Alibaba IPO Filing (Form F1 5/6/2014)
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Transcript of Alibaba IPO Filing (Form F1 5/6/2014)
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5/6/2014 Form F-1
http://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm 1/343
F-1 1 d709111df1.htm FORM F-1
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AsfiledwiththeSecuritiesandExchangeCommissiononMay6,2014RegistrationNo.333
SECURITIESANDEXCHANGECOMMISSION
Washington,D.C.20549
FormF1REGISTRATIONSTATEMENT
UNDERTHESECURITIESACTOF1933
AlibabaGroupHoldingLimited(ExactnameofRegistrantasSpecifiedinitsCharter)
CaymanIslands 5961 NotApplicable(StateorOtherJurisdictionofIncorporationorOrganization)
(PrimaryStandardIndustrialClassificationCodeNumber)
(I.R.S.EmployerIdentificationNumber)
c/oAlibabaGroupServicesLimited26/FTowerOne,TimesSquare
1MathesonStreetCausewayBayHongKong
Telephone:+85222155100(AddressandTelephoneNumber,IncludingAreaCode,ofRegistrantsPrincipalExecutiveOffices)
CorporationServiceCompany
1180AvenueoftheAmericas,Suite210NewYork,NewYork10036
(800)9279801(Name,Address,IncludingZipCode,andTelephoneNumber,IncludingAreaCode,ofAgentforService)
Copiesto:
TimothyA.Steinert,Esq.AlibabaGroupHoldingLimited
c/oAlibabaGroupServicesLimited26/FTowerOne,TimesSquare
1MathesonStreet,CausewayBayHongKong
+85222155100
LeimingChen,Esq.DanielFertig,Esq.
SimpsonThacher&BartlettLLPc/o35thFloor,ICBCTower3GardenRoadCentral
HongKong+85225147600
WilliamH.Hinman,Jr.,Esq.SimpsonThacher&BartlettLLP
2475HanoverStreetPaloAlto,California94304
U.S.A.6502515000
WilliamY.Chua,Esq.Sullivan&CromwellLLP
28thFloorNineQueensRoadCentralHongKong
+85228268688
JayClayton,Esq.SarahP.Payne,Esq.
Sullivan&CromwellLLP1870EmbarcaderoRoad
PaloAlto,California94303U.S.A.
6504615700
Approximatedateofcommencementofproposedsaletothepublic:Assoonaspracticableaftertheeffectivedateofthisregistrationstatement.IfanyofthesecuritiesbeingregisteredonthisFormaretobeofferedonadelayedorcontinuousbasispursuanttoRule415undertheSecuritiesActof1933,checkthe
followingbox.IfthisFormisfiledtoregisteradditionalsecuritiesforanofferingpursuanttoRule462(b)undertheSecuritiesAct,pleasecheckthefollowingboxandlisttheSecurities
Actregistrationstatementnumberoftheearliereffectiveregistrationstatementforthesameoffering.IfthisFormisaposteffectiveamendmentfiledpursuanttoRule462(c)undertheSecuritiesAct,checkthefollowingboxandlisttheSecuritiesActregistration
statementnumberoftheearliereffectiveregistrationstatementforthesameoffering.IfthisFormisaposteffectiveamendmentfiledpursuanttoRule462(d)undertheSecuritiesAct,checkthefollowingboxandlisttheSecuritiesActregistration
statementnumberoftheearliereffectiveregistrationstatementforthesameoffering.
CALCULATIONOFREGISTRATIONFEE
TitleofEachClassofSecuritiestobeRegistered(1)(2)
ProposedMaximumAggregate
OfferingPrice(3) Amountof
RegistrationFeeOrdinaryshares,parvalueUS$0.000025pershare US$1,000,000,000 US$128,800(1) Americandepositaryshares,orADSs,evidencedbyAmericandepositaryreceiptsissuableupondepositoftheordinarysharesregisteredherebywillberegisteredunder
aseparateregistrationstatementonFormF6.EachADSrepresentsordinaryshares.(2) Includes(a)ordinarysharesrepresentedbyADSsthatmaybepurchasedbytheunderwriterspursuanttotheiroptiontopurchaseadditionalADSsand(b)allordinary
sharesrepresentedbyADSsinitiallyofferedorsoldoutsidetheUnitedStatesthatarethereafterresoldfromtimetotimeintheUnitedStates.OffersandsalesofsharesoutsidetheUnitedStatesarebeingmadepursuanttoRegulationSundertheSecuritiesActof1933andarenotcoveredbythisRegistrationStatement.
(3) EstimatedsolelyforthepurposeofcomputingtheamountoftheregistrationfeepursuanttoRule457(o)undertheSecuritiesActof1933,asamended.
TheregistrantherebyamendsthisRegistrationStatementonsuchdateordatesasmaybenecessarytodelayitseffectivedateuntiltheregistrantshallfileafurtheramendmentwhichspecificallystatesthatthisRegistrationStatementshallthereafterbecomeeffectiveinaccordancewithSection8(a)oftheSecuritiesActof
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5/6/2014 Form F-1
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1933,asamended,oruntiltheRegistrationStatementshallbecomeeffectiveonsuchdateastheSecuritiesandExchangeCommission,actingpursuanttosuchSection8(a),maydetermine.
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Theinformationinthispreliminaryprospectusisnotcompleteandmaybechanged.NeitherwenorthesellingshareholdersmaysellthesesecuritiesuntiltheregistrationstatementfiledwiththeUnitedStatesSecuritiesandExchangeCommissionisdeclaredeffective.Thispreliminaryprospectusisnotanoffertosellthesesecuritiesanditisnotsolicitinganyoffertobuythesesecuritiesinanyjurisdictionwheretheofferorsaleisnotpermitted.
SubjecttoCompletion,Dated,2014
AmericanDepositaryShares
RepresentingOrdinaryShares
AlibabaGroupHoldingLimitedThisistheinitialpublicofferingofAlibabaGroupHoldingLimited,orAlibabaGroup.WeareofferingAmericanDepositary
Shares,orADSs,andthesellingshareholdersnamedinthisprospectusareofferingADSs.EachADSrepresentsordinaryshares,parvalueUS$0.000025pershare.WeexpectthattheinitialpublicofferingpriceoftheADSswillbebetweenUS$andUS$perADS.WewillnotreceiveanyproceedsfromtheADSssoldbythesellingshareholders.
Pursuanttoourmemorandumandarticlesofassociation,apartnership,ortheAlibabaPartnership,comprisedofcertainmanagementmembersofourcompanyandourrelatedcompaniesandaffiliates,willhavetheexclusiverighttonominateasimplemajorityoftheboardofdirectorsofourcompany.SeeAlibabaPartnershipandDescriptionofShareCapitalOrdinarySharesNomination,ElectionandRemovalofDirectors.
Priortothisoffering,therehasbeennopublicmarketforourADSsorordinaryshares.WewillapplyforlistingofourADSsontheNewYorkStockExchangeortheNasdaqGlobalMarketunderthesymbol.
InvestinginourADSsinvolvesrisk.SeeRiskFactorsbeginningonpage20.
PerADS Total Pricetopublic US$ US$Underwritingdiscountsandcommissions US$ US$ Proceeds,beforeexpenses,tous US$ US$ Proceeds,beforeexpenses,tothesellingshareholders US$ US$
WeandcertainsellingshareholdershavegrantedtheunderwriterstherighttopurchaseuptoanaggregateofadditionalADSs.
NeithertheUnitedStatesSecuritiesandExchangeCommissionnoranystatesecuritiescommissionoranyotherregulatorybodyhasapprovedordisapprovedofthesesecurities,ordeterminedifthisprospectusistruthfulorcomplete.Anyrepresentationtothecontraryisacriminaloffense.
TheunderwritersexpecttodelivertheADSsagainstpaymentinU.S.dollarstopurchasersonorabout,2014
CreditSuisse DeutscheBank GoldmanSachs J.P.Morgan MorganStanley Citi
,2014.
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TABLEOFCONTENTS PageProspectusSummary 1RiskFactors 20SpecialNoteRegardingForwardLookingStatements 58IndustryDataandUserMetrics 59UseofProceeds 60DividendPolicy 61Capitalization 62Dilution 64ExchangeRateInformation 66EnforcementofCivilLiabilities 67OurHistoryandCorporateStructure 69SelectedConsolidatedFinancialandOperatingData 76ManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations 82Business 122Regulation 174AlibabaPartnership 186OurDirectors 189OurExecutiveOfficers 193PrincipalandSellingShareholders 198RelatedPartyTransactions 200DescriptionofShareCapital 206DescriptionofAmericanDepositaryShares 222SharesEligibleforFutureSale 231Taxation 233Underwriting 240ExpensesRelatedtothisOffering 246LegalMatters 247Experts 247WhereYouCanFindMoreInformation 248IndextoFinancialStatements F1
Youshouldrelyonlyontheinformationcontainedinthisprospectus.Wehavenotauthorizedanyonetoprovideinformationdifferentfromthatcontainedinthisprospectus.Weareofferingtosell,andseekingofferstobuy,ADSsonlyinjurisdictionswhereoffersandsalesarepermitted.Theinformationcontainedinthisprospectusisaccurateonlyasofthedateofthisprospectus,regardlessofthetimeofdeliveryofthisprospectusorofanysaleofourADSs.
Until,2014(25daysafterthedateofthisprospectus),alldealersthateffecttransactionsinthesesecurities,whetherornotparticipatinginthisoffering,mayberequiredtodeliveraprospectus.Thisisinadditiontothedealersobligationtodeliveraprospectuswhenactingasanunderwriterandwithrespecttounsoldallotmentsorsubscriptions.
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PROSPECTUSSUMMARY
Thissummaryhighlightsselectedinformationcontainedingreaterdetailelsewhereinthisprospectus.ThissummarymaynotcontainalloftheinformationthatyoushouldconsiderbeforeinvestinginourADSs.Youshouldcarefullyreadtheentireprospectus,includingRiskFactorsandthefinancialstatements,beforemakinganinvestmentdecision.
OurMission
Ourmissionistomakeiteasytodobusinessanywhere.
Ourfoundersstartedourcompanytochampionsmallbusinesses,inthebeliefthattheInternetwouldleveltheplayingfieldbyenablingsmallenterprisestoleverageinnovationandtechnologytogrowandcompetemoreeffectivelyinthedomesticandglobaleconomies.Ourdecisionsareguidedbyhowtheyserveourmissionoverthelongterm,notbythepursuitofshorttermgains.
OurBusiness
Wearethelargestonlineandmobilecommercecompanyintheworldintermsofgrossmerchandisevolumein2013,accordingtoindustrysources.Weoperateourecosystemasaplatformforthirdparties,andwedonotengageindirectsales,competewithourmerchantsorholdinventory.
WeoperateTaobaoMarketplace,Chinaslargestonlineshoppingdestination,Tmall,Chinaslargestthirdpartyplatformforbrandsandretailers,ineachcaseintermsofgrossmerchandisevolume,andJuhuasuan,Chinasmostpopulargroupbuyingmarketplacebyitsmonthlyactiveusers,ineachcasein2013accordingtoiResearch.Thesethreemarketplaces,whichcompriseourChinaretailmarketplaces,generatedacombinedGMVofRMB1,542billion(US$248billion)from231millionactivebuyersand8millionactivesellersinthetwelvemonthsendedDecember31,2013.Asignificantportionofourcustomershavebeguntransactingonourmobileplatform,andwearefocusedoncapturingthisopportunity.InthethreemonthsendedDecember31,2013,mobileGMVaccountedfor19.7%ofourGMV,upfrom7.4%inthesameperiodinthepreviousyear.
InadditiontoourthreeChinaretailmarketplaces,whichaccountedfor82.7%ofourrevenuesintheninemonthsendedDecember31,2013,weoperateAlibaba.com,Chinaslargestglobalonlinewholesalemarketplacein2013byrevenue,accordingtoiResearch,1688.com,ourChinawholesalemarketplace,andAliExpress,ourglobalconsumermarketplace,aswellasprovidecloudcomputingservices.
