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COMPANY NOTE

Initiating Coverage

27 October 2014

CHN | Technology | Internet

BUY
Price target $118.00
Price $95.76

The Powerful E-Commerce Ecosystem
Connecting Half of China; Initiate at Buy
Key Takeaway
China's changing Internet user demographics and mobile development
support our favorable view on e-Commerce for the next decade. Alibaba is the
largest Chinese ecommerce player, with 80%+ GMV market share, but is only
selling to less than 25% of the population now. We estimate well over half of
Chinese population will be shopping on Alibaba’s platforms in 10 years. Initiate
with Buy; PT USD118.
Changing demographics & mobile support ecommerce in the next decade. As
discussed in our sector note, "A Taste of Domestic Consumption: The Unleashing of China's
E-Commerce Power" published on Sept 19, 2014, China’s e-Commerce growth for the
next decade benefit from: 1) changing Internet user demographics towards 30+ year old
age groups; 2) accelerating structural shift to online from traditional retail; 3) Chinese
government’s massive support for urbanization and domestic consumption; 4) proliferation
of affordable smart devices; 5) improving wireless and transport infrastructures in lower
tier and rural markets, and 6) rising consumer demand for better quality, design & fashion,
authenticity and timely delivery.
Growth driven by mix shift towards Tmall, and improving mobile monetization.
We expect Alibaba, as the largest e-Commerce player, to sell to well over half of the
Chinese population in 10 years, up from less than 25% now. We estimate FY14-17E revenue
CAGR of 36%, driven by continued commission revenues from Tmall. Alibaba’s mobile
GMV accounted for 32.8% of total GMV in FY1Q15, +21pcpt YoY. We expect the mobile
monetization rate to narrow the gap with that of PC.

Financial Summary
Book Value (MM):
Book Value/Share:
Net Debt (MM):
Return on Avg. Equity:
Long-Term Debt (MM):
Cash & ST Invest. (MM):

Market Data
52 Week Range:
$99.70 - $82.81
Total Entprs. Value (MM):
$238,140.2
Market Cap. (MM):
$238,557.3
Insider Ownership:
12.8%
Institutional Ownership:
54.6%
Shares Out. (MM):
2,491.2
Float (MM):
NA
Avg. Daily Vol.:
NA
Cynthia Meng *
Equity Analyst
+852 3743 8033 cmeng@jefferies.com

Brian Pitz §
Equity Analyst

Cross-border e-Commerce provides upside for long-term growth. Addressing the
growing appetite for foreign brands among Chinese consumers, Tmall Global lowers the
cost, delivery time and language barriers in cross-border online shopping, which is expected
to reach an RMB1trn market size by 2018. Our scenario analysis shows a 5-12% upside to
our CY16 revenue estimate. Its recently launched ePass payment service allows U.S. retailers
to reach Chinese online shoppers.

(212) 336-7413 bpitz@jefferies.com

Brian Fitzgerald §
Equity Analyst
(212) 284-2491 bfitzgerald@jefferies.com

Karen Chan *
Equity Associate
+852 3743 8017 kchan2@jefferies.com

Nick Wang *
Equity Associate

Valuation/Risks
Our PT of USD118 is derived from 10-year DCF based on a long-term EBIT margin of 43%,
terminal growth rate of 5.5% and WACC of 10.2%, implying a CY16 P/E of 32.5x, 1.4%
premium to global e-Commerce peer average of 32x, 20.4% premium to China e-Commerce
peer group. Risks: limited ability to influence corporate matters by individual shareholders
and potential conflict of interest arising from the company’s corporate structure.
RMB

Prev.

2014A

Prev.

2015E

2016E

2017E

Chg (% YoY)

--

Operating Profit

-- 29,392.0

-- 34,486.0

-- 46,382.0

-- 58,467.0

EBITDA (MM)

-- 30,731.0

-- 36,242.0

-- 48,850.0

-- 61,855.0

Net Profit NonGAAP

-- 27,610.0

-- 31,489.0

-- 45,060.0

-- 58,541.0

BV/Share

--

17.50

--

53.00

--

70.25

--

93.20

EPS Growth

--

103.9%

--

7.9%

--

41.6%

--

29.9%

--

$1.90

--

$2.06

--

$2.92

--

$3.79

--

46.3%

-- 105,040.0

Prev.

-- 52,504.0
52.1%

-- 76,812.0

Prev.

Rev. (MM)

--

36.7%

-- 132,115.0
--

25.8%

EPS
FY Dec
FY P/E

Rmb40,818.0
Rmb17.50
(Rmb2,557)
106.5%
Rmb30,711.0
Rmb43,632.0

+852 3743 8059 nick.wang@jefferies.com

Qin Wang *
Equity Associate
+852 3743 8016 qin.wang@jefferies.com

* Jefferies Hong Kong Limited
§ Jefferies LLC

Price Performance
100

95

90

85

50.4x

46.5x

32.8x

25.3x

80
SEP-14

OCT-14

Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 126 to
130 of this report.

EQUITY RESEARCH CHINA

Alibaba (BABA)

BABA
Initiating Coverage

Alibaba Group

27 October 2014

BUY: USD118 Price Target

Target Investment Thesis

Upside Scenario

Downside Scenario

GMV continues to grow strongly,
particularly on Tmall, driven by
continued active customer acquisition

Mobile growth continues to outpace
that of PC

Maintain leadership in China’s eCommerce market

M-Commerce shows stronger-thanexpected growth.

PT of USD143 derived from DCF based
on WACC of 10%, terminal growth rate
of 6% and long-term EBIT margin of
47.3%

PT of USD118 derived from DCF based
on WACC of 10.2%, terminal growth
rate of 5.5% and long-term EBIT margin
of 43%

Long Term Analysis
1 Year Forward P/E

Stronger-than-expected GMV growth
driven by successful execution of
lower-tier city penetration and crossborder business

Long Term Financial Model Drivers

Share price

LT Earnings CAGR

100

38x
95

36x

85

Source: Bloomberg, Jefferies

150%

82.1x

80x
70x
60x

40x

Vipshop

100%

50x
35.3x

40.1x

30x

50%

20x

Amazon

Alibaba

16.0x

10x
0x

Alibaba

Vipshop

Amazon

eBay

Source: Bloomberg, Jefferies.

Catalysts

Stronger-than-expected mobile
monetization

Successful execution of cross-border eCommerce business

Deepening lower-tier city/rural
penetration

Economic benefits from growing
Internet finance business of Small and
Micro Financial Services Company

PT of USD75 derived from DCF based
on WACC of 11.5%, terminal growth
rate of 4% and long-term EBIT margin
of 37.8%

Recommendation / Price Target

30x

90x

Execution of cross-border business and
mobile e-Commerce growth are below
expectation.

Earnings Growth vs P/E

0%
-12%

80

Peer Group
Group CY15 P/E

Note: our LT earnings CAGR & organic revenue
growth is annualised growth from FY14-17E.
Operating margin expansion calculated from
FY14-17E.

32x

Operating Margin Expansion

70

GMV growth slows down as a result of
market share loss to competitors

China’s online retail sales market is
expected to reach RMB2.8trn in 2014,
+45.8% YoY, according to iResearch. We
estimate the market size to further grow to
RMB6.5trn in 2018, with a 2013-2018
CAGR of 28%, based on which, eCommerce sales is expected to account
for 10.4% of total retail sales in 2014 and
16.6% in 2018.

36%

Acquisition Contribution

75

Other Considerations

28%

Organic Revenue Growth

34x

90

THE LONG VIEW

Scenarios

0%
0.0x

Ticker

Rec.

PT

BABA US

Buy

USD118

VIPS US

Buy

USD280

JD US

Buy

USD38

AMZN US

Buy

USD380

Hold

USD55

EBAY US

eBay
20.0x

40.0x

60.0x

80.0x

100.0x

Source: Bloomberg, Jefferies.

Company Description
Founded in 1999, Alibaba is the largest online and mobile commerce company in the
world in terms of GMV in 2013, according to IDC. The company operates its marketplaces
as a platform for third parties, and does not engage in direct sales, compete with its
merchants or hold inventory. Alibaba operates Taobao Marketplace and Tmall, the no.1
C2C and B2C platform in China by GMV respectively, according to iResearch.

page 2 of 130

Please see important disclosure information on pages 126 - 130 of this report.

Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

BABA
Initiating Coverage
27 October 2014

Table of Contents
Investment Summary

p.5

Valuation and Risks

p.6

Changing Demographics and Mobile
Support E-Commerce in the Next Decade

p.11

Alibaba - The Powerful E-Commerce
Ecosystem Connecting Half of China

p.25

Business Model and Segment Revenue

p.27

A Strong Self-reinforcing Network Effect

p.33

Extending Mobile Leadership

p.53

Building the Largest Ecosystem

p.63

Expanding Cross-Border E-Commerce

p.83

Company Background

p.91

Corporate & Shareholding Structure

p.92

Partnership System

p.94

Small and Micro Financial Services Company

p.98

Management Team

p.100

Financial Statements

p.102

Appendix

p.116

FY2Q15 Results Preview

p.117

M&A Investment Summary

p.120

page 3 of 130

Please see important disclosure information on pages 126 - 130 of this report.

Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

Cynthia Meng. cmeng@jefferies.130 of this report.BABA Initiating Coverage 27 October 2014 This page is intentionally kept blank page 4 of 130 Please see important disclosure information on pages 126 .com . +852 3743 8033. Equity Analyst.

Alibaba is the largest Chinese ecommerce player with 80%+ GMV market share. Internet finance and banking Alibaba’s large and growing ecosystem is supported by its expanding logistics platform and Alipay which accounted for 48. but is only selling to less than 25% of the population now. and mobiletargeted promotional efforts.1 C2C and B2C platforms in China. and 6) rising consumer demand for better quality. "A Taste of Domestic Consumption: The Unleashing of China's E-Commerce Power. retailers to reach to Chinese online shoppers. according to IDC. including Alipay Wallet.BABA Initiating Coverage 27 October 2014 Alibaba Group Investment Summary We are initiating coverage of Alibaba at Buy. 2) accelerating structural shift to online from traditional retail. China’s changing Internet user demographics and mobile development support our favorable view on e-Commerce for the next decade.833bn (USD296bn) in the twelve months ended June 30.8% of total GMV in FY1Q15. cmeng@jefferies. A powerful ecosystem with strong self-reinforcing network effect We expect Alibaba. Improving monetization with extended mobile leadership Driven by its diversified portfolio of mobile apps. Equity Analyst. +852 3743 8033. We estimate well over half of the Chinese population will be shopping on Alibaba’s platforms in 10 years.S. Closing the loop with logistics support. We estimate FY14-17E revenue CAGR of 36%. Key Points to Highlight Changing demographics & mobile support ecommerce in the next decade As discussed in our sector note." published on Sept 19. Leveraging on the data accumulated from its online platforms. SME loan and Internet banking to further enhance user engagement within its ecosystem. China’s e-Commerce growth for the next decade should benefit from: 1) changing Internet user demographics towards 30+ year old age groups. eventually closing the CPC gap across mobile and PC platforms. driven by continued commission revenues from Tmall. Its no. 4) proliferation of affordable smart devices. Taobao and Tmall. 2014.8% of China’s third-party online payment market share in 2Q14. Tmall Global lowers the cost. up from less than 25% now. +21pcpt YoY. Cross-border e-Commerce may drive upside for long-term growth Addressing the growing appetite for foreign brands among Chinese consumers. Alibaba entered into Internet finance including wealth management. We expect increasing GMV contribution from Tmall given its higher listing priority and rising consumer demand for quality goods. We expect mobile monetization rate to narrow the gap with that of PC as Alibaba enhances its mobile ads products and increases both paid clicks and CTR. 3) the Chinese government’s massive support for urbanization and domestic consumption. authenticity and timely delivery. Cynthia Meng. 2014. according to iResearch. with a price target of USD118. Our scenario analysis shows a 5-12% upside to our CY16 revenue estimate. page 5 of 130 Please see important disclosure information on pages 126 . Alibaba’s mobile GMV accounted for 32. 5) improving wireless and transport infrastructures in lower tier and rural markets.130 of this report. to sell to well over half of Chinese population in ten years. design & fashion. Alibaba is the largest online and mobile commerce company in the world by GMV in 2013. in aggregate generated a GMV of RMB1. delivery time and language barriers in cross-border online shopping which is expected to reach an RMB1trn market size by 2018. Its recently launched ePass payment service allows U.com . as the largest e-Commerce player with 80%+ GMV market share as of 1H14.

+852 3743 8033. implying a FY17 P/E multiple of 31x or CY16 P/E of 32.com . This is equivalent to a market cap of USD292.4% since its IPO in May and Vipshop up 155.4% premium to China e-Commerce peer average of 27x. we see e-Commerce as the most favorable sector (followed by mobile games. We do not see a direct comparable to Alibaba among China’s e-Commerce players given that JD. U. Golden Eagle Retail. including Parkson.9bn. cmeng@jefferies.5x CY16 P/E. Near-term potential catalysts of the stock include the upcoming Nov 11th Singles Day sales and FY2Q15 earnings results to be released on Nov 4th. a terminal growth rate of 5.S.com up 26. China’s e-Commerce names have fared well with JD.5x. Cynthia Meng.3x FY17 P/E or 26. Alibaba has traded up 40.S.2%.4% premium to global e-Commerce peer average of 32x.5% YTD on a weighted average basis. Equity Analyst. and online travel) benefitting from the shift in Internet user demographics towards the more mature 30+ year old users who have higher consumption power and will shop online. Companies in other subsectors such as portal and PC games generally trade at a lower multiple. including Amazon. e-Commerce players such as Amazon and Ebay have traded down 28% and 6.2% YTD. 2014. Alibaba is trading at 25. on average trade at a 73% and 10% premium to Internet average in FY15 and FY16 P/E respectively. Our PT of USD118 represents 23% upside to last closing price. declined 7.com operates an online direct sales model while Vipshop focuses on a niche flash sales market. The average share price of China’s brick-and-mortar department store names.8. page 6 of 130 Please see important disclosure information on pages 126 .5% and a WACC of 10. Intime Retail.8%. On the other hand. U. e-Commerce players. Based on Bloomberg consensus.130 of this report. Among China’s Internet subsectors. Year-to-date share price performance compared to peers As of Oct 24.8% since IPO. At the current price of USD95. Ebay and Zulily. Lifestyle International and Springland International.BABA Initiating Coverage 27 October 2014 Valuation Our price target of USD118 is derived from a 10-year DCF analysis based on long-term non-GAAP EBIT margin estimate of 43%. 20. respectively.2% premium to China Internet peer group average of 20x. and 62. YTD. 1.

com .335 84. cmeng@jefferies.045 8.697 (8.9 96.2% 87.029 327.705 106.853) 8.3% 29.0% 3.5% 26.188 44.468 2.124 15.654) 8.0 190.892 11.962 3.3% 34.3% D&A 1.9 90.737.2% 126.344 6.917) (17.0% (22.5% 141.0% (10.2% 43.5% 2.0% 62.287 15.567) % Effective Tax Rate 39. Alibaba is entitled to acquire up to 33% equity interest in Small and Micro Financial Services Company which has the legal ownership of Alipay and SME loan business.3% 99.382 25.3% 44.0% (30.7 303.3% 44.0% (19.5% 5. 2015) 81.6 28.447 8.9% 11.446 2024E 3.0 117.206 129.2% 13.1% 11.915) 15.9% 44.1 78.6 127.749.812 105.403 12.16 Implied Equity Value per Share (US$) WACC Calculation Target Debt/Total Cap.0% 10.2% 11.734.2x 3.388 2.371) 15. Assuming a range of 20% discount and 20% premium to Paypal’s EV/S and our estimated Small and Micro Financial Services Company’s revenue of USD15.6% 58.459 3.146 3.564) 12.546 9.883 WACC 23.815.514 Equity Value per Share NPV of Cash Flows and Terminal Value 1.313 11.0% (11.1% 22.344 26.1% 10.0% (33.734 258.4% Unlevered Free Cash Flow 43.160 (23.578) (27.644 128.3 No.5% 13.914) 8. as of Mar 31.5% 3.245.9 82.0% 3.6% 15.957) 13.2% Capital Expenditures (9.245 5.858 121. according to Jefferies U.0% Cost of equity (Re) (CAPM: Re= Rf + βadj x ERP) 13. Ratio $117.1% 114.2 85.7% 142.737.4% Change in Net Working Capital 21.8% 3.327 7. of ADS outstanding (mn) Implied Equity Value per Share (RMB) 729.0 Implied Equity Value (USD mn) 292.7 149.715 193.5% 19.8% 171.119 22.2% 73.529 97.4% 400.658 16.3% % Y/Y Growth 17.575 5.7% 51.7 110.3% upside to our current target market cap of Alibaba.755 Depr % revenue 36.8% 118.933 10.014.0% (16.566 19.5 136.6% 15.128) (19.9% 43.359 8.6 180.9% 85.1% 44. Paypal’s 2016 EV/S multiple is estimated at 3.S.1bn in 2016.0% 8.5% 13.0% 3.210) (21.4% 4.040 132.BABA Initiating Coverage 27 October 2014 Chart 1: DCF Analysis Fiscal Year Revenue (in RMB mn) 2015E 2016E 2017E 76.5 2.475 157.245.953 % Margin EBIT*(1-tax) 10.810 4.6% 7.919 Implied Taxes on Operations (4.1% 14. we estimate EV of Small and Micro Financial Services Company to be in the range of USD43.8x 4.339 95.0% 146.606 Implied Terminal Value / Terminal EBITDA Multiple 6.1% 41.045 29.735) (12.491 12.2% 10.2% Applied Beta Equity risk premium (ERP) 1. Cynthia Meng.9% 133.451 2.134) 8.831 72. +852 3743 8033.3x 4.770) 15.2x 2.7% 84.1% 44.068 2025E 363.486 2.130 of this report.8 167.014. Acquiring 33% equity interest will provide 4.464 6.467 2018E 2019E 2020E 2021E 2022E 2023E 161.793) 15.068 % of sales 10.2% 2.170 225.425 (6.486 9.100 14.185 3.4% (25.4x 3.514 Median DCF Valuation 21.9% 8.115 % Y/Y Growth 46.104 (10.245 3.4% 18.603 292.012 3.057 108.988 49.323) 8.965) 9.5 Implied Equity Value (RMB mn) 1.2% 76.6 Plus: Net Cash (est.526) % of sales 15.2% 161.6% 12.8% 12.153 3.9% 16.2% Source: Jefferies estimates Pursuant to the 2014 share and asset purchase agreement signed in Aug 2014.9-7.7% 4.6% 43.2% 44.1% Weighted average yield of debt (Rd) 3% Effective tax rate (Tc) Rwacc = 15% = [Re x E/V] + [(1-Tc) x Rd x D/V] 10.448 4.4 206.9% 14.749.299 60.1% 10.1 243.180 7.5% Perpetuity Growth Rate / Terminal Value at 10.2% 103.0 139.906 4.6x. Equity Analyst. page 7 of 130 Please see important disclosure information on pages 126 .8% 71.2% WACC 15.659 27.9% 2. Internet team.3% EBIT 34.337.8 91.990) 12.3% 46.2 9.0 Spot Exchange Rate 0.4% 43.765) (14.217 10.610 15.386) 12.7% 2.000 12.7 102.0% 10-year T-bond yield Risk-free rate (Rf) 2.4bn and USD65bn.045 (25.5 109.883 5.0% (14.8% 12.337.

2x EV/S assumption EV of Small and Micro Financial Services Co.105 19. over which Jack Ma controls majority of the voting interests. its payment and escrow service provider. Cynthia Meng. page 8 of 130 Please see important disclosure information on pages 126 .895 292. Small and Micro Financial Services Company. Equity Analyst. Alipay may also be subject to potential regulatory risks as regulators in China may increase their focus on online and mobile payment services. the risk of merchants selling counterfeit or infringing products is unlikely to be eliminated given that Taobao is a C2C platform. 2014.7% 7.316 16. (2) assuming equity value is equal to enterprise value with zero net cash.130 of this report. +852 3743 8033. Alibaba does not control Alipay. Potential conflicts of interest may arise due to his dual role as executive chairman of Alibaba and through his voting control over and his economic interest in Small and Micro Financial Services Company.227 59. This limits the ability of individual shareholders in influencing corporate matters. Alibaba is entitled to acquire up to a 33% equity interest in Small and Micro Financial Services Company Source: Jefferies estimates Key Risks Limited ability to influence corporate matters by individual shareholders The Alibaba Partnership.BABA Initiating Coverage 27 October 2014 Chart 2: Upside to valuation assuming Alibaba to acquire 33% equity interest of Small and Micro Financial Services Company in 2016 Scenario #1 #2 Paypal's estimated 2016 EV/S ratio (1) Premium/(Discount) to Paypal #5 10% 20% -10% 2. has the right to nominate majority of the members in the board of directors. or its parent entity.382 48. (USD mn) (2) 3.5% 6.9x 4.892 4.474 6.6x 17. the lead founder and executive chairman of Alibaba.805 54. Alibaba’s two major shareholders.3x 43. have also agreed to vote their shares in favor of the partnership’s nominees at each annual general shareholders meeting.com .S. Alipay handled 78.1% Note: (1) Paypal’s 2016 EV/S ratio is based on the mean of estimated enterprise value range and revenue of Paypal published by Jefferies U. SoftBank and Yahoo.6% of Alibaba’s China commerce retail GMV in FY14.9% 5. (USD mn) Financial Services Company #4 -20% Estimated revenue of Small and Micro Financial Services Equity interest to be acquired by Alibaba #3 3. (3) Pursuant to the 2014 share and asset purchase agreement in Aug 2014. Internet team on Sept 30. cmeng@jefferies.6x 3. Corporate structure may impose conflict of interest Alibaba Group conducts the operation of its marketplaces through variable interest entities which are substantially owned by Jack Ma.684 21.3% (3) Incremental equity value to Alibaba (USD mn) 33% Alibaba's current target market cap (USD mn) Upside with 33% equity interest of Small and Micro 0% 15.073 14.9x 3.132 Co. Potential counterfeit goods sold on marketplace Although Alibaba has adopted measures to monitor authenticity of products sold on its marketplaces. consisting of members of management. This may impose conflict of interest due to his dual roles as directors and equity holders of the variable interest entities and as directors of Alibaba Group. This may result in regulatory or legal action and cause damage to Alibaba’s reputation.650 65.

BABA Initiating Coverage 27 October 2014 Chart 3: Alibaba forward P/E band Source: Bloomberg. Jefferies page 9 of 130 Please see important disclosure information on pages 126 .130 of this report. +852 3743 8033. Equity Analyst.com . Cynthia Meng. cmeng@jefferies.

8% 17. 1.6 29.4 0.a.0 1.3 0.6 2. 76.9% 32.3 6.6 1.6 3.2 8.5% 13.7 6.a. Cynthia Meng.1% 20. n. n.5 1.9 849 20.3 1.9 13.0 8.9 9.a.2 1.6 0.2% 23.8 2.2 2.4 30.5 15.6 4.1 3.7% NC BITA US BitAuto USD 80.9 1.a.9 0.7% NC CMCM US Cheetah Mobile USD 16.1 n.1 0.a.0% NC CTRP US Ctrip USD 57.2% 38.6 29. n. +852 3743 8033.0 n.a. 32.7 6.9 3.8 3.9 2.2 n.9 0.5 3.6 28.6% 18.6 21.9 1.6 12.6% 42.a.0 13.a. n.0 14.9 80.a.5 3.8 1.3 0.4 26.a.0 16. n.3 43.2 0.3 1.1 4.8 44.0% 23.4% 16.7 n.3 2.6 1. n.a.a. n.2 35.com USD 24.2 1.9% 19.9 12.1 23.3 3.a.3 2.3 26.8% 36.8 0.5 3.0 3.6 20.107.a.4 n.8 3.6 40.4 30.7 0.4 2.2 11.7 12.0 3. n.8 2.3 11.4 26.1 1.a.1 25.3% Buy JMEI US Jumei USD 22.6 1.a.7 3.8 1.4 15.3 0.5 0.4% Buy 700 HK Tencent HKD 119.7 0.2 0.4 1.5 2.1 53.2 2.5 n.0 5. Bloomberg closing price as of Oct 24.a.1 6.3 n.1 37.8% NC Internet/New Media Avg (excl.9 5.5 0. n.9 14.8 2. n.1% Hold Buy China Game Average BIDU US Baidu USD 222.4% 16.2 3.a.1 3.a.4 10.com USD 38.2% NC QIHU US Qihoo 360 USD 68.0% 14.3 0.a. n.6 3.a.4 21. EV/S and P/S >15) 36. NC YOOX EU Yoox S. EV/S and P/S >15) 30.a.4 1.6% 16.6 78.1 1.0 20.0 9.6 6.4 0.a.2% 37.7 1.7 0.6 0.3% 29.8 6.0 0.8% 25. 2014.2 35.9 5.3 4.6% 29.1 27.8 2.2 158.2 11.7 3.0 1.6 2.2 6.2 0.1% 34.9 3.9 0.1 414 15.a.4 2.6 0.0 1. n.4 9.8 4.0 16. n.6 0.1 0.6 20.a. 33.2 9.7 3.7 3.2 0.a.3 3.2 1.4% 30.3 8.0 5.1 15.1 2. n.3 1.7 11.5 144.8 7.a.655 40.a.6 5.8 6.2 18.1 0.2 1. n.5 24.7% 26.3 n.1 22.7% 7.a.2 1.7 1.8 2.a.a.6 2. 0.0 3.6 0.a. 2.7 2. n.4 n.7 16.6 3.0 n.0% NC 777 HK NetDragon HKD 13.8 3.9 2.0% 29.3 0. n.8 3.8 10.3 2.1 1.2 0.5 0.587 28.a.7% NC ATHM US Autohome USD 49.0 0.0 n.9 3.a.8% 40.1 1.7 4.8 15.0 4.8 5.7 11.5 2.3 13.104 54.8% 14.7 4.3 11. 3.8 3.8% 40.2 994 60.com .7% Buy DANG US Dangdang USD 12.636 175.a.8 15.2 0.9 12. n.8 8.3 1. n.6 3.8 6.1 25.8% Buy NTES US Netease USD 92.7% 3.2 19.2 19.3 9.2 4. cmeng@jefferies.553 46.a. NC 2280 HK HC International HKD 9.6 16.4 1.a.4 n.1 4.3 31.5 3. 22.9 25.0 32.6 4.0 0.9 1.176.9 1.5 1.0 32. 1. n.9 849 20.4 0.119 15.5 27. 0.6 4.2 2. n.0 5.1 1.6 17.9 0.4 4. n. n.a.7 0.5 0.6 6. n. n.4 2. n.a.7 3.5 5.a.9 0.0 37.a.4 3.4 21.8% 39.3 3.2% SOHU US Sohu USD 44.4 6.3 3.9 0. n.7 3.a. n.8 0.a.8% 22.3 2.8 2.0 11.a.7% Internet overall (excl.a.6 1. 8. n. 13.9 13.3% 22.0 4.837 n.6 1.p.2 35. NC CCIH US ChinaCache USD 11.2% 21.a.2 19.a.3 5.6 0.0 1.1 132.1 23.8 238.7 2.5 1.825 51. n.1% 13.447 28. 0.6 3.8% Hold ASOS GBP 2.0 0.1 0.a.a.4 6. n.4 n.071 66.8 15.9 0.3% 33.7% 6.0 1.a.a.0 1.2 11.5 24.7 1.8 1.3% Buy Jumei USD 22.6 0.6 2. n.1 1.5 3.6 0.4 30.7% NC PWRD US Perfect world USD 21.7% 24. 29.0% 21.a.8 7.0 1.5% 14.a.0 10.8 0.6 1.1% 20.8 17.0 3.8 8. n.a. 1.6 1.1 9.9 7.0 4.BABA Initiating Coverage 27 October 2014 Chart 4: Peer Comparison Table Ticker Company FX Last Close BABA US Alibaba USD 95.a.7% 19.7% 22.8 1.8 3.a.2 2.8 4.5 1.3 0.6% BABA US Alibaba USD 95.6% 34.1 8. EUR 14.2 0.7 19.9 0.2 0.2 5.8 JD US JD. 97. 76.7 8.6 4. n.7 2.3 26.4% 17.6 1.8 300 147.a.5 2.580 29.4% NC JOBS US 51job USD 30.7 5.4 7.4 2.1 4.7% NC SINA US Sina USD 39.0 1.5 7.2 1.US Soufun USD 10.4 879 16.A. n. 6.6 12. n.8 10. 0.9 10.a.0 16.6 0.a.1 2.a.5 3.2 4.4 1.4 n.7 3.3 25.a.4% 22. 13.a.1% 22.a.4 19.6 1.5 20.6% 34.150 39. n.356 n.6 0.2 0.0 10.7 6.3 45. n.4 2.1% NC RENN US Renren USD 3.7 1.7 14.a.7 4.0% 26.4% NC 4755 JP Rakuten JPY 1.3 2.3 n.a.9 0.0% 27.6 0.a.5 1.5 1.5% Buy VIPS US Vipshop USD 213.4% 35.8 2.a.7 12.3 8.a.8% 36.5 22.7 n.6 2.2 6.0% 29.3 6.a.3 0.9% NC EDU US New oriental USD 22.3% 18.9 2.a.9% 14.4 21.2 3.8 82.2% 1.7 3.0 11.1 1.9% 24.4% 6.4 7.6 48.a.5 1.9 4.5 3.7 1.1 63.9 9. n.4 0.4 3.a.5 8.2 n.a.4 25.2% 27.7 5. n.0 6.6 1.2 0. n.7 n.4% 29.7 11.4% ASC LN Global e-Commerce Average (ex Zulily FY14 P/E) 700 HK Tencent HKD 119.0 10.6 0.5 19.3 4.2 978 n.7 5.1 39.3% Buy 56.7 11.9% 20.3% 16. n.4 2.1 1.7 3. n.7 33.061 9.8 1.510 17.com USD VIPS US Vipshop JMEI US Market Cap USD mn PE EV/Sales Price to Sales PEG ROE Rating FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 FY14 FY15 FY16 238.952 49.1% 21.7 8.9% AMZN US Amazon USD 287.6 15.1 16.0 13.8 n.a.3 0.9 2.4 3.540 14.a.9 803 14.3 0. n. n. n.3% Hold 1980 HK Tian Ge HKD 4.7 8.4 6.3 0.6 27.1 2.5 1.1 52. n.4 2. 3.028 37.2% NC QUNR US Qunar USD 26.8 1.1% 34.5 0.7 3.a.0% Buy YY US YY USD 81.2% NC 6899 HK Ourgame HKD 4.a.911 135.4 596 8.a.1 6.a.5 0.0 0. P/E ratio >80.8 4.a.4% Buy 24.8 22.2 131 n.9 6.7% NC 2280 HK HC International HKD 9.a.3 1.a.5% Buy SFUN.1 9.6% 29.7 5.6 6.a. n.7 1.a.8 1.6% 15.7 0.9 2. n.7 1.8 1.8 9.8 22.4% 5.8 44.9% 35. n.a.175 n.6 3. n.9% 19.6 1.8 51.8 12. NC LONG US Elong USD 19.2 0.2 2.6 2.0 4.0 7.3 1.8 6.8 26.524 46.3 n. n.3 2.0 0.8% 9. 5. n.a.4 0.2 0.3 25.3 3.9 2.795 18.8 18.a.0 1.7% NC JD US JD.2 0.a.a. Equity Analyst.a.4% 30.0 0.8 2.2 2.5% Buy EBAY US eBay USD 51.1 46.9 10.4 0. n.0 11.2 11.6 1.1 1.a.0 2.a.6 37.6% 10.9 9.6 4.2 13.5 1.392 53.2 4.1% NC NTES US Netease USD 92.3 0. 3.0 0.5 144.1 4.2% 37.3 2.7 1.8 2. n.5% Hold China e-Commerce Average ZU US Zulily USD 37.5 24.6 3.553 46.6 14.9 0.7 2. n. n.5 357.9% 21.a.0 0.0 19.0 4.2 0.6 12.5 22.8 n.a.119 15.8% 26.8 1.071 66.1 0.7 0.8% 18.130 of this report.914 n.a.2 30. 216. n.150 39.3% 25.3% 7.6% 27.0 14.7 0.0% NC DANG US Dangdang USD 12.5 3.5 14.837 n.1% n.5 2.5 n.6 0.8 5.9% 30.2 0.2 10.1 0. P/E ratio >80.1 20.7 0.0 5.2% 23. 14. Underperform YOKU US Youku USD 18.0 2.5 2.5% 22.6 59 n. n.3% 26.8 2.9 7.5 0.099 15.9 n. n.2 0.0 5.6 0.3 2.2 0. n. n.0 6.4% Note: Alibaba’s valuation multiples in the above table are based on calendar year estimates for apple-to-apple comparison against peers Source: Company data.285 35.8% Buy 3888 HK Kingsoft HKD 17.8 3.a.3 3.3 3. n. n.a.0 4.5 1.8 16.3% NC AMCN US Air media USD 2.0 0.7 6.694 n.3 0.9% 30.4 685 118.0 0.1 1.8 14.1% 34. -0.334 59.3 8.9 14.7% 17.3% 22.285 35.1 3.2% 25.9% 24.596 21.a.2 994 60.8 3.8 1.0 19.3 7.0 0.7 11.4 30.4 7.5 1. n.0 0.2 700 14. n.1% 19.3 13.a.1 n.7% Buy 16.a.5 2.6 1.4 1.8 2.9 0.2 0. Jefferies page 10 of 130 Please see important disclosure information on pages 126 .5 0.3 0.7 0.a.7% NC 8002 HK IGG HKD 3.2 18.5 0.2 0.6 22. n.8 4.1% NC WUBA US 58.5 1. n.8 2.9% 19.6% 21.2 32.1 10.8 7.9 12.9 4.0 3.9 2.7 5.5% Buy USD 213.2 3. 16.7% 12.251 48.7 1.0 1.8% 26.2 1.7 4.7 4.a. 5.3 0.a.6 40.5 2.4 1.9 20.7 0.a.7 5. n.7% Buy 46.5 0.3 1.5 0.0 2.339 634.1 7.7 7.7 1.a.3% 52.3 2.5 14.a.5 4.6 1.8 25.0% NC MELI US MercadoLibre USD 112.2 16.5 19.a. n.0% NC VISN US Vision China USD 11.1 0.9 4. n. 1.6% NC CYOU US Changyou USD 18.6 4.0 3.7 2.9 0. n.2 0.5 29.2 5.7 11. n.1 4.4 0.8 22.7% NC 434 HK Boyaa HKD 7.9 0.4 15.5 20.9 2.

Internet. we discuss the following: 1. as well as improving communications and transportation infrastructure. Given the proliferation of affordable smart devices. e-Commerce and online shoppers compared to developed countries suggests ample room for growth. and 81% of the 240mn new incremental Internet users will be 30+ years old.cn’s 1H14 survey. China’s relatively low penetration of consumption. 34 out of the 54 surveyed stores posted revenue decline with average sales down by 2% YoY in 1H14. Our analysis shows that China's Internet users aged 30+ years will account for 54% of total Internet users by 2018. Internet demographics mix shift to more 30+ year old age groups indicates huge opportunities in e-Commerce as these users adopt online shopping. Cynthia Meng. In the department store category. 3. we believe that m-Commerce is still at very early stage of monetization. 5. Accelerating structural shift to online from traditional retail. expected further data pricing declines due to LTE promotions by the telcos. Equity Analyst. page 11 of 130 Please see important disclosure information on pages 126 .com . Favorable government policy and increasing urbanization drives domestic consumption as household income rises.BABA Initiating Coverage 27 October 2014 Changing Demographics and Mobile Support ECommerce in the Next Decade China’s e-Commerce market is forecast to grow at a 2013-2018 CAGR of 28%.4% of total retail sales in 2014. “A Taste of Domestic Consumption: The Unleashing of China’s E-Commerce Power” published on Sept 19. As discussed in our sector note. China’s e-Commerce growth is driven by secular trends including urbanization and increasing household income. the revenues of 73 surveyed offline retailers showed only moderate YoY growth. accounting for 10. +852 3743 8033. cmeng@jefferies. According to linkshop. the mix shift towards more mature Internet user demographics. improving wireless 3G and 4G coverage and user experience. 4. rising smartphone and Internet penetration. 2. up from 33% in 2008.130 of this report. 2014. In this section.

