Q3 2020 Earnings Call
[music].
Good day, ladies and gentlemen, thank you for standing by welcome to Ali Baba Group December quarter to double 19 results conference call.
At this time.
Insight into listen only mode.
After managements prepared remarks, there will be a question and I'll just session.
I'd like to turn the call over to Mr. Rob Lynch Hate US Investor Relations also other group. Please go ahead.
Good day, everyone and welcome to Ali Baba groups December quarter, 2019 results conference call.
With us today are.
Exactly chairman and CEO.
Showtime exactly chip Vice chairman.
<unk> Chief Financial Officer.
This call is also being webcast from the IR section of the corporate website, a replay of the call will be available on the 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 a current expectations.
A detailed discussions obese risk and uncertainties. Please refer to our latest report on form 20-F, and other documents filed with the U.S.C.C.
Now on the website Hong Kong stock exchange.
Any forward looking statements that we make on this call are based upon assumptions I still today and we do not undertake any obligation to update these statements except as required under applicable law.
No that's a financial measures that we use on this call suggest adjusted EBITDA.
Adjusted EBITDA margin adjusted EBITDA, adjusted EBITDA margin marketplace base Qualcomm's that just kinda talk non-GAAP net income non-GAAP diluted earnings per share.
Yes, and free cash flow expressed on a non-GAAP basis.
GAAP results and Buck.
A consolidation of GAAP to non-GAAP measures can be found in our earnings press release.
Otherwise stated growth with all of the stated metrics mentioned during this call refreshed <unk> growth versus the same quarter last year.
In addition, I want to.
They have one know that today's <unk> session will be conducted.
[music].
Both Chinese and English.
A third party translator will provide a consecutive interpretation for the Q when they session and I imagine what address your question in the language you ask <unk>.
Please note that the translations will come use purpose only in the case of any discrepancy or management steaming.
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Really.
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With that I'm going to pass to Daniel.
Thank you Raul Hello, everyone.
Thanks for joining our earnings call today.
We delivered an outstanding quarter for a strong finish for the fiscal 19 cut into yet.
And the celebrated its three major milestones, especially important all the ballpark.
Sure.
We successfully held all 11.
Global shopping festival.
Second.
We successfully listed on the Hong Kong stock exchange.
So let's say.
I want you chairman of the Oddball boats acknowledge your southern Committee.
First ever representative from the private sector will be appointed as a member of the Chinese.
The company engineering.
However.
All the other companies in China.
We are confronted with <unk>, that's what the event show up to the start up 2020.
The mobile.
Service.
Oh, great having significant impact on sluggish economy.
Potentially affected the global economy.
If you will prevent near term challenge to the development Oddball bus business across the board.
The thing we.
We will see opportunities.
By the forces of change.
If a full but for the elaborating.
I will shirt, an overview of our performance for the December quarter.
According to the try the ministry of Commerce.
Total retail sales calls finer increase but.
8% year over year into southern 19, <unk> total.
41 trade in R&D.
Consumption contributed 58% of China's economic growth.
Good for 3.5 percentage points up trying to GDP cool.
Oh, my retail sales of physical goods for the year was 8.5 true R&D.
Up 19.5% year over year.
From these figures it is clear that consumption has become the major driver.
<unk>, well in China, and only retail fees the engine driving consumption growth.
Over the past quarter, our try the retail occupancy continued to maintain that peak will impose G.N.V. and user base.
As of December 31st.
To consumers.
Several hundred 11 minutes.
Representing a net increased 18 billion over the previous quarter.
Over 60% of new you see coming from let's give up the serious.
Well I noted mutual bulky pitches.
Hey, you reach.
Hi, good and 24 million.
Okay, so things like mid phone from the previous quarter.
We won't get stronger user engagement and the body frequency as measured by do you you're growing foster and they do.
This reflects healthy.
Just because it is possible.
Chemo physical goods GMB growth.
24% year over year.
The consolidating our leadership position at the top consumer engagement and the distribution platform for Brent in China.
Oh 11.
Double 11 Global shopping festival setting new GMB record.
268.4, good in RMB.
This is equivalent to 2.3 times the combined.
Oh on sales of Black Friday, cyber Monday in the U.S.
Well, that's that's trends.
All those digital economy and all.
Hi news consumers robust consumption Paul.
One more merchants.
Leveraging double 11.
Sure acquired new customers.
Each new products and to be about to give other new categories.
During this just November 11.
15, Glenn so popped it wasn't getting foreign beating their single cells.
I'm going to 15 premium brand launched their new caught up a new categories.