Asaplatform,weprovidethefundamentaltechnologyinfrastructureandmarketingreachtohelpbusinessesleveragethepoweroftheInternettoestablishanonlinepresenceandconductcommercewithconsumersandbusinesses.WehavebeenaleaderindevelopingonlinemarketplacestandardsinChina.Giventhescalewehavebeenabletoachieve,anecosystemhasdevelopedaroundourplatformthatconsistsofbuyers,sellers,thirdpartyserviceproviders,strategicalliancepartners,andinvesteecompanies.Ourplatformandtheroleweplayinconnectingbuyersandsellersandmakingitpossibleforthemtodobusinessanytimeandanywhereisatthenexusofthisecosystem.Muchofoureffort,ourtimeandourenergyisspentoninitiativesthatareforthegreatergoodoftheecosystemandthevariousparticipantsinit.Wefeelastrongresponsibilityforthecontinueddevelopmentoftheecosystemandwetakeownershipforthisdevelopment.Accordingly,werefertothisasourecosystem.
Ourecosystemhasstrongselfreinforcingnetworkeffectsthatbenefitourmarketplaceparticipants,whoareinvestedinourecosystemsgrowthandsuccess.Throughthisecosystem,wehavetransformedhowcommerceisconductedinChinaandbuiltareputationasatrustedpartnerfortheparticipantsinourecosystem.
Wehavemadesignificantinvestmentsinproprietarytechnologiesandinfrastructureinordertosupportourgrowingecosystem.Ourtechnologyandinfrastructureallowustoharnessthesubstantialvolumeofdatageneratedfromourmarketplacesandtofurtherdevelopandoptimizetheproductsandservicesofferedonourplatform.
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Through,ourrelatedcompany,Alipay,weofferpaymentandescrowservicesforbuyersandsellers,providingsecurity,trustandconveniencetoourusers.WetakeaplatformapproachtoshippinganddeliverybyworkingwiththirdpartylogisticsserviceprovidersthroughacentrallogisticsinformationsystemoperatedbyZhejiangCainiaoSupplyChainManagementCo.,Ltd.,orChinaSmartLogistics,our48%ownedaffiliate.ThroughourinvestmentinUCWeb,weareabletoleverageitsexpertiseasadeveloperandoperatorofmobilewebbrowserstoenhanceourmobileofferingsbeyondecommerce,suchasgeneralmobilesearch.
Ourrevenueisprimarilygeneratedfrommerchantsthroughonlinemarketingservices(viaAlimama,ourproprietaryonlinemarketingplatform),commissionsontransactionsandfeesforonlineservices.Wealsogeneraterevenuesthroughfeesfrommemberships,valueaddedservicesandcloudcomputingservices.IntheninemonthsendedDecember31,2013,wegeneratedrevenueofRMB40.5billion(US$6.5billion)andnetincomeofRMB17.7billion(US$2.9billion).OurfiscalyearendsonMarch31.
OurKeyMetrics
WehaveexperiencedsignificantgrowthacrossvariouskeymetricsforourChinaretailmarketplaces:
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Ourbusinessandourecosystemasawholehaveachievedsignificantscaleandsize:
OurScaleandSize
ScaleandSizeofOurEcosystemParticipants
Unlessotherwiseindicated,allfiguresintheabovechartsareforthetwelvemonthsended,orasof,December31,2013,andinthecaseofourscaleandsize,on
ourChinaretailmarketplaces.(1) ForthethreemonthsendedDecember31,2013.(2) AccordingtoiResearch.Excludingvirtualitems.(3) ForthemonthendedDecember31,2013.BasedontheaggregatemobileMAUsofappsthatcontributetoGMVonourChinaretailmarketplaces.(4) Representing54%ofthe9.2billionpackagesdeliveredin2013bydeliveryservicesinChinameetingcertainminimumrevenuethresholds,accordingtotheState
PostBureauofthePRC.(5) AlibabaCloudComputingprocessingcapabilityasofDecember31,2013.(6) Thesumofmerchantsonour(i)Chinaretailmarketplaceswhopaidfeesand/orcommissionstousin2013,plus(ii)wholesalemarketplaceswithcurrentpaid
membershipsasofDecember31,2013.Amerchantmayhavemorethanonepayingrelationshipwithus.(7) Includesregisteredcountriesandterritoriesof(i)buyersthatsentatleastoneinquirytoaselleronAlibaba.comand(ii)buyersthatsettledatleastonetransaction
onAliExpressthroughAlipay,ineachcasein2013.(8) ForthetwelvemonthsendedDecember31,2013.Approximately37.6%ofAlipaystotalpaymentvolumein2013representedpaymentsprocessedforourChina
retailmarketplaces.(9) MarketingaffiliateswhoreceivedarevenuesharefromusinthethreemonthsendedDecember31,2013.(10) Basedondataprovidedbyour14strategicdeliverypartnerscompaniesasofMarch2014.
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TheNetworkEffectonandacrossOurMarketplaces
Theinteractionsbetweenbuyersandsellerscreatenetworkeffectsinthatmoremerchantsattractmoreconsumers,andmoreconsumersattractmoremerchants.Inaddition,ourmarketplacesareinterconnectedinthatmanybuyersandsellersononemarketplacealsoparticipateintheactivitiesonourothermarketplaces,therebycreatingasecondordernetworkeffectthatfurtherstrengthensourecosystem.
Thechartbelowdepictsthisnetworkeffectdynamicinourecosystem.
Buyers
ChineseconsumersbuyonTaobaoMarketplace,TmallandJuhuasuan
WhilebrowsingorsearchingonTaobaoMarketplace,consumersseeproductlistingsfrombothTaobaoMarketplaceandTmall
GlobalconsumersbuyonAliExpress
GlobalwholesalersbuyonAlibaba.com
Retailsellers
SmallsellersinChinasellonTaobaoMarketplaceandAliExpress
ChinesebrandssellonTaobaoMarketplace,Tmall,JuhuasuanandAliExpressandglobalbrandssellonTmallGlobal
Sellerssourceproductson1688.com
Wholesalesellers
ChinesewholesalersandmanufacturerssupplyretailmerchantsinChinaon1688.comandglobalwholesalebuyersonAlibaba.com
ChinesewholesalersandmanufacturerssupplydirectlytoglobalconsumersonAliExpress
GlobalwholesalersandmanufacturerssupplyglobalwholesalebuyersonAlibaba.com
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OurMarketOpportunity
Ourmarketopportunityisprimarilydrivenbythefollowingfactors:
OurbusinessbenefitsfromtherisingspendingpowerofChineseconsumers.Chinasrealconsumptionin2013was36.5%oftotalGDP,whichisaratethatissignificantlylowerthanthatofothercountries,suchastheUnitedStates,whichhadaconsumptionpenetrationrateof66.8%in2013,accordingtoEuromonitorInternational.Webelievethatgrowthinconsumptionwilldrivehigherlevelsofonlineandmobilecommerce.
Chinasonlineshoppingpopulationisrelativelyunderpenetrated.AccordingtotheChinaInternetNetworkInformationCenter,orCNNIC,ChinahadtheworldslargestInternetpopulationwith618millionusersasofDecember31,2013.AccordingtoCNNIC,Chinahad302milliononlineshoppersin2013.Webelievethenumberofonlineshopperswillincrease,drivenbycontinuedgrowthinInternetusersaswellasbythehigherpercentageofInternetusersmakingpurchasesonline.
Webelievethatconsumersareexpandingthecategoriesofproductsandservicestheyarepurchasingonline,whichwillfurtherincreaseonlineandmobilecommerceactivity.
WebelievethattheincreasedusageofmobiledeviceswillmakeaccesstotheInternetevenmoreconvenient,drivehigheronlineshopperengagementandenablenewapplications.ChinahastheworldslargestmobileInternetuserbasewith500millionusersasofDecember31,2013,accordingtoCNNIC,andmobileusageisexpectedtoincrease,drivenbythegrowingadoptionofmobiledevices.
Chinasofflineretailmarketfacessignificantchallengesduetofewnationwidebrickandmortarretailers,anunderdevelopedphysicalretailinfrastructure,limitedproductselectionandinconsistentproductquality.ThesechallengesinChinasretailinfrastructure,whichwebelieveareparticularlyacuteoutsideoftier1and2cities,arecausingconsumerstoleapfrogtheofflineretailmarketinfavorofonlineandmobilecommerce.
Chinahasanincreasinglyextensiveandrapidlyimprovinglogisticsinfrastructureconsistingofnationwide,regionalandlocaldeliveryservices.WebelievethattherapiddevelopmentofChinasdistributedlogisticsinfrastructureandnationwideexpressdeliverynetworkshasbeendriveninpartbythegrowthofecommerceandwillcontinuetosupporttheuniquedemandsofconsumersandmerchantsconductingecommercetransactionsonmarketplaces.
Overall,onlineshopping,whichrepresented7.9%oftotalChinaconsumptionin2013,isprojectedtogrowatacompoundannualgrowthrate,orCAGR,of27.2%from2013to2016,accordingtoiResearch,asmoreconsumersshoponlineandecommercespendingperconsumerincreases.
OurStrengths
Webelievethatthefollowingstrengthscontributetooursuccessandaredifferentiatingfactorsthatsetusapartfromourpeers.
ManagementTeamwithOwnerMentalityandProvenTrackRecord.Ourmanagementteamsclearsenseofmission,longtermfocusandcommitmenttothevaluesthatdefinetheAlibabaculturehavebeencentraltooursuccessfultrackrecord.Ourmanagementteamhascreatedandgrownleadingbusinessesorganically,includingTaobaoMarketplace,Tmall,Alibaba.com,AlibabaCloudComputingandourrelatedcompanyAlipay.
TrustedBrands.Alibaba,Taobao,TmallandAlipayarewellrecognizedandtrustedbrandsinChina.Duetothestrengthofthese
brands,amajorityofourcustomersnavigatedirectlytoourChinaretailmarketplacestofindtheproductsandservicestheyareseekinginsteadofviathirdpartysearchengines.
ThrivingEcosystemwithPowerfulNetworkEffects.Wearethestewardofathrivingecosystem,whichprovidesuswiththefollowingkeyadvantages:
participantsinourecosystemareinvestedinitssuccessandgrowth
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interactionsamongparticipantscreatevalueforoneanotherasourecosystemexpandsandgeneratesstrongnetworkeffectsand
thescopeofourecosystemandthenetworkeffectsitcreates,includingthesignificantbuyertrafficgeneratedbyourTaobao
Marketplace,providelowcostorganictrafficforourothermarketplacesandservicesandsignificantlyreduceourrelianceonasalesforceforourmarketingservices.
MobileLeadership.WearetheleaderinmobilecommerceinChinaintermsofmobileretailGMV,withmobileGMVtransactedonourChinaretailmarketplacesaccountingfor76.2%oftotalmobileretailGMV(excludingvirtualitems)inChinainthetwelvemonthsendedDecember31,2013,accordingtoiResearch.OurMobileTaobaoApphasbeenthemostpopularmobilecommerceappinChinabymobileMAUseverymonthsinceAugust2012,accordingtoiResearch.
ScalableLogisticsPlatform.Weoffersellersonourmarketplacesthebenefitsofadistributedandscalablelogisticsplatformandinformationsystemtoprovidehighqualitydeliveryservicestosellersandbuyersonalargescale.OurplatformapproachhelpstoaddresstherequirementsoffacilitatingthedeliveryofpackagesacrossawiderangeofproductcategoriesfrommillionsofsellerstomillionsofbuyersindispersedlocationsacrossChina.Thescalabilityofthisnetworkwasdemonstratedbyitssuccessinhandlingof156millionpackagesgeneratedonourSinglesDaypromotionin2013comparedtoadailyaverageof13.7millionpackagesgeneratedfromtransactionsonourChinaretailmarketplacesin2013.
Reliable,ScalableandCosteffectiveProprietaryTechnology.Wehavedevelopedproprietarytechnologythatisreliable,scalable
andcosteffective.Ourtechnologyisdesignedtohandlethelargevolumeoftransactionsonourmarketplaces.Forexample,wesuccessfullyprocessed254millionorderswithin24hoursduringourSinglesDaypromotiononNovember11,2013.