Jefferies estimates (2018E) page 12 of 130 Please see important disclosure information on pages 126 . the mix shift towards more mature Internet user demographics.8% YoY.8% YoY. We estimate the market size to further grow to RMB6. with a 2013-2018 CAGR of 28%. Equity Analyst. accounting for 10.5trn in 2018. Source: iResearch (2008A-2017E) as of Jul 2014. cmeng@jefferies. China’s e-Commerce growth is driven by secular trends including urbanization and increasing household income. Source: iResearch (2007A-2017E) as of Jul 2014.BABA Initiating Coverage 27 October 2014 Changing Demographics and Mobile Support ECommerce in the Next Decade China’s online retail sales market is expected to reach RMB2. Jefferies estimates (2018E) Chart 6: China online retail sales structure (2008A-2018E) B2C market is estimated to account for 48% of total online retail sales in 2014 and 62% in 2018.5trn in 2018. accounting for 10. This leads to accelerating structural shift to online from traditional retail. +45.com . Chart 5: China online retail sales (2007A-2018E) China’s online retail sales market is expected to reach RMB2. We estimate the market size to further grow to RMB6.4% of total retail sales. In our view.8trn in 2014.8trn in 2014. +852 3743 8033. Cynthia Meng. rising smartphone and Internet penetration as well as improving communications and transportation infrastructure. +45. with a 2013-2018 CAGR of 28%.4% of total retail sales.130 of this report.

1mn in 2000 to 731.348) in 2013.130 of this report. The rise of the middle class and increase in purchasing power has also enabled Chinese consumers to pursue a higher quality of life.955 (US$4. with a nominal growth rate of 9. implying an urban population of 1B+ by 2030. Chart 8: China’s disposable income per capita of urban residents Disposable income per capita of urban residents reached RMB26.1mn in 2013.1mn in 2013. implying an urban population of 1B+ by 2030. which creates huge retail opportunities. experienced the strongest growth in household income over the past years. Cynthia Meng. National Bureau of Statistics Disposable income of the Chinese has been increasing steadily over the past decade driven by urbanization and economic progression.BABA Initiating Coverage 27 October 2014 Urbanization leads to increasing household income The “National New-type Urbanization Plan (2014-2020)” released on March 16. According to the National Bureau of Statistics. The government aims to raise the urbanization rate to 60% by 2020 and further to 70%. Source: National Bureau of Statistics of China as of March 2014.955 (US$4.348) in 2013. cmeng@jefferies.7% YoY or real price-adjusted growth rate of 7% YoY. accounting for 54% of total population. 2014.7% YoY or real price-adjusted growth rate of 7% YoY. China’s urban population grew from 459. Equity Analyst. disposable income per capita of urban residents reached RMB26. Chart 7: China’s population and urbanization rate According to the National Bureau of Statistics. with a nominal growth rate of 9. Jefferies The middle income class.com . page 13 of 130 Please see important disclosure information on pages 126 . which generally devotes one-third of income for discretionary spending. urban infrastructure and residential real estate. demonstrates the Chinese government’s determination to speed up urbanization for economic growth expansion through further build-out of transport networks. accounting for 54% of total population. According to the National Bureau of Statistics. Source: CEIC. +852 3743 8033.1mn in 2000 to 731. China’s urban population grew from 459. The government aims to raise the urbanization rate to 60% by 2020 and further to 70%.

5% 11. given the aging population trend in China and increasing Internet penetration among the older generations.9% 29.5% 9.6% 17.5% 6.8% 5.5% 4.3% 6. Chart 10: Chinese Internet user by age group We estimate 54% of total Internet users will be aged 30+ by 2018.5% 15.9% 2. 2005 0. Our estimates also indicate that 81% of the 240mn new Internet users between 2013-2018 to be mostly in the older age groups of 30+ years of age.9% in 2011.8% 17.3pcpt from 13.5% 3.7% 2006 3.6% 2010 0.3% 0.8% 18.9% 23.3% 6.5% 9.4% -4. given the aging population trend in China and increasing Internet penetration among the older generations.3% 19. matching the general demographics of Chinese population as Internet penetration rises.9% 7.8% 7.9% 6.8% 39.1% 21.7% -18. <RMB10.2% 2007 2.3% 7.1% 8.000 RMB10-20K RMB20-30K RMB30-40K RMB40-50K RMB50-60K RMB60-70K RMB70-80K RMB80-90K RMB90-100K % of household with annual income between RMB50-100K 2005 4.4% 12. compared to 43% in 2013 and 33% in 2008.7% 8.6% in 2005 to 42.130 of this report.7% 2. Average spending per online buyer is expected to grow 23% YoY to reach RMB7.8% 15.3% 4.7% 1.0% 42. Source: CNNIC as of Jan 2014.4% -5.7% 5.1% 13.1% 11. Jefferies More mature Internet user demographics drives higher consumption power We estimate 54% of total Internet users will be aged 30+ by 2018.4% 5.8% 13. Jefferies estimates We believe more mature Internet user demographics and higher consumption power will drive online shopping sales per ticket.154 in 2018.4% 3.0% 10.9% 3.0% 1.3% 19.8% 12.1% 23.4% 9. Cynthia Meng.com .3% 3.1% 3.5% 3.6% 7.3% 4. Percentage of household with annual income between RMB50K and 100K increased by 29. compared to 43% in 2013 and 33% in 2008. Equity Analyst. as discussed in our “China Internet: Long Term Demographic Changes Bear Far Reaching Implications” published in Jan 2013.7% 1.3% 10. we will see China’s Internet user mix to be more balanced.6% -20.5% 1.1% 26. cmeng@jefferies.6% 17.6% 14.3% 5.8% 13.2% 14.5% 2011 2011 vs. +852 3743 8033.9% 2009 0.7% 8.4% 2008 1. page 14 of 130 Please see important disclosure information on pages 126 . Unlike the past several years.4% 4.9% 20.1% 34.9% 25.8% 12.3% Source: National Bureau of Statistics of China.704 in 2014 and further to RMB11.7% 18.0% 15.8% 10. with a 2013-18 CAGR of 12%.3% 2.9% 7.3% 12.7% 5.0% 3.6% 30.5% 2.3% 15.1% 6.BABA Initiating Coverage 27 October 2014 Chart 9: China’s urban household distribution by annual income The middle income class experienced the strongest growth in household income over the past years.

3% in Japan in 2013. Chart 12: Number of Chinese Internet users and penetration China’s Internet penetration rate is still relatively low compared to 84. 2014.BABA Initiating Coverage 27 October 2014 Chart 11: Average spending per online shopper in China Average spending per online buyer is expected to grow 23% YoY to reach RMB7. +852 3743 8033.S. The Chinese government has been emphasizing on stimulating domestic consumption by improving social welfare network.2% in US and 86. total Internet users in China reached 632mn. accounting for 62% of total population. promoting urbanization. consumption. +9.130 of this report. Cynthia Meng.704 in 2014 and further to RMB11.154 in 2018. with a 201318 CAGR of 12%. accounting for 62% of total population. consumption. according to the World Bank. We expect Chinese Internet users to reach 858mn by 2018. Source: CNNIC as of Jan 2014. representing a 46. We see this as positive for e-Commerce development as the economy gradually transforms from investment-driven to consumption-driven.3% in Japan in 2013.5% YoY. As of June. etc. Equity Analyst. page 15 of 130 Please see important disclosure information on pages 126 . according to OECD and National Bureau of Statistics. e-Commerce and online shoppers compared to developed countries suggests ample room for growth.9% penetration rate. cmeng@jefferies. We expect Chinese Internet users to reach 858mn by 2018. China’s Internet penetration rate is still relatively low compared to 84.com . according to CNNIC. Jefferies estimates Low penetration of Internet.2% in US and 86. significantly lower than 67% of the U. China’s total Internet users were 618mn by the end of 2013. e-Commerce and online shoppers China’s relatively low penetration of Internet. according to the World Bank. Source: iResearch as of Jul 2014. Jefferies estimates China’s household consumption expenditure represented only 36% of GDP in 2013. US Census. CNNIC as of Jan 2014.

representing 54% of Internet users. as estimated by eMarketer. according to iResearch and eMarketer estimates. +852 3743 8033. iResearch. We estimate China’s eCommerce to account for 10.S. and further to 582mn in 2018.4% of total retail sales by YE2014.1% in 2Q14. US (2003-2013) Source: National Bureau of Statistics. US Census. China’s e-Commerce market growth is expected to continue outpace that of the U. The household consumption data refers to market value of all goods and services purchased by households. Equity Analyst. Source: National Bureau of Statistics.130 of this report. according to CNNIC. imputed rent for owneroccupied dwellings and payments and fees to governments to obtain permits and licenses.4% of total retail sales by YE2014. China surpassed the U. China surpassed the U. Jefferies Note: US data refers to OECD. to be the largest e-Commerce market by GMV in 2013. to be the largest e-Commerce market by GMV in 2013.com . Source: eMarketer as of Apr 2014.S. Chart 15: Online penetration of retail sales – China vs.S. cmeng@jefferies. according to iResearch and eMarketer estimates. 68% of total Internet population. U. compared to 6.4% in the U. according to China’s National Bureau of Statistics.S. China’s e-Commerce market growth is expected to continue outpace that of the U. Cynthia Meng. with China’s online penetration of retail sales reaching 10.BABA Initiating Coverage 27 October 2014 Chart 13: China’s household consumption expenditure growth (2003-2013) Chart 14: Comparison of household consumption expenditure in China Vs.S.4% in the U. We estimate China’s e-Commerce to account for 10. as estimated by eMarketer. accounting for 49% of Internet users and 22% of total population. OECD. compared to 6. Jefferies The number of online shoppers in China reached 302mn in 2013. including durable products.S.1% in 2Q14. page 16 of 130 Please see important disclosure information on pages 126 . We estimate the growing number of online shoppers to reach 358mn in 2014. Jefferies Note: The household consumption refers to the market value of goods and services purchased by households including both real and imputed consumption expenses.S. with China’s online penetration of retail sales reaching 10.

6% 4.2% 105.3% 3.7% 52.6% 59.4% 2.7% 2.0% 5.BABA Initiating Coverage 27 October 2014 Chart 16: E-Commerce penetration of population and Internet users The number of online shoppers in China reached 302mn in 2013.7% 16.3% 42.8% 4.6% 7.4% 55.9% 47.6% 14.5% 4.3% 3.8% 46.130 of this report.3% 49.4% 73.5% 8.3% 34.3% 39.0% 10.5% 4.5% 18.4% 101.2% 1.5% 3.8% 42.5% 6.4% E-Commerce (% of total retail sales) 2.5% 16. We estimate the growing number of online shoppers to reach 358mn in 2014.0% 52.0% 42.9% 1.1% 61.9% 3.0% 3.4% 12.5% 73.1% 37.3% 44.1% 14. accounting for 49% of Internet users and 22% of total population. representing 54% of Internet users.6% 82.3% 2.9% 76.1% 95.2% 4.9% 1.8% 3.0% 5. MIIT.1% 7.2% Wireless 9.4% 4.9% Online shoppers (% of Internet users) 2. according to CNNIC.3% 30.1% 3.5% 15.1% 49.9% 61.8% 49.3% 3.5% 4.6% 3G/4G 7.9% 4.8% 12.2% 9.0% 8.com .0% Online shoppers (% of population) 2.0% 4.3% 1. Cynthia Meng.3% 5.6% 87.4% 3.0% 54.4% 3G/4G (% of total mobile subs) YoY% Smartphone E-Commerce 1. cmeng@jefferies.2% 8.4% 2.9% 67.0% 12. Jefferies page 17 of 130 Please see important disclosure information on pages 126 .9% 53.6% 9.9% 48.9% Online shoppers (% of population) 12. +852 3743 8033.8% 4.4% 42.3% 15.1% 38.4% 30.4% 108.0% 62.4% 11.3% 5. Equity Analyst.7% 58. Jefferies estimates (2014E-2018E) Chart 17: Summary of key penetration statistics in China Penetration 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E Fixed broadband (% of household) 30.3% Internet penetration (% of population) 34.2% 0.4% 2.2% Wireless (% of population) 64.5% 71.6% 91.3% 2.1% 21.0% 5. National Bureau of Statistics.1% 80.6% 3.3% Fixed broadband 4.9% 57.6% Online shoppers (% of Internet users) 35. and further to 582mn in 2018.7% 12.0% 3.5% 3. 68% of the total Internet population.6% 42.4% 3. CNNIC.9% 67. iResearch.4% 64.2% 2.0% 33.2% 34. Source: CNNIC (2007A-2013A) as of Jan 2014.2% Source: Company data.4% 38.1% 6.4% 2.7% 5.0% 45.3% 110.6% 8.1% Smartphone (% of total mobile subs) NA 13.6% 13.0% Internet penetration 4.5% 2.4% 26.6% 2.0% 22.

We estimate China’s smartphone users as a % of mobile subscribers to reach 76% in 2018. Source: Company data.130 of this report. Equity Analyst. Jefferies page 18 of 130 Please see important disclosure information on pages 126 . with 73% of newly added Internet users adopting mobile devices. Cynthia Meng. Chart 18: China smartphone users and penetration We estimate China’s smartphone users as a percentage of mobile subscribers to reach 76% in 2018. driven by both increasing availability of low-end handsets and enhancement in mobile device capability. driven by multiple connected devices. mainly due to 3G/4G LTE wireless and rising smartphone penetration given increasing availability of lower-end handsets and enhancement in mobile device capability. driven by multiple connected devices. Jefferies estimate as of Aug 2014 Chart 19: China’s wireless penetration as percent of population We expect wireless penetration in China to reach 105% by 2016. 14pcpt higher than that in 2013.com . 14pcpt higher than that in 2013. driven by both increasing availability of low-end handsets and enhancement in mobile device capability. We expect wireless penetration in China to reach 105% by 2016. according to CNNIC. MIIT.BABA Initiating Coverage 27 October 2014 Smartphone adoption driving m-Commerce growth Strong Internet user growth in China is largely driven by mobile Internet user adds. +852 3743 8033. Source: Company data. MIIT. We estimate all Chinese Internet users will be mobile Internet users by 2018. cmeng@jefferies.

Source: National Bureau of Statistics as of Oct 2014.5% of total e-commerce transaction volume in 2013. average sales of the 5 surveyed retailers saw a 2% YoY decline.130 of this report. Source: iResearch as of July 2014. Jefferies page 19 of 130 Please see important disclosure information on pages 126 . In the supermarket category.BABA Initiating Coverage 27 October 2014 The m-commerce market size surged to RMB274bn in 2013 from RMB11. a China’s retail industry portal. according to National Bureau of Statistics. according to iResearch.3% of overall e-Commerce market. +12% YoY. JD.3% YoY in 1H14. and social apps like Weixin. Department stores. compared to 13. in particular. +130% YoY.1% in 2013. accounting for 14.915bn. We estimate m-Commerce market to reach RMB945bn in 2014. published on Aug 29. and RMB2. accounting for 14.3% YoY with 4 of them showing revenue decline. We estimate m-Commerce market to reach RMB945bn in 2014. +245% YoY.com.1% in 2013.174bn in 2015. total retail sales in China reached RMB18.7bn in 2011.915bn.5% of total e-commerce transaction volume in 2013. Chart 21: YoY growth rate of China’s total retail sales As of Sept 2014. representing 34. 2014. representing 34. and RMB2. Cynthia Meng. We expect m-Commerce growth to accelerate as it provides consumers a convenient shopping experience helped by rapid development of m-Commerce enabling infrastructure such as mobile payment by e-Commerce players such as Alibaba. However. +245% YoY.com .7bn in 2011. +852 3743 8033. Chart 20: China’s m-Commerce market size by GMV The m-commerce market size surged to RMB274bn in 2013 from RMB11. cmeng@jefferies. +130% YoY. compared to 13. Jefferies estimates Accelerating structural shift to online from traditional retail As of Sept 2014. the impact of eCommerce on offline retail sales has already been felt with aggregate sales of 73 traditional retail companies slightly growing 1. +12% YoY. were most affected with 34 out of the 54 stores seeing revenue decline yearover-year. average sales of the 14 surveyed supermarkets grew 7. In the electronic and home appliance store category. according to iResearch.3% of overall eCommerce market. total retail sales in China reached RMB18. Equity Analyst. according to National Bureau of Statistics. according to a survey by Linkshop.174bn in 2015.

1 62.6 -6.3% 0.8 11.4 -2.2% 0.6% ChangChun Ouya 5.1% Wuhan Department Store Group Co.1% Beijing Cuiwei Tower Co.2 0... LTD (SHE:002419) 8.4 37..2% 0. Ltd (SHA: 600694) 17.3 -9.2 0.4% 0.8% 0. Equity Analyst. Ltd (SHA:600327) 4.8% Wuhan Zhongnan Commercial Group Co.6% 31.2% Golden Eagle Retail Group (HKEX: 3308 HK) 7.9 -7.1 18.3% Wuxi Commercial Mansion Grand Orient Co.Ltd (HKEX: 1833 HK) 7.0% 0.cn is a China’s retail industry portal offering information and media news of the retail industry.0% Source: Linkshop.4 -6.5 -30. +852 3743 8033.1 51.8% 0.8% Parkson Department (HKEX: 3368 HK) 10..130 of this report.5 -23.3% 0.1 7.. Ltd (SHA: 603123) 2.4 2.2% Intime Retail Group Co.3% Supermarket 4.2 -1.0 10.5 -0.1% Beijing Capital Retailing Group Co..Ltd (SHA: 600778) 3. Ltd (HKEX: 0984 HK) 3.BABA Initiating Coverage 27 October 2014 Chart 22: 1H14 offline retail company ranking Retail stores Ranking 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Department store 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 Revenue YoY % Net profit (RMB bn) change (RMB bn) YoY % Company (CN) Company (EN) 大商股份 重庆百货 百货业态 超市业态 电器业态 万达百货 豫园商城 百盛百货 王府井百货 鄂武商A 天虹商场 金鹰商贸 银泰商业 银座股份 商业营收 首商股份 华地国际 百货业态 超市业态 长春欧亚 茂业国际 合肥百货 利福国际 香港业务 苏州久光 上海久光 大连久光 北人集团 大东方 广百股份 友好集团 中央商场 永旺 内地业务 香港业务 新华百货 友阿股份 武汉中商 通程控股 翠微股份 西安民生 小商品城 开元商业 Dashang Co.1 -34..4 -1.3% Shanghai Jiuguang 7.6% Wanda Department Store 11.com .4 -0.. Ltd (SHE: 000564) 2.2 0.3 16.1 -3. Linkshop.6% Beiren Group 4. Ltd (SHA: 600785) 3..6% 0.6% 0.1% AEON Stores (Hong Kong) Co.6 -3.4% Mainland China 2.6 0.9% Nanjing Central Emporium (SHA: 600280) 3.9 1.0 11.0% Shanghai Yuyuan Tourist Mart Co. Cynthia Meng.6% Chongqing Department Store Co.8% Lifestyle International Holding Ltd (HKEX: 1212 HK) 5.7% 0.5 5..3 -5.5% 0.2 -50.3% Xi'an Kaiyuan Investment Group Co.1 -41.Ltd (SHA: 600723) 6.3% Electronics superstore change 2..6% 0..0% 0.4 2.5% Department store 4.8 7.6% 0.1 -5.3% Rainbow Department Store Co. Ltd (SHA: 600415) 2.9% 0.5% Xinjiang Youhao (Group) Co.com.4 7.9% 0.com.0% 0.4% Yinchuan Xinhua Commercial Group Co.3% Hong Kong 1.3 -36.3 -22.0 -3.3% 0.2 1. Ltd(SHA: 600655) 10.0% 0..2 2. Ltd (SHA:600858) 7..5% 0.2 39. Ltd (SHE: 002277) 3.4 6.0 -23.3 -6...9% 0.9 -22.7% Silver Plaza Group Co. cmeng@jefferies.7% Xi'an Minsheng Group Co.2% Hong Kong Business 0.4% 0.2% 0..2 -12. Jefferies Note: Founded in 2000.1 0.2% Hefei Department Store Group Co.6% Department store 7.2 -6. Ltd (SHE: 000516) 2.0% Changsha Tongcheng Holding Co.0 -3.8 -5.2 -5.0 -4.0 2.. Ltd (SHE: 000501) 8.1 Guangzhou Grandbuy Co.2% 0.8% 0.7% Maoye International HoldingsLimited (HKG: 0848) 5.cn as of Aug 2014.0% Zhejiang China Commodities City Group Co.4 -4..2% Commercial revenue 7.1 411.3 -2.8 -7. Ltd (SHE: 000419) 2.8 0.6% 0. Ltd(SHA: 600729) 15.0 4.4 5.0 -25.0% Suzhou Jiuguang 3.1% 0.6 -11.9% Hunan Friendship & Apollo Commercial Co.9 -3.1 -16.1% Beijing Wangfujing Department Store (SHA: 600859) 9. Ltd (SHE: 002187) 3. page 20 of 130 Please see important disclosure information on pages 126 .5% 0. Ltd (SHE: 000785) 2...7% Supermarket 1.4 -9.7% Springland International Holding Ltd (HKEX: 1700 HK) 5.0 -4.0% Dalian Jiuguang -17.1 -75. Ltd (SHE: 000417) 5.

1% 0.8% Guangzhou Friendship Group Co.0% 0.7 -3.0% (0.6 2.3 13.0 -39. Ltd.4 6..1 7.1% Haining China Leather Market Co.1 0. Ltd 1.1 275.0 -2.0% 0. Ltd (SHA: 600861) 1.4 -16.8 -18.3% 3.2% Jiangsu Hongtu High Technology Co.2 99.6 -8. Ltd 1..2 -16. Linkshop..BABA Initiating Coverage 27 October 2014 Chart 23: 1H14 offline retail company ranking (cont’d) Retail stores Ranking 31 32 33 34 35 36 37 38 39 40 41 Department 42 store 43 44 45 46 47 48 49 50 51 52 53 54 1 3 4 5 6 Supermarket 7 8 9 10 11 12 13 14 home appliance stores 1 2 3 4 5 Net profit change (RMB bn) YoY % 大连友谊 广州友谊 中兴商业 上海益民 上海新世界 海宁皮城 南宁百货 北京城乡 成商集团 徐家汇商城 昆百大A 商业城 杭州解百 兰州民百 世纪金花 工大首创 岁宝百货 百大集团 佳华百货 津劝业 人和商业 民生控股 长百集团 庄胜百货 Dalian Friendship Group Co.7% 0.3% 0. Ltd (SHE: 002024) 51..6% Sun Art Retail Group Ltd (HKEX: 6808 HK) 48.8% (0.9% Yonghui Superstores Co..6 -20. Ltd (SHE: 002264) 3. Ltd (SHE: 000679) 1.0 13.3% 88.1 5. Ltd (SHE: 000560) 1.1% Shanghai New World Co. Ltd (SHA: 601933) 17.3% 0.com .9% Minsheng Holdings Co..9% Huiyin Household Appliances Holdings Co.2) -12.0% 206.0% CP Lotus Corp (HKEX: 0121 HK) 5. Ltd (SHA: 600898) Subtotal Total 5..0% 0.0 -43.2% Zhongxing Shenyang Commercial Building Group Co.1 -3.7 1.3 -12..3% Renrenle Commercial Group Co.3% Shanghai Xujiahui Commercial Co..1 -48.0% Beijing Jingkelong Company Ltd (HKEX: 0814 HK) 5.4% 0.1 1.4% 高鑫零售 (大润发+欧尚) 华润万家 永辉超市 联华超市 物美商业 中百集团 华联综超 步步高 人人乐 卜蜂莲花 京客隆 新华都 红旗连锁 三江购物 Subtotal Electronics & YoY % (RMB bn) Company (EN) Subtotal 2 Revenue Company (CN) 苏宁云商 国美电器 宏图三胞 汇银家电 三联商社 change 14.0 -86.0 -60.5 16.1 2.6% 0.4% 0.4% Chengshang Group Co.0% Baida Group Co.6% Lanzhou Minbai Shareholding (Grp) Co (SHA: 600738) 0.0% Beijing Urban Rural Trade Centre Co. Ltd (SHE: 002251) 6. cmeng@jefferies.1% 0..1) -371.6 -28.7 9.1% GOME Electrical Appliances Holdings Ltd (HKEX: 0493 HK) 29.9% Beijing Hualian Hypermarket Co.5% China Resource Vanguard Co.0% Kunming Sinobright (Group) Co.1 110.1% Nanning Department Store Co.1 276.1% (1.9% 0.2 5.4 -2.0 47.8 5.8 -17.2% 0.cn as of Aug 2014.6 9.0% 0.2 -5..7 -2.0% JiahuaStores Holdings Limited (HKG:0602) 0.0 164.6 -16.4 -5.8% 0.9% Shirble Department Store Holdings China Ltd (HKEX: 0312 HK) 0.3% 0.0 23.0 118.8% 0.7% Shenyang Commercial City Co.0 -53.8% Zhongbai Holdings Group Co Ltd (SHE: 000759) 8. (SHA: 600122) 6.7 115.8% 0.8% Wumart Store Inc (HKEX: 1025 HK) 10. Ltd (SHA: 600712) 1.4% ZhuhaiHoldings Investment GroupLtd (HKG: 0908) 15..3% Sanlian Commercial Co.com.9% 1. +852 3743 8033. Ltd (SHE: 000987) 1.3 -3. Ltd 41.1 -5.0% Tianjin Quanyechang (SHA: 600821) 0.2% 0.cn is a China’s retail industry portal offering information and media news of the retail industry. Ltd (SHE: 002344) 1.8% 0.1 -10.7% 0. Ltd (SHA: 601116) 2.2% 0.9% Chengdu Hongqi Chain Co.6 -1.. Ltd (SHE: 000715) 1.7 -7.7 -20.. Ltd (SHA: 600306) 0. Jefferies Note: Founded in 2000..1 3.0 174.7 8. Ltd (SHA: 600361) 6.1% Sanjiang Shopping Club Co.7% 0.9) -385.5 16. page 21 of 130 Please see important disclosure information on pages 126 .0% Century Ginwa Retail Holdings Ltd (HKG: 0162) 0.1 -23. Ltd (SHA: 600857) 0.6% 0..2 -7.2 -10.1 -978.4 9.3% 180. Ltd (SHA: 600824) 1.com.0% (0.1% 0. Cynthia Meng.4% 0.8% 0.4 9.3 -5.2% 0.4 5.0 7.6% Junefield Department Store Group Ltd (HKG: 0758) 0.5 -23.8 Suning Commerce Group Co.2 -5. Equity Analyst.6% 0.6% 0.7 22.0 -15..0) 17.7) -202.5 1.1% 0.3% Source: Linkshop.3 5...0% Hit Shouchuang Technology Co.1 411. Ltd (SHA: 600814) 0..0 17.6% 0.0 -3.3% 0. Ltd (SHE: 002697) 2.3% 11.4 -27..9% 475.8% 0.8 5.1% 0.0 -4. Ltd (SHA: 600865) 0.7% Hangzhou Jiebai Group Co..0% 0. Ltd (SHE: 002336) 6..8% 0...7 -20.7 -10.3 -9.2% Shanghai Yimin Commerce Group Co. Ltd (SHA: 600856) 0. Ltd (SHE: 000416) 0.0 Renhe Commercial Holdings Company Ltd (HKEX: 1387) 0.. Ltd (SHA: 600828) 1..1 -93.0% Changchun Department Jituan Store Co.6 1.8 3.1 -49.130 of this report.4 11.9% (0.3% New Huadu Supercenter Co.0% 0. Ltd (HKEX: 1280 HK) 1.1 -24.0% 7.5% Better Life Commercial Chain Share Co..2% 0.5 7.

BABA Initiating Coverage 27 October 2014 Due to the wide disparity of consumer taste and purchasing power among regions.S.6 square meters in China was also significantly lower than other developed countries. compared to 40% in the U. Chart 24: Comparison between China and other countries in retail space per capita in 2013 Retail space per capita of 0. Retail space per capita of 0.. China’s retail market is highly fragmented with the top 20 retailers in aggregate accounting for approximately 12% of total market share in 2013. according to Euromonitor International. cmeng@jefferies. Jefferies page 22 of 130 Please see important disclosure information on pages 126 . Unlike in the U. which is dominated by large department stores or retail chain operators.S. which generally focus their operation on respective regions. lower prices and convenient delivery services. according to Euromonitor International.130 of this report.6 square meters in China was also significantly lower than other developed countries. Equity Analyst. Source: Euromonitor International. This fragmented market landscape gives rise to an increasing number of consumers turning to online e-Commerce platforms for product selection..com . +852 3743 8033. China’s retail market is mostly made up of small and medium size retailers. Cynthia Meng.

8-12.com .360 80% 106% 124% 141% 167% 32% 51% 63% 76% 95% 2015 Traditional retail sales (RMB bn) Implied 2015 e-Commerce sales YoY growth % Upside to 2015 e-Commerce market est.353 22. representing 76% upside to current market estimate. Holding the total overall China retail sale market size estimate constant.830 26. reaching RMB26.590 29. The results indicate 32%-95% upside to our current 2015 China’s e-Commerce market size estimates. representing 95% upside to current market estimate.780 45. representing 32% upside to current market estimate. our scenario analyses assume +5% to -5% YoY percent change of traditional retail sales.692bn. Results of scenario two: assuming traditional retail sales grow 2% YoY in 2015.781 26. overall China retail sales will grow 11.0% YoY growth % E-Commerce sales YoY growth % Scenario #1 #2 #3 #4 #5 YoY growth assumption of traditional retail sales 5% 2% 0% -2% -5% 25. Source: iResearch.169bn.977bn. our scenario analyses assume +5% to -5% YoY percent change of traditional retail sales.9% 10. Jefferies estimates According to iResearch estimates. +852 3743 8033.022 24.219 8.8% 12.889 23.892 2.169 6.8% 21.130 of this report. cmeng@jefferies. implied e-Commerce market size will reach RMB4. Holding the total overall China retail sales market size estimate constant.360bn.645bn.307 23. implied e-Commerce market size will reach RMB7. Equity Analyst.639 4.999 YoY growth % Traditional retail sales 11. Results of scenario one: assuming traditional retail sales grow 5% YoY in 2015. Overall China retail sales 2013 2014E 2015E 23. We estimate traditional retail sales growth of 10% in 2015. Results of scenario five: assuming traditional retail sales decline by 5% YoY in 2015.645 7. representing 63% upside to current market estimate.0% 1.590bn and RMB29.692 6.977 5. Cynthia Meng. representing 51% upside to current market estimate.999bn respectively. implied e-Commerce market size will reach RMB6.8% between 2014-15. The results indicate 32%-95% upside to our current 2015 China’s eCommerce market size estimates. implied e-Commerce market size will reach RMB5.830 23. page 23 of 130 Please see important disclosure information on pages 126 .BABA Initiating Coverage 27 October 2014 Chart 25: Scenario analysis of China’s e-Commerce market size Market size data (in RMB bn) Holding the total overall China retail sale market size estimate constant. Results of scenario three: assuming traditional retail sales remain flattish YoY in 2015.760 3. implied e-Commerce market size will reach RMB6. Results of scenario four: assuming traditional retail sales decline by 2% YoY in 2015.8% 37.

BABA Initiating Coverage 27 October 2014 This page is intentionally kept blank page 24 of 130 Please see important disclosure information on pages 126 .com . cmeng@jefferies.130 of this report. Cynthia Meng. Equity Analyst. +852 3743 8033.

Cynthia Meng.130 of this report.com .The Powerful E-Commerce Ecosystem Connecting Half of China page 25 of 130 Please see important disclosure information on pages 126 . +852 3743 8033. Equity Analyst. cmeng@jefferies.BABA Initiating Coverage 27 October 2014 Alibaba .

Cynthia Meng. cmeng@jefferies.BABA Initiating Coverage 27 October 2014 This page is intentionally kept blank page 26 of 130 Please see important disclosure information on pages 126 . Equity Analyst.com .130 of this report. +852 3743 8033.

its proprietary online marketing platform.S.S.4 3 eBay U.6%.98 for detail of the structure). +852 3743 8033. 87. Equity Analyst.4 7 Walmart U. Rank Company Country GMV (USD bn) 1 Alibaba China 248. 10.com. with transactions settled through Alipay. as well as international platforms AliExpress and Alibaba.8 Source: IDC as of May 2014.com.0 2 Amazon U. Source: Company data. Its ecosystem is built upon its core domestic e-Commerce platforms including Taobao. according to IDC. 116.S. marketing services provided by Alimama. 5. and data management supported by cloud computing infrastructure. Chart 26: Alibaba’s e-Commerce ecosystem Alibaba’s ecosystem is built upon its core domestic e-Commerce platforms including Taobao. 10. Chart 27: Top 10 global e-Commerce players ranked by GMV in 2013 Alibaba is the largest e-Commerce company in the world by GMV in 2013 with GMV of RMB1. marketing services provided by Alimama. Tmall and 1688.542bn (USD248bn) surpassing the combined GMV of Amazon and Ebay by 21. with transactions settled through Alipay. Tmall and 1688.com . developing itself into the biggest e-Commerce ecosystem in China. Jefferies page 27 of 130 Please see important disclosure information on pages 126 . its online payment solution.542bn (USD248bn) surpassing the combined GMV of Amazon and Ebay by 21. an independent company which Alibaba has a contractual agreement with (please refer to p. Alibaba is the largest e-Commerce company in the world by GMV in 2013 with GMV of RMB1. SME loan and Yu’e Bao is owned and operated under Small and Micro Financial Services Company.5 6 Staples U. and data management supported by cloud computing infrastructure. Alibaba started off as a B2B marketplace platform and later expanded into C2C and B2C retail business.S.com.com.3 9 MercadoLibre Argentina 7. Jefferies Note: Alipay.130 of this report. its proprietary online marketing platform. as well as international platforms AliExpress and Alibaba.0 8 Otto Group Germany 8.7 5 Rakuten Japan 16.com China 20.6%. its online payment solution. cmeng@jefferies. according to IDC.5 4 JD.S. Cynthia Meng.BABA Initiating Coverage 27 October 2014 Alibaba’s Business Model and Segment Revenue Founded in 1999.8 10 Groupon U.

BABA Initiating Coverage 27 October 2014 Alibaba’s business model can be illustrated as follows:  China commerce business (84. Taobao and Juhuasuan. with the remaining contributed by cloud computing. retail refers to AliExpress page 28 of 130 Please see important disclosure information on pages 126 .3% of Alibaba’s FY1Q15 revenue respectively. Internet infrastructure and others (mainly interest income from micro loans). Equity Analyst. Jefferies Note: Retail marketing includes Tmall.6% and 9. Source: Company data.com – largest domestic B2B platform in China  International commerce business (9. +852 3743 8033. retail commission includes Tmall and Juhuasuan Source: Company data.1% of FY1Q15 revenue)  Taobao – largest C2C platform in China  Tmall – largest B2C platform in China  Juhuasuan – a leading group buy marketplace in China o Wholesale (4.com   Cloud computing and Internet infrastructure (1. cmeng@jefferies. Jefferies Note: Wholesale refers to Alibaba.3% of FY1Q15 revenue) o Retail (2.5% of FY1Q15 revenue)  1688. Jefferies Chart 29: Alibaba’s China commerce revenue mix in FY1Q15 Chart 30: Alibaba’s international commerce revenue mix in FY1Q15 Source: Company data.com .6% of FY1Q15 revenue) o Retail (80.6% of FY1Q15 revenue) Chart 28: Alibaba’s revenue mix in FY1Q15 China and international commerce accounted for 84.3% of FY1Q15 revenue)  AliExpress o Wholesale (7% of FY1Q15 revenue)  Alibaba.mainly from micro loan interest income (4.5% of FY1Q15 revenue) Others . Cynthia Meng.com.130 of this report.

BABA
Initiating Coverage
27 October 2014
China commerce retail (94.7% of FY1Q15 China commerce revenue) –
Taobao, Tmall, Juhuasuan
Alibaba’s China commerce retail business, comprising Taobao Marketplace, Tmall and
Juhuasuan, in aggregate contributed 81.6% of Alibaba’s total revenue in FY14, and 80.1%
in FY1Q15. This includes online marketing revenue, transaction-based commission and
storefront fees. The three marketplaces generated a combined GMV of RMB1,833bn
(USD296bn) from 279mn active buyers and 8.5mn active sellers in the twelve months
ended June 30, 2014.
We estimate China commerce retail revenue to reach RMB64.8bn in FY15, +51.3% YoY,
accounting for 84.4% of total revenue, largely driven by strong growth in commission
revenue. We expect revenue to further grow 42% YoY to reach RMB92bn in FY16.

