Nov 1, 2019
Operator
Good day ladies and gentlemen. Thank you for standing by.
Welcome to Alibaba Group's September Quarter 2019 Results Conference Call. At this time, all participants are in listen-only mode.
After managements' prepared remarks, there will be a Q&A session. I would now like to turn the call over to the Rob Lin, Head of Investor Relations of Alibaba Group.
Please go ahead.
Rob Lin
Hello everyone and welcome to Alibaba Group's September quarter 2019 results conference call. With us are Daniel Zhang, Executive Chairman and CEO; Joe Tsai, Executive Vice Chairman; Maggie Wu, Chief Financial Officer.
Joe Tsai
Thanks Rob. Thank you all for joining us.
In past earnings calls, we have kicked off company management remarks with my overall observations on strategic issues or macro trends. Starting this quarter and going forward, Daniel Zhang who has assumed our Executive Chairman role will deliver the overall strategic and macro state of affairs as well as his usual discussion of business operations.
I will continue to make myself available for Q&A after our prepared remarks. Daniel please go ahead.
Daniel Zhang
Thanks Joe. Hello everyone and thank you for joining our earnings call today.
In September, Alibaba just celebrated our 20th anniversary. We truly appreciate our shareholders' support in the past years.
Today, I'm honored to speak to you in the role of the Executive Chairman of Alibaba Group for the first time. I would like to take this opportunity to share my thoughts about the opportunities and our strategy over the next several years.
Our mission has not changed since day one. It is to make it easy to do business anywhere.
Today, our consumers, merchants, and partners are entering a new journey in the digital era. We will continue to create value for them by leveraging the power of data technology to make it easy to do business for them anywhere for the decades to come.
We have set a goal for the near-term to serve over 1 billion consumers and achieve at least RMB 10 trillion consumption by fiscal year 2024.
Maggie Wu
Thank you, Daniel. Thank you all for joining us.
We had another strong quarter. So for today's call, I will start by going over financial highlights and end with how we view the coming quarters.
Now let me go over the financial highlights. In the September quarter 2019, we delivered another strong quarter of user growth with mobile MAUs reaching 785 million, up 30 million compared to our June quarter.
User engagement continues to improve with mobile DAU growing faster than MAU. In the first six months ended September, the Taobao app's DAU growth accelerated as a result of healthy organic traffic growth, effective user targeting and increasing engagement with interactive and entertainment features.
For the September quarter, annual active consumers on our China retail marketplace reached 693 million, which increased by 19 million compared to our June quarter.
Rob Lin
Operator, we're ready.
Operator
Your first question comes from the line of Alicia Yap of Citigroup.
Alicia Yap
Hi, good evening. Thanks for taking my question.
Congratulations on the strong quarter. My question is related to the upcoming Singles Day this year.
So does management view this as any big difference than the previous year? For example, in terms of the countries and the platforms that will be participating in the event.
And in terms of product category any specific product that management believe will be a big traction for consumer? And it also seems like, there will be so many platforms throwing more discount to consumer this year.
So do you think that the consumption demand will be there to -- the spending and allow all the platforms to win and gain? So any colors on the upcoming event would be helpful?
Thank you.
Daniel Zhang
Thanks. This is Daniel.
Let me answer this question. I think everybody understands that we are approaching to the 11.11 Singles Day, 11.11 day.
So after the past 10 years' efforts, I think first of all, I think this November 11 has become a consumer shopping day. And people widely recognize that shopping day and that's why we have a very organic momentum to -- for the consumers to enjoy that day.
So people are ready to shop on that day. So basically this is a habit people form in the last 10 years.
The other side of the coin is the supply. And after 10 years' efforts and all the merchants all the brand companies retailers they are actively preparing for this upcoming Shopping Day -- Shopping Festival.
So they will provide the best products with best price and services to the consumers. And commercial wise, they view this as more like the commercial Olympic Games and everybody want to be the champion in their sector.
So that's why we gather momentum from both demand and supply side. And this year I think all the category we have many new tailor-made products for this November 11.
And we even worked with many brand companies to tailor-made products exclusive for November 11, but with limited edition. So this is not only a shopping day but also a marketing day for brands to market their brand and also engage with new customers.
In terms of the market, I think not only China, but also our cross-border and international marketplaces Lazada and AliExpress both of them will participate in this shopping festival. But we localize the operation to meet the local demand of the customers.