DataInsights.Datafromconsumerbehaviorandtransactionscompletedonourmarketplacesandinteractionsamongparticipantsin
ourecosystemprovideuswithvaluableinsightstohelpusandoursellersimprovethebuyerexperience,operatemoreefficientlyandcreateinnovativeproductsandservices.
ThirdpartyPlatformBusinessModel.Ourexclusivelythirdpartyplatformbusinessmodelallowsustoscalerapidlywithouttherisksandcapitalrequirementsofsourcing,merchandisingandholdinginventorybornebydirectsalescompanies.Thisbusinessmodeldrivesourprofitabilityandstrongcashflow,whichgiveustheflexibilitytofurtherinvestinandimproveourplatform,expandourecosystemandaggressivelyinvestinpeople,technology,innovativeproductsandstrategicallyimportantassets.
OurStrategies
Thekeyelementsofourstrategytogrowourbusinessinclude:
IncreaseActiveBuyersandWalletShare.In2013,theaverageactivebuyeronourChinaretailmarketplacesplaced49orders,upfrom39ordersin2012and33ordersin2011.Wewillcontinuetodevelopandmarketthevaluepropositionofourretailmarketplacestoattractnewbuyersaswellastoincreasethewalletshareofexistingbuyersthroughmorefrequentbuyingandbuyingacrossmoreproductcategories.Weintendtoachievegrowththroughcustomerloyaltyprograms,highqualitycustomerservice,marketingandpromotionalcampaigns,andexpansionofmarketingaffiliates,aswellasbypromotingtheusageofourvariousmobilecommerceappssuchasourMobileTaobaoApp.
ExpandCategoriesandOfferings.Weaimtoenhancetheshoppingexperienceforconsumers,increaseconsumerengagementandcreateadditionalopportunitiesformerchantsbydevelopingandpromotingadditionalcategoriesandofferings.WebelievethatgrowthinthenumberofproductandservicecategoriesandproductsandservicespurchasedwithineachcategorycontributestohigheraveragespendingpercustomerandincreasesGMV.
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ExtendOurMobileLeadership.Weintendtobuilduponourstrengthinmobilecommercetodevelopabroaderspectrumofconsumerofferings,suchaslocationbasedservices,O2Oservicesanddigitalcontent,inordertofulfillourvisionofbecomingcentraltotheeverydaylivesofourcustomers.Wewillalsocontinuetolookforwaystoincreaseourmobileuserbaseandengagementthroughstrategicalliances,investmentsandacquisitions.
EnhancetheSuccessofSellersonaBroadBasis.Weaimtoincreasethesuccessofabroadbaseofsellersonourmarketplacesby
increasingtheirexposuretorelevantbuyerdemandandprovidingthemwithmoretoolssuchasdatascienceapplicationstomanagetheirrelationshipswithcustomers.
EnhanceDataandCloudComputingTechnologies.Wewillcontinuetoimplementourdatastrategythroughtheapplicationofdataintelligenceanddeeplearningtechnologiestoseveralfields,includingmarketplacedesign,userinterface,search,targetedmarketing,logistics,locationbasedservicesandfinancialservices,amongothers.Inaddition,wewillcontinuetoinvestheavilyinourcloudcomputingplatformtosupportourownbusinessesandthoseofthirdparties.
DevelopCrossborderCommerceOpportunities.Ourinternationalstrategyisfocusedonleveragingnaturalcrossborderlinkagestoourecosystem.Forexample,wewillcontinuetogrowourinternationalbusinessbyconnectingoverseasbrandedretailerstoChineseconsumers(TmallGlobal),connectingChinesesupplierstointernationalretailmarkets(AliExpress)andinternationalwholesalemarkets(Alibaba.com).
AlibabaPartnership
SinceourfoundersfirstgatheredinJackMasapartmentin1999,theyandourmanagementhaveactedinthespiritofpartnership.Weviewourcultureasfundamentaltooursuccessandourabilitytoserveourcustomers,developouremployeesanddeliverlongtermvaluetoourshareholders.InJuly2010,inordertopreservethisspiritofpartnershipandtoensurethesustainabilityofourmission,visionandvalues,wedecidedtoformalizethispartnershipasLakesidePartners,namedaftertheLakesideGardensresidentialcommunitywhereJackandourotherfoundersstartedourcompany.WerefertothepartnershipastheAlibabaPartnership.
Webelievethatourpartnershipapproachhashelpedustobettermanageourbusiness,withthepeernatureofthepartnershipenablingseniormanagerstocollaborateandoverridebureaucracyandhierarchy.TheAlibabaPartnershipcurrentlyhas28memberscomprisedof22membersofourmanagementandsixmembersofthemanagementofourrelatedcompaniesandaffiliates.Thepartnershipoperatesunderprinciples,policiesandproceduresthathaveevolvedwithourbusinessandaredescribedbelow.
Ourpartnershipisadynamicbodythatrejuvenatesitselfthroughadmissionofnewpartnerseachyear,ensuringexcellence,innovationandsustainability.Unlikedualclassownershipstructuresthatemployahighvoteclassofsharestoconcentratecontrolinafewfounders,ourapproachisdesignedtoembodythevisionofalargegroupofmanagementpartners.Thisstructureisoursolutionforpreservingthecultureshapedbyourfounderswhileatthesametimeaccountingforthefactthatfounderswillinevitablyretirefromthecompany.
Newpartnersareelectedannuallyafteranominationprocessbasedonanumberofcriteriaincluding,inmostcases,notlessthanfiveyearsoftenure,andthatrequirea75%approvalofallofthepartners.Partnershipvotesaremadeonaonepartneronevotebasis.
Partnersareevangelistsforourmission,visionandvalues,bothwithinourorganizationandexternallytocustomers,businesspartnersandotherparticipantsinourecosystem.
Werequireeachpartnertomaintainameaningfullevelofequityinterestsinourcompanyduringsuchindividualstenureasapartner.
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TheAlibabaPartnershipwillhavetheexclusiverighttonominateforshareholderapprovalasimplemajorityofthemembersofourboardofdirectors.IfanAlibabaPartnershipdirectornomineeisnotelectedbyourshareholdersordepartsourboardofdirectorsforanyreason,theAlibabaPartnershiphastherighttoappointadifferentpersontoserveasaninterimdirectoruntilournextscheduledannualgeneralmeetingofshareholders.
OurChallenges
Webelievesomeofthemajorrisksanduncertaintiesthatmaymateriallyandadverselyaffectusincludethefollowing:
anyfailuretomaintainthetrustedstatusofourecosystemcouldseverelydamageourreputationandbrand
wemaynotbeabletomaintainorimprovethenetworkeffectsofourecosystem
ouroperatingphilosophymaynegativelyinfluenceourshorttermfinancialperformance
wemaynotbeabletosuccessfullymonetizeourmobiletraffic
wemaynotbeabletomaintainourculture,whichhasbeenakeytooursuccess
wemaynotbeabletoinnovateorcompeteeffectively
iftheservicesAlipayprovidestousarelimitedorrestricted,ourbusinesswouldbeharmed
wemaynotbeabletosustainourrevenuegrowthrate,andincreasedinvestmentsinourbusinessmaynegativelyaffectourmargins
ourrevenueandnetincomemaybemateriallyandadverselyaffectedbyanyeconomicslowdowninChinaaswellasglobally
therearerisksanduncertaintiesassociatedwithourvariableinterestentitystructureand
theregulatoryandlegalsysteminChinaiscomplexanddeveloping,andfutureregulationsmayimposeadditionalrequirementsonourbusiness.
Wealsofaceotherchallenges,risksanduncertaintiesthatmaymateriallyandadverselyaffectourbusiness,financialcondition,resultsofoperationsandprospects.YoushouldconsidertherisksdiscussedinRiskFactorsandelsewhereinthisprospectusbeforeinvestinginourADSs.
CorporateHistoryandStructure
Wehaveademonstratedtrackrecordofsuccessfulorganicbusinesscreationsinceourfoundingin1999.
In1999,wefoundedAlibaba.comandAlibaba.com.cn,thepredecessorof1688.com.
In2003,welaunchedTaobaoMarketplace.
In2004,weestablishedAlipaytoaddresstheissueoftrustbetweenbuyersandsellersonline.
In2007,welaunchedAlimama,ouronlinemarketingtechnologyplatform.
In2008,welaunchedTmalltoaddressanincreasingconsumerneedforbrandedproductsandapremiumshoppingexperience.
In2009,weestablishedAlibabaCloudComputingtohandletheincreasingdatamanagementneedsonourplatform.
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In2010,welaunchedtheMobileTaobaoApp.
AlibabaGroupHoldingLimitedisaCaymanIslandsholdingcompanyestablishedonJune28,1999,andweconductourbusinessinChinathroughoursubsidiariesandvariableinterestentities.
DuetoPRClegalrestrictionsonforeignownershipandinvestmentin,amongotherareas,valueaddedtelecommunicationsservices,whichincludeInternetcontentproviders,orICPs,we,similartoallotherentitieswithforeignincorporatedholdingcompanystructuresoperatinginourindustryinChina,operateourInternetbusinessesandotherbusinessesinwhichforeigninvestmentisrestrictedorprohibitedinthePRCthroughwhollyforeignownedenterprises,majorityownedentitiesandvariableinterestentities.Therelevantvariableinterestentities,whichare100%ownedbyPRCcitizensorbyPRCentitiesownedbyPRCcitizens,holdtheICPlicensesandoperatethevariouswebsitesforourInternetbusinesses.Specifically,ourvariableinterestentitiesaregenerallymajorityownedbyJackMa,ourleadfounder,executivechairmanandoneofourprincipalshareholders,andminorityownedbySimonXie,oneofourfoundersandamemberofourmanagement.Thesecontractualarrangementscollectivelyenableustoexerciseeffectivecontrolover,andrealizesubstantiallyalloftheeconomicrisksandbenefitsarisingfrom,thevariableinterestentities.SeeOurHistoryandCorporateStructureContractualArrangementsamongOurWhollyforeignOwnedEnterprises,VariableInterestEntitiesandtheVariableInterestEntityEquityHolders.Thecontractualarrangementsmaynotbeaseffectiveinprovidingoperationalcontrolasdirectownership.SeeRiskFactorsRisksRelatedtoOurCorporateStructure.
Asaresult,weincludethefinancialresultsofeachofthevariableinterestentitiesinourconsolidatedfinancialstatementsinaccordancewithgenerallyacceptedaccountingprinciplesintheUnitedStates,orU.S.GAAP,asiftheywereourwhollyownedsubsidiaries.
OtherthantheICPlicensesandotherlicensesandapprovalsforbusinessesinwhichforeignownershipisrestrictedorprohibitedheldbyourvariableinterestentities,weholdourmaterialassetsin,andconductourmaterialoperationsthrough,ourwhollyforeignownedandmajorityforeignownedenterprises,whichprimarilyprovidetechnologyandotherservicestoourcustomers.Wegeneratethesignificantmajorityofourrevenuedirectlythroughourwhollyforeignownedenterprises,whichdirectlycapturetheprofitsandassociatedcashflowfromoperationswithouthavingtorelyoncontractualarrangementstotransfersuchcashflowfromthevariableinterestentitiestothewhollyforeignownedenterprises.
OurCorporateInformation
Theprincipalexecutiveofficesofourmainoperationsarelocatedat969WestWenYiRoad,YuHangDistrict,Hangzhou311121,PeoplesRepublicofChina.Ourtelephonenumberatthisaddressis+8657185022077.OurregisteredofficeintheCaymanIslandsislocatedattheofficesofTridentTrustCompany(Cayman)Limited,FourthFloor,OneCapitalPlace,P.O.Box847,GeorgeTown,GrandCayman,CaymanIslands.OuragentforserviceofprocessintheUnitedStatesisCorporationServiceCompanylocatedat1180AvenueoftheAmericas,Suite210,NewYork,NewYork10036.Ourcorporatewebsiteiswww.alibabagroup.com.Theinformationcontainedinourwebsitesisnotapartofthisprospectus.
