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INVESTOR NEWS
October 13, 2016

Letter to Shareholders from Chief Executive Officer Daniel Zhang

Dear Alibaba Shareholders,

I am honored and delighted for this opportunity to share with you the developments at Alibaba Group over this past year, and also shed light on our strategic outlook and plans for the future.

First and foremost, I would like to express my gratitude for your continued support and confidence in Alibaba Group. We are a company driven by mission and vision, a company committed to marrying idealism with pragmatism. During this past fiscal year, the rapid and healthy development of our overall business speaks for itself in response to market concerns about the China economy. We have also continued to fulfill our mission to make it easy to do business anywhere through tangible, concrete actions.

We recently celebrated the two-year anniversary of our IPO and took pride in having delivered on all our promises to investors. We maintained strong, consistent growth of GMV on our China retail marketplaces, transitioned successfully into “mobile-first” and yielded above-average monetization rates in mobile.

Swift and real progress was achieved across the key strategies of globalization, rural development, cloud computing and big data that we laid out last year. We continued to nourish the fundamental infrastructure for modern commerce – comprised of marketplaces, payment, logistics, cloud computing and big data – that empowers businesses of all sizes to leverage the internet for a digital transformation. Today the Alibaba ecosystem is even stronger and more dynamic, with our businesses continuing to thrive while more and more positive synergies are being cultivated across the board.

Alibaba is shaping and guiding Chinese consumer behavior and trends. We are also helping consumers enjoy greater convenience and a wider range of options in the ongoing consumption upgrade. We are popular among millennials, who view us as an inseparable part of their lives. More than 75% of our users are 35 years old or younger.

During fiscal year 2016, our China retail marketplaces reached a historical milestone when annual gross merchandise value transaction surpassed RMB 3 trillion, making Alibaba Group the largest retail ecosystem in the world. Our annual active buyers continued to grow, reaching 423 million as of March 31, 2016. Our extraordinary year-over-year growth in mobile transactions, which reached 73% for the quarter ended March 31, 2016, showcased the success of our transformation into mobile-first. Through the acquisition of Youku Tudou and brisk growth in Alitrip and Koubei, we have expanded our offerings beyond physical goods to include digital content and local services, which we believe will be the next wave of growth.

As of March 2016, our rural Taobao partners program has coverage in over 14,000 villages. Through the services provided by rural Taobao partners, farmers can enjoy access to the same caliber of goods and services as their urban counterparts without leaving their villages, and find new buyers in urban markets for their locally grown foods and products through e-commerce. More and more global brands are taking advantage of the rural Taobao network to quickly and effectively penetrate the vast China rural market.

During the recent G20 summit held in Hangzhou, we put forth a proposal for governments, industry organizations, and partners around the world to work together to form an Electronic World Trading Platform (eWTP) that will be dedicated to providing a level playing field for small businesses around the world. The proposal has received enthusiastic support from many global heads of state, and we are in the process of turning it into reality.

We have grown our local presence around the world to help global businesses expand into China and tap into the hundreds of millions of Chinese consumers through Tmall Global. We opened new offices in Italy, France, Germany, the Netherlands and Australia. We also expanded our footprint into Southeast Asia through investment in a controlling interest in Lazada and gained direct access to the markets of Indonesia; Malaysia; Singapore; Thailand; Vietnam and the Philippines.

Our cloud computing business took off in 2016 and continued on its trajectory of triple-digit, high velocity growth. By the end of fiscal year 2016, Alibaba Cloud had amassed half a million paying customers. It has leveraged the wider Alibaba ecosystem to achieve economy of scale, and effectively exported middleware and security capabilities developed on our marketplace platforms to serve the needs of its customers. Alibaba Cloud is in the process of creating a new ecosystem, which is steadily emerging as service providers on its platform grow and certification standards for cloud-based services are developed in cooperation with government. In short, Alibaba Cloud has developed a unique competitive advantage through its services and is now one of the world’s leading cloud service providers.

