Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's March Quarter and Full Fiscal Year 2020 Results Conference Call. At this time, all participants are in a listen-only mode. After managements' prepared remarks, there will be a question-and-answer session. I'd now like to hand the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

Good day, everyone, and welcome to Alibaba Group's March quarter 2020 and fiscal year 2020 results conference call. With us are Daniel Zhang, Executive Chairman and CEO; Joe Tsai, Executive Vice Chairman; Maggie Wu, Chief Financial Officer. This call is also being webcast from our IR section of the corporate website. A replay of the call will be available on our website later today.

Thank you, Rob. Hello, everyone. Thank you for joining our earnings call today. We have finished an extraordinary quarter and delivered an outstanding fiscal year. Despite the impact of COVID-19 pandemic, Alibaba achieved a historical milestone of US$1 trillion in GMV across our Digital Economy this fiscal year, a strategic goal that we set for ourselves five years ago. We, at Alibaba, have always been aiming for the stars while keeping our feet on the ground. The $1 trillion GMV milestone reflects the of Alibaba’s Digital Economy, and as well as strong execution against the clear strategic vision.

Thank you, Daniel. Thank you, everyone, joining us. I'd like to start my prepared remarks by addressing COVID-19’s impact on our financials and recent trends. Back in February, given the potential uncertainties of COVID-19 pandemic, we guided the market that our overall revenue growth rate would be negatively impacted for the March quarter and that some of the businesses such as China retail marketplaces and local consumer services might show negative revenue growth. I'm pleased to report we delivered better-than-expected March quarter results. The government took effective measures to limit the spread of the virus through lockdown, social distancing measures and travel restrictions. With the virus spread under control in China, these restrictions started to ease in early March, and this led to a recovery of supply chain and logistic delivery capacity. This in turn enabled a quick recovery for our China retail marketplaces, and improving fundamentals for local consumer service businesses.

Thank you, Maggie. However, as this is our earnings call, you are welcome to ask questions in Chinese or English. A third party translator will provide consecutive interpretation for the Q&A session, as our management will address your questions in the language you ask. Please note that the translation is for convenience purposes only, in the case of any discrepancies our management statement in the original language So, operator, I’d like to open it up for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. . Your first customer line of Binnie Wong from HSBC. Please ask your question.

Thank you, Daniel, Maggie and Rob. My question is regarding your strategy in lower tier cities. I know that last week you issued a new release, a new patch release to Taobao providing new support for merchants as well as other new features and 70% of the uptake for that new patch release has in fact been from the lower tier city. So can you please speak to us about your strategy going forward for the larger cities?

Thank you. And I will take that question. Given the size and the scale of Taobao as a retail platform and where it's at today, 700 million, the fact is that we've penetrated all segments of the market from the high end down to the low and the increase in the user base over the past year, 70 million -- 70% of that came from the lower tier cities. So what we're doing in the lower tier cities is deploying a more diverse and broad range of different services, including on Taobao with more value for money offerings, as well as live streaming and other kinds of engagement that are targeted for those users, especially those who are looking for good value for money. And as you've noted, we have a new special price addition of Taobao which is targeted for those users in lower tier cities with a focus on giving them value for money offerings. At the same time, we see significant potential for further growing our user base, the current figure for annual active consumers, 780 million, represents only 45 penetration -- 45% penetration on the population in lower tier cities and in the rural areas of China. So there still is lots of room to grow in those regions and we intend to do so together with Alipay in driving a digitalization strategy in those areas that will convert people into consumers. Thank you.

Thank you. Our next question comes from the line of Eddie Leung from Bank of America. Please go ahead.

Thank you. My question is regarding the long-term impact of live streaming on the industry and in particular celebrity host and KOL live streaming. The question is, if merchants need to pay these celebrities, these KOLs, will that impact on the profitability of platforms going forward?

Thank you and that's a really good question. What we're seeing really is the emergence of live streaming as a new kind of sales methodology or a new kind of sales channel with the emergence of these KOLs and celebrity influencers online. The role that they're really playing in the context of retail is sales. They're serving the sales people and they make money by way of a sales commission. In the long-term, how this trend will play out, I think really comes down to whether the intrinsic commercial value in terms of having online influencers and KOLs do live streaming, be fully captured in an efficient and effective way. If you have a one-off sales event with a celebrity influencer, you get user to make a one-off purchase. Fine, but the question is, can you then keep that user in the long-term and continue to market to them and get the full value out of that relationship? So, I think it's important if you're paying money to these online influencers or celebrities that -- in part that's about supplanting existing channel costs and saving costs there. But more importantly, it's about getting the new consumer into your ecosystem so they can become a long-term consumer. And this is critical to Alibaba because we are a diversified ecosystem with multiple channels and formats for engaging consumers. So that's precisely what we're looking at doing with these kinds of live streaming approaches. It's just one part of an overall integrated approach through which we hope to develop long-term relationships and create long-term value.