400, Twentys all the merchants each.
Over 10, it's all the new customers.
Hello, globalization strategy enjoyed solid progress this quarter.
Rather and all the express continue to grow rapidly as a result pulse effective strategies user acquisition and the merchant Onboarding.
Like all the quarterly orders increased.
87% year over year.
He expressed to me you go by 56% for the month of December.
He more global.
Hey, GSV full by 45% Yep, Yep and continue to consolidate.
Its leading position thing trying to cross border equal markets.
And with the ongoing optimization, Oh bonded warehouse imported logistic solutions.
Chemo global tend to an older people every time.
The improved by 2.7 to eight days, which is a 10% reduction seem to liberate calling compared to the same period last year.
Tri annual network continue to go from strength to stress.
During this November.
11.
Oh, yes processed a record breaking one point something like good at noble packages.
No.
690 million package would deliver within one week.
And in coolant up 30% the overview.
As a result pulp ongoing process.
Optimization and the collective efforts with all of the just partners.
We also saw a preference for using title post.
Our last mile service stations in residential area could ton persist.
A number of cookies collected far talking <unk> increased by 88% year over year.
In November 2019.
We invested 23.3 billion RMB.
We all equity stake seems high yield phone 51%.
<unk>, 53%.
This investment is demonstration of all the ballpark commitment to the development, albeit small logistic. That's all that's one of the coal Pcs of infrastructure for digital Commerce.
All the public cloud continues its rapid rise was 52% year over year revenue growth.
We celebrated two meaningful milestones this quarter.
So first milestone is all public cloud revenue.
Okay.
Hadn't been in R&D seamless single quarter for the first time.
The second most though was the successful migration of <unk> ecommerce business coal systems.
To the public cloud.
Nearly double 11.
Our public cloud infrastructure and technology helped us to powered the creation of over 544 Feldman orders per second at peak.
He said.
Longtime going to 70, petabyte setup without any disruption and its defending against 6 billion cyber attacks.
All within a 24 hour period.
We believe the migration Oddball bus <unk> E commerce system to the public cloud, it's a watershed event.
Not only will we all the so things like wait to operating efficiency, but we couldn't me.
We're also encourage others adopt oh public cloud infrastructure.
No I would like to speak to the CRO November situation.
On the street serious.
First.
Responsibilities and the duties that we assume towards the community immediately upon the outbreak.
Second.
Oh, what really matters to support up in <unk>.
Sure.
Potential challenges and opportunities that we see oddball bus business in connection with the outbreaks.
Let me start with our actions related to our community.
We took.
To protect Hello.
Safety all employees through flexible work policy and the remote office collaboration.
Using our proprietary technology.
At the same time.
The average quality Ballbots poll forces of commerce and technology to deliver suppliers.
Two buckets Richard.
This is our responsibility is all of responsibility for all the community.
She is off to the outbreak.
We also begin to procure medical supplies.
<unk> around the world.
To date.
40 million units of medical supplies works.
400.
68 million RMB on their way.
That being still needed to fund and other affected cities.
Hi annual team up with our global industry partners launched <unk> Foster truck logistic triangle that facilitate deliberate well over 26 million units.
Medical supplies into <unk> and other cities to date.
We also looked cooking shows the quite often and other consumables for the rather than being affected regimens.
I'll, let Phil Oprah grocery chain physical committed a policy remaining open for business.
Raising prices and the remaining stopped.
Particularly things that you think schools close we want.
So we should go because became a lifeline for many local residents.
Additionally, friendship <unk> and <unk>.
As restaurant chains to provide three news I didn't necessities to the hospitals talking on an emergency response teams.
Oh, the ballpark also contributed a pole <unk> best technologies to combat the public.
Oh Kinda me provides free.
Forced trouble service to government.
<unk>.
Epidemic prevention agencies efficiently keeps it daily health record <unk>, those who might have close contact with effective pain patients.
Oh, and because communication and collaboration up things.
Introduced see digital health check in feature.
<unk> companies maintain up to date health monitoring.
Yes.
To date.
They'll have being more than 150 billion daily health Truckings recorded.
Okay.
No about how was the leap measures in support of <unk>.
Together with and financial.
We announced a comprehensive set of the beef measures.
Under six categories.
One.
Oh goodness operation costs Oh platforms.
To finish was supported by leaving for lowering interest rates.
Three.
Subsidy for delivery personnel and the remaining level logistic efficiency.
So.
Vision.
CIBIL job opportunities to guaranteed income.
Five.
Additional tools for businesses to accelerate physical locations.
