Alibaba Financial Report: In Q3 2011, Alibaba's operating revenue was RMB 1.602 billion, a year-on-year increase of 10.6%.

On the afternoon of November 24, 2011, Alibaba.com Limited (1688.HK) released its third quarter financial report, with operating income of RMB 1.602 billion, a year-on-year increase of 10.6% and a month-on-month decrease of 1.3%; net profit of RMB 409.7 million, a year-on-year increase of 11.9% and a month-on-month decrease of 11.8%.

The following are the financial report details:

We continued to achieve financial growth in the third quarter of 2011. As of September 30, 2011, we had a total of 787,653 paying members in our international and China marketplaces. The number of paying members increased by 4.9% from the third quarter of 2010, but decreased by 3.4% from the second quarter of 2011 as we continued to increase our new and renewal requirements for members in both marketplaces. In the third quarter of 2011, total operating revenues were RMB1,602.4 million, an increase of 10.6% from the same period in 2010 and the same as the second quarter of 2011.

Revenue from our international marketplaces was RMB947.5 million, up 11.8% year-on-year and flat quarter-on-quarter. The year-on-year growth was primarily due to increased revenue from value-added services and contributions from new businesses acquired in the second half of 2010 and the first half of 2011 (including Vendio, Auctiva and One-Click), as well as increased revenue from transaction-oriented AliExpress. Although our paying members decreased from the previous quarter, the increase in non-member revenue contribution offset the decline in membership fees.

Revenue from the China Marketplace increased to RMB560.7 million, up 13.9% year-on-year and 1.5% month-on-month. The year-on-year and month-on-month growth was mainly due to the increase in revenue from Online Sales and Gold Booths.

Other income for the current period was RMB94.2 million, a decrease of 14.3% year-on-year and 23.0% quarter-on-quarter. The year-on-year and quarter-on-quarter decreases were mainly due to the corresponding non-cash accounting adjustments made in preparation for the spin-off of HiChina.

Gross profit for the period increased to RMB1,297.8 million, up 7.5% from RMB1,207.2 million in the same period last year and the same as RMB1,387.0 million in the second quarter of 2011. Gross profit margin decreased to 81.0%, compared with 83.3% in the same period last year and the same as 80.6% in the second quarter of 2011. The year-on-year decrease was mainly due to the increase in cost of operating income due to the inclusion of the financial results of Vendio, Auctiva and AliExpress, which have relatively lower gross profit margins.

Total operating expenses for the period were RMB936.5 million, an increase of 12.6% from RMB831.9 million in the same period last year and 9.4% from RMB856.1 million in the previous quarter. The year-on-year and quarter-on-quarter increases in operating expenses were mainly due to the increase in employee costs and the inclusion of expenses incurred by One-Touch. We continue to control the number of employees and focus more on investing in product developers to improve the experience of our users. Total operating expenses accounted for 58.4% of the operating income for the period.

Compared with 57.4% in the same period last year and 52.7% in the second quarter of 2011. The quarter-on-quarter increase in total operating expenses as a percentage of operating revenue was mainly due to the increase in employee costs due to salary adjustments and the subsidy program for mainland employees launched in the third quarter of 2011. These subsidy programs include living and children's education subsidies paid in cash in a lump sum to help our employees relieve the pressure of inflation. In addition, we have also launched a housing loan program to help eligible employees purchase properties to solve their housing problems. These programs all show that we value and reward our employees and regularly re-evaluate employee welfare programs.

Other operating income (net) for the current period was RMB8.7 million, compared with RMB20.8 million in the same period of 2010 and RMB7.5 million in the second quarter of 2011. The year-on-year decrease was primarily due to a decrease in government subsidy income.