But we do see the synergies in terms of the product supply because most of the supplies from China can be consumed by the people in other markets as well via cross-border export. And we apply many, many new technologies into this November 11 preparation.
And so far we see a very, very good progress in terms of the Walmart activities. And we -- interactive features we created in our mobile Taobao app and other mobile apps in Alibaba ecosystem.
We -- so far we have achieved a very good user engagement for this upcoming shopping festival. So what we are -- we are ready for that day and we will do all we can do to make sure we have another success on that day.
Thank you.
Alicia Yap
Thank you.
Operator
Thank you. Our next question comes from the line of Eddie Leung of Bank of America Merrill Lynch.
Please go ahead.
Eddie Leung
Hi, good evening. Thank you for taking my question.
I'm curious to hear your thoughts on the competitive environment you see today in the less-developed areas versus a few years ago when you competed in the Tier 1 two cities. At the moment, it seems to us that one similarity is the heavy discounts on certain standardized products.
So just wondering how do you compete differently today versus a few years ago? Thank you.
Daniel Zhang
Well actually, if you look at our customer base today and we have nearly 700 million I mean annual active consumers -- 693 million annual active consumers as of September in our China retail marketplaces. These customers not only come from the top tier cities and many, many of them are from low tier cities.
So we have the wide coverage. And I think for -- today I think for the new customers on our platform and our advantage is that we have the rich -- we have a rich, we have in-depth selections covering all the categories, covering all the price point, price range which is available for all the customers So in this case technology play a very important role in terms of matching the right demand with the right supplies.
So, so far as I shared with you in my script for the new customers on our platform within one year, we saw very, very robust growth in ARPU. And that's a very good signal for us to show the power of our platform.
And I will say and for the newcomers, they may spend a lot of so-called marketing dollars to subsidize the customer subsidize the merchants. But the marketplaces, I always believe that the key thing is generate sustainable value for both merchant and customers.
And as a platform, if the bar is set as they transact between each other, but as a platform, you always subsidize. I don't see this as a sustainable model in the long run.
I'm sure all the investors will agree with this. And from our side, we invest to acquire new customers as we always do and so that's why we see a very robust user growth.
And we add another 30 million MAU in this quarter, but we care more about the retention of the customers. And so technology play -- will continue to play a very important role to improve the stickiness of the users.
Eddie Leung
Understood. Thank you, Daniel.
Operator
Thank you. Our next question comes from the line of Binnie Wong of HSBC.
Please go ahead.
Binnie Wong
Hi. Good evening management.
Thank you for taking my question. My question is also on the less developed market strategy.
I recall company disclosed the percentage of new users coming from low-end has been over 70% in the past several quarters. Just wonder if there's any update.
And also with you expanding into the lower-tier products, how do you see that our Taobao or Tmall merchants are spending on their advertising budget would behave differently? And I guess also a quick follow-up on Maggie's comment on the 25% cross-selling on the local consumer services.
How do we tap in -- what is our strategy to tap into the incremental to 75% the cross-selling from our China retail marketplace into our consumer services? Thank you.
Maggie Wu
Okay. In terms of the low-tier user add, overall we're still showing very strong in the user acquisition.
So after several quarters of strong acquisition from lower-tier cities, if you look at users coming from lower-tier cities as a percentage of total, it come down a little bit. But I think overall, it's very strong.
We're not only acquiring users from lower tier; but on the top tier cities, we also continuously to add consumers. I think one thing that's very important is that, it's not only the user growth, but also the ARPU growth that's very healthy.
And one more thing that's very important is the retention. So as I talked during the Investor Day, if you look at our customer's retention, it's very high.
Take an example of our high-end customers who spend over RMB 10,000 per annum. There are like over 100 million of them, 130 million actually for this year.
And then when you look at the percentage staying on our platform, it's like 98%. So that gives you a sense that we're -- that's not only fast growing, but a more balanced more healthy growth.
Rob Lin
The other question was about cross-selling to the other 75% of the user.
Daniel Zhang
I think this is the synergies we are in the process of realizing in the local consumer services and we have integrated consumer marketplaces. And today 25% of the China -- AAC annual active users from the China retail marketplaces are the users' purchases in local services.
