Alibaba Group Holding Limited
Q1 2019 Earnings Call Transcript

Published: 23 Aug 2018

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's June Quarter 2018 Results Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. I would now like to turn the call over to Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead.

[Robert Lin:]

Hi. Good day, everyone, and welcome to Alibaba Group's June quarter 2018 results conference call. With us today are Joe Tsai, the Executive Vice Chairman; Daniel Zhang, CEO; Maggie Wu, CFO. This call is also being webcast from our IR section of corporate website. A replay of the call will be available on our website later today. Now let me 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 our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest Annual Report on Form 20-F, and other documents filed with the U.S. Securities and Exchange Commission. Any forward-looking statements that we make on this call are based on assumption as of today and we do not take any obligation to update these statements, except as required under applicable law. Please note that certain financial measures that we use on this call, such as adjusted EBITDA, adjusted EBITDA margin, adjusted EBITA, adjusted EBITA margin, non-GAAP net income, non-GAAP diluted EPS, and free cash flow are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. With that, I will turn over to Joe.

[Joe Tsai:]

Thank you, Rob. Thank you all for joining us. Last quarter, I talked about three things in my remark. First, we gain incremental market share and a larger share of the consumer e-commerce wallet. We continue to grow at scale because we had a foresight to invest in technology, supply chain and logistics. Second, our new retail initiatives are substantially growing Alibaba's total addressable market in ecommerce. And third, Alibaba is well positioned to capture more discretionary spend of Chinese consumers in addition to e-commerce through offerings in entertainment and local services. So that's what I said last quarter. All of these things continue to play out in the current quarter, and I believe, will play out for many years to come as the Chinese middle class continues to grow. I want to particularly emphasize that Alibaba's three-pronged consumer offerings in retail, entertainment and local services will be the long-term drivers of value creation, as the Chinese middleclass expands, and more of these consumers demand a higher quality lifestyle. The good thing is our historical strength in e-commerce is giving us a distinct advantage, because we have already acquired our customers. To be exact, this quarter we gained another 24 million transacting users to a total of 576 million annual active consumers. These consumers have made purchases on our platform, not just once or twice a year, but on a regular frequent basis. The average annual active consumer places 90 orders across 16 different product categories per year on our China retail marketplace platforms. And they trust Alibaba as the Company that will offer goods and services, where they can spend and get quality and value for their money. Because of the loyalty of our consumer customers, we have the confidence to aggressively invest in new products and service offerings as well as innovations and necessary infrastructure to provide them with a better experience. Whether it is daily supply of fresh food, catching the latest fashion trends, access to luxury brands, the most popular videos, the most exciting sporting events, or a quick late night snack delivery, Alibaba is busy at work to satisfy our customers. As I said on the last earnings call, we are extremely excited by the flywheel effects of the expanding consumer wallet share across our eco-system. The events of the past quarter, as we have seen the success of share gains and core commerce, video subscription growth, driven by FIFA World Cup, and the integration of food delivery into our service offerings had given us substantial confidence in our ability to capture more wallet share. Now, I want to spend a few minutes on the current trade tensions. First, what’s the impact to our business? Well, Alibaba’s business is focused on capturing the Chinese domestic consumption opportunity and less reliant on Chinese exports. We believe that Chinese Government policy will continue to support imports into China to satisfy the rising demand of Chinese consumers. This coming November, China will hold the world's largest import exhibition in Shanghai that will showcase products from all over the world. If U.S. goods become too expensive due to tariffs, Chinese consumers can shift to domestic producers or imports from other parts of the world. In terms of our international expansion, the world is a big place. We have made substantial progress in emerging markets like Southeast Asia and South Asia, as these markets are right for us to add more consumers into our ecosystem. When you look at Alibaba’s presence in the United States, our focus is on helping American farmers and small businesses to sell their products to Chinese consumers. In addition, as demonstrated by our partnership with Starbucks, we are working constructively with American brands to better serve Chinese consumers. And next, just a few comments on the macro environment. It is clear that nobody wins in a trade war. Over the years, China has become less reliant on exports so that the Chinese economy can withstand the in-position of tariffs on Chinese products. The most important point, however is that the strength of the China’s domestic demand is critical to the stability of the Chinese economy and market confidence. Domestic consumption and investment account for more than 90% of GDP growth. Domestic consumption is afforded by three important trends that we have seen in the past several years, which we believe will continue to be the case

