Segment Information for Fiscal Years 2015, 2016 and 2017
The table below sets forth certain financial information of our operating segments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2017
|
|
|
|
Core
commerce
|
|
Cloud
computing
|
|
Digital media
and
entertainment
|
|
Innovation
initiatives
and others
|
|
Unallocated
(1)
|
|
Consolidated
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in millions, except percentages)
|
|
Revenue
|
|
|
133,880
|
|
|
6,663
|
|
|
14,733
|
|
|
2,997
|
|
|
|
|
|
158,273
|
|
|
22,994
|
|
Income (loss) from operations
|
|
|
74,180
|
|
|
(1,681
|
)
|
|
(9,882
|
)
|
|
(6,798
|
)
|
|
(7,764
|
)
|
|
48,055
|
|
|
6,981
|
|
Add: Share-based compensation expense
|
|
|
5,994
|
|
|
1,201
|
|
|
1,454
|
|
|
3,017
|
|
|
4,329
|
|
|
15,995
|
|
|
2,324
|
|
Add: Amortization of intangible assets
|
|
|
2,258
|
|
|
4
|
|
|
1,886
|
|
|
656
|
|
|
318
|
|
|
5,122
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITA
|
|
|
82,432
|
|
|
(476
|
)
|
|
(6,542
|
)
|
|
(3,125
|
)
|
|
(3,117
|
)
|
|
69,172
|
|
|
10,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITA margin
|
|
|
62
|
%
|
|
(7
|
)%
|
|
(44
|
)%
|
|
(104
|
)%
|
|
|
|
|
44
|
%
|
|
|
|
134
Table of Contents
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2016
|
|
|
|
Core
commerce
|
|
Cloud
computing
|
|
Digital media
and
entertainment
|
|
Innovation
initiatives
and others
|
|
Unallocated
(1)
|
|
Consolidated
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
|
|
(in millions, except percentages)
|
|
Revenue
|
|
|
92,335
|
|
|
3,019
|
|
|
3,972
|
|
|
1,817
|
|
|
|
|
|
101,143
|
|
Income (loss) from operations
|
|
|
51,153
|
|
|
(2,605
|
)
|
|
(4,112
|
)
|
|
(7,216
|
)
|
|
(8,118
|
)
|
|
29,102
|
|
Add: Share-based compensation expense
|
|
|
6,224
|
|
|
1,349
|
|
|
981
|
|
|
3,092
|
|
|
4,436
|
|
|
16,082
|
|
Add: Amortization of intangible assets
|
|
|
659
|
|
|
4
|
|
|
1,321
|
|
|
657
|
|
|
290
|
|
|
2,931
|
|
Add: Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITA
|
|
|
58,036
|
|
|
(1,252
|
)
|
|
(1,810
|
)
|
|
(3,467
|
)
|
|
(2,937
|
)
|
|
48,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITA margin
|
|
|
63
|
%
|
|
(41
|
)%
|
|
(46
|
)%
|
|
(191
|
)%
|
|
|
|
|
48
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31, 2015
|
|
|
|
Core
commerce
|
|
Cloud
computing
|
|
Digital media
and
entertainment
|
|
Innovation
initiatives
and others
|
|
Unallocated
(1)
|
|
Consolidated
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
|
|
(in millions, except percentages)
|
|
Revenue
|
|
|
69,536
|
|
|
1,271
|
|
|
2,191
|
|
|
3,206
|
|
|
|
|
|
76,204
|
|
Income (loss) from operations
|
|
|
40,194
|
|
|
(1,923
|
)
|
|
(2,993
|
)
|
|
(5,549
|
)
|
|
(6,594
|
)
|
|
23,135
|
|
Add: Share-based compensation expense
|
|
|
4,391
|
|
|
813
|
|
|
425
|
|
|
3,460
|
|
|
3,939
|
|
|
13,028
|
|
Add: Amortization of intangible assets
|
|
|
279
|
|
|
20
|
|
|
1,107
|
|
|
472
|
|
|
211
|
|
|
2,089
|
|
Add: Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITA
|
|
|
44,864
|
|
|
(1,090
|
)
|
|
(1,461
|
)
|
|
(1,617
|
)
|
|
(2,269
|
)
|
|
38,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITA margin
|
|
|
65
|
%
|
|
(86
|
)%
|
|
(67
|
)%
|
|
(50
|
)%
|
|
|
|
|
50
|
%
|
-
(1)
-
Unallocated
expenses are primarily related to corporate administrative costs and other miscellaneous items that are not allocated to individual segments.
135
Table of Contents
Comparison of Fiscal Years 2016 and 2017
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Core commerce:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China commerce retail
|
|
|
80,033
|
|
|
114,109
|
|
|
16,578
|
|
|
43%
|
|
China commerce wholesale
|
|
|
4,288
|
|
|
5,679
|
|
|
825
|
|
|
32%
|
|
International commerce retail
|
|
|
2,204
|
|
|
7,336
|
|
|
1,066
|
|
|
233%
|
|
International commerce wholesale
|
|
|
5,425
|
|
|
6,001
|
|
|
872
|
|
|
11%
|
|
Others
|
|
|
385
|
|
|
755
|
|
|
109
|
|
|
96%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total core commerce
|
|
|
92,335
|
|
|
133,880
|
|
|
19,450
|
|
|
45%
|
|
Cloud computing
|
|
|
3,019
|
|
|
6,663
|
|
|
968
|
|
|
121%
|
|
Digital media and entertainment
|
|
|
3,972
|
|
|
14,733
|
|
|
2,141
|
|
|
271%
|
|
Innovation initiatives and others
|
|
|
1,817
|
|
|
2,997
|
|
|
435
|
|
|
65%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
101,143
|
|
|
158,273
|
|
|
22,994
|
|
|
56%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue increased by 56% from RMB101,143 million in fiscal year 2016 to RMB158,273 million (US$22,994 million) in fiscal year 2017. The increase was mainly
driven by the continued rapid growth of our China commerce retail business, Alibaba Cloud as well as the consolidation of newly acquired businesses, mainly Youku Tudou and Lazada.
Core commerce segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China commerce retail business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Online marketing services
|
|
|
52,396
|
|
|
77,530
|
|
|
11,264
|
|
|
48%
|
|
Commission
|
|
|
25,829
|
|
|
34,066
|
|
|
4,949
|
|
|
32%
|
|
Others
(1)
|
|
|
1,808
|
|
|
2,513
|
|
|
365
|
|
|
39%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
80,033
|
|
|
114,109
|
|
|
16,578
|
|
|
43%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Primarily
consists of storefront fees.
Revenue
from our China commerce retail business increased by 43% from RMB80,033 million in fiscal year 2016 to RMB114,109 million (US$16,578 million) in fiscal year
2017, primarily driven by an increase of 48% in online marketing services revenue and an increase of 32% in commission revenue.
Online
marketing services revenue increased by 48% from RMB52,396 million in fiscal year 2016 to RMB77,530 million (US$11,264 million) in fiscal year 2017. The
growth was primarily driven by our ability to deliver more relevant content to consumers through our improved data technology, which resulted in higher spending on our marketing services by an
increasing number of brands and merchants, leading to a 47% increase in the number of clicks attributable to our P4P marketing services, and a 1% increase in the cost-per-click paid by
136
Table of Contents
our
merchants. The growth also reflected the full effect of online marketing inventory we added in May and September 2015.
Commission
revenue increased by 32% from RMB25,829 million in fiscal year 2016 to RMB34,066 million (US$4,949 million) in fiscal year 2017, primarily driven by an
increase of 29% in Tmall GMV.
Mobile
revenue from our China commerce retail business increased by 80% from RMB50,337 million in fiscal year 2016 to RMB90,731 million (US$13,182 million) in fiscal
year 2017, representing 80% of our China commerce retail business revenue in fiscal year 2017, compared to 63% in fiscal year 2016. Mobile monetization rate improved to 3.04% in fiscal year 2017 from
2.51% in fiscal year 2016.
GMV
transacted on Taobao Marketplace increased by 17% from RMB1,877 billion in fiscal year 2016 to RMB2,202 billion (US$320 billion) in fiscal year 2017, and GMV
transacted on Tmall increased by 29% from RMB1,215 billion in fiscal year 2016 to RMB1,565 billion (US$227 billion) in fiscal year 2017. The overall increase in total GMV
transacted on these marketplaces was primarily driven by a 14% increase in the average level of their spending and a 7% increase in the number of annual active buyers.
Revenue
from our China commerce wholesale business increased by 32% from RMB4,288 million in fiscal year 2016 to RMB5,679 million (US$825 million)
in fiscal year 2017. The increase was due to an increase in average revenue from paying members and an increase in paying members.
Revenue
from our international commerce retail business increased by 233% from RMB2,204 million in fiscal year 2016 to RMB7,336 million
(US$1,066 million) in fiscal year 2017. The increase was primarily due to the consolidation of Lazada and an increase in GMV transacted on AliExpress.
Revenue
from our international commerce wholesale business increased by 11% from RMB5,425 million in fiscal year 2016, of which 67% was from membership fees and
online marketing services and 33% was from value-added services, to RMB6,001 million (US$872 million) in fiscal year 2017, of which 65% was from membership fees and online marketing
services and 35% was from value-added services. The increase in revenue was primarily due to growth in revenue generated by import/export related services, and to a lesser extent, to an increase in
online marketing service revenue from China wholesale suppliers.
Cloud Computing segment
Revenue from our cloud computing business in fiscal year 2017 was RMB6,663 million (US$968 million), an increase of 121% compared
to RMB3,019 million in fiscal year 2016, primarily driven by an increase in the number of paying customers to 874,000, representing a year-over-year increase of 70%, and also an
increase in their usage of and spending on our cloud computing services including more complex offerings, such as our content delivery network and database services.
Digital media and entertainment segment
Revenue from our digital media and entertainment business in fiscal year 2017 was RMB14,733 million (US$2,141 million), an
increase of 271% compared to RMB3,972 million in fiscal year 2016. The increase was primarily due to the consolidation of Youku Tudou, and also to an increase in revenue from mobile value-added
services provided by UCWeb, such as mobile search, news feeds and game publishing.
137
Table of Contents
Innovation initiatives and others segment
Revenue from innovation initiatives and others in fiscal year 2017 was RMB2,997 million (US$435 million), an increase of 65%
compared to RMB1,817 million in fiscal year 2016, primarily due to an increase in revenue from YunOS and other new initiatives.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Cost of revenue
|
|
|
34,355
|
|
|
59,483
|
|
|
8,642
|
|
|
73
|
%
|
Percentage of revenue
|
|
|
34
|
%
|
|
38
|
%
|
|
|
|
|
|
|
Share-based compensation expense included in cost of revenue
|
|
|
4,003
|
|
|
3,893
|
|
|
566
|
|
|
(3
|
)%
|
Percentage of revenue
|
|
|
4
|
%
|
|
2
|
%
|
|
|
|
|
|
|
Cost of revenue excluding share-based compensation expense
|
|
|
30,352
|
|
|
55,590
|
|
|
8,076
|
|
|
83
|
%
|
Percentage of revenue
|
|
|
30
|
%
|
|
36
|
%
|
|
|
|
|
|
|
Our
cost of revenue increased by 73% from RMB34,355 million in fiscal year 2016 to RMB59,483 million (US$8,642 million) in fiscal year 2017. This increase was
primarily due to an increase of RMB6,986 million in content acquisition costs for online media properties as a result of the consolidation of Youku Tudou, an increase of RMB4,432 million
in bandwidth and co-location fees and depreciation expenses as a result of our consolidation of Youku Tudou and investments in our cloud computing business and our data platform, an increase of
RMB3,239 million in costs of inventory as a result of our consolidation of Lazada, an increase of RMB3,526 million in logistics costs mainly relating to fulfillment services provided to us by our
affiliate Cainiao Network, which amounted to RMB4,444 million (US$646 million), or 3% of our revenue, in fiscal year 2017, primarily related to Tmall Supermarket. Without the effect of
share-based compensation expense, cost of revenue as a percentage of revenue would have increased from 30% in fiscal year 2016 to 36% in fiscal year 2017, primarily due to an increase in content
acquisition costs by Youku Tudou, cost of inventory by Lazada and logistics costs relating to fulfillment services provided to Tmall Supermarket by our affiliate Cainiao Network, as discussed above.