We see huge synergies to improve this penetration. So that's why we make continuous efforts to integrate our product and our technology infrastructure to make the whole platforms, entire platforms in Alibaba digital economy fully integrated.
And going forward, we will continue to have more -- to strengthen our supplies from the local cities to have more coverage in the local cities to make sure we have the good supply to the local base -- to the location based consumers which we know very clearly about their profile.
Rob Lin
And the one other question was the ad spending of the Taobao or Tmall merchants in the lower tier cities. How do we target them?
Maggie Wu
I think the fundamental is still user growth and consumer experience. And then like we said several times in the past that our model is that merchant they themselves make decisions on how much budget they want to allocate to the platform.
And they bid for the price they are willing to pay. So that's -- if you look at our revenue growth, it's the ultimate proof of the value we provided to not only the consumers, but also the merchants.
So I think it's not the lower tier city merchants across the country right or the brands I think they have been making decisions to have the budget and increase their spending on our platform.
Binnie Wong
Thank you.
Operator
Thank you. Our next question is from the line of Grace Chen of Morgan Stanley.
Please go ahead.
Grace Chen
Thank you. Thank you for taking my question.
My question is about the differences in Alibaba's approaches to capitalize on opportunities in the affluent middle-class and urbanization/low-tier cities. It will be great, if the management can talk about the differences in the consumer behavior and preferences in these two segments and thus your strategies and also the differences in the compelling landscape in these two segments.
If possible, can you use the upcoming 11.11 promotion as an example to elaborate your strategies, especially in the less developed regions? And a follow-up is that we see the growth of users have been coming from -- the incremental user growth have been coming from the less developed areas?
What will be the implications on the financial numbers or cost structure with more users now coming from less-developed areas? Thank you very much.
Daniel Zhang
Well I will say, if you look at the users' habits from different tier cities, I think it is highly relevant to their local lifestyle and their addressable income. So but I think in the different shopping events like especially like November 11, I think all the people want to get their best products even from the -- maybe some of them they don't spend their day-to-day on the brand products; but in the shopping festival they will because of the good prices and the good products available on the platform.
So most people will try to explore the branded products. But at the same time I think for the day to day necessities for a lot of categories which are not focused, people make shopping decisions don't focus on brands, so people will care more about their functions and of course the price advantage.
So that's why we strongly believe the technology is so important to reflect this customer needs on a real-time basis. So I think that's the important successful factor in both the day-to-day operation and also in the big events like November 11.
Maggie Wu
In terms of the spending from the lower tier cities and high end. So I talked about the high-end consumer spending pattern very strong spending power and higher retention.
Lower-tier cities, we actually observed that the ARPU from the lower-tier city customers are not as low as people imagine. The spending I think is more tied to the user experience or the consumer experience.
And experience also includes that they can find whatever they want. So we talked about the product supply, different supplies and we talked about segmentation of the consumption.
I think we have addressed that very well in our Taobao app different demand from different level consumers.
Daniel Zhang
Next question
Operator
Thank you. Our next question is from the line of Zachary Schwartzman of RBC Capital Markets.
Please go ahead.
Zachary Schwartzman
Great. Thank you.
Profit growth trends across the business as a whole and on the core, core marketplaces have stabilized or even accelerated. I guess giving you some more flexibility as you said in discretionary investing to strengthen your strategic moats.
Maggie, can you -- more on expense discipline and operating efficiencies as you expand some of the recently integrated businesses in core commerce? And just to confirm was there any change in priority here with your final comments in your prepared remarks for the second half of the year?
Thank you.
Maggie Wu
Yes. I mentioned that we're going to focus on three key things, right.
Improved user experience is always the most important thing. And this will result in higher engagement and customer spending.
And, so I also talked about reinvesting back to these competitive areas. Just like what we did in previous years to expand our B2C market leadership, I think we have been very successful on that round of reinvestment and expand our market share.
So we're going to continue to do that in these strategically important areas. And number three, I also talked about the discipline, right the operating efficiency.
I think it's very important. Because Daniel mentioned that we don't believe continuous subsidizing or just tremendous spending in the marketing would bring sustainable business.
We're going to be smart spend our money and continue to focus or emphasize on operating efficiency.
Joe Tsai
Yes. And also Zachary I just want to address sort of the seeming conflict between expense, operating efficiency with discipline versus being aggressive in reinvesting our profits into strategic areas that are discretionary.