[Daniel Zhang:]

Thanks, Joe. Hello, everyone, and thank you for joining our earnings call today. We sustained an outstanding place of growth, and it delivered another strong quarter with 51% total revenue growth, significant user expansion and even better engagement across our businesses. Taobao continues to be the leading consumer media platform and the starting point of any retail journey for Chinese consumers. Mobile MAUs reached a total of RMB634 million, which represent a 20% year-on-year growth. We continued our investment in new customer acquisition, and our annual active consumers increased 34 million to 576 million for the 12 months ended June 30, 2018. Around 80% of the increase in annual active consumers came from low-tier cities. During our annual Taobao member festival on August 8, we launched the new 88 VIP tier to our membership program to drive consumers' engagement and loyalty in Alibaba ecosystem. 88 VIP program offers a comprehensive set of services to meet the needs of consumers from retail discount savings to local food delivery, entertainment, online movie ticketing and the video and the music streaming content services. 88 VIP members are also given exclusive access to a wide variety of products. This new loyalty tier has gained once by popularity since its launch. We are also seeing keen interest from a large number of brand partners who wish to join this program in order to access the high value customers across our ecosystem. Tmall's leading position across all major categories in B2C has been further strengthened, excluding unpaid orders, physical goods GMV grew 34% year-on-year in June quarter. Our June '18 shopping festival drove excellent results in two areas

[Maggie Wu:]

Thank you, Daniel, hello, everyone. We delivered another strong quarter. In the June 2018 quarter, major operating and financial metrics continued to record strong results. Total revenue grew 61% year-over-year to RMB80.9 billion. And revenue from core commerce increased 61% year-over-year to RMB69.2 billion. Mobile MAUs on our China retail marketplaces reached RMB634 million in June 2018, an increase of RMB17 million over March 2018. Annual active consumers on our China retail marketplaces reached RMB576 million, a net add of RMB24 million quarter-over-quarter. Among the annual active consumers added, about 80% were from lower tier cities. Revenue from cloud computing increased 93% year-over-year to RMB407 billion. Adjusted EBITDA achieved a growth of 17% to RMB29 million, and the adjusted EBITDA for core commerce was RMB32.8 billion, an increase of 22% year-over-year. Our non-GAAP free cash flow grew 16% year-over-year to RMB26 million for the quarter. For the quarter total revenue grew 61% year-over-year. This was led by robust growth in our China commerce retail business and Alibaba Cloud. The consolidation of Cainiao Network and Ele.me also resulted in greater revenue. Excluding revenue from the consolidation of Cainiao and Ele.me, our revenue would still have strong growth of 49% year-over-year. Cost of revenue in the quarter was RMB43.7 million or 54% of revenue compared to RMB17.5 million or 35% of revenue. It shows the increase to the cost of revenue as a percentage of revenue increased from 33% in the quarter ended June last year to 50% in this quarter. I want to make sure you understand the changing nature of the cost of revenues

[Operator:]

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator instructions] Our first question comes from the line of Eddie Leung from Merrill Lynch. Please ask your question.

[Eddie Leung:]

Good evening. Thank you for taking my question. Could you share your thoughts first on the e-commerce competitive landscape given the fast growth of some of your peers in the lower price point market so to speak? Just -- many years ago, if you remember, Taobao also started more in the lower price point market then developed into today's scale. So just wondering, how you think about the difference today versus many years ago? And then if you guys can -- could you also comment a little bit on the outlook of your customer management business. There has been a bit of deceleration, of course, we know there is a high base affect. But any color going into second half of this year would be helpful. Thank you.

[Daniel Zhang:]

Operator -- and Eddie, on the phone -- so you come through very noisy. But let me summarize your question. Your first question is the lower price point competitor that and its impact to us, right? The second question is any color on customer management revenue in the second half.

[Maggie Wu:]

Yes, let me answer the second question first and then Daniel will talk about the competitive landscape. So for customer management revenue growth, it's -- when you look at the fundamentals of our business, it all shows very healthy growth. The user net adds -- it's any of your annual active consumer shows one of the highest net adds in the past years. And GMV grew very strongly not only Tmall GMV but also Taobao accelerated for its paid GMV. So when you look at the revenue growth for China retail, as I mentioned last quarter during the call, people should combine customer management revenue and the commission. If you look at the combined revenue growth, 33%, it's pretty much the same level as in previous quarter. That's still a very strong growth. And, of course, we have been focusing on adding user as well as improve the user experience. And some of these business initiatives improving user experience could help on the transaction, but at the same time, may impact our [indiscernible] For example, for those buyers who want to click to enter into the store directly, we let them do it, don't have to click on the paid product listing. But overall, the China retail marketplace growth in the revenue represents -- the performance of the business represents the value we provided to these merchants who pay us.