As we continue to invest in new and acquired businesses, customer service initiatives and infrastructure, we expect our cost of revenue will increase in absolute dollar amounts and will likely
increase as a percentage of revenues.
Product Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Product of development expenses
|
|
|
13,788
|
|
|
17,060
|
|
|
2,479
|
|
|
24
|
%
|
Percentage of revenue
|
|
|
14
|
%
|
|
11
|
%
|
|
|
|
|
|
|
Share-based compensation expense included in product development expenses
|
|
|
5,703
|
|
|
5,712
|
|
|
830
|
|
|
0
|
%
|
Percentage of revenue
|
|
|
6
|
%
|
|
4
|
%
|
|
|
|
|
|
|
Product development expenses excluding share-based compensation expense
|
|
|
8,085
|
|
|
11,348
|
|
|
1,649
|
|
|
40
|
%
|
Percentage of revenue
|
|
|
8
|
%
|
|
7
|
%
|
|
|
|
|
|
|
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Our
product development expenses increased by 24% from RMB13,788 million in fiscal year 2016 to RMB17,060 million (US$2,479 million) in fiscal year 2017. The
increase was largely due to an increase of RMB2,881 million in payroll and benefits expenses. Without the effect of share-based compensation expense, product development expenses as a
percentage of revenue would have decreased from 8% in fiscal year 2016 to 7% in fiscal year 2017, due to operating leverage. We expect our product development expenses will increase in absolute
amounts and may over time increase as a percentage of revenues.
Sales and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Sales and marketing expenses
|
|
|
11,307
|
|
|
16,314
|
|
|
2,370
|
|
|
44
|
%
|
Percentage of revenue
|
|
|
11
|
%
|
|
10
|
%
|
|
|
|
|
|
|
Share-based compensation expense included in sales and marketing expenses
|
|
|
1,963
|
|
|
1,772
|
|
|
257
|
|
|
(10
|
)%
|
Percentage of revenue
|
|
|
2
|
%
|
|
1
|
%
|
|
|
|
|
|
|
Sales and marketing expenses excluding share-based compensation expense
|
|
|
9,344
|
|
|
14,542
|
|
|
2,113
|
|
|
56
|
%
|
Percentage of revenue
|
|
|
9
|
%
|
|
9
|
%
|
|
|
|
|
|
|
Our
sales and marketing expenses increased by 44% from RMB11,307 million in fiscal year 2016 to RMB16,314 million (US$2,370 million) in fiscal year 2017. The
increase was due primarily to the consolidation of Youku Tudou and Lazada, as well as an increase in advertising and promotional spending mainly to promote our business initiatives, such as Tmall
Supermarket and UCWeb during fiscal year 2017 and an increase of RMB1,222 million in payroll and benefit expenses. Without the effect of share-based compensation expense, sales and marketing expenses
as a percentage of revenue would have remained stable at 9% in fiscal year 2016 and fiscal year 2017. We expect our sales and marketing expenses will increase in absolute amounts and may increase as a
percentage of revenues as we continue to invest in marketing and promotion.
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
General and administrative expenses
|
|
|
9,205
|
|
|
12,239
|
|
|
1,778
|
|
|
33
|
%
|
Percentage of revenue
|
|
|
9
|
%
|
|
8
|
%
|
|
|
|
|
|
|
Share-based compensation expense included in general and administrative expenses
|
|
|
4,413
|
|
|
4,618
|
|
|
671
|
|
|
5
|
%
|
Percentage of revenue
|
|
|
4
|
%
|
|
3
|
%
|
|
|
|
|
|
|
General and administrative excluding share-based compensation expense
|
|
|
4,792
|
|
|
7,621
|
|
|
1,107
|
|
|
59
|
%
|
Percentage of revenue
|
|
|
5
|
%
|
|
5
|
%
|
|
|
|
|
|
|
Our
general and administrative expenses increased by 33% from RMB9,205 million in fiscal year 2016 to RMB12,239 million (US$1,778 million) in fiscal year 2017. The
increase was primarily due to a significant increase of RMB1,358 million in payroll and benefits expenses, as well as an increase in depreciation and other administrative expenses. Without the
effect of share-based compensation expense, general and administrative
139
Table of Contents
expenses
as a percentage of revenue in fiscal year 2017 would have remained stable at 5% in both fiscal year 2016 and 2017.
Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Amortization of intangible assets
|
|
|
2,931
|
|
|
5,122
|
|
|
744
|
|
|
75
|
%
|
Percentage of revenue
|
|
|
3
|
%
|
|
3
|
%
|
|
|
|
|
|
|
Amortization
of intangible assets increased by 75% from RMB2,931 million in fiscal year 2016 to RMB5,122 million (US$744 million) in fiscal year 2017. This increase
was due to an increase in intangible assets recognized arising from our strategic acquisitions and investments, including Youku Tudou and Lazada. As we consolidate newly acquired businesses, we expect
that our amortization of intangible assets will increase in the future.
Income from Operations and Operating Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Income from operations
|
|
|
29,102
|
|
|
48,055
|
|
|
6,981
|
|
|
65
|
%
|
Percentage of revenue
|
|
|
29
|
%
|
|
30
|
%
|
|
|
|
|
|
|
Share-based compensation expense included in income from operations
|
|
|
16,082
|
|
|
15,995
|
|
|
2,324
|
|
|
(1
|
)%
|
Percentage of revenue
|
|
|
16
|
%
|
|
10
|
%
|
|
|
|
|
|
|
Income from operations excluding share-based compensation expense
|
|
|
45,184
|
|
|
64,050
|
|
|
9,305
|
|
|
42
|
%
|
Percentage of revenue
|
|
|
45
|
%
|
|
40
|
%
|
|
|
|
|
|
|
Our
income from operations increased by 65% from RMB29,102 million, or 29% of revenue, in fiscal year 2016 to RMB48,055 million (US$6,981 million), or 30% of
revenue, in fiscal year 2017. Without the effect of share-based compensation expense, our operating margin would have decreased from 45% in fiscal year 2016 to 40% in fiscal year 2017, primarily
attributable to our consolidation of Youku Tudou and Lazada, partially offset by operating leverage.
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Table of Contents
Adjusted EBITA and adjusted EBITA margin
Adjusted EBITA and adjusted EBITA margin by segments are set forth in the table below. See the section entitled
" Segment Information for Fiscal Years 2015, 2016 and 2017" above for a reconciliation of income from operations to adjusted EBITA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
|
|
2016
|
|
2017
|
|
|
|
|
|
RMB
|
|
% of
Segment
Revenue
|
|
RMB
|
|
US$
|
|
% of
Segment
Revenue
|
|
%
Change
|
|
|
|
(in millions, except percentages)
|
|
Core commerce
|
|
|
58,036
|
|
|
63
|
%
|
|
82,432
|
|
|
11,976
|
|
|
62
|
%
|
|
42
|
%
|
Cloud computing
|
|
|
(1,252
|
)
|
|
(41
|
)%
|
|
(476
|
)
|
|
(69
|
)
|
|
(7
|
)%
|
|
(62
|
)%
|
Digital media and entertainment
|
|
|
(1,810
|
)
|
|
(46
|
)%
|
|
(6,542
|
)
|
|
(951
|
)
|
|
(44
|
)%
|
|
261
|
%
|
Innovation initiatives and others
|
|
|
(3,467
|
)
|
|
(191
|
)%
|
|
(3,125
|
)
|
|
(454
|
)
|
|
(104
|
)%
|
|
(10
|
)%
|
Adjusted EBITA increased by 42% to RMB82,432 million (US$11,976 million) in fiscal year 2017, compared to RMB58,036 million
in fiscal year 2016. Adjusted EBITA margin decreased to 62% in fiscal year 2017 from 63% in fiscal year 2016, primarily due to the consolidation of Lazada and investment in Tmall Supermarket,
partially offset by operating leverage.
Adjusted EBITA in fiscal year 2017 was a loss of RMB476 million (US$69 million), compared to a loss of RMB1,252 million in
fiscal year 2016. Adjusted EBITA margin improved to negative 7% in fiscal year 2017 from negative 41% in fiscal year 2016, primarily due to robust growth in revenue and economies of scale.
Adjusted EBITA in fiscal year 2017 was a loss of RMB6,542 million (US$951 million), compared to a loss of RMB1,810 million
in fiscal year 2016. Adjusted EBITA margin improved to negative 44% in fiscal year 2017 from negative 46% in fiscal year 2016, primarily due to improved margins at UCWeb driven by an increase in
revenue from mobile value-added services, partially offset by the consolidation of Youku Tudou.
Adjusted EBITA in fiscal year 2017 was a loss of RMB3,125 million (US$454 million), compared to a loss of RMB3,467 million
in fiscal year 2016. Adjusted EBITA margin improved to negative 104% in fiscal year 2017 from negative 191% in fiscal year 2016, primarily due to an increase in revenue from new business initiatives.
Interest and Investment Income, Net
Our net interest and investment income decreased from RMB52,254 million in fiscal year 2016 to RMB8,559 million
(US$1,244 million) in fiscal year 2017. Interest and investment income in fiscal year 2016 included a deemed disposal gain of RMB24,734 million arising from the deconsolidation of Alibaba
Pictures, a gain of RMB18,603 million from the revaluation of our previously held equity interest in Alibaba Health when we obtained control over Alibaba Health in July 2015, as well as gains
arising from disposal of certain investments and businesses.
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Table of Contents
Interest Expense
Our interest expense increased by 37% from RMB1,946 million in fiscal year 2016 to RMB2,671 million (US$388 million) in
fiscal year 2017. The increase in interest expense was primarily due to an increase in average debt outstanding, including an additional US$4.0 billion five-year term loan facility drawn down
in fiscal year 2017.
Other Income, Net
Our other income, net increased by 196% from RMB2,058 million in fiscal year 2016 to RMB6,086 million (US$884 million) in
fiscal year 2017. The increase was primarily due to an increase in exchange gains and income recognized in respect of royalty fees and software technology services fees from Ant Financial, which
increased from RMB1,122 million in fiscal year 2016 to RMB2,086 million (US$303 million) in fiscal year 2017.
Income Tax Expenses
Our income tax expenses increased by 63% from RMB8,449 million in fiscal year 2016 to RMB13,776 million (US$2,002 million)
in fiscal year 2017. The increase in income tax expenses was primarily due to the increase in taxable income from our operations in China. Our effective tax rate increased to 23% in fiscal year 2017
from 10% in fiscal year 2016. Profit before income tax in fiscal year 2016 included a deemed disposal gain of RMB24,734 million arising from the deconsolidation of Alibaba Pictures and a gain of
RMB18,603 million from the revaluation of our previously held equity interest in Alibaba Health, which were non-taxable, leading to a lower effective tax rate in fiscal year 2016. Excluding
share-based compensation expense, impairment of goodwill, intangible assets and investments, as well as other unrealized investment gain/loss, our effective tax rate would have been 18% in fiscal year
2017, compared to 15% in fiscal year 2016, primarily due to the consolidation of Youku Tudou and Lazada, which are both loss-making.