I'll give you an example. In terms of acquiring new users for example, in lower-tier cities we can now acquire users in our -- for the Taobao channel retail marketplace.
But the same user could also potentially be a user for our local service business. So we only have to spend the marketing dollars once to acquire that user.
But then use our cross-selling with our multiple platforms to further penetrate those users that have not used for example local services before. So the discipline is a result of the synergies, because we have multiple platforms and multiple services targeting the same user base.
And that creates -- those synergies create operating efficiencies. But we could be at the same time aggressively investing into the lower-tier cities.
Daniel Zhang
Next question
Operator
Thank you. Our next question is from the line of Alex Yao of JPMorgan.
Please go ahead.
Alex Yao
Hi. Thank you management for taking my question and congratulations on a very strong quarter.
I would like to follow up with the previous question, specifically regarding Maggie's comment that you guys plan to reinvesting the discretionary profit in the second half backing the strategic areas. I think if we take a look at your first half financial results, the financial impact from new initiatives under core commerce continue to be narrowing, which leads to very strong profit growth.
So should we think that you will be incrementally more aggressive in those initiatives in the second half such that the financial result trend in the first half cannot be extrapolating to the second half? And also can you talk about your priorities across the four initiatives i.e.
local consumption, international logistic and new retail? Thank you.
Maggie Wu
Sure, Alex. Firstly, I want to highlight again to our investors that if you look at our revenue growth and profit growth both are very strong way ahead of almost all of our global peers.
So we do have this luxury if you recall to reinvest, because strong core and very good management of -- managing the business. And so talking about the second half, in those strategic areas like things like local consumer service, things like globalization and also the DME, also logistics, we're going to continue to invest.
At the same time, if you look at the competitive landscape, right, so we've seen competitors have been very aggressive investing in the China retail commerce business also in the local service businesses. So it's not reactive to competition.
But also for our own to expand the user base also to deploy this user base, we're going to -- it's a good time for us to reinvest. And profit trend, et cetera, although we don't guide on profitability but I've mentioned that we do care about the efficiency of the business and also the profit growth.
So I think this is a very important measure among our senior management of the business growth. I think the prioritization of the investment will result on this our PPT, the investment areas.
I would say that these areas are equally important not only the cloud and the DME but also the local consumer service and the -- like logistics, new retail and globalization.
Daniel Zhang
Next question
Operator
Thank you. Our next question is from the line of Gregory Zhao of Barclays.
Please go ahead.
Gregory Zhao
Hi. Very strong quarter.
Thanks for taking my question. I have a question to Daniel.
So as you highlighted during the prepared remarks and at the Investor Day, so BABA is enhancing the digital economy strategy and then you split it the economy into two groups, to consumer and to business segments. I mean given the difference between the two business, the nature, I just wanted to understand more about the execution and how do you coordinate between the two segments.
As well globally we see several successful examples like Amazon, like Microsoft. And how's your strategy different from these peers?
And also a very quick follow-up on the Singles Day, so we see some delivery companies announced to increase delivery fee during the 11.11 promotion this year. So, can you can help us understand what's the implication to you and your competitors?
Thank you.
Yong Zhang
Okay. I think the first one is a very good question.
I think when we said that, we are -- we're having two flying wheels 2C strategy and 2B strategy, I think these two strategies are relevant to different type of businesses, which requires different skill set and even DNA of the team. So that's why we said Alibaba is in a digital economy, which have a diversity of these skill set of people, and even the way of working.
So from a consumer business, as we always said, we encourage young people to take more responsibility to innovate the product features, which fit for the needs of the young customers. So, we always do this bottom-up on the innovations.
But for the enterprise services and actually, the past 10 years efforts' in Tmall we already built an enterprise services model like to some big brands and retailers. And now we roll this over to more categories even into cloud services to corporate clients, and we have already built a very good team in terms of the cloud services and also to integrate multiple services from Alibaba to one corporate client.
So we will continue to do so, and we believe to have two flying wheels 2C and 2B, but with a good connection and with a good chemistry is the core value of Alibaba, and the core competitive advantage of Alibaba. And in terms of the logistic companies performance – pricing strategies in November 11, I don't – so far I don't hear any – I mean big pricing change policy change from our logistic partners.