[Daniel Zhang:]

Yeah. Eddie, this is Daniel. I will comment on your first question. I think today, I think with the hundreds of millions of user base in Alibaba ecosystem, actually we do have consumers with different tiers with different consumption power. So all we want to do is to use the technology to do a roadmap matchmaking to make sure the right customers can find the right supply and the right assortments. So we do see that in recent years actually the new internet users grow, I mean, especially in low-tier cities, in rural markets. So that's why we spent a lot of -- we made a lot of efforts and investment in acquire the new customers in these areas. And this quarter, you'll see we have a very good in terms of new user acquisition. And we will continue to do that in terms of the expanding the user base in the low-tier cities, by the same time we do try to improve the product selections on our platforms to not only meet but also create the demand for the customers with different needs. By having said that, I think price, of course, is a very important user experience. By the same time, all the customers expect a reasonable quality of the products when even they enjoy very low price. So how to provide a low-priced product but with the good quality is a key thing. That's all we want to do. And this is what we, I mean, have achieved in the past few years. Thank you.

[Robert Lin:]

Next question?

[Operator:]

Thank you. Our next question comes from the line with Alicia Yap from Citigroup. Please ask your question.

[Alicia Yap:]

Hi, good evening, management, Joe, Daniel and Maggie. Thanks for taking my questions and congrats on solid results. I have some follow-up on these combined online core commerce. So with GMV growth and commissions lightly to experience potentially high base as well from last year, we see CMR also lapse out a tough comp. I think management previously commented about the increasing page view and time spent on the numbers of the recommended feed pagers. So are we still on track to introduce new potential some additional add lows to those second lending pages later this year? And also second question quickly is just, can you reconcile -- help us reconcile the 34% physical GMV versus the 55% commission revenue growth. Is that implying the take rate actually increasing? Thank you.

[Maggie Wu:]

Sure, Alicia. For your first question, definitely, we have multiple monetization levers that support our customer management revenue growth going forward. Things like improvement in search and personalization technology and add inventory, add loans et cetera. So the important thing is that we continue to provide the value to our customers, both merchants and consumers. So that's all we do every day. And the question on the 34% year-on-year GMV growth compared to the 55% commission growth, like I said, the commission growth rate has one of the reasons is last year's easy comp. So last year this quarter, as we discussed in our earnings announcement that we have had promotion initiatives by giving merchants discounts and rebates. So that's one of the reasons, not necessarily, increasing the take rate in Tmall.

[Daniel Zhang:]

This is Daniel. I want to add more comments on this question. I think actually today Taobao is position as a consumer media platform. So when you browse on Taobao, it's not only about search and navigation, it's about lot of media content, which create a lot of page views on the -- content page views, not only the polar listing page views. And in -- actually we continued to invest in this and to enrich the contents on our platform, which apparently on track and we strongly believe this will give us a lot of potential for future monetization. But today the key thing for us is always like we want to give our users a better experience first and give our users a pro form habit of -- to browsing this content and spend more time with us. And then by this way they can find -- they can not only find what they need, but also discover the things beyond their expectation. So in the long-term basis, we are -- actually, we are very careful, and we are very positive in monetization of this incremental page views in different, I mean, content formats.

[Robert Lin:]

Next question.

[Operator:]

Thank you. Our next question comes from the line of Grace Chen for Morgan Stanley. Please ask your question.

[Grace Chen:]

My question is about the New Retail business. Alibaba has been doing several mergers and acquisitions, and also has been sending out Hema and partnerships with various companies to lay out the foundations for the New Retail business. So I'm wondering is there any -- is there still any missing parts in your business portfolio to implement your New Retail strategy? And after the recent merger and acquisitions, what is your critical next step to execute the New Retail strategy? Thank you.