Six remote remote walking management for enterprises.
We will support our merchants to overcome this try to doing fine and are taking proactive measures.
Our mission to make it easy to do business anywhere.
Lastly.
Potential impact our business.
We are closely monitoring the challenge as well as identified opportunities for all the BOP auspices.
The situation divorce.
For our ecommerce business.
But the late year end quote eat returning to work for the Spring Festival holiday.
Preventing merchants and logistic companies fungus you mean operations.
For the first two weeks after the Chinese new year holiday.
We have observed Neptune pets, <unk> Congress business.
Merchant operations.
It took two novel and a significant number of packages, we're not able to be delivered on time.
Oh, what new retail goodness.
Reshuffle and the coach in golf.
Good.
However, limitations and deliberate capacity.
It's preventing or the volume from 40 recovery.
Well the local consumer services.
Restaurant visits and the food delivery orders decline noticeably year over year, because many restaurants have loved missed your normal appraisals.
Other categories like grocery shopping.
Have increased sharply.
Our trouble bookings silva's Vicki Misty material levels of cancellations for air tickets hotel reservations and the two package.
You know accordance with government regulations.
Legally provided unconditional and the penalty three constellation.
Customers.
People have experienced explosive growth <unk>, you had a number of corporate users.
He is providing business.
Working features to maintain their operations.
So that the up utilization.
In addition.
Simple Olson salt increasing popularity over virtual classrooms that helps.
And the students the soon.
Yes debates Bart live streaming classes.
We are closely monitoring, but inc. pets.
I'll going Oh, Oh, great.
Our business and it will take necessary measures to ensure our business operations.
Our mission is to make it easy to do business anywhere.
We are being tested.
HM two our vision.
We will then together.
Our merchants overcome the current charters.
So that all the user an older communities to FID adjusted the virus.
17 years ago, <unk> E Commerce business.
There was tremendous growth opt to sauce.
Good day.
Diversity will be photos like change.
<unk> among consumers and the prices.
And the green things unique opportunities.
We have observed more and more consumers getting comfortable with taking kill the daily living needs and walking requirements. So digital news.
We are confident.
Ongoing digitalization.
Finally.
Calling me and the society.
And are ready.
You see the opportunity to build the foundation for the long term growth a party bulbous digitally calling me.
No I would tend to go over to Mesquite, who will walk you through the details of our financial results.
Thank you then you. Thank you everyone for joining us.
Before we start I would like to say that our thoughts and prayers go to those families deeply impacted by the Corona virus outbreak.
The end that's my prepared remarks.
I will also share with you our current assessment of de Sac.
Of this epidemic.
So before talking about this quarter's financial results that then give you pickup summary on this a Hong Kong listing.
On November 26.
We successfully <unk> listed on a constant change we offer to 575 million you other insurers with proceeds of about 800 billing Hong Kong dollar where about 13 dealing U.S. dollar Saar shares on multiple times oversubscribed.
We view Hong Kong as strategically important to us. So overall it this is a very successful listing.
So let me review our financial highlights.
We had another strong quarter.
We achieved a strong results for a core calmer segment, reflecting our strategic focus I use acquisition.
And engagement.
As well as you're sensing products therapies, and east increasing our offerings of price competitive products.
Well I mean, you were up 39 million, reaching 824 million and you active consumer our China retail marketplace increased about 80 million to 711 million over 60% of new annual active consumers were from less developed areas.
The increase in consumer growth.
I'd like to continues improvement no consumer secondly initiative.
These initiatives have you well received by consumers.
As evidenced by higher purchase frequency for China retail marketplace business.
When we look at the December quarter revenue, our total revenue grew 30% 261 billion RMB.
Excluding the effects of the consolidating acquired businesses, mainly called <unk> total revenue would still have call it 32% <unk>.
The increase was mainly driven by robust growth, our China commerce retail business and I thought that Claude.
Our accretion continues to run efficiently. So when you look at the quarter cost trends costs expenses aren't well controlled our business have.
Continue to to grow.
So, let's turn to the second they report.
Qualcomm or a continued to be very strong.
Revenue grew 30% 241 billion.
The fundamentals of our China retail business continued to be a very strong and customer management revenue grew by.
22 person in the quarter. This growth was primarily the result, something increased in the average unit price per click and increasing the volume of paid clicks from improving click through rate.
The growth also reflects strong growth in number of paying merchant beyond a quarter.
Commission revenue grew by 16%, primarily due to strong 24% growth of Timo, all and physical goods TMB.
So when you look at the gross for revenue and G.N.V. there is a gap.
