Alibaba Group reported its December 2017 quarterly earnings today. Alibaba Executive Vice Chairman Joe Tsai kicked off the company’s analyst call with his perspective on the quarter, Alibaba’s progress on its New Retail Strategy and the company’s equity stake in Ant Financial announced today. The transcript follows:
Alibaba had one of the best quarters in the company’s history with 56% year-on-year revenue growth.
We ended the quarter with 515 million annual active consumers on our China retail marketplaces. Compared to the 12-month period ended in the prior quarter, we added 27 million annual active consumers. This is the largest number of active consumer additions in the last three years.
We have made tremendous progress in the execution of our New Retail strategy. As a result, revenues from New Retail initiatives are starting to make meaningful contributions to the growth of our China commerce revenues this quarter. I want to say a few words about New Retail.
Since Jack Ma coined the term “New Retail” in 2016, the term has been widely adopted in China by traditional retailers and Internet companies alike. New Retail has become the most talked about concept in business. However, very few people appreciate what “New Retail” means, much less what exactly is needed to accomplish true convergence of the online and offline consumer experience. In my view, Alibaba has three unique success factors that is enabling us to realize the New Retail vision:
First, Alibaba’s marketplace platforms handle billions of transactions each month in shopping, daily services and payment. These transactions provide us the best insights into consumer behavior and shifting consumption trends. This puts us in the best position to enable our retail partners to grow their businesses.
Second, Alibaba is a deep technology company. We contribute expertise in cloud, artificial intelligence, mobile transactions and enterprise systems to help our retail partners improve their business through digitization and operating efficiency.
Third, Alibaba has the most comprehensive ecosystem of commerce platforms, logistics and payment to support the digital transformation of the retail sector.
Next, I want to talk about our transaction with Ant Financial.
We are announcing today that, pursuant to a strategic agreement with Ant Financial that was entered into in 2014, Alibaba has agreed to take a 33% equity stake in Ant Financial.
Those of you who have followed us closely know that this is a significant step in our long-term strategic relationship with Ant Financial, giving Alibaba equity ownership in a company that is a key player in the Alibaba ecosystem.
Ant Financial is not only an integral payment provider for transactions on our e-commerce marketplaces through China’s No. 1 mobile payment platform Alipay, but it is also a provider of financial services such as loans, wealth management and insurance products to hundreds of millions of consumers and millions of small businesses on the Alibaba platform.
We believe deepening our relationship through an equity stake in Ant Financial would bring several key strategic benefits to us.
While we have filed a 6-K to summarize the transaction, I want to highlight some of the salient features here:
First, Alibaba is taking the 33% equity stake and terminating our profit share in Ant Financial. Equity ownership allows us to participate in the long-term value creation of Ant Financial as opposed to the quarter-to-quarter fluctuations of a profit share.
Second, pursuant to the agreement between Alibaba and Ant Financial, Alibaba’s subscription of new shares in Ant Financial does not require any net cash outlay for Alibaba. Going forward, Alibaba is going to be protected from the dilutive effects of future Ant fundraisings until an IPO of Ant Financial.
Third, Alibaba will have significant governance rights in Ant Financial through board representation, so that the two companies’ interests can be further aligned.