[Daniel Zhang:]

Well, this is a very good question. I will say we only talk about New Retail. We are, actually, we do two things. First, we incubate New Retail formats impelled by all our -- all of Alibaba's digital infrastructure. So today, I think the successful showcase is about -- is Hema, but I will say we will continue to do that to incubate new animals. And on the other hand that we are trying to help our retail partners to transform their existing retail infrastructure, retail outlets into digital operation. So I think this is more complicated. And this is not only relevant to the technology, but also relevant to the product assortment or relevant to supply chain and relevant to the understanding an insight of the millennials in China. So today what we do that in some of the vertical categories we work closely with some retail partners like Suning electronics, Intime Department Stores [indiscernible] Easyhome in decorating material categories. And recently we even, I mean, invest in focus media. And the purpose of this investment is to transform a so called traditional media into a digital media. And this is more like a -- in Alibaba, we call it the New Retail of Alibaba business. So I would say this is not the end of the world. But I think the key thing is that I do believe that in the future there were a lot of, I mean, new retail formats will arise, and a lot of existing retail formats will be upgraded. And all our mission is to make our business partners to do this transformation easier in the digital era. Thank you.

[Robert Lin:]

Next question.

[Operator:]

Thank you. Our next question comes from the line of Thomas Chung from Credit Suisse. Please ask your question.

[Thomas Chung:]

My question is about food delivery business. Can management comment about the competitive landscape and our strategies and becoming the number one in this segment? Thank you.

[Daniel Zhang:]

Yes, we have very strong commitment in food delivery business. And that’s why we make a huge investment and acquired Ele.me. And today, we are in a good – we are making very good progress in consolidating and integrating the business. The reason why we value this business is really quite simple. I think in both Joe, Maggie and I -- my script, we say very clearly, because we believe this is a very essential part of the – of what our customers' needs. And when Alibaba entered into this area, we strongly believe that we need to leverage our strong user base, 100s of millions of user base in China, and also to leverage what we build in the last mile and in the infrastructure, digital infrastructure to do this business in an innovative way. So that’s why we are very confident for the future of this business. And our CEO of Ele.me say it publicly that we’re trying to gain 50% market share in three years. So that’s the confidence is from the prospectus of Alibaba ecosystem. And we actually -- so far we are making quite good progress, and we believe that it's not food delivery business, not like it's just a food delivery, it's all about to meet the customer's need with good food quality and innovative meal, and also with a good service quality. So that’s the progress of our business.

[Robert Lin:]

Next question.

[Operator:]

Thank you. Our next question comes from the line of Mark Mahaney from RBC Capital Market. Please ask your question.

[Mark Mahaney:]

I wanted to ask about the sustainability of the digital media revenue growth. It seems like you had a nice impact from World Cup there. Could you talk about whether some of the newer customers or some of the newer business that came out of that event whether that looks like its sustainable, whether you -- those are new customers that will stay with the service. Anything you can tell about what their activity has been like post the World Cup? Thank you very much.

[Daniel Zhang:]

Well, actually we do see the solid demand in the market about the sports contents. And that’s why -- in our presentation, we said that we have many, many viewers who came to our – came to watch the live streaming of World Cup and -- in over 180 phones and the smart TVs. And actually -- and post the World Cup, actually we’re working closely with our partners to launch to jointly build up this sports platform, digital sports platform, and on Youku. And so far I think the new season, new Soccer season just began, and you can find the sports content of British Super League and also our Chinese Super League in Youku already. And we’ll continue to work on this, and introduce all of these, I mean, five Super Leagues in Europe and other and good contents – sports content to our audiences. And one more comment on this is that actually before we introduce sports content to Youku, and actually we have more female than male on Youku platform. Because we introduced a lot of drama show and variety shows -- drama hits and variety shows. But with that sports content, we do get more men coming to us. And they are very young and very passionate. And we do, on top of these sports contents, we do see opportunity to find synergies between the sports content platform and the commerce platform, which we can help our brand partners and to acquire new customers in sports categories in the joint platform. Thank you.

[Robert Lin:]

Next question?

[Operator:]

Thank you. Our next question comes from the line of Gregory Zhao from Barclays. Please ask your question.

[Gregory Zhao:]

My first question is about your international -- some international brands, which, during the quarter, more international brands coming on to your Tmall marketplace. So how shall we expect the advertising and the commission revenue contribution from these new players? And how shall we expect growth trends going forward? And very quick follow-up is on your 88 VIP. So how do we expect the membership to integrate your existing services and improve user engagement? And can you share some initial metrics of the business? Thank you.