ConventionsthatApplytothisProspectus
Unlessthecontextotherwiserequires,referencesinthisprospectusto:
activebuyersinagivenperiodaretouseraccountsthatconfirmedoneormoreordersontherelevantmarketplaceinthatperiod,regardlessofwhetherornotthebuyerandsellersettlethetransaction
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activesellersinagivenperiodaretoselleraccounts(representingstorefronts)thathadoneormoreordersconfirmedbyabuyeron
therelevantmarketplaceinthatperiodandthatwereactiveattheendoftheperiod,regardlessofwhetherthebuyerorsellersettlethetransaction
AlipayaretoAlipay.comCo.,Ltd.,acompanywithwhichwehavealongtermcontractualrelationship,andthatisawholly
ownedsubsidiaryofSmallandMicroFinancialServicesCompanyor,wherethecontextrequires,itspredecessorentities.Wedonothaveanyownershipinterestin,orcontrolover,eitherSmallandMicroFinancialServicesCompanyorAlipay
ADRsaretotheAmericandepositaryreceipts,which,ifissued,evidenceourADSs
ADSsaretoourAmericandepositaryshares,eachofwhichrepresentsordinaryshares
ChinaandthePRCaretothePeoplesRepublicofChina,excluding,forthepurposesofthisprospectusonly,TaiwanandthespecialadministrativeregionsofHongKongandMacau
ChinaretailmarketplacesaretoTaobaoMarketplace,TmallandJuhuasuan,collectively
GMVaretothevalueofconfirmedordersofproductsandservicesonourmarketplaces,regardlessofhow,orwhether,thebuyerandsellersettlethetransaction.Unlessotherwisestated,GMVinreferencetoourmarketplacesincludesonlyGMVtransactedonourChinaretailmarketplaces.OurcalculationofGMVforourChinaretailmarketplacesincludesshippingchargespaidbybuyerstosellersandexcludesvehicleandpropertytransactionswithlistpricesexceedingRMB500,000(US$80,432)andanyotherproductsorserviceswithlistpricesaboveRMB100,000(US$16,086),aswellastransactionsconductedbybuyerswhomakepurchasesexceedingRMB1,000,000(US$160,865)intheaggregateinasingleday
mobileGMVaretothatportionofGMVgeneratedbyordersthatwereconfirmedusingamobileapporwirelessapplicationprotocol,orWAP,website
mobileMAUsinagivenmontharetothenumberofuniquemobiledevicesthatwereusedtovisitoraccesscertainofourmobileapplicationsatleastonceduringthatmonth
O2Oaretoonlinetoofflineandofflinetoonlinecommerce
ordersaretoeachconfirmedorderfromatransactionbetweenabuyerandasellerforproductsandservicesonourChinaretailmarketplaces,evenifsuchorderincludesmultipleitems,duringthespecifiedperiod,whetherornotthetransactionissettled
retailmarketplacesaretoTaobaoMarketplace,Tmall,JuhuasuanandAliExpress,collectively
RMBandRenminbiaretothelegalcurrencyofChina
SmallandMicroFinancialServicesCompanyaretoZhejiangAlibabaECommerceCo.,Ltd.,acompanyorganizedunderthelawsofthePRC
SoftBankaretoSoftBankCorp.,SoftBankBBCorp.andSBChinaHoldingsPteLtd.,collectively
tier1citiesaretothetermusedbytheNationalBureauofStatisticsofChinaandrefertoBeijing,Shanghai,ShenzhenandGuangzhou
tier2citiesaretothe32majorcities,otherthantier1cities,ascategorizedbytheNationalBureauofStatisticsofChina,including
provincialcapitals,administrativecapitalsofautonomousregions,directcontrolledmunicipalitiesandothermajorcitiesdesignatedasmunicipalitieswithindependentplanningbytheStateCouncil
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totalpaymentvolumearetothetotalvalueamountofthetransactionsfrom,toorthroughanyservice,offering,systemorplatformofAlipayduringtheperiod
variableinterestentitiesaretoourvariableinterestentitiesthatare100%ownedbyPRCcitizensorbyPRCentitiesownedbyPRCcitizens,whereapplicable,thatholdtheInternetcontentproviderlicenses,orICPlicensesorotherbusinessoperationlicensesorapprovals,andgenerallyoperatethevariouswebsitesforourInternetbusinessesorotherbusinessesinwhichforeigninvestmentisrestrictedorprohibited,andareconsolidatedintoourconsolidatedfinancialstatementsinaccordancewithU.S.GAAPasiftheywereourwhollyownedsubsidiaries
we,us,ourcompanyandouraretoAlibabaGroupHoldingLimitedanditsconsolidatedsubsidiariesanditsaffiliatedconsolidatedentities,includingourvariableinterestentitiesandtheirsubsidiaries
wholesalemarketplacesareto1688.comandAlibaba.com,collectively
YahooaretoYahoo!Inc.andYahoo!HongKongHoldingsLimited,collectivelyand
US$,dollarsandU.S.dollarsaretothelegalcurrencyoftheUnitedStates.
OurreportingcurrencyistheRenminbi.ThisprospectusalsocontainstranslationsofcertainforeigncurrencyamountsintoU.S.dollarsfortheconvenienceofthereader.Unlessotherwisestated,alltranslationsofRenminbiintoU.S.dollarsweremadeatRMB6.2164toUS$1.00,theexchangeratesetforthintheH.10statisticalreleaseoftheFederalReserveBoardonMarch31,2014.WemakenorepresentationthattheRenminbiorU.S.dollaramountsreferredtointhisprospectuscouldhavebeenorcouldbeconvertedintoU.S.dollarsorRenminbi,asthecasemaybe,atanyparticularrateoratall.OnMay2,2014,thenoonbuyingrateforRenminbiwasRMB6.2591toUS$1.00.
Thenumberofourordinarysharesthatwillbeoutstandingafterthisofferingiscalculatedbasedon2,321,114,237ordinaryshares(whichincludesconversionofalloutstandingconvertiblepreferencesharesand12,077,421issuedbutunvestedrestrictedsharesasofDecember31,2013)outstandingasofDecember31,2013,andexcludes:
54,279,500ordinarysharesissuableupontheexerciseofoutstandingoptionstopurchaseordinarysharesasofDecember31,2013
47,670,100ordinarysharessubjecttounvestedrestrictedshareunits,orRSUs,asofDecember31,2013and
anadditional77,861,552ordinarysharesreservedforfutureissuanceunderourequityincentiveplans.
Exceptasotherwiseindicated,allinformationinthisprospectusassumes:
theautomaticconversionofalloutstandingconvertiblepreferencesharesinto91,243,243ofourordinarysharesconcurrentlywiththecompletionofthisoffering
thefilingandeffectivenessofouramendedandrestatedmemorandumandarticlesofassociation,whichwilloccurimmediatelypriortothecompletionofthisofferingand
noexercisebytheunderwritersoftheiroptiontopurchaseuptoanadditionalADSsrepresentingordinarysharesfromusandcertainsellingshareholders.
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THEOFFERING ADSsofferedbyus ADSs ADSsofferedbythesellingshareholders ADSs ADSsoutstandingimmediatelyafterthisoffering ADSs(orADSsiftheunderwritersexerciseinfulltheiroptiontopurchase
additionalADSs). Ordinarysharesoutstandingimmediatelyafterthisoffering
ordinaryshares.
OptiontopurchaseadditionalADSs Weandcertainsellingshareholdershavegrantedtotheunderwritersanoption,
exercisablefor30daysfromthedateofthisprospectus,topurchaseuptoanaggregateofadditionalADSsattheinitialpublicofferingprice,lessunderwritingdiscountsandcommissions.
TheADSs EachADSrepresentsordinaryshares.TheADSswillbeevidencedbyADRs.
ThedepositarywillbetheholderoftheordinarysharesunderlyingtheADSsandyouwillhavetherightsofanADRholderasprovidedinthedepositagreementamongus,thedepositaryandholdersandbeneficialownersofADSsfromtimetotime.
YoumaysurrenderyourADSstothedepositarytowithdrawtheordinarysharesunderlyingyourADSs.Thedepositarywillchargeyouafeeforsuchanexchange.
Wemayamendorterminatethedepositagreementforanyreasonwithoutyourconsent.AnyamendmentthatimposesorincreasesfeesorchargesorwhichmateriallyprejudicesanysubstantialexistingrightyouhaveasanADSholderwillnotbecomeeffectiveastooutstandingADSsuntil30daysafternoticeoftheamendmentisgiventoADSholders.Ifanamendmentbecomeseffective,youwillbeboundbythedepositagreementasamendedifyoucontinuetoholdyourADSs.
TobetterunderstandthetermsoftheADSs,youshouldcarefullyreadthesectioninthisprospectusentitledDescriptionofAmericanDepositaryShares.Wealsoencourageyoutoreadthedepositagreement,whichisanexhibittotheregistrationstatementthatincludesthisprospectus.
Useofproceeds WeestimatethatwewillreceivenetproceedsofapproximatelyUS$millionfrom
thisoffering,assuminganinitialpublicofferingpriceofUS$perADS,themidpointoftheestimated
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rangeoftheinitialpublicofferingpriceshownonthecoverpageofthisprospectus,afterdeductingestimatedunderwritingdiscountsandcommissionsandestimatedofferingexpensespayablebyus.Weplantousethenetproceedswewillreceivefromthisofferingforgeneralcorporatepurposes.
WewillnotreceiveanyoftheproceedsfromthesaleoftheADSsbythesellingshareholders. Riskfactors SeeRiskFactorsandotherinformationincludedinthisprospectusforadiscussionof
therisksrelatingtoinvestinginourADSs.YoushouldcarefullyconsidertheserisksbeforedecidingtoinvestinourADSs.
NewYorkStockExchangeorNasdaq
GlobalMarkettradingsymbol Lockup We,ourexecutiveofficers,directors,thesellingshareholdersandcertainoftheother
holdersofourordinarysharesholdingintheaggregate%ofourordinaryshareshaveagreedwiththeunderwritersnottosell,transferordisposeofanyADSs,ordinarysharesorsimilarsecuritiesforaperiodofdaysafterthedateofthisprospectussubjecttocertainexceptions.SeeSharesEligibleforFutureSaleandUnderwriting.
Depositary
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SummaryConsolidatedFinancialandOperatingData
ThesummaryconsolidatedstatementsofoperationsdatafortheyearsendedMarch31,2012and2013,andthesummaryconsolidatedbalancesheetdataasofMarch31,2012and2013havebeenderivedfromourauditedconsolidatedfinancialstatementsincludedelsewhereinthisprospectus.OurfinancialstatementshavebeenpreparedinaccordancewithU.S.GAAP.
ThesummaryconsolidatedstatementofoperationsdatafortheninemonthsendedDecember31,2012and2013andthesummaryconsolidatedbalancesheetdataasofDecember31,2013havebeenderivedfromourunauditedinterimconsolidatedfinancialstatementsincludedelsewhereinthisprospectus.Theunauditedinterimconsolidatedfinancialstatementshavebeenpreparedonthesamebasisasourauditedconsolidatedfinancialstatementsandincludeallnormalrecurringadjustmentsthatweconsidernecessaryforafairstatementofourfinancialpositionandoperatingresultsfortheperiodspresented.
ThefollowingsummaryconsolidatedfinancialdatafortheperiodsandasofthedatesindicatedarequalifiedbyreferencetoandshouldbereadinconjunctionwithourconsolidatedfinancialstatementsandrelatednotesandManagementsDiscussionandAnalysisofFinancialConditionandResultsofOperations,bothofwhichareincludedelsewhereinthisprospectus.
Ourhistoricalresultsforanypriorperioddonotnecessarilyindicateourresultstobeexpectedforanyfutureperiod.
