Temat: Alibaba.com Exceeds One million Paying Members in Q3...

Alibaba.com Exceeds One million Paying Members in Q3 While VAS Keep Driving Margin Improvement

Continuing trust and safety efforts increase value for customers



Highlights



· Revenue in Q3 2010 up 40.4 percent y-o-y and 6.1 percent q-o-q

· Continued strong growth in registered users with an addition of 11.4 million registered users y-o-y

· Number of overall paying members (including those of HiChina) surpassed 1 million in the quarter

· Net profit [1]grew 55.1 percent y-o-y

· EBITA margin (before share-based compensation expense) remained strong at 35.8 percent due to operating leverage and the accelerated growth of revenue from value-added services

· Deferred revenue up 30.3 percent y-o-y to reach RMB3,868.9 million (US$571.5 million) due to strong customer acquisitions

· Strong cash and bank position of RMB8.4 billion (US$1.2 billion), with strong y-o-y increase of 107.0 percent in recurring free cash flow





HONG KONG, November 11, 2010 – Alibaba.com Limited (HKSE:1688.HK) (1688.HK), the world’s leading small business e-commerce company, today announced unaudited financial results for the quarter ended September 30, 2010, demonstrating solid financial performance with improved margins three quarters in a row due to the growth of value-added services (“VAS”), despite continued active investment in our operations. Financial contribution from VAS continued to grow, demonstrating customer stickiness to our platform.



“Despite the uncertainty and mixed signals in the global economic environment, we are gratified to see our financial growth remained strong in this quarter,” said David Wei, chief executive officer of Alibaba.com. “We believe our results are tied to our commitment of making 2010 a year of customer service. While we are delighted to announce the milestone of 1 million paying members, we specifically stepped up our efforts in enforcing a trusted and safe environment in our marketplace by eliminating paying members who committed fraud as well as those who have high probability to commit fraud. In this quarter, we terminated about 1,200 Gold Supplier members. We believe this will help maintain a high-quality e-commerce platform for buyers and suppliers, hence improving customer experience and fostering VAS penetration in the long run.



“Internationally, we made our first direct investment in India, demonstrating our confidence and commitment in our business development there. We also completed the acquisitions of Vendio and Auctiva and connected these two platforms with our transaction-based wholesale site. This further integrates the e-commerce value chain between B2B and B2C, fully realizing the B2B2C model. In the reporting period, these transactions furthered our goal of transforming our platforms from ‘Meet at Alibaba’ to ‘Work at Alibaba’ by creating more values for our members through helping them do business easier and better while increasing customer stickiness to our platforms.”



Outlook



“The current global economic situation remains complex, and we expect China’s export growth in the coming quarters may continue to moderate, growing at a slower rate than what we saw in previous quarters. In China, however, we expect the growth in domestic consumption to maintain momentum. Nonetheless, challenges like staffing cost increases, rising raw material costs, and Renminbi appreciation are intensifying and may dampen the growth of small businesses. Hence, we will continue to help our customers to do business in a holistic approach, looking for ways to add value to their business, regardless of the economic climate. Forging ahead on our ‘Work at Alibaba’ strategy, we believe there is ample room for further growth for our VAS as more of our customers migrate their business processes online, making them part of the e-commerce value chain."



Third Quarter 2010 Financial and Operational Results



Paying Members and Revenue



In the third quarter of 2010, we continued healthy growth in the number of paying members. Overall, we surpassed the milestone of 1 million paying members on our marketplaces and HiChina. As of September 30, 2010, we had a total of 750,937 paying members on both international and China marketplaces, representing a 29.7 percent increase y-o-y and a 5.3 percent increase q-o-q. Additionally, we had 255,000 paying members from HiChina.



During the quarter, we net added 2,762 China Gold Supplier members to total 108,572 as of the end of the third quarter despite the take-down of 1,200 paying members to maintain a trusted and safe environment on our marketplace. Our Global Gold Supplier members slightly reduced to 11,017, which was expected and was well compensated by the revenue growth. We achieved 37,850 net additions of China TrustPass paying members, bringing the total to 631,348 as of September 30, 2010.



Deferred revenue and customer advances were RMB3,868.9 million (US$571.5 million) as of September 30, 2010, representing a 30.3 percent increase from RMB2,968.5 million (US$438.5 million) as of September 30, 2009 and a 4.0 percent increase from RMB3,721.8 million (US$549.7 million) as of June 30, 2010. The increase was mainly due to the continued growth of our paying customers and VAS. Total revenue was RMB1,449.3 million (US$214.1 million) in the third quarter of 2010, representing a 40.4 percent increase from the same period of 2009 and a 6.1 percent increase from the second quarter of 2010.