[Daniel Zhang:]

For the first question, international, I think, globalization is our long-term strategy. That's why we make very big investment in Southeast Asia. And that's why we newly acquired a business in Southern Asia, Daraz, and our investment in Trendyol, a Turkey e-commerce -- leading e-commerce company. So we have a very big picture in terms of globalization. And so far, actually we do see a very big progress on in terms of customer acquisition and user growth and the category expansions in the new markets. And one advantage we are taking is that we have a lot of, as I said in my script, we have a lot of brand partners with us for many years. Today we are working with not only in China anymore, but also in the new markets. And also, China is famous for manufacturing base, and we have a lot of good supplies with very good prices, and which are very popular in Southeast Asia and the Southern Asia markets. So we will continue to do that to do this -- to leverage what we supply from China, and what we are partner with this brand to build a unique advantage in these new markets. And in terms of 88 VIP, I would say, actually this is the new program. And so far, we get very warm feedback from market. And the purpose of this program is to enhance the loyalty and the stickiness of our customers in our core commerce platforms, and other -- I mean, new businesses. So that's why for the first time, we consolidate the most of the consumer service we have in Alibaba ecosystem, starting from the retail discounts, exclusive offering of some products to movie and to entertainment, music even food delivery. So we strongly believe that in each of the business lines we may find some other, I mean, players, who can offer these kind of services. But we are more -- actually, Alibaba today is more like all-in-one. And we want to provide this all-in-one membership program to our loyalty customers, to enhance their stickiness in our ecosystem.

[Joe Tsai:]

Yes, Greg, so just -- to touch on your international brand comment, we do have a lot of luxury brands and international brands coming to working with us. You've seen that in the Luxury Pavilion that we've had success. We continue to attract them. Give the consumers a differentiated experience for the higher tier consumers. And that's how we can continue to offer value to the consumers. And you see some of these luxury brands actually opening up Tmall flagship stores as well when they joined the Luxury Pavilion.

[Robert Lin:]

Okay. Next question please?

[Operator:]

Thank you. The next question comes from the line of Wendy Huang of Macquarie. Please ask your question.

[Wendy Huang:]

Two very quick questions. The first, your revenue growth is very strong yet the adjusted EBITDA growth was only the 13% this quarter. And given that you've mentioned the New Retail's margin was structurally different from previous. So should we expect the EBITDA growth to stay at the current level for extended period of time? And second, very quickly, on your overseas strategy so there has been some new reports talking about US$5 billion investment in the Indian market, in the Reliance Retail. So can you give us update on your overseas expansion and investment? Thank you.

[Maggie Wu:]

Wendy, look at EBITDA growth, right, so take a look at the core commerce EBITDA first. In one quarter's time, I think, if you compare with the quarter last year of absolute EBITDA profit growth from US$3.9 billion to US$4.8 billion. So that means we net added approximately US$1 billion profit in the quarters time. That gives us the flexibility to invest. So we talked about the investment in all of these strategic important areas, local services, logistics, New Retail and also entertainment business, including some investment -- seasonal investment like this World Cup investment in this quarter. So going forward, I think, we're very clear that the core business we're going to continue to emphasize the healthy growth, which going to support our investments. So strategic investment will not be anything in two or three quarters time, it will continue. But the thing is that we believe those are the areas that has big time at the same time, we, Alibaba Group has advantage to provide better service and the integration on different businesses, get a synergy out of these businesses, and eventually, add value to our customers and then we could maintain better in the future.

[Robert Lin:]

So Wendy, your voice was low. Can you repeat the second question?

[Wendy Huang:]

Yes, investment in the overseas, and also the media reported about US$5 billion investment into Reliance Retail in India?

[Daniel Zhang:]

So just to summarize, I think, you're asking about our overseas investments, particularly on, I guess, the news about the Reliance Retail in India. Is that correct?

[Wendy Huang:]

Yes, correct.

[Joe Tsai:]

Yes. Wendy I'll take that question, this is Joseph Tsai. We -- look Reliance is a very good company, strong company in India. We've a lot of respect for them. But what you read in the news is just untrue. I think taking a step back, we've -- I've talked about investing in the emerging markets both Southeast Asia and South Asia. So as you know, we have -- we put a lot of resources into Lazada, which operates in six Southeast Asian countries. We've also recently invested in the largest e-commerce business in Pakistan and Bangladesh. These are sort of off the beaten track markets, it seems to you guys, but, just remember that Pakistan has a population of 200 million people. It's about the same size in terms of population as Indonesia. So these are some of the areas that really excite us. And, by the way Bangladesh, if don't recall, has 160 million people. Although they're growing from very low base, we think they have very good long-term potential. So we're also very excited about these South Asian markets.