Our non-GAAP earnings before interest, taxes and amortization (EBITA margin) was 25.6% for the period, down from 28.3% for the same period in 2010 and 29.9% for the second quarter of 2011. Our non-GAAP EBITA margin excluding share-based compensation expenses was 31.4% for the period, down from 35.8% for the same period in 2010 and 35.5% for the second quarter of 2011. The year-over-year decrease in the EBITA margin excluding share-based compensation expenses was primarily due to the decrease in gross profit margin, while the quarter-over-quarter decrease was due to the increase in operating expenses as previously mentioned.

Net financial income and expenditure was RMB 94 million, an increase of 94.3% year-on-year and 11.5% quarter-on-quarter, mainly due to the increase in interest income earned from the increase in bank deposits and the increase in recognized exchange gains in this period.

Profit attributable to equity owners for the period was RMB409.7 million, an increase of 11.9% over the same period in 2010 but a decrease of 11.8% over the second quarter of 2011. The year-on-year increase was mainly due to the increase in revenue contributed by our value-added service products, while the quarter-on-quarter decrease was mainly due to the increase in operating expenses.

As of September 30, 2011, deferred revenue and advances were RMB4,141.7 million, an increase of 7.0% from RMB3,868.9 million as of September 30, 2010 and an increase of 2.0% from RMB4,059.7 million as of June 30, 2011. Excluding the impact of the HiChina adjustment, deferred revenue and advances were flat compared to September 30, 2010 and slightly down compared to June 2011, primarily due to a decrease in the base of paying customers.

Recurring operating free cash flow (non-GAAP) for the period was RMB413.4 million, a decrease of 43.5% year-on-year and 8.4% quarter-on-quarter. The year-on-year decrease was mainly due to the decrease in cash income, the increase in income taxes paid and the increase in employee costs as we tightened our requirements for new customers. The quarter-on-quarter decrease was mainly due to the increase in employee costs.

As of September 30, 2011, cash and bank deposits were RMB 10.514 billion, an increase of 25.7% year-on-year and 4.0% month-on-month.

International trading market

As of September 30, 2011, our international marketplace had 23.8 million registered users and 2 million business stores. In the third quarter, the number of registered users increased by 2.1 million and the number of business stores increased by 105,677. Our efforts to continuously improve the quality of platform suppliers have begun to bear fruit. In September, the number of complaints we received from paying members regarding fraud decreased by 75% year-on-year. A higher quality supplier group also attracted more buyers, thereby increasing the activity of our platform. In September,

Our average daily traffic of overseas effective visitors increased by 65% ​​year-on-year.

GoldSupplier

As of September 30, 2011, we had a total of 107,177 China GoldSupplier members, a decrease of 5,014 from the previous quarter, and a total of 8,285 international GoldSupplier members. The quarter-on-quarter decrease in the number of China GoldSupplier members was within our expectations, mainly because we continue to improve the quality of suppliers and raise the threshold for suppliers to enter; and the increase in membership fees in January 2011 also slowed down the speed of new members signing up. During the year, our renewal rate remained relatively stable.

However, starting from the fourth quarter of 2011, the one-time offer for old members to renew their services at the old price will end. All members must renew their membership at an annual fee of RMB 29,800, which may affect the renewal rate.

In the third quarter, we expanded our services to enhance the credibility of buyers and sellers in the trading market. In September 2011, we announced the launch of the "on-site certification" service. This on-site certification is a second-level on-site certification that every supplier will undergo after a third party completes the basic review and verification to prove the legitimacy of their business. We also experimentally launched third-party guarantee and paid inspection services on the Alibaba platform to provide higher protection for purchasing buyers.

In addition, we are also developing a multilingual system to make it easier for buyers from all over the world to purchase on our platform. This feature has successfully helped the international trading market to attract more overseas traffic.

In terms of the development of value-added services, we saw an increase in the use of Wangxiaobao in the third quarter. Based on our experience in the Chinese trading market, we believe that it will take several quarters for Wangxiaobao to be well-known by customers and widely penetrated and used among them. Overall, the development of value-added services is in line with our expectations. The contribution of value-added service revenue has been steadily increasing in the first three quarters of 2011, and in the third quarter, value-added services accounted for nearly 30% of China GoldSupplier's revenue.