International Marketplace



Revenue from our international marketplace increased to RMB847.2 million (US$125.1 million) in the period, a 32.5 percent increase y-o-y and a 7.1 percent increase q-o-q. The q-o-q growth was primarily due to the increase in revenue from our China Gold Supplier membership and VAS as well as the consolidation of revenue from newly acquired Vendio Services, Inc. (“Vendio”) and Auctiva Corporation (“Auctiva”).



During the quarter, we recorded a quarterly net addition of 2,762 China Gold Supplier members, bringing the total number of China Gold Supplier members to 108,572 as of September 30, 2010, representing an increase of 23,704 from September 30, 2009, despite the clean-up of suspicious members. This voluntary clean-up of bad players is crucial to improving overall supplier quality despite the short-term impact on membership base. The quarter saw a steady development in VAS adoption by our members as the VAS revenue contribution to China Gold Supplier revenue continued to surpass 25 percent.



In September 2010, we announced an upgraded China Gold Supplier membership package (“CGS 2011 edition”) priced at RMB29,800 (US$4,401.8) per annum that will replace the existing Gold Supplier Starter Pack on January 1, 2011. This upgrade is a key step toward our long-term vision of bringing e-commerce and our business to another level: helping our customers move from “Meet at Alibaba” to “Work at Alibaba.” The new CGS 2011 edition includes an upgraded customer working platform on the marketplace and new services for promoting trust and safe trading on the Alibaba.com platform. The upgrade aims to enhance user experience while steadily expanding our customer base and strengthening our customer relationship.



The number of Global Gold Supplier members reduced to 11,017 as of September 30, 2010, representing a decrease of 7,594 y-o-y and 2,542 q-o-q, which is primarily due to the expected impact from product upgrade and price increase last year. Revenue from Global Gold Supplier remained steady as compared to the previous quarter. To further build on the membership growth achieved in India in the past two years, in the third quarter of 2010, we launched local operations in Mumbai, India to better serve the vast Indian small business community. Our Indian office handles all direct membership sales and provides hands-on support and customer training programs.



As of September 30, 2010, there were 14.9 million registered users and 1.6 million storefronts on our international marketplace. In the third quarter, registered users increased by 1.3 million and storefronts grew by 62,716.



AliExpress



During the period, we actively expanded our suppliers, buyers, product categories and product offerings on this transaction-based wholesale platform. At the same time, we stepped up our effort in improving its flow, including streamlining the process of placing orders while maintaining trust and safety on the platform, providing enhanced overall user experience.



In July 2010, we completed the acquisition of Vendio, an e-commerce platform providing a one-stop solution for small businesses that are selling across multiple online channels, including eBay and Amazon. In August 2010, we acquired Auctiva, the leading third-party developer of listing, marketing and management tools for eBay sellers. Through these two acquisitions, Alibaba.com gained access to more than 250,000 small online retailers who have potential sourcing needs from suppliers on our international marketplace and AliExpress. The connection of these two platforms with our marketplaces will help integrate the e-commerce value chain between B2B and B2C, fully realizing the B2B2C model. Business integration is underway as we are now working on further matching criteria like product categories in demand, quality and scale of suppliers, etc. between the buyers and our AliExpress suppliers.





China Marketplace



Revenue from our China marketplace increased to RMB492.2 million (US$72.7 million) in the period, representing a 30.1 percent increase y-o-y and a 4.6 percent increase q-o-q. During this period, registered users rose by 2.0 million to 41.8 million and storefronts grew by 324,314 to 6.6 million.



Paying member growth was also well on track. As we have previously cautioned, the net addition of paying members has reverted to a more sustainable level in the third quarter, when the new product impact of China TrustPass Basic was absorbed. We achieved 37,850 net additions of China TrustPass paying members, bringing the total to 631,348 as of September 30, 2010, growing 32.8 percent y-o-y and 6.4 percent q-o-q. The strong growth in our base of paying members was mainly attributable to the positive effects of new business initiatives introduced in the beginning of the year.



In the third quarter of 2010, the contribution of VAS revenue to China TrustPass revenue exceeded 20 percent attributed mainly to the strong growth momentum in Ali-ADvance and Premium Placement. Further product and search feature modifications in Ali-ADvance helped us address customer needs in a more effective way and hence raised the return on investment for our members. We expect further penetration of VAS as more new features are being launched and our members further experience the power of these applications.



HiChina



HiChina had about 2.1 million domain names in service, and the total number of paying members for its non-domain name services was around 255,000 as of September 30, 2010. The growth in domain names in service slowed down in the third quarter mainly due to the new government policy on the authentication process for users.



Ali-Loan



Ali-Loan continued to demonstrate its value in solving small businesses’ financing needs while increasing members’ stickiness to Alibaba.com. As of September 30, 2010, the cumulative number of loans issued by our partner banks to our paying members was more than 8,000, with total loans exceeding RMB20 billion (US$3.0 billion) since the program was introduced.





