Alibaba delivered second quarter with 61% revenue growth, a net increase of 17 million Taobao MAUs to 634 million, and a decrease of 54% in income from operations, according to its financial results for the quarter ended June 30, 2018.
Alibaba’s revenues for Q2 2018 totaled 80,920 million yuan (US$12,229 million), an increase of 61% year-on-year. Specifically,
- Revenue from core commerce increased 61% year-on-year to 69,188 million yuan (US$10,456 million)
- Revenue from cloud computing increased 93% year-on-year to 4,698 million yuan (US$710 million)
- Revenue from digital media and entertainment increased 46% year-on-year to 5,975 million yuan (US$903 million)
- Revenue from innovation initiatives and others increased 64% year-on-year to 1,059 million yuan (US$160 million)
While income from operations was 8,020 million yuan (US$1,212 million), a decrease of 54% year-on-year, which was due to a one-time increase in share-based compensation expense related to Ant Financial’s awards to the employees.
Net income attributable to ordinary shareholders was 8,685 million yuan (US$1,313 million), and net income was 7,650 million yuan (US$1,156 million), representing a year-on-year decrease of 41% and 45%, respectively. Adjusted EBITA for core commerce was 32,797 million yuan (US$4,956 million), an increase of 22% year-over-year, representing a margin of 47%.
In June 2018, Taobao App had a quarterly net increase of 17 million MAUs on China retail marketplaces to a total of 634 million MAUs. Annual active consumers increased 24 million to 576 million for the 12 months ended June 30, 2018. Around 80% of the increase in annual active consumers were from lower-tier cities.
Taobao App provides a unique shopping experience with new, innovative content formats and intelligent personalized recommendations. Live-broadcast feature continues to be a fast-growing consumer social media engagement medium on the Taobao App.
Live-broadcast MAUs have grown over 100% year-over-year. Formats such as curated posts, short-form videos, and live-broadcast events continue to help brands engage with their customers on the platform, which in turn, drives purchase conversion and increases annual active consumers.
In early August, Alibaba launched “88VIP”, a new loyalty membership program to enhance consumer engagement and loyalty.
The exclusive membership offerings and privileges across the Alibaba ecosystem include discount savings on Tmall Supermarket, Tmall Global and brand stores on Tmall, coupons for consumer electronics, subscriptions to Alibaba’s video-streaming platform Youku and music-streaming platform Xiami, online movie tickets on Taopiaopiao, and on-demand delivery service from Ele.me.
Tmall continued to gain wallet share and expand its B2C market leadership. Excluding unpaid orders, physical goods GMV grew by 34% year-on-year in Q2 2018.
Tmall gained further mindshare among domestic and international brands as the leading brand-building and distribution platform that is capturing increasing consumer exposure and spending by users in China.
During the quarter, international brands such as MCM, Moschino, and Giuseppe Zanotti launched flagship stores on Tmall and joined the Luxury Pavilion, the customized and premium shopping experience for consumers.
Execution of Alibaba’s New Retail strategy is driving a substantial transformation of the traditional retail industry by digitizing store-based operations, with a focus on in-store technology, on-demand delivery, inventory tracking, supply chain management, consumer insights, and mobile payments.
Hema, Alibaba’s proprietary grocery retail format, continues to expand its store network, introduce new initiatives to enhance consumer experience and enable its retail partners to accelerate their digital transformation. As of June 30, 2018, there were 45 self-operated Hema stores in thirteen cities in China, primarily located in Tier 1 and Tier 2 cities.
Alibaba Group’s cooperation with Sun Art (in which Alibaba hold an approximately 31% effective equity interest) continues to deepen as Sun Art stores adopt Hema’s technologies and services including on-demand delivery, joint procurement, and supply chain management of fresh food offerings.
During the quarter, Hema and RT-Mart (a business unit of Sun Art) established “Hexiaoma” (a.k.a Small Hema) to jointly explore multi-format store expansion in the lower tier cities leveraging RT-Mart’s strong supply chain capability and Alibaba’s data technology platform.
In August 2018, Alibaba Group and Starbucks Coffee Company jointly announced a comprehensive strategic “New Retail” partnership that will enable a seamless Starbucks Experience and enhance the way customers enjoy their coffee.
Under the partnership, Alibaba will begin to deliver Starbucks coffee to customers through its food delivery unit Ele.me, launch new “Starbucks Delivery Kitchens” dedicated for delivery order fulfillment with Hema, and co-create a virtual Starbucks store presence on multiple Internet platforms operated by Alibaba to deliver a personalized online Starbucks Experience for Chinese customers.
Alibaba also bought into Focus Media to find New Retail synergy.