SummaryConsolidatedStatementsofOperationsData: YearendedMarch31, NinemonthsendedDecember31, 2012 2013 2012 2013 RMB RMB US$ RMB RMB US$ (inmillions,exceptpersharedata) Revenue
Chinacommerce 15,637 29,167 4,692 21,925 35,167 5,657Internationalcommerce 3,765 4,160 669 3,117 3,557 572CloudcomputingandInternetinfrastructure 515 650 105 484 560 90Others 108 540 87 317 1,189 192
Total 20,025 34,517 5,553 25,843 40,473 6,511Costofrevenue (6,554) (9,719) (1,563) (7,442) (9,899) (1,592)Productdevelopmentexpenses (2,897) (3,753) (604) (2,899) (3,893) (626)Salesandmarketingexpenses (3,058) (3,613) (581) (3,092) (3,267) (526)Generalandadministrativeexpenses(1) (2,211) (2,889) (465) (2,344) (3,704) (596)Amortizationofintangibleassets (155) (130) (21) (105) (197) (32)Impairmentofgoodwillandintangibleassets (135) (175) (28) (175) (44) (7)YahooTIPLAamendmentpayment(2) (3,487) (561) (3,487)
Incomefromoperations 5,015 10,751 1,730 6,299 19,469 3,132Interestandinvestmentincome(loss),net 258 39 6 (25) 1,080 174Interestexpense (68) (1,572) (253) (1,113) (1,842) (296)Otherincome,net 327 894 144 593 1,178 189
Incomebeforeincometaxandshareofresultsofequityinvestees 5,532 10,112 1,627 5,754 19,885 3,199
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YearendedMarch31, NinemonthsendedDecember31, 2012 2013 2012 2013 RMB RMB US$ RMB RMB US$ (inmillions,exceptpersharedata) Incometaxexpenses (842) (1,457) (234) (1,362) (1,969) (317)Shareofresultsofequityinvestees (25) (6) (1) (9) (174) (28)
Netincome 4,665 8,649 1,392 4,383 17,742 2,854Netincomeattributabletononcontrollinginterests (437) (117) (19) (108) (29) (5)
NetincomeattributabletoAlibabaGroupHoldingLimited 4,228 8,532 1,373 4,275 17,713 2,849Accretionofconvertiblepreferenceshares (17) (3) (9) (24) (4)Dividendsaccruedonconvertiblepreferenceshares (111) (18) (59) (156) (25)
Netincomeattributabletoordinaryshareholders 4,228 8,404 1,352 4,207 17,533 2,820
Earningspershareattributabletoordinaryshareholders: Basic 1.71 3.66 0.59 1.80 8.08 1.30Diluted 1.67 3.57 0.57 1.76 7.63 1.23
Supplementalinformation:(3) AdjustedEBITDA 7,274 16,607 2,672 11,698 23,845 3,836Adjustedincomefromoperations 6,269 15,497 2,494 10,820 22,657 3,645Adjustednetincome 5,919 13,395 2,156 8,904 20,930 3,367Freecashflow 8,752 19,745 3,177 17,389 29,936 4,816
(1) IntheninemonthsendedDecember31,2013,theseexpensesincludedanequitysettleddonationexpenseofRMB1,269million(US$204million)relatingtothe
grantofoptionstopurchase50,000,000ofourordinarysharestoanonprofitorganizationdesignatedbyJackMaandJoeTsai.(2) WeenteredintotheTechnologyandIntellectualPropertyLicensingAgreementwithYahoo,ortheYahooTIPLA,inOctober2005,pursuanttowhichwepay
royaltyfeestoYahoo.WeandYahooamendedtheexistingTIPLAinSeptember2012,pursuanttowhichwemadealumpsumpaymentintheamountofUS$550million,whichisreflectedasUS$561millionintheconveniencetranslationinthetableaboveasaresultofthechangeintheRenminbitoU.S.dollarexchangeratesincethedateofpayment.
(3) SeeNonGAAPMeasuresbelow.
NonGAAPMeasures
WeusethenonGAAPfinancialmeasuresofadjustedEBITDA,adjustedincomefromoperations,adjustednetincomeandfreecashflowinevaluatingouroperatingresultsandforfinancialandoperationaldecisionmakingpurposes.
WebelievethatadjustedEBITDA,adjustedincomefromoperationsandadjustednetincomehelpidentifyunderlyingtrendsinourbusinessthatcouldotherwisebedistortedbytheeffectoftheexpensesthatweexcludeinadjustedEBITDA,adjustedincomefromoperationsandadjustednetincome.WebelievethatadjustedEBITDA,adjustedincomefromoperationsandadjustednetincomeprovideusefulinformationaboutouroperatingresults,enhancetheoverallunderstandingofourpastperformanceandfutureprospectsandallowforgreatervisibilitywithrespecttokeymetricsusedbyourmanagementinitsfinancialandoperationaldecisionmaking.
Weconsiderfreecashflowtobealiquiditymeasurethatprovidesusefulinformationtomanagementandinvestorsabouttheamountofcashgeneratedbyourbusinessthatcanbeusedforstrategiccorporatetransactions,includinginvestinginournewbusinessinitiatives,makingstrategicinvestmentsandacquisitionsandstrengtheningourbalancesheet.Weusefreecashflowtomanageourbusiness,makeplanningdecisions,evaluateourperformanceandallocateresources.Alimitationoftheutilityoffreecashflowasameasureof
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financialperformanceisthatitdoesnotrepresentthetotalincreaseordecreaseinourcashbalanceforareportingperiod.
AdjustedEBITDA,adjustedincomefromoperations,adjustednetincomeandfreecashflowshouldnotbeconsideredinisolationorconstruedasanalternativetonetincome,cashflowsoranyothermeasureofperformanceorasanindicatorofouroperatingperformance.AdjustedEBITDA,adjustedincomefromoperations,adjustednetincomeandfreecashflowpresentedheremaynotbecomparabletosimilarlytitledmeasurespresentedbyothercompanies.Othercompaniesmaycalculatesimilarlytitledmeasuresdifferently,limitingtheirusefulnessascomparativemeasurestoourdata.
AdjustedEBITDArepresentsincomefromoperations(whichexcludesinterestandinvestmentincome(loss),net,interestexpense,otherincome,net,incometaxexpensesandshareofresultsofequityinvestees)before(i)certainnoncashexpenses,consistingofsharebasedcompensationexpense,amortizationofintangibleassets,depreciationandimpairmentofgoodwillandintangibleassetsaswellas(ii)onetimeexpenseitemsconsistingoftheYahooTIPLAamendmentpaymentandanequitysettleddonationexpensethatwedonotbelievearereflectiveofourcoreoperatingperformanceduringtheperiodpresented.
Adjustedincomefromoperationsrepresentsincomefromoperations(whichexcludesinterestincomeandinvestmentincome(loss),net,interestexpense,otherincome,net,incometaxexpensesandshareofresultsofequityinvestees)beforesharebasedcompensationexpense,onetimeexpenseitemsconsistingoftheYahooTIPLAamendmentpaymentandanequitysettleddonationexpensethatwedonotbelievearereflectiveofourcoreoperatingperformanceduringtheperiodpresented.
Adjustednetincomerepresentsnetincomebeforesharebasedcompensationexpense,onetimeexpenseitemsconsistingoftheYahooTIPLAamendmentpayment,aswellasanequitysettleddonationexpense.
Freecashflowrepresentsnetcashprovidedbyoperatingactivitiesaspresentedinourconsolidatedcashflowstatementlesspurchasesofpropertyandequipment(excludingacquisitionoflanduserightsfor,andconstructionof,ourofficecampusesinChina)andintangibleassets,adjustedforchangesinloanreceivablesrelatingtomicroloansofourSMEloanbusinessandtheYahooTIPLAamendmentpayment.Wepresenttheadjustmentforchangesinloanreceivablesbecausesuchreceivablesarereflectedundercashflowfromoperatingactivities,whereasthesecuredborrowingsandotherbankborrowingsusedtofinancethemarereflectedundercashflowsfromfinancingactivities,andaccordingly,theadjustmentismadetoshowcashflowsfromoperatingactivitiesnetoftheeffectofchangesinloanreceivables.
ThetablebelowsetsforthareconciliationofourincomefromoperationstoadjustedEBITDAfortheperiodsindicated: YearendedMarch31, NinemonthsendedDecember31, 2012 2013 2012 2013 RMB RMB US$ RMB RMB US$ (inmillions) Incomefromoperations 5,015 10,751 1,730 6,299 19,469 3,132
Add:Sharebasedcompensationexpense 1,254 1,259 203 1,034 1,919 309Add:Amortizationofintangibleassets 155 130 21 105 197 32Add:Depreciationandamortizationofpropertyandequipmentand
landuserights 715 805 129 598 947 152Add:Impairmentofgoodwillandintangibleassets 135 175 28 175 44 7Add:YahooTIPLAamendmentpayment 3,487 561 3,487 Add:Equitysettleddonationexpense 1,269 204
AdjustedEBITDA 7,274 16,607 2,672 11,698 23,845 3,836
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Thefollowingtablesetsforthareconciliationofourincomefromoperationstoadjustedincomefromoperationsfortheperiodsindicated: YearendedMarch31, NinemonthsendedDecember31, 2012 2013 2012 2013 RMB RMB US$ RMB RMB US$ (inmillions) Incomefromoperations 5,015 10,751 1,730 6,299 19,469 3,132
Add:Sharebasedcompensationexpense 1,254 1,259 203 1,034 1,919 309Add:YahooTIPLAamendmentpayment 3,487 561 3,487 Add:Equitysettleddonationexpense 1,269 204
Adjustedincomefromoperations 6,269 15,497 2,494 10,820 22,657 3,645
Thefollowingtablesetsforthareconciliationofournetincometoadjustednetincomefortheperiodsindicated: YearendedMarch31, NinemonthsendedDecember31, 2012 2013 2012 2013 RMB RMB US$ RMB RMB US$ (inmillions) Netincome 4,665 8,649 1,392 4,383 17,742 2,854
Add:Sharebasedcompensationexpense 1,254 1,259 203 1,034 1,919 309Add:YahooTIPLAamendmentpayment 3,487 561 3,487 Add:Equitysettleddonationexpense 1,269 204
Adjustednetincome 5,919 13,395 2,156 8,904 20,930 3,367
Thefollowingtablesetsforthareconciliationofnetcashprovidedbyoperatingactivitiestofreecashflowfortheperiodsindicated: YearendedMarch31, NinemonthsendedDecember31, 2012 2013 2012 2013 RMB RMB US$ RMB RMB US$ (inmillions) Netcashprovidedbyoperatingactivities 9,275 14,476 2,329 12,396 24,579 3,954Less:Purchaseofproperty,equipmentandintangibleassets(excluding
landuserightsandconstructioninprogress) (749) (1,046) (168) (953) (3,010) (484)Add:Changesinloanreceivables,net 226 2,828 455 2,459 8,367 1,346Add:YahooTIPLAamendmentpayment 3,487 561 3,487
Freecashflow 8,752 19,745 3,177 17,389 29,936 4,816
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SummaryConsolidatedBalanceSheetData AsofMarch31, AsofDecember31,
2012 2013 2013 2013
(Proforma)(1)
2013(Proforma
asadjusted)(2) RMB RMB US$ RMB US$ RMB US$ RMB US$ (inmillions)Cashandcashequivalentsandshortterm
investments(3) 21,744 32,686 5,258 48,962 7,876 48,962 7,876 Investmentsecuritiesandinvestmentin
equityinvestees(4) 2,483 2,426 390 15,311 2,463 15,311 2,463 Propertyandequipment,net 2,463 3,808 612 5,973 961 5,973 961 Goodwillandintangibleassets 11,791 11,628 1,871 13,250 2,131 13,250 2,131 Totalassets 47,210 63,786 10,261 107,058 17,222 107,058 17,222 Currentbankborrowings 1,283 3,350 539 1,200 193 1,200 193 Securedborrowings 2,098 337 8,884 1,429 8,884 1,429 Redeemablepreferenceshares 5,191 835 Noncurrentbankborrowings 22,462 3,613 30,226 4,862 30,226 4,862 Totalliabilities 12,797 52,740 8,484 72,805 11,712 72,805 11,712 Convertiblepreferenceshares 10,447 1,680 10,235 1,647 Totalequity(5) 34,383 513 83 23,892 3,843 34,127 5,490 (1) Reflectstheautomaticconversionofallofourconvertiblepreferencesharesinto91,243,243ordinarysharesconcurrentlywiththecompletionofthisoffering.(2) Reflects(i)theautomaticconversionofallofourconvertiblepreferencesharesinto91,243,243ordinarysharesconcurrentlywiththecompletionofthisoffering
and(ii)thesaleofordinarysharesintheformofADSsbyusinthisofferingatanassumedinitialpublicofferingpriceofUS$perADS,themidpointoftheestimatedrangeoftheinitialpublicofferingpriceshownonthefrontcoverofthisprospectus,afterdeductingtheestimatedunderwritingdiscountsandcommissionsandestimatedofferingexpensespayablebyus.