And Oh. This is primarily because of two factors number one or more merchants, particularly in the strategically important categories received preferential commission rates.
Second the revenue mix shift within chemo supermarket from commission based around new towards direct sale was.
Continue to having impact so like we are discussing the previous quarter.
As you know in our directions business, we do not receive commissions from third party machines, but rather realized sorry, nomics from a product margin.
The increase in direct sales volume helps us improve our supply chain and operational efficiency quite a business.
China retail auditors revenue. This is a many are a new retail business revenue to growing very strongly 128%. This increase is driven by our directions business, including team on supermarket fashionable.
Well not this quarter is also the first full quarter of consolidation called <unk>, which we acquired September 2019.
International retail.
Now, let's take a look at the details. So I stand you mentioned, we experienced strong growth in our global markets.
<unk> and I think spreads continue to deliver robust growth.
There's an active merchant.
Revenue for international retail business grew 27% to 7.4 being the RMB. The increase is primarily to them back wealthy revenue from Lazada.
So were partially offset by slower revenue close some I'd express because we deconsolidated the Russian business of I'd expressing October 2019 to because we set up this JV a JV with the local partners.
As we reported in <unk> to this quarter so.
So if you look at the Oh, Okay tiny out so fast grows our across baldor businesses.
Supported the increase adoption fulfills the tie no service.
This growth contributed to strong revenue growth for titanium.
In the quarter. Her tenure revenue reached a 7.5 billion RMB growing at 67%.
For a little closer or consumer service revenue grew 40, 47% to 7.6 billion during the quarter. We continued to achieve strong growth in T.N.V. choosing by robust order growth and the increasing average order value.
We will continue to take a targeted and systematic approach to messy local consumers.
Hi, good backlog.
Cloud computing revenue grew at 62%.
Reaching 10.7 billion.
[laughter].
So this is up the first quarter dot com business, a revenue surpassed the to many RMB.
The goal but.
Cloud revenue growth was primarily driven by increased the revenue contribution from both our public cloud and hybrid cloud business.
Let's look at the profitability.
Calmer settlement, we continued to generate strong market based core commerce adjusted EBITDA.
Reached 66 billion RMB.
Well you know 22%.
Comparing to a year ago, we have increased adjusted EBITDA by 12 feeling.
Absolute dollar amount, while the combined losses in our forces <unk> areas, well flat year over year.
This reflects our targeted approach to allocation of resources any mezzanine key strategic growth areas, while also optimizing costs and improving efficiency.
After you cooperating these losses.
Core common such as EBITDA go strongly by 26%.
No. It looked a cloud computing segment adjusted EBITDA was a loss of 366 minutes.
The EBITDA margin improved slightly dealing a quarter.
So that lost machines get narrowed.
Our digital media and entertainment segment.
Adjusted EBITDA loss was 3.3 billion.
This loss has been significantly reduced from six feeling the same quarter last year.
Excluding content impairment impact.
EBITDA losses would be.
1.2 billion RMB, a reduction from 2.8 billion the same quarter last year.
[noise] novation initiatives I test that you'd be takeaway machine you know leashing issued his was a loss over 1.9 billion RMB.
Okay, the free cash flow and capital expenditures.
One is overall continued to show strong profitability and cash flow.
I since December 31st cash cash equivalent and short term investments were 352 billion or approximately 50 billion U.S. dollar.
For the December quarter free cash flow was 78 billion, which increased by 52%.
This is a mainly due to our robust possibility growth as well as a a decrease in cap kept expenditure. This is a kind of seasonal region.
Okay, I guess initial matches the share of profit of other equity initiatives in the quarter reached.
80 to 82 billion reached it sorry, 2 billion, which mainly includes our share of profit from Sunni under after the accounting as soon he completed a transaction related to their finishes businesses that credo onetime gain.
In addition, given we received a 33% equity interest and I see initial on December our September 20, Threerd 2019.
We recorded a share of profit of 250 million RMB from and financials for the period of September 24th to Septimus Energous.
As a reminder, akcea account for a stake in I'd see initial is on a one quarter lag basis as in the case of all our other equity investees.
There was no other income arising from our prior 37.5% profit sharing arrangement with I've seen it shows during this quarter.
It was terminated a in September and replaced by this equity pickup.
GAAP net income during the quarter with 50 billion up 62%.
To reconcile GAAP net income to non-GAAP net income we meet the falling adjustments first.
Mike exclusion of something in between investment gains and others. These gains primarily include a onetime gain related to our contribution to the aliexpress, Russia businesses into the JV, It's wise that gain in the fair value with our equity investments Segun Sakes, who show that additional.