Online marketing service revenue (66.5% of FY1Q15 China commerce
retail revenue): We estimate online marketing service revenue to reach
RMB39.4bn in FY15, +32.7% YoY, accounting for 51.3% of total revenue, and
RMB50.1bn in FY16, +27.1% YoY, 47.7% of total revenue. Our estimates are
based on continued strong GMV growth partially offset by declining merchants’
advertising budget-to-GMV ratio, due to the increasing GMV contribution from
mobile on which merchants typically allocate a smaller proportion of their
budget to advertising due to limited ad slots from screen size constraints.

Commission revenue (31.9% of FY1Q15 China commerce retail
revenue): We estimate commission revenue of RMB24.5bn in FY15, +104%
YoY, representing 31.9% of total revenue, and RMB41.2bn in FY16, +68% YoY,
39.2% of total revenue. This is based on strong GMV growth of 81.5% YoY and
62.2% YoY on Tmall in the respective years, and assuming average commission
rate to grow slightly to 3.4% and 3.6% respectively.

Other revenue (1.7% of FY1Q15 China commerce retail revenue): We
estimate other revenue, mainly comprised of Wangpu storefront fees, continue
to account for a declining revenue contribution of 1.1% in FY15 and 0.6% in
FY16.

Taobao
Taobao is the largest C2C platform in China with GMV reaching RMB1.2trn in FY14,
+42.4% YoY, representing 69.9% of total China commerce retail GMV, and RMB342bn in
FY1Q15, +33.1% YoY, accounting for 68.3% of total GMV. Major product categories on
Taobao Marketplace include apparel and accessories, electronics and appliances, home
furnishings, maternity and baby products.
Basic storefront and listings on Taobao are available for free to sellers. Instead, revenue is
mainly generated through:

Pay-for-performance (P4P) and display marketing services: merchants
bid for keywords or place display ads to direct traffic to storefronts.
Taobaoke program (categorized as online marketing revenue):
merchants pay Alibaba a GMV-based commission fee for transactions settled
through Alipay from users sourced from third-party marketing affiliates.
Storefront fee: merchants who pay a RMB50 monthly subscription fee for
premium storefront software, Wangpu (“旺铺”), can get access to a suite of
store management and decoration tools, including store logo, customized
storefront, product recommendation column.

page 29 of 130

Please see important disclosure information on pages 126 - 130 of this report.

Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

BABA
Initiating Coverage
27 October 2014
Tmall
Tmall was launched in 2008 to address growing consumer demand for branded products.
GMV generated from Tmall platform reached RMB505bn in FY14, +99.6% YoY,
accounting for 30.1% of total GMV, and RMB159bn in FY1Q15, +80.7% YoY, representing
31.7% of total GMV. Major product categories on Tmall include apparel and accessories,
electronics and appliances, home furnishings, home appliances and maternity and baby
products.
Tmall’s revenue is mainly generated through:

Pay-for-performance (P4P) and display marketing services: merchants
bid for keywords or place display ads to direct traffic to storefronts.
Taobaoke program (categorized as online marketing revenue):
merchants pay Alibaba a GMV-based commission fee for transactions settled
through Alipay from users sourced from third-party marketing affiliates.
Commission revenue: sellers on Tmall are required to pay a commission
typically ranging from 0.3% to 5% of GMV for transactions settled through
Alipay depending on the product category.

Successful execution of cross-border business development will provide upside to Tmall’s
revenue in the long term.
Juhuasuan
Launched in 2010, Juhuasuan is China’s most popular group buying marketplace by
MAUs in 2013, according to iResearch. GMV generated from traffic through Juhuasuan
reached RMB58.2bn (USD9.4bn) in FY14. Operated on a flash sales model, Juhuasuan
allows sellers, majority of which are Tmall merchants, to sell products at a discounted
price for a limited period of time. Major product categories on Juhuasuan include apparel
and accessories, electronics and appliance, home appliance products, beauty and health
product and home furnishings.
Juhuasuan’s revenue is mainly generated through:

Placement revenue: merchants pay placement fees to purchase promotional
slots on Juhuasuan marketplace for a specified period;
Commission revenue: sellers on Juhuasuan are required to pay a commission
typically ranging from 0.3% to 5% of GMV for transactions settled through
Alipay depending on the product category.

China commerce wholesale (5.3% of FY1Q15 China commerce revenue)
1688.com
1688.com is a leading online wholesale marketplace in China connecting Chinese
wholesalers, suppliers or distributors with buyers, majority of which are merchants on
Taobao and Tmall marketplaces.
Revenue of 1688.com is primarily generated through:
Membership fee revenue: domestic manufacturers or distributors subscribe
for the China TrustPass membership on 1688.com to host premium storefronts,
with access to basic analytic applications and upgraded storefront management
tools.

Value-added service revenue: merchants pay Alibaba for value-added
services such as premium data analytics.

Pay-for-performance (P4P) marketing service revenue: merchants can
also bid for keywords that appear on search results of 1688.com.
We estimate China wholesale revenue to reach RMB3.1bn in FY15, +35.3% YoY,
accounting for 4.1% of total revenue, and RMB3.8bn in FY16, +22.8% YoY, 3.6% of total

page 30 of 130

Please see important disclosure information on pages 126 - 130 of this report.

Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

BABA
Initiating Coverage
27 October 2014
revenue. This is mainly supported by solid growth of marketing revenue as well as paying
members subscribing to China TrustPass.
International commerce
commerce revenue)

wholesale

(75.6%

of

FY1Q15

international

Alibaba.com (international B2B)
Launched in 1999, Alibaba.com is the first online commerce platform and China’s largest
global online wholesale marketplace by revenue in 2013, according to iResearch. Sellers
on Alibaba.com are typically manufacturers and distributors based in China and other
manufacturing countries such as India, Pakistan, the US and Japan. Buyers are generally
SMEs engaged in the import and export business, trade agents, and wholesalers, retailers
and manufacturing companies.
Revenue of Alibaba.com is primarily generated through:

Membership fee revenue: global manufacturers or distributors subscribe for
the Gold Supplier membership on Alibaba.com to host premium storefronts,
with product listings on the marketplace.
Value-added service revenue: merchants pay Alibaba a value-added service
fee for import/export business solutions such as product showcase, custom
clearance and value-added tax refund.
Pay-for-performance (P4P) marketing service revenue: merchants can
also bid for keywords that appear on search results of Alibaba.com.

We estimate international wholesale revenue to reach RMB4.7bn in FY15, +20.5% YoY,
representing 6.1% of total revenue, mainly supported by growth in number of paying
members.
International commerce retail (24.4% of FY1Q15 international commerce
revenue)
AliExpress
Launched in 2010, AliExpress is a global consumer marketplace that allows Chinese
manufacturers and exporters to reach overseas consumers, including Russia, Eastern
Europe and South America.
Revenue of AliExpress is primarily generated through:

Commission revenue: sellers on AliExpress are required to pay a 5%
commission fee based on GMV settled through Alipay.
Third-party marketing affiliate program: merchants pay Alibaba a fee in
addition to the 5% commission for transactions settled through Alipay from
users sourced from third-party marketing affiliates.

We estimate international retail revenue to reach RMB1.8bn in FY15, +96.9% YoY,
representing 2.4% of total revenue, driven by solid growth in both commission and
marketing revenue, assuming a stable commission rate of 5%.

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Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

We expect the company to continue pursuing suitable M&A opportunities in the strategic areas of mobile commerce. For a more detailed summary of Alibaba’s M&A investments. please refer to p.1%) P4P) (25.com 1688.3%) Third-party marketing (20.7%) Membership fee Online marketing (mainly (87. Autonavi in O2O area.5%) Tmall Juhuasuan Taobao Wholesale B2B (5.9%) 1688.com .2%) Retail B2C (19.6%) P4P) (12. international expansion.1%) Storefront fee (2.5%) AliExpress Commission (79. cmeng@jefferies.com Alibaba.4%) Tmall Taobao Juhuasuan Commission (28.5%) Others . rural penetration and expansion into new verticals of products and services.5%) AliExpress Wholesale B2B (80.130 of this report.BABA Initiating Coverage 27 October 2014 Chart 31: Alibaba’s monetization model (as of FY14A) China commerce revenue (86%) Retail B2C (94. Jefferies M&A strategies To enhance user engagement and capture new growth opportunities.3%) Source: Company data. Alibaba has been actively pursuing M&A activities. +852 3743 8033. Sina Weibo on the mobile front.com International commerce revenue (9.mainly from interest revenue in SME loan business (3. Equity Analyst.com Cloud computing and Internet infrastructure (1. etc.4%) Alibaba. Cynthia Meng. such as Youku Tudou in the digital entertainment category. page 32 of 130 Please see important disclosure information on pages 126 .9%) Online marketing (69.120.1%) Membership fee Online marketing (mainly (74.

BABA
Initiating Coverage
27 October 2014

A Strong Self-reinforcing Network Effect
Alibaba, the largest e-Commerce ecosystem in China, has an overall online shopping (B2C
+ C2C) market share of 80.7% in 1H14, according to iResearch. Consumers, merchants
and third-party service providers, including marketing affiliates and logistics partners,
participate in Alibaba’s huge ecosystem to buy products, source materials and do
business, hence creating a strong self-reinforcing network effect.
Alibaba mainly monetizes through online marketing and commission revenue from its
three China commerce retail marketplaces including Taobao, Tmall and Juhuasuan, which
in aggregate accounted for 82% of FY14 revenue, and 80% of FY1Q15 revenue. We
currently estimate China commerce retail revenue to reach RMB64.8bn in FY15, +51.3%
YoY, accounting for 84.4% of total revenue, largely driven by strong growth in
commission revenue. We expect revenue to further grow 42% YoY to reach RMB92bn in
FY16.
In this section, we discuss the following:
1.

We expect to see increasing GMV contribution from Tmall, the leading B2C
player in China with 57.3% market share in 2Q14, given rising consumer
demand for product quality, after-sales services and increasing promotional
efforts by brands. Higher priority of Tmall products over Taobao in search result
listing, regardless of initial login site, also helps increase Tmall merchants’
exposure among consumers. We see the increasing GMV contribution from
Tmall as positive for driving continuous revenue growth and PC monetization
rate given that merchants have to pay transaction-based commission in addition
to online marketing fees.

2.

Taobao’s C2C model allows individuals and small enterprises, particularly in
lower tier cities, to offer a wide diversity of competitively priced products
through their online stores, hence generating huge user traffic and high user
stickiness. Alibaba recently announced a rural expansion plan to meet the
underserved demand in rural areas which only accounted for 8.3% of Taobao
GMV in 2Q14.

3.

Juhuasuan, the largest online group buying marketplace in China, will shift
towards a high-end brand-focused flash sales model. We believe successful
execution of the flash sales business will depend on Juhuasuan’s ability in
bringing aboard well-known brands and monitoring product quality.

4.

1688.com, Alibaba’s leading domestic B2B platform, serves as a wholesale
sourcing channel for Taobao and Tmall merchants and hence, drives synergies
across its wholesale and retail marketplaces.

5.

Alimama, Alibaba’s proprietary online marketing platform, offers pay-forperformance (P4P) marketing, display advertising and Taobaoke program
(display ads on third-party affiliate partners’ websites) through the Taobao Ad
Network and Exchange (TANX). We expect advertising revenue growth to
moderate given increasing GMV contribution from mobile on which merchants
typically allocate a smaller proportion of their budget to advertising due to
limited ad slots given screen size constraints. Enhancing mobile-based marketing
products will help narrow the CPC gap between PC and mobile over time.

page 33 of 130

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Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

BABA
Initiating Coverage
27 October 2014

A Strong Self-reinforcing Network Effect
Clear leadership in China’s e-Commerce market
China commerce retail revenue, including commission, online marketing and storefront
fee, reached RMB42.8bn in FY14, +58.8% YoY, representing 81.6% of Alibaba's total
revenue, and RMB12.6bn in FY1Q15, +45.8% YoY, 80.1% of total revenue. This is
attributed to the strong GMV growth across marketplaces, including 33.1% and 80.7%
YoY growth on Taobao and Tmall respectively in FY1Q15, mainly driven by increasing the
number of active buyers to 279mn in the twelve months ended June 30, 2014, +51% YoY.
Total GMV reached RMB1.7trn in FY14, +55.8% YoY (or RMB1.5trn in CY13, +60.5% YoY),
implying an overall online shopping market share of 81.5% in 2013, up 0.5pcpt YoY.
1H14 GMV reached RMB931bn, implying an overall market share of 80.7%, down 0.8%.
Chart 32: China’s overall online shopping market share (2013 vs. 1H14)
Alibaba’s total GMV reached
RMB1.5trn in CY13, +60.5% YoY (or
RMB1.7trn in FY14, +55.8% YoY),
implying an overall online shopping
market share of 81.5%, up 0.5pcpt
YoY.
1H14 GMV reached RMB931bn,
implying an overall market share of
80.7%.

Source: Company data, iResearch, Jefferies
A strong self-reinforcing network effect
In our view, the huge user base and strong network effort enables Alibaba to secure
dominant leadership in China’s e-Commerce market. As of June 30, 2014, Alibaba has an
active buyer base of 279mn, 7x that of JD’s 38mn and a far distance ahead of other eCommerce players. Alibaba’s well-established presence in B2C, C2C and B2B markets and
the interactions between buyers and sellers across these marketplaces generates a strong
self-reinforcing network effect. The large merchant pool of Alibaba’s marketplaces
generates huge user traffic which in turn attracts more merchants onto the platforms. We
see this as Alibaba’s core competence and key competitive edge.

As of June 30, 2014, Alibaba has an
active buyer base of 279mn, 7x that
of JD’s 38mn and a far distance
ahead of other e-Commerce players.

Chart 33: No. of active buyers across major e-Commerce players in China (as
of June 30, 2014)

Source: Company data. Note: Alibaba’s active buyer base represents those on its China
commerce retail business (Tmall, Taobao, Juhuasuan)

page 34 of 130

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Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

BABA
Initiating Coverage
27 October 2014
Chart 34: Alibaba’s self-reinforcing network effect
Alibaba’s well-established presence
in B2C, C2C and B2B markets and
the interactions between buyers and
sellers across these marketplaces
generates a strong self-reinforcing
network effect. The large merchant
pool of Alibaba’s marketplaces
generates huge user traffic which in
turn attracts more merchants onto
the platforms.

Source: Company data
Taobao – competitive pricing and product diversity creates high stickiness
Taobao is the largest C2C platform in China with a dominant market share of 97.6% in
2013, up 1.5pcpt YoY. GMV reached RMB1.1trn in CY13, +47.6% YoY, accounting for
71.4% of total GMV, or RMB1.2trn in FY14, +42.4% YoY, representing 69.9% of total
GMV.
Chart 35: China’s C2C market share by GMV (2013 vs. 1H14)

Taobao is the largest C2C platform
in China with a dominant market
share of 97.6% in 2013, up 1.5pcpt
YoY.

Source: Company data, iResearch, Jefferies
Taobao’s free C2C model and easy-to-use storefront management tools facilitate
individuals and small businesses who have limited capital and resources to set up their
virtual stores. Cost of entry is low as no annual service fee or transaction-based
commission fee is charged on the platform, allowing Taobao merchants to offer a large
variety of competitively-priced products. Sellers who would like to upgrade to premium
storefront settings and management tools can subscribe for Wangpu with an affordable
monthly fee of RMB50.
Taobao’s value proposition of competitive pricing and large product diversity generates
high consumer stickiness. According to a survey conducted by CNNIC in 2013, 84.4% and
71.1% of repeat purchase customers on Taobao are attracted by its rich product selection
and bargain pricing respectively.

page 35 of 130

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Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

Source: CNNIC.1% of total GMV.1% of repeat purchase customers on Taobao are attracted by its rich product selection and bargain pricing respectively. 173. where offline retail infrastructure is scarce and less developed. audio and video communication between buyers and sellers. According to AliResearch.BABA Initiating Coverage 27 October 2014 Chart 36: Top factors driving repeat purchase on Taobao Marketplace (2013) According to a survey conducted by CNNIC in 2013.4% and 71.8trn in FY16. 2014. Chart 37: Taobao GMV estimates (fiscal year) Chart 38: Taobao GMV estimates (calendar year) Source: Company data. 54. particularly buyers in lower tier cities. also help enhance consumer stickiness in the Taobao community.5mn sellers. The low cost of entry also attracts large number of merchants in lower tier cities to establish an online presence through Taobao. 4. representing 62. 2014. and RMB1. an online instant messenger that facilitates text.6% YoY. Jefferies estimates Deepening penetration in lower tier cities and rural areas Taobao’s customer reach spreads across all income classes. were located outside of tier-1 and 2 cities during the twelve months ended June 30. 84. according to the company. We currently estimate Taobao’s GMV to reach RMB1.3mn active buyers. 2013. there were approximately 20 Taobao Villages in China as of Nov 30. or approximately 62% of all active buyers on Alibaba’s China retail marketplaces. Jefferies estimates Source: Company data. cmeng@jefferies.5% of total GMV. +852 3743 8033. +28%. Jefferies Features such as Aliwangwang. +18.130 of this report. Equity Analyst. page 36 of 130 Please see important disclosure information on pages 126 . or approximately 52% of total active sellers on Alibaba’s China retail marketplaces.com . were located outside of tier-1 and 2 cities during the twelve months ended June 30. Cynthia Meng.5trn in FY15. Taobao Villages are defined as rural areas with at least 10% of households being independently involved in e-Commerce on Taobao and generate a total GMV of over RMB10m.

+852 3743 8033. Alibaba announced the launch of its rural expansion plan named “Qian Xian Wan Cun ( 千县万村). according to AliResearch. extending its eCommerce network coverage to 1/3 of counties and 1/6 of villages in China. Jefferies Tmall – a revenue growth engine Tmall was launched in 2008 to address growing consumer demand for branded products. according to AliResearch. Jefferies Source: iResearch as of Aug 2014. Alibaba plans to expand into rural areas through enhancing logistics and delivery services in these areas. 2. page 37 of 130 Please see important disclosure information on pages 126 .6x that of RMB180bn in 2014. According to iResearch.3% of total GMV on the Taobao marketplace in 2Q14.com .BABA Initiating Coverage 27 October 2014 During the 1st ZheJiang Country-level E-Commerce Summit held on Oct 13th 2014. sellers and third-party service providers.130 of this report. Equity Analyst. Chart 41: China’s B2C market share by GMV in 2013 (including platform) Chart 42: China’s B2C market share by GMV in 2Q14 (including platform) Source: iResearch as of Jan 2014. Jefferies Note: Tencent and JD deal took place in March 2014. Alibaba will invest RMB10bn in building 1K county-level operation centers and 100K village service stations. China’s rural e-Commerce market is expected to reach RMB460bn in 2016.3% market share in 2013 and 2Q14 respectively. Cynthia Meng. Growing disposal income and fragmented offline retail infrastructure drives potential upside for rural e-Commerce penetration. Tmall is the largest B2C market player in China with 57. Chart 39: Taobao GMV contribution from rural areas Chart 40: China’s rural e-Commerce market size estimates Source: AliResearch as of Oct 2014. cmeng@jefferies. Jefferies Source: AliResearch as of Oct 2014. In the next three to five years. enabling transactions of agricultural and consumer products between rural and urban residents.7% and 57. acquiring more buyers. Rural area is still in the early stage of e-Commerce development as rural GMV only accounted for 8.

Nike. including Apple. Panasonic. Annual technical service fee: Tmall charges an annual technical service fee typically in the range of RMB10K-60K depending on the product category. depending on the type of products and storefronts. The well-built ecosystem and seamless shopping experience. A flagship or specialty store owner with a TM and R trademark is required to pay RMB100K and RMB50K respectively. Gap.    Deposit: a deposit must be paid upfront for reimbursing consumers if the merchant is found to have sold counterfeit products. cmeng@jefferies. +852 3743 8033. Cross-promotion across Taobao and Tmall Tmall’s huge traffic and user base has attracted increasing number of both domestic and international brands to choose Tmall as the channel to build online presence. whereby buyers who search on Taobao will automatically see Tmall shops included in the product listing results. allows Tmall sellers to leverage on the internal traffic flow across the two marketplaces for more effective customer acquisition and cross-promotion opportunities. Lacoste. Chart 43: Monthly active user trends of B2C websites in China Chart 44: Page view trends of B2C websites in China Note: MAUs of other B2C websites are negligible on scale to label. Equity Analyst. etc.000 brands on the platform.3% to 5% of GMV for transactions settled through Alipay depending on the product category.130 of this report. Tmall has over 110. Commission fee: sellers on Tmall are required to pay a commission typically ranging from 0. This platform fee is refundable (either 50% or in full) to merchants provided that they reach a predefined sales target set by Tmall for the products.BABA Initiating Coverage 27 October 2014 There are three types of store structures on Tmall:    Flagship store (“品牌旗舰店”): for brands with a trademark (either ® or ™) ownership Authorized store (“ 专 卖 店 ”): for merchants who have been granted distribution rights to sell products without geographical restrictions in the Greater China region. Currently. while a RMB150K and RMB100K deposit fee is mandatory for a monopolized store owner with a TM and R trademark respectively.com . as proven by brand authorization document holding Speciality store (“专营店”): for merchants who have two or more brands within one of Tmall’s product categories Tmall merchants must be authenticated and pay a deposit. Jefferies Note: PVs of other B2C websites are negligible on scale to label. Source: iResearch as of Oct 2014. Cynthia Meng. annual technical service fee and transaction-based commission fee. Source: iResearch as of Oct 2014. Jefferies page 38 of 130 Please see important disclosure information on pages 126 .

000/60.5% 10.000 2%/up to RMB100 per order 15.000 0%/2%/3% 30.000 Cosmetics & beauty products 4% 30.000 Local lifestyle service 0.000/300. baby products & toys 0. Juhuasuan and AliExpress that is settled through Alipay as well as product mix. including apparel.000 Shoes and handbags 5% 60. Higher gross margin products such as apparels are charged a higher commission rate of 5% compared to 2% in consumer electronics which typically have a lower margin. as well as virtual goods such as game cards and pre-paid phone cards.000 2%/5% 30.000 Nutritional and medical products 3% 30. Commission rate Annual technical service fee Apparel 5% 30. 2014. cmeng@jefferies.5% 10. compared to 78.5%/5% 30. according to our estimates.1% of Alibaba's China retail commerce GMV was settled through Alipay in the twelve months ended June 30. according to Analysys International.000 3C 2% 30.3%/0. home appliance.3% in FY14. Commission rate varies across product categories in the range of 0. For example.000 Sports and outdoors 5% 60. 78.000 0. Jefferies We see improving blended commission rate from 3% in FY14 to 3.000 Books & audible 2% 30.3% and 54. Jefferies page 39 of 130 Please see important disclosure information on pages 126 .000 2%/5% 30.000/60.000/60.5% 30.BABA Initiating Coverage 27 October 2014 Increasing Tmall GMV and more favorable product mix drives commission Commission revenue is mainly driven by transacted GMV on Tmall. Tmall secures leadership in both apparels and mother & baby products with 74. Jefferies Source: Analysys International as of July 2014. Cynthia Meng. Equity Analyst. Higher gross margin products such as apparels are charged a higher commission rate of 5% compared to 2% in consumer electronics which typically have a lower margin.000 Home appliance Game cards Pre-paid phone cards Online travel Source: Company data. Chart 46: China’s B2C market share by GMV in 2Q14 – Apparels Chart 47: China’s B2C market share by GMV in 2Q14 – Mother & baby products Source: Analysys International as of July 2014.3% in FY1Q15. benefitting from a more favorable category mix towards high margin products.000 0. Chart 45: Commission rate by product categories on Tmall Tmall categories There are 20 level 1 product categorise sold on Tmall categories.000 Home furniture & decoration 2%/5% 30.130 of this report.000 Musical instrument 2% 30.000 Auto & accessories Electronic ticket vouchers Household goods Mother.2% market share in 2Q14 respectively.000 2.000/600.5%/2% 30.3-5% but is identical across PC and mobile.000/60.000 Food 2% 30.com . +852 3743 8033.000 Jewellery & accessories 5% 60.000/700.

We expect continued strong growth of Tmall's GMV given rising consumer demand for product quality. For Taobao. driven by strong growth of Tmall's GMV and lottery commission income generated from Taobao during the World Cup in June 2014. or RMB505bn in FY14.1% YoY. In our view. no reasons asked. Professional service: It is easier to communicate with several customer care staff hired by retailers on Tmall regarding the return & exchange and after sale service. +95.1% of total GMV. Equity Analyst. 7-day return/15-day exchange: shopping on Tmall enables customers to return products due to subjective reasons within 7 days upon receiving the products or exchange goods within 15 days. Alibaba’s China PC commerce retail monetization rate was 3. and 2. Jefferies page 40 of 130 Please see important disclosure information on pages 126 .com . Tmall merchants generally pay marketing service fees for their products to be displayed on Taobao Marketplace and Tmall. after-sales services and increasing promotional efforts by brands. and RMB4bn in FY1Q15.1% YoY. the average amount of revenue generated from each Tmall merchant is much higher than that from a Taobao merchant.1% YoY.6% YoY. consumers choose Tmall over Taobao Marketplace for the following reasons:       Top search results: When people search on Taobao Marketplace. accounting for 30.2% YoY. Rising monetization rate. Quality guaranteed: Goods on Tmall usually enjoy guarantee as sellers on Tmall are established brands or large retailers while sellers on Taobao marketplace are usually individuals. defined as revenue divided by GMV. We estimate Tmall's GMV to reach RMB917bn in FY15. This implies a rising GMV contribution from Tmall of 37. cmeng@jefferies. products on Tmall are prioritized ahead of goods from Taobao Marketplace in the listing. Authenticity: All Tmall merchants must guarantee that the products that they sell on Tmall are authentic.5% YoY. up from 30. compared individual sellers (usu. +852 3743 8033.6% of total China commerce retail GMV. +114. Cynthia Meng.5% of total revenue.5% in FY15 and FY16 respectively.03% in FY1Q15. representing 28. Consumer credit facilities: Tmall has consumer credit facilities in place allowing consumers to pay by installments at zero interest.77% in FY1Q14.487bn in FY16. One person) on Taobao Marketplace. 25.9% of total revenue. certain merchants (not all) allow 7-day return with some restrictions attached.BABA Initiating Coverage 27 October 2014 Commission revenue reached RMB12bn in FY14.9% and 45. is driven by increasing GMV and revenue contribution from Tmall. In addition to commissions. GMV generated from Tmall platform reached RMB441bn in CY13.130 of this report. Therefore. Users who click on Tmall products are automatically directed to Tmall regardless of initial login site. representing 22. +81.94% in FY14. Jefferies Source: Company data. +62. +105.1% in FY14. up from 2. +99. Chart 48: China PC commerce retail monetization rate (fiscal year) Chart 49: China PC commerce retail monetization rate (calendar year) Source: Company data. and further to RMB1.

benefiting from increasing GMV contribution from higher-margin product categories on Tmall Global (for purchase of imported overseas products for Chinese consumers). Chart 50: Tmall’s GMV trend (fiscal year) Chart 51: Tmall’s GMV trend (calendar year) Source: Company data. a day that is known as “Singles Day” in China during which major e-Commerce players compete by rolling out heavy discounts. +104% YoY. Jefferies estimates Source: Company data. 2009.130 of this report. Jefferies estimates Expect 50% YoY GMV growth on 2014 Singles Day (Nov 11th) promotion Alibaba started launching an annual promotional campaign on Nov 11th.5% YoY. Jefferies estimates Source: Company data. +852 3743 8033. +89.6% in FY15 and FY16. Assuming that 78% of Tmall’s transactions are settled through Alipay. in FY16. Based on our channel checks. we currently estimate commission revenue of RMB24. +68% YoY.BABA Initiating Coverage 27 October 2014 We currently estimate a blended Tmall commission rate of 3. Equity Analyst. Alibaba set record-breaking numbers last year with Taobao and Tmall GMV in aggregate reaching RMB36. shoes and accessories. Cynthia Meng.5bn in FY15. we believe GMV is expected to surpass RMB50bn on the upcoming 2014 Singles Day with 50% YoY growth.2bn. health and beauty products.2bn on Nov 11th.4% and 3. and RMB41. cmeng@jefferies. such as apparels.com . page 41 of 130 Please see important disclosure information on pages 126 . Jefferies estimates Chart 52: Commission revenue trend (fiscal year) Chart 53: Commission revenue trend (calendar year) Source: Company data.

scenic spot tickets as well as Visa application services. Events on Zhengjianju are generally limited within 24 hours. Equity Analyst.6% of China commerce retail GMV. or top 500 merchants in terms of quarterly transaction volume via Alipay on Global Taobao marketplace. Group buying for travel services (“旅游团”): Major categories include domestic and outbound travel package. mainly through flash sales which make products available for a limited period of time. launched in 2010. we believe GMV is expected to surpass RMB50bn on the upcoming 2014 Singles Day with 50% YoY growth. was the largest online group buying marketplace in China in terms of MAU in 2013. Major categories include local lifestyle services. accounting for 3. Jefferies estimates Juhuasuan – shifting gear from group buy to brand-based flash sales Juhuasuan. Only Taobao and Tmall merchants are allowed to purchase promotional slots on Juhuasuan. GMV generated from traffic through Juhuasuan is recorded as either Taobao Marketplace GMV or Tmall GMV depending on which of these two marketplaces the transaction is completed. Source: Company data.6bn) in the twelve months ended June 30. Based on our channel checks. cmeng@jefferies. Each merchant is required to display 5-30 products on Zhengdianju. It offers products at discounted prices by aggregating demand from numerous consumers. Merchants are required to display at least 6 products during each event.6bn (USD10. Juhuasuan contains several channels including:      Group buying for branded products (“ 品 牌 团 ”): for established international and domestic brands with over three months of operation on Tmall. hotel reservation and education courses. Group buying for lifestyle services (“生活汇”): for Tmall merchants with over one month of operation as well as Taobao merchants with high recommendation history.130 of this report. Cynthia Meng. as well as Taobao merchants in the cosmetics category with high customer recommendation history on products. GMV generated from traffic through Juhuasuan was RMB65. after-sales and delivery services. Group buying for high-end brands (“聚名品”): for top 300 merchants ranked by quarterly transaction volume via Alipay on Tmall. and transactions from traffic originated on Juhuasuan are completed on merchants’ storefronts on Taobao Marketplace or Tmall.2bn on Nov 11th. +89. hotel reservation. such as restaurant coupon.BABA Initiating Coverage 27 October 2014 Chart 54: Alibaba’s China commerce retail GMV transacted on annual Nov 11 Singles Day promotions Alibaba set record-breaking numbers last year with Taobao and Tmall GMV in aggregate reaching RMB36.5% YoY.com . +852 3743 8033. according to iResearch. Group buying events on this channel typically last for two days. 2014. Therefore. page 42 of 130 Please see important disclosure information on pages 126 . Zhengdianju (“ 整 点 聚 ” ): for merchants with high customer recommendation history and over three months of operation.

Current product offerings are concentrated in apparels. deposit=RMB300K.com and Vipshop Juhuasuan ‘s new brand sales channel. Merchants on Juhuasuan platform can choose to pay fixed deposit. Refundable 30 days after the -RMB300K≤GMV<RMB1mn. Current product offerings are concentrated in apparels.com . Deposit Terms Refunds Fixed deposit RMB500K Refundable after 12 months Pro-rata deposit After-sale insurance -GMV<RMB100K. Commission fee: sellers on Juhuasuan are required to pay a commission typically ranging from 0.3% to 5% of GMV for transactions settled through Alipay depending on the product category. deposit=GMV.tmall. Juhuasuan will shift away from its current mass-market group buy model to a high-end brand-focused flash sales model. 3C. features 15-20 flash sales events with 3 new events starting at 10:00am every day. imported food.tmall. pro-rata deposit. shoes and bags as well as accessories of domestic brands.com. Cynthia Meng. depending on the type of products and storefronts. shoes and bags. deposit=RMB100K. cosmetics. food and nutritional. Not refundable up to RMB1. of sales events per day 15-20 100-200 Product categories Women's and men's apparels. Jefferies page 43 of 130 Please see important disclosure information on pages 126 . Chart 32: Comparison between ladygo. prorata deposit. Jefferies   Placement fee: merchants pay placement fees to purchase promotional slots on Juhuasuan marketplace for a specified period. home décor. household goods. -RMB100K≤GMV<RMB300K. completion of group buy events -GMV≥RMB1mn. features 15-20 flash sales events with 3 new events starting at 10:00am every day. Qualified Juhuasuan merchants are required to pay a deposit.BABA Initiating Coverage 27 October 2014  Group buying for general merchandise (“量贩团”): Major categories include laundry services. mother & baby products. ladygo. We believe successful execution of the flash sales business will depend on Juhuasuan’s ability in bringing aboard well-known brands and monitoring product quality.  Deposit: a deposit must be paid upfront for reimbursing consumers if the merchant is found to have sold counterfeit products. or after-sale insurance for product quality guarantee. +852 3743 8033. Equity Analyst. Source: Company data. Metrics Ladygo.com Vipshop No. Its new brand sales channel. sporting goods. cmeng@jefferies. ladygo. deposit=RMB500K.3% of pro-rata deposit as insurance fee. shoes and bags. Merchants pay 0.com.130 of this report.500.tmall. accessories Women's and men's apparels.tmall. shoes and bags as well as accessories of domestic brands. Chart 32: Deposit options on Juhuasuan platform Merchants on Juhuasuan platform can choose to pay fixed deposit. placement fee and transaction-based commission fee. underwear and accessories. food Brands Mainly domestic Delivery Free shipping on order size over RMB268 Free shipping on order size over RMB288 Product return 7-day return with full reimbursement of shipping fee Domestic and international 7-day return with RMB10 credit rebate Source: Company data. accessories. or after-sale insurance for product quality guarantee.

the majority of which are retail merchants on Taobao and Tmall marketplaces. representing 4. Chart 55: China’s B2B market share in 2013 According to Analysys International.com .1% of its revenue in FY14 with the rest contributed by premium data analytics and online marketing service. Source: Analysys International as of Feb 2014. 1688.com – wholesale sourcing channel for retail merchants 1688.8% YoY. Jefferies estimates Source: Company data.130 of this report. Jefferies estimates page 44 of 130 Please see important disclosure information on pages 126 . +852 3743 8033.com has evolved into a transaction platform between wholesalers and buyers. and retail merchants to gain access to a more cost-effective direct sourcing channel. Cynthia Meng. Chart 56: Domestic wholesale revenue trend (fiscal year) Chart 57: Domestic wholesale revenue trend (calendar year) Source: Company data. Alibaba (alibaba.com drives synergy between its wholesale and retail marketplaces. cmeng@jefferies.4% market share in 2013.5% of revenue. and RMB3. 2013.4% of total revenue and RMB709mn in FY1Q15.7% YoY accounting for 4. enabling manufacturers to shorten the distribution chain.com is a leading online wholesale marketplace in China. mainly monetized through China TrustPass membership fee accounting for 74. +4. Jefferies Alibaba’s domestic wholesale revenue reached RMB2.3% YoY.1bn in FY15. Approximately 50%-60% of total orders on 1688.com and 1688. Equity Analyst.1% of total revenue. accounting for 4. We expect 1688. driven by increasing number of paying members and rising adoption of online marketing services. +34.3bn in FY14. according to TechWeb.com were contributed by Taobao and Tmall merchants as of Dec 31. 1688. 3.BABA Initiating Coverage 27 October 2014 1688.709 sub-verticals. With a wide coverage of 49 verticals and 1.com to remain as the major wholesale sourcing channel for Alibaba’s retail merchants and currently estimate domestic wholesale revenue to reach RMB3.6% of total revenue.8bn in FY16. +22.com combined) accounted for 46.8% YoY. +35.

