previous jobs. And today actually with their onboarding on the new role I am confident that they will take both Taobao and Tmall [indiscernible] and to the next journey. And in terms of the Chinese New Year, actually this year Chinese New Year will be on February 16 and we -- as usual we are preparing Chinese New Year and these days we have a good Chinese New Year festival and in Chinese [Foreign Language] on our platforms. And we also see very good results in this new [frontier] and we are trying to serve our people and not only I mean for the Chinese New Year, but also in the Chinese New Year, and we'll also have a good marketing campaign during the Chinese New Year.

Thank you. Ladies and gentlemen that does conclude your conference for today. Thank you for participating, you may all disconnect.