(3) Includesbothcashandcashequivalentsandshortterminvestments,whichcomprisefixeddepositswithoriginalmaturitiesofbetweenthreemonthsandoneyear.(4) Includesbothcurrentandnoncurrentinvestmentsecuritiesandinvestmentinequityinvestees.(5) ThedecreasefromMarch31,2012toMarch31,2013wasprimarilyduetotherepurchaseofourordinarysharesfromYahooinSeptember2012andthe
privatizationofAlibaba.com,partiallyoffsetbytheissuanceofordinarysharestofinancetherepurchase.
SummaryOperatingData
GMV
ThefollowingchartsetsforththeGMVtransactedonourChinaretailmarketplacesandmobileGMVasapercentageofGMVfortheperiodsindicated: Threemonthsended
Jun.30,2012
Sep.30,2012
Dec.31,2012
Mar.31,2013
Jun.30,2013
Sep.30,2013
Dec.31,2013
GMV(inbillionsofRMB) 209 228 346 294 345 374 529MobileGMV(asapercentageofGMV) 4.6% 5.6% 7.4% 10.7% 12.0% 14.7% 19.7%
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Activebuyers
ThefollowingchartsetsforththenumberofactivebuyersonourChinaretailmarketplacesfortheperiodsindicated: Twelvemonthsended
Jun.30,2012
Sep.30,2012
Dec.31,2012
Mar.31,2013
Jun.30,2013
Sep.30,2013
Dec.31,2013
Activebuyers(inmillions) 133 145 160 172 185 202 231
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RISKFACTORS
Youshouldconsidercarefullyalloftheinformationinthisprospectus,includingtherisksanduncertaintiesdescribedbelowandourconsolidatedfinancialstatementsandrelatednotes,beforemakinganinvestmentinourADSs.Anyofthefollowingrisksanduncertaintiescouldhaveamaterialadverseeffectonourbusiness,financialcondition,resultsofoperationsandprospects.ThemarketpriceofourADSscoulddeclinesignificantlyasaresultofanyoftheserisksanduncertainties,andyoumayloseallorpartofyourinvestment.Additionalrisksoruncertaintiesnotpresentlyknowntousorthatwecurrentlydeemimmaterialmayalsoharmourbusiness.
RisksRelatedtoOurBusinessandIndustry
Maintainingthetrustedstatusofourecosystemiscriticaltooursuccess,andanyfailuretodosocouldseverelydamageourreputationandbrand,whichwouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.
WehaveestablishedastrongbrandnameandreputationforourecosysteminChina.Anylossoftrustinourplatformcouldharmthevalueofourbrandandresultinbuyersandsellersceasingtotransactbusinessonourmarketplacesaswellasparticipantsreducingtheleveloftheircommercialactivityinourecosystem,whichcouldmateriallyreduceourrevenueandprofitability.Ourabilitytomaintainourpositionasatrustedplatformforonlineandmobilecommerceisbasedinlargepartupon:
thereliabilityandsecurityofourplatform
thefunctionalityofproductsandthewiderangeofservicesandfunctionalitywemakeavailabletoparticipantsonourplatform
therulesgoverningourmarketplaces
thequalityandbreadthofproductsandservicesofferedbysellersthroughourmarketplaces
thestrengthofourconsumerprotectionmeasuresand
ourabilitytoprovidereliableandtrustedpaymentandescrowservicesthroughourarrangementswithourrelatedcompanyAlipay.
Wemaynotbeabletomaintainandimprovethenetworkeffectsofourecosystem,whichcouldnegativelyaffectourbusinessandprospects.
Ourabilitytomaintainahealthyandvibrantecosystemthatcreatesstrongnetworkeffectsbetweenbuyers,sellersandotherparticipantsiscriticaltooursuccess.Theextenttowhichweareabletomaintainandstrengthenthesenetworkeffectsdependsonourabilityto:
offerasecureandopenplatformforallparticipants
providetoolsandservicesthatmeettheevolvingneedsofbuyersandsellers
provideawiderangeofhighqualityproductandserviceofferingstobuyers
providesellerswithahighleveloftrafficflowwithstrongcommercialintentandeffectiveonlinemarketingservices
enhancetheattractivenessofourmobileplatform
arrangesecureandtrustedpaymentsettlementandescrowservices
coordinatefulfillmentanddeliveryserviceswiththirdpartylogisticsanddeliverycompanies
attractandretainthirdpartyserviceproviderswhoareabletoprovidequalityservicesoncommerciallyreasonabletermstooursellers
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maintainthequalityofourcustomerserviceand
continueadaptingtothechangingdemandsofthemarket.
Inaddition,changeswemaymaketoenhanceandimproveourecosystemandbalancetheneedsandinterestsofthevariousparticipantsonourecosystemmaybeviewedpositivelyfromoneparticipantgroupsperspective(suchasbuyers)butmayhavenegativeeffectsfromanothergroupsperspective(suchassellers).Ifwefailtobalancetheinterestsofallparticipantsinourecosystem,buyers,sellersandotherparticipantsmaystopvisitingourmarketplaces,conductfewertransactionsorusealternativeplatforms,anyofwhichcouldresultinamaterialdecreaseinourrevenueandnetincome.
Ouroperatingphilosophyandinterestinmaintainingthehealthofourecosystemmaynegativelyinfluenceourshorttermfinancialperformance.
Consistentwithouroperatingphilosophyandfocusonthelongterminterestsofourecosystemparticipants,wemaytakeactionsthatfailtogenerateshorttermfinancialresultsandwecannotassureyouthattheseactionswillproducelongtermbenefits.Forexample,inordertofocusoncreatingathrivingmarketplace,wehavenotintroducedacommissionbasedfeeormandatoryfeeforTaobaoMarketplace.WealsoshareasignificantportionoftherevenuegeneratedfromtheTaobaoAffiliateNetworkwithourthirdpartymarketingpartners.Inaddition,oureffortsrelatingtoourmobileplatformhaveemphasizedexpandingouruserbaseandenhancinguserexperience,ratherthanprioritizingmonetizationofusertrafficonourmobileplatform.Wealsomakeinvestmentsinnewproductsandservicesthatmaynotprovideeconomicbenefitstousintheshorttermoratall.
Userbehavioronmobiledevicesisrapidlyevolving,andifwefailtosuccessfullyadapttothesechanges,ourcompetitivenessandmarketpositionmaysuffer.
Buyers,sellersandotherparticipantsareincreasinglyusingmobiledevicesinChinaforawiderangeofpurposes,includingforecommerce.Whileasignificantandgrowingportionofparticipantsaccessourplatformsthroughmobiledevices,thisareaisrelativelynewanddevelopingrapidlyandwemaynotbeabletocontinuetoincreasethelevelofmobileaccesstoandengagementonourmarketplaces.Thevarietyoftechnicalandotherconfigurationsacrossdifferentmobiledevicesandplatformsincreasesthechallengesassociatedwiththisenvironment.Ourabilitytosuccessfullyexpandtheuseofmobiledevicestoaccessourplatformisaffectedbythefollowingfactors:
ourabilitytocontinuetoprovidecompellingcommerceplatformsandtoolsinamultideviceenvironment
thequalityofourmobileofferings,ormobilebasedpaymentservicesprovidedbyourrelatedcompanyAlipay
ourabilitytosuccessfullydeployappsonpopularmobileoperatingsystemsthatwedonotcontrol,suchasiOSandAndroid
ourabilitytoadapttothedevicestandardsusedbythirdpartymanufacturersanddistributorsand
theattractivenessofalternativeplatforms.
Ifweareunabletoattractsignificantnumbersofnewmobilebuyersandincreaselevelsofmobileengagement,ourabilitytomaintainorgrowourbusinesswouldbemateriallyandadverselyaffected.
Wemaynotbeabletosuccessfullymonetizetrafficonourmobileplatform,whichcouldhaveamaterialadverseeffectonourbusiness.
Anincreasingpercentageofourusersareaccessingourmarketplacesthroughmobiledevices,atrendthatweexpecttocontinue.Ourabilitytomonetizeourmobileusertrafficiscriticaltoourbusinessandourgrowth.Wefaceanumberofchallengestosuccessfullymonetizingourmobileusertraffic,including:
providingmarketingservicesinacompellingandeffectivemanneronmobiledevices
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developingalternativesourcesofrevenuegeneratedfrommobileaccesstoourmarketplaces
offeringacomprehensiveuserexperienceonourmobileappsand
ensuringthatthemobileservicesweprovidearesecureandtrusted.
Ifweexperienceincreaseduseofmobiledevicesformobilecommercebutareunabletomonetizethatincreaseduse,ourbusinessmaynotgroworcoulddecline,andourrevenuesandnetincomewouldbemateriallyreduced.Forinstance,wehavechosennottodisplayasmanymarketingimpressionsonourmobileappsascomparedtoonourpersonalcomputerbasedwebsites.Althoughwedonotbelievetheincreasinguseofmobiledevicestoconductcommercehashadanadverseeffectonourbusiness,ourrapidoverallgrowthmaymakelessapparentanyadverseeffectsofthistrendonourneartermfinancialperformance.WeexpectmobileGMVasapercentageoftotalGMVwillgrowandthatourmonetizationratesformobileinterfacesintheneartermwillbelowerthanthosewehaveachievedfromwebsitesbecauseourcurrentfocusisnotonmaximizingshorttermmobilemonetization.Goingforwardwebelieveourfinancialresultswillbecomeincreasinglydependentonourabilitytomonetizetheuseofmobiledevicestoaccessourmarketplaces.Weexpectthistrendwillhaveagreatereffectonourbusinesstotheextentthatshoppingonmobiledevicesdisplacestransactionsthatcouldhaveoccurredonpersonalcomputers.
Wemaynotbeabletomaintainourculture,whichhasbeenakeytooursuccess.
Sinceourfounding,ourculturehasbeendefinedbyourmission,visionandvalues,andwebelievethatourculturehasbeencriticaltooursuccess.Inparticular,ourculturehashelpedusservethelongterminterestsofourcustomers,attract,retainandmotivateemployeesandcreatevalueforourshareholders.Wefaceanumberofchallengesthatmayaffectourabilitytosustainourcorporateculture,including:
failuretoidentifyandpromotepeopleinleadershippositionsinourorganizationwhoshareourculture,valuesandmission
failuretoexecuteamanagementsuccessionplantoreplaceourcurrentgenerationofmanagementleaders
theincreasingsizeandgeographicdiversityofourworkforce
competitivepressurestomoveindirectionsthatmaydivertusfromourmission,visionandvalues
thecontinuedchallengesofaneverchangingbusinessenvironment
thepressurefromthepublicmarketstofocusonshorttermresultsinsteadoflongtermvaluecreation
theincreasingneedtodevelopexpertiseinnewareasofbusinessthataffectusand
theintegrationofnewpersonnelandbusinessesfromacquisitions.
Ifwearenotabletomaintainourcultureorifourculturefailstodeliverthelongtermresultsweexpecttoachieve,ourbusiness,financialcondition,resultsofoperationsandprospectscouldbemateriallyandadverselyaffected.
Ifweareunabletocompeteeffectively,ourbusiness,financialconditionandresultsofoperationswouldbemateriallyandadverselyaffected.