Gross profit increased to RMB1,207.2 million (US$178.3 million) in the period, up 35.0 percent y-o-y from RMB894.4 million (US$132.1 million) and up 6.0 percent q-o-q from RMB1,139.0 million (US$168.2 million). Gross profit margin declined slightly to 83.3 percent compared with 86.6 percent in the same period last year and was flat from 83.4 percent in the second quarter of 2010. The decline was primarily due to a higher cost of revenue stemming from the inclusion of financial results from HiChina and Vendio, which had relatively lower gross profit margins.



Total operating expenses were RMB831.9 million (US$122.9 million) in the period, representing a 24.4 percent increase y-o-y from RMB668.8 million (US$98.8 million) and a 10.5 percent increase q-o-q from RMB752.9 million (US$111.2 million). The increase in operating expenses, for both y-o-y and q-o-q, was mainly due to the consolidation of expenses incurred by HiChina, Vendio and Auctiva, as well as our continuing investments in our business as we expand. Total operating expenses as a percentage of revenue were 57.4 percent for the period, compared with 64.8 percent in the same period last year and 55.1 percent in the second quarter of 2010. The y-o-y decrease was mainly due to the VAS growth as well as scale benefits that we realized while the q-o-q increase was mainly due to higher share-based compensation expense incurred in the third quarter of 2010. Profit from operations was RMB396.1 million (US$58.5 million), representing an increase of 52.3 percent from the same period last year.



Our profit margin before interest, taxes and amortization (“EBITA margin”) (non-GAAP) was 28.3 percent for the period, an increase from 24.6 percent in the same period of 2009 and a decrease from 29.6 percent in the second quarter of 2010. EBITA margin before share-based compensation expense (non-GAAP) was 35.8 percent for the period, an increase from 29.6 percent in the same period last year and an increase from 35.4 percent in the second quarter of 2010. The increase in EBITA margin before share-based compensation expense y-o-y was mainly caused by lower sales and marketing expenses as a percentage of revenue as well as a higher margin contribution from VAS revenue, which was partially offset by the dilutive effect after the consolidation of results of the newly acquired companies.



Profit attributable to equity owners for the third quarter of 2010 was RMB366.1 million (US$54.1 million), an increase of 55.1 percent from the same period in 2009 and 0.9 percent from the second quarter of 2010, was largely due to the increase in revenue contributed by our larger paying customer base and strong growth of our VAS products.



Earnings per share, basic and diluted were 8.33 Hong Kong cents (1.07 US cents) and 8.27 Hong Kong cents (1.06 US cents) respectively, compared to 5.31 Hong Kong cents (0.68 US cents) and 5.28 Hong Kong cents (0.68 US cents) (basic and diluted, respectively) in the third quarter of 2009 and 8.20 Hong Kong cents (1.05 US cents) and 8.18 Hong Kong cents (1.05 US cents) (basic and diluted, respectively) in the second quarter of 2010.



Recurring free cash flow (non-GAAP) in the period was RMB731.9 million (US$108.1 million), representing a 107.0 percent increase y-o-y and a 51.4 percent increase q-o-q. The y-o-y and q-o-q increase was mainly attributable to the strong increase in paying members and VAS, refund of overpaid 2009 enterprise income tax mainly due to adjustment of tax rate from 15 percent to 10 percent and lower capital expenditure incurred in the period.



Cash and bank balances as of September 30, 2010 were RMB8,361.1 million (US$1,235.0 million), representing a 30.9 percent increase y-o-y and a 7.3 percent increase q-o-q. During the third quarter of 2010, we paid a total of RMB233.2 million (US$34.4 million) in cash for the acquisition of Vendio and Auctiva.



Note: All U.S. dollar conversions are based on an exchange rate of US$1.00=HK$7.80 and US$1.00=RMB6.77.



-End-



About Alibaba.com Limited

Alibaba.com (HKSE: 1688) (1688.HK) is the global leader in e-commerce for small businesses and the flagship company of Alibaba Group. Founded in 1999 in Hangzhou, China, Alibaba.com makes it easy for millions of buyers and suppliers around the world to do business online through three marketplaces: a global trade platform (http://alibaba.com) for importers and exporters; a Chinese platform (http://1688.com) for domestic trade in China; and, through an associated company, a Japanese platform (http://alibaba.co.jp) facilitating trade to and from Japan. In addition, Alibaba.com offers a transaction-based wholesale platform on the global site (http://aliexpress.com) geared for smaller buyers seeking fast shipment of small quantities of goods. Together, these marketplaces form a community of more than 56 million registered users in more than 240 countries and regions. Alibaba.com also offers business management software and Internet infrastructure services targeting businesses across China, and provides educational services to incubate enterprise management and e-commerce professionals. Alibaba.com also owns Vendio and Auctiva, leading providers of third-party e-commerce solutions for online merchants. Alibaba.com has offices in more than 60 cities across Greater China, India, Japan, Korea, Europe and the United States.

[1] Excludes profit attributable to non-controlling interests.

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