Okay. Next question.

Thank you. Next question comes from the line of Piyush Mubayi from Goldman Sachs. Please go ahead.

Thank you for taking my question. I have one question with regards to the guidance you provided for next year. What are the drivers of that growth assumption or guidance you provided. And in particular, what are the underlying macro assumptions you've made and more generally, the platform mix, like the 1P versus 3P mix that you're likely to see, that's underpinning that guidance? Thank you. I'll go back to the queue afterwards.

Okay. Piyush, this is Maggie, let me try to answer your question. So we all know that we're facing risks and uncertainties, right? So many of which we’re not able to predict or control. So whether there’s going to be a certain way for when will the vaccine come, how much impact the geopolitical issue bring, we -- it's hard for us to factor in. So the guidance we give basically reflects assumption that we believe to be reasonable today. So then you talked about the recovery speed of each of our businesses, and particularly for like China retail, local service, and international business, et cetera. So, based on what we've seen today, and we see this -- quarter-to-date transaction volume and also user activities et cetera have already experienced similar growth at a similar rate to the December quarter level. So that's basic assumption that we used. And you mentioned about 1P, 3P. So you can see from our revenue breakdown, sort of 2020 fiscal year 1P business as a percentage of the total revenue already went up to around 16%, 17%. And we believe that percentage is going to continue to go up but not dramatically. But the important thing is that people are thinking about your revenue content, take a portion of 1P, that 1P normally represents low margin. But look at our profit growth. I think this is another point I want to make is that we are a group that has such a strong growth for the core and also has the multiple engines, not only Taobao, Tmall, China retail marketplace, but also cloud, New Retail, local services, logistics, right? So strong revenue growth brings in the powder for us to invest in those strategically important areas. And these investment areas, they're doing better and better which reflects into our profit growth.

Next question please.

Thank you. Next question comes from the line of Alex Yao from JP Morgan. Please go ahead.

Thank you. I noted in the earlier remarks your comments about advertising revenue in the first quarter performing well, driven by good performance of recommendation feeds. And in that context, I'd like to ask about your plans for monetization of recommendations. I imagine that in your answer, you'll talk about the need to balance the interest of merchants against the desire for monetization. So given that perhaps I could go ahead and just ask the second part of the question. Namely, is there any technical or technological method that could be adopted on the one hand, so as to fully protect the merchants’ interests or even better serve the merchants’ interests, while at the same time also providing more opportunity for monetization? And if so, is that something that could happen this year?

Thank you. Well, I'll start with the latter part of your question and the answer is yes. There is technology that can do precisely that and the technology is AI, artificial intelligence, which can be applied and we are already working on applying it in a way that can ensure a good user experience in terms of balancing advertising content versus our free content for users, and also leveraging that technology for merchants to drive better return on their investment. So we're working in this direction, and I think we're already making good progress. So in general, we are moving forward cautiously in working on growing revenues from recommendation feeds, and with a hope that we can find ever better ways to do precisely what you mentioned in your question, namely finding the best possible balance leveraging on technology between user experience and creating value for merchants.

Thank you. I’d just like to add a couple of points on top of Daniel’s already very clear answer. And the key word I'd like to add in is multi-engine approach. So, if you look at our revenue over this three year period, revenue from CMR and commissions accounted for 70% compared against 40%. What this means is that our strategic investments are starting to produce new channels of revenue, new sources of revenue. So you can see this in our figures over the three year period for CMR as well, 90%, and that's down now by 20% to about 70%. So you have all of these different new revenue areas that can be tapped into including recommendations that we talked about, but also live streaming, also and many other new sources of revenue. So, thirdly and in conclusion, going forward, yes, we will continue to -- as we said on Investor Day, to take a prudent approach in moving forward with monetization.

Thank you. Our next question comes from the line of Thomas Chong from Jefferies. Please go ahead.

Hi, good evening. Thanks management for taking my questions. My question is more about the spending power of the buyers post-virus. Can management comment about the overall spending power of consumers these days? And with that, can you comment about the trend in ASP and all order frequency that we would expect as people speeding up the migration to online?