The Taobao Ad Network and Exchange The Taobao Ad Network and Exchange (TANX ADX). according to iResearch.com . This is all conducted through the Taobao Ad Network and Exchange (TANX ADX). cmeng@jefferies.BABA Initiating Coverage 27 October 2014 Leading advertising platform with comprehensive product portfolio Alibaba is one of the largest advertising platforms in China and was ranked no. one of the earliest and largest realtime online advertising exchanges in China. enables transparent pricing of advertising inventory. driven by strong traffic acquisition demand from its merchants. iResearch as of July 2014. according to iResearch.2 behind Baidu in terms of online advertising revenue in 2Q14. driven by strong traffic acquisition demand from its merchants. +852 3743 8033. Equity Analyst. Chart 58: Top 10 players ranked by online advertising revenue (2Q14) Alibaba is one of the largest advertising platforms in China and was ranked no. particularly during promotional campaigns. Alimama is Alibaba’s proprietary online marketing platform offering pay-for-performance (P4P) marketing services (including Wangxiaobao on wholesale marketplace). Cynthia Meng. page 45 of 130 Please see important disclosure information on pages 126 . Participants on TANX include publishers. Source: Company data. third-party data and technology companies. Diamond Showcase (i. and helps to optimize online marketers’ return on investment.130 of this report. Jefferies Launched in 2007. demand side platforms.e. merchants.2 behind Baidu in terms of online advertising revenue in 2Q14. particularly during promotional campaigns. display marketing) and Taobaoke program.

or P4P marketing service on Taobao and Tmall marketplace. or diamond showcase. advertisers could place ads more precisely and efficiently. page 46 of 130 Please see important disclosure information on pages 126 . (4) External DSP refers to P4P marketing service on e-Tao platform. Jefferies Note: (1) SSP refers to supply side platform.com .130 of this report. Yougou can place ads on it. which allows advertisers on TANX to evaluate and select online adverting inventory using both behavioural data as well as browsing behaviour and shopping history.com. by which ad inventory is bought and sold via programmatic instantaneous auction. SNS communities. Supply side mainly consists of Portals. through which third-party e-Commerce websites such as JD. a technology platform that enables publishers to manage advertising inventory and monetize traffic efficiently. Equity Analyst.BABA Initiating Coverage 27 October 2014 Chart 59: Overview of Alibaba’s online marketing ecosystem Source: Company data. +852 3743 8033. Cynthia Meng. Internal DSP includes pay-for-performance. blogs and other websites. vertical websites. Through which. cmeng@jefferies. a technology platform that enables advertisers to bid for targeted users with selected region. Wangxiaobao (“网销宝”) and display marketing service. (2) RTB refers to real-time bidding. (3) DSP refers to demand side platform. (5) DMP refers to data management platform.

marketing services.BABA Initiating Coverage 27 October 2014 Pay-for-performance Pay-for-performance.130 of this report. Jefferies page 47 of 130 Please see important disclosure information on pages 126 . customer profile.com . where retail marketplace sellers bid for keywords that match product or service listings appearing in search or browser results on a cost-per-click (CPC) basis. Cynthia Meng. ad display time during the day. +852 3743 8033. interest. Merchants are able to carry out targeted marketing based on location. cmeng@jefferies. Equity Analyst. Chart 60: Screenshot of Alibaba Group’s P4P service on Taobao Marketplace Source: Company data. Prices are set by merchants through an online auction system. or P4P. etc. PC/mobile terminal. P4P marketing services are provided on both marketplaces and websites of third-party marketing affiliates.

Cynthia Meng. or display marketing. cmeng@jefferies. where sellers can bid for display positions on the relevant marketplace or through third-party marketing affiliates at through the online auction system on a cost-per-mille or CPM basis. Chart 61: Screenshot of Alibaba Group’s Diamond Showcase ads on China retail marketplace Source: Company data. +852 3743 8033.com .130 of this report.BABA Initiating Coverage 27 October 2014 Diamond Showcase Diamond Showcase (“钻石展位”). Jefferies page 48 of 130 Please see important disclosure information on pages 126 . Equity Analyst.

the commission rate is set by Taobao merchants in the range of 1. 90% is paid to publishers with the remaining 10% paid to Alimama as platform service fees.130 of this report. Chart 62: Screenshot of Taobaoke Ads placed on third-party affiliate website Source: Company data. +852 3743 8033. a significant portion of which is then shared with the participating affiliates. sellers on Taobao Marketplace and Tmall place P4P marketing and marketing displays on websites and mobile apps of Alibaba’s marketing affiliates. Sellers pay Alibaba commissions based on a percentage of GMV for transactions settled through Alipay. According to the company.BABA Initiating Coverage 27 October 2014 Taobaoke Program Through Taobao Affiliate Network. Jefferies page 49 of 130 Please see important disclosure information on pages 126 . cmeng@jefferies.5% to 50%.com . Of this commission payment. Cynthia Meng. Equity Analyst.

cmeng@jefferies. +852 3743 8033. Jefferies page 50 of 130 Please see important disclosure information on pages 126 . Chart 63: Screenshot of Alibaba Group’s WangXiaoBao ads on China wholesale marketplace Source: Company data. Equity Analyst.BABA Initiating Coverage 27 October 2014 Wangxiaobao Wangxiaobao (“ 网 销 宝 ”) is a pay-for-performance marketing service which allows wholesale marketplace sellers to bid for keywords that match product or service listings appearing in search or browser results on a cost-per-click (CPC) basis through online auction system. Cynthia Meng.130 of this report.com .

Cynthia Meng. Jefferies page 51 of 130 Please see important disclosure information on pages 126 . +852 3743 8033. cmeng@jefferies.130 of this report.BABA Initiating Coverage 27 October 2014 Juhuasuan Promotional Slot Juhuasuan (“ 聚 划 算 ”) promotional slots: sellers pay placement fees to purchase promotional slots on Juhuasuan marketplace for a specified period.com . Equity Analyst. Chart 64: Screenshot of Alibaba Group’s ads placement on Juhuasuan platform Source: Company data.

3% of total revenue. Equity Analyst. and RMB50. accounting for 47.1bn in FY16.68% in FY1Q15.9% YoY. +50. enhanced mobile-based marketing products would help narrow the CPC gap between PC and mobile over time and provide upside to advertising revenue. +32.89% in FY1Q14. driven by a 39. accounting for 53. Online marketing revenue as a percentage of China commerce retail GMV was 1. We estimate online marketing revenue to reach RMB39. Merchants generally allocate a certain proportion of their budget to purchase online marketing services based on GMV generated.BABA Initiating Coverage 27 October 2014 Moderating ad revenue growth impacted by increasing mobile contribution Alibaba’s online marketing revenue reached RMB29. representing 56. The decline in blended CPC was attributed to an increasing revenue contribution from mobile marketing services.6% of total revenue. compared to 1. +852 3743 8033. This is due to the increasing GMV contribution from mobile on which CPC is lower and merchants typically allocate a smaller proportion of their budget to advertising due to limited ad slots given screen size constraints.4bn. Chart 65: Online marketing revenue trend (fiscal year) Chart 66: Online marketing revenue trend (calendar year) Source: Company data.83% in FY13. and declined further to 1. Jefferies estimates Source: Company data. as the company focuses on prioritizing mobile user activity engagement over monetization.7bn in FY14. +27. Cynthia Meng. FY1Q15 revenue was RMB8.77% in FY14.7% YoY. down from 1.130 of this report.9% decline in cost-per-click paid by merchants. page 52 of 130 Please see important disclosure information on pages 126 .com . despite a robustly growing GMV. Jefferies estimates We expect Alibaba’s online marketing revenue as a percentage of GMV continue to be under pressure in the near term. cmeng@jefferies. representing 51.2% increase in number of clicks on P4P marketing and partially offset by a 6. However.3% of total revenue.4bn in FY15. +29% YoY.1% YoY.7% of total revenue. which currently charge merchants at a lower CPC compared to that on PC.

representing 44. help expand its mobile user base through major mobile traffic gateways such as browser.94% on PC due to the lagging advertising monetization on mobile compared to PC.93pcpt YoY. 3.7bn in F15. SNS and instant messaging.8% of total GMV in FY1Q15. Equity Analyst. +852 3743 8033. Alibaba’s various mobile investments. However. including UCWeb. up 0. Alibaba led China’s m-Commerce market accounting for 84. much lower than 2. representing 30. Alibaba has amassed a large mobile user base and traffic with its diversified mobile app portfolio. In this section. Given the inherent monetization hurdles in mobile ad including limited screen size and balance of user experience. page 53 of 130 Please see important disclosure information on pages 126 . up 25. we expect better mobilebased marketing products and wider adoption among merchants should help narrow the CPC and hence.3% of China commerce retail revenue and implying a monetization rate of 1.2% of total mobile retail GMV in 2Q14. according to iResearch.com . monetization gap between the two terminals.84%. Weibo and TangoMe.068bn in FY15.4% YoY. up 21pcpt YoY. +576. we discuss the following: 1. cmeng@jefferies.6% YoY. Cynthia Meng.2% of total GMV.BABA Initiating Coverage 27 October 2014 Extending Mobile Leadership Benefiting from the proliferation of affordable smartphones and its established customer reach in lower tier cities where offline shopping facilities are less developed. We currently estimate mobile revenue of RMB19. 2.130 of this report.91% in FY14. including its widely used Alipay mobile payment app. we expect mobile monetization rate to remain at a discount to PC in the near term. Alibaba saw surging mobile GMV which accounted for 32.2pcpt YoY. Alibaba’s mobile monetization rate was 0. We estimate mobile GMV to reach RMB1. +235.

+245% YoY. We estimate m-Commerce market to reach RMB945bn in 2014.3% market share and Vipshop with 2% market share in 2Q14.com . Taobao led China’s m-Commerce market with 84. and RMB2. such as special discount on goods sold on mobile end and rebate for mobile transactions.7bn in 2011.2%. 2014. according to iResearch. The m-commerce market size surged to RMB274bn in 2013 from RMB11. +245% YoY. Cynthia Meng. accounting for 14.com. accounting for 14. +130% YoY.5% of total e-commerce transaction volume in 2013. and RMB2. page 54 of 130 Please see important disclosure information on pages 126 . JD launched its level 1 access points on Tencent’s Weixin and mobile QQ to leverage on its massive mobile traffic.174bn in 2015. Chart 67: China’s m-Commerce market size by GMV The m-commerce market size surged to RMB274bn in 2013 from RMB11. Equity Analyst. Vipshop etc. Source: iResearch as of July 2014. “A Taste of Domestic Consumption: The Unleashing of China’s E-Commerce Power” published on Sept 19. +852 3743 8033.com with 5. representing 34.7bn in 2011.3% of overall eCommerce market. Explosive m-Commerce market growth M-commerce experienced phenomenal growth since 2012-13 driven by incentive schemes imposed by several major players including Alibaba. +130% YoY. according to iResearch. according to iResearch. JD.BABA Initiating Coverage 27 October 2014 Extending Mobile Leadership As discussed in our sector note.130 of this report. proliferation of affordable smartphones and improving wireless infrastructure encourages users in lower-tier cities and rural China directly take up mobile shopping and skip PC-based e-Commerce.174bn in 2015. cmeng@jefferies. Vipshop launched special sales campaign from April 18 to April 19. Jefferies estimates Alibaba (Taobao + Tmall) led China’s m-Commerce market with a market share of 84.2% of total mobile retail GMV in 2Q14.5% of total e-commerce transaction volume in 2013. Taobao initiated a series of incentive schemes to convert its PC traffic to the mobile end. followed by JD. according to iResearch.3% of overall e-Commerce market. We estimate m-Commerce market to reach RMB945bn in 2014. 2014 and launched selected products on mobile before PC end. representing 34.

Alibaba and 1688 are Alibaba’s storefront apps. Juhuasuan was ranked no.130 of this report. Taobao was ranked no. Wangxin. Source: Company data. Taobao Read.2 and 3 by DAU and MAU respectively. while Tmall was ranked no.BABA Initiating Coverage 27 October 2014 Chart 68: China’s m-Commerce market share in 2Q14 Alibaba (Taobao + Tmall) led China’s m-Commerce market with a market share of 84. Chart 69: Alibaba's mobile app portfolio Alibaba launched the mobile platforms for Taobao and Tmall in 2010. Alibaba. Since then. according to iResearch. etc. Taobao Travel. Taobao Read. Among group-buying apps. Wangxin.com with 5. Alibaba. +852 3743 8033.3% market share and Vipshop with 2% market share in 2Q14.1 e-Commerce mobile app by both DAU and MAU in August 2014. Alibaba gradually enriched its mobile app portfolio by adding Juhuasuan. AliExpress. Source: iResearch as of July 2014. Cynthia Meng. Since then. Tmall. Jefferies Alibaba securing m-Commerce leadership with large mobile user base Alibaba launched the mobile platforms for Taobao and Tmall in 2010.2%. Equity Analyst. AliExpress. Taobao Travel. Jefferies page 55 of 130 Please see important disclosure information on pages 126 . followed by JD. Taobao.2 and 3 by MAU and DAU respectively. according to iResearch. etc. cmeng@jefferies. AliExpress. Alibaba gradually enriched its mobile app portfolio by adding Juhuasuan.com .

com 54. Jefferies Source: iResearch as of Oct 2014. +852 3743 8033. Delivering convenient wireless payment in various settings.1 1 Ta oba o 133.1 10 Mei tua n Mercha nt 0.4 Source: iResearch as of Oct 2014.4 161.7 3 Tma l l 46. 3 mobile app by MAU in August 2014. App MAU (mn) 1 Ta oba o 60.7 8 55tua n 1.4mn MAU and was ranked the no.5 10 Mei tua n Mercha nt 0.4 135. Alipay Wallet has accumulated 161. Cynthia Meng. Jefferies Source: iResearch as of Oct 2014.2 7 Xi a omi 12.4 2 Tma l l 18.0 5 Ba i du Group Buy 2.6 266.9 9 Da ngda ng 1.1 7 Di a npi ng Group Buy 1.6 2 Juhua s ua n 4.9 6 Yi xun (Tencent) 3.3 10 Ama zon 8. utility bill payment. restaurant check payment. Alipay’s mobile app. Jefferies Alipay Wallet acts as mobile traffic gateway Alibaba offers seamless mobile transaction experience through Alipay Wallet.0 112. cmeng@jefferies.9 9 Da ngda ng 11.7 5 Yi ha odi a n 3. Jefferies page 56 of 130 Please see important disclosure information on pages 126 . It is also the only payment app that is ranked among the top ten.7 2 Juhua s ua n 21.7 5 Ba i du Group Buy 12.0 6 Yi ha odi a n 13.4 6 La s hou Group Buy 9.3 3 Nuomi (owned by Ba i du) 4.com 11.4 9 Ma oya n movi e group-buy 0.2 8 Vi ps hop 11.7 Source: iResearch as of Oct 2014.4 96.8 Source: iReseach as of Oct 2014. No. It is also the only payment app that is ranked among the top 10.8 4 Suni ng Yi gou 15.7 3 Nuomi (owned by Baidu) 19.0 2 JD.8 105.6 5 Yi xun 14. according to iResearch.7 7 Xi a omi 2.BABA Initiating Coverage 27 October 2014 Chart 70: Top 10 e-Commerce mobile apps by MAU (August Chart 71: Top 10 e-Commerce mobile apps by DAU (August 2014) 2014) No.com . Jefferies Chart 72: Top 10 group buy mobile apps by MAU (August Chart 73: Top 10 group buy mobile apps by DAU (August 2014) 2014) No.4 7 Di a npi ng Group Buy (Tencent holds 20% stake) 7. according to iResearch.3 8 55tua n 7. 1 2 3 4 5 6 7 8 9 10 App Wei xi n (Wecha t) QQ Al i pa y UC Brows er Sougou Input Ta oba o Youku Si na Wei bo 360 Mobi l e Sa fe i Qi yi MAU (mn) 298.1 8 Vi ps hop 2. which serves as an important gateway to mobile traffic.5 9 Ma oya n movi e Group Buy 3.130 of this report. App DAU (mn) No. Chart 74: Top 10 mobile apps by MAU (Aug 2014) Alipay Wallet has accumulated 161.4mn MAU and was ranked the no.5 4 Tua n800 13.7 10 Ama zon 1.6 4 Suni ng Yi gou 3.6 133. App MAU (mn) 1 Mei tua n (Alibaba holds minority stake) 9.6 4 Tua n800 3. taxi booking. 3 mobile app by MAU in August 2014.2 1 Mei tua n (Alibaba holds minority stake) 38. Equity Analyst. cinema ticket purchase.9 6 La s hou Group Buy 1.5 133. App DAU (mn) No.4 120.8 3 JD. such as money transfer.

The festival sold a total of 2mn movie tickets and helped boost movie box office sales to RMB133mn on March 8th. compared to RMB60mn on the same day in 2013.4% YoY.922bn in FY17. 58.068bn in FY15. We currently estimate Alibaba’s m-Commerce market share of 88% in 2014 and 79% in 2015. Cynthia Meng. 4x that of FY13. 2014. For example.068bn in FY15. +852 3743 8033. 800 restaurants.2% of its total GMV and further to RMB1.8 Life Festival” on March 8th. Jefferies Alibaba’s wide variety of mobile apps supported by Alipay Wallet and its various mobile promotional campaigns drove surging mobile GMV growth. offering discounts on restaurant dine-in.500 in-store brand outlets. Alibaba’s mobile GMV reached RMB319bn in FY14.2% of its total GMV and further to RMB1. Alibaba launched “Mobile Taobao 3. 300 movie theatres and 230 karaoke operators during this event. These mobile-only initiatives encouraged mobile transactions and the adoption of Alibaba’s mobile apps.BABA Initiating Coverage 27 October 2014 Chart 75: Screenshot of Alipay Wallet interface Note: recent 7-day annualized rate of return refers to the week from Jun 9. Mobile penetration further rose to 32. We estimate Alibaba’s mobile GMV to reach RMB1. Taobao partnered with 1. representing 44. 58. Chart 76: Alibaba’s mobile GMV annual trend We estimate Alibaba’s mobile GMV to reach RMB1.130 of this report. 2014 to Jun 15. Alibaba’s mobile GMV reached RMB319bn in FY14. representing 44. We expect Alibaba to continue to host mobile-only promotional events in an effort to drive transactions via mobile device. cmeng@jefferies. Source: Company data.8% of total GMV. according to the company.8% of total GMV. Equity Analyst. 4x that of FY13. Alibaba’s wide variety of mobile apps supported by Alipay Wallet and its various mobile promotional campaigns drove surging mobile GMV growth. 2014. movie ticket purchase and karaoke via its mobile apps including Mobile Taobao. accounting for 19% of total GMV. Jefferies estimates page 57 of 130 Please see important disclosure information on pages 126 .922bn in FY17. +235.8% in FY1Q15 with mobile GMV surging to RMB164bn and mobile MAU on its China retail marketplaces reaching 188mn by end of June 2014.com . Taodiandian and Alipay Wallet.4% YoY. Source: Company data. +235. accounting for 19% of total GMV.

with a mobile monetization rate of 0. and therefore commission revenue is not negatively impacted by the increasing mobile GMV contribution.7% 105.49%.91%. was 0. +576.01pcpt YoY to 2. +0.BABA Initiating Coverage 27 October 2014 Chart 77: Alibaba’s m-Commerce market share estimates Calender year We currently estimate Alibaba’s mCommerce market share of 88% in 2014 and 79% in 2015. benefiting from increasing GMV contribution from Tmall which charges merchants transaction-based commission fees in addition to advertising.55%. According to Analysys International.0% 37.6% 68.696 5. eventually closes the gap between mobile and PC-based cost per click (CPC). advertisers tend to pay less on an ad viewed by 1. as Alibaba enhances its mobile ad products and increases both paid clicks. defined as mobile revenue divided by mobile GMV.3% 57. On the other hand.5% 34. Major challenges in monetizing mobile advertising include difficulties in reaching the right group of audience due to lack of cookie system in mobile apps and instability of cookie system in mobile browser. commission rates charged by Tmall are identical across PC and mobile.7% 15.7bn in FY15. Monetization rate on mobile is relatively low mainly due to the still lagging monetization on mobile advertising compared to PC. +922. and 1. we believe Alibaba’s mobile monetization rate will remain at a discount to PC in the near term.130 of this report. page 58 of 130 Please see important disclosure information on pages 126 .0% 70. This compares to FY14 mobile revenue of RMB2. Cynthia Meng.52% due to increased mobile GMV contribution.0% 78. Alibaba’s mobile advertising monetization rate was 0.91pcpt YoY.5% 77.7% 88. we are modelling the monetization rate to reach 3.com .8% 14. China's m-Commerce market size (in RMB bn) as % of total e-Commerce YoY growth % Alibaba's mobile GMV (in RMB bn) as % of total GMV 2012 2013 2014E 2015E 69 274 945 2.3% of Alibaba’s China commerce retail revenue and implying a monetization rate of 1.94% on PC.9% 324.5% 2016E Source: Company data. Equity Analyst.69% in CY2Q14/FY1Q15 vs.709 2.49%. but still much lower than 2. +852 3743 8033.84%. However. +0. PC and mobile monetization rates improved to 3.532 5. +0. +646.91pcpt YoY.34% in FY15 and further to 3.25pcpt YoY. Additionally. respectively. as opposed to only advertising on Taobao marketplace.42pcpt YoY. In FY1Q15. On the PC front.5% 490. Given the monetization challenges in mobile advertising.54% in FY16.5bn in FY1Q15. representing 30.0% 130.93pcpt YoY. the overall monetization rate only improved slightly by 0. and CTR (click through rate).1% 55.91% in FY14.9bn. according to the company. +0. cmeng@jefferies.3% 297. Jefferies estimates Narrowing monetization gap between PC and mobile Alibaba’s mobile monetization rate.8% YoY. We expect the mobile monetization rate to narrow the gap with that of PC. 2.1% 84.16% on PC.4% 48.03%.7% 64.174 3. the balance of user experience and display space also limits the number of ad slots available on mobile. implying a mobile monetization rate of 1. +0.5% YoY growth % Alibaba's m-Commerce market share 69. We currently estimate mobile revenue to reach RMB19. Thus.6% YoY. Alibaba’s mobile revenue saw significant growth reaching RMB2.0% 48 232 832 1.5% YoY.1% 258. resulting in an overall monetization rate of 2.4% 245.000 people on mobile than on PC.

according to iResearch. benefiting from increasing GMV contribution from Tmall.cn).31% in FY16. +576. Quixey and Umeng. UCWeb: UCWeb. page 59 of 130 Please see important disclosure information on pages 126 .54% in FY16.130 of this report.3% of Alibaba’s China commerce retail revenue and implying a monetization rate of 1. according to iResearch. Jefferies Chart 79: Alibaba’s mobile revenue annual trend We estimate mobile revenue to reach RMB19. as Alibaba works on enhancing mobile-based marketing products and hence narrowing the CPC and monetization gap between PC and mobile. Shenma (sm. Source: Company data. Sina Weibo.34% in FY15 and further to 3.84%. Three out of top ten mobile apps by MAU are owned by Alibaba in August 2014. Equity Analyst.84% in FY15 and further to 2. +852 3743 8033. LBE Security Master. Jefferies Note: Alibaba’s fiscal year ends on March 31st. representing 30. Momo. Source: Company data. We estimate mobile monetization rate to reach 1.93pcpt YoY. UCWeb had an overseas user base of approximately 130mn. cmeng@jefferies.6% YoY. is China’s largest mobile browser with 134mn domestic mobile MAUs in June 2014. such as UCWeb.7bn in FY15. Cynthia Meng. With 264mn global active users in June 2014 as disclosed by the company. Alibaba and UCWeb jointly launched a mobile search engine.com .BABA Initiating Coverage 27 October 2014 Chart 78: Alibaba’s PC. mobile and overall monetization rates We are modelling PC monetization rate to reach 3. +0. fully acquired by Alibaba in June 2014. incorporating display ads from Taobao into its search results. in April 2014. Rigorous investments on mobile platform Alibaba has made several investments to expand its mobile user base in the past two years.

one of the most popular location-based social network mobile apps in China.com .6 Source: iResearch as of September 2014. Weibo charges advertisers based on CPM (cost per mille) or CPE (cost per engagement) models. according to iResearch.5 74.1 8.8 55. Jefferies Sina Weibo: Alibaba acquired 30% equity stake in Sina Weibo by April 2014.5 Source: iReseach as of September 2014. age. The investment in Sina Weibo allows Alibaba to leverage on the rich user database of Sina Weibo to develop a social commerce model and customize targeted marketing solutions for merchants and users. +852 3743 8033.6 6.1 and 5 among social media mobile apps by MAU in August 2014.5 28. which allows users to interact with nearby people. interest etc. with USD217mn cash in March 2014. Jefferies TangoMe: Alibaba completed a 20% equity stake purchase of TangoMe.August Chart 83: Screenshot of Momo 2014 No.5 13.9 10. 1 2 3 4 5 6 7 8 9 10 App UCWeb QQ Brows er Ba i du Brows er 360 Mobi l e Brows er Opera Brows er Chrome Li eba o Brows er Ma xthon Brows er 2345 Brows er Sougou Brows er Chart 81: Screenshot of search results on Shenma MAU (mn) 133. Sina Weibo offers social display ads and promoted marketing products based on the target audience’s geographic location. Sina Weibo and MoMo were ranked no.3 10. Cynthia Meng.7 29.9 5. cmeng@jefferies.BABA Initiating Coverage 27 October 2014 Chart 80: Top 10 mobile browser by MAU –June 2014 No.3 18. Jefferies Source: Company data. in our view. 1 2 3 4 5 6 7 8 9 10 App Sina Weibo Qzone Ba idu Tieba Renren Momo Qius hiba ike Tecent Weibo Weis hi DSCJ8888 Ba ihe MAU (mn) 112. Equity Analyst.9 6.0 3.5 28. page 60 of 130 Please see important disclosure information on pages 126 .9 19.130 of this report.7 19. Momo: According to public new sources. Alibaba made a USD40mn strategic investment in Momo. The investment may help to enhance Alibaba’s positioning in local lifestyle service offerings. Chart 82: Top 10 social media mobile apps by MAU .2 7. a US-based mobile messaging app. Jefferies Source: Company data. We believe this could potentially facilitate Alibaba’s cross-border e-Commerce initiatives and fill up its capability gap in mobile messaging.7 3.

Equity Analyst."Shenma" had more than 6bn monthly mobile search queries as of April 2014. (Initial investment of USD586mn for 18% stake.9 2. 2014 UCWeb (Private) Weibo (NASDAQ: WB) . Cynthia Meng.China's largest mobile browser company in terms of MAUs. It then acquired all remaining shares for USD458mn in cash plus restricted shares and RSUs in the aggregate number of 12. . with 156.6 5. cmeng@jefferies. such as general mobile search -Access UCWeb's large base of mobile users and offer existing user base with additional mobile solutions Apr.Its total revenue grew 105% YoY to USD77. the last of which completed in April 2014.Enhance mobile offerings beyond eCommerce. USD1.6 28.9 Source: Company data.0 1. 2014 TangoMe (Private) USD217mn in aggregate for 20% . Chart 84: Top 10 mobile security apps by MAU. behavior data integration and marketing solution -Develop a social commerce model by converting traffic from the social media platform onto Alibaba's eCommerce platforms -Improve mobile messaging technology and solution.August 2014 No. Umeng provides statistical analysis of mobile apps such as new adds. according to the company. followed by USD449mn in April 2014 with Alibaba exercising its option to increase its stake upon Weibo's IPO) Apr. 2014/ Apr. traffic channels. . according to company data .3mn in 2Q14.A leading social media platform in China.UCWeb had 264mn active users globally during June 2014. -Expand customer reach to overseas market Source: Company data.Gain access to and capture integration benefits from the user data base of Weibo. Jefferies Table 1: Alibaba’s mobile investments – Disclosed by the company Date Target Deal Details Target Company Description Implied Strategy June. 2014/ Mar. etc.1 10.4 39. according to company data.1 20. . We believe Alibaba can better understand user behaviour on mobile to enhance its mobile monetization ability through its investment in Umeng.BABA Initiating Coverage 27 October 2014 Umeng: Public news sources reported Alibaba’s USD80mn strategic investment in Umeng in April 2013. +852 3743 8033. . according to the Wall Street Journal.130 of this report. according to iResearch. active users. Jefferies page 61 of 130 Please see important disclosure information on pages 126 .7 2.5 4. Jefferies Source: Company data. 2013 Alibaba acquired 66% economic interests in UCWeb over several rounds of investments.Its total registered users were 200mn with MAUs of over 70mn as of Dec 2013.A leader in mobile messaging services stake on a fully-diluted basis based in the United States offering free voice. video and text messaging to consumers globally.7mn DAUs as of Jun 2014.5mn MAUs and 69. . enhancing Alibaba's platform and data base -Cooperate on content. .035mn in aggregate for approx.com .3mn. similar to Skype of Microsoft and Apple's FaceTime. 1 2 3 4 5 6 7 8 9 10 App 360 Mobi l e Sa fe Tencent Mobi l e Ma na ger LBE Secrui ty Ma s ter Ba i du Mobi l e Sa fe Ki ngs oft Mobi l e Sa fe Ki ngs oft Mobi l e Anti -Vi rus SECUREi t Anti -KungFu Vi rus Ba i du Sa fe 360 Pri va cy Sa fety Chart 85: Screenshot of Umeng MAU (mn) 105. 30% stake on a fullydiluted basis.

with more than 50 percent of Chinese developers using the service. similar to Google Analytics for mobile applications in China. -Strengthen its presence on mobile -Potentially cooperate on expanding service offerings on app distribution platform and Alipay Wallet Alibaba led a USD50mn funding Acquisition for USD80mn A mobile app search engine.130 of this report. Equity Analyst. accounting for 11. private) of USD40mn -Help to better understand mobile users data and in-app behavior -Strengthen its advertising technology on mobile e-Commerce -Enhance its positioning on LBS mobile social network as a supplement to Taobao's overall local lifestyle service offering Source: Bloomberg.6% mobile security market share in terms of monthly time spent in Jun 2014. page 62 of 130 Please see important disclosure information on pages 126 . Tech Web and Tencent News. according to iResearch.BABA Initiating Coverage 27 October 2014 Table 2: Alibaba’s mobile investments – reported by public news sources Date Target Deal Details Target Company Description Implied Strategy Dec. cmeng@jefferies.com . private) Undisclosed A mobile security app for Android platform. Wall Street Journal. 2013 Apr. -MAUs and DAUs of Momo reached 18.8mn and 5. according to iResearch. Sina News. -Strengthen its mobile search technology Oct. -It has served over 100K mobile apps across all major mobile platforms including iOS. which allows users to find apps based on functionality search -A service provider of applications data statistical analysis. Tech Crunch. 2013 Oct. +852 3743 8033. Tech in Asia. 2012 MoMo Strategic investment ("陌陌". private) Quixey (Private) Umeng ("友盟". Android and Windows Phone. according to the company as of Feb 2014. Cynthia Meng.1mn in Jul 2014. 2013 LBE Security Master ("LBE 安 全大师". NetEase News. according to company data. -A location-based social network app with over 100mn registered users.

including China Smart Logistics. page 63 of 130 Please see important disclosure information on pages 126 . payment settlement services and Internet finance business. +852 3743 8033. 2.9% on the mobile front in 2Q14. Alibaba. Equity Analyst. 4. Haier/Goodaymart and Singapore Post. SME loan and Internet banking to further enhance user engagement within its ecosystem.8% market share of China’s third-party online payment and 79. Alibaba has been stepping up investment effort in expanding its logistics platform. Alipay accounted for 48. Its money market fund product. Alipay: As a core component of Alibaba’s ecosystem. cmeng@jefferies. 3.130 of this report.BABA Initiating Coverage 27 October 2014 Building the Largest Ecosystem Alibaba’s large and growing ecosystem is supported by its expanding logistics platform. accounted for 98% of AUM managed by Tianhong Asset Management. digital media & entertainment and local lifestyle services to capture growth opportunities and build out its O2O ecosystem. we discuss the following: 1. In order to meet increasing delivery demands and strengthen its overseas logistics solution for cross-border e-Commerce opportunities. Investing in Smart Logistics: Alibaba’s China retail marketplace generated 5bn packages in 2013. Yu’e Bao. In this section. New verticals: Alibaba is making inroads into new verticals such as healthcare. Alipay provides secure and convenient online payment services for buyers and sellers as well as a stream of applications touching different aspects of consumers’ daily lives. Internet finance: Leveraging on the data and credit history accumulated from its online platforms. accounting for 54. making it the largest asset management company in China in 1H14. according to iResearch. pushes into Internet finance including wealth management. Cynthia Meng.4% of total package delivery in China.com . through Small and Micro Financial Services Company.