[Robert Lin:]

Operator we'll take the last question.

[Operator:]

Sure. The last question comes from Alex Yao from JPMorgan. Please as your question.

[Alex Yao:]

I have a few in terms of the formation of the local service holding company. Firstly, from capital allocation perspective, why do you guys need to seek external investors given the critical importance of these business in your broader New Retail strategy, and your healthy free cash flow generation capability? And secondly, I think the transaction highly likely will be closed in FY '19. Can you talk about what could be the financial impact for FY '19, including the consolidation of Koubei as well as the potential step-up in pricing subsidy for Ele.me? And lastly, I think Ele.me is a very important to support the overall new retail strategy. And potentially the long-term transportation for those services delivery and product delivery would transform from intercity to intracity. So is the investment in Ele.me enough to support the whole New Retail strategy? Are there any other incremental investments you need do to further improve the local on-demand point to -- intracity delivery? Thank you.

[Daniel Zhang:]

Alex, you broken up during these questions. Can you just summarize the three questions for us?

[Alex Yao:]

Okay. So number one, for the formation of the local service holding company, why do you want to seek external investors and the funding source? Number two, in light of the consolidation of Koubei, and more investment in Ele.me, can you talk about the financial impact in FY 2019 from this local service holding company? Thirdly, in addition to investments in Ele.me, are there any other areas that you think it will worth investing in terms of the local delivery? Thank you.

[Daniel Zhang:]

Let me answer your first question. In terms of the local service holding co, actually we are – this is a newly startup company and which we combined both Koubei and Ele.me business in -- under this holdco. And as we said in our earnings release. And we are very happy to work with other investors and commit RMB3 billion in this – in the coming fund raising, and which we believe that will give a very solid support to our local service business to gain the market share and to acquire new customers in the ecosystem. And we strongly believe that this is very, very important area, and we will do everything we can to win the battle. And we are committed to invest not only the money but also the technology. But actually -- because this is a new area, so that’s why we are very happy to work with other investors on this as well. And in terms of the -- I think, Maggie may answer your second question. But let me finish your third question at the same time. I think, yes, while the investment in Ele.me we have – today we have a very good large-scale on-demand point-to-point delivery network. And I think this is a very, very unique network and which is good not only for food delivery but also it is necessary for the new commerce any in-store fulfillment delivery. And this is, I think could be relevant to any other categories to do in-store fulfillment and peer point-to-point delivery. So we are actually – today we are working very hard to consolidate this network – integrate this network with our other business. And we do believe that if we add more business cases into this point-to-point network, this will enhance attractiveness and stickiness of the riders in the system, and also improve efficiency of the operation, which on a long-term, we believe is fundamentally important to this new retail strategy.

[Joe Tsai:]

Yes, let me just supplement the first question, why we include third-party investors. We’re combining two businesses. And in the Koubei business, we already have third-party investors. So when we bring both companies into one holding company, those third-party investors will become part of the investors in the holding company. So we start with a starting point already with third-party investors. And also we want to make sure that this is a business that can be validated by the market in long run. And we have been talking to SoftBank, they came in and take a look, and they really like the business. So they are making this -- a very, very large commitment to our business, which is a really great validation of the business. But this is just the first step. We only announced about RMB3 billion of commitments that we have received, but more money will be coming from other third-party investors.

[Maggie Wu:]

Alex, to your second question about the financial impact. So this investment into the local service area together with combined consolidating of Koubei will have an impact in our financial, it will result in slower overall group profit growth in near term. So to the extent, if you look at our core commerce EBITDA, we said that without this investment that business, EBITDA margin level could be comparable to the previous quarters. So that gives you a sense of how much we have invested in those strategic areas. And at Ele.me, local service represents somewhere around 20% of that investment, if we're talking about the quarter. And so although, it will drag down our profitability, but this business will have a substantial operating leverage once unit economics turns positive and then we have the confidence that to turn that business -- to first grow that and then turn it into profitable business. Thanks.

[Robert Lin:]

Okay. So that concludes our call today. Thanks everyone for joining. If you have any questions, please contact the Investor Relations team at Alibaba. Thank you.

[Operator:]

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