In May 2018, Alibaba completed the acquisition of Ele.me, one of the leading online food delivery platforms in China.
Ele.me and Koubei, a leading local services platform focused on in-store consumption in China, work together to provide a comprehensive local services offering that is core to Alibaba.
Its plan is to aggressively invest in these businesses to gain market share and execute deep integration into the ecosystem of Alibaba service offerings, such as incorporating local services users into the new 88VIP, as well as delivery support to mom-and-pop convenience store operators on Alibaba’s Lingshoutong (LST) platform and Hema supermarket stores.
As part of Alibaba’s eWTP initiative, Cainiao is cooperating with the Malaysian customs at the regional e-commerce hub near the Kuala Lumpur airport, the first eWTP hub outside of China, and has improved the customs clearance capability.
In addition, Cainiao announced in June 2018 that it will lead a joint venture with China National Aviation Corporation (Group) Limited and YTO Express that will invest approximately US$1.5 billion to build a world-class digital logistics center at Hong Kong International Airport.
This landmark property, leveraging leading technologies such as automated warehousing and temperature control solutions, will be a connection and routing point for ground transportation in the Pearl River Delta, one of the most important regions in China.
In May 2018, Alibaba and Cainiao led a US$1.38 billion investment for an approximate 10% equity stake in ZTO Express, a leading and fast-growing express delivery company in China. In connection with this investment, Cainiao and ZTO will deepen their collaboration in the transformation of China’s logistics industry amid the growth of New Retail.
Revenue from Alibaba’s international commerce retail business reached 4,316 million yuan (US$652 million) in Q2 2018, increased by 64% year-on-year.
Lazada has developed a clear plan to position its business into three segments: C2C marketplace, branded flagship store mall (LazMall), and cross-border e-commerce (LazGlobal).
Launched in June and July in most of the countries where Lazada operates, LazMall is a new platform tailored for brands’ official and/or certified stores that offer premium services and guarantee product authenticity. LazGlobal will connect consumers in Southeast Asia with Taobao Collection businesses and sellers from other countries where Lazada does not currently have a presence.
Cloud computing revenue grew 93% year-on-year to 4,698 million yuan (US$710 million), driven by both revenue mix towards higher value-added products and services and robust growth in paying customers.
In Q2 2018, Alibaba Cloud’s product innovation focused on big data analytics, artificial intelligence, security, and Internet-of-Things applications. As part of deepening its relationship with customers, Alibaba has launched products that enable customers to achieve fast, cost-effective, and secure data migration from on-premise data centers onto the public cloud.
For example, enterprises can leverage Lightning Cube, Alibaba’s cloud migration solution that enables uninterrupted migration of petabyte-scale data.
In this quarter, Alibaba Cloud continues to deepen cooperation with customers in a variety of industries. Selected large enterprise customers and major partnerships include:
- Minsheng Bank is the first major bank in China to successfully adopt a financial cloud with distributed core account architecture that is equipped with a disaster recovery system. Four months since the launch of the new financial cloud, it has improved processing efficiency that is three times higher than that of the original core system.
- China Communications Construction Group (CCCG), one of the largest engineering and construction companies in China, is leveraging Alibabba’s middleware and public cloud services to improve its supply chain management efficiency in design, construction, and operation of infrastructure assets such as highways, high-speed rail, airports, and marine ports. By working with CCCG, Alibaba has further penetrated into the industrial and construction sector.
- IHG® (InterContinental Hotels Group) is leveraging Alibaba Cloud’s hybrid cloud solution, compliance and security services to provide on-demand room booking and related business for its global guests in Greater China.
Digital Media and Entertainment
In Q2 2018, Youku partnered with China Central Television (CCTV) to stream all 2018 FIFA World Cup games to hundreds of millions of fans in China. During the tournament, Youku users accessed 180 million unique devices, including mobile devices and smart TVs, to watch the games.
Alibaba Group delivered unique consumer experience by integrating a broad range of service offerings from its ecosystem, including red packet promotions from Taobao and Alipay as well as late-night delivery services from Hema and Ele.me.
Alibaba Cloud’s proprietary technologies delivered high resolution and low latency lives streaming of World Cup games on Youku, with peak concurrent viewers exceeding that of the most watched program during Chinese New Year. During the quarter, Alibaba’s World Cup programming and ongoing improvement of video content offerings led to daily average subscriber growth of 200% year-over-year for Youku.
Innovation Initiatives & Technology Development
Tmall Genie, Alibaba’s AI-powered voice assistant, achieved sales of 5 million units since its official launch just a year ago. Tmall Genie is Alibaba’s gateway to link customers with new services and experiences to be generated by IoTs and Smart Homes.
Also read: China’s mobile payment to reach 650 million users in 2018