5bn packages were generated from Alibaba’s China retail marketplace (Taobao. The company will complete its full investment of RMB2. In face of increasing need for logistics capacity. accounting for 54.2bn in 2013 with a 5-year CAGR of 43. the network managed the delivery of 6.6mn packages. was established as a joint venture by Alibaba Group (48% stake). Among which. This includes 1. +852 3743 8033.4bn by May 2015.2bn in 2013 with a 5-year CAGR of 43. Cynthia Meng. 2014. number of packages delivered in China reached 9.5%.800 distribution centers and 97. As of Jun 30.1mn delivery personnel from 14 delivery companies.000 delivery stations with over 1. according to State Post Bureau of China. Fosun Group. cmeng@jefferies. directly controlled municipalities and autonomous regions in China. Chart 86: Number of packages delivered in China Driven by surging online transactions. Alibaba has established strategic partnership with 14 delivery companies.4% of total package delivery. Alibaba has established strategic partnerships with 14 delivery companies covering over 600 cities. Driven by surging online transactions. accounting for 54. In the twelve months ended June 30. including: Zhejiang Cainiao Supply Chain Management – building a logistics hub Zhejiang Cainiao Supply Chain Management. directly controlled municipalities and autonomous regions in China Personnel: over 1. Yintai Holdings. Source: State Post Bureau of China. page 64 of 130 Please see important disclosure information on pages 126 . 156mn packages were handled on Singles Day promotion in 2013. 5bn packages were generated from Alibaba’s China retail marketplace (Taobao. Tmall and Juhuasuan). Forchn Holdings and other five major express delivery companies in May 2013 with total registered capital of RMB5bn.6mn packages in the twelve months ended June 30.     Logistics network: 1.BABA Initiating Coverage 27 October 2014 Building the Largest Ecosystem Scaling up logistics platform Instead of operating an in-house fulfillment infrastructure. Alibaba has been stepping up investment effort in expanding its logistics platform. Jefferies According to company data as of June 30.1mn delivery personnel.com . Capacity: daily average of 16. Tmall and Juhuasuan).000 delivery stations Coverage: over 600 cities in 31 provinces. Its logistic network is able to support a daily average delivery of 16. or China Smart Logistics.1bn packages from Alibaba’s China retail marketplace. number of packages delivered in China reached 9. Among which.68bn as of Mar 31. Equity Analyst.800 distribution centers and 97. Alibaba owns 48% of the joint venture and has invested RMB1. 2014. according to State Post Bureau of China. covering over 600 cities in 31 provinces.5%.130 of this report. 2014. 2014 and a peak of 156mn on the Nov 11th Singles Day promotion in 2013. Alibaba cooperates with thirdparty logistics service providers through a central logistics information system.4% of total package delivery. 2014.

which are among the top fifteen cities with highest delivery volume. and an additional 24% stake upon conversion of all convertible bonds. including Beijing.BABA Initiating Coverage 27 October 2014 In 5 to 8 years. a wholly-owned logistics subsidiary of Haier. According to the company. Tianjing. 2014. which accounted for six of top fifteen cities in terms of delivery volume market share in 2013. China Smart Logistics intends to build warehouses in 15 cities.9% equity interest in Goodaymart Logistics (“日日顺物流”) . SingPost has established strong delivery networks and international logistics infrastructure. Shanghai. Wuhan. Source: State Post Bureau of PRC China. We believe the strategic investment in Haier and Goodaymart fills in Alibaba’s capability gap in large-sized item and door-to-door installation services. +852 3743 8033.821bn (USD361mn) to acquire a 2% equity interest in Haier and a 9. including distribution centers. including Beijing. warehouses and other supply chain facilities. Hangzhou. According to the company. including 2. which accounted for six of top fifteen cities in terms of delivery volume market share in 2013. through China Smart Logistics.com. Goodaymart Logistics specializes in bulky item shipping and delivery including home appliances. the leading online direct sales player in China. Chongqing and Chengdu. and may help to strengthen overseas e-Commerce logistics ability allowing Alibaba to beef up its overseas e-Commerce logistics presence. Singapore Post Limited – developing overseas logistics In May 2014. Tianjing.com. Chart 87: Top 15 cities in terms of delivery volume market share in 2013 On the other hand. the leading online direct sales player in China. in our view. furniture and home decoration items. China Smart Logistics had acquired land use rights in eight cities and will continue with land acquisition. has seven fulfillment centers and six front distribution centers with a total of 97 warehouses across 39 cities as of June 30. Cynthia Meng. Zhengzhou. with 90 logistics delivery centers and over 2mn square meters in warehouse space. page 65 of 130 Please see important disclosure information on pages 126 .com . As the country’s national postal service provider. helps Alibaba improve its home appliance footprint in tier 3 cities and below. providing 24-hour delivery and supporting the delivery of over 100mn packages per day. Hangzhou. Alibaba purchased 10. JD. Alibaba aims to build a network of key logistics hubs across China. company data. JD. Guangzhou. Wuhan and Nanjing. Jefferies Haier/Goodaymart – investing in bulky object logistics Alibaba Group reached a strategic cooperation with Haier Electronics Group (HKSE: 1169 HK) in Dec 2013. As of July 2014. On the other hand. Wuhan. 2014. Zhengzhou. or RMB30bn of daily online retail sales (or RMB10trn annual run-rate).130 of this report. Guangzhou. Beijing. Shanghai. has seven fulfillment centers and six front distribution centers with a total of 97 warehouses across 39 cities as of June 30. China Smart Logistics intends to build warehouses in 15 cities. Equity Analyst. under which Alibaba invested a total of HKD2. Goodaymart’s established logistics network in lower-tier cities.32% equity stake in Singapore Post Limited (SGX: S08 SP) for SGD313mn (USD249mn). Chengdu. This includes Shanghai. Chongqing and Chengdu. Guangzhou. cmeng@jefferies.600 counties nationwide.

of key logistics hubs across China. a additional 24% stake in wholly-owned subsidiary of Haier.130 of this report. HKD2. +852 3743 8033. installation and servicing of large format goods such as home appliance. and -Goodaymart Logistics ("日日顺物流"). including major express delivery -In the 12 months ended Jun 30. with Intime Group. As disclosed by the company. furniture and sanitary ware for Haier and third-party branded products Company Stated/Industry Experts’ View -Improve its international logistics solution -Facilitate purchase of overseas products by domestic consumers Source: Company data. RMB2. -Provide high quality after-sale customer service to consumers who shop for appliances on Tmall Marketplace -Leverage on Goodaymart's expertise. Equity Analyst.000 service points spanning across tier-1 cities to rural villages in China. (Alibaba has the logistics system ensured the supply chain facilities. experience and infrastructure of distribution capacity across China especially in tier 3 and tier 4 cities.4bn (USD385.9% stake engaged in R&D. Jefferies page 66 of 130 Please see important disclosure information on pages 126 . Fosun China.9mn) for -An operator of a nationwide logistics -Enhance user experience by offering efficient 48% stake in the Joint Venture infrastructure and information system in logistics and delivery services. which could support the invested RMB1. cmeng@jefferies. Cynthia Meng. financial services and information security. -Total revenue grew 24.8bn (USD364mn) for -Haier Electronics Group is a company 2% stake in Haier.day.68bn as of Mar successful delivery of an average of delivery of over 100mn package per day to 2014. mainly Goodaymart upon conversion focused on large format goods delivery of all convertible bond and installation of home appliance. We believe the strategic cooperation with China Post will further expand Alibaba’s footprint in lower-tier cities where online shopping activities are rapidly rising. distribution centers. e-Commerce. Table 3: Alibaba’s M&A investments in logistics Date Jul. and will invest the approximately 16. engaged in logistics. Alibaba entered into a strategic partnership with China Post Group to collaborate on logistics delivery. year period) May..8% YoY to SGD136. Ltd ("菜鸟") or China Smart Logistics (Private) Target Company Description -The national postal service provider in Singapore and a leading provider of eCommerce logistics solutions in the AsiaPacific region. 2014. especially owned subsidiary of Haier large electrical appliance. manufacturing and in Goodaymart.3% stake Mar. and its net profit attributable to shareholders increased by 4.6% YoY to SGD821mn. 9.6mn packages per consumers' doorsteps anywhere in China remaining capital over a two. 2013 Zhejiang Cainiao Supply Chain Management Co.com . processing center and delivery resources. 2014. Alibaba and China Post will jointly develop the China Smart Logistics Network and provide access to each other’s warehousing. Alibaba Group holds 48% stake of -China Smart Logistics plans to build a network International and other five China Smart Logistics. within 24 hours in the long term. furniture and sanitary ware. a whollysale of electrical appliances.BABA Initiating Coverage 27 October 2014 China Post Group – expanding footprint in lower-tier cities On Jun 12. 2014 Target Singapore Post Limited (SGX: S08 SG) Deal Details SGD313mn (USD249mn) for 10. 2014. 2014 Haier Electronics Group (HKSE: 1169 HK) -Established a logistic joint venture with Haier specializing in the delivery. warehouses and other companies. China Post has a wide coverage of 100.5mn as of the year ended Mar 31.

of which mobile online payment accounted for 93.1% of overall third party payment market in China. representing 17. O2O and Internet finance drives payment market growth China’s third party PC online payment market grew at a 3-year CAGR of 74. including online payment.2%.2% of overall GMV processed by third party online payment solutions. Benefitting from accelerating mCommerce development. China’s third party mobile payment market.2% of total third party payment market.5% to RMB5. +852 3743 8033.2% of overall third party online payment market. It is estimated to reach RMB18. We believe rising m-Commerce and O2O activities will lead to growing demand for mobile payment solutions. reached RMB1.5trn in 2017 with a 2013-17E CAGR of 36. largely driven by increasing online retail sales and rising investment in funds through new Internet finance tools such as Yu’e Bao. accounting for 35. Jefferies estimates Source: iResearch as of Apr 2014. Chart 88: China’s third party PC online payment market size by GMV China’s third party PC online payment market is estimated to reach RMB18.4trn in 2013. representing 31. Jefferies estimates page 67 of 130 Please see important disclosure information on pages 126 . cmeng@jefferies. Cynthia Meng. according to iResearch.BABA Initiating Coverage 27 October 2014 Building a closed-loop ecosystem with payment M-Commerce. largely driven by increasing online retail sales and rising investment in funds through new Internet finance tools such as Yu’e Bao.5trn in 2017 with a 2013-17 CAGR of 36. Jefferies Chart 89: China’s third party mobile payment market size by GMV Chart 90: China’s third party mobile payment market breakdown Source: iResearch as of Apr 2014. according to iResearch. accounting for 47. We estimate third party mobile online payment market to reach RMB16.com . Source: iResearch as of Apr 2014.2%. China’s third party mobile online payment market grew by more than 13x YoY to RMB1. accounting for 35.1%.1trn in 2013.2trn in 2013. NFC (near-field communication) and SMS payment. Equity Analyst.1% of overall third party payment market.130 of this report.5trn in 2017.

2013.4% of market share. Cynthia Meng.9% YoY.BABA Initiating Coverage 27 October 2014 Chart 91: China’s third party mobile online payment market size Benefitting from accelerating mCommerce development. restaurants. On Nov 11.8% in 2Q14. 10x the volume in 2012. representing 17. Jefferies estimates Chart 92: China’s overall third party online payment market size We estimate China’s overall third party online payment market (including PC and mobile) to reach RMB11. is the leading third party online payment solution in China with 48.8% and 11. Alipay settled 188mn transactions with mobile accounting for 24%.com .5trn in 2014.2% of overall third party online payment market. vending machines and others.7% market share by GMV in 2013 and 48. Mobile transaction volume reached RMB11. Jefferies estimates Alipay – leading online payment solution for China’s e-Commerce Launched in 2004.2 and 3 players. the payment processing and escrow service provider of Alibaba’s marketplaces. which accounted for 19. Source: iResearch as of Jul 2014. cmeng@jefferies.1trn in 2013.130 of this report. +76. China’s third party mobile online payment market grew by more than 13x YoY to RMB1. Alipay Wallet has been strengthening its position as the leading mobile payment tool in China with a 79. page 68 of 130 Please see important disclosure information on pages 126 . Source: iResearch as of Jul 2014. respectively. Due to its first-mover advantage and the convenience it provides to consumers in making purchases in shops. Alipay. +852 3743 8033.3bn on Nov 11. up from 77. Tenpay and Unionpay.4% in 1Q14. 2013.9% market share in 2Q14. Equity Analyst. a far distance ahead of the no.

g. mobile Taobao.g. the payment processing and escrow service provider of Alibaba’s marketplaces. AliPass)  Entertainment (e.com . food ordering)  Social-based service (e. donation)  Location-based service (e. According to our channel checks. Source: iResearch as of Jul 2014. split the bill. +852 3743 8033.8% and 1% of transactions made through credit cards on Taobao and Tmall respectively. Rural Credit Cooperatives and foreignfunded banks. on-site payment in brick-and-mortar stores)  Personal convenience (e. As of Sept 2014. including urban commercial bank. up from 77. Jefferies Alipay has established a wide partnership with financial institutions including leading national and regional banks across China as well as Visa and MasterCard to facilitate payments under different application scenarios.9% market share in 2Q14. Alipay also provides a stream of applications touching different aspects of consumers’ daily lives.4% in 1Q14.130 of this report. Cynthia Meng. In addition to supporting Taobao Marketplace and Tmall platform. Yu’e Bao. Equity Analyst.8% market share by GMV in 2Q14. dominated China’s third party online payment market with 48. cmeng@jefferies. Alipay has established deep cooperation relationships with 134 banks and financial institutions including 6 stateowned banks and 9 joint-stock commercial banks and more than 110 other financial institutions. lottery)  Wealth management (e. Jefferies Chart 94: China’s 3rd party mobile online payment market share in 2Q14 Alipay Wallet has been strengthening its position as the leading mobile payment tool in China with a 79.g. including:  Shopping (e.g. in which case Alipay will charge a fee to the merchants equal to the corresponding bank transaction fee.g. The payment and escrow services provided by Alipay are free of charge to merchants on Taobao and Tmall unless payment is made using a credit card. mobile game top-up. Source: iResearch as of Jul 2014. face-to-face transfer) page 69 of 130 Please see important disclosure information on pages 126 . fund transfer. utility bill payment. Alipay typically charges a fee equal to 0.g. credit card payment. bookkeeping.BABA Initiating Coverage 27 October 2014 Chart 93: China’s 3rd party online payment market share in 2Q14 Alipay. taxi hailing. according to iResearch.

total payment volume settled through Alipay grew 50% HoH to reach RMB4. 2014. Alipay Wallet settled 2. 78. According to the company.825bn (USD778bn) in the twelve months ended Jun 2014.BABA Initiating Coverage 27 October 2014 Chart 95: Summary of applications enabled by Alipay Source: Company data. as well as rising payment scenarios given the development of O2O and local lifestyle services.    In the twelve months ended June 30. 2014. page 70 of 130 Please see important disclosure information on pages 126 . Alibaba’s China retail marketplace accounted for 29.com . 65% of GMV generated on AliExpress was settled through Alipay. Cynthia Meng. Jefferies Total real-name registered users of Alipay reached approximately 300mn by YE13 with number of Alipay Wallet users surpassing 100mn in Nov 2013.130 of this report.7% of Alipay’s total payment volume. Driven by the rapid GMV growth of Alibaba’s China retail marketplaces. In the twelve months ended June 30. cmeng@jefferies. 3.8x that of Paypal. +852 3743 8033. Equity Analyst.1% of GMV on Alibaba’s China retail marketplaces were settled through Alipay In the twelve months ended June 30. 2014.78bn transactions in 2013 with over RMB900bn transaction volume.

Total payment volume (in USD bn) Commission rate Mobile as % of total payment volume 3. Commission rate ranges from 0.a. n. depending on the total transaction volume settled through Alipay within the year. n.9% 1mn-2mn 0. +852 3743 8033. Equity Analyst.2% on PC and 1.2% commission rate page 71 of 130 Please see important disclosure information on pages 126 .9% 3. Jefferies Chart 99: Annual payment package available for merchants (excluding Alibaba’s marketplaces) based on GMV settled through Alipay on PC Alipay also provides annual payment package offering discounted commission rate to merchants upon making a prepayment. Alipay also provides an annual payment package offering discounted commission rates to merchants upon making a prepayment. Cynthia Meng. 519 778 180 203 n. 0.a.2% on PC. Prepayment (RMB) Transaction volume(RMB) Commission rate 600 60K 1.com . Among the 800mn Alipay's registered accounts.18-0.2% 60K-500K 1. according to company data. Alipay charges merchants outside of its Alibaba marketplaces a commission fee ranging from 0.9% n. Chart 97: Commission charged to merchants (excluding Alibaba’s marketplaces) based on GMV settled through Alipay on PC Compared to 0.8%-2% on mobile.8%-2% on mobile.2% on PC and 1.7%-2% (2) 0. Given the large user base of Alipay.a. This rate is much lower compared to Paypal’s implied commission rate of 3.7%-2% 3. of accounts as of the end of the specified period.7%-1.8% Source: Company data.BABA Initiating Coverage 27 October 2014 Chart 96: Operation metrics comparison across payment tools Alipay PayPal TenPay Twelve months ended as of Dec-13 Jun-14 Dec-13 Jun-14 Dec-13 Jun-14 No. Jefferies Chart 98: Commission charged to merchants (excluding Alibaba’s marketplaces) based on GMV settled through Alipay on mobile Alipay charges merchants outside of its Alibaba marketplaces a commission fee ranging from 1. according to company data. cmeng@jefferies.0% 500K-1mn 0.19% charged to internal merchants.600 450K 0. Compared to 0. Transaction Volume (RMB) Commission rate 0-1mn 2. third party websites such as Vipshop have also adopted Alipay as one of their online payment solutions.8%2% on mobile. PayPal's registered accounts refer to active registered accounts. 300mn are registered with real names.0% Above 1mn 1.a.7%-1.0% Source: Company data.a.7% Source: Company data.5% as of June 2014. (2) Alipay’s commission rate refers to the fees charged to merchants (excluding Alibaba’s marketplaces) who use Alipay as online payment tool on their platforms. n.19% charged to internal merchants.0% 1.7% (3) 15.a.8% Above 2mn 0.a.8% Source: Company data. of registered accounts (mn) 800 (1) n.5% 1% 1% 27. Jefferies Note: (1) no. Jefferies Note: Any additional transaction volume above the maximum allowance will be charged a 1.7%-1. of registered accounts is defined as the no. n.18-0.130 of this report.800 200K 0. Alipay charges merchants outside of its Alibaba’s marketplaces a commission fee ranging from 0. Transaction Volume (RMB) Commission rate 0-60K 1. 143 152 >200 n.a. (3) PayPal’s commission rate is calculated by dividing total revenue by total payment volume.

FY13. RMB1.3bn and RMB740mn in FY12.5% of the equity value of Small and Micro Financial Services Company until Alibaba acquire a full 33% equity interest. a transfer of 37. 2014. If Alibaba demands a liquidity event and unless the liquidity event is effected by means of a 37. while the profit sharing percentage has been reduced to 37.130 of this report. Equity Analyst. but Alibaba will still be entitled to a payment of 37.  Alibaba agreed to dispose of the SME loan business to Small and Micro Financial Services Company in exchange for cash consideration and annual fees for seven years.9% of the consolidated pre-tax income of Alipay. Alibaba Group will receive an annual fee equal to 2.  The USD6bn cap on the liquidity event payment under the 2011 framework agreement has been removed. cmeng@jefferies. Small and Micro Financial Services Company will pay Alibaba Group an amount equal to 37. The disposal allows the company to focus on the core e-commerce businesses and eliminates the direct risks of carrying a loan portfolio on balance sheet. capital adequacy. 2011 Framework agreement Upon the occurrence of certain liquidity events of Alipay (including an initial public offering. Pursuant to an intellectual property and software technology services agreement. 2011.6bn. page 72 of 130 Please see important disclosure information on pages 126 . FY14 and the three months ended June 30.5% of the equity value of Small and Micro Financial Services Company. Fees paid by Alibaba to Alipay amounted to RMB1.9%. such as credit defaults. Alibaba entered into a share and asset purchase agreement and restructured the relationships with Small and Micro Financial Services Company and its wholly owned subsidiary Alipay. Alibaba Group will have the right to demand Alipay effect a liquidity event provided that the equity or enterprise value of Alipay at such time exceeds USD1bn. the minimum amount of USD2bn will not be applicable. RMB277mn. If a liquidity event does not occur by the tenth anniversary of July 29.5% or more equity interest transfer of Alipay.3bn.  The profit share has been restructured that the base of profits was expanded from the pre-tax income of only Alipay to the pre-tax income of all of the businesses of Small and Micro Financial Services Company. Alipay pays Alibaba royalty fees and software technology service fees equal to the sum of an expense reimbursement plus 49. 2014 Share and asset purchase agreement (SAPA) & amended Alipay intellectual property and software technology services agreement On August 12.5% of the equity value of Alipay with a minimum payment of USD2bn and a maximum payment of USD6bn.5% of the average daily balance of SME loans from 2015 to 2017. implying a payment fee of approximately 0.5% from 49.18% as a percentage of payment volume settled through Alipay on Alibaba’s China retail marketplaces in FY14.BABA Initiating Coverage 27 October 2014 Alipay Commercial agreement & intellectual property and software technology services agreement Pursuant to the Alipay commercial agreement. 2014 respectively.com .764mn and RMB527mn in FY12. Cynthia Meng. Alipay paid a royalty and software technology service fee to Alibaba of RMB27mn. +852 3743 8033.5% or more of the equity interests of Alipay or a sale of all or substantially all assets of Alipay). 2014 respectively. RMB2. and fixed annual fee equal to the 2017 annual fee from 2018 to 2021. RMB1. FY13. The 2011 framework agreement was terminated. Alipay provides payment processing services to Alibaba Group and its subsidiaries in return for a fee on preferential terms to Alibaba. Alibaba is entitled to receive a payment equal to 37. leverage and regulatory requirements associated with a loan. FY14 and the three months ended June 30. As disclosed by the company.  Upon the IPO of Small and Micro Financial Services Company.

As for transaction volume of RMB500K. cmeng@jefferies. page 73 of 130 Please see important disclosure information on pages 126 . according to iResearch. rates offered by Tenpay are slightly lower than what Alipay is charging to external merchants (excluding Alibaba’s marketplaces). Alipay charges external merchants 0.75%. Tenpay is the second largest third party online payment platform with 19. 2014. In addition.130 of this report. and purchase of wealth management products. etc. For transaction volume of RMB200K. money transfer.45-0.84%.9% while Tenpay charges only 0. According to our checks. Jumei. Jefferies Similar to Alipay. Cynthia Meng. etc. including Vipshop. Tenpay is also available as a payment option on major e-commerce platforms.2mn MAU as of June 30. Tenpay’s applications include bill payment. lottery. Vancl.3mn and 438. Dangdang. They can also opt for discounted package rates in the range of 0. leveraging on its large QQ and Weixin user base of 829. Alipay charges a 0. Tenpay charges merchants commission rates based on transaction volume. Merchants will be charged a commission fee equal to 1% of transaction volume handled through Tenpay.BABA Initiating Coverage 27 October 2014 Competitive Landscape Other major third party online payment players include Tenpay.com. respectively. Equity Analyst. +852 3743 8033.com .8% commission rate compared to Tenpay’s 0. Dianping. Tenpay Launched by Tencent in 2005. Chart 100: Summary of applications enabled by Tenpay Source: Company data.8% of market share in 2Q14.96% upon prepayment. 99bill and Lakala on mobile.

According to iResearch. its total registered users reached 80mn with monthly GMV surpassing RMB100bn.BABA Initiating Coverage 27 October 2014 Chart 101: Commission rates charged by Tenpay Prepayment (RMB) 0 480 1680 3750 7000 12K 25K 45K Transaction volume (RMB) Commission rate unlimited 1% 5K 0. 1% for the volume exceeding 200K 500K 0. 1% for the volume exceeding 1mn 2mn 0.45%. Lakala charges merchants 0. an eCommerce platform integrated with community related services such as utility bill payment. Lakala also launched Kaidianbao (“开店宝”). Mobile transactions accounted for 30% of total GMV settled through Lakala as of Jun 2014. Chart 102: Lakala’s fixed-line POS Chart 103: Lakala’s mobile POS Source: company data. “Shoukuanbao” (“ 手 机 收 款 宝 ”). Cynthia Meng. founded in 2005. +852 3743 8033.78% based on transaction volume settled through fixed-line POS. financial services.96%. Since 2007. cmeng@jefferies.6%. Equity Analyst.com . 1% for the volume exceeding 500K 1mn 0.84%.5% market share in 2Q14.75%. 1% for the volume exceeding 5mn 10mn 0. 1% for the volume exceeding 5K 200K 0.3 third party mobile online payment player with 6. Lakala entered the mobile payment market with the launch of mobile card reader and mobile POS products. Lakala has set up a wide coverage of POS payment terminals in over 40K convenient stores across 300 cities.7%. ticket reservation and mobile top-up.5-1% on Mobile Shoukuanbao with daily transaction volume capped at RMB40K. Jefferies Source: company data. 1% for the volume exceeding 2mn 5mn 0.130 of this report. Compared to an average rate of 0. is China’s largest community-based financial service operator.5%. Jefferies In addition to payment terminal. page 74 of 130 Please see important disclosure information on pages 126 . According to company data. it was the no. company data Lakala Lakala. 1% for the volume exceeding 10mn Source: Jefferies.

130 of this report. +852 3743 8033. Apple Pay On Oct 20. we believe NFC mobile payment in China could potentially be a large open field for players including Alipay and Tenpay which has already amassed a large user base through their e-Commerce ecosystem and cross-platform social networking apps respectively. cmeng@jefferies. payment and account management. As disclosed by company. education. Currently.S. as infrastructure improves including the emergence of more NFCenabled smartphones.BABA Initiating Coverage 27 October 2014 Chart 104: Lakala’s Kaidianbao Source: Jefferies. It started to enter into supply chain financing in 2009. retail. mobile payment scenarios in China are still mostly conducted through QR codes. allowing users of iPhone 6 and 6 Plus to store credit card information on their phones and make in-store payment by tapping on offline payment terminals.com .8% market share in 2Q14. It mainly serves enterprise customers with a suite of payment solutions. insurance and digital entertainment. Apple officially launched Apple Pay in the U. e-Commerce. including bill collection. an NFC-enabled mobile payment technology. 99Bill is one of the first payment companies allowed to carry out cross-border RMB settlement in Shanghai Pilot Free Trade Zone. and further expanded to cross-border payment. according to iResearch. Cynthia Meng. We do not foresee the imminent pressure of Apple Pay on Chinese third-party payment players given the dominance of Android phones in China. page 75 of 130 Please see important disclosure information on pages 126 . company data 99Bill 99Bill is the fourth largest third party online payment market player in China with 6. 99Bill currently has a customer base of 3mn+ merchants in industries including travel. However. Equity Analyst.

6x that of 2Q13.1bn with 114mn accumulated users by June 30. 2014.030.7% market share in terms of GMV in 2013A.73% in Jan 2014 when liquidity in China’s money market system was tight. according to iResearch.5 QoQ 13.8 55.2% of third party online payment market in 2013. As of end of AUM (in RMB bn) 2Q13 3Q13 4Q13 1Q14 2Q14 4.23% since end of June.307 6. 2014. 2. according to public news sources. +852 3743 8033. total AUM surpassed RMB574.com . an online money market fund managed by Tianhong Asset Management ( 天 弘 基 金 ). making it the largest asset management company by AUM in China in 1H14. Share of B2B e-Commerce remained largely stable at 3.6x that by end of 2Q13. Its total AUM is close to 2x that of the no. Average AUM per user has also increased to RMB5.18bn.071 4. down 6. Alibaba launched Yu’e Bao (余额宝). also known as Zeng Li Bao (增利宝). Yu’e Bao accounted for 98% of AUM managed by Tianhong. still higher than the 3% yield of one-year fixed bank deposit. Source: iResearch as of April 2014. Jefferies Yu’e Bao – innovating the way of wealth management In June 2013.8bn AUM and 2.130 of this report. of users (in mn) 2.030.0 81.7 43. It came down to 5% in mid-May and remained stable at 4. Within a year of launch.8% in 2Q14A. Jefferies page 76 of 130 Please see important disclosure information on pages 126 .7% given that monetization of B2B online transactions was still at an early stage of development. Zhejiang Alibaba E-Commerce Co. Ltd.2 player. Chart 106: Operation metrics of Yu’e Bao Total AUM has surpassed RMB574.3pcpt YoY. as disclosed by Tianhong. 2.3 541. as disclosed by Tianhong.1 41% 4438% 1. Cynthia Meng.5mn users a year ago. due to the significant increase in Internet finance activities. and further expanded to 48.030 -25% 163% Source: Data disclosed by Tianhong Asset Management..BABA Initiating Coverage 27 October 2014 Developing Internet finance opportunities for buyers and sellers Online retail sales including B2C and C2C accounted for 35.5mn users a year ago. compared to RMB4. cmeng@jefferies. Yu’e Bao invests money collected from users into bank term deposits and interbank deposits with up to 90% of funds invested in interbank deposits at 29 banks.8bn AUM and 2.7 185. Average AUM per user also increased to RMB5. (also known as Small and Micro Financial Services Company) received regulatory approval in late May to acquire 51% equity stake of Tianhong for RMB1.2 1057% 233% 192% QoQ YoY No. compared to RMB4.683 113% 6% 55% YoY 5. China Asset Management. Equity Analyst. Chart 105: China’s 3rd party online payment market breakdown Alipay dominated 3rd party online payment market.1bn with 114mn accumulated users by June 30. with 48.912 4. Yu’e Bao offered a return rate as high as 6.3 574.0 443% 215% 88% YoY Average AUM per user (RMB) QoQ 6% 11837% 114.

Licaitong allows users to invest in money market funds jointly developed by Tencent and four asset management companies. Its total AUM managed is close to 2x that of the no. Other companies. Cynthia Meng. cmeng@jefferies. On the other hand. In view of the booming Internet finance market.130 of this report. Alipay provides a gateway for fund companies to reach the huge user base of Alipay who are also potential customers.com . also partnered with fund companies to launch their own online investment products.5 Source: Sina Finance. on Weixin starting January 2014. namely Baifa and Lingqian Bao respectively. Yu’e Bao accounted for 98% of AUM managed by Tianhong.7 10 Bank of China Investment Management 91.BABA Initiating Coverage 27 October 2014 According to Sina Finance.2 player. +852 3743 8033.2 5 Harvest Fund Management 165. There is no minimum required deposit or time restriction whereby investors can make withdrawals at any time without penalty. Jefferies In our view.4 6 E Fund Management 131.2 2 China Asset Management 304.4 3 ICBC Credit Suisse Asset Management 190. including Baidu and Suning. the high liquidity and convenience offered by Yu’e Bao in managing users’ idle money in their Alipay accounts is why the fund is able to amass large amount of users and assets within a short period of time. Tencent also launched its wealth management services.0 8 Bosera Asset Management 102. Alipay has also integrated Yu’e Bao into its mobile app allowing easy fund transfer and extremely convenient user experience. page 77 of 130 Please see important disclosure information on pages 126 .5 4 China Southern Asset Management 178. including China Asset Management and GF Fund Management.9 7 GF Fund Management 123. called Licaitong. Chart 107: Top asset management companies in terms of AUM in China in 1H14 Assets under Ranking Company Management (in RMB bn) 1 Tian Hong Asset Management 586. China Asset Management.8 9 China Universal Asset Management 97. Equity Analyst. making it the largest asset management company by AUM in China in 1H14.

to SMEs who are sellers on its wholesale and retail marketplaces.a.a. As of June 30. 2014) Average AUM per user Launch date 114mn RMB5.a. Alibaba’s micro finance business provides micro loans.2bn (USD10bn) RMB4. page 78 of 130 Please see important disclosure information on pages 126 .8mn) RMB0. n.a. China Asset Management ( 华夏) and Harvest Fund Management ( 嘉实) AUM (as of Jun 30.394% 8.851% E Fund Management ( 易方达) 5. +852 3743 8033.a. 25-Mar-14 n.902% 4.a.7bn interest revenue from micro loans in FY14.004% n.94bn (USD151.6bn) RMB62.a.5bn (USD725. Jefferies Chart 110: Comparison across Alibaba’s Yu’e bao. including RMB8. n.a. of RMB14. 22-Jan-14 n. 28-Oct-13 Note: latest 7-day annualized rate of return as of Sept 28. n.7% YoY.3% of total revenue and implying an average interest rate of 19.571% Payment tool Alipay Fund partners China Universal Asset Management Tencent Baidu Licaitong Baifa Weixin Payment Baidu Wallet (汇添富) 5.6bn (USD2.1bn (USD1.823% 5. Jefferies Source: Data disclosed by Tianhong Asset Management. Alibaba generated approximately RMB1. Equity Analyst. representing 3. n. Alibaba has entered into arrangements with certain third-party financial institutions under which it transferred the legal title or economic benefits in micro loan receivables in exchange for cash proceeds. cmeng@jefferies. 17-Apr-14 n.1bn (USD2. which are recognized as secured borrowings. Jefferies SME loan business Launched in 2010.2bn (USD92.763% 4.9mn) No.a. 2014.405% 5.1bn). Cynthia Meng. which was principally funded by borrowings of RMB13.BABA Initiating Coverage 27 October 2014 Chart 108: AUM of Yu’e Bao Chart 109: Number of Yu’e Bao users Source: Data disclosed by Tianhong Asset Management.2bn current bank borrowings.254% 4.com .a.6mn) RMB11.030 17-Jun-13 n. 17-Apr-14 n. net of allowance for doubtful accounts. +223. In order to fund its micro loan business. Alibaba performs credit assessment through analysing the transaction history.311% GF Fund Management ( 广发) 5.a. Tencent’s Licaitong and Baidu’s Baifa Company Product name Alibaba Yu'E Bao Peak 7-day Latest 7-day annualized annualized rate of return rate of return Tian Hong Asset Management ( 天弘) 6. 2014 Source: Company data. These loan receivables are recognized as assets held by Alibaba’s VIEs and the micro loan-derived interest revenue is therefore recognized under Alibaba’s P&L. 2014) RMB574. for generally between 7 to 360 days.9%.230% China Asset Management ( 华夏) 7.8bn secured borrowings and RMB4.130 of this report. of users (as of Jun 30. Alibaba’s SME loan business had over 400K borrowers with a total outstanding loan balance.4bn). n. operating data and financial health of its merchants.8bn) RMB3bn (USD483.

We estimate Alibaba’s economic benefits received from Small and Micro Financial Services Company based on the following assumptions: Payment processing revenue: We estimate Alipay’s payment volume of RMB6.4bn in FY16.6% YoY.8% YoY. +88.684bn in FY15. We expect Alipay’s transactions contributed by Alibaba’s China commerce retail marketplaces to decline gradually as payment scenarios of Alipay continue to diversify.19% preferential payment processing fee paid by Alibaba for internal transactions.BABA Initiating Coverage 27 October 2014 According to the share and asset purchase agreement in Aug 2014. Hence. +50.1bn in FY16.6% YoY.3%. including management fee of 0.8% YoY. Yu’e Bao management fee: As disclosed by Tian Hong Asset Management and Alipay.6% pre-tax income margin of Small and Micro Financial Services Company and Alibaba’s 37. according to public news sources. one in Tianjing and one in Wenzhou led by other investor groups.3mn in FY16. Wangxiang Group subsidiary and NBRC will hold 25%. while a Fosun Group subsidiary.63%.7% YoY.  a profit share of 37. SME loan interest revenue: For the SME loan business. Cynthia Meng. the bank will focus on serving investment and financing needs of small businesses and individual consumers with deposit products below RMB200K and loan products below RMB5mn. also received a banking license on Sept 29.25%. fund custodian fee of 0. including one in Shenzhen led by Tencent. and fixed annual fee equal to the 2017 annual fee from 2018 to 2021.com . we estimate total revenue of Small and Micro Financial Services Company of RMB48. Assuming an average commission rate of 1% charged to external merchants outside Taobao/Tmall and a 0. We currently estimate Alipay’s management fee received from Yu’e Bao to reach RMB489.5% share of its pre-tax income.6% YoY.5bn in FY15 and RMB3. assuming stable growth in AUM. The bank will have six months to complete preparation for operation.8bn in FY16. the parent company of Juneyao Airlines.5% of the pre-tax income of all of the businesses of Small and Micro Financial Services Company (including SME loan business). +90. approximately 26. were granted approval. and RMB4. and RMB67. Alibaba agreed to dispose its SME loan business to Small and Micro Financial Services Company. Overall economic benefits: Assuming a 12. 18% and 16% stakes. Using Internet as a sales channel supported by cloud computing and big data analysis.5% of the average daily balance of SME loans from 2015 to 2017. and RMB73. Shanghai JuneYao Group. Yu’e Bao incurs an aggregate fee of 0. +852 3743 8033. In July 2014. Alibaba will receive economic benefits from the Small and Micro Financial Services Company in the form of:  an annual fee equal to 2. We estimate internal transactions to account for 28% and 26% of Alipay’s payment volume in FY15 and FY16 respectively. Among which. three separate banks. Small and Micro Financial Service Company will hold 30% equity stake. the China Banking Regulatory Commission announced its plan to grant banking licenses to ten private companies. Equity Analyst.7bn in FY15. +72. +45.1mn in FY15 and RMB606.130 of this report. and RMB9. Small and Micro Financial Service Company received an approval from the China Banking Regulatory Commission to set up the Zhejiang Internet Commerce Bank in Hangzhou jointly with three other parties. In our page 79 of 130 Please see important disclosure information on pages 126 .7% of the management fee is paid to Alipay. we estimate interest revenue to reach RMB3. +60% YoY.730bn in FY16. 2014.3bn in FY15. respectively. down from 34% in FY14.08% and sales and service fee of 0. +51. +39. 2014. Instead of recognizing interest income from SME loan business in the line of revenue. we estimate royalty and software technology service income Alibaba receives from Small and Micro Financial Services Company to be RMB2.5bn in FY15. we estimate Alipay’s total revenue of RMB44. Back in March 2014. Zhejiang Internet Commerce Bank On Sept 29.6% YoY. cmeng@jefferies.7bn in FY16.

000 sub-categories. Cynthia Meng. 2014.130 of this report. +852 3743 8033. active buyers placed orders in 10. including “long-tail” products (more niche and tailored items). such as digital entertainment and local services. for a 60% equity stake.  China Vision: In June 2014.4 in the same period in 2013 and 8 in the same period in 2012. a limited partnership owned by Mr. Equity Analyst. Alibaba made a series of strategic investments in traditional and online media companies this year. Alibaba entered into strategic business arrangements with Wasu to enhance its digital entertainment strategy. Xie. Concurrently. under 118 categories and 2. Chart 111: Number of product categories in which average active buyers placed orders On average. including movies and television programs. Jefferies Note: refers to twelve months ended June 30 of each year. Wasu is a public company engaged in the business of digital media broadcasting and distribution in China. Simon Xie. one of China’s leading online video players. to finance a minority investment in Wasu via Hangzhou Yunxi.  Youku Tudou: In May 2014. China Vision was renamed Alibaba Pictures.com .BABA Initiating Coverage 27 October 2014 view. page 80 of 130 Please see important disclosure information on pages 126 . allowing it to gain access to a large pool of media content. Digital entertainment With an aim to advance its digital entertainment strategy. a film and TV program production and distribution company.  Wasu: In April 2014.1bn.4 in the same period in 2013 and 8 in the same period in 2012. through strategic investment in leading category players. 2014. Source: Company data. up from 9. Expanding into new verticals and O2O services Operating under a platform model without taking inventory. for USD1. Alibaba invested HKD6.5bn with Mr. Alibaba continues to expand its presence in more specialty categories.5% equity stake in Youku Tudou.2bn (USD803mn) in China Vision. one of Alibaba’s founders. Consequently. active buyers placed orders in 10. up from 9. Alibaba entered into a full recourse loan of RMB6. Alibaba is able to offer a wide selection of products. cmeng@jefferies. Alibaba’s big data accumulated from the internal transaction history of consumers and its huge SME merchant base will be key advantages in meeting the underserved financing needs of small businesses and individuals.1 product categories out of 118 in the 12 months ended June 30. Alibaba purchased 16. On average.1 product categories out of 118 in the 12 months ended June 30.