Share of Results of Equity Investees
Share of losses of equity investees in fiscal year 2017 was RMB5,027 million (US$730 million), an increase of 191% compared to
RMB1,730 million in fiscal year 2016. Share of results of equity investee in fiscal years 2016 and 2017 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2016
|
|
2017
|
|
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in millions)
|
|
Share of profit (loss) of equity investees:
|
|
|
|
|
|
|
|
|
|
|
Koubei
|
|
|
(867
|
)
|
|
(990
|
)
|
|
(144
|
)
|
Youku Tudou
|
|
|
(391
|
)
|
|
|
|
|
|
|
Cainiao Network
|
|
|
(295
|
)
|
|
(1,056
|
)
|
|
(153
|
)
|
Others
|
|
|
62
|
|
|
(838
|
)
|
|
(122
|
)
|
Impairment loss
|
|
|
|
|
|
(245
|
)
|
|
(35
|
)
|
Dilution gains (losses)
|
|
|
827
|
|
|
(336
|
)
|
|
(49
|
)
|
Others
|
|
|
(1,066
|
)
|
|
(1,562
|
)
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,730
|
)
|
|
(5,027
|
)
|
|
(730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
increase in share of losses of equity investees in fiscal year 2017 compared to fiscal year 2016 was primarily due to an increase in our share of losses of Cainiao Network and other
equity investees, as well as an accounting loss related to the dilution of our ownership interest in Weibo in fiscal year 2017, which resulted from Weibo's issuance of share-based compensation, as
compared to accounting gains related the dilution of our ownership interests in Cainiao Network and Evergrande FC, as these investees each raised capital at a higher valuation in fiscal
year 2016.
142
Table of Contents
Net Income
As a result of the foregoing, our net income decreased by 42% from RMB71,289 million in fiscal year 2016 to RMB41,226 million
(US$5,989 million) in fiscal year 2017.
Comparison of Fiscal Years 2015 and 2016
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Core commerce
|
|
|
|
|
|
|
|
|
|
|
China commerce retail
|
|
|
59,732
|
|
|
80,033
|
|
|
34
|
%
|
China commerce wholesale
|
|
|
3,205
|
|
|
4,288
|
|
|
34
|
%
|
International commerce retail
|
|
|
1,768
|
|
|
2,204
|
|
|
25
|
%
|
International commerce wholesale
|
|
|
4,718
|
|
|
5,425
|
|
|
15
|
%
|
Others
|
|
|
113
|
|
|
385
|
|
|
241
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total core commerce
|
|
|
69,536
|
|
|
92,335
|
|
|
33
|
%
|
Cloud computing
|
|
|
1,271
|
|
|
3,019
|
|
|
138
|
%
|
Digital media and entertainment
|
|
|
2,191
|
|
|
3,972
|
|
|
81
|
%
|
Innovation initiatives and others
|
|
|
3,206
|
|
|
1,817
|
|
|
(43
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
76,204
|
|
|
101,143
|
|
|
33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue increased by 33%, from RMB76,204 million in fiscal year 2015 to RMB101,143 million in fiscal year 2016. The increase was mainly driven by the continued rapid
growth of our China commerce retail business.
Core commerce segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
China commerce retail business
|
|
|
|
|
|
|
|
|
|
|
Online marketing services
|
|
|
37,509
|
|
|
52,396
|
|
|
40
|
%
|
Commission
|
|
|
21,201
|
|
|
25,829
|
|
|
22
|
%
|
Others
(1)
|
|
|
1,022
|
|
|
1,808
|
|
|
77
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
59,732
|
|
|
80,033
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Primarily
consists of storefront fees.
Revenue
from our China commerce retail business increased by 34% from RMB59,732 million in fiscal year 2015 to RMB80,033 million in fiscal year 2016.
Revenue
growth during this period reflected an increase of 27% in GMV transacted on our China retail marketplaces and an increase in the monetization rate. GMV transacted on Taobao
Marketplace increased by 18% from RMB1,597 billion in fiscal year 2015 to RMB1,877 billion in fiscal year 2016 and GMV transacted on Tmall
143
Table of Contents
increased
by 43% from RMB847 billion in fiscal year 2015 to RMB1,215 billion in fiscal year 2016. The overall increase in total GMV transacted on these marketplaces was primarily driven
by a 21% increase in the number of buyers and, to a lesser extent, by a moderate increase in the average level of their spending. The growth in GMV transacted on Tmall in particular was attributable
to the increase in the number of buyers making purchases on Tmall, reflecting consumer preferences for branded products and a premium shopping experience and the beneficial impact of promotional
events, and increases in the average level of spending of buyers. Our monetization rate during this period increased from 2.44% in fiscal year 2015 to 2.59% in fiscal year 2016, mainly as a result of
the accelerated growth of our online marketing services revenue.
Online
marketing services revenue increased by 40% from RMB37,509 million in fiscal year 2015 to RMB52,396 million in fiscal year 2016. The growth was primarily driven by
our focus on high-quality merchants and on delivering a broader value proposition to our merchants. This resulted in higher marketing spend by our merchants as we optimized online marketing efficiency
and added new online marketing inventory on both mobile and PC interfaces, leading to a 44% increase in the number of clicks attributable to our P4P marketing services, and a 1% increase in the
cost-per-click paid by our merchants. To a lesser extent, our online marketing services revenue during this period was also positively impacted by an increase in the CPM of our display marketing
services, partially offset by a decrease in the number of impressions displayed.
Commission
revenue increased by 22% from RMB21,201 million in fiscal year 2015 to RMB25,829 million in fiscal year 2016. The lower year-over-year commission revenue growth
relative to the 43% increase in GMV transacted on Tmall during the same period was mainly a result of (i) suspension of our online lottery business on Taobao Marketplace (which had a higher
monetization rate than our overall monetization rate) in late February 2015 in response to regulatory requirements, (ii) a decrease in the pricing charged on Juhuasuan as an investment
to acquire more high-quality merchants and (iii) impact from changes in category mix. Excluding the effect of the online lottery business, our revenue would have increased by 31% in fiscal year
2016 from fiscal year 2015. Due to the ongoing shift of user engagement toward mobile devices, categories such as virtual goods on which we charge a lower commission rate, are seeing higher growth
than other categories. As a result of the above, commission revenue increased at a lower rate than the Tmall GMV.
Mobile
revenue from our China commerce retail business increased by 182% from RMB17,840 million in fiscal year 2015 to RMB50,337 million in fiscal year 2016, representing
63% of our China commerce retail business revenue in fiscal year 2016, compared to 30% in fiscal year 2015. The increase in mobile revenue from our China commerce retail business was primarily due to
an increase in GMV generated and better monetization of traffic on mobile devices. Mobile monetization rate improved to 2.51% in fiscal year 2016 from 1.79% in fiscal year 2015.
Revenue
from our China commerce wholesale business increased by 34% from RMB3,205 million in fiscal year 2015 to RMB4,288 million in fiscal year 2016. The
increase in revenue was due to an increase in average revenue from paying members and an increase in paying members.
Revenue
from our international commerce retail business increased by 25% from RMB1,768 million in fiscal year 2015 to RMB2,204 million in fiscal year
2016. The main reason for this increase was an increase in GMV transacted on AliExpress, primarily due to the increasing number of consumers, particularly in Russia, Spain, the United States
and France.
Revenue
from our international commerce wholesale business increased by 15% from RMB4,718 million in fiscal year 2015, of which 69% was from membership fees and
online marketing services and 31% was from value-added services, to RMB5,425 million in fiscal year 2016, of which 67% was from membership fees and online marketing services and 33% was from
value-added services. The increase in revenue was due to growth in revenue
144
Table of Contents
generated
by the import/export related services and, to a lesser extent, an increase in online marketing service revenue from China wholesale suppliers.
Cloud computing segment
Revenue from our cloud computing business in fiscal year 2016 was RMB3,019 million, an increase of 138% compared to
RMB1,271 million in fiscal year 2015, driven by the continued growth of our cloud computing business. The growth was primarily due to an increase in the number of paying customers and also to
an increase in their usage of and spending on our cloud computing services including more complex offerings, such as our content delivery network and database services.
Digital media and entertainment segment
Revenue from our digital media and entertainment business in fiscal year 2016 was RMB3,972 million, an increase of 81% compared to
RMB2,191 million in fiscal year 2015. The increase was primarily due to an increase in revenue from mobile value-added services provided by UCWeb, such as mobile search, news feeds and game
publishing.
Innovation initiatives and others segment
Revenue from innovation initiatives and others in fiscal year 2016 was RMB1,817 million, a decrease of 43% compared to
RMB3,206 million in fiscal year 2015. This result included the effect of a decrease in revenue related to the SME loan business that we transferred to Ant Financial Services in
February 2015 and an increase in revenue from AutoNavi and YunOS. Revenue from AutoNavi and YunOS increased by 74% year-over-year.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Cost of revenue
|
|
|
23,834
|
|
|
34,355
|
|
|
44
|
%
|
Percentage of revenue
|
|
|
31
|
%
|
|
34
|
%
|
|
|
|
Share-based compensation expense included in cost of revenue
|
|
|
4,176
|
|
|
4,003
|
|
|
(4
|
)%
|
Percentage of revenue
|
|
|
5
|
%
|
|
4
|
%
|
|
|
|
Cost of revenue excluding share-based compensation expense
|
|
|
19,658
|
|
|
30,352
|
|
|
54
|
%
|
Percentage of revenue
|
|
|
26
|
%
|
|
30
|
%
|
|
|
|
Our
cost of revenue increased by 44% from RMB23,834 million in fiscal year 2015 to RMB34,355 million in fiscal year 2016. This increase was primarily due to an increase of
RMB2,278 million in bandwidth and co-location fees and depreciation expenses as a result of our investments in our cloud computing business and our data platform, increases of
RMB2,146 million in costs associated with our new business initiatives (mainly our mobile operating system, over-the-top TV services and entertainment), an increase of RMB1,865 million
in traffic acquisition costs as a result of the expansion of our third-party affiliate marketing ecosystem and an increase of RMB1,564 million in logistics costs mainly relating to fulfillment
services provided to us by our affiliate Cainiao Network, which amounted to RMB2,370 million, or 2% of our revenue, in fiscal year 2016, primarily related to Tmall Supermarket. Without the
effect of share-based compensation expense, cost of revenue as a percentage of revenue would have increased from 26% in fiscal year 2015 to 30% in fiscal year 2016, primarily due to increase in costs
associated with our new business initiatives and an increase in logistics costs, as discussed above.
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Table of Contents
Product Development Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Product of development expenses
|
|
|
10,658
|
|
|
13,788
|
|
|
29
|
%
|
Percentage of revenue
|
|
|
14
|
%
|
|
14
|
%
|
|
|
|
Share-based compensation expense included in product development expenses
|
|
|
3,876
|
|
|
5,703
|
|
|
47
|
%
|
Percentage of revenue
|
|
|
5
|
%
|
|
6
|
%
|
|
|
|
Product development expenses excluding share-based compensation expense
|
|
|
6,782
|
|
|
8,085
|
|
|
19
|
%
|
Percentage of revenue
|
|
|
9
|
%
|
|
8
|
%
|
|
|
|
Our
product development expenses increased by 29% from RMB10,658 million in fiscal year 2015 to RMB13,788 million in fiscal year 2016. The increase was largely due to an
increase of RMB3,114 million in payroll and benefits expenses including share-based compensation expense (an effect that we expect will continue, as
discussed in "Share-based Compensation" above), partially offset by a decrease in the royalty fee paid to Yahoo, which terminated by contract upon the completion of our initial public offering in
September 2014. Without the effect of share-based compensation expense, product development expenses as a percentage of revenue would have decreased from 9% in fiscal year 2015 to 8% in fiscal
year 2016 due to a decrease in royalty fees paid to Yahoo.