2.2 billion onetime gain related to 33% actually interesting assets that we received in September.
Excluding these gains and losses and certain items, our non-GAAP net income would have increased the but.
<unk>, 56% to 46.5 billion.
Okay.
So now let's take a look at.
Uh huh.
Okay. We've finished a cash flow discussion and that's that's pretty much a.
Her furniture mattress and non-GAAP okay.
Now, let's take a look at this impact from the recent carnivores breakup.
Okay. So we ended the calendar 2019 on the high note. We successfully listed on the hung on site change and deliver strong Sesame salad in December 2000.
19 quarter. The strong proponents continued in the month of January with our <unk> major business, maintaining solid revenue growth.
As Daniel mentioned.
In his remarks summer our major business.
Has been negatively impacted in February due to the Corona virus outbreak and.
Resulting business disruption that followed in most parts of the Connie.
The same time, we have announced together with and financial 20 major initiatives I relief programs to help our customers and partners.
Well, it's too early to quantify this initial impact going up corona burst on our business.
I would have I.
I would like to provide some qualitative observations on the situation.
Okay first let me talk about the not Mako and how we think about this.
That's what happened recently.
Epidemic has.
Negatively impacted overall, China economy, especially the retail on service sectors, while demand for goods and services is there a means of protection in the economy has being hampered psyche late opening of offices factories and stores after lunar new year holiday.
We as other like other businesses are not immune to this imbalance of supply and demand. However, we see this fortunate situation is our community to provide value and support to our customers.
Other to help them recover productions and supply capability as soon as possible.
Their recovery and long term success would translate into sustainable long term growth for Alibaba group.
This is similar to what we experienced unit during the Sars outbreak in 2003.
Okay. So number two let me talk about the what happened not Arpus business. So then you mentioned the appreciable impact I'm sure a series disruption to supply chain manufacture activities and logistic logistics so far in February.
At the same time.
We you know we are supporting our customers that waiving fees and together with a adds financial were providing interest free or lower interest loans.
Situations to help normalize our merchandise operations.
Then talk about the impact because we're only halfway through the March quarter and because it is a you're still uncertain I'm going to about enough. This corona vars. It is really difficult for us to have the achary.
I summation sort of food financial impact for this march quarter, but as of today.
Well, what do we have seen particularly in the past like a 12 certain days since the starting on February.
Our overall revenue growth rate, we believe will be negatively impacted for March quarter.
Some of our businesses that rely on physical means of production on supply side would even show negative to revenue growth for the quarter, such as China retail marketplace and local consumer services.
The overall, we remain optimistic about consumption growth in China and continue to be confident about our long term growth prospects. So whatever we've seen Oh right. Now we believe this is a one off occurrence.
By helping our customers through difficult times, we Andy will emerge even stronger and it will have greater if you needed to drive long term sustainable gross.
With that and my remarks.
So to the queuing they thank you.
Thank you ladies.
Upper before we start slurry might Oh, the else that you can ask the question in Chinese English.
Management will respond to you in the language you asked.
With that operator, let's open to questions.
Thank you, ladies and gentlemen, we would now begin to question and answer session.
If you wish you asked a question now please press star one on your telephone and lights for your name to be announced if you wish you can see every class. Please press the pound they'll hash key.
<unk> people the opportunity to ask questions. Please keep yourself to no more than one question at the time once again, ladies and gentlemen, if you wish you asked a question now please press star one on your telephone.
Our first question comes from the line of Thomas Chunk of Jefferies. Please go ahead.
Hi, Good evening, Thanks management for taking my questions.
Question about the my equation to online as opposed to cool.
Well I'll, let me just high season strategy for the speed up given off my merchants.
Got it doesn't it because it's all going online and data insight.
System.
A question.
Oh, the synergies and local services.
The strategies.
Okay and so.
On top of what do you need to me. Thank you.
Okay. Thank you called.
Oh, I'm, especially with you what she wants to see what do you go when do you know strict why you're not side too. Good went from being do you see on file.
Two scores from Zelman <unk> sharp price, who would like to see.
Yes, no machines, you should go why the chindia.
You should not change when people, who don't go should you form into each [laughter] to should do you want to do yoga once you know to shore.
Well I don't want to give us some young to central to be true football game, a little them up on the accrete should become harder to shifting focus on good I'm pretty sure formula so much either going to shift we Sonia.
So I think it's almost this it then you.
Let me also these two questions well for the first one.