WefaceintensecompetitionfromChineseandglobalInternetcompaniesaswellasfromofflineretailers,particularlythoseestablishingonlinemarketplaces.Wecompetetoattract,engageandretainbuyersbasedonthevarietyandvalueofproductsandserviceslistedonourmarketplaces,overalluserexperienceandconvenienceandavailabilityofpaymentsettlementandlogisticsservices.Wecompetetoattractandretainsellersbasedonoursizeandtheengagementofbuyers,andtheeffectivenessandvalueofthemarketingservicesweoffer.Wealsocompetebasedontheusefulnessoftheservicesweprovide,includingmarketingdataanddatascience,cloudcomputingservices,theavailabilityofsupportingservicesincludingpaymentsettlementandlogisticsservicesandthequalityofourcustomerservice.Wealsocompeteformotivatedandeffectivetalentandpersonnel,includingengineersandproductdevelopersthatservecriticalfunctionsinthedevelopmentofourproductsandourecosystem.
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Ourabilitytocompetedependsonanumberofotherfactorsaswell,someofwhichmaybeoutofourcontrol,including:
thetimelyintroductionandmarketacceptanceoftheservicesweoffer,comparedtothoseofourcompetitors
ourabilitytoinnovateanddevelopnewtechnologies
ourabilitytomaintainandenhanceourleadingpositioninmobilecommerceinChina
ourabilitytobenefitfromnewbusinessinitiativesand
alliances,acquisitionsorconsolidationswithintheInternetindustrythatmayresultinstrongercompetitors.
Ifwearenotabletocompeteeffectively,theGMVtransactedonourmarketplacesandtheuseractivitylevelonourplatformmaydecreasesignificantly,whichcouldmateriallyandadverselyaffectourbusiness,financialconditionandresultsofoperationsaswellasourbrand.
WerelyonAlipaytoconductsubstantiallyallofthepaymentprocessingandescrowservicesonourmarketplaces.Alipaysbusinessishighlyregulated,anditisalsosubjecttoarangeofrisks.IfAlipaysservicesarelimited,restricted,curtailedordegradedinanywayorbecomeunavailabletousforanyreason,ourbusinessmaybemateriallyandadverselyaffected.
Alipayisourrelatedcompanythatprovidespaymentprocessingandescrowservicesthatarecriticaltoourplatform.InthetwelvemonthsendedDecember31,2013,78.6%ofGMVonourChinaretailmarketplaceswassettledthroughAlipay,andthesettlementandescrowservicesandconvenientpaymentmechanismsprovidedbyAlipayareacriticalfactorcontributingtooursuccessandthedevelopmentofourecosystem.PursuanttoouragreementwithAlipay,Alipayprovidespaymentservicestousontermspreferentialtous.SeeRelatedPartyTransactionsAgreementsandTransactionsRelatedtoSmallandMicroFinancialServicesCompanyanditsSubsidiaries.
Alipaysbusinessishighlyregulated,anditisalsosubjecttoanumberofrisksthatcouldmateriallyandadverselyaffectitsabilitytoprovidepaymentprocessingandescrowservicestous,including:
increasedregulatoryfocusandtherequirementtocomplywithnumerouscomplexandevolvinglaws,rulesandregulations
increasingcoststoAlipay,includingfeeschargedbybankstoprocessfundsthroughAlipay,whichwouldalsoincreaseourcostofrevenues
dissatisfactionwithAlipaysservicesorloweruseofAlipaybyconsumersandmerchants
changestorulesorpracticesapplicabletopaymentcardsystemsthatlinktoAlipay
leakageofcustomerspersonalinformationandconcernsovertheuseandsecurityofanycollectedinformation
systemfailuresorfailuretoeffectivelyscalethesystemtohandlelargeandgrowingtransactionvolumes
failuretomanagefundsaccuratelyorlossoffunds,whetherduetoemployeefraud,securitybreaches,technicalerrorsorotherwiseand
failuretomanagebusinessandregulatoryrisks.
RegulatorsandthirdpartiesinChinahavebeenincreasingtheirfocusononlineandmobilepaymentservices,suchasthoseprovidedbyAlipay,andrecentregulatoryandotherdevelopmentscouldreducetheconvenienceorutilityofAlipayusersaccounts,includingthefollowing:
InMarch2014,itwasreportedthatthePeoplesBankofChina,orthePBOC,hadpreparedafurtherdraftofregulationsrelatingtoonlineandmobilepaymentservices.Thenewdraftoftheregulations
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includesanumberofproposedprovisionsrelatingtoaccountmanagement,securitymeasuresandothermatters.Theseprovisionswould,ifadopted,prohibitindividualsfromusingthefundsintheironlineandmobilepaymentaccountswiththirdpartypaymentproviderssuchasAlipaytomakepurchasesinexcessofRMB5,000(US$804)inanysingletransactionoroverRMB10,000(US$1,609)inaggregatepurchasespermonth.Inaddition,theseprovisions,ifadopted,wouldlimittransferswithoutanyunderlyingecommercetransactionfromanindividualsaccountwiththirdpartypaymentproviderstootheraccountstoRMB1,000(US$161)pertransactionandRMB10,000(US$1,609)inaggregatetransfersperyear.Ifthedraftregulationsweretobeadoptedintheircurrentorsimilarform,orotherlimitswereimposedonthesizeoftransactionsthatmaybeprocessedthroughAlipay,theabilityofbuyerstopayforpurchasesonourmarketplacesusingAlipaypaymentaccountscouldbemateriallylimited.Thedraftregulations,however,donotaffectAlipaysescrowservices.Buyersonourmarketplacescouldcontinuetopayforpurchasesthroughothermeans,suchasonlinebanktransfersandcreditcards,andcontinuetofundtheirAlipayescrowaccounts.SolongaspaymentsarenotmadeoutsideoftheAlipayescrowsystem,wewouldcontinuetocollectcommissionsonsuchpurchasesiftheyweremadeonmarketplacesonwhichwecollectcommissions.ThePBOChasindicatedthatthepurposeoftheseprovisionsandotherpartsofthedraftregulationsisprudentialandthatfinalregulations,includingtheseprovisions,wouldbesubjecttopublicconsultationandrevision.
InMarch2014,certainlargecommercialbanksinChinareducedtheirexistinglimitsontheamountsthatmaybetransferredby
automaticpaymentfromcustomersbankaccountstotheirlinkedaccountswiththirdpartypaymentservices.CertainofthesebanksimposedlowerlimitsonAlipaythanonotherpaymentservices.
InApril2014,theChinaBankingRegulatoryCommission,ortheCBRC,andthePBOCissuedJointCircular10,which,effectiveJune30,2014,willrequirecommercialbanksandotherfinancialinstitutionsinChinatoconductadditionalcustomerverificationprocedurespriortoestablishinganautomaticpaymentlinkbetweencustomersbankaccountsandtheiraccountswiththirdpartypaymentservices,suchasAlipay.AsofMarch31,2014,Alipayhadestablishedautomaticpaymentlinkswithapproximately70%ofAlipaysactiveaccounts.Oncetheaccountshavebeenlinked,JointCircular10alsorequirescommercialbanksandotherfinancialinstitutionsinChinato,uponthecustomersrequest,adjustanylimitsimposedontheamountsthatmaybetransferredtothelinkedaccounts.Itisunclearhowcommercialbanksandotherfinancialinstitutionswillimplementtheadditionalcustomerverificationproceduresortherequirementtoadjustthetransferlimits.
WerelyontheconvenienceandeaseofusethatAlipayprovidestoourusers.Ifthequality,utility,convenienceorattractivenessofAlipaysservicesdeclinesasaresultoftheselimitationsorforanyotherreason,theattractivenessofourmarketplacescouldbemateriallyandadverselyaffected.
Ifweneedtomigratetoanotherthirdpartypaymentserviceforanyreason,thetransitionwouldrequiresignificanttimeandmanagementresources,andthethirdpartypaymentservicemaynotbeaseffective,efficientorwellreceivedbybuyersandsellersonourmarketplaces.Thesethirdpartypaymentservicesalsomaynotprovideescrowservices,andwemaynotbeabletoreceivecommissionsbasedonGMVtransactedthroughthesesystems.Inaddition,wewouldnolongerhavethebenefitofthetermspreferentialtousunderourcommercialagreementwithAlipayandwouldlikelyberequiredtopaymoreforpaymentprocessingandescrowservicesthanwearecurrentlypaying.Therecanbenoassurancethatwewouldbeabletoreachagreementwithanalternativeonlinepaymentsserviceonacceptabletermsoratall.
Moreover,becauseofourcloseassociationwithAlipayandoverlappinguserbase,eventsthatnegativelyaffectAlipaycouldalsonegativelyaffectcustomers,regulatorsandotherthirdpartiesperceptionofus.Inaddition,anyactualorperceivedconflictofinterestbetweenusandAlipayoranyotherrelatedcompanycouldalsomateriallyharmourreputationaswellasourbusinessandprospects.
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Ifwearenotabletocontinuetoinnovateorifwefailtoadapttochangesinourindustry,ourbusiness,financialconditionandresultsofoperationswouldbemateriallyandadverselyaffected.
TheInternetindustryischaracterizedbyrapidlychangingtechnology,evolvingindustrystandards,newserviceandproductintroductionsandchangingcustomerdemands.Furthermore,ourcompetitorsareconstantlydevelopinginnovationsinInternetsearch,onlinemarketing,communications,socialnetworkingandotherservicestoenhanceusersonlineexperience.Wecontinuetoinvestsignificantresourcesinourinfrastructure,researchanddevelopmentandotherareasinordertoenhanceourplatformtechnologyandourexistingproductsandservicesaswellastointroducenewhighqualityproductsandservicesthatwillattractmoreparticipantstoourmarketplaces.Thechangesanddevelopmentstakingplaceinourindustrymayalsorequireustoreevaluateourbusinessmodelandadoptsignificantchangestoourlongtermstrategiesandbusinessplan.Ourfailuretoinnovateandadapttothesechangeswouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.
Ourbusinessgeneratesandprocessesalargeamountofdata,andtheimproperuseordisclosureofsuchdatacouldharmourreputationaswellashaveamaterialadverseeffectonourbusinessandprospects.
Ourmarketplacesandplatformgenerateandprocessalargequantityoftransaction,demographicandbehavioraldata.Wefacerisksinherentinhandlinglargevolumesofdataandinprotectingthesecurityofsuchdata.Inparticular,wefaceanumberofchallengesrelatingtodatafromtransactionsandotheractivitiesonourplatform,including:
protectingthedatainandhostedonoursystem,includingagainstattacksonoursystembyoutsidepartiesorfraudulentbehaviorbyouremployees
addressingconcernsrelatedtoprivacyandsharing,safety,securityandotherfactorsand
complyingwithapplicablelaws,rulesandregulationsrelatingtothecollection,use,disclosureorsecurityofpersonalinformation,includinganyrequestsfromregulatoryandgovernmentauthoritiesrelatingtosuchdata.
Anysystemsfailureorsecuritybreachorlapsethatresultsinthereleaseofuserdatacouldharmourreputationandbrandand,consequently,ourbusiness,inadditiontoexposingustopotentiallegalliability.
Asweexpandouroperations,wemaybesubjecttotheselawsinotherjurisdictionswhereoursellers,buyersandotherparticipantsarelocated.Thelaws,rulesandregulationsofotherjurisdictionsmayimposemorestringentorconflictingrequirementsandpenaltiesthanthoseinChina,compliancewithwhichcouldrequiresignificantresourcesandcosts.Ourprivacypoliciesandpracticesconcerningthecollection,useanddisclosureofuserdataarepostedonourwebsites.Anyfailure,orperceivedfailure,byustocomplywithourpostedprivacypoliciesorwithanyregulatoryrequirementsorprivacyprotectionrelatedlaws,rulesandregulationscouldresultinproceedingsoractionsagainstusbygovernmentalentitiesorothers.Theseproceedingsoractionsmaysubjectustosignificantpenaltiesandnegativepublicity,requireustochangeourbusinesspractices,increaseourcostsandseverelydisruptourbusiness.
Wemaynotbeabletomaintainorgrowourrevenueorourbusiness.
Weprimarilyderiveourrevenuefromonlinemarketingservices,commissionsbasedontransactionvaluederivedfromcertainofourmarketplacesandfeesfromthesaleofmembershipsonourwholesalemarketplaces,andwehaveexperiencedsignificantgrowthinourrevenue.Inparticular,ourrevenuegrew72.4%fromfiscalyear2012tofiscalyear2013,and56.6%fromtheninemonthsendedDecember31,2012totheninemonthsendedDecember31,2013.