Sales and Marketing Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Sales and marketing expenses
|
|
|
8,513
|
|
|
11,307
|
|
|
33
|
%
|
Percentage of revenue
|
|
|
11
|
%
|
|
11
|
%
|
|
|
|
Share-based compensation expense included in sales and marketing expenses
|
|
|
1,235
|
|
|
1,963
|
|
|
59
|
%
|
Percentage of revenue
|
|
|
2
|
%
|
|
2
|
%
|
|
|
|
Sales and marketing expenses excluding share-based compensation expense
|
|
|
7,278
|
|
|
9,344
|
|
|
28
|
%
|
Percentage of revenue
|
|
|
9
|
%
|
|
9
|
%
|
|
|
|
Our
sales and marketing expenses increased by 33% from RMB8,513 million in fiscal year 2015 to RMB11,307 million in fiscal year 2016. The increase was due primarily to an
increase in advertising and promotional spending mainly focused on strengthening consumer connection to our Taobao and Tmall brands,
especially in top tier cities, as well as to promote our new businesses initiatives, such as Fliggy and DingTalk, during fiscal year 2016. The increase was also due to an increase in share-based
compensation expense (an effect that we expect will continue, as discussed in "Share-based Compensation" above). Without the effect of share-based compensation expense, sales and marketing
expenses as a percentage of revenue would have remained stable at 9% in both fiscal year 2015 and fiscal year 2016.
146
Table of Contents
General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
General and administrative expenses
|
|
|
7,800
|
|
|
9,205
|
|
|
18
|
%
|
Percentage of revenue
|
|
|
10
|
%
|
|
9
|
%
|
|
|
|
Share-based compensation expense included in general and administrative expenses
|
|
|
3,741
|
|
|
4,413
|
|
|
18
|
%
|
Percentage of revenue
|
|
|
5
|
%
|
|
4
|
%
|
|
|
|
General and administrative excluding share-based compensation expense
|
|
|
4,059
|
|
|
4,792
|
|
|
18
|
%
|
Percentage of revenue
|
|
|
5
|
%
|
|
5
|
%
|
|
|
|
Our
general and administrative expenses increased by 18% from RMB7,800 million in fiscal year 2015 to RMB9,205 million in fiscal year 2016. The increase was primarily due
to a significant increase in share-based compensation expense (an effect that we expect will continue, as discussed in "Share-based Compensation" above),
as well as an increase of RMB353 million in professional services fees. Without the effect of share-based compensation expense, general and administrative expenses as a percentage of revenue in
fiscal year 2016 would have remained stable at 5% in both fiscal year 2015 and fiscal year 2016.
Amortization of Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Amortization of intangible assets
|
|
|
2,089
|
|
|
2,931
|
|
|
40
|
%
|
Percentage of revenue
|
|
|
3
|
%
|
|
3
|
%
|
|
|
|
Amortization
of intangible assets increased by 40% from RMB2,089 million in fiscal year 2015 to RMB2,931 million in fiscal year 2016. This increase was due to an increase
in intangible assets recognized arising from our strategic acquisitions and investments. Because of the recent major acquisitions we will consolidate, such as Youku Tudou and our controlling stake in
Lazada, we expect that our amortization of intangible assets will increase in the future.
Income from Operations and Operating Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
|
|
2015
|
|
2016
|
|
|
|
|
|
RMB
|
|
RMB
|
|
% Change
|
|
|
|
(in millions, except percentages)
|
|
Income from operations
|
|
|
23,135
|
|
|
29,102
|
|
|
26
|
%
|
Percentage of revenue
|
|
|
30
|
%
|
|
29
|
%
|
|
|
|
Our
income from operations increased by 26% from RMB23,135 million, or 30% of revenue in fiscal year 2015 to RMB29,102 million, or 29% of revenue, in fiscal year 2016. The
decrease in our operating margin was primarily attributable to investments in new business initiatives, such as our mobile operating systems, over-the-top TV services and entertainment, and also to an
increase in logistics costs, as discussed above.
147
Table of Contents
Adjusted EBITA and adjusted EBITA margin
Adjusted EBITA and adjusted EBITA margin by segments are set forth in the table below. See the table under the heading "Segment Information for
Fiscal Years 2015, 2016 and 2017" above for a reconciliation of income from operations to adjusted EBITA.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2015
|
|
2016
|
|
|
|
RMB
|
|
% of Segment
Revenue
|
|
RMB
|
|
% of Segment
Revenue
|
|
%
Change
|
|
|
|
(in millions, except percentages)
|
|
Core commerce
|
|
|
44,864
|
|
|
65
|
%
|
|
58,036
|
|
|
63
|
%
|
|
29
|
%
|
Cloud computing
|
|
|
(1,090
|
)
|
|
(86
|
)%
|
|
(1,252
|
)
|
|
(41
|
)%
|
|
15
|
%
|
Digital media and entertainment
|
|
|
(1,461
|
)
|
|
(67
|
)%
|
|
(1,810
|
)
|
|
(46
|
)%
|
|
24
|
%
|
Innovation initiatives and others
|
|
|
(1,617
|
)
|
|
(50
|
)%
|
|
(3,467
|
)
|
|
(191
|
)%
|
|
114
|
%
|
Adjusted EBITA increased by 29% to RMB58,036 million in fiscal year 2016, compared to RMB44,864 million in fiscal year 2015.
Adjusted EBITA margin decreased to 63% in fiscal year 2016 from 65% in fiscal year 2015, primarily due to an increase in logistics costs related to the fulfillment services provided by Cainiao Network
for Tmall Supermarket.
Adjusted EBITA in fiscal year 2016 was a loss of RMB1,252 million, compared to a loss of RMB1,090 million in fiscal year 2015.
Adjusted EBITA margin improved to negative 41% in fiscal year 2016 from negative 86% in fiscal year 2015, primarily due to robust growth in revenue and economies of scale.
Adjusted EBITA in the fiscal year 2016 was a loss of RMB1,810 million, compared to a loss of RMB1,461 million in fiscal year 2015.
Adjusted EBITA margin improved to negative 46% in fiscal year 2016 from negative 67% in fiscal year 2015, primarily due to improved margins at UCWeb driven by the increase in revenue from mobile
value-added services.
Adjusted EBITA in fiscal year 2016 was a loss of RMB3,467 million, compared to a loss of RMB1,617 million in fiscal year 2015.
Adjusted EBITA margin decreased to negative 191% in fiscal year 2016, compared to negative 50% in fiscal year 2015, primarily due to our investments in new business initiatives, such as our mobile
operating systems and DingTalk.
Interest and Investment Income, Net
Our net interest and investment income increased significantly from RMB9,455 million in fiscal year 2015 to RMB52,254 million in
fiscal year 2016. The increase was primarily due to a non-cash deemed disposal gain of RMB24,734 million arising from the deconsolidation of Alibaba Pictures, a non-cash gain of
RMB18,603 million from the revaluation of our previously held equity interest in Alibaba Health when we obtained control over Alibaba Health in fiscal year 2016, as well as gains arising from
disposals of certain investments and businesses. See note 4 to our audited consolidated financial statements for the years ended March 31, 2015, 2016 and 2017 included elsewhere in this
annual report for further information.
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Table of Contents
Interest Expense
Our interest expense decreased by 29% from RMB2,750 million in fiscal year 2015 to RMB1,946 million in fiscal year 2016. Interest
expense in fiscal year 2015 included a non-recurring charge for financing-related fees of RMB830 million as a result of the early repayment of our US$8.0 billion bank borrowings with
proceeds from our issuance of US$8.0 billion senior unsecured notes.
Other Income, Net
Our other income, net decreased by 17% from RMB2,486 million in fiscal year 2015 to RMB2,058 million in fiscal year 2016. The
decrease was primarily due to a decrease in income recognized in respect of royalty fees and software technology services fees from Ant Financial Services, which were RMB1,122 million in fiscal
year 2016, compared to RMB1,667 million in fiscal year 2015. The decrease in income recognized primarily resulted from increased marketing and promotion activities of Ant Financial Services to
drive its user growth and engagement, causing a decrease in its consolidated pre-tax income.
Income Tax Expenses
Our income tax expenses increased by 32% from RMB6,416 million in fiscal year 2015 to RMB8,449 million in fiscal year 2016. The
increase in income tax expenses was primarily due to the increase in taxable income from our operations in China. Our effective tax rate decreased to 10% in fiscal year 2016 from 20% in fiscal year
2015, primarily due to the non-cash gains relating to the deconsolidation of Alibaba Pictures and consolidation of Alibaba Health, as discussed in "Interest and Investment Income, Net" above, which
are not taxable for income tax purposes. Excluding the above gains and other non-taxable or non-deductible items, our effective tax rate remains stable.
Share of Results of Equity Investees
Share of losses of equity investees in fiscal year 2016 was RMB1,730 million, an increase of 9% compared to RMB1,590 million in
fiscal year 2015. Share of results of equity investee in fiscal year 2016 consisted of the following:
|
|
|
|
|
|
|
|
|
|
Year ended
March 31,
|
|
|
|
2015
|
|
2016
|
|
|
|
RMB
|
|
RMB
|
|
|
|
(in millions)
|
|
Share of results of equity investees:
|
|
|
|
|
|
|
|
Koubei
|
|
|
|
|
|
(867
|
)
|
Youku Tudou
|
|
|
(99
|
)
|
|
(391
|
)
|
Cainiao Network
|
|
|
(90
|
)
|
|
(295
|
)
|
Others
|
|
|
(275
|
)
|
|
62
|
|
Dilution gains
|
|
|
|
|
|
827
|
|
Impairment
|
|
|
(438
|
)
|
|
|
|
Others
|
|
|
(688
|
)
|
|
(1,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1,590
|
)
|
|
(1,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
increase in share of losses of equity investees in fiscal year 2016 compared to fiscal year 2015 was primarily due to our share of losses of Koubei, Youku Tudou and Cainiao Network,
partially offset by accounting gains related to dilution of our ownership interest in Cainiao Network and Evergrande FC, as these investees each raised capital at a higher valuation in fiscal year
2016. We established Koubei as a joint venture with Ant Financial Services in September 2015. Our share of Koubei's loss in fiscal year 2016 represents Koubei's high investments and promotional
spending during its start-up stage. We expect our share of losses of equity investees to decrease in the future.
149
Table of Contents
Net Income
As a result of the foregoing, our net income increased by 193% from RMB24,320 million in fiscal year 2015 to RMB71,289 million in
fiscal year 2016.
B. Liquidity and Capital Resources
We fund our operations and strategic investments from cash generated from our operations and through debt and equity financing. We generated
RMB41,217 million, RMB56,836 million, RMB80,326 million (US$11,670 million) of cash from operating activities for fiscal years 2015, 2016 and 2017, respectively. As of
March 31, 2017, we had cash and cash equivalents and short-term investments of RMB143,736 million (US$20,882 million) and RMB3,011 million (US$437 million),
respectively. Short-term investments consist primarily of investments in fixed deposits with maturities between three months and one year and investments in money market funds or other investments
whereby we have the intention to redeem within one year.
In
November 2014, we issued unsecured senior notes, including floating rate and fixed rate notes, with varying maturities for an aggregate principal amount of
US$8.0 billion. Interest on the unsecured senior notes are payable in arrears, quarterly for the floating rate notes and semiannually for the fixed-rate notes. We used the proceeds from the
issuance of the unsecured senior notes to refinance our previous syndicated loan arrangements in the same amount. We are not subject to any financial covenant or other significant covenants or
restrictions under the unsecured senior notes. In December 2015, we completed an exchange offer to exchange our outstanding unsecured senior notes for unsecured senior notes that have been
registered under the Securities Act. See note 20 to our audited consolidated financial statements for the years ended March 31, 2015, 2016 and 2017 included elsewhere in this annual
report for further information.