Actually, we are working very, very closely with all these logistic partners and we prepare for a long time to make sure we have the right capacity and the right service available for the upcoming shopping event.
Gregory Zhao
Thank you very much.
Daniel Zhang
Next question.
Operator
Thank you. Our next question is from the line of Tina Long of Credit Suisse.
Please go ahead.
Tina Long
Hi. Thank you very much for taking my question.
Congratulations again on the results. I have one quick question on the live streaming.
As the format of live streaming gets increasingly popular, can you give us update on the GMV contribution for this format in first half this year? And also, I want to understand the monetization for this format, especially when the live streaming is native versus those from third-party sites like Douyin and Kuaishou.
Thank you.
Maggie Wu
Sure. Live streaming, if you look at the GMV side, this is already what we call this new swimming lane that generates over RMB 100 billion GMV per annum.
So, if you look at our – the merchants who have been using this service over 50% of them are using live streaming. So this is a very popular and value added service to these merchants.
And in terms of the monetization, we haven't really started. They're in very early stage tests.
So there are multiple ways we can monetize the service. And we'll give you an update when we start for monetization.
Tina Long
Okay. Thank you.
Daniel Zhang
Next question.
Operator
Thank you. Next question is from the line of Jerry Liu of UBS.
Please go ahead.
Jerry Liu
Hi. Thank you for your time.
I have two quick ones. One is at the Investor Day we talked about multiple new revenue drivers whether that's live streaming at the secondhand platform.
Just thinking ahead into next year as we look at these opportunities in addition to the feed is the feed still the primary one we're looking to monetize? Are some of these other opportunities also possible as we head into next year?
Thank you.
Maggie Wu
Sure. In terms of growth driver, as I mentioned happy that you heard that we have so many new business and services that already generate quite big size of business.
And they are opportunities for us to monetize these businesses such as Idle Fish, the biggest secondhand platform in China, and also like our live streaming platform also like Taobao Factory. If you look into next year, yes, we do have opportunity where I should say, it's possible that we start to monetize, because these are necessarily big businesses that we can start thinking about that.
Monetization on the recommendation fees, I think the way we look at this is that like we have been always doing where we tend to rather under monetize than over monetize. We already have a test and extended a little bit on the test on monetizing recommendation fees.
But whether, we're going to expand it we'll see and decide later on. Overall, we already have shown 40% year-on-year revenue growth right so for the past two quarters.
And our guidance shows like a 30-ish, which is way ahead of a lot of our global peers. So, we're going to have a more balanced approach on monetization to look after consumer experience merchants' ROI as well as our revenue growth.
Jerry Liu
Thank you.
Daniel Zhang
Next question.
Operator
Thank you. Our next question is from the line of Youssef Squali of SunTrust.
Please go ahead.
Youssef Squali
Excellent. Thank you.
Two quick questions. First, can you provide us with an update on the food delivery traction in lower-tier cities?
Maybe number of cities and the competitive intensity there? And second kind of a broader question for either Joe or Daniel.
We've seen some conflicting data on the Chinese economy recently. NBS for July and September suggests a slowdown in the economy in general.
And even online this morning, there was a new private survey that showed actually manufacturing expanded, I think in October much faster than expected. So, just what do you make of it?
And just generally how much of a predictor is this of demand for BABA's services particularly for us looking at this from the outside? Thank you so much.
Daniel Zhang
Let me answer the first question. Actually, in the local service food delivery business actually, we are expanding our coverage in the lower-tier cities in terms of the local suppliers.
In the past one year, we've already successfully expand to many low-tier cities but I think that's not enough. We'll continue to do so to strengthen our supply, which we believe very important in the local service business.
We have huge advantage in the consumer side and we can leverage a lot as we said in the digital economy in terms of the cross sell to the consumers in the ecosystem. But I think that from the supply side, we have done a lot.
And so far we see very good I mean, opportunity and very good trend, if we have the right supply in a particular region. But we will continue to do so and have a more strong local supply.
Joe Tsai
Yeah. On the question about sort of whether the total macroeconomic data is a good predictor of Alibaba's performance, well, I think you have seen that we have just multiple quarters where Alibaba's business outperforms the whole economy and even outperforms total retail sales.