Alibaba will integrate the backend management system of Taobao Travel with the hotel information management system of Shiji.1% equity stake. Its data has already been integrated into Alibaba’s Taobao Diandian to provide a location-based food ordering service. a leading digital map and navigation provider in China.  Shiji: On Sept 28. page 81 of 130 Please see important disclosure information on pages 126 .8bn (USD457mn). through Alipay and its cloud computing platform.  Autonavi: In April 2014. Yunfeng Capital. Cynthia Meng. The two companies cooperate in developing an “offline-to-online” multi-channel retailing model that enables users to purchase online inventory through mobile devices while shopping in physical stores. According to Shiji. cmeng@jefferies. in our view. 2014. As of Sept 4. in addition to its existing 28% stake purchased back in May 2013. authentication and tracking systems for pharmaceuticals and medical products in China earlier this year.com . The large hotel customer base of Shiji will allow Alibaba to explore potential O2O opportunities in the travel industry.  Intime: In July 2014. Equity Analyst. for USD1bn. Alibaba acquired a 15% stake in Beijing Shiji Information Technology with RMB2. The two companies jointly developed and launched an app in July that allows users to verify drug authenticity through barcode scanning combining CITIC 21CN’s drug data and Alibaba’s cloud computing and big data technology.BABA Initiating Coverage 27 October 2014 Healthcare Alibaba gained a foothold in the healthcare sector through its investment in CITIC 21CN. department stores and supermarkets. allowing the company to explore synergy between Taobao Travel. 2014. +852 3743 8033. and the hotel information data & customer base of Shiji. Alibaba acquired a 9. its customer base covers 90% of China’s five-star hotels. to develop an O2O business related to shopping malls. Travel Alibaba made its first investment post-IPO in Beijing Shiji Information Technology. As part of the “Future Hospital” initiative.130 of this report. acquired another 16% stake resulting in an aggregate stake purchase of 54% for HKD1. a technology software and service provider for hotel management. O2O Alibaba continues to beef up its local service offering and capability by accessing massive location data and offline local merchant base through its investments. Alibaba fully acquired Autonavi. in which Alibaba invested USD13mn for an 80. including EHR and prescription. the company was renamed as Alibaba Health Information Technology Ltd. Alibaba’s travel platform.9% equity stake and convertible bonds which upon conversion would translate into an additional 16% stake in Intime.33bn (USD171mn).3mn). a leading department store and shopping mall operator. Alibaba acquired a 38% interest in CITIC 21 for HKD932mn (USD120. a leading developer of product identification. This helps enhance Alibaba’s location-based service offerings to its mobile users leveraging on Autonavi’s mapping technology. Alibaba and Intime established a joint venture in July 2014. a private equity firm co-founded by Jack Ma. Alibaba aims to enhance the efficiency of hospital operation.  CITIC 21: In April 2014.

Cynthia Meng. Equity Analyst. +852 3743 8033.130 of this report.com . cmeng@jefferies.BABA Initiating Coverage 27 October 2014 This page is intentionally kept blank page 82 of 130 Please see important disclosure information on pages 126 .

particularly young professionals. a leading overseas wholesale platform. allows manufacturers and distributors based in China to reach global customers through the integration of OneTouch’s comprehensive import/export outsourcing services. Alibaba is also making forays into international retail market through AliExpress. Cynthia Meng.S.com. 2014.com . and 11 Main. this significantly lowers the barrier for overseas merchants in reaching the 300mn+ Chinese online shoppers. Alibaba.S.130 of this report. Equity Analyst. delivery time and language barriers in overseas online shopping. page 83 of 130 Please see important disclosure information on pages 126 . its global consumer marketplace.. China is the second largest cross-border online shopping destination in U. who have a huge demand for foreign brands. Alipay launched ePass. According to Nielsen. +852 3743 8033. while unlocking the purchasing power of Chinese consumers. On Oct 15. Alibaba has been expanding its cross-border sales initiatives through Tmall Global. a new payment processing service for Chinese consumers to make direct purchase on U. In this section. cmeng@jefferies. 4. UK and Brazil. Alibaba. 2.BABA Initiating Coverage 27 October 2014 Expanding Cross-Border E-Commerce To satisfy the growing appetite for foreign brands among Chinese consumers and Chinese manufacturing goods among global wholesale buyers. its U.com and AliExpress. while facilitating merchants who do not have a physical presence in China with its Alipay international payment settlement and shipment services. 3. Tmall Global helps to connect international retailers with Chinese consumers by lowering the cost.S. shopping site. In our view. we discuss the following: 1. retail websites.

jewelry & watches. Hong Kong (58%). Jefferies Chart 113: Top five cross-border online shopping destinations in China U. Hong Kong.BABA Initiating Coverage 27 October 2014 Expanding Cross-Border E-Commerce Tmall Global The growing appetite for foreign brands among Chinese consumers Chinese consumers who seek for quality and authentic foreign branded products often have to purchase directly through the international websites of foreign retailers. Chart 112: Top five cross-border purchase categories by Chinese consumers Top five cross-border purchase categories in China are clothes. Cross-border shoppers in China tend to be concentrated in the younger demographics in the average age of 25-44 years old. Jefferies page 84 of 130 Please see important disclosure information on pages 126 . according to a survey conducted by Nielsen in 2013. health & beauty products. Source: Nielsen as of Jun 2013. jewelry & watches. accounting for close to 50% of total cross-border online purchases.130 of this report. U. 78% are mobile shoppers who spend a total of approximately RMB103. Top five cross-border purchase categories in China are clothes. Equity Analyst. UK and Australia are the top shopping destinations.com . reached 18mn with a total of RMB216bn in overseas online purchase spending in 2013. Insufficient purchasing channels and lack of promotional discounts of foreign goods in China leads to a rapidly growing cross-border online shopping market which is expected to grow at a 2013-18 CAGR of 36% to reach RMB1trn by 2018 with 35.. cmeng@jefferies. Cynthia Meng.5bn.S. known as “hai tao (海淘)” in China. and personal electronics.S. UK (43%) and Australia (39%) are the top shopping destinations. Source: Nielsen as of Jun 2013. Japan. health & beauty products. according to a survey conducted by Nielsen.9mn shoppers. according to a survey conducted by Nielsen in 2013. shoes & accessories. computer hardware. +852 3743 8033. The number of cross-border online shoppers. shoes & accessories. Japan (52%). and personal electronics. Among these. according to Nielsen estimates. computer hardware. (84% of respondents).

merchants only need to pay a personal item tax in the range of 10-50%. followed by costs and language barrier. Upon receiving a customer order. on a per batch basis. Equity Analyst. merchants can then deliver the products directly from the free trade zone. Jefferies Lowering the cost. 43% of respondents find long delivery time as the most often encountered problem in their cross-border shopping experiences. shoes and accessories. slow delivery time. high fulfillment cost and poor after-sales service experience. page 85 of 130 Please see important disclosure information on pages 126 . overseas merchants on Tmall Global need not have a business entity or physical store in China. Instead of paying custom duties of 10-50% and VAT of 17% as required in direct import. Alipay also charges a service fee equal to 1% of GMV (logistics fee inclusive). including language barriers.5-5% of GMV (logistics fee inclusive). According to a survey conducted by Tmall Global. Cynthia Meng. Alibaba entered into a strategic partnership with Ningbo Free Trade Zone and launched “Global Flash Sales” platform in July 2014. Chongqing. cmeng@jefferies. Partnering with six free trade zones in China (Ningbo. time and language barriers in overseas online shopping Tmall Global was launched in Feb 2014 to satisfy the growing appetite for foreign brands among Chinese and help foreign merchants to better reach Chinese consumers. In April 2014.130 of this report. cosmetics and skincare. an annual service fee of USD5K or USD10K and a commission rate in the range of 0. Unlike Tmall. Source: Consumer survey done by Tmall Global. merchants are required to pay a USD25K one-time deposit. depending on product category. there are certain complications with direct purchase from foreign retailers. Tmall Global allows merchants to ship and store their inventories. health food.BABA Initiating Coverage 27 October 2014 However. difficulty in product return.com . Shanghai. Instead of storing their products in a local warehouse. +852 3743 8033. followed by costs and language barriers. in the free trade zone. including long delivery time. We believe this helps to solve a lot of the problems encountered by Chinese consumers when purchasing foreign branded goods. Hangzhou. Alibaba also requires merchants to set up a product return point within the free trade zones in order to facilitate after-sales services for customers. apparel. To set up a storefront on Tmall Global. depending on product category. 43% of surveyed consumers find long delivery time as the most often encountered problem in their cross-border shopping experiences. Tmall Global now offers products including mother and baby products. Zhengzhou. etc. merchants can ship directly from overseas to China and receive payment in their local currencies. Chart 114: Most encountered problem by Chinese consumers in cross-border shopping experience According to a survey conducted by Tmall Global. and Guangzhou). language barriers.

Chart 116: Scenario analysis on potential cross-border e-Commerce revenue contribution to Alibaba Scenario Based on a 30-70% Alibaba market share assumption. (2) cross-border revenue estimates are based on an average commission rate assumption of 3.1 142.4 428.5% Alibaba's cross-border revenue (RMB bn) 6. Tmall Global Tmall Tmall Global Physical store Within China Outside China Legal Entity Within China Outside China Local team Required Not required Payment received CNY Local currency Shipment Stored and shipped within China Directly imported from overseas Tax Customs duties. On the flip side. ePass is already in beta testing by merchants including Gilt.5-5% (plus an Alipay service fee of 1%) Fees Source: Company data. Chart 115: Requirements in setting up a shop on Tmall vs.com . VAT Personal item tax Annual fee: RMB10K-RMB60K Annual fee: USD5K / USD10K Deposit: RMB50K / RMB100K / RMB150K Deposit: USD25K Commission: 0.2 133. Through ePass. will be interested in adopting ePass given that it significantly lowers the barrier in reaching the 300mn+ Chinese online shoppers.4 8. In our view.5%.9 2016 China's cross-border online shopping market Commission rate assumption 50.0 3. #1 #2 #3 Alibaba's market share assumption 30.5-5% of GMV (logistics fee inclusive). Equity Analyst.3-5% Commission: 0. cmeng@jefferies. Neiman Marcus. depending on product category. Jefferies We conducted a scenario analysis on the potential revenue upside from cross-border eCommerce opportunity in 2016.0% 40.5% Given the large market opportunity. In our view. merchants are required to pay a USD25K one-time deposit. Alipay also charges a service fee equal to 1% of GMV.2 367. shoppers can pay in CNY using their Alipay accounts and Alipay will transmit the payment to merchants in local currency via international financial institutions.7 127. players including Amazon China and Vipshop are also developing their cross-border e-Commerce businesses. Alipay will also provide logistics and marketing services to these overseas partners as needed.0% 70.0% 60. given the removal of hurdles and possible mark-ups involved in using an international credit card previously (most shoppers do not even have page 86 of 130 Please see important disclosure information on pages 126 . each of the players has its own competitive edge with Amazon having its established supplier relationship.8 137.S.9 140.130 of this report.6 Current 2016 revenue estimate (RMB bn) Current 2016 revenue estimate + cross-border % upside #5 612 size estimate (RMB bn) revenue upside (RMB bn) #4 10. Jefferies estimates Note: (1) 2016 China’s cross-border online shopping market size is estimated by Jefferies based on Nielsen data published on a Paypal-commissioned report titled “Modern Spice Routes” in July 2013.BABA Initiating Coverage 27 October 2014 To set up a storefront on Tmall Global. ePass – easing the friction of international purchase On Oct 15.6 135. we believe this will significantly unlock the overseas purchasing power of Chinese consumers. Based on a 30-70% Alibaba market share assumption and average commission rate of 3. particularly young professionals.7 244. Cynthia Meng.7 12. Alipay launched a new payment processing service for U.0% 306.9 15.2 5% 7% 8% 10% 12% Source: Nielsen as of Jun 2013. Vipshop having its loyal female-oriented customer base in lower-tier cities and Tmall Global having a deep understanding of local consumer demand. +852 3743 8033. U.S. an annual service fee of USD5K or USD10K with a commission rate in the range of 0.com. including large department stores such as Macy’s.0% Alibaba's cross-border GMV (RMB bn) 183. Currently. retail sites through Alipay. Gap and H&M. retailers. Brands among these platforms are generally non-exclusive.S. our analysis shows a 5-12% CY16 revenue upside to our current estimate. retailers called ePass which allows Chinese consumers to directly make purchases on U. 2014. our analysis shows 5-12% CY16 potential revenue upside to our current estimate.

tax refund.5% of total revenue in FY14. Alibaba.com is Alibaba’s first online commerce platform and the leading global online wholesale platform in China by revenue in 2013.com by providing comprehensive export-related service solutions for SMEs including customs clearance. Alibaba.5% YoY.9bn. Major product categories on the platform include consumer electronics. The competitive edge of Chinese exporters is gradually diminished given rising labor and raw material costs. Alibaba.com launched a rebate program in May 2014 offering up to RMB0. Alibaba. machinery and apparel.com Connecting China’s SMEs with global wholesale buyers Launched in 1999. In order to aggregate more transaction data and gain better loan terms from banks. Revenue generated from Alibaba global wholesale marketplace grew 3. the acquisition of OneTouch helps to enhance customer stickiness on Alibaba. Cynthia Meng. include financing for orders. +11. Equity Analyst. In our view.7% YoY.6% of global wholesale marketplace revenue in FY14 or 86. cargo insurance. OneTouch. +18. Alibaba.7bn in FY15. OneTouch is also able to secure cheaper financing for small and mid-sized exporters.8% YoY to RMB3.4% YoY. packing loan under letter of credit.1bn in FY1Q15. These products.com . accounting for 87. loan on credit and foreign exchange value preservation. and RMB1. +20. page 87 of 130 Please see important disclosure information on pages 126 . of which the company will take 1-1.com hopes to leverage on these transaction data to build up a B2B export-focused credit system for providing trade financing to small businesses. financing and certification. representing 7. OneTouch was ranked No.com helps to connect global wholesale buyers with Chinese wholesalers and manufacturers. We expect global wholesale marketplace revenue growth to be mainly driven by increasing number of paying members.3bn in FY16. jointly developed with Bank of China.5% of the monthly interest as service fee.com monetizes mainly through membership subscription fees. etc. according to iResearch. is the first platform in China engaged in providing import and export business process outsourcing service for SMEs. with the rest contributed by P4P online marketing. logistics. custom clearance. currency exchange. Alipay will benefit from incremental revenue contribution from the launch of ePass. VAT refund and other import/export business solutions.130 of this report. and RMB5. We estimate revenue of RMB4. By providing banks with information such as transaction records. cmeng@jefferies. Alibaba.4% in FY1Q15. Building a global B2B ecosystem with transaction data In order to improve its one-stop exports service offering. founded in 2001. Outsourcing business process to integrated export-service platform like OneTouch allows exporters to save on logistics and financing costs. The Gold Supplier membership service allows merchants to host premium storefronts with upgraded storefront management tools. +852 3743 8033. According to China National Customs Information Center.03 for every USD1 in export value handled through OneTouch to attract more paying members onto its platform. Alibaba completed the acquisition of ShenZhen OneTouch (深圳一达通) in May 2014. As a longer term strategy.4 in terms of values of exports among general trade enterprises in China in 2013. By taking a certain percentage of the transaction as service fees.BABA Initiating Coverage 27 October 2014 international credit cards).

Jefferies page 88 of 130 Please see important disclosure information on pages 126 . Cynthia Meng.BABA Initiating Coverage 27 October 2014 Chart 117: Screenshot of Alibaba global B2B marketplace – Integrated export service platform for SMEs Source: Company data. Jefferies Source: iResearch as of Oct 2014. Equity Analyst. Jefferies Chart 118: Monthly active user trends of global B2B websites in China Chart 119: Page view trends of global B2B websites in China Source: iResearch as of Oct 2014.130 of this report. cmeng@jefferies.com . +852 3743 8033.

130 of this report. Coming off a small base. Equity Analyst. Jefferies Source: Nielsen as of Jun 2013. China is the second largest cross-border online shopping destination in U. UK and Brazil. a global consumer marketplace that brings made-inChina products to global consumers. Chart 120: Top five cross-border online shopping destinations from U.S. Chart 121: Top five cross-border online shopping destinations from UK Source: Nielsen as of Jun 2013. Transactions settled through Alipay are charged with a 5% commission rate.com . 2014.3% of total revenue. Jefferies page 89 of 130 Please see important disclosure information on pages 126 .BABA Initiating Coverage 27 October 2014 AliExpress Making forays into international retail market Alibaba launched AliExpress in 2010.S. 65% of which was settled through Alipay.. and RMB358mn in FY1Q15. while coming in at third in Australia. Alibaba’s international retail commerce business reached RMB938mn in FY14.5bn GMV in the twelve months ended June 30. +139. Cynthia Meng.3% YoY. Jefferies Chart 122: Top five cross-border online shopping destinations from Brazil Chart 123: Top five cross-border online shopping destinations from Australia Source: Nielsen as of Jun 2013. AliExpress generated an USD4. According to Nielsen. +852 3743 8033. +100% YoY. representing 2. Jefferies Source: Nielsen as of Jun 2013. cmeng@jefferies.

4% of total revenue. 2. home goods. shopping site on June 11.com . Chart 124: Screenshot of 11 Main website Source: Company data. through its U.8bn in FY15. jewelry. and RMB2. +41% YoY. Cynthia Meng. The site features curated made-in-US products in nine major categories including fashion. collecting. beta launched 11 Main.130 of this report. cmeng@jefferies. subsidiaries Vendio and Auctiva. tech.S. its U.6bn in FY16. Equity Analyst. We currently estimate international retail commerce revenue of RMB1. We believe this represents a still very early foray into the U. toys and entertainment.9% YoY.S retail market by Alibaba. +852 3743 8033. 2014. representing 2.5% of total revenue.S. +96. baby products.BABA Initiating Coverage 27 October 2014 Alibaba. sporting goods. Jefferies page 90 of 130 Please see important disclosure information on pages 126 .

compete with its merchants or hold inventory.1 C2C and B2C platform in China by GMV respectively. 2014. Cynthia Meng. cmeng@jefferies. page 91 of 130 Please see important disclosure information on pages 126 .833bn (USD296bn) GMV on its China retail marketplaces from 279mn active buyers and 8. Alibaba started trading under the ticker “BABA” on NYSE on Sept 19. Alibaba mainly generates its revenue from online marketing services. 2014. Alibaba operates Taobao Marketplace and Tmall. according to iResearch. +852 3743 8033. The company generated RMB1. Equity Analyst.130 of this report. according to IDC.BABA Initiating Coverage 27 October 2014 Company Background Company Description Founded in 1999. commissions on transactions and fees for online services. and does not engage in direct sales.5mn active sellers in the twelve months ended June 30. The company operates its marketplaces as a platform for third parties. Alibaba is the largest online and mobile commerce company in the world in terms of GMV in 2013.com . the no.

Alibaba. (4) Primarily invloved in the operation of Alimama.com . – operates cloud computing services These entities.com and AliExpress Alibaba Cloud Computing Ltd. However. (7) Each of these variable interest entitles is 80% owned by Jack Ma and 20% owned by Simon Xie. which is 90% owned by Jack Ma and 10% owned by Simon Xie. Toaboa China Holding Ltd. (3) Primarily involved in the operation of Tmall and Juhuasuan.130 of this report. and Alibaba Investment Ltd. 1688. Cynthia Meng.. Ltd. due to China’s legal restrictions on foreign ownership in the operation of Internet content providers. by Jack Ma and 17other founders. are 80%-owned by Jack Ma. – operates Taobao marketplace Zhejiang Tmall Network Co.. except Zhejiang Taobao Network.. (2) Primarily involved in the operation of Taobao Marketplace. Ltd.BABA Initiating Coverage 27 October 2014 Corporate Structure Alibaba Group Holding Limited is a Cayman Islands holding company established on June 28.com Ltd.. lead founder and executive chairman.. Ltd... Zhejiang Tmall Technology Co.. Ltd.. (5)Primarily involved in the operation of Alibaba.com Investment Holding Ltd.. Its principal subsidiaries consist of Taobao Holding Ltd. – operates Alimama Hangzhou Alibaba Advertising Co. operation of Alibaba’s marketplaces is conducted through five variable interest entities as follows:      Zhejiang Taobao Network Co.. entered into certain contractual arrangements with these VIEs which results in a transfer of substantially all of the profits from the VIEs to the whollyforeign owned enterprises. Ltd. Equity Analyst. through its whollyforeign owned enterprises. one of the founders and vice president of Alibaba’s China investment team. Ltd. 1688. +852 3743 8033.com. – operates Alibaba. other than Zhejiang Taobao Network Co.com.com and AliExpress.. Zhejiang Taobao Network is 90%owned by Jack Ma and 10%-owned by Simon Xie. Chart 125: Alibaba’s corporate structure Note: (1) Other subsidiaries includes 40 subsidiaries and consolidated entitles incorporated in China and 71 subsidiaries incorporated in other jurisdictions that are note illustrated in this chart. Alibaba. cmeng@jefferies. and 20%-owned by Simon Xie. Source: Company data as of Sept 15. Alibaba Group. (6) Primarily involved in the operation of cloud computing services. – operates Tmall and Juhuasuan Hangzhou Ali Technology Co. Ltd. Taobao (China) Software Co. 1999. The company conducts its business in China through subsidiaries and variable interest entities (VIE). 2014 page 92 of 130 Please see important disclosure information on pages 126 .

respectively.904 ADSs offered by Alibaba upon full exercise of overallotment option.465mn. is a public company listed on the Tokyo Stock Exchange.143. did not sell any shares during the offering. Alibaba’s total outstanding ordinary shares immediately post IPO offering was 2. Source: Company data as of Sept 18. With the full exercise of over-allotment option.149. (3) Yahoo! Inc.966 ordinary shares outstanding immediately after offering plus additional 26. 2014. TSAI is a member of the Alibaba founding team and has served as executive vice-chairman since May 2013.000 former employees who are selling ADSs during the IPO offering. (6) Certain of current employees refer to over 4.465. and Joseph C.491. a public company listed on the Tokyo Stock Exchange and the largest shareholder of Alibaba group. the founder and executive chairman of Alibaba.869 ordinary shares outstanding as of Sept 18. total outstanding ordinary shares post offering amount to 2.000 employees who are selling ADSs during the IPO offering. +852 3743 8033. (4) Jack Yun MA is the company lead founder and executive chairman.1% of total outstanding shares after the offering with full exercise of over-allotment. All directors and executive officers as a group hold 12. is a public company listed on the NASDAQ Global Select Market.7% and 3. Yahoo. 2014 page 93 of 130 Please see important disclosure information on pages 126 .BABA Initiating Coverage 27 October 2014 Shareholding Structure On Sept 19. resulting in 15. including 2. executive vice chairman.4% of total outstanding shares post offering. (5) Joseph C. Cynthia Meng. offering 320mn ADS (38% primary) and an additional 48mn ADS in over-allotment (54% primary) at the price of USD68.130 of this report. the second largest holder of the company. Each ADS represents an ownership interest in one ordinary share.8% of total outstanding shares post offering. Chart 126: Alibaba’s shareholding structure (with full-exercise of over-allotment) Note: (1) The shareholder structure is based on 2. (2) SoftBank Corp.491mn. Softbank. including 18.3mn additional shares sold in over-allotment. Jack Yun Ma. sold 140mn shares during the offering.005. cmeng@jefferies. The company retains 32% of outstanding shares with over-allotment fully exercised. certain of consultants and employee of affiliates as a group refer to the six consultants of the company and over 900 employees of Alipay and China Smart Logistics who are selling ADSs during the IPO offering. Alibaba completed its IPO offering on NYSE. certain of former employees refer to over 1. 2014. Equity Analyst. Tsai.com . owned 7.

Election of new partners is held annually and requires the approval of at least 75% of all of the partners.859. including continuity partners. Partnership committee The partnership committee must consist of at least five partners and is currently comprised of Jack Ma.130 of this report. may be removed upon the vote of a simple majority of all partners for violations of certain standards. +852 3743 8033. Existing partners nominate candidates. Equity Analyst. its affiliates and/or Alipay for not less than five years. to the partnership committee. Elections of committee members are held once every three years.BABA Initiating Coverage 27 October 2014 Partnership System The Alibaba Partnership The Alibaba Partnership currently is comprised of 30 members including 24 members of Alibaba’s management. its affiliates or Alipay. except continuity partners who may remain as partners until they elect to retire from the partnership. Equity interest holding requirement for partners Alibaba requires each partner to retain at least 60% of the equity interests (including unvested shares and shares underlying vested and unvested awards) that they held on the starting date of three-year period.983 ordinary shares (including unvested shares and shares underlying vested and unvested awards). the partners directly and indirectly hold an aggregate of approximately 349. Removal of partners Partners retire from the partnership when they cease employment with Alibaba Group. cmeng@jefferies. page 94 of 130 Please see important disclosure information on pages 126 . Jonathan Lu. Following the initial three-year holding period and for so long as he or she remains a partner. 4 members of management of Small and Micro Financial Services Company and 1 member of management of China Smart Logistics. 2014. a partner is required to retain at least 40% of the equity interests (including unvested shares and shares underlying vested and unvested awards) that he or she held on the starting date of the initial three-year holding period. Two members of Alibaba’s management serve as members of Small and Micro Financial Services Company as well. Joe Tsai.com . Partnership committee members serve for a term of three years and may serve multiple terms. The Committee is responsible for administering partner elections and allocating annual cash bonus. Cynthia Meng. who have been serving in Alibaba Group. As of Sept 15. Any partner. Lucy Peng and Ming Zeng. die or are incapacitated or are removed as partners.

130 of this report. Chief Risk Officer. Corporate Development Sara Siying YU ( 俞思瑛) 40 F 2005 Associate General Counsel. Initial board of directors upon IPO completion will consist of nine members. Jonathan Lu and Daniel Zhang). Corporate Development Alibaba Group Source: Company data as of September 22. Small and Micro Financial Services Company Fang JIANG (蒋芳) 40 F 1999 Vice President. +852 3743 8033. page 95 of 130 Please see important disclosure information on pages 126 . will resign from the board and cease to be one of the directors upon IPO completion. which would increase the total number of directors to eleven. Alibaba Cloud Computing. chief development officer of Yahoo! Inc. the Alibaba Partnership will be entitled to nominate or appoint two directors to the board. 2014 Note †: Members of the partnership committee Board of directors The Alibaba Partnership will have the exclusive right to nominate up to a simple majority of the members of Alibaba’s board of directors. Cynthia Meng. YunOS and Digital Entertainment. China Business. Small and Micro Financial Services Company Trudy Shan DAI (戴珊) 38 F 1999 Chief Customer Officer Luyuan FAN (樊路远) 41 M 2007 President. Chief Executive Officer. Corporate Strategy Jeff Jianfeng ZHANG (张建锋) 41 M 2004 President. Corporate Integrity and Human Resources Peng JIANG (姜鹏) 41 M 2000 President. Small and Micro Financial Services Company Xiaofeng SHAO (邵晓锋) 48 M 2005 Chief Risk Officer Timothy A. Equity Analyst. China Corporate Communications and Marketing Sophie Minzhi WU (吴敏芝) 38 F 2000 President. cmeng@jefferies. SME Loan Business.com and 1688. China Ming ZENG (曾鸣) † 44 M 2006 Senior Vice President. The Partnership holds the right to appoint an interim director until next annual general meeting if nominee fails to be elected. however. Jacqueline Reses. Infrastructure Operations Jonathan Zhaoxi LU (陆兆禧) † 44 M 2000 Chief Executive Officer Jack Yun MA (马云) † 50 M 1999 Executive Chairman Xingjun NI (倪行军) 37 M 2003 Principle Engineer , Small and Micro Financial Services Company Lucy Lei PENG (彭蕾) † 41 F 1999 Chief People Officer.com . TSAI (蔡崇信) † 50 M 1999 Executive Vice Chairman Jian WANG (王坚) 51 M 2008 Chief Technology Officer Shuai WANG (王帅) 40 M 2003 Senior Vice President. Taobao Marketplace Daniel Yong ZHANG ( 张勇) 42 M 2007 Chief Operating Officer Yu ZHANG (张宇) 44 F 2004 Vice President. STEINERT 54 M 2007 General Counsel and Corporate Secretary Judy Wendong TONG ( 童文红) 43 F 2000 Chief Operating Officer. Alibaba Group. International. Small and Micro Financial Services Company Zhenfei LIU (刘振飞) 42 M 2006 Vice President. Joseph Tsai. Small and Micro Financial Services Company Yongxin FANG (方永新) 40 M 2000 Directo, Human Resources Simon Xiaoming HU ( 胡晓明) 44 M 2005 Risk Manager. Deputy Chief Technology Officer Jianhang JIN (金建杭) 44 M 1999 Senior Vice President. Alibaba. Upon the completion of the offering. The director nominees of the Alibaba Partnership will initially all be partners of the Alibaba Partnership. Corporate Affairs Eric Xiandong JING (井贤栋) 41 M 2007 Chief Financial Officer.com Maggie Wei WU (武卫) 46 F 2007 Chief Financial Officer Eddie Yongming Wu ( 吴泳铭) 39 M 1999 Senior Vice President.. future nominees may also include qualified individuals who are not affiliated with the Alibaba Partnership. China Smart Logistics Joseph C. four of whom will be Alibaba Partnership nominees (Jack Ma. Small and Micro Financial Services Company Sabrina Yijie PENG ( 彭翼捷) 36 F 2000 Vice President. Nominees have to receive a simple majority vote from shareholders voting at annual general meeting.BABA Initiating Coverage 27 October 2014 Chart 127: Members of the Alibaba Partnership Name Year Joined Age Gender Jingxian Cai (蔡景现) 37 M 2000 Principle Engineer Current position with Alibaba Group or related/affiliated companies Li CHENG (程立) 39 M 2005 Chief Architect.

com . Cynthia Meng. Joe Tsai. Provisions include:  SoftBank has the right to nominate one director to Alibaba’s board of directors. +852 3743 8033. provided that its shareholding stays at 15% or above of Alibaba’s outstanding shares.130 of this report.  Jack Ma and Joe Tsai will vote their shares and any other shares over which they hold voting rights in favor of the election of the SoftBank director nominee at each annual general shareholders meeting until SoftBank’s shareholding declines below 15% of Alibaba’s outstanding ordinary shares. Equity Analyst. RESES * 44 Director Jonathan Zhaoxi LU ** 44 Director Appointee Daniel Yong ZHANG ** 42 Director Appointee Independent directors Chee Hwa TUNG ** 77 Independent Director Appointee Walter Teh Ming KWAUK ** 61 Independent Director Appointee J. TSAI 50 Executive Vice-chairman Masayoshi SON 57 Director Jacqueline D. Michael EVANS ** 57 Independent Director Appointee Jerry YANG ** 45 Independent Director Appointee Source: Company data as of September 22.  SoftBank will agree to vote its shares in favor of the election of the Alibaba Partnership’s director nominees at each annual general shareholders meeting and to grant the voting power of any portion of its shareholdings exceeding 30% of Alibaba’s issued and outstanding ordinary shares to Jack Ma and Joe Tsai by proxy.BABA Initiating Coverage 27 October 2014 Chart 128: Alibaba Group’s Board of Directors Name Age Position/Title Jack Yun MA 50 Executive Chairman Joseph C. Voting agreement with Softbank and Yahoo Alibaba entered into a voting agreement with Jack Ma. 2014 Note (*): Jacqueline will resign from the board of directors and cease to be one of the directors immediately prior to the effectiveness of the registration statement on Form F-1. page 96 of 130 Please see important disclosure information on pages 126 .5 million of Alibaba’s ordinary shares. Softbank and Yahoo which took effect upon completion of the offering. up to 121.  Yahoo will agree to vote its shares in favor of the election of all of the Alibaba Partnership’s director nominees and the SoftBank director nominee at each annual general shareholders meeting until SoftBank’s shareholding declines below 15% of Alibaba’s outstanding shares and to grant the voting power over any shares it owns. cmeng@jefferies. (**) Have accepted appointment as the director or independent director. to Jack Ma and Joe Tsai by proxy. effective upon completion of the offering.

later amended and restated in Sept 2012. May.BABA Initiating Coverage 27 October 2014 Alibaba’s history with Yahoo In 2005.1bn.5mn ordinary shares owned upon a qualified IPO of Alibaba. Equity Analyst.5mn 22.6mn 15. 2014 The number of ordinary shares Alibaba is entitled to cause Yahoo to sell is further revised down to 140mn Post IPO Yahoo sold 121. No royalty payment will be made upon completion of Alibaba’s IPO. On Sep 18. 2012.5mn 22. USD70mn of new shares and USD360mn from Softbank. Cynthia Meng. +852 3743 8033.1bn.3bn cash payment and USD800mn worth of Alibaba Group preference shares (which was redeemed by Alibaba in full in May 2013). pursuant to which Alibaba Group made a lump sum payment of USD550mn to Yahoo and an annual royalty fee of RMB358mn. including a USD6. The equity stake was comprised of USD570mn of existing ordinary shares. 2014. Alibaba repurchased 523mn ordinary shares from Yahoo (50% of Yahoo’s initially owned stake) with a total consideration of USD7. Jefferies Note: (1) Stake calculation is based on Alibaba Group’s 2.047mn 40. Alibaba entered into a Share Repurchase and Preference Share Sale Agreement with Yahoo.5mn 22. In July 2014. FY13 and FY14 respectively. RMB592mn and RMB748mn for FY12.5mn prior to amendment Jul. the Yahoo repurchase agreement was further amended to reduce the no.047mn ordinary shares) at combined cash consideration of USD1. compared to 261. (2) Stake calculation is based on Alibaba Group’s 2. of ordinary shares Alibaba is entitled to cause Yahoo to sell to 140mn. (3) Stake calculation is based on Alibaba Group’s 2. which was later amended to 208mn in Oct 2013.com .047mn 40.5% (1) 523.4% (2) 383.491mn ordinary shares outstanding post IPO with full exercise of over-allotment option. On May 20. Alibaba and Yahoo entered into an agreement requiring Yahoo to either sell to Alibaba or to public an additional 261. On Oct 24. 2005. 2012.342mn ordinary shares outstanding prior to IPO. Sep. 2012 Alibaba entered into a Share Repurchase and Preference Share Sale Agreement with Yahoo Alibaba Group repurchased 523mn ordinary shares owned by Yahoo with a total consideration of USD7. which entitles Alibaba to make repurchase of its shares from Yahoo or cause Yahoo to sell its holding of Alibaba in a qualified IPO of the company.5% (1) 523. page 97 of 130 Please see important disclosure information on pages 126 .3bn cash payment and USD800mn 523. Alibaba and Yahoo entered into the technology and intellectual property license agreement (TIPLA). Yahoo made a strategic investment in Alibaba with a 40% stake (1.3mn in over-allotment during Alibaba's IPO Source: Company data.0% Alibaba Group.0% 1.130 of this report.328mn ordinary shares outstanding as of Mar 31. 2012 including a USD6.4% (3) worth of Alibaba's redeemable preference shares (redeemed by Alibaba in full in May 2013) Alibaba Group and Yahoo amended and reached the agreement that Alibaba is entitled to cause Yahoo to sell Oct. cmeng@jefferies.000mn and the contribution of Yahoo China. Chart 129: Alibaba’s history with Yahoo Date Milestone Number of ordinary Yahoo's stakeholding shares Yahoo holds of Alibaba Yahoo completed a strategic investment in Alibaba with a 2005 USD1bn cash payment and contributed Yahoo China to 1.7mn ordinary shares and an additional completion 18. 2013 (either directly to Alibaba Group or in the IPO) 208mn ordinary shares.

RMB1.9% of the consolidated pre-tax income of Alipay. Jack Ma. Simon Xie and other employees of Alibaba Group as well as Small and Micro Financial Services Company. which implies that he will continue to control majority of voting interests in the company. FY13. Alipay pays Alibaba royalty fees and software technology service fees equal to the sum of an expense reimbursement plus 49. +852 3743 8033. Alibaba Group will have the right to demand Alipay to effect a liquidity event provided that the equity or enterprise value of Alipay at such time exceeds USD1bn. Alibaba divested all of its interest and control over Alipay which resulted in deconsolidation of Alipay from its financial statements starting from CY1Q11.3bn and RMB740mn in FY12. a transfer of 37.BABA Initiating Coverage 27 October 2014 Small and Micro Financial Services Company Ownership structure Alipay was established in Dec 2004 to operate Alibaba’s payment services and later restructured as a separate domestic PRC-owned entity in order to obtain a payment business license from the PBOC. 2014 respectively.. Accordingly. In terms of voting right. followed by 12% by Simon Xie and 42% by Hangzhou Junao Equity Investment Partnership. RMB1. Alipay provides payment processing services to Alibaba Group and its subsidiaries in return for a fee on preferential terms to Alibaba. the minimum amount of USD2bn will not be applicable. Equity Analyst.5% or more equity interest transfer of Alipay. Upon divestiture. Fees paid by Alibaba to Alipay amounted to RMB1. as the general partner of Junao and Junhan.5% of the equity value of Alipay with a minimum payment of USD2bn and a maximum payment of USD6bn. Interests in Junhan are owned by Jack Ma. FY14 and the three months ended June 30. Small and Micro Financial Services Company will pay Alibaba Group an amount equal to 37. Alipay’s parent entity. Cynthia Meng. Ltd. FY13. page 98 of 130 Please see important disclosure information on pages 126 .130 of this report. interests of which are held by certain members of the Alibaba partnership. 2011 Framework agreement Upon the occurrence of certain liquidity events of Alipay (including an initial public offering. 2014 respectively. Jack Ma has committed to reduce his interest in Small and Micro Financial Services Company over time to 8.5% or more of the equity interests of Alipay or a sale of all or substantially all assets of Alipay). the combined ownership of Jack Ma. Pursuant to an intellectual property and software technology services agreement. FY14 and the three months ended June 30. However.com . If Alibaba demands a liquidity event and unless the liquidity event is effected by means of a 37. RMB277mn. As disclosed by the company.6bn. Alipay paid a royalty and software technology service fee to Alibaba of RMB27mn. If a liquidity event does not occur by the tenth anniversary of July 29.3bn. Junao and Junhan will continue to constitute the majority of outstanding shares of the company.764mn and RMB527mn in FY12. is able to exercise the voting power on behalf of both entities as shareholders in Small and Micro Financial Services Company. cmeng@jefferies. 2011. RMB2.9% or below. (also known as Small and Micro Financial Services Company). Jack Ma held a 46% equity stake of Zhejiang Alibaba E-Commerce Co. Alipay Commercial agreement & intellectual property and software technology services agreement Pursuant to the Alipay commercial agreement. The ownership structure of Small and Micro Financial Services Company was recently changed and currently Hangzhou Junhan Equity Investment Partnership holds 58% of equity stake with the rest held by Junao. The company intends to raise equity capital from domestic Chinese investors in the future and the shareholding of Junao and Junhan will be correspondingly reduced through dilution.