In
March 2016, we signed a five-year US$3.0 billion syndicated loan agreement with a group of eight lead arrangers which was subsequently drawn down in April 2016.
The loan was upsized from US$3.0 billion to US$4.0 billion in May 2016 through a general syndication and the upsized portion was subsequently drawn down in August 2016. The
loan has a five-year bullet maturity and is priced at 110 basis points over LIBOR. The use of proceeds of the loan is for general corporate and working capital purposes (including funding our
acquisitions).
In
April 2017, we entered into a revolving credit facility agreement with certain financial institutions for an amount of US$5.15 billion which has not yet been drawn down,
to replace our US$3.0 billion undrawn revolving credit facility. The interest rate for this credit facility is calculated based on LIBOR plus 95 basis points. This loan facility is
reserved for future general corporate and working capital purposes (including funding our acquisitions).
As
of March 31, 2017, we also had other bank borrowings of RMB9,561 million (US$1,389 million), primarily used for the construction of corporate campuses and office
facilities and other working capital purposes. See note 19 to our audited consolidated financial statements for the years ended March 31, 2015, 2016 and 2017 included elsewhere in this
annual report for further information.
The
following table sets out a summary of our cash flows for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended March 31,
|
|
|
|
2015
|
|
2016
|
|
2017
|
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in millions)
|
|
Net cash provided by operating activities
|
|
|
41,217
|
|
|
56,836
|
|
|
80,326
|
|
|
11,670
|
|
Net cash used in investing activities
|
|
|
(53,454
|
)
|
|
(42,831
|
)
|
|
(78,364
|
)
|
|
(11,385
|
)
|
Net cash provided by (used in) financing activities
|
|
|
87,497
|
|
|
(15,846
|
)
|
|
32,914
|
|
|
4,782
|
|
We
believe that our current levels of cash and cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next twelve months. However, we may need
additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions, which may include investing in
technology, our underlying technical infrastructure, including data management and analytics solutions, or related talent. If we determine that our cash requirements exceed our
150
Table of Contents
amounts
of cash on hand or if we decide to further optimize our capital structure, we may seek to issue additional debt or equity securities or obtain credit facilities or other sources
of funding.
Cash Provided by Operating Activities
Cash provided by operating activities in fiscal year 2017 was RMB80,326 million (US$11,670 million) and primarily consisted of net
income of RMB41,226 million (US$5,989 million), as adjusted for non-cash items and the effects of changes in working capital and other activities. Adjustments for non-cash items
primarily included RMB15,995 million (US$2,324 million) of share-based compensation expense, RMB9,008 million (US$1,309 million) of amortization of intangible assets and
licensed copyrights of video content, realized and unrealized gain of RMB5,488 million (US$797 million) related to investment securities, RMB5,284 million (US$768 million)
of depreciation and amortization of property and equipment and land use rights and RMB5,027 million (US$730 million) of share of results of equity investees. Changes in working capital
and other activities primarily consisted of an increase of RMB5,312 million (US$772 million) in accrued expenses, accounts payable and other current liabilities as a result of the growth
of our business, an increase of RMB4,698 million (US$683 million) in income tax payable and an increase of RMB4,611 million (US$670 million) in deferred revenue and
customer advances, partially offset by an increase of RMB8,237 million (US$1,197 million) in prepayment, receivables and other assets.
Cash
provided by operating activities in fiscal year 2016 was RMB56,836 million and primarily consisted of net income of RMB71,289 million, as adjusted for non-cash items
and the effects of changes in working capital and other activities. Adjustments for non-cash items primarily included a deemed disposal gain of RMB24,734 million arising from the
deconsolidation of Alibaba Pictures, a gain of RMB18,603 million from the revaluation of our previously held equity interest related to Alibaba Health, RMB16,082 million of share-based
compensation expense, RMB3,770 million of depreciation and amortization of property and equipment and land use rights, RMB3,278 million of amortization of intangible assets and licensed
copyrights of video content and a gain of RMB3,089 million from disposals of equity investees. Changes in working capital and other activities primarily consisted of an increase of
RMB7,757 million in accrued expenses, accounts payable and other current liabilities as a result of the growth of our business and an increase of RMB2,350 million in deferred revenue and
customer advances, partially offset by an increase of RMB4,504 million in prepayment, receivables and other assets.
Cash
provided by operating activities in fiscal year 2015 was RMB41,217 million and primarily consisted of net income of RMB24,320 million, as adjusted for non-cash items
and the effects of changes in working capital and other activities. Adjustments for non-cash items primarily included RMB13,028 million of share-based compensation expense, a net gain from our
step acquisitions arising from revaluation of previously held equity interests totaling RMB6,535 million, RMB2,326 million of depreciation and amortization of property and equipment and
land use rights, RMB2,173 million of amortization of intangible assets and licensed copyrights of video content and RMB1,659 million of deferred income taxes. Changes in working capital
and other activities primarily consisted of
an increase of RMB10,494 million in accrued expenses, accounts payable and other current liabilities as a result of the growth of our business and an increase of RMB2,490 million in
merchant deposits, which relate to merchants operating on Tmall, partially offset by an increase of RMB14,138 million in prepayments, receivables and other assets, as a result of the increase
in loan receivables relating to the SME loan business before we transferred this business to Ant Financial Services. See "Item 7. Major Shareholders and Related Party
Transactions B. Related Party Transactions Agreements and Transactions Related to Ant Financial Services and its
Subsidiaries 2014 Restructuring of Our Relationship with Ant Financial Services and Alipay."
Cash Used in Investing Activities
Cash used in investing activities was RMB78,364 million (US$11,385 million) in fiscal year 2017 and was primarily attributable to
RMB77,552 million (US$11,267 million) in acquisition of available-for-sale securities, held-to-maturity securities and equity investments mainly held for strategic purposes, including
Suning, Ele.me, Didi Chuxing, Paytm and Weibo, and cash paid for business combinations, net of cash acquired, including Youku
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and Lazada, acquisition of equipment, intangible assets and construction in progress of RMB17,546 million (US$2,549 million) primarily in connection with the purchase of computer
equipment, intangible assets and licensed copyrights of video content, as well as the continued expansion of our corporate campuses, partially offset by proceeds from disposal of subsidiaries, equity
investees, available-for-sale securities and held-to-maturity securities of RMB9,545 million (US$1,387 million) and net decrease in short-term investments of RMB5,761 million
(US$836 million).
Cash
used in investing activities was RMB42,831 million in fiscal year 2016 and was primarily attributable to RMB54,483 million in acquisition of available-for-sale
securities, held-to-maturity securities and equity investments mainly held for strategic purposes, including Ele.me, Koubei, Magic Leap, CMC and Cainiao Network, and cash paid for business
combinations, net of cash acquired, acquisition of equipment, intangible assets and construction in progress of RMB10,845 million primarily in connection with the purchase of computer equipment
and the continued expansion of our corporate campuses, partially offset by proceeds from disposal of subsidiaries, equity investees, available-for-sale securities and held-to-maturity securities of
RMB17,088 million and net decrease in short-term investments of RMB4,619 million.
Cash
used in investing activities was RMB53,454 million in fiscal year 2015 and was primarily attributable to RMB35,231 million in acquisition of available-for-sale
securities, held-to-maturity securities and equity investments
mainly held for strategic purposes, including Youku Tudou, Intime, Meizu, Weibo and SingPost, RMB10,255 million in cash paid for business combinations, net of cash acquired, including AutoNavi,
UCWeb and OneTouch and acquisitions of equipment, intangible assets and construction in progress of RMB7,705 million primarily in connection with the purchase of computer equipment and the
continued expansion of our corporate campus.
Cash Provided by (Used in) Financing Activities
Cash provided by financing activities was RMB32,914 million (US$4,782 million) in fiscal year 2017, and was primarily attributable
to net proceeds from borrowings of RMB29,333 million (US$4,262 million) and proceeds from issuance of ordinary shares of RMB14,607 million (US$2,122 million), primarily
representing shares issued to Suning, partially offset by cash used in share repurchase of RMB13,182 million (US$1,915 million). See "Item 16E. Purchases of Equity Securities by
the Issuer and Affiliated Purchasers" for further information.
Cash
used in financing activities was RMB15,846 million in fiscal year 2016, and was primarily attributable to cash used in share repurchase of RMB19,795 million, partially
offset by net proceeds from borrowings of RMB2,478 million.
Cash
provided by financing activities was RMB87,497 million in fiscal year 2015, and was primarily attributable to the issuance of ordinary shares of RMB61,831 million in
connection with our initial public offering in September 2014 and the additional drawdown of US$3.0 billion under our previous syndicated loan arrangement in April 2014, which was
refinanced with the proceeds from the US$8.0 billion unsecured senior notes issued in November 2014.
Capital Expenditures
Our capital expenditures have been incurred primarily in relation to (1) the acquisition of land use rights and construction of corporate
campuses and office facilities in Hangzhou, Beijing, Guangzhou and Shenzhen; and (2) the acquisition of computer equipment relating to the operation of our websites, furniture and office
equipment and leasehold improvements for our office facilities. In fiscal years 2015, 2016 and 2017, our capital expenditures totaled RMB7,705 million, RMB10,845 million and
RMB17,546 million (US$2,549 million), respectively.
Holding Company Structure
We are a holding company with no operation other than ownership of operating subsidiaries in Hong Kong, China and elsewhere that own and operate
our marketplaces and other businesses as well as a portfolio of
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property rights. As a result, we rely on dividends and other distributions paid by our operating subsidiaries, including funds to pay dividends to our shareholders or to service our
outstanding debts. If our operating subsidiaries incur additional debt on their own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries to
pay dividends or make other distributions to us. In addition, applicable PRC law permits payment of dividends to us by our operating subsidiaries in China only out of their net income, if any,
determined in accordance with PRC accounting standards and regulations. Moreover, our operating subsidiaries in China are also required to set aside a portion of their net income, if any, each year to
fund general reserves for appropriations until this reserve has reached 50% of the related subsidiary's registered capital. These reserves are not distributable as cash dividends. In addition,
registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. As of March 31, 2017,
these restricted net assets totaled RMB45,472 million (US$6,606 million). See note 23 to our audited consolidated financial statements for the years ended March 31, 2015,
2016 and 2017 included elsewhere in this annual report.
Our
holding company structure differs from some of our peers in that we hold our material assets and operations, except for ICP and other licenses for regulated activities as well as
certain equity investments in restricted businesses, in our wholly-foreign owned enterprises and most of our revenue is generated directly by the wholly-foreign owned enterprises. As revenue is
generated directly by our wholly-foreign owned enterprises, the wholly-foreign owned enterprises directly capture the profits and associated cash flow from operations, without having to rely on
contractual arrangements to transfer cash flow from the variable interest entities to the wholly-foreign owned enterprises. In fiscal years 2015, 2016 and 2017, the significant majority of our
revenues were generated by our wholly-foreign owned enterprises in China. See "Item 4. Information on the Company C. Organizational Structure" for
a description of these contractual arrangements and the structure of our company.
Inflation
Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of
China, the year-over-year increase in the consumer price index in calendar years 2014, 2015 and 2016 was 2.0%, 1.4% and 2.0%, respectively. Although we have not been materially affected by inflation
in the past, we can provide no assurance that we will not be affected in the future by higher inflation rates in China.
Critical Accounting Policies and Estimates
Our significant accounting policies are set forth in note 2 to our audited consolidated financial statements included elsewhere in
this annual report. The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial
statements. These estimates and assumptions are periodically re-evaluated by management and are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Actual results may differ significantly from those estimates and assumptions. We have identified the following accounting policies as the most
critical to an understanding of our financial position and results of operations, because the application of these policies requires significant and complex management estimates, assumptions and
judgment, and the reporting of materially different amounts could result if different estimates or assumptions were used or different judgments were made.