Okay. Let me answer this question. First of all, I think on our platform -- we are such a huge consumer platform. We have different tiers of consumers around us. So, what we see that consumers are -- they are in -- they engage with us and find what they want in different categories at different pricing range. But we do see some shift of the product categories in this quarter because of the pandemic. For example, we see a very strong growth of food and grocery business. And because people -- when people stay at home, they have to cook at home. They don't -- they're unable to go to the restaurant. So they need more food and more groceries, which are all daily necessities. So that's why we see very strong growth in our FMCG categories and food categories. Our FMCG categories grow like -- take an example like in starting from the new fiscal year, our FMCG categories in Tmall grew nearly like 40 -- I remember 40% -- around 40%, which is a very strong indicator that people spend more on our platform in these categories. Well, because of the pandemic, people spend less on like apparel or like fashion because people wear face masks, and they don't even need these make-ups. So, I think the spending is still there, but the focuses are quite different. And -- but in terms of the general I mean spending power, I would say different -- China is a famous high saving rate country and we do see people are remaining their consumption -- remaining a very strong consumption power to continue their -- to maintain their lifestyle. So, we do -- so far we haven't seen any big change in terms of the consumption power. But as I said before, I think the category -- the product categories they try and we do see some are different. Let me clarify one point. When we talk about beauty, what we see is like skincare still remain very strong but for makeup, because of -- as I said when ladies wear facemasks, they may -- the need for makeup are getting lower. So that's basically the situation.

Next question. Operator next question.

Thank you. Our next question comes from the line that Jason Helfstein from Oppenheimer. Please go ahead.

Thank you. I just want to go a little bit deeper into that last point. You said that online physical goods GMV grew 10% and then you did break down that you saw 25% in these categories that benefited or were more COVID related, offset by areas where they didn't spend money. What do you think is a kind of more reflective of a consumer health? Is it that 10% number, or really is it that kind of 25% and consumers have the ability right now to spend more, they're just not because they don't need the items consistent to what you talked about, not needing makeup, if you're wearing a mask, for example. And maybe talk about how that relates to your outlook for the next quarter? Thank you.

Okay, let me answer this question. As we said before, our China retail -- our Tmall of grew like 10% are in the March quarter, and in Tmall, we have our FMCGs and consumer electronics, the combined growth rate in March quarter for these categories on Tmall was about 25%. If you want to get a big picture of the future development, I think in my remarks, I gave you a very clear I mean latest indicator which is like in -- starting from the New Year, the quarter-to-date, overall speaking our China retail marketplace growth rate is similar to those in December quarter. So I think that's basically the big picture of where we are today. But we do -- all people realize -- understand that there’s still uncertainty about containing the pandemic. So we are closely monitoring the situation. So we strongly believe that the consumption power in China is still very strong and we will take our vantage in the digital platform to continue our leading position.

Next question?

Let me add one more point, which is like if you look at the past fiscal year, our -- we generated US$1 trillion GMV in our -- in Alibaba Ecosystem. But if you look at our China retail marketplaces, the GMV we generated last fiscal year is about like RMB6.5 trillion. And we -- if we look at what happened into the March quarter, I think we should have achieved a higher GMV, I mean it’s without this pandemic obviously. And if -- but we are very confident that in the New Year, I think we will achieve another like a net add of like RMB1 trillion -- at least RMB1 trillion GMV in our China retail marketplace, which is I think still very strong number compared to the size of our business in China.

Next question?

Next question comes from the line of Gregory Zhao from Barclays. Please go ahead.

Thank you. And congratulations on the strong performance. My question relates to cloud services. We know that internationally players like Microsoft and Google, who have already achieved significant scale in terms of their size and their revenues, continue to be able to maintain rapid growth in their revenues and even acceleration. Looking at China, however, in the cloud space, Alibaba and its competitors seem to be seeing a different trend where things are somewhat slower. So I'm wondering if you could compare for us, please, the China market versus the international market for cloud, what are the differences underlying that picture. And what are the short-term bottlenecks and how it would be possible potentially to make a big leap forward in terms of accelerating revenue and profit growth in cloud?