I think good good English Oh boy I think the many many rather than anybody consumers. They change the way all three living and to the off what many offices many.
Work has that changed way of how to work. So people know was a remote remotely from home of.
People Oh by Foods flight fresh products like was raised but find necessities from school.
Thing could this.
The this is a very.
Big Challenge.
The crisis, it very very big try to reach out to the society, but also Oh I just thought you my remarks.
Give people a chance to try new way off living you will work work so.
I think Uh huh.
After.
Oh.
For some Oh, Oh weeks, but this is a dip evitable trend, that's a more and more business more and more customers will have a digital.
Hello.
Digital Coke life, what digital looking styles. So this obviously, we'll we'll see the long term will be good for the digital pace of the whole society.
And before your second question.
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To shoot fish in India with.
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Each time, you I Shudder Honda Toyota Fedex, you should do you shortly the shoes.
How did you too.
Okay for the second question I think a local service.
There are really important sector in consumption. So are you all know got Ali Baba how strong commitment to this sector and Oh, we don't do it. This is they are the business, but we think this is a foundation for the consumption. So I think oh, even though in the previous a month or we.
Happy to have a Simon who are the or the new CEO and financial taking also taking a chairman role of our local so this company I think which.
Okay.
Give us a good chance to up to realize Oh more synergies between already paid and the other local service business and the already paid today.
So starting from the.
Hey, let me tool now is evolving upgrading to a consumer very strong consumer interface.
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Thank you.
Thank you.
Next question.
Next question comes from the line of Eddie Leung from Bank of America. Please go ahead.
A good evening, we shot as a one well she want my job hunting King Kong.
Yeah, we did when he's ones you a t. mountain that <unk>.
I don't try to Daniel can make it to challenge pool, a woman the losing gun Julio tied to just shocked with housing show a casual someone we wouldn't I tunes shoe chose <unk> government Jain job [laughter] College, we keep the peak Lee gum, a woman who died bottom shoes guns hallway each year.
Less developed areas I'm going to shoot show your meal kits <unk> young to eat up function because it feels whole foods wrong, a choppy and I'll go home and Ah, Yes father, <unk> late like a future would appeal process. She much weaker directionally she somebody young tissue.
Oh, Thank you good evening and I'd like to wish everyone well.
I Trust that everybody is healthy.
So my question is regarding scheme on Taobao, we heard both from Daniel and from Maggie.
That there's a an impact.
On both supply and on logistics being brought about of course by this the cooling the virus outbreak.
My question, However goes to the demand sorry, I'm wondering if you're seeing a any different.
Demand for example in different categories or in different markets. For example, first tier cities versus the less developed markets or at least from a a direction perspective could you tell us about any impact you're seeing on demand side for example in categories like clothing or white goods or others acute.
Oh sure <unk> shisha either through.
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<unk>, So you take Oh.
Do you do that the minimum deal. It's a good switching team im going to show so yes.
<unk>.
Well. Thank you very much for your question and also for your.
Best wishes.
The answer is yes, we certainly are seeing some relatively large changes in demand in different categories. For example, in the category, including food and daily necessities fast moving consumer goods.
See relatively rapid growth of course part of that growth is coming.
From the traditional retail steel sector with delivery from a close by sharp [noise].
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Secondly, when you look at categories like clothing, and consumer electronics of course, there's a big challenge there.
Including on the supply side, but also including reduced willingness on the part of consumers to make those kinds of purchases.
Of the epidemic of course, I'm confident that that we turned around.
Situation improves.
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And in terms of regional differences, one new thing that we're seeing in the piece would be epidemic is increased uptick buy online users in the lower tier cities with the luster both regions of China.
In terms of going online to purchase daily necessities, and we think in the long term that will be a favorable trent.
She wishes.
Thank you.
Thank you. Your next question comes from the line it Alex Yao from JP Morgan. Please go ahead.
Thank you management for taking my question and best wishes to.
Working through the challenging environments I read about to.
<unk> was a Maggie your comment about the financial implication to.
The quarter from the current situation or did you say the.
The business or with a strong connection to a physical physical production in the fulfillment it will be decline specifically.
You're talking about China marketplace revenue will be declined from March which Miss your CMR and the commission revenue decline.
So that's the first part is the company's.
I assume this corona virus situation either short sleeve to just like what happened to 2003 phone sauce, how should we be expecting a V shaped recovery or U shaped recovery <unk> anything that prevents the distance it back to normal immediately after.
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I think so for financial impact at a Alex I I talked about so what could impact our our financials for March quarter right. There two things one thing is the Cardinals ours operate impact our own business. The other things out were also offering.