Principles of Consolidation
A subsidiary is an entity in which (i) we directly or indirectly control more than 50% of the voting power; or (ii) we have the
power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meetings of the board of directors or to govern the financial and operating
policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders. However, there are situations in which consolidation is required even though these usual
conditions of consolidation do not apply. Generally, this occurs when an entity holds an interest in another business enterprise that was achieved through arrangements that do not involve voting
interests, which results in a disproportionate relationship between the
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entity's
voting interests in, and its exposure to the economic risks and potential rewards of, the other business enterprise. This disproportionate relationship results in what is known as a variable
interest, and the entity in which we have the variable interest is referred to as a "VIE." We consolidate a VIE if we are determined to be the primary beneficiary of the VIE. The primary beneficiary
has both (i) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (ii) the obligation to absorb losses or the right to
receive benefits from the VIE that could potentially be significant to the VIE.
For
the entities that we invested in or are associated with but in which the usual conditions of consolidation mentioned above do not apply, we continuously reassess whether these
entities possess any of the characteristic of a VIE and whether we are the primary beneficiary.
We
consolidate our subsidiaries and the VIEs of which we are the primary beneficiary. On a periodic basis, we reconsider the initial determination of whether a legal entity is a
consolidated entity upon the occurrence of certain events listed in ASC 810-10-35-4. We also continuously reconsider whether we are the primary beneficiary of our affiliated entities as facts and
circumstances change.
Recognition of Revenue
Revenue is principally comprised of online marketing services revenue, commissions on transactions, membership and storefront fees and cloud
computing services revenue. Revenue represents the fair value of the consideration received or receivable for the provision of services in the ordinary course of our activities and is recorded net of
VAT. Consistent with the criteria of ASC 605 "Revenue Recognition," we recognize revenue when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been provided, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.
The
application of various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements
with non-standard terms and conditions may require significant contract interpretation to determine the appropriate accounting treatment, including whether the deliverables specified in a multiple
element arrangement should be treated as separate units of accounting. Other significant judgments include determining whether we are acting as the principal or the agent from an accounting
perspective in a transaction.
For
multiple element arrangements with customers, which primarily relate to the sale of membership packages and online marketing services on our wholesale marketplaces and Youku Tudou's
platforms, the arrangement consideration is allocated at the inception of the arrangement to each element based on their relative fair values for revenue recognition purposes. The consideration is
allocated to each element using vendor-specific objective evidence or third-party evidence of the standalone selling price for each deliverable, or if neither type of evidence is available, using
management's best estimate of selling price. Significant judgment is required in assessing the fair values of these elements by considering standalone selling price and other observable data. Changes
in the estimated fair values may cause the revenue recognized for each element to change but not the total amount of revenue allocated within a contract. We periodically re-assess the fair value of
the elements as a result of changes in market conditions. These multiple element arrangements are currently not significant to our operations. Revenue recognition for P4P marketing service and display
marketing on our retail marketplaces does not require our management to exercise significant judgment or estimate.
For
other arrangements, we apply significant judgment in determining whether we are acting as the principal or agent in a transaction; we record P4P marketing services revenue and
display marketing revenue generated through third-party marketing affiliate programs on a gross basis; and revenue relating to the Taobaoke program generated through third-party marketing affiliate
partners' websites where we do not take inventory risks on a net basis. In addition, revenue generated from certain platforms in which we operate as a primary obligor is reported on a gross basis
while this revenue was insignificant for each of the periods presented. Generally, when we are primarily obligated in a transaction and are subject to inventory risk or have latitude in establishing
prices, or have several but not all of these indicators, we record revenue on a gross basis. We record the net amount as revenue
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earned
if we are not primarily obligated and do not have inventory risk or latitude in establishing prices and selecting suppliers. These judgments could have significant implications on the amount of
revenue we recognize.
Share-based Compensation Expense and Valuation of the Underlying Awards
Granting of share options, restricted shares and RSUs relating to our ordinary shares
We account for various types of share-based awards granted to the employees, consultants and directors of our company, our affiliates and
certain other companies, such as Ant Financial Services, in accordance with the authoritative guidance on share-based compensation expense. Under the fair value recognition provision of this guidance,
compensation for share-based awards granted, including share options, restricted shares and RSUs, is measured at the grant date, or at future vesting date in the case of consultants or other
non-employee grantees, based on the fair value of the awards and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award, on an
accelerated attribution method. In the case of share-based awards to non-employees, the fair value of the unvested portion is re-measured each period, with the resulting difference, if any, recognized
as expense during the period the related services are rendered. Under the accelerated attribution method, each vesting installment of a graded vesting award is treated as a separate share-based award,
and accordingly each vesting installment is separately measured and attributed to expense, resulting in accelerated recognition of share-based compensation expense.
Share-based
compensation expense is recorded net of estimated forfeitures in our consolidated income statements and as such is recorded for only those share-based awards that we expect
to vest. We estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes in facts and circumstances, if any. We revise our estimated forfeiture
rate if actual forfeitures significantly differ from our initial estimates.
Determining
the fair value of share-based awards requires significant judgment. We estimated the fair value of our share options using the Black-Scholes option-valuation model, which
requires inputs such as the fair value of our ordinary shares, risk-free interest rate, expected dividend yield, expected life and expected volatility on the following
assumptions:
-
-
Fair value of our ordinary shares prior to our initial public offering in September 2014, the
fair value was determined based on management estimates, as discussed in the paragraphs below. Subsequent to our initial public offering, the market price of our publicly traded ADSs is used as an
indicator of fair value for our ordinary shares.
-
-
Risk free interest rate the risk free interest rate is based on the yields of U.S. Treasury
securities with maturities similar to the expected life of the share options.
-
-
Expected dividend yield we have never declared or paid any cash dividends on our ordinary shares and do
not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.
-
-
Expected life the expected term was estimated based on the average between the vesting period and the
contractual term.
-
-
Expected volatility as we have a short period of trading history for our ordinary shares, the expected
volatility for our ordinary shares was estimated by taking the average historical price volatility for our industry peers based on the price fluctuations of their shares over a period equivalent to
the expected term of the share options granted. Industry peers consist of several public companies in the technology industry similar in size, which are engaged in similar business sectors in China
and worldwide. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our
own ordinary share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are
publicly available would be utilized in the calculation.
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The fair value of restricted shares and RSUs is determined based on the fair value of our ordinary shares.
Prior
to our initial public offering in September 2014, in the absence of a public trading market, the determination of the fair value of our ordinary shares by the administrators
was made with reference to the price at which we had recently sold our ordinary shares to third-party investors, or other representative private share sale transactions entered into on an arms-length
basis known to us. If references were not available, the valuations of our ordinary shares were determined in accordance with the guidelines outlined in the American Institute of Certified Public
Accountants' Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, and with the assistance of an independent appraisal firm from time to time. The assumptions we
use in the valuation model to determine the fair value of our ordinary shares are based on future expectations combined with management judgment, with inputs of numerous objective and subjective
factors such as our operating and financial performance, expected growth rates, expected profit margins and the market performance of industry peers.
In
order to determine the fair value of our ordinary shares underlying each share-based award grant, we first determined our business enterprise value, or BEV, and then allocated the BEV
to each element of our capital structure (convertible preference shares and ordinary shares) using a hybrid method comprising the
probability-weighted expected return method and the option pricing method. In our case, two scenarios were assumed, namely: (i) the redemption scenario, in which the option pricing method was
adopted to allocate the value between convertible preference shares and ordinary shares, and (ii) the mandatory conversion scenario, in which equity value was allocated to convertible
preference shares and ordinary shares on an as-if converted basis. Increasing probability was assigned to the mandatory conversion scenario in light of preparations for our initial public offering.
Before
April 2014, our BEV was estimated using a combination of two generally accepted approaches: the market approach using the guideline company method, or GCM, and the income
approach using the discounted cash flow method, or DCF. The market approach considers valuation metrics based on trading multiples of a selected industry peer group of companies. The DCF method
estimates enterprise value based on the estimated present value of future net cash flows that the business is expected to generate over a forecasted period and an estimate of the present value of cash
flows beyond that period, which is referred to as terminal value. The estimated present value is calculated using a discount rate based on the guideline companies' weighted average cost of capital,
which accounts for the time value of money and the appropriate degree of risks inherent in the business. The GCM and DCF methods are then weighted equally in determining our BEV.
In
addition to the GCM and DCF methods, starting from April 2014, the market transaction method, or MTM, was also adopted. MTM considers recent transactions of secondary shares by
our existing shareholders, which indicate the equity value of the underlying business being evaluated. We assigned a 50% weight to MTM and the remaining 50% weight equally to GCM and DCF.
Subsequent
to our initial public offering in September 2014, the market price of our publicly traded ADSs is used as an indicator of fair value of our ordinary shares.
If
the fair value of the underlying equity and any of the assumptions used in the Black-Scholes model changes significantly, share-based compensation expense for future awards may differ
materially compared with the awards granted previously.
We offered selected members of the Alibaba Partnership and they have subscribed for rights to acquire our restricted shares. The rights offered
before 2016 were not subject to any vesting conditions and entitled the holders to purchase restricted shares at a price of US$14.50 per share during a four-year period. Upon the exercise of these
rights, the underlying ordinary shares may not be transferred for a period of eight years from the date of subscription of the relevant rights. The rights offered in 2016 and the underlying restricted
shares are subject to certain service provisions that are not related to employment, and the holders are entitled to purchase restricted
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shares
at a price of US$23.00 per share over a period of ten years from the vesting commencement date. The fair value of the rights was determined by the Black-Scholes option-valuation model. For the
rights offered before 2016, a discount for post-vesting sales restriction was applied to arrive at the estimated value of the restricted shares. We recorded share-based compensation expense equivalent
to the entire fair value of these rights less the initial subscription price in the period of subscription. For the rights offered in 2016, we will recognize share-based compensation expense
equivalent to the entire fair value of these rights over the requisite service period.
Junhan made grants of certain share-based awards similar to share appreciation awards linked to the valuation of Ant Financial Services to a
substantial number of our employees. The vesting of these awards is conditional upon the fulfillment of requisite services to us, and these awards will be settled in cash by Junhan upon their disposal
by the holders. Junhan has the right to repurchase the vested awards from the holders upon an initial public offering of Ant Financial Services or the termination of the employment of the employees
with us at a price to be determined based on the then fair market value of Ant Financial Services. We have no obligation to reimburse Junhan, Ant Financial Services or its subsidiaries for the cost
associated with these awards. The cost relating to the share-based awards is recognized by us as a shareholder contribution as the awards will ultimately be settled in cash by Junhan. The awards meet
the definition of a financial derivative and are initially measured at their fair value, and the related share-based compensation expense will be recognized over the requisite service period.
Subsequent changes in the fair value of the awards are recorded in the consolidated income statements through the date on which the underlying awards are settled by Junhan. See note 8(d)
to our audited consolidated financial statements for the years ended March 31, 2015, 2016 and 2017 included elsewhere in this annual report. The fair values of the underlying equity are
primarily determined by reference to the BEV of Ant Financial Services which is based on the contemporaneous valuation reports or recent financing transactions. Given that the determination of the BEV
of Ant Financial Services requires the judgments and is beyond our control, the magnitude of the related accounting impact is unpredictable and may affect our consolidated income statements
significantly.