Ourmarketingcustomersaretypicallybrandowners,distributorsandmerchantswhoaresellersonourmarketplaces.Marketingcustomersdonothavelongtermmarketingcommitmentswithus.Thepriceamerchantis
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willingtopayforonlinemarketingservicesgenerallydependsonitsexpectedGMV,profitmarginsandlifetimevalueofcustomersderivedfromsuchmarketinginvestment.Ifthoseservicesdonotgeneratetherateofreturnexpectedbythesellerorratesthatarecompetitivetoalternatives,thesellermayreduceitsspendingonthemarketingservicesweoffer.Inaddition,aswecurrentlydisplayfewermarketingimpressionsonourmobileapplicationsascomparedtoourpersonalcomputerbasedapplications,ourrevenuegrowthratemaybeaffectedbytherisingusageofmobiledevices.
SellersonTmallandJuhuasuanarerequiredtopayacommissiontypicallyrangingfrom0.5%to5%ofGMVsettledthroughAlipaydependingontheproductcategory.IflessGMVistransactedthroughsuchmarketplacesormoreGMVisgeneratedfromproductcategorieswithlowercommissionrates,orifmoretransactionsaresettleddirectlybetweenbuyersandsellerswithoutusingAlipayspaymentprocessingandescrowservices,thecommissionswereceivefromtransactionswoulddecrease.
Forourwholesalemarketplaces,weprimarilyderiverevenuesfrommembershipfees.Potentialchangesinourstrategyformonetizingourwholesalemarketplacescouldresultinprolongedreductionsinrevenuefromthosemarketplaces.
Inaddition,ourrevenuegrowthmaysloworourrevenuesmaydeclineforotherreasons,includingdecreasingconsumerspending,increasingcompetition,slowinggrowthoftheChinaretailorChinaonlineretailindustry,changesingovernmentpoliciesorgeneraleconomicconditions.Inaddition,ourrevenuegrowthratewilllikelydeclineasourrevenuegrowstohigherlevels.
Increasedinvestmentsinourbusinessmaynegativelyaffectourmargins.
Wehaveexperiencedsignificantgrowthinourprofitmarginsandnetincome.Forexample,ouroperatingprofitandnetincomegrew114.4%and85.4%fromfiscalyear2012tofiscalyear2013,respectively.Ouroperatingprofitandnetincomegrew209.1%and304.8%fromtheninemonthsendedDecember31,2012tothesameperiodin2013,respectively.Wecannotassureyouthatwewillbeabletomaintainourgrowthattheselevels,oratall.
Furthermore,wehavemade,andintendtocontinuetomake,strategicinvestmentsandacquisitionstoexpandouruserbase,enhanceourcloudcomputingbusiness,addcomplementaryproductsandtechnologiesandfurtherstrengthenourecosystem.Forexample,weexpecttocontinuetomakestrategicinvestmentsandacquisitionsrelatingtomobile,O2Oservices,digitalmedia,categoryexpansionaswellaslogisticsservices.Ourstrategicinvestmentsandacquisitionsmayaffectourfuturefinancialresults,includingbydecreasingourmarginsandnetincome.Historically,ourcostshaveincreasedeachyearduetothesefactorsandweexpecttocontinuetoincurincreasingcosts,whichmaybegreaterthanweanticipate.Increasesinourcostsmaymateriallyandadverselyaffectourbusinessandprofitabilityandtherecanbenoassurancethatwewillbeabletosustainournetincomegrowthratesorourmargins.
Failuretomaintainorimproveourtechnologyinfrastructurecouldharmourbusinessandprospects.
Weareconstantlyupgradingourmarketplacesandplatformtoprovideincreasedscale,improvedperformanceforbothonlineandmobileuseofourplatform,additionalbuiltinfunctionalityandadditionalcapacityforourcloudcomputingservices.Toadapttonewproductsandupgradeourecosysteminfrastructurerequiressignificantinvestmentoftimeandresources,includingaddingnewhardware,updatingsoftwareandrecruitingandtrainingnewengineeringpersonnel.Maintainingandimprovingourtechnologyinfrastructurerequiressignificantlevelsofinvestment.Adverseconsequencescouldincludeunanticipatedsystemdisruptions,slowerresponsetimes,impairedqualityofbuyersandsellersexperiencesanddelaysinreportingaccurateoperatingandfinancialinformation.Forexample,onSinglesDay,thereissignificantlyhigherthannormalactivityonourmarketplacesthatoursystemsmusthandle.Inaddition,muchofthesoftwareandinterfacesweuseareinternallydevelopedandproprietarytechnology.Ifweexperienceproblemswiththefunctionalityand
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effectivenessofoursoftwareorplatforms,orareunabletomaintainandconstantlyimproveourtechnologyinfrastructuretohandleourbusinessneeds,ourbusiness,financialcondition,resultsofoperationandprospects,aswellasourreputation,couldbemateriallyandadverselyaffected.
ThesuccessfuloperationofourbusinessdependsupontheperformanceandreliabilityoftheInternetinfrastructureinChina.
OurbusinessdependsontheperformanceandreliabilityoftheInternetinfrastructureinChina.AlmostallaccesstotheInternetismaintainedthroughstateownedtelecommunicationoperatorsundertheadministrativecontrolandregulatorysupervisionoftheMinistryofIndustryandInformationTechnologyofChina.Inaddition,thenationalnetworksinChinaareconnectedtotheInternetthroughstateownedinternationalgateways,whicharetheonlychannelsthroughwhichadomesticusercanconnecttotheInternetoutsideofChina.Wemaynothaveaccesstoalternativenetworksintheeventofdisruptions,failuresorotherproblemswithChinasInternetinfrastructure.Inaddition,theInternetinfrastructureinChinamaynotsupportthedemandsassociatedwithcontinuedgrowthinInternetusage.
Thefailureoftelecommunicationsnetworkoperatorstoprovideuswiththerequisitebandwidthcouldalsointerferewiththespeedandavailabilityofourwebsites.Wehavenocontroloverthecostsoftheservicesprovidedbythenationaltelecommunicationsoperators.IfthepricesthatwepayfortelecommunicationsandInternetservicesrisesignificantly,ourgrossmarginscouldbeadverselyaffected.Inaddition,ifInternetaccessfeesorotherchargestoInternetusersincrease,ourusertrafficmaydecrease,whichinturnmaysignificantlydecreaseourrevenues.
Ourecosystemcouldbedisruptedbynetworkinterruptions.
Ourecosystemdependsontheefficientanduninterruptedoperationofourcomputerandcommunicationssystems.SubstantiallyallofourcomputerhardwareandourcloudcomputingservicesiscurrentlylocatedinChina.Inaddition,alargenumberofsellersmaintaintheirenterpriseresourceplanning,orERP,andcustomerrelationshipmanagement,orCRM,systemsonourcloudcomputingplatform,whichcontainssubstantialquantitiesofdatarelatingtotheiraccounts,transactiondata,buyerinformationandotherdatathatenablessellerstooperateandmanagetheirbusinesses.Althoughwehavepreparedforcontingenciesthroughredundancymeasuresanddisasterrecoveryplans,suchpreparationmaynotbesufficientandwedonotcarrybusinessinterruptioninsurance.Despiteanyprecautionswemaytake,theoccurrenceofanaturaldisaster,suchasanearthquake,floodorfire,orotherunanticipatedproblemsatourfacilitiesinChina,includingpoweroutages,telecommunicationsdelaysorfailures,breakinstooursystemsorcomputerviruses,couldresultindelaysorinterruptionstoourmarketplacesandplatforms,lossofourandcustomersdataandbusinessinterruptionforusandourcustomers.Anyoftheseeventscoulddamageourreputation,significantlydisruptouroperationsandtheoperationsofthesellersandotherparticipantsinourecosystemandsubjectustoliability,whichcouldmateriallyandadverselyaffectourbusiness,financialconditionandresultsofoperations.
Oursellersusethirdpartylogisticsanddeliverycompaniestofulfillanddelivertheirorders.Iftheselogisticsanddeliverycompaniesfailtoprovidereliabledeliveryservices,orourlogisticsinformationplatformweretomalfunction,sufferanoutageorotherwisefail,ourbusinessandprospects,aswellasourfinancialconditionandresultsofoperations,maybemateriallyandadverselyaffected.
Wecooperatewithanumberofthirdpartylogisticsanddeliverycompaniestohelpoursellersfulfillordersanddelivertheirproductstobuyers.WehaveestablishedalogisticsinformationplatformthatisoperatedbyChinaSmartLogistics,our48%ownedaffiliate,thatlinksourinformationsystemtothoseofourlogisticspartners.Interruptionstoorfailuresinthesethirdpartieslogisticsanddeliveryservices,orinourlogisticsinformationplatform,couldpreventthetimelyorproperdeliveryofproductstobuyers,whichwouldharmthereputationofourmarketplacesandourecosystem.Theseinterruptionsmaybeduetoeventsthatarebeyondourcontrolorthecontroloftheselogisticsanddeliverycompanies,suchasinclementweather,naturaldisasters,transportationdisruptionsorlaborunrest.Theselogisticsanddeliveryservicescouldalsobeaffectedor
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interruptedbyindustryconsolidation,insolvencyorgovernmentshutdowns.Wedonothaveagreementswithlogisticsanddeliverycompaniesthatrequirethemtoofferservicestooursellers.Thesellersonourmarketplacesmaynotbeabletofindalternativelogisticsanddeliverycompaniestoprovidelogisticsanddeliveryservicesinatimelyandreliablemanner,oratall.Ifthelogisticsinformationplatformweuseweretofailforanyreason,ourlogisticsproviderswouldbeseverelyhinderedfromorunabletoconnectwithoursellers,andtheirservicesandthefunctionalityofourecosystemcouldbeseverelyaffected.Iftheproductssoldonourmarketplacesarenotdeliveredinpropercondition,onatimelybasisoratshippingratesthatmarketplaceparticipantsarewillingtobear,ourbusinessandprospects,aswellasourfinancialconditionandresultsofoperationscouldbemateriallyandadverselyaffected.
Ifthirdpartyserviceprovidersonourecosystemfailtoprovidereliableorsatisfactoryservices,ourbusiness,financialconditionandresultsofoperationsmaybemateriallyandadverselyaffected.
InadditiontotheservicesprovidedtoourecosystembyAlipayandlogisticsproviders,anumberofthirdpartyparticipants,includingmarketingaffiliates,retailoperationalpartners,independentsoftwarevendors,orISVs,andvariousprofessionalserviceproviders,alsoprovideservicestosellers.Wedonothaveanyagreementsthatrequirethesethirdpartyparticipantstoprovideservicestosellers.Totheextentthesethirdpartyserviceprovidersareunabletoprovidesatisfactoryservicestosellersoncommerciallyacceptabletermsoratallorifwefailtoretainexistingorattractnewqualityserviceproviderstoourmarketplaces,ourabilitytoretainorattractsellersandbuyersmaybeseverelylimited,whichmayhaveamaterialandadverseeffectonourbusiness,financialconditionandresultsofoperations.
Wedependonkeymanagementaswellasexperiencedandcapablepersonnelgenerally,andanyfailuretoattract,motivateandretainourstaffcouldseverelyhinderourabilitytomaintainandgrowourbusiness.
Ourfuturesuccessissignificantlydependentuponthecontinuedserviceofourkeyexecutivesandotherkeyemployees.Ifwelosetheservicesofanymemberofmanagementorkeypersonnel,wemaynotbeabletolocatesuitableorqualifiedreplacements,andmayincuradditionalexpensestorecruitandtrainnewstaff,whichcouldseverelydisruptourbusinessandgrowth.Inparticular,JackMa,ourleadfounder,executivechairmanandoneofourprincipalshareholders,hasbeencrucialtothedevelopmentofourcultureandstrategicdirection.
Inaddition,wehaveanumberofemployees,includingmanymembersofmanagement,whoseequityownershipinourcompanycouldgivethemasubstantialamountofpersonalwealthfollowingourinitialpublicoffering.Asaresult,itmaybedifficultforustocontinuetoretainandmotivatetheseemployees,andthisw