So, currently we're looking at total retail sales growing at around 8% and yet e-commerce based on the NBS data is growing in the high-teens in the latest data that's available. Alibaba's growth is -- we're outgrowing the entire retail sector as well as the e-commerce sector.
I think there's a secular trend. Obviously, e-commerce is taking share away from the traditional retail economy.
So Alibaba is very much driving that secular trend. But vis-à-vis peers we're also outgrowing the peers in e-commerce because now as Daniel has referred to many times, we are getting synergies from a few areas.
Number one, technology. Being able to match a variety of product supply in different formats and also different types from standardized products to long-tail products, our technology will match the right products to the right consumers.
That is giving us a leg up vis-à-vis competitors. And the other area of synergy is that now we have close to 700 million annual active consumers in our China retail marketplace that we're able to do the cross-selling of additional services like local services and entertainment to our base of close to 700 million active consumers in the China retail marketplace.
So these synergies are now starting to come through and that's also giving us an advantage over our peers.
Youssef Squali
Okay. Thank you.
Operator
Thank you. Our last question comes from the line of Piyush Mubayi of Goldman Sachs.
Please go ahead.
Piyush Mubayi
Thank you for taking my question. Maggie on the points you made about improving user experience that will result in higher engagement and customer spend -- the customer spend exactly, can I just ask where you are on user experience in terms of how you are defining that and where do you want to take it?
And second, does that not mean and I know that you talked about the seeming contradiction here, where does this -- what does this mean for the ability for you to control or to bring down your spend in particular in the second half? And there was a specific word you used there that was aggressively reinvesting.
Just wanted to ask why that word aggressively was used and I'm sorry I'm being very picky. Thank you.
Maggie Wu
That's fine Piyush. So in terms of the user experience, we have many measures actually.
But on the ones for your easy understanding that we see user expansion first of all is word of mouth. Besides our marketing activity there is also word of mouth and more importantly is the user retention and also user spending and also users' time spent on our platform, and also cross-platform time spending by the users.
So there are many ways. And the other matters you might be interested in is the conversion, right?
Its how many just users convert into buyers and then the buyer convert into the repeated buyers. And then the loyal customers where we have 88 VIP members on our platform who actually -- spending level's very high.
So this is what we're very happy to see. And in terms of our spending and why we used aggressively -- I think okay this is a question very interesting.
I thought about this. If I -- if we say we're very disciplined in spending, right, some people may be worried about you might lose or you might give more room to the competitors, because they're spending very aggressively and you're emphasizing on discipline.
But if we're talking about aggressive spending then other people are worried bout how this is going to impact your profit margin, et cetera. So actually this is a game that we play every day.
It's a decision we need to make every day. So this -- we're -- first of all when you look at our strong profit growth that gives us the bullets as well to fight.
So we do have a very strong profit and cash flow to invest. And secondly, while in the past several quarters, you've seen the efficiency out of our platform when you look at the market spending as a percentage of revenue, when you look at SG&A and when you look at all of this spending as a total revenue, we have very good control on the spending.
And we measure ROIs at very different levels. So I think today we still see the potential in so many areas.
And we do believe, we have -- we are the ones that have the best -- in the best position to extend our service across all of these areas in commerce and to help merchants and consumers. So I think we're in a good position to spend.
Aggressively, I think we have said that several times like in the past year when we expand our -- when we investment in our cost business we talk about aggressive spending. When we invest into our B2C business, we always talk about aggressive spending.
The key thing is that we spend aggressively, but the return should be ensured. So that's our thinking on that.
Joe Tsai
I think what Maggie means is simply that we can afford to be aggressive when we want to be. And there's -- market conditions may change from quarter-to-quarter but we have the luxury.
So if you look at our quarterly earnings before interest tax and amortization, the EBITA measure this quarter we have RMB 45 billion of EBITA and we're taking about 15% of that number to aggressively invest into the core commerce areas like local services, international, New Retail and logistics. And so we could be very aggressive, but still just spend 15% of our EBITA in those core areas.
I think, we simply mean we've got the luxury to do that.
Maggie Wu
Right. While some companies spend like 50% of their revenue in the marketing.
Rob Lin
Okay. Thank you, everyone.
That was the last question. And if you have any questions feel free to reach out to the Alibaba IR team.
Thank you.
Operator
Thank you. Ladies and gentlemen, that does conclude the conference for today and thank you for participating.
You may now all disconnect.