New Retail helps drive record Alibaba sales

Continuing momentum in Alibaba Group’s New Retail business helped drive a 56 per cent year-on-year growth in sales for the quarter to December 31.

The performance of the New Retail category – which combines its online (non-marketplace) and fast-growing offline retail businesses, including investments in Sun Art Retail and other established businesses – was a core highlight of the quarter, according to CEO Daniel Zhang.

“Alibaba had another great quarter driven by the continued strength of the Chinese consumer and the wide and innovative range of services we provide for merchants and consumers,” he said.

“We are excited by the continued momentum in New Retail, which came to life during another record-breaking 11.11 Global Shopping Festival. We expanded the scale and footprint of our New Retail initiatives with the vision of delivering true convergence of the online and offline consumer experience through mobile and enterprise technology.”

Maggie Wu, CFO, said the group’s core business generated significant free cash flow of US$7.1 billion during the quarter, “enabling us to invest in New Retail, cloud computing, digital entertainment and globalisation”.

Revenue from core online commerce (marketplace) activities rose 57 per cent to US$11.257 billion and from cloud computing by 104 per cent to $553 million. Digital media and entertainment sales rose 33 per cent to $832 million.

The number of annual active consumers on Alibaba Group’s China retail marketplaces reached 515 million, an increase of 27 million from the year to September 30.

Net income was $3.586 billion with operating margin was 31 per cent and adjusted EBITA margin for the core e-commerce business 53 per cent.

Group highlights

Alibaba summarised group highlights in its earnings statement, including:

Taobao: Artificial Intelligence (AI) drove user engagement, with the Taobao app’s intelligent personal recommendations and innovative content formats continuing to drive strong growth in user engagement, conversion and annual active consumers. “We continue to invest in machine learning technologies which we apply to use cases that match consumer intent and product selection to deliver the best consumer experience.”

Tmall: Tmall recorded 43 per cent year-on-year growth in physical goods GMV during the quarter, reflecting robust growth across all major categories including apparel and accessories, consumer electronics (mobile phones) and FMCG. “Tmall continues to be the platform of choice for the world’s top brands, with Givenchy, Giorgio Armani Beauty and Volvo establishing Tmall flagship stores and Longines, Hennessy, Dom Perignon and Baccarat joining our Luxury Pavilion in this quarter.”

11.11: Last year’s annual November 11 Global Shopping Festival exceeded the previous year’s records, with GMV settled through Alipay on Alibaba’s marketplaces up 39 per cent year-on-year to $25.9 billion. “The continuous success of this record-breaking event is enabled by our resilient and scalable technology, as well as payments and logistics infrastructure that is capable of operating at massive scale.”

New Retail: Rapid expansion through partnerships and innovative technologies included the opening of five new Hema fresh grocery stores in Shanghai, Beijing, Ningbo and Suzhou, taking the network to 25 at year end. “Hema exemplifies the convergence of online and offline retail by leveraging our in-store proprietary technology, digitised supply chain system, consumer insights and mobile ecosystem to provide a seamless experience for consumers.”

In November, Alibaba formed a strategic alliance with Sun Art Group, the leading hypermarket and supermarket chain by revenue in China with over 440 stores nationwide. “Through this partnership, we aim to equip traditional retailers with our proprietary technology and know-how in online offline convergence to implement their digital transformation. In addition, the partnership with Sun Art will also enable us to accelerate the expansion of our New Retail offerings with national scale.

International:  Alibaba’s cross-border and international retail businesses continue to show strong growth. Revenue from international commerce retail business reached $727 million in the, representing 93 per cent year-on-year growth, driven by its Southeast Asian platform Lazada and its global retail marketplace AliExpress. “While the markets for Southeast Asia and cross-border commerce remain very competitive, they are in the early innings of the game. We are optimistic about the long-term secular growth prospects of our international markets and will therefore continue to make significant investments for market share growth and focusing on the best customer experience.”

Cainiao Network: Alibaba’s logistics division, Cainiao Network, processed 812 million orders during the 11.11 event. Cainiao Network operates an electronic shipping label system that standardises shipping data into structured formats, which enables efficient pick-and-pack operations for merchants and sorting and routing operations for delivery partners. “The advantages of this system have resulted in broad adoption by merchants and logistics service providers, both on and off our platforms, putting us in position to serve the growing consumption economy in China and roll out our New Retail strategy.”

Cloud Computing:  Cloud computing revenue grew 104 per cent year-over-year to $553 million, driven by both robust growth in paying customers and revenue mix toward higher value-add product.  “In the December quarter, Alibaba Cloud launched 396 new products and features and continued to introduce proprietary AI technologies to tackle real-world challenges, such as traffic planning and optimising efficiency in manufacturing and airport operations. Alibaba Cloud continues to expand its customer base across a variety of industries.”

Alibaba Cloud customers include Watsons China, carmaker Geely, and Beijing Capital International Airport.

Digital Media and Entertainment: During the quarter, Youku video’s daily average subscribers more than doubled year-on-year, driven by several original drama series and shows that became popular hits with users.

AI and innovation: Alibaba says its AI-powered voice assistant, Tmall Genie, surpassed 1 million unit sales since its official launch in July and the end of the year. “Tmall Genie is supported by a growing collection of sales and services and is an effective vehicle for offering a comprehensive set of every-day living applications within the Alibaba ecosystem,” the company said.

In January, Alibaba’s Institute of Data Science Technologies (iDST), its AI research arm, developed a deep-learning neural network for natural language processing that scored higher than humans on a Stanford reading-comprehension test, the first time a machine has outperformed humans on such a test. “This development underscores Alibaba’s commitment to technology research which we believe builds the foundation for our growth in the long run.”

Ant Financial: Alibaba Group agreed to take a 33 per cent equity stake in Ant Financial that will strengthen its strategic relationship pursuant to the series of agreements reached with Ant Financial in 2014. “We believe deepening our relationship through an equity stake in Ant Financial will bring key strategic benefits to us, including advancing our New Retail strategy with mobile payments, increasing user acquisition and retention through collaboration with the Alipay digital wallet (Alipay Wallet), and enhancing the execution of our international expansion.”

The number of Alipay Wallet’s daily active users more than doubled during the quarter on a year-on-year basis.

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