Our strategy for digital media and entertainment is coming into focus following the acquisition of Youku Tudou, establishment of Alibaba Music Group and AliSports Group, and strategic investment into Sina Weibo. These developments, along with UCWeb’s robust growth, have resulted in the formation of a multi-screen, multi-channel consumer media ecosystem. Creation of the Alibaba digital media and entertainment unit earlier this year signified our progression into the next stage of our “Happiness Strategy.”

We continued to incubate new innovations for the future. AutoNavi, Alitrip, DingTalk, Xianyu, and Internet-of-Things (IoT) operating system YunOS are all strategic initiatives that we are nurturing and growing as next generation businesses.

In addition to our core businesses, we continued to participate in the development of the logistics and local services sectors through investments in Cainiao Logistics Network and Koubei respectively. Cainiao is focused on the creation of a smart logistics network, and has hatched nascent networks in the key areas of express delivery; warehouse and distribution; last mile; rural villages and cross-border that collectively process more than 40 million packages a day on average. For the three months ending March 31, 2016, Koubei had transaction volumes settled through Alipay that reached RMB 21 billion.

Alibaba will always be a company that trains its sights on the future while maintaining firm footing on solid ground. Building on the milestone of RMB 3 trillion in annual gross merchandise value, I would like to share some of our strategic outlook and plans for the future:

  1. The consumer retail industry as a whole is experiencing a radical disruption driven by digital transformation. The biggest trend is the integration of offline and online retail for a re-imagined omni-channel experience. From our perspective, the most important opportunity on the horizon is not growing online sales in isolation but rather helping traditional retailers upgrade into a brand new retail model. The excitement is in leveraging internet-based approaches and new technologies to transform the RMB 30 trillion China retail market to meet the demands of the ongoing consumer upgrade, and improve efficiency across the entire chain of product manufacturing, distribution and service.

  2. Creation of a new marketing model through synergies unleashed in the integration of a digital marketing matrix (UCWeb; Youku Tudou; Sina Weibo; Tmall Box) with a consumer media platform (Tmall; Taobao Marketplace) using big data, thereby delivering a digital environment that empowers brands and marketers with game-changing, data-driven capability to manage the entire consumer life cycle.

  3. Cloud computing and big data will become ubiquitous. Data has already become the new “natural resource” that is as vital as oil and electricity. Cloud computing is the new “engine” powering commercial operations. Alibaba Cloud will serve businesses of all shapes and sizes across a variety of industries, and eventually become a diversified ecosystem. When the era of IoT arrives, Alibaba will be there to provide comprehensive infrastructure services to businesses through cloud computing and big data.

  4. The transformation of commerce will be increasingly dependent on innovations in new technology. A principal question in our future development is how to leverage our expansive commercial ecosystem to provide an environment for large scale application of new technologies - such as artificial intelligence, augmented reality, virtual reality, Internet-of-Things - and ultimately help drive the birth of new business models as new technologies mature.

Along with the evolution and rapid development of our business and ecosystem, the bar on our culture and organization has been raised.

Over the past year, we gradually reorganized into a flatter organization in place of a tree structure. We formed a harmonious “big picture” out of a complex business architecture and ecosystem that enables each team to focus on its core competency but with highly aligned interests to incentivize strong cooperation. During this reorganizational process, young talented managers steadily emerged. Amongst the current group of managers at Alibaba, more than 50% are 36 years old or younger.

We have been able to attract a large number of talented and experienced professionals across a wide range of industries over the past year. We have also established a number of local offices around the world, and drew in fantastic overseas talent that believe in Alibaba’s mission and culture. We believe our team of international talent will play an important role in Alibaba’s future development.

In conclusion, I would like to reiterate my appreciation for your continued support. Our results reflect more than just the work of Alibaba; it represents the trust and support of our shareholders, the contributions of our merchants and other ecosystem partners. As it was on day one, we will continue to be guided by our original mission and vision in the value that we create. We hope you will continue to share in our faith that the future will be even better and brighter.

Daniel Zhang
Alibaba Group CEO
10.13.2016