As
of March 31, 2017, the total unamortized share-based compensation expense related to (i) ordinary shares of us and our subsidiaries and (ii) awards linked to the
valuation of Ant Financial Services that we expect to recognize was RMB13,958 million (US$2,028 million) and RMB1,039 million (US$151 million), respectively, with a
weighted-average remaining requisite service period of 2.1 years and 1.6 years, respectively. To the extent the actual forfeiture rate is different from what we have anticipated,
share-based compensation expense related to these awards will be different. Furthermore, share-based compensation expense will be affected by changes in the fair value of our shares, as certain
share-based awards were granted to non-employees where the unvested portions of the awards are re-measured at each reporting date through the vesting dates in the future. As of March 31, 2017,
347,513 outstanding share options and 4,594,874 outstanding RSUs were held by non-employees, who consist primarily of employees of Ant Financial Services. In addition, share-based
compensation expense will also be
affected by changes in the fair value of awards granted to our employees by Junhan, which is controlled by Jack Ma. Ant Financial Services has informed us that they expect Junhan will also
issue additional share-based awards to our employees from time to time in the future. See "Item 7. Major Shareholders and Related Party Transactions B.
Related Party Transaction Agreements and Transactions Related to Ant Financial Services and its Subsidiaries Ownership
of Ant Financial Services and Alipay." The expenses associated with these awards will be recognized across the functions in which the award recipients are employed and may continue to be significant
in future periods.
Recognition of Income Taxes and Deferred Tax Assets/Liabilities
We are mainly subject to income tax in China, but are also subject to taxation on profit arising in or derived from the tax jurisdiction where
our subsidiaries are domiciled and operate outside China. Income taxes are assessed and determined on an entity basis. There are transactions (including entitlement to preferential tax treatment and
deductibility of expenses) where the ultimate tax determination is uncertain until the final tax
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is confirmed by relevant tax authorities. In addition, we recognize liabilities for anticipated tax audit issues based on estimates of whether additional taxes could be due. Where the final
tax outcome of these matters is different from the amounts that were initially recorded, the differences will impact the income tax and deferred tax provisions in the period in which the determination
is made.
Deferred
income tax is recognized for all temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be
available in the future against which the temporary differences, the carry forward of unused tax credits and unused tax losses could be utilized. Deferred income tax is provided in full, using the
liability method. The deferred tax assets recognized are mainly related to the temporary differences arising from amortization of licensed copyrights of video content and accrued expenses which are
not deductible until paid under the applicable PRC tax laws. We have also recognized deferred tax liabilities on the undistributed earnings generated by our subsidiaries in China, which are subject to
withholding taxes when they resolve to distribute dividends to us. As of March 31, 2017, we have fully accrued the withholding tax on the earnings distributable by all of our subsidiaries in
China, except for those undistributed earnings that we intend to invest indefinitely in China. If our intent changes or if these funds are in fact distributed outside China, we would be required to
accrue or pay the withholding tax on some or all of these undistributed earnings and our effective tax rate would be adversely affected.
Fair Value Determination Related to the Accounting for Business Combinations
A component of our growth strategy has been to acquire and integrate complementary businesses into our ecosystem. We complete business
combinations from time to time which require us to perform purchase price allocations. In order to recognize the fair value of assets acquired and liabilities assumed, mainly consisting of intangible
assets and goodwill, as well as the fair value of any contingent consideration to be recognized, we use valuation techniques such as discounted cash flow analysis and ratio analysis in comparison to
comparable companies in similar industries under the income approach, market approach and cost approach. Major factors considered include historical financial results and assumptions including future
growth rates, an estimate of weighted average cost of capital and the effect of expected changes in regulation. Most of the valuations of our acquired businesses have been performed by independent
valuation specialists under our management's supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and
estimates that market participants would use. However, these assumptions are inherently uncertain and actual results could differ from those estimates.
Fair Value Determination Related to Financial Instruments Accounted for at Fair Value
We have a significant amount of investments and liabilities that are classified as Level 2 and Level 3 according to ASC 820 "Fair
Value Measurement." The valuations for the investments and liabilities classified as Level 2 relating to financial derivatives, interest rate swaps and forward exchange contracts are provided
by independent third parties such as the custodian banks. The valuations for the investments and liabilities classified as Level 3 relating to investment securities accounted for under the fair
value option and contingent consideration in relation to investments and acquisitions are determined based on unobservable inputs, such as historical financial results and assumptions about future
growth rates, which require significant judgment to determine the future outcome of these contingencies.
Impairment Assessment on Goodwill and Intangible Assets
We test annually, or whenever events or circumstances indicate that the carrying value of assets exceeds the recoverable amounts, whether
goodwill and intangible assets have suffered any impairment in accordance with the accounting policy stated in note 2 to our audited consolidated financial statements included elsewhere
in this annual report. For the impairment assessment on goodwill, we have elected to perform a qualitative assessment to determine whether the two-step impairment testing of goodwill is necessary. In
this assessment, we consider primary factors such as industry and market considerations, overall financial performance
of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than
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not
that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed.
For
the quantitative assessment of goodwill impairment, we identify the reporting units and compare the fair value of each reporting unit to its carrying amount, including goodwill. If
the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit
exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill.
For
intangible assets other than licensed copyrights of video content, we perform an impairment assessment whenever events or changes in circumstances indicate the carrying value of an
asset may not be recoverable. These assessments primarily use cash flow projections based on financial forecasts prepared by management and an estimated terminal value. The expected growth in revenues
and operating margin, timing of future capital expenditures, an estimate of weighted average cost of capital and terminal growth rate are based on actual and prior year performance and market
development expectations. The periods of the financial forecasts generally range from three to five years or a longer period if necessary. Judgment is required to determine key assumptions adopted in
the cash flow projections and changes to key assumptions can significantly affect these cash flow projections and the results of the impairment tests.
Impairment Assessment on Licensed Copyrights of Video Content
We evaluate the program usefulness of licensed copyrights of video content pursuant to the guidance in ASC 920
"Entertainment Broadcasters" which provides that the rights be reported at the lower of unamortized cost or estimated net realizable value. When there is a
change in the expected usage of licensed copyrights of video content, we estimate net realizable value of licensed copyrights of video content to determine if any impairment exists. The net realizable
value of licensed copyrights of video content is determined by estimating the expected cash flows from advertising, less any direct costs, over the remaining useful lives of the licensed copyrights.
We monetize our licensed copyrights with branding customers based on the different content channels available on our entertainment distribution platforms. Therefore, we estimate advertising cash flows
for each category of content separately, such as movies, television series, variety shows, animations and other video content. Estimates that impact advertising cash flows include anticipated levels
of demand for our advertising services and the expected selling prices of advertisements. Judgment is required to determine the key assumptions
adopted in the cash flow projections and changes to key assumptions can significantly affect these cash flow projections and the results of the impairment tests.
Impairment Assessment on Investments in Equity Investees
We continually review our investments in equity investees to determine whether a decline in fair value below the carrying value is
"other-than-temporary." The primary factors that we consider include:
-
-
the severity and length of time that the fair value of the investment is below its carrying value;
-
-
the stage of development, the business plan, the financial condition, the sufficiency of funding and the operating performance of the investee
companies; strategic collaboration with and the prospects of the investee companies;
-
-
the geographic region, market and industry in which the investee companies operate; and
-
-
other entity specific information such as recent financing rounds completed by the investee companies and post balance sheet date fair value of
the investment.
Fair
value of the listed securities is subject to volatility and may be materially affected by market fluctuations. Judgment is required to determine the weighting and impact of the
aforementioned factors and changes to such determination can significantly affect the results of the impairment tests.
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The
market value of our investment in Alibaba Pictures has remained below its carrying value based on its quoted market prices since July 2015. Our original investment amount in
Alibaba Pictures was RMB4,955 million, which was paid in June 2014. As a result of the placement of newly issued ordinary shares to third-party investors by Alibaba Pictures which
diluted our equity interest to 49.5%, we de-consolidated the financial results of Alibaba Pictures in June 2015, and recognized a significant accounting gain of RMB24,734 million based
on a revaluation of our remaining equity interest in Alibaba Pictures in accordance with ASC 810 under U.S. GAAP, together with a corresponding significant increase to the carrying value of our
investment in Alibaba Pictures. As of March 31, 2017, the carrying value of our investment in Alibaba Pictures was RMB30,102 million (US$4,373 million) and the difference between
the market value and the carrying value amounted to RMB14,487 million (US$2,105 million).
We
believe the decline is temporary on the basis that:
-
-
Alibaba Pictures is currently in the early stage of business development in a high growth industry and has sufficient funding to execute its
business plans for the foreseeable future;
-
-
it has been growing its business according to its business plan, more than doubling its revenue for its fiscal year ended December 31,
2016 as compared to the prior year while reducing net loss by approximately 50% as compared to the original forecast;
-
-
it has established a leading position in the online movie ticketing market in China; and
-
-
we expect a stronger business performance by Alibaba Pictures as well as closer business collaboration with us under its newly appointed senior
management.
We
have also considered the implied market value of Alibaba Pictures with reference to price-to-earnings ratios of comparable companies and the results of a valuation conducted by an
independent valuer.
We
believe that the decline in market price of Alibaba Pictures is primarily due to its loss position and limited awareness among investors of its long term business prospects. After
assessing relevant positive and negative evidence, and considering that we have both the ability and intent to hold this investment, we determined that the decline in market value against its carrying
amount was not "other-than-temporary."
Depreciation and Amortization
The costs of property and equipment and intangible assets are charged ratably as depreciation and amortization expenses, respectively, over the
estimated useful lives of the respective assets using the straight-line method. We periodically review changes in technology and industry conditions, asset retirement activity and residual values to
determine adjustments to estimated remaining useful lives and depreciation and amortization rates. Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a
change in estimated useful lives and therefore depreciation and amortization expenses in future periods.
Allowance for Doubtful Accounts Relating to VAT Receivables
VAT receivables mainly represent receivables from relevant PRC tax authorities in relation to OneTouch's VAT refund service. We record
allowances for doubtful accounts primarily on VAT receivables according to our best estimate of the losses inherent in the outstanding portfolio of VAT receivables. The collection periods for the VAT
receivables generally range from three to six months. We estimate the allowances by multiplying pre-determined percentages to the outstanding VAT receivable amounts based on the aging of the VAT
receivables or any events that may affect the collectability of the VAT receivables. We monitor the aging of the VAT receivables and assess the collectability of these VAT receivables. Judgment is
required to determine the percentages used to determine the allowance amounts and whether the amounts are adequate to cover potential bad debts, and periodic reviews are performed to ensure the
percentages continue to reflect our best estimate of the inherent losses based on our assessment of the merchants' ability to repay the loans or the collectability of the VAT receivables.
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Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2014-09, "Revenue from
Contracts with Customers (Topic 606)" and issued subsequent amendments to the initial guidance or implementation guidance between August 2015 and December 2016 within ASU 2015-04,
ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20 (collectively, including ASU 2014-09, "ASC 606"). ASC 606 supersedes the revenue recognition requirements in ASC 605 and
requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. The new guidance is effective retrospectively for us for the year ending March 31, 2019 and interim reporting periods during the year ending
March 31, 2019, with early application permitted only for the annual reporting period ending March 31, 2018 and interim reporting periods during the year ending March 31, 2018.
The new guidance is required to be applied either retrospectively to each prior reporting period presented (the "full retrospective method") or retrospectively with the cumulative effect of
initially applying the guidance recognized at the date of initial application (the "modified retrospective method"). We are currently evaluating whether we will apply the full retrospective
method or the modified retrospective method. We are also evaluating the existing revenue recognition policies and currently we believe that the identification of performance obligations may have an
impact on the timing and measurement of certain fees paid by merchants under ASC 606.