AliExpress

AliExpress continues to grow. Starting from August 2011, AliExpress stopped accepting PayPal as a payment method, which slightly reduced the GMV in the third quarter. However, this impact was less than we expected, and we are beginning to see that the average daily GMV has stabilized and moved upward again. We will continue to invest and optimize the services of AliExpress. We will focus on the development of the platform, strengthening the integrity and security construction, and optimizing the delivery system of the platform. It is worth noting that we launched a transaction guarantee and refund plan in the third quarter to strengthen our protection for buyers.

In addition, we have also launched the "A+ Program" to improve the credibility of suppliers. "A+" is only available to suppliers who meet our requirements. They must all promise to ship quickly, describe the product truthfully, and return the product free of charge if the buyer is not satisfied with the product quality, and bear the shipping costs caused by this. Qualified suppliers will have the "A+" logo clearly displayed on their business stores.

China Trading Market

As of September 30, 2011, we had 49 million registered users and 7.6 million business stores. In the third quarter, we added 1.8 million registered users and 256,156 business stores. At the end of the third quarter, we had 672,191 China TrustPass members, a decrease of 21,751 from the second quarter.

The decrease in paid membership is because we stopped signing up for the China TrustPass Personal Edition in the second quarter of 2011, which slowed down new signings, and we are more focused on improving the authenticity of user data, increasing buyer traffic and improving user experience. The membership renewal rate remains at a stable level.

We have taken a step forward in improving the integrity of our platform's user data. Since September, we have required all suppliers on our Chinese marketplace to register with their real names. This regulation not only increases the credibility of the information displayed by suppliers on 1688.com, but also strengthens the depth of our user database.

To enhance the user experience, we have renovated the entire 1688.com website and reorganized the website structure with a buyer-oriented approach to better meet user needs. The total transaction volume of goods recorded by 1688.com continues to grow healthily. Since we improved the website functions based on the wholesale purchasing behavior of buyers, the wholesale activities of the platform have become active. We will continue to work hard to encourage more transactions to move from offline to online, and build a safe and honest environment for buyers and sellers to facilitate them to complete online transactions.

In terms of value-added service development, it has been growing at a gradual and moderate pace in the past few quarters. In the third quarter, value-added services contributed nearly 25% to China TrustPass's revenue.

Good unlimited

Since it was launched as a B2C trading platform in the first quarter of this year, Liang Wuxian (formerly known as Wuming Liangpin) has undergone a series of improvements. After we changed its name to Liang Wuxian in August, we clearly positioned it as a provider of supply chain services to Chinese manufacturers, including production control, product quality inspection, warehousing logistics and distribution. To ensure that buyers can purchase high-quality products from Liang Wuxian suppliers, we require these suppliers and their products to pass third-party certification and review. The value of Liang Wuxian far exceeds the value of a simple trading platform.

At this stage, our priority is to improve the business model rather than pursue profits. We believe that when our services and value are established, revenue will increase accordingly.

HiChina

In the third quarter of 2011, HiChina's membership and revenue grew steadily year-on-year. Core businesses, such as domain name services, and new cloud-related services, such as cloud hosting and cloud email, are progressing well. In September, we announced our proposal to spin off HiChina and list it independently. For details, please refer to our announcement on the Hong Kong Stock Exchange on September 26. When we have more data to share, we will announce it separately.

Sales and Customer Service

As of September 30, 2011, we had approximately 3,800 GoldSupplier direct sales personnel and approximately 2,290 China TrustPass telephone sales representatives. In addition to our sales team who continuously serve our paying members, we also have a customer service team of approximately 900 people who are always on hand to handle customer inquiries.

employee

As of September 30, 2011, we had a total of 13,052 employees (September 30, 2010: 13,533). Among our total employees, we had approximately 2,252 product development personnel.