These are really programs to help our merchant okay. So let me talk about overall impact I sent a two things number one.
We estimate that March quarter revenue growth.
Experienced negative impacts.
Which means that a you know the girls it will come down it's possible that growth rate come down significantly. We just don't know yet because this is Ah Ah just uh huh.
You know made a salary.
And and number two I said that the business.
In our Tenda retail marketplace.
These ah crashing related which means tenda retail marketplace, which means hub on timo wishes CMR and commission.
As lies and local consumer service.
Would likely spends negative revenue growth.
So that's to clarify.
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Next question operator.
Thank you next question comes from the line of Beanie wrong from HSBC. Please go ahead.
Hey, again, especially wishes to everyone and hope to situation will into affairs and my questions actually on the local stuff is it a if you look at it lost track to the coal Congress EBITDA right. The line to adjust for the FX and Ah losses in the local services. We see is positive to note that the loss margin percentages actually now ordering so should we.
Actually my trying to school to continue and I guess in this Ronald press release, a company, especially many kids and mens mentioned that.
Rate, although not quite as 48% of new customers from all the pay app. So can we expect that ought to completion and local surfaces is especially in the lighting and then move beyond beyond just like a price competition as we see in the last year. That's the number one question and second question just a housekeeping eschews.
We see meaningful operating leverage into product development expenses I just want to understand what a positive recently, we have seen on Dean prissman. Thank you.
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Oh, Okay, hopefully the first question.
Oh look for local service actually local service up because this is our long term commitment and the we don't manage the business purity bite you beat hobbies show, we we focus on creating value for both the customers on merchants, so I think today.
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Next question.
Thank you next question comes from the line of Teen along from Credit Suisse. Please ask the question.
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Thank you.
Thank you management, just a couple of small questions.
My first question.
Relief to the information you receive regarding differences in a commission revenue and also in TMB for different murchinson different categories, where a preferential pricing was applied and I'm wondering if that's a one off thing for the double 11 singles day shopping.
Well or start to a differential pricing is going to be an ongoing exercise going forward and if you could tell us which categories are enjoying the preferential rigs.
The first question the second question.
Has to do with the impact of be cool in a virus outbreak Maggie his already.
Indicated that a it for the carbon quarter revenue growth is likely to be negatively impacted.
I'm wondering what you're thinking is on the cost side of things, obviously, our fixed costs that you kind of too much about but when it comes to variable cost.
You know nonessential spending things like marketing are you, giving any consideration to throttling back their source to try to.
Come out with earnings that aren't too badly.
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[noise]. Thank you well on your first question.
Regarding commission discounts offered in the double 11 shopping festival for a different categories.
It's true and double 11 was performed excellently. This year goes the discounts are being offered to eligible merchants in key categories, including FMCG and electronics and user merchants who have a.
Performed very robustly in terms of their GMP hitting GMB targets and therefore in line with our commission discount policy, there aren't receiving a discount.
On your second question as to what what we are doing around cost and expenses.
In the current climate affected by the epidemic. The answer is yes, certainly there are some some areas in which we can and will achieve some cost savings for example by having more off my meetings.
And of course, reducing.
The travel.
Many of our stuff mounted management style frontline stuff are now working remotely from.
From home daily meetings between Daniel and the various business presidents are being held a again on a remote pieces.
And it's a good learning for us actually as a company because we're finding that efficiency is okay.
Operations, the management are being well handled even without having physical and face to face a meeting so that that's certainly could be a take away for us going forward to do more things online and reduce.
Physical meetings.
So so yes, certainly there are some savings.
In connection with that.
But your question is kind of help with profit growth and my answer to that is the Crawford.
Really comes down to revenue the most important thing when it comes to provinces revenue and our revenue is being affected in the various ways. We've already described to you. So there will be some savings.
From the areas I've described.
But the other thing to remember, it's we have very robust support programs that we've mentioned for for merchants probably views for the most.
Robust support programs are ever offered by any company in this market or around the world in the face with such difficult circumstances, and not again, we'll have a negative impact as we said.
On the on our profit.
So so some some some of the learnings and outcomes will be good and result in improvement, but overall about as the situation.
Next question.
Next question comes from the line of Mark Mahaney from RBC capital markets. Please ask your question.
Thank you I to wish you a the best Yeah, well wishes I wanted to ask a broad question about online real retail penetration those in China are those numbers that you mentioned at the very beginning of the call suggest that a perhaps 27% or a quarter of a retail.
Activity in China occurs to online channels.