Thank you. Well, first, I'd like to say that in the past year, Alibaba cloud intelligence hit a very important milestone, namely reaching revenue of RMB40 billion and even in the March quarter, achieving 58% growth. So we don't see slowdown at all. Conversely, we think that the growth is good. We see this growth coming from several different areas. One is the demand across all sectors of the economy to get on to the cloud. And if you look at Chinese IT spending, in the future, we can expect to see more and more spending going forward as organizations get themselves on the cloud. The second thing I would point to is that the cloud is not just a way of providing infrastructure -- infrastructure on the cloud to lower IT related operating costs. It's also an opportunity for companies to leverage on big data and cloud enabled computing capacity to achieve better efficiencies and drive value for the business. And different kinds of algorithms and analytics will be developed in the cloud for different sectors for different verticals, different products, solutions to meet those needs, and unleash new value for them. So it's not just about saving costs on IT infrastructure, it's about driving value as well. In Ali, the value proposition that we offer is cloud plus intelligence. So we're not just about providing cloud services, it's a combination of cloud plus intelligence. Now in different countries, cloud services are defined differently. It's true in China and internationally as well. There are different definitions. But to us if it's just about shifting traffic onto the cloud to save costs, that's kind of a low value-added offering and that's not really what Alibaba is about. We're looking at focusing on higher value-added cloud enabled offerings that can truly create value for clients in different sectors. And finally, on your question as to the differences that we see in the Chinese cloud market versus the cloud market overseas, I would say that in the U.S. and in other more developed markets, the SaaS and the whole ecosystem, developers are more mature already. Whereas in China, that developer ecosystem and SaaS is just starting to get going, and Alibaba very much looks forward to partnering with developers to jointly create a very robust ecosystem in China.

Next question?

Thank you. Next question comes from the line of Alicia Yep from Citigroup. Please go ahead.

Congrats on the strong results. My questions is on -- so if you could give us some colors that are on the subsidy measure that you help provide merchants. Do you think that is actually more effective to the commission rebate? Or merchants actually prefer more free traffic? And given recommended feeds actually becoming quite effective for merchants, so if that means over the next few quarters we don't have to provide more preferential commission rates over time? Or is that -- it's a separate thing? And the CMR commission growth direction will still be a bit diverged? Thank you.

Alicia, let me first answer your question, I think, first of all we are trying to help our merchants, especially SMEs during this pandemic. But we have to -- first of all, we have to give a very fair and transparent policy to all the merchants on our platform. So that's why we decided to use the subsidy to waive the annual fees and also give some reduced commissions in some of our business. This is applied to all the merchants on our platform. And in terms of the free traffic, this is a very interesting question. I will say when we decided to give this support to the merchants, we have to consider the user experience on our platform because we are a marketplace platform -- we are marketplace. We are a platform model. So we have to consider the interests of both merchants and consumers. So if we give free traffic to certain I mean merchants, I think they're -- I mean operating with their conversion rate, or their click through rate of the product may or may not be good enough to the customers. So that's why we don't want to do this one side effort. So we have to ensure good user experience on our platform. But at the same time, we want to share -- we want to satisfy our merchants to release their financial pressure. So that's how we think about this policy.

Yes. Let me supplement a little bit, Alicia. So for the subsidy and preferential commission rate, these are two separate things. Subsidy, we are talking about like waving merchants’ annual fee on the Tmall platform that’s a support during the COVID-19, right, to help them to go through this difficult time. And this preferential commission rate is an ongoing effort that we have this package all through this year. And talk about either subsidy or preferential rate, I think our operational philosophy is that we're not a believer of just burning money to grow the GMV. We believe that whatever investment we make, it should be supporting the sustainable growth rather than just burn and throw away the dollar. So if you look at our profitability, right, this year we're talking about somewhere over RMB140 billion and we have like US$50 billion cash on our account. So they are money to invest. But we are emphasizing on helping merchants in an efficient and effective and sustainable way. Thanks.

Operator, one last question.

Final question comes from the line of Mark Mahaney from RBC. Please go ahead.

If you were to talk about the biggest structural changes, do you think that will occur to your business or to the digital economy because of the COVID-19 crisis? What would you say they are? You highlighted increased shopping for groceries online. But including that, other things just step back, what do you think are going to be the biggest structural changes, permanent changes in the way that consumers around the world interact digitally because of this crisis? Thank you very much.

I think on top of the new category penetration like in the food and groceries, I think more important -- the other very important change is the education and the penetration in the customers who are not a very experienced Internet user or online shoppers before COVID-19. For example, what we see is that during the pandemic, many, many older people, they moved to online and buy everyday needs. And so it's not only about the category penetration, it is also about the user penetration. So we do see this change the lifestyle of many, many people. And the second thing is not about consumption, it's about change the way of working and the changing way of education. So that's why in my remarks, I said that our DingTalk experienced a very, very robust growth during the quarter, because of, they become a very important platform for people or for working of people who stay connected and improve their working efficiencies. And for students and schools, DingTalk has become a very efficient platform for online classrooms. So I think this is all about change of the lifestyle, change of the way of working, change of way of education. So this is a very, very fundamental -- these are very fundamental changes. I will say this will stay ever I mean even after the pandemic.

Okay. Thanks everyone for joining the call today. If you have any further questions, please feel free to contact the Alibaba IR team. Thank you very much.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, this does conclude our conference for today. Thank you for participating. You may all disconnect.