In
November 2015, the FASB issued ASU 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes," which simplifies the presentation of deferred income
taxes by requiring deferred tax assets and liabilities be classified as non-current on the consolidated balance sheet. The new guidance is effective for us for the year ending March 31, 2018
and interim reporting periods during the year ending March 31, 2018. Early adoption is permitted. The new guidance may be applied either prospectively to all deferred tax assets and liabilities
or retrospectively to all periods presented. We are evaluating the effects, if any, of the adoption of this revised guidance on our financial position, results of operations or cash flows. At this
time, we do not expect this accounting standard update to have a material impact on the consolidated financial statements.
In
January 2016, the FASB issued ASU 2016-01, "Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities," which amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to our consolidated financial
statements, the most significant impact relates to the accounting for equity investments (except for those accounted for under the equity method or those that result in the consolidation of the
investee). Under the new guidance, equity investments are required to be measured at fair value with changes in fair value recognized in net income, except for investments that do not have readily
determinable fair values. The new guidance also simplifies the impairment assessment and enhances the disclosure requirements of equity investments. The new guidance is effective for us for the year
ending March 31, 2019 and interim reporting periods during the year ending March 31,
2019. Early adoption is permitted only for certain provisions. We are evaluating the effects, if any, of the adoption of this revised guidance on our financial position, results of operations or
cash flows.
In
February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" to increase transparency and comparability among organizations by recognizing lease assets and lease
liabilities on the consolidated balance sheet and disclosing key information about leasing arrangements. ASU 2016-02 creates a new topic in ASC 842 "Leases" to replace the current topic in ASC
840 "Leases." ASU 2016-02 affects both lessees and lessors, although for the latter the provisions are similar to the current model, but are updated to align with certain changes to the lessee
model and also the new revenue recognition provisions contained in ASC 606. The new guidance is effective for us for the year ending March 31, 2020 and interim reporting periods during the year
ending March 31, 2020. Early adoption is permitted. We are evaluating the effects, if any, of the adoption of this revised guidance on our financial position, results of operations or
cash flows.
In
March 2016, the FASB issued ASU 2016-07, "Investments Equity Method and Joint Ventures (Topic 323), Simplifying the Transition to
the Equity Method of Accounting," to simplify the accounting for equity method investments, which eliminates the requirement in ASC 323 "Investments Equity
method and Joint
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Ventures"
that an entity retroactively adopts the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership or degree of
influence. The amendments require that the equity method investor adds the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and
adopts the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The new guidance is effective for us for the year ending March 31, 2018 and
interim reporting periods during the year ending March 31, 2018. We early adopted this new guidance prospectively in the year ended March 31, 2017.
In
March 2016, the FASB issued ASU 2016-09, "Compensation Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting," to simplify the accounting for employee share-based payment transactions, including the income tax consequences, classification of excess tax benefits on the statement of cash flows,
introduction of accounting policy election on forfeitures, and the change of the threshold of share withholding by the employer for settlement of employees' tax without causing the award to be
classified as a liability. The new guidance is effective for us for the year ending March 31, 2018 and interim reporting periods during the year ending March 31, 2018. Early adoption is
permitted. We are evaluating the effects, if any, of the adoption of this revised guidance on our financial position, results of operations or cash flows.
In
June 2016, the FASB issued ASU 2016-13, "Financial Instruments Credit Losses (Topic 326): Measurement on Credit Losses on Financial
Instruments," which introduces new guidance for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit
losses on certain types of financial instruments, including trade and other receivables, held-to-maturity debt securities, loans and net investments in leases. The new guidance also modifies the
impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. The
new guidance also indicates that entities may not use the length of time a security has been in an unrealized loss position as a factor in concluding whether a credit loss exists. The new guidance is
effective for us for the year ending March 31, 2021 and interim reporting periods during the year ending March 31, 2021. Early adoption is permitted for us for the year ending
March 31, 2020 and interim reporting periods during the year ending March 31, 2020. We are evaluating the effects, if any, of the adoption of this guidance on our financial position,
results of operations and cash flows.
In
June 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." The new guidance is intended to reduce
diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance is effective for us for the year ending March 31, 2019 and interim reporting
periods during the year ending March 31, 2019. Early adoption is permitted. The guidance requires application using a retrospective transition method. We are evaluating the effects, if any, of
the adoption of this guidance on our consolidated statements of cash flows.
In
October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other than Inventory" which amends the accounting for income taxes. The
new guidance requires recognition of income tax consequences of an intra-entity asset transfer, other than transfers of inventory, when the transfer occurs. For intra-entity transfers of inventory,
the income tax effects will continue to be deferred until the inventory has been sold to a third party. The new guidance is effective for us for the year ending March 31, 2019 and interim
reporting periods during the year ending March 31, 2019. Early adoption is permitted. The new guidance is required to be applied on a modified retrospective basis through a cumulative-effect
adjustment directly recorded to retained earnings as of the beginning of the period of adoption. We are evaluating the effects, if any, of the adoption of this guidance on our financial position,
results of operations and cash flows.
In
October 2016, the FASB issued ASU 2016-17, "Consolidation (Topic 810): Interests held through Related Parties That Are Under Common Control" to amend the consolidation guidance
on how a reporting entity that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are under common control with the reporting entity
when determining whether it is the primary beneficiary of that VIE. The new guidance is effective for us for the year ending March 31, 2018 and interim reporting periods during the year ending
March 31, 2018. Early adoption is permitted. When the new guidance is adopted, it is required to
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be
applied retrospectively for us for the year ended March 31, 2017 and interim reporting periods during the year ended March 31, 2017. We are evaluating the effects, if any, of the
adoption of this guidance on our financial position, results of operations and cash flows.
In
November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash," which requires the amounts generally described as restricted cash and
restricted cash equivalents to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new
guidance is effective for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. The guidance requires
application using a retrospective transition method. We are evaluating the effects, if any, of the adoption of this guidance on our consolidated statements of cash flows.
In
January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the
objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is
effective prospectively for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted for transactions for
which the transaction date occurs before the issuance date or effective date of this new guidance, only when the transaction has not been reported in the financial statements that have been issued or
made available for issuance. We are evaluating the effects, if any, of the adoption of this guidance on our financial position, results of operations and cash flows.
In
January 2017, the FASB issued ASU 2017-04, "Intangibles Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,"
which simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment test. Step two of the goodwill impairment measures a goodwill impairment
loss by comparing the implied fair value of a reporting unit's goodwill with its carrying amount. The new guidance is effective prospectively for us for the year ending March 31, 2021 and
interim reporting periods during the year ending March 31, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1,
2017. We are evaluating the effects, if any, of the adoption of this guidance on our financial position, results of operations and cash flows.
In
May 2017, the FASB issued ASU 2017-09, "Compensation Stock Compensation (Topic 718): Scope of Modification Accounting," which provides guidance
about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. Under the new guidance, modification accounting is required
only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance is effective
prospectively for us for the year ending March 31, 2019 and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. We are evaluating the effects,
if any, of the adoption of this guidance on our financial position, results of operations and cash flows.
C. Research and Development, Patents and Licenses, etc.
Research and Development
We have built our core technology for our e-commerce and cloud computing businesses in-house. As of March 31, 2017, we employed over
22,000 research and development personnel engaged in building our technology platform and developing new online and mobile products. We recruit top and experienced talent locally and oversea,
and we have advanced training programs designed specifically for new campus hires.
Intellectual Property
We believe the protection of our trademarks, copyrights, domain names, trade names, trade secrets, patents and other proprietary rights is
critical to our business. We rely on a combination of trademark, fair trade practice, copyright and trade secret protection laws and patent protection in China and other jurisdictions, as well as
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confidentiality
procedures and contractual provisions to protect our intellectual property and our trademarks. We also enter into confidentiality and invention assignment agreements with all of our
employees, and we rigorously control access to our proprietary technology and information. As of March 31, 2017, we had 2,832 issued patents and 6,658 publicly filed patent
applications in China and 1,883 issued patents and 4,082 publicly filed patent applications in various countries and jurisdictions internationally. We do not know whether any of our
pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the current fiscal year
that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital reserves, or that caused the disclosed financial information to be not necessarily
indicative of future operating results or financial conditions.
E. Off-Balance Sheet Arrangements
We did not have any material off-balance sheet arrangements in fiscal years 2015, 2016 or 2017.
F. Contractual Obligations
The following table sets forth our contractual obligations and commercial commitments as of March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period
|
|
|
|
Total
|
|
Less than
1 Year
|
|
1 3
Years
|
|
3 5
Years
|
|
More than
5 Years
|
|
|
|
(in millions of RMB)
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
(1)
|
|
|
5,948
|
|
|
5,948
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings
(2)
|
|
|
3,613
|
|
|
|
|
|
2,688
|
|
|
258
|
|
|
667
|
|
US$4.0 billion syndicated loan denominated in US$
(3)
|
|
|
27,346
|
|
|
|
|
|
|
|
|
27,346
|
|
|
|
|
Unsecured senior notes
(4)
|
|
|
55,123
|
|
|
8,957
|
|
|
15,503
|
|
|
10,336
|
|
|
20,327
|
|
Contractual Commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
1,771
|
|
|
1,766
|
|
|
5
|
|
|
|
|
|
|
|
Construction in progress
|
|
|
2,838
|
|
|
1,378
|
|
|
991
|
|
|
469
|
|
|
|
|
Leases for office facility and transportation equipment
|
|
|
3,289
|
|
|
862
|
|
|
1,022
|
|
|
571
|
|
|
834
|
|
Co-location, bandwidth fees and marketing expenses
|
|
|
14,135
|
|
|
3,777
|
|
|
3,694
|
|
|
2,986
|
|
|
3,678
|
|
Investment commitments
(5)
|
|
|
17,495
|
|
|
17,495
|
|
|
|
|
|
|
|
|
|
|
Acquisition of license and copyrights
|
|
|
8,431
|
|
|
4,518
|
|
|
3,462
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
139,989
|
|
|
44,701
|
|
|
27,365
|
|
|
42,417
|
|
|
25,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Excluding
estimated interest payments of RMB48 million assuming the applicable interest rates in effect as of March 31, 2017. The majority of the
borrowings are subject to floating interest rates.
-
(2)
-
Excluding
estimated interest payments of RMB736 million in total (RMB168 million, RMB227 million, RMB63 million and RMB278 million
over the periods of less than one year, one to three years, three to five years and more than five years from April 1, 2017, respectively), assuming the applicable interest rates in effect as
of March 31, 2017. Substantially all of the borrowings are subject to floating interest rates.
-
(3)
-
Excluding
estimated interest payments of RMB2,338 million in total (RMB571 million, RMB1,143 million and RMB624 million over the periods
of less than one year, one to three years and three to five years from April 1, 2017, respectively), assuming the applicable interest rate in effect as of March 31, 2017. The syndicated
loan is subject to a floating interest rate.
-
(4)
-
Excluding
estimated interest payments of RMB10,732 million in total (RMB1,581 million, RMB2,839 million, RMB2,081 million and
RMB4,231 million over the periods of less than one year, one to three years, three to five years and more than five years from April 1, 2017, respectively), assuming the applicable
interest rates in effect as of March 31, 2017. Aggregate principal amount of fixed rate notes and floating rate notes were US$7.7 billion and US$300 million respectively.
-
(5)
-
Including
the consideration for the privatization of Intime of HK$12.6 billion, which we completed in May 2017.
In
addition, according to our partnership arrangement with the International Olympic Committee, we will provide at least US$815 million worth of cash, cloud infrastructure
services and cloud computing services, as well as marketing and media support through 2028, in connection with various Olympic initiatives, events and activities, including the Olympic Games and the
Winter Olympic Games. As of March 31, 2017, the aggregate amount of cash to be paid and value of services to be provided in the future is approximately US$800 million.
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G. Safe Harbor
See "Forward-Looking Statements."