I would imagine that there's a big discrepancy within live within the country, there submarkets where that percentage is much higher in some that it's much lower do you have a sense of what that range is like and most interesting is where do you Oh high penetration rates have you seen as well how high have you seen online as a percentage of total retail sales get.
Within China, Thank you very much.
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Wishes.
And then also your question I think Oh, <unk>, Oh, <unk> retail penetration or we have to have this from different angles first as you said is about their budget and.
In pulp Geocities today in China online penetration is already quite tight, but we do see the growing demand and caught in their local cities. So that's why in this quarter, we we observed like Oh over 60% upbeat.
The new customers today from the less developed areas. So we are we believe that to the lower tier city living Google eras, because of the penetration of the healthy Oh for GE and on a going forward fiveg.
Infrastructure there so people can enjoy the same digital life as people are in the urban cities, but.
Let me share with you I spoke on the second angle, which is the category I think today, even in the popular cities in China or the only pump online penetration by category is quite different and before this I mean correct virus. What we saw is that Oh, we're lucky that fall apparel for consumers.
Tronics The Olympics fishing is relatively high blood to for food category.
Especially for fresh foods.
The public's machines low even in urban cities, but.
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[noise] next question.
Thank you next question comes from the line of Alicia Yap from Citigroup. Please go ahead.
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Thank you very much. Thank you management for the presentations and for your detailed thoughts that you shared on the impact of the current.
Situation.
So.
If you follow up questions. If I mean, my first supposed to Maggie in that regard I know it because I don't believe you mentioned a high now can we expected in the March quarter or the growth of China will also be negatively impact as you said the trying to retail market.
Other businesses will be as a result of this outbreak and Conversely in the cloud could we expect there to be any benefit there from the epidemic.
In the March quarter, one where would you expect the benefit to be more of a long term benefit.
And then secondly, I'd like to follow up on on the previous question regarding the preferential a commission rates that are being offered for a certain categories FMCG and electronics what were those preferential rates only for the double 11 shopping festival or over a longer period of time and will they continue in the March.
Order.
And then finally still on a preferential.
Commissions.
In the face of this epidemic will you consider offering a preferential commissions for a broader richer categories. For example, fashion, but also other categories and perhaps continuing a those preferential rates beyond the march quarter and in the longer term.
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[noise]. Thank you for the two questions I'll start with the question about the impact of the Corona virus.
Epidemic on I know you were asking whether there could be negative growth there similar to what we've talked about a expecting to see with top on T mall in local services.
Yes. The answer is that is there is a very real impact on the business. So try now as a result would be epidemic, but less of an impact on the financial side of things I'll explain why that is with many careers or not being able to return to work capacity remains very low.
It's a around 10 plus percent less than 20% a of capacity availability.
But revenues are not changing that much despite the situation.
And this is because oh, we have technology products for which we're now charging fees as well as a good revenue performance from the last mile services. That's how I know, it's providing so this represents an increase in the revenue base for Chinese compared to.
To last year and the second reason is because it's hard to know isn't a acquired company.
So it's not subject to adjustment for inter company.
Elimination in terms of its cooperation with T ball Tmall supermarket. So for these reasons you don't expect to see such a big impact on the revenues I'm, sorry, I was on its actual operations.
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Your second question, how to do with the preferential Commission policy.
So to clarify this is not a new policy it wasn't.
New this year and it wasn't just for the double 11 shopping festival.
It's there to encourage and reward good merchants with good performance, who meet targets defined in the policies. So we will continue to have this policy.
To reward merchants, and we'll certainly consider expanding to new kinds of categories.
So operator, let's hope the last question.
Thank you to find question comes from the line appears move diaphragm Goldman Sachs. Please go ahead.
Thank you.
We sincerely hope that older families with the Ali Baba ecosystem touches all safe.
I want to Daniel talked about.
Fourth an improvement over the last 12 days could you just take us through qualitatively what is the degree of improvements we've seen over the 12 13 days.
And I think initially Daniel also talked about the opportunities that get created out of a period like that and I know, we talked about doing token how that seems to transformation with more than 200 million folks working from home what are the top three features in doing talk that had been that have proven to be very popular.
And how do we see this product to gold in terms of size scale I know you Dia you for example, since the end what.
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Partially and also we see the logistics network stock to assume all places, especially in the Ingersoll taking center.
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Okay I, thank everyone for joining or earnings call today.
If you do have any this additional question Duffy please feel free to contact anyone at the IR team. Thank you.
Well, thank you, ladies and gentlemen that does conclude our conference for today. Thank you for participating you may all disconnect.
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