Cynthia Meng.  Upon a qualified IPO of Small and Micro Financial Services Company. such as the direct risks of credit defaults. capital adequacy. the company entered into a share and asset purchase agreement (2014 SAPA). while the profit sharing percentage has been reduced to 37. Alibaba Group will receive an annual fee equal to 2. and accordingly restructured the relationships with Small and Micro Financial Services Company and its wholly owned subsidiary Alipay.com .  The cap of USD6 bn on the liquidity event payment under the 2011 framework agreement has been removed. Under the restructured agreement. page 99 of 130 Please see important disclosure information on pages 126 .  The profit share has been restructured that the base of profits was expanded from the pre-tax income of only Alipay to the pre-tax income of all of the businesses of Small and Micro Financial Services Company. the Company will still be entitled to a payment equal to 37.5% of the equity value of Small and Micro Financial Services Company until Alibaba acquires a full 33% equity interest. The disposition allows the company to focus on the core e-commerce businesses and eliminates the direct risks and disadvantages of carrying a loan portfolio on balance sheet. The 2011 framework agreement was terminated.  Alibaba Group agreed to dispose of the SME loan business to Small and Micro Financial Services Company in exchange for cash consideration and annual fees for seven years. +852 3743 8033.9%.BABA Initiating Coverage 27 October 2014 2014 Share and asset purchase agreement (SAPA) & amended Alipay intellectual property and software technology services agreement On August 12. Alibaba is entitled to receive a payment equal to 37. 2014.5% of the average daily balance of SME loans from 2015 to 2017. and fixed annual fee equal to the 2017 annual fee from 2018 to 2021. leverage and regulatory requirements associated with a loan. Equity Analyst.5% from 49.130 of this report.5% of the equity value of Small and Micro Financial Services Company. cmeng@jefferies.

+852 3743 8033. Mr. Jonathan Zhaoxi LU (陆兆禧) succeeded Jack Ma as the chief executive officer in May 2013. Lu joined Alibaba in 2000 and has at different points served as the top executive officer of almost all of the company’s key business units. Joseph C. he served as chief executive officer of Alibaba. Lu has served on the board of directors of Youku Tudou. From 1990 to 1993. has served as the company’s executive chairman. Mr. Tsai serves on the boards of directors of several of Alibaba’s investee companies. Lu was co-founder of a network communications company. Mr. Mr.BABA Initiating Coverage 27 October 2014 Alibaba’s Management Team Chart 130: Alibaba Group's executive officers Name Age Year Joined Position/Title Jack Yun MA 50 Joseph C. In September 2004. he served as the chief data officer and also oversaw the YunOS division.. Prior to his current role. STEINERT 54 2007 General Counsel and Corporate Secretary Jian hang JIN 44 1999 President Digital Entertainment. He joined Taobao in January 2008 and served as its chief executive officer from January 2010 to June 2011.130 of this report. Tsai previously served as the chief financial officer and has been a member of the board of directors since the founding of the company. Mr. Tsai was an associate attorney in the tax group of Sullivan & Cromwell LLP. as well as chair of The Nature Conservancy’s China board of directors and a director of its global board of directors. he was vice president and general counsel of Rosecliff. YunOS and Lucy Lei PENG 41 1999 Chief People Officer Xiaofeng SHAO 48 2005 Chief Risk Officer Trudy Shan DAI 38 1999 Chief Customer Officer Timothy A. where he was responsible for Asian private equity investments. Inc. an entertainment group in China listed on The Shenzhen Stock Exchange. From 1995 to 1999. he led a dedicated team to establish Alipay and became Alipay’s first president. a New York-based international law firm. From 1999 until May 2013. page 100 of 130 Please see important disclosure information on pages 126 .. Deputy Chief Technology Source: Company Data as of September 22. Mr. Mr. From 2000 to 2004. Mr. Tsai worked in Hong Kong with Investor AB. Ma currently serves on the board of SoftBank Corp. Mr. In September 2013.com from February 2011 until its privatization in 2012. one of Alibaba’s major shareholders. Ma served as Alibaba’s chairman and chief executive officer. Equity Analyst. Mr. TSAI ( 蔡崇信) joined Alibaba in 1999 as a member of the Alibaba founding team and has served as the company’s executive vice chairman since May 2013. he joined the Breakthrough Prize in Life Sciences Foundation as a director. Ma graduated from Hangzhou Teacher’s Institute with a major in English language education. Before joining Alibaba Group. Lu received a graduate certificate in hotel management from Guangzhou University and a master’s degree in business administration from China Europe International Business School. Mr. a management buyout firm based in New York. TSAI 50 1999 Executive Chairman 1999 Executive Vice Chairman Jonathan Zhaoxi LU 44 2000 Chief Executive Officer Daniel Yong ZHANG 42 2007 Chief Operating Officer Maggie Wei WU 46 2007 Chief Financial Officer Jian WANG 51 2008 Chief Technology Officer Peng Jiang 41 2000 President. 2014 Jack Yun MA ( 马云 ) is Alibaba’s lead founder and. He is also a director of Huayi Brothers Media Corporation. Tsai is qualified to practice law in the State of New York. Since May 2014. Alibaba Cloud Computing. cmeng@jefferies. Lu held several leadership roles at Alibaba.com and managed its South China sales region.com . since May 2013. He received his bachelor’s degree in Economics and East Asian Studies from Yale College and a juris doctor degree from Yale Law School. Prior to that. Before that. Mr. Cynthia Meng. the main investment vehicle of Sweden’s Wallenberg family. Mr.

Wu was an audit partner at KPMG in Beijing. In her 15 years with KPMG. Ms. Ms. Ms. Ms. Wu is a member of the Association of Chartered Certified Accountants (ACCA) and a member of the Chinese Institute of Certified Public Accountants. Cynthia Meng. She received a bachelor’s degree in accounting from Capital University of Economics and Business.com’s financial systems and organization leading up to its initial public offering in Hong Kong in November of that year. as well as co-leading the privatization of Alibaba. Before joining the company. Equity Analyst.com and was responsible for instituting Alibaba. Wu served as the deputy chief financial officer from October 2011 to May 2013.130 of this report. page 101 of 130 Please see important disclosure information on pages 126 . she was lead audit partner for the initial public offerings and audits of several major large-cap Chinese companies listed in international capital markets and provided audit and advisory services to major multinational corporations operating in China.com . She was voted best CFO in FinanceAsia’s annual poll for Asia’s Best Managed Companies in 2010. Wu joined the company in July 2007 as chief financial officer of Alibaba.com in 2012.BABA Initiating Coverage 27 October 2014 Maggie Wei WU ( 武卫) has been the chief financial officer since May 2013. +852 3743 8033. cmeng@jefferies.

+35. mainly comprised of Wangpu storefront fees. +22.1% YoY.6bn.1% YoY. representing 2. and assuming average commission rate at 3. +44.9% YoY. continue to account for a declining revenue contribution of 1.8% YoY. +35.  Wholesale (Alibaba. +20. largely driven by strong growth in commission revenue.2% of total revenue. and RMB41.6% in FY16.8bn in FY15. Juhuasuan): We estimate China’s retail revenue to reach RMB64. Our estimates are based on continued strong growth of GMV partially offset by declining merchants’ advertising budget-toGMV ratio. accounting for 84. +46. driven by solid growth in both commission and marketing revenue. +51. due to the increasing GMV contribution from mobile on which merchants typically allocate a smaller proportion of their budget to advertising due to the smaller screen of a mobile device. and RMB7. with Tmall accounting for 37. up 35. mainly driven by growth in core retail marketplace businesses.1% of total revenue. We currently estimate FY14-17 revenue CAGR of 36%. +104% YoY.9bn in FY15.7% of total revenue. representing 6.7% YoY.4% of total revenue.5% YoY to RMB67. We expect revenue to further grow 42% YoY to reach RMB92bn in FY16.1% YoY.5% YoY and 62. +68% YoY. and RMB3.9% and the rest contributed by Taobao.  Online marketing services: We estimate online marketing service revenue to reach RMB39.4% of total revenue.1bn in FY16.5% YoY. up 20% YoY.  Others: We estimate other revenue. +32.1% YoY to RMB95. This is mainly supported by solid growth of marketing revenue as well as paying members subscribing to China TrustPass. +852 3743 8033. and RMB105bn. assuming a stable commission rate of 5%. representing 31. 39.8bn.130 of this report.8bn in FY16. 91.4% and 3. China commerce: We estimate China commerce sales to grow 50.8bn in FY15.com): We estimate China wholesale revenue to reach RMB3. Wholesale (1688. in FY16.2% of total revenue.9bn. International commerce: We estimate FY15 international commerce revenue to reach RMB6. Cynthia Meng. cmeng@jefferies.1% in FY15 and 0. This is based on strong growth of Tmall GMV of 81.3% YoY.com .3bn. representing 88.4bn in FY15.7% YoY.3% YoY.3% of total revenue.2% YoY in the respective years. accounting for 4. and 41.3% YoY. +27. and RMB50.5% of total revenue. We estimate FY16 total GMV of RMB3.  Retail (AliExpress): We estimate international retail revenue to reach RMB1.6% respectively. in FY15. +96. page 102 of 130 Please see important disclosure information on pages 126 .4% of total revenue.4bn in FY15. +36.1% of total revenue.9% of total revenue.2bn in FY16.  Commission: We estimate commission revenue of RMB24. 3. mainly supported by growth in number of paying members. We expect total GMV to reach RMB2.8bn in FY16.1bn in FY15. representing 8.3% YoY.7bn in FY15.   Retail (Taobao.BABA Initiating Coverage 27 October 2014 Financial Statements Income Statement We estimate Alibaba’s total revenue to reach RMB76. in FY16.com): We estimate international wholesale revenue to reach RMB4.6% of total revenue. Equity Analyst. accounting for 51. 47.5bn in FY15. Tmall.

+852 3743 8033. We estimate total revenue of Small and Micro Financial Services Company.2pcpt YoY to 56% in FY14. Operating profit: Non-GAAP operating margin improved 10.6pcpt YoY to 41%. page 103 of 130 Please see important disclosure information on pages 126 . benefitting from economies of scale.1% YoY to RMB31.5bn in FY15 and RMB3. Equity Analyst. Gross profit: We currently estimate non-GAAP gross margin to decline 9.2% in FY16.7pcpt YoY to 46.9% in FY15 and 1pcpt YoY to 9. We estimate cloud computing and Internet infrastructure revenue of RMB1. with a net margin of 42.4bn in FY16. up from 8. We estimate FY16 nonGAAP net profit of RMB45. +1.3% YoY.4% and 11. +43.1% YoY. as Alibaba continues to invest heavily in mobile. We currently estimate product development cost-to-sales ratio on a non-GAAP basis to be 10. We are modelling non-GAAP operating margin to decline 11.9% in FY16. Cynthia Meng. Alibaba is entitled to a profit share of 37. as well as intensified competition.5bn in FY15.3bn.6% pre-tax income margin and Alibaba’s 37. +88.1pcpt YoY at 44.1pcpt YoY to 67. respectively.BABA Initiating Coverage 27 October 2014 Cloud computing and Internet infrastructure: Alibaba offers a suite of cloud computing services to its marketplace merchants and third-party customers. +38. including but not limited to mobile rebates.1bn in FY16. product development and marketing). implying a net margin decline of 11.9%. Assuming a 12. Scale-back of investments including rebate and R&D costs could provide upside to margin in the longer term. we estimate non-GAAP net profit to grow 14.5% profit share.3pcpt YoY to 47. we estimate royalty and software technology service income Alibaba receives from Small and Micro Financial Services Company to be RMB2. taking into consideration of increasing mobile investments (including rebates. and RMB73.7% YoY.7pcpt YoY to 44.1bn.5% in FY16.com .3pcpt YoY to 68% in FY16. including Alipay’s payment processing fee.1bn. Yu’e Bao management fee and SME loan interest.  We estimate sales and marketing expense-to-sales ratio to increase by 0.130 of this report.  We expect increasing R&D dollar spending as Alibaba continues to focus on existing and new product development efforts.3% in FY15 and FY16. Net profit: Overall. Non-operating income from Small and Micro Financial Services Company: According to the 2014 share and asset purchase agreement in Aug 2014. to reach RMB48.5bn in FY15.2% in FY14. in FY15 and RMB1.6pcpt YoY to 8. EBITDA: We are modelling non-GAAP EBITDA margin to decline 11. cmeng@jefferies.5% of the pre-tax income of Small and Micro Financial Services Company. we expect to see some margin pressure this year.7% in FY15 but slightly improve 0. +25% YoY. However. in FY16.9pcpt YoY.2% in FY15 and 0. driven by an increase in advertising and promotional spending on China retail marketplaces and mobile commerce. +50.9% in FY15 and 0.8% YoY.

6bn) in FY16. Cash provided by financing activities was RMB9.2bn.e. cash and cash equivalents and short-term investments amounted to RMB57.1% (i. resulting in a net debt of RMB4. and RMB49.130 of this report. equipment and intangible assets of RMB3. 2014. Alibaba raised a total of USD25bn at an offering price of USD68 with a total of 368mn shares sold during the IPO in Sept 2014.. Alibaba will not receive any proceeds from the ADS sold by selling shareholders and hence. we estimate Alibaba received a net proceed of USD10bn (RMB62bn) from the offering. mainly due to construction of corporate campuses and office facilities in Hangzhou.6% free cash flow yield. We estimate a free cash flow of RMB21.6% free cash flow yield.com . and change in loan receivables of RMB9. representing 9. cmeng@jefferies. Cash Flow Statement Alibaba’s operating cash flow was RMB26.3bn. RMB10. Short-term investments mainly consist of fixed deposits with maturities between three months and one year.1bn) in FY15. +852 3743 8033.. equipment and intangible assets. factoring in purchase of property.2bn (USD682mn).2bn in FY16 with a 3.8bn in FY14.9bn (USD9.6bn in FY15.4% (i.BABA Initiating Coverage 27 October 2014 Balance Sheet As of June 30. acquisition of land use rights and construction in progress) of RMB4. we expect its loan receivables as well as current bank borrowing and secured borrowings that are used to fund the corresponding business will be removed from the balance sheet.1% of sales. Cynthia Meng.3bn) with RMB62. RMB9.4bn in FY14 with free cash flow of RMB32. Beijing and Shenzhen.4bn in FY14. Alibaba’s investing outflow was RMB33bn with total capex (including purchase of property.3bn. Equity Analyst.1bn (USD10bn) debt. page 104 of 130 Please see important disclosure information on pages 126 . Given the disposal of SME loan business to Small and Micro Financial Service Company announced in Aug 2014. representing a 1.e.5bn (USD13. We estimate a capex to sales ratio of 12.5bn) in FY15 and 10. We currently estimate net cash of RMB81.

6% 35.9% 9.1% 6.637 29.8% 49.562 7.0% 78.4% 4.6% 51.9% 7.3% 3.115 68.9% 58.9% 32.6% 0.080 851 680 544 Others (primarily Wangpu storefront fee) YoY % change 58.3% 25.268 5.com) 2.8% 22.0% 37.9% 38.3% 49.2% 91.7% 63. Juhuasuan) YoY % change 100.0% 3.China Commerce Retail Active Buyers 123 YoY % change Orders fulfilled (in mn) YoY % change 4.812 105.5% 11.729 39.851 6.5% 94.375 -0.0% 0.7% 27.1% 1. Tmall.BABA Initiating Coverage 27 October 2014 Chart 131: Key assumptions (Fiscal year ends on March 31.4% As % of total revenue 67.5% 6.819 92.1% 3.9% Commission YoY % change As % China commerce retail 21.160 4.847 2.3% 47.780 6.223 57.0% YoY % change As % of International Commerce 94.7% 35.422 26.0% 42.2% -20.132 67.6% As % China commerce retail 73.7% 10.804 YoY % change 19.970 42.5% 1.037 35.913 4.4% 19.604 21. Equity Analyst.0% 27.4% 2.5% 1.8% 139.182 9.9% 223 392 938 1.5% Online Marketing Service 9.0% 20.4% 91.com) 3.5% 54.3% 22.7% -28.7% 76.1% 46.2% 8.3% 36.8% 12.336 1. +852 3743 8033.7% 25.289 72.0% 69.130 of this report.5% 72.3% 1.2% -2.361 53.8% 20.300 3.1% 1.697 29.1% 1.6% 17.4% 4.0% 0.1% 0.0% -20.9% 95.7% 50.0% 30.0% As % China commerce retail 5.6% 18.7% 71.7% 44.182 172 255 380 540 739 39.8% 13.6% 4.831 121.069 1.0% 57.2% 18.1% 84.8% 2.1% 33.0% 68.5% 50.0% 20.025 34. cmeng@jefferies.1% 104.9% 66.1% As % of total revenue 1.5% 86.3% 20.6% 3.8% 92.6% 3.1% 4.9% 41.750 22.6% 80.5% As % total revenue 3.5% 3.0% 86.0% As % total revenue 49.832 64.4% 52.0% 38.605 3.1% 9.6% 0.6% 11.5% 2.517 52.8% 51.9% 1.3% 42.137 100.9% As % of total revenue 17.0% 16.8% 28.532 41.2% 108 540 1.9% 39.931 95.542 3.8% 14.7% 0.3% 0.504 76.0% 7.5% 6.748 1.1% As % of China Commerce 85.4% 95.954 As % of total revenue Retail (Taobao.715 5.915 6.112 3.6% 1.0% 73.5% -100.821 4.7% 9.6% Wholesale (Alibaba.0% 2.5% 50.023 24.8% Cloud computing and internet infrastructures YoY % change As % of total revenue Others (mainly interest income from micro loans) YoY % change As % of total revenue Total Revenue (in RMB mn) YoY % change Operation Metrics .3% 1.5% 16.167 45.8% 4.1% 81.2% 26.436 50.873 9.9% 50. in RMB mn) FY2012A FY2013A FY2014A FY2015E FY2016E FY2017E China Commerce 15.0% 96.2% 43.1% 26. Cynthia Meng.8% 54.0% 4.1% 37.0% YoY % change As % of International Commerce 5.765 4.768 3.0% As % total revenue 14.8% 2.010 116.2% 2.4% Wholesale (1688.7% 10.5% 1. Jefferies Note: FY15 refers to fiscal year ended March 31.5% 7.3% 28.224 12.4% 96.8% 60.0% 88.6% 84.4% 3.3% 96.4% 703 1.1% 56.040 132.9% 31.7% Source: Company data.7% 22.2% 2.4% 515 650 773 1.1% 2.1% 5.4% 87.0% 223.1% 18.272 111.6% 400.6% 88.2% 72.329 YoY % change 104. 2015 page 105 of 130 Please see important disclosure information on pages 126 .197 2.161 12.5% 41.8% 44.6% 37.com .215 YoY % change As % of China Commerce As % of total revenue International Commerce YoY % change As % of total revenue Retail (AliExpress) 14.112 1.5% 7.250 0 0 -71.402 75.1% 90.4% 60.9% -21.2% 4.6% 78.107 59.4% 1.8% 48.5% 5.

4% 28.9% 86.1% 8.1% 14.5% 9.6% 33. Jefferies Note: FY15 refers to fiscal year ended March 31.7% -0.8% 45.6% 109.0% 3.4% 647 998 1.154 13.173 1.9% 11.1% 2.0% 37.2% 113 253 505 917 1.7% 40.94% 3.2% 13.130 of this report.480 80.6% 10.5% 47.777 46.1% 24.8% 30.9% 44.55% 2.349 50.5% 62.2% 38.9% 45.China Commerce Retail Total GMV (in RMB bn) FY2012A FY2013A FY2014A 663 1.0% Product development expenses 12.91% 1.003 49.5% 50.3% 48.4% GAAP Operating Margin 25.402 73.1% 54.8% Non-GAAP Net Margin 45.608 43.9% 65.5% 30.4% 10. 2015 page 106 of 130 Please see important disclosure information on pages 126 .610 31.3% 9.581 39.1% 4.559 15.6% 12.1% 24.1% 43.3% 62.3% 71.369 27.9% 0.7% 9.4% 55.0% 3.3% 8.1% 14.9% 99.7% 37.5% 60.54% 3.6% 3.9% 26.8% 74.4% 11.541 229.1% 35.960 47.8% 576.652 GAAP Gross Margin 67.162 47.5% 63.665 YoY % change Non-GAAP Net Profit YoY % change Net Cash (net debt) 20.8% 18.2% -0.0% Non-GAAP Operating Margin 32.970 37.com .502 1.413 44.869 27.068 1.82% 2.9% 9.461 4.781 2.8% 7.922 2.3% 32.015 10.8% 13.9% 17.4% 19.486 130.157 35.657 44.350 1.4% 170.1% Source: Company data.2% 52.2% 69.5% 26.5% 0.0% 23.927 45.180 40.3% 36.920 28.9% 42.077 - YoY % change As % of China Commerce retail revenue PC Monetization rate YoY % change Non-GAAP expenses as % of revenue Cost of revenue 30.5% 92.719 13.0% 44.9% 191.5% 4.5% 34.8% 2.953 25.5% 69.649 23.7% 72.7% 6.50% 2.4% 66.3% 32.676 85.6% 41.0% 30.5% 49.3% 27.1% GAAP Net Margin 21.3% Non-GAAP EBITDA Margin 36.6% 64.4% 0.418 3.1% 35.2% 6.68% 2.268 4.4% -8.9% 98.8% 30.486 46.9% 44. cmeng@jefferies.6% 16 79 319 1.427 92.5% 0.70% 0.6% 81.4% 34.1% 12.0% 70.9% 300.3% 25.5% 51.1% 36.8% 13.0% 3.605 YoY % change Taobao Marketplace GMV 550 YoY % change % of Total GMV Tmall GMV YoY % change % of Total GMV Overall monetization rate Commission rate Mobile GMV (in RMB bn) YoY % change % of Total GMV Mobile Revenue (in RMB mn) 2.1% 37.0% 42.2% 33.060 58.3% Capex as % of revenue 10.1% 9.3% As % of China Commerce retail revenue Mobile Monetization rate YoY % change PC GMV (in RMB bn) YoY % change % of Total GMV PC Revenue (in RMB mn) FY2015E FY2016E FY2017E 1.4% 3.979 71.4% 131.3% 48.359 1.9% 76.34% 3.289 51.3% 37.8% 41.0% 55.2% 58.678 2.338 54.069 62.802 29.1% 389 2.0% 44.3% -0. +852 3743 8033.2% 10.5% 36.5% - YoY % change 646.5% 824 1.467 General and administrative expenses Gross Profit YoY % change Non-GAAP Gross Profit YoY % change Operating profit YoY % change Non-GAAP Operating profit YoY % change Net Profit 140.905 19.4% 2.5% 99.66% 2.7% 67.9% 0.346 1.1% 23.87% 3.066 123.24% 2.255 37.8% Sales and marketing expenses 14.31% 2.3% 3.8% 67.382 58.1% 5.2% 46.02% 2.6% 125.BABA Initiating Coverage 27 October 2014 Chart 132: Key assumptions (Fiscal year ends on March 31. Cynthia Meng.1% 58.1% 47.1% 7.3% -0.5% 46.0% 17.7% 51.4% 79.2% 44.6% 8.8% 1.2% 32.6% 97.4% 40.487 2.309 29.554 9. Equity Analyst.8% 44.730 386.5% 7.0% 29.4% 29.7% 2.392 34.434 48.5% 5.403 31.776 2.0% 76.7% 44.8% 42.557 81.6% 81.8% 36.8% 56.489 45.6% 93.751 24.0% 31.0% 18.9% 62.9% 235.84% 2.9% 9.3% Non-GAAP Gross Margin 69.49% 0.3% 34.4% 6.7% 0.1% 8.3% 11.3% 0. in RMB mn) (cont’d) GMV Metrics .703 114.4% 0.7% 68.4% 83.

1% 56.5% 1.382 16.077 9.4% 1. Jefferies Note: FY15 refers to fiscal year ended March 31.6% 3.0% 88.5% 20.5% 6.7% 9.3% 49.1% 27.0% 30.3% 0.8% 2.0% 96.8% 14.1% 84.289 72.1% 0.2% 7.0% As % of total revenue 1.0% As % of total revenue 14.224 12.6% 25.5% 50.697 7.6% 50.8% 3.1% 1.2% 4.4% 91.0% 27.448 19.172 4.0% 0.6% 51.com) YoY % change As % of China Commerce 14.6% As % of total revenue 18.8% Commission 463 YoY % change 992 1.9% 63.0% 7.8% 92.com) 563 607 629 760 849 932 7.1% 2.8% 49.8% 223.0% 57.0% 20.0% 16.0% 73.8% 41.5% 7.2% 43.9% 7.5% 68.7% 52.6% Wholesale (Alibaba.1% 4.853 YoY % change 103.0% As % of total revenue 17.296 76.6% 36.6% 89.058 1.1% 3.5% 3.182 5.7% 25.361 53.5% 4.1% As % of total revenue 78.6% As % of total revenue 49.5% 2.6% 35.2% 17 87 281 202 0 0 -70.6% 0.4% YoY % change Cloud computing and internet infrastructures YoY % change As % of total revenue Others (mainly interest income from micro loans) YoY % change As % of total revenue Total Revenue (in USD mn) YoY % change 82 105 124 172 215 258 27.2% 8.9% 27.6% As % of International Commerce 5.6% 51.4% 96.4% 74.3% -3.5% 72.8% 44.5% 6.558 8.130 of this report.7% 20.1% 9.1% 18.7% 11.269 1.0% 37.7% 10.4% 4.7% 71.4% 4.6% 42.1% As % of China Commerce 85.9% As % of China Commerce Retail 21.533 103.5% 1.1% 5.6% 0.1% 6.5% 94.1% 37.9% 66.7% 0.6% 3.0% 42.3% 1.com .558 YoY % change 3.0% 97.0% Others (primarily Wangpu storefront fee) YoY % change As % of China Commerce Retail 5.9% 31.8% 12.343 6. in USD mn) FY2012A FY2013A FY2014A FY2015E FY2016E FY2017E China Commerce 2. Retail) 2.1% 90.2% 91.357 8.2% 406.2% 2.4% 112 179 174 137 110 88 60.0% 12.1% 81.4% 60.7% 76.0% -21.932 21.6% 22.8% Retail (Taobao.4% As % of total revenue 67.0% 78.0% -20.950 YoY % change 15.0% 3.0% 54.1% 37.449 14.1% 33.934 3.7% Source: Company data.2% 139.6% 50.3% 41.4% 87.954 6.6% Wholesale (1688.0% 46.133 4.3% 1.8% 32.480 YoY % change 15.6% -67.8% Operation Metrics Active Buyers 123 YoY % change Orders fulfilled (in mn) YoY % change 4.9% 104.0% 16.7% 22.6% 80.8% 38. Cynthia Meng.4% 19.3% 28.9% 18.446 12.0% As % of China Commerce Retail 73. 2015 page 107 of 130 Please see important disclosure information on pages 126 .5% 86.0% 69.8% 60.484 4.5% 1.6% 84. Equity Analyst.8% 54.0% 2.4% 352 354 370 502 616 705 0.6% 1.260 10.5% Online Marketing Service 1.182 172 255 380 540 739 39.3% 47.558 26.1% 1.8% 22.1% -20.5% 5. cmeng@jefferies.645 9.6% 17.232 114.0% 38.8% 28.9% 35 63 151 298 420 548 International Commerce Retail (AliExpress) YoY % change 78.750 22.5% 50.0% 0.7% As % of International Commerce 94.5% 3.4% 2.832 18.8% 48.0% As % of total revenue 11.3% -100.9% 1.BABA Initiating Coverage 27 October 2014 Chart 133: Key assumptions (Fiscal year ends on March 31.782 6.5% As % of total revenue 3.037 35.4% -28.890 10.7% 58.6% 88. Tmall.9% 9.9% 39.7% 44.2% 94.9% 95.6% 4.0% 4.1% 1.5% 35.3% 598 670 780 1. +852 3743 8033.

9% 42.49% 0.9% GAAP Gross Margin YoY % change 67.0% 30.7% 67.6% 33.8% 7.43% 3.437 YoY % change Non-GAAP Net Profit -47.509 6.0% 42.7% 68.9% 0.82% 2.0% 55.6% 12.9% 76.0% Product Development Expenses 12.1% 37.84% 2.9% 11.3% 18.24% 2. Jefferies Note: FY15 refers to fiscal year ended March 31.com .5% 1.6% 64.055 6.7% 37.2% 85.5% 36.8% 29.5% 63.3% YoY % change As % of China Commerce retail revenue PC Monetization rate YoY pcpt change Non-GAAP expenses as % of revenue Cost of Revenue 30.7% 40.31% 2.2% 52.130 of this report.9% 59.8% YoY % change % of Total GMV FY2015E FY2016E FY2017E 173 17.4% -8.7% 2.481 8.7% 72.3% Non-GAAP Gross Margin 69.119 7.55% 3.3% 9.1% 13.9% 62.4% 29.4% 40.3% 62.2% 28.263 9.031 7.4% 0. 2015 page 108 of 130 Please see important disclosure information on pages 126 .1% 24.4% 0.988 50.5% - 13 51 172 310 440 393.1% 24.0% 31.441 5.1% 47.5% 69.379 11.1% 23.9% 170.9% 99.1% 63 467 3.3% 3.8% 36.151 4.5% 7.0% Non-GAAP Operating Margin 32.02% 2.3% 131.2% 69.2% 46.0% 70.04% 3.454 2.54% 3.2% 1.3% Capex as % of revenue 10.8% 45.425 General and Administrative Expenses Gross Profit YoY % change Non-GAAP Gross Profit YoY % change Operating profit YoY % change Non-GAAP Operating profit 1.8% 56.4% 109.5% 34.8% 67.3% 48. cmeng@jefferies.3% 37.1% 54.767 7.1% 7.0% 44.163 50.55% 2.4% 14.545 4.1% 2.7% 44.2% 44.70% 0.3% Non-GAAP EBITDA Margin 36.690 117.55% Mobile Metrics Mobile GMV (in USD bn) 3 YoY % change % of Total GMV Mobile Revenue (in USD mn) 2.0% 23.8% 17.0% 76.34% 3.4% 2.7% 9.4% 300.3% 27.169 7.3% 36.1% 8.7% 51.6% 98.4% 11.158 11.009 4.728 5.2% 18 41 81 148 240 333 126.4% 83.1% Source: Company data.4% 161 219 218 217 216 56.6% 81.3% 43.8% 1.68% 2.908 82.50% 2. +852 3743 8033.3% 33.6% 34.4% 35.5% 797 1.5% 189 242 287 323 42.555 6.3% -0.1% -0.524 87.559 7.03% 3.5% 50.9% 45.66% 2. Equity Analyst.91% 1.1% 58.3% 48.477 9.6% 13.5% 46.6% 53.041 1.1% 12.865 YoY % change As % of China Commerce retail revenue Mobile Monetization rate YoY % change PC GMV (in USD bn) 103 YoY % change % of Total GMV PC Revenue (in USD mn) 646.4% 81.2% -0.8% 30.3% 32.1% 29.8% Non-GAAP Net margin 45.China Commerce Retail Total GMV (in USD bn) FY2012A FY2013A FY2014A 105 YoY % change Taobao Marketplace GMV 87 Commission rate 527 656 55.5% 92.3% 0.1% 79.5% 236.423 7.8% 18.022 5.6% 8.8% Sales and Marketing Expenses 14.9% 62.8% 30.1% 741 1.5% 47.3% 71.9% 44.4% 6.87% 3.5% 26.280 7.9% 44.7% 0.94% 3.2% 32.4% 66.6% 10.8% 74.3% 8.042 YoY % change Net Profit 144.2% 38.3% 32.1% GAAP Net margin 21.8% 2.565 2.0% 578.5% 4.280 6.3% 11.3% 5.674 6.2% 58.9% 14.5% 0.4% GAAP Operating Margin 25.5% 30.1% 36.1% 35.3% 25.9% 65.9% - 4.BABA Initiating Coverage 27 October 2014 Chart 134: Key assumptions (Fiscal year ends on March 31.0% 125.0% 44.765 5.6% 133 Tmall GMV Overall monetization rate 270 51.6% 34.9% 9.6% 93.1% 9.4% 19.9% 0.217 4.6% 97.731 4.04% 3.7% 2.393 3.4% 10.5% 49.9% 98.3% 37.6% 41.514 14.8% 41. Cynthia Meng.076 7. in USD mn) (cont’d) GMV Metrics .9% YoY % change % of Total GMV 390 64.5% 0.9% 9.8% 2.5% -0.6% 44.2% 10.233 4.

8% 6.648 6.751 24.403 31.467 173.228 8.120 Net Interest Income 536 -1.8% 56.1% 35.7% 25.960 47.123 35.495 YoY% change Non-GAAP Cost of Revenue Operating Profit (in RMB mn) YoY% change Operating Margin Non-GAAP General and Administrative Expenses Non-GAAP Operating Profit (in RMB mn) YoY% change Non-GAAP Operating Margin Depreciation and amortization Non-GAAP EBITDA (in RMB mn) YoY% change Non-GAAP EBITDA margin 52.504 FY2015E FY2016E FY2017E 20.429 2.61 2.50 Non-GAAP Earnings per ADS.1% 14.9% 45.559 15.337 12.491 2.157 35.585 2.803 4.449 -6 -203 -990 -1.979 71.503 3.5% 34.3% GAAP Earnings per ADS.1% 29.649 23.112 -842 -1.920 28.266 2.012 11.634 Non-GAAP Gross Profit 13.200 -1.522 2.4% 52.863 10.356 6.1% 58. diluted (in USD) 0.7% 67.4% 101.1% 36.BABA Initiating Coverage 27 October 2014 Chart 135: Income statement (Fiscal year ends on March 31.9% 44.950 6.274 16.6% 41.243 2. diluted (in RMB) 3.802 37.7% 8.480 Non-GAAP Gross Margin 69.2% 52.32 3.464 2.1% Non-GAAP Product Development Expenses 2.332 2.3% 85.863 4.27 0.612 4.5% 36.255 37.315 31.154 13.0% 70.1% 103.777 257.442 300 617 665 184 Royalty and software technology service fee income 27 277 1.3% 114. 2015 page 109 of 130 Please see important disclosure information on pages 126 .32 3.832 33.525 -8.3% 715 805 1.0% 31.7% 72.1% 41.755 2.5% 15.90 2.2% 44. +852 3743 8033.491 Non-GAAP net margin YoY% change Source: Company data.59 0.382 58.807 2.441 2.60 1.015 5.200 4.93 1.195 -2.457 -25 Interest income Others Government grant and others Net income before income tax and share of results of equity investees Income Tax Share of results of equity investees Net (loss)/profit Net income attributable to noncontrolling interests Net (loss)/profit attributable to Alibaba Group (in RMB mn) YoY% change Net margin Non-GAAP net profit (in RMB mn) YoY% change - - 2.528 3.81 11.392 34.390 15.27 0.812 105.92 3.648 8. cmeng@jefferies.1% 47. Equity Analyst.97 1.5% 62.298 8.120 -3.648 6.1% 32.1% 46.300 -346 -416 438 6.04 2.3% 25.9% 86.130 of this report.7% 128.427 92.389 2.541 229.96 2.66 2.867 -3.325 -3.4% 131.06 2.8% 26.015 10.180 40.7% 44.0% 46.777 46.79 245.613 39.7% 68.5% 47.180 Others 327 894 2.491 2.5% 51.2% 46.618 2.8% 13.0% 17.703 279.5% 140.210 2.3% 33.503 56.893 2.8% Other Income Interest and investment income 258 39 1.63 5.289 51.9% WA ADS basic (mn) 2.9% 76.117 -985 -255 1.517 68.06 2.3% 36.922 3.92 3.532 10.9% 44.5% 46.696 116 571 747 26.6% 36.468 3.6% 29.58 1.251 - - Interest expenses -68 -1. Cynthia Meng.388 7.855 141.489 45.8% 36.665 8.907 -6.1% 24. basic (in USD) 0.3% 9.5% 21.4% 40.242 48.025 76.3% 34.339 1.08 2.0% 5.02 GAAP Earnings per ADS.072 9.060 58.479 2.493 4.8% 45.764 Annual fee on micro loan - - 5.300 604 455 1.0% 42.676 30.532 23.802 29.850 61.02 Non-GAAP Earnings per ADS.196 -4.84 12.445 4.848 15.054 43.7% 40.569 Non-GAAP Sales and Marketing Expenses 2.8% 173.115 1.2% 72. in RMB mn) FY2012A FY2013A FY2014A Total Revenue (in RMB mn) 34.572 -2.4% 34.040 132.0% 44.869 27. Jefferies estimates Note: FY15 refers to fiscal year ended March 31.5% 26.579 3.0% 17.953 25.676 -437 -117 -88 -34 - - - 4.1% 43.491 WA ADS diluted (mn) 2.com .215 24. diluted (in USD) 0.294 2. basic (in USD) 0.607 30.09 23.731 36.486 46.9% 34.79 Non-GAAP Earnings per ADS.3% 48.7% 25.610 31.58 0.5% 99.300 4.78 18.

182 5.765 5.481 8.2% 44.4% 101.491 2.8% 56.9% WA ADS basic (mn) 2.1% 36.3% 48.0% 17.042 2.767 7.674 4.58 1.379 11.429 749 1.491 YoY% change Source: Company data.3% 85.751 5. Jefferies estimates Note: FY15 refers to fiscal year ended March 31.1% 47.2% 46.93 1.971 141.292 1.2% 72.4% 40.628 4.1% 14.7% 128.02 Non-GAAP Earnings per ADS.6% 41.874 9.1% 43.79 2.02 GAAP Earnings per ADS.156 2.555 6.7% 67.491 WA ADS diluted (mn) 2.1% 29.5% 62.106 1.418 6.973 7.454 2.59 0.690 279.441 5.3% 114 130 215 283 398 546 1.842 7.7% 68. cmeng@jefferies.8% 36.022 5.464 2.04 2.7% 25.5% 15. Equity Analyst.965 4.8% 173.90 2.332 2.1% 35.5% 46. basic (in USD) 0.0% 70. in USD mn) FY2012A FY2013A FY2014A Total Revenue (in USD mn) FY2015E FY2016E FY2017E 3.5% 99.0% 44.0% 17.263 9.61 2.266 2.1% 58.017 5.06 2.9% 76.92 3.27 0.5% 140.504 1.296 68.2% 52.7% 8.1% 24.3% 1.5% 36.06 Non-GAAP Earnings per ADS.498 Non-GAAP General and Administrative Expenses 301 416 361 422 452 476 1.8% 41 6 265 1. diluted (in USD) 0.com .66 2.08 2.9% 44.3% 25.016 -55 -67 70 1.076 7.1% 103.7% 44.908 Non-GAAP Gross Margin 69.5% 34.3% 114.425 173.003 5.524 257.932 21.728 5.362 -4 -1 -33 -160 -193 -193 741 1.393 3.1% 46.3% 36.7% YoY% change Non-GAAP Cost of Revenue Operating Profit (in USD mn) YoY% change 25.382 16.311 5.79 245.5% 51.32 3.522 2.675 2.96 2.7% 72.374 3.477 9.389 Non-GAAP Gross Profit 2.9% 44.5% 26.514 14.9% 86.0% 797 1.8% 26.294 2.944 5.27 0.5% 47.8% 13.5% 21.910 2. +852 3743 8033.60 1.119 7.58 0.055 6.479 2.1% 32. 2015 page 110 of 130 Please see important disclosure information on pages 126 .012 9.052 -1.3% GAAP Earnings per ADS.441 2.079 -134 -235 -514 -791 -1.731 4.016 96 73 195 421 749 1.1% 41.BABA Initiating Coverage 27 October 2014 Chart 136: Income statement (Fiscal year ends on March 31.6% 36.3% 33.0% 30. diluted (in USD) 0.97 1.510 Non-GAAP Sales and Marketing Expenses 464 562 701 1. basic (in USD) 0.3% 34.0% 42.9% 34.32 3.008 -11 -253 -353 -462 -503 -503 Net Interest Income 85 -180 -158 -41 246 513 Others 52 144 391 452 647 877 48 99 107 30 - - 45 284 403 555 757 19 92 120 Non-GAAP Operating Profit (in USD mn) YoY% change Non-GAAP Operating Margin Depreciation and amortization Non-GAAP EBITDA (in USD mn) YoY% change Non-GAAP EBITDA margin Other Income Interest and investment income Interest income Others Interest expenses Government grant and others Royalty and software technology service fee income Annual fee on micro loan Net income before income tax and share of results of equity investees Income Tax Share of results of equity investees Net (loss)/profit Net income attributable to noncontrolling interests Net (loss)/profit attributable to Alibaba Group (in USD mn) YoY% change Net margin Non-GAAP net profit (in USD mn) YoY% change Non-GAAP net margin 4 - - - - - 879 1.767 7.446 12.4% 52.491 2.4% 131.217 4.6% 29.4% 34.130 of this report.1% Non-GAAP Product Development Expenses Operating Margin 410 531 691 1.8% 965 1.524 -69 -19 -14 -5 - - 672 1.8% 45.389 2.233 4.437 229.92 3.558 8.0% 31.9% 45. Cynthia Meng.7% 40.545 4.559 7.009 4.

145 282.554 14.175 5.839 0 Current liabilities Current bank borrowings Secured borrowings Accrued expenses.321 1.191 0 0 0 0 49.666 24.010 232.023 3.857 30.208 8.425 11.660 1.961 11.098 9.350 1.372 234.522 1.426 13.436 11.238 16.997 2.716 76.130 of this report.443 24.677 90.711 49.514 1.818 130. +852 3743 8033.533 155 135 269 768 1.442 1. net Prepayment and other assets Total current asset Non current asset Land use rights.466 1.581 11.162 67.462 30. Cynthia Meng.136 2.555 17.532 107.731 92.418 121.190 Intangible assets.443 Investment securities 248 242 3.599 4.159 0 0 0 Investment securities 593 629 1.737 1.679 8.188 Escrow money payable 339 1.384 38.109 29.264 0 0 0 4.549 223.681 10.136 2.970 5.410 7.087 3.136 0 5.635 55.587 5.289 29.797 52.046 28.793 29.921 6.890 5.045 124.463 3.616 12.118 6.com .715 Short-term investments 4.642 1.740 70.347 53.895 1.535 17.136 2.413 11.083 4.659 8. receivables and other assets Accounts receivable.734 4.737 1.289 1.970 5.428 353.731 3.294 11.504 13.533 66. Equity Analyst.652 Total shareholder's equity 34. 2015 page 111 of 130 Please see important disclosure information on pages 126 .290 10.190 3.854 2.187 Total liabilities and shareholder's equity 47.435 1.970 Restricted cash and escrow receivables 3.496 2.899 23.497 1.624 43.320 6.549 223.289 29.786 111.118 Loan receivables.737 1.065 Investment in equity investees 1.581 8. net Goodwill Prepayment.267 1.315 2.687 4.461 8.053 4.529 Total Liabilities 12.906 6.854 4.887 17. net 2.312 3.350 4.396 33.786 111.211 27.065 Income tax payable 375 259 1.046 40.929 6.613 175.050 1.899 43.549 173.210 63.033 49.752 263.449 11. cmeng@jefferies.033 104 60 72 1.833 146.751 23.428 353.669 1.073 Property and equipment.745 33. accounts payable and other liabilities Accounts payable Accrued expenses and other liabilities 1.033 Redeemable preference shares Non-current bank borrowings 0 22.946 Prepayments.858 198 697 649 844 840 793 4. net 581 4.839 Other liabilities Total non-current liabilities Source: Company data.311 20. receivables and other assets 1.251 Total non current asset 19.145 282.701 1.949 29.449 11.995 37.283 3.321 83.828 52.443 24.766 Total asset 47.887 2.743 23.808 5.554 14.118 6.824 198.691 Merchant deposits 745 3.BABA Initiating Coverage 27 October 2014 Chart 137: Balance sheet (Fiscal year ends on March 31.535 3. Jefferies estimates Note: FY15 refers to fiscal year ended March 31.704 54. net 355 334 1.210 63. in RMB mn) RMB mn FY2012A FY2013A FY2014A FY2015E FY2016E FY2017E Current asset Cash and cash equivalents 16.496 8.100 0 0 0 2.547 9.892 9.190 3.659 3.264 11.711 6.783 Deferred revenue 529 389 428 538 735 925 Deferred tax liabilities 413 643 2.124 Deferred revenue and customer advances Total current-liabilities 11.

657 8. cmeng@jefferies.617 4. accounts payable and other liabilities Accounts payable Accrued expenses and other liabilities 31 112 104 136 135 128 709 1.433 6.501 10.861 4.867 3.130 4.362 1.912 2.940 39 39 486 514 514 514 1.111 1.117 0 0 0 Investment securities 94 101 232 280 280 280 265 279 753 1.488 14.331 1.021 2.428 Total liabilities and shareholder's equity 7.950 10.940 7.054 28. in USD mn) USD mn FY2012A FY2013A FY2014A FY2015E FY2016E FY2017E Current asset Cash and cash equivalents 2.721 4. net Prepayment and other assets Total current asset 25 22 43 124 169 213 241 257 709 1.863 2. net 391 613 898 1.501 10.912 23.779 6.904 7.014 6.389 2.813 Current liabilities Current bank borrowings Secured borrowings Accrued expenses.508 10. receivables and other assets Accounts receivable.364 8.610 Total shareholder's equity 5.378 270 305 267 245 241 255 1.944 35.566 21.951 Total Liabilities 2.032 12.527 57.038 42.343 Prepayments.693 2. Equity Analyst.807 8.271 17.685 Income tax payable 60 42 204 299 409 514 Escrow money payable 54 212 428 627 858 1.659 Total current-liabilities Deferred revenue 84 63 69 87 119 149 Deferred tax liabilities 66 104 344 344 344 344 Redeemable preference shares 0 836 0 0 0 0 Non-current bank borrowings 0 3. Jefferies estimates Note: FY15 refers to fiscal year ended March 31.897 4. Cynthia Meng. net Goodwill Prepayment. 2015 page 112 of 130 Please see important disclosure information on pages 126 .864 6.378 14.238 1.490 0 0 0 740 1.916 17.130 of this report.362 1.808 2.631 Total asset 7.703 962 962 962 Restricted cash and escrow receivables 526 594 792 986 986 986 Loan receivables.940 3.817 1.819 1.940 3.527 57.045 1.038 Total non-current liabilities Source: Company data. net 92 713 2.303 13.343 1. +852 3743 8033.068 3.725 4.519 1.860 3.944 35.468 1.001 1.947 37.077 27.316 20.751 Investment in equity investees 261 250 2.033 8.321 7.970 45.com . net Land use rights.721 4.721 233 241 336 492 673 847 Total non current asset 3.724 3.842 3.603 Investment securities Intangible assets.406 Non current asset Property and equipment.BABA Initiating Coverage 27 October 2014 Chart 138: Balance sheet (Fiscal year ends on March 31.038 204 539 177 0 0 0 0 338 1.970 45.835 Short-term investments 776 369 1.493 11.259 8.443 1.904 7.863 2.079 Merchant deposits 118 496 758 1.211 37.911 Deferred revenue and customer advances 691 794 1.678 4.629 5. receivables and other assets 56 54 307 1.315 19.271 17.667 32.904 Other liabilities 17 10 12 322 440 554 166 4.895 5.

84 FCF Yield 0.468) 74 167 Net cash used in investing activities Net cash generated from (used in) financing activities Exchange rate effect on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Free cash flow 0 (3.168 9.406) (76) 89 (6.828) (9.466 0 0 0 4 120 442 0 0 0 0 Changes in operating assets and liabilities net of effects of acquisition Restricted cash (113) (974) (1.951 59. net of cash acquired (462) (125) 475 (54) 545 (1.108) 334 (8.701 0 0 0 0 0 91.329) (1.496) Amortization of intangible assets 155 130 315 572 1.715 8. Equity Analyst. +852 3743 8033.403 31. receivables and other assets (240) (354) (3.728 2.997) (12.396 33.371 1. 2015 page 113 of 130 Please see important disclosure information on pages 126 .5% 2.676 1.77 24.054) 128 437 1.197) 0 Loan receivables (226) (2.857 30.491) (307) (420) (528) 1 301 0 0 0 0 (732) 0 0 0 (46) 0 0 0 0 0 0 0 0 0 0 551 Loans to employees.26 13.649 59.379 43.200 150 104 1.175) 13.6% 4.549 173.008 587 681 653 976 1.388 (Gain) Loss on disposal of equity investees (24) (68) 3 0 0 Realized and unrealized loss (gain) related to investment securities 138 (80) (90) 0 0 0 Change in fair value of other assets and liabilities 264 245 21 0 0 0 (387) 0 0 0 Equity-settled donation expense Depreciation and amortization of PP&E and land use rights Loss (Gain) on disposal of other subsidiaries 3 (8) (17.589 4.649 23.437) (1. cmeng@jefferies.159 0 Prepayments.564 Impairment of goodwill and intangible assets 135 175 44 0 0 0 3 3 0 0 0 0 Loss on disposal of PP&E Share of results of equity investees Deferred income tax Allowance for doubtful accounts relating to micro loans 25 6 203 990 1.628 2.219) (10.286 16.300 Adjustments for cash generated from operating activities: Share-based compensation 0 0 1.617 0 0 0 0 0 0 0 0 0 0 Cash flows from investing activities: Decrease (Increase) in short term investments Increase (decrease) in restricted cash Decrease (Increase) in trading investment securities Acquisition of available-for-sale and held-to-maturity investment securities Disposal of available-for-sale investment securities Acquisition of property and equipment and intangible assets Acquisition of land use rights and construction in progress Disposal of property and equipment (2. net ot repayment (305) (344) (212) Acquisition of equity investees (761) (452) (16.243 61.871 FCF/share 3.259 2.745 32.227) 0 (4.269 0 0 0 715 805 1.606 2.567) (4.665 8.972) 1.657 3.045 124.777) 0 (32.387 73.338 1.372 234.430 1.823 61.468 3.476 26.254 1.504 48.752 19.6% 3.992 7.045 124.BABA Initiating Coverage 27 October 2014 Chart 139: Cash flow statement (Fiscal year ends on March 31.549 173.777 46.966 26 372 (9.181 2.862 2.5% 1.844 5.781 6.063 3.332 3.47 8.303 3.396 33.5% Source: Company data.539 2.857 30. in RMB mn) FY2012A FY2013A FY2014A Net income (loss) FY2015E FY2016E FY2017E 4.200 1.84 8.364 (97) 9.com .965) 9.564) (11.285) (20) Disposals of equity investees 0 (1.905 7.571 13.372 16.429 Income tax payable Escrow money payable Accrued expenses.533 2.143) (11.231 1.304) 199 167 (12) (147) (508) (60) (2.574 49.130 of this report. Jefferies estimates Note: FY15 refers to fiscal year ended March 31.148) (10.269 21. Cynthia Meng.343 7.75 19.737) 230 (116) 1.613 583 2.755 2.419) (1.308 3. accounts payable and other liabilities Merchant deposits Deferred revenue and customer advances Net cash generated from operating activities 94 (4. net of cash proceeds 0 (749) (191) Cash paid for business combination.457) (1.275 14.157 35.339 1.046) (52) Deconsolidation and disposal of subsidiaries.344 1.940 6.420 9.6% 1.

331 4.844) Acquisition of land use rights and construction in progress (225) (235) (240) (50) (68) (85) 0 0 0 (118) 0 0 0 Disposal of property and equipment Cash paid for business combination.476) Prepayments.55 1.393 199 0 114 FY2015E FY2016E FY2017E 3.624 0 0 0 0 0 14.765 5. +852 3743 8033.23 1.254 1.521 2.BABA Initiating Coverage 27 October 2014 Chart 140: Cash flow statement (Fiscal year ends on March 31.6% 4.478 7.5% 2.890 5.678 4.573 11. net ot repayment Acquisition of equity investees Disposals of equity investees Net cash used in investing activities Net cash generated from (used in) financing activities Exchange rate effect on cash and cash equivalents 4 (1.835 Free cash flow 9.888 (16) (1.6% 1.077 27.714 4.180 426 Cash and cash equivalents at beginning of the year 1. Cynthia Meng.191 3.158 2.929) Net increase in cash and cash equivalents 1.649) 0 0 12 27 (20) 88 75 (9) (226) (12) 0 0 14 (1.077 27.938 FCF/share 0.00 FCF Yield 0.085 9. accounts payable and other liabilities Net cash generated from operating activities Cash flows from investing activities: Disposal of available-for-sale investment securities 312 Acquisition of property and equipment and intangible assets (119) (168) (528) (1.391 3.022 5.316 20. net of cash proceeds Loans to employees. in USD mn) FY2012A FY2013A FY2014A Net income (loss) 741 1.41 3. Equity Analyst.5% 1.243 7.499 0 204 0 0 0 130 215 283 398 546 0 0 Adjustments for cash generated from operating activities: Share-based compensation Equity-settled donation expense Depreciation and amortization of PP&E and land use rights (Gain) Loss on disposal of equity investees (4) (11) 0 (2.703) 0 (5.308) (1. 2015 page 114 of 130 Please see important disclosure information on pages 126 .327 20.33 2.958) 1.486) (1.474 2.506 9.180 5. Jefferies estimates Note: FY15 refers to fiscal year ended March 31.820) Realized and unrealized loss (gain) related to investment securities 22 (13) (14) 0 0 0 Change in fair value of other assets and liabilities 42 39 3 0 0 0 0 0 0 Loss (Gain) on disposal of other subsidiaries 0 (1) (62) Amortization of intangible assets 25 21 51 92 300 413 Impairment of goodwill and intangible assets 21 28 7 0 0 0 Loss on disposal of PP&E 0 0 0 0 0 0 Share of results of equity investees 4 1 33 160 193 193 24 17 236 0 0 0 1 19 71 0 0 0 Restricted cash (18) (157) (214) 0 0 Loan receivables (36) (455) (1. receivables and other assets (38) (57) (574) Deferred income tax Allowance for doubtful accounts relating to micro loans Changes in operating assets and liabilities net of effects of acquisition (193) 2.196 1.817 Decrease (Increase) in short term investments 592 417 744 0 0 Increase (decrease) in restricted cash (335) 54 32 0 0 0 Decrease (Increase) in trading investment securities 27 (2) (24) 0 0 0 Acquisition of available-for-sale and held-to-maturity investment securities (81) (10) (478) (74) 0 0 Accrued expenses.066 Merchant deposits 93 376 262 352 408 392 Deferred revenue and customer advances 20 70 258 333 532 511 1.119 1.6% 3.com .130 of this report.092) 0 0 (1.947 37.947 Cash and cash equivalents at end of the year 2. net of cash acquired Deconsolidation and disposal of subsidiaries.19 4.635) (1.750 7.524 203 457 952 1.973 1.870 9.336) 60 0 0 0 48 (30) (8) (3) 89 (7) 0 0 0 (48) (55) (34) 0 0 0 (121) (73) (2.895 5. cmeng@jefferies.5% Source: Company data.767 7.121 (764) 0 (681) 0 (654) Income tax payable 37 (19) 162 95 110 105 Escrow money payable 15 157 216 198 230 221 212 589 642 1.

com . +852 3743 8033. cmeng@jefferies.BABA Initiating Coverage 27 October 2014 This page is intentionally kept blank page 115 of 130 Please see important disclosure information on pages 126 . Cynthia Meng. Equity Analyst.130 of this report.

Equity Analyst. +852 3743 8033.com .130 of this report.BABA Initiating Coverage 27 October 2014 Appendix page 116 of 130 Please see important disclosure information on pages 126 . Cynthia Meng. cmeng@jefferies.

based on our estimates.BABA Initiating Coverage 27 October 2014 FY2Q15 (CY3Q14) Results Preview Alibaba is expected to announce FY2Q15 results on November 4.8bn. -6.S. with a net margin of 40. We forecast Alibaba Group to post a RMB10. implying a non-GAAP gross margin of 66%. driven by strong commission revenue growth. 2014 at 7:30am U. Toll-free: 1 (844) 421-0599  Hong Kong: (852) 3011-4522  International: 1 (716) 247-5797  Conference ID: 24286757 We estimate total revenue to reach RMB16bn. driven by rapid growth of Tmall GMV. +46.2%.6bn non-GAAP gross profit and RMB5. Equity Analyst. Eastern Time / 8:30pm Hong Kong Time.5% YoY. We expect total GMV to reach RMB541bn in FY2Q15.4bn non-GAAP operating profit in FY2Q15. driven by continued solid growth in China commerce. Cynthia Meng.com . -8pcpt QoQ. We expect China commerce retail revenue to grow 48. +852 3743 8033.130 of this report. as well as rapid growth of interest income from micro loans. and non-GAAP operating margin of 43. cmeng@jefferies. FY2Q15 non-GAAP net income should reach RMB6.7%.S.2pcpt QoQ.7pcpt QoQ. page 117 of 130 Please see important disclosure information on pages 126 . -8.6% YoY to RMB12.4bn. +44. Dial-in information:  U.3% YoY.

3% YoY % Change 120.300 14.9% 8.8% 59.852 6.8% 79.9% 33.2% 29.32 0. diluted (in USD) QoQ % Change YoY % Change Source: Company data.3 9.BABA Initiating Coverage 27 October 2014 Chart 141: FY2Q15 (CY3Q14) results preview (in RMB mn) FY1Q14A FY2Q14A FY3Q14A FY4Q14A Total Revenue (in RMB mn) 10.420 5.1% 19.6% 90.4% 43.2% 73.3% 49.778 FY1Q15A FY2Q15E 10.693 QoQ % Change 21.4% 26.1% 46.280 5.0% 59.344 4.130 of this report.8% 61.7% 38.6% 63.943 10.6% 40.650. diluted (in RMB) 1.384 4.6% YoY % Change 131.7% 44.2% -35.151 7.3% 47.4% 54.7% -38.7% 46.331 Gross profit Gross margin Non-GAAP cost of revenue Non-GAAP Gross profit QoQ % Change 26.6% 135.8% 4.5% 89.69 0.41 0.3% 1.87 3.GAAP 5.3% 28.6% 43.7% 56.9% 37.195 10.6% 71. Equity Analyst.7% 31.6% 16.2% 54.8% 8.7% 76.0% -38.0% 104.946 11. Jefferies estimate Note: Non-GAAP quarterly financials of FY14 is based on our estimates.3% 30.2% 70.841 8.07 2.977 4.7% 2.424.851 6.903.705 7.8% -35.4 3.003 4.7% -3.4% 3.1% -574.46 0.5% 28.031 15.455 10.7% 66.8% 38.5% Non-GAAP Gross margin Operating Profit .9% 1.332 QoQ % Change 25.4% 5.992.49 0.2% 136.0 2.9% -40.2% 67.4% 1.59 4.543 12.3% 135.6% -413.949 14.7% -61.4% 67.99 2.5% 136.317 6.3% 26.2% -40.0% 65.9% 54.0% 45.6% 73.0 5.0% 115.451 6.4% 69.844 5.441 10.248 8.6% Non-GAAP Operating margin Net Income QoQ % Change YoY % Change Net margin Non GAAP Net Income QoQ % Change YoY % Change QoQ % Change YoY % Change Non-GAAP EPADS.8% -39.4% 117.9% 24.0% -44.4% 50.447.7% 46.8% 130.720 17.4% 74.386 6.72 0.45 2.1% 95.5% -3.3% 56.4% 32.3% 43.779 10.1% 32.3% -1. cmeng@jefferies.295 11.8% 66.9% 43.3% 83.439 10.2% 25.5% 11.868 17.883 8.0% 66.1% 25.42 0.4% 40.7% 43.1% 39.8% -35.8% 0.2% 74.7% 1.2% -34.3% 13.9% Non-GAAP net margin 42.1% -15.6% 57.5% 49.2% 40.2% 74.3% -41.6 3. Cynthia Meng.2% 78.7% 71.1% 181.4% 109.7% -11.300 -37.2% 74.968. page 118 of 130 Please see important disclosure information on pages 126 .186 9.8% 66.8% 4.8% -15.771 16.699 7.085.8% 76.4% 28.7% 74.739 9.7% -36.3% 46.7% 74.202 8.0% 51.4 8.0% 66.561 11.576.82 3.6% -2.574 18.4% 23.745 12.2% -34. +852 3743 8033.0% YoY % Change 58.6% -20.021 FY3Q15E FY4Q15E 27.809 7.950 18.9% 22.6% QoQ % Change 24.6% 27.051 7.7% 154.3% 47.9% -1.9% 69.494 8.6% Non-GAAP EPADS.9% -10.8% 58.8% -35.0% -44.0 3.266 5.7% -10.6% 44.3% 29.4% 117.55 4.com .7% 46.45 3.5% -1.5% 73.9% 45.2% -12.1% 68.8% 15.9% 75.001 11.7% 8.7 5.5% 4.0% 8.6% 32.2% 38.1% 1.1% 75.574 8.1% 78.2% 38.7% -3.6% 77.8% YoY % Change 73.5% 54.7% 72.9% 129.2% 38.2% -34.3% -32.3% 55.1% YoY % Change 73.9% Operating margin Non-GAAP Operating Profit 5.1% 4.4% 33.583 5.30 2.5% -14.5% 6.5% 7.9% 47.525 QoQ % Change 24.4% 55.9% 61.9% 54.8% 20.7% 42.027 -0.5% 9.8% 31.3% 3.9% 122.801 5.

9% -11.335 2.9% -10.8% YoY % Change 73.949 1.45 2.2% -61.7% 71.746 1.1% 31.8 1.0% 38.2% 74.9% 182.5% 6.734 FY1Q15A 1.0 558.69 0.8 671.0% 73.3% -1.9% 54.5% 136.705 2.6% 48.9% Gross margin 74.4% 55.899 1.2% 54.827 QoQ % Change 26.319 1.7% -3.038 1.130 of this report.789 -37.55 4.3% 29. +852 3743 8033.8% 66.BABA Initiating Coverage 27 October 2014 Chart 142: FY2Q15 (CY3Q14) results preview (in USD mn) FY1Q14A FY2Q14A FY3Q14A FY4Q14A Total Revenue (in USD mn) 1.2% 78. diluted (in RMB) 1.3% 49.0% 59.5% 3.6% 77.9% 95.8% 31.3% 29.4% 117.6% 46. cmeng@jefferies.8% 22.7% 39.6% 3.583 4.2% 24. Equity Analyst.591 2.5% -12.2 739.9% 27.1 Non-GAAP Gross profit 1.416 877 1. page 119 of 130 Please see important disclosure information on pages 126 .1% YoY % Change 73.82 3. Cynthia Meng.015 1.8% 0.2% 74.133 -34.387 1.0% 20.6% 90.6% 58.904 1.0% 51.7% 72.6% 73.87 3.2% 9.5% -3.451 802 4.2% 38.726 1.8% 79. diluted (in USD) QoQ % Change YoY % Change Source: Company data.8% 737 956 1.46 0.8% -35.3% -412.1 991.5% 9.2% 44.5 878.654.803 1.2 1.99 2.2% 25.3% 47.8% 66.8% -15.5% 872 844 1.5% 38.7% 61.3 643.com .5% 26.1% -15.7% 60.0% -44.0% 38.1% 438.8% -35.123.0% YoY % Change 58.6% 135.6% 46.6% 40.8% 17.8% -35.7% 1.330 892 1.542 FY2Q15E FY3Q15E FY4Q15E 2.1% 46.761 3.6 1.3% 135.2% 67.7% -1.9% 37.179 1.3% 26.6% -3.657 918 QoQ % Change 21.078 1.5% -1.3% 83.3% YoY % Change 119.129 1.45 3.32 0.9% 123.4% 117.7% Non-GAAP cost of revenue 414.1% 54.8% -39.0% 39.9% 47.8% 76.3% 11.344 1.814 1.7% 129.2% 43.9% -40.6% 32.9% 76.3% 56.0% 45.5% 56.7% 42.2% 73.0% 8.1% 75.7% 104.7% 66.7% 45.279 2.9% Non-GAAP Gross margin Operating Profit .3% 30.5% 28.5% 89.9% 75.439 1.7% 9.49 0.3% 28.72 0.2% -34.1% -10.7% 33.2% 109.314 1.6% QoQ % Change 24.41 0.4% 28.2% 70.4% 20.103 877 1.9% 61.3% -41.2% 74.0% 65.7% 23.377 1.6% 57.2% -40.8% -14.045 1.665 Cost of revenue Gross profit QoQ % Change 25.4% 1.5% 54.4% 74.9% -574.2% -35.6% 43.2 962.2% -2.4% Non-GAAP Operating margin Net Income QoQ % Change YoY % Change Net margin Non GAAP Net Income QoQ % Change -0.30 2.7% 43.0% 66.5% 46.7% 44.0% 40.2% -34.295 1.7% 1.4% 1.42 0.6% YoY % Change 130.0% -38.7% 74.6% Non-GAAP EPADS.4 628.1% Non-GAAP net margin 42.0% 66.6% 130.5% 7.6% 63.6% Operating margin 50.7% 69.0% -44.3% 55.6% 71.59 4.1 1.2% 67.468 2.8% -20.1% 78.0% 16.7% -38.7% 154.7% 114.1% 68.0% 4.6% 13.6% YoY % Change QoQ % Change YoY % Change Non-GAAP EPADS.GAAP Non-GAAP Operating Profit 941 997 1.3% -32.213 QoQ % Change 24.7% -36.935 2.2% 136.671 1.6% 44.4% 40.5% 49.990 764 1.7% 46.4% 69.1% 25.4 426.519.0 496.4% 54.3% 5.4% 33.3% 5.5% 705 786 1.3% 43.1% 1.7% 31.1% 32.07 2. Jefferies estimates Note: Non-GAAP quarterly financials of FY14 is based on our estimates.7 482.

A leader in mobile messaging services based in the United States offering free voice. . USD13mn for an 80. Jul.As of Jun 2014. USD1.035mn in aggregate for approx. page 120 of 130 Please see important disclosure information on pages 126 . 2014 Evergrande FC ("恒大足球俱乐 部". with 156.9% equity stake and 业".9mn) for 50% in China and China's first ever winner of stake the Asian Football Confederation Champions League Cup.3mn. -Expand customer reach to overseas market .3% YoY to RMB2. -Develop an "offline-to-online" multichannel retailing model that enables users to purchase online inventory through mobile devices while shopping in physical stores -Establish a joint venture with Intime. . . 2014 TangoMe (Private) Jul. hence promoting more targeted marketing Cynthia Meng.Its total revenue declined by 11. enhancing Alibaba's platform and data base -Cooperate on content. Implied Strategies . Equity Analyst.1% interest. 2014/ Apr. 2013 Weibo (NASDAQ: WB) Apr. Its total revenue grew 3. 2014 Intime Retail HKD5. 2014 Target UCWeb (Private) Apr. . cmeng@jefferies. -Improve mobile messaging technology and solution.Gain access to and capture integration benefits from the user data base of Weibo.Over 200mn mobile app users with 92mn MAU as of Dec 2013 . the last of which completed in April 2014.5mn MAUs and 69. . according to the company. 2014/ May. 2013 Autonavi (Private. according to company data. delisted from NASDAQ in July 2014) Deal Details Alibaba acquired 66% economic interest in UCWeb over several rounds of investments. .UCWeb had 264mn active users globally during June 2014. similar to Skype of Microsoft and Apple's FaceTime.7mn in FY13.368mn Group ("银泰商 (USD692. . according to iResearch.One of China’s leading department store operators.A leading social media platform in China.5mn) for 9. navigation and location-based solutions in China.130 of this report.12mn sqm.Enhance mobile offerings beyond eCommerce. (Initial investment of USD586mn for 18% stake.3% YoY to USD141. +852 3743 8033.7mn DAUs as of Jun 2014.Its total revenue grew 105% YoY to USD77. to develop an O2O business in China relating to shopping mall.2bn . such as general mobile search -Access UCWeb's large base of mobile users and offer existing user base with additional mobile solutions . followed by USD449mn in April 2014 with Alibaba exercising its option to increase its stake upon Weibo's IPO) USD217mn in aggregate for 20% stake on a fully-diluted basis USD1.326mn in aggregate for 100% stake (Initial investment: USD294mn for 28% stake. in which Alibaba Group paid approx. behavior data integration and marketing solution -Develop a social commerce model by converting traffic from the social media platform onto Alibaba's e-Commerce platforms .35bn in 1H14. according to company data .A leading provider of digital map content. HKSE: convertible bonds 1833 HK) which would increase Alibaba's stake to 26% upon conversion.BABA Initiating Coverage 27 October 2014 Alibaba’s M&A Investment Summary Table 4: Alibaba’s M&A activities – disclosed by company Business area Mobile O2O Digital Media and Entertainment Date June.Its total registered users were 200mn with MAUs of over 70mn as of Dec 2013. 30% stake on a fullydiluted basis. video and text messaging to consumers globally.com .032mn for the remaining stake) Jul. -Provide a marketing platform with access to millions of soccer fans across China RMB1.China's largest mobile browser company in terms of MAUs.3mn in 2Q14.One of the most popular soccer teams (USD192.Develop and enhance location-based O2O services to Alibaba's m-Commerce user base. leveraging on Autonavi's mapping technology and massive database including POI and merchants' locations."Shenma" had more than 6bn monthly mobile search queries as of April 2014. according to the Wall Street Journal. . the group operated and managed a total of 30 department stores and 10 shopping centres with a total gross floor area of 2. Follow-on investment: USD1. It then acquired all remaining shares for USD458mn in cash plus restricted shares and RSUs in the aggregate number of 12. private) Target Company Description . department stores and supermarkets. 2014/ Mar.

BABA
Initiating Coverage
27 October 2014
Table 4: Alibaba’s M&A activities – disclosed by company
Business area

Logistics

Date
May,
2014

Target
Youku Tudou
(NYSE: YOKU)

June,
2014

Alibaba
Pictures
(formerly
known as
ChinaVision,
HKSE: 1060
HK)

Apr,
2014

Wasu*
("华数", SZSE:
000156 CH)

Jul, 2014 Singapore Post
Limited
(SGX: S08 SG)

Mar,
2014

Haier
Electronics
Group
(HKSE: 1169
HK)

Deal Details
USD1.09bn for 16.5%
stake on a fully-diluted
basis (Yunfeng Capital
invested USD132mn to
purchase an additional
2% stake)

Target Company Description
- One of China's leading online video
companies, with over 500mn monthly
unique visitors across screens, according
to the company.
- Total revenue increased by 27% YoY to
USD154.5mn in 2Q14.
- Ranked No.2 with 17.9% PC market
share in terms of monthly time spent in
Jul 2014, according to iResearch.
HKD6,244mn
-A company primarily engaged in media
(USD805.7mn) in cash related business, mainly including
for 60% stake
planning, production, publication,
investment, distribution of TV drama
series and films and organising cultural
and artistic exchange activities.
-Total revenue declined by 5.3% YoY to
HKD751mn in FY13, net profit
attributable to shareholders grew 16.3%
YoY to HKD206mn in FY13.
RMB6.54bn
-An operator of digital media
(USD1.05bn)
broadcasting and distribution in China.
investment through
Wasu is one of seven operators approved
Hangzhou Yunxi for
by the state to deliver multimedia
approx. 20% stake
content to households.
interest.
-Total revenue grew 29.9% YoY to
RMB1.15bn and net profit attributable to
shareholders increased by 23.3% YoY to
RMB166.9mn in 1H14.
-Wasu's IPTV services currently reach
12mn users in over 120 cities in 28
provinces in China, according to Wall
Street Journal.
SGD313mn
-The national postal service provider in
(USD249mn) for 10.3% Singapore and a leading provider of estake
Commerce logistics solutions in the AsiaPacific region.
-Total revenue grew 24.6% YoY to
SGD821mn, and its net profit
attributable to shareholders increased by
4.8% YoY to SGD136.5mn as of the year
ended Mar 31, 2014.
HKD2.8bn
-Haier Electronics Group is a company
(USD364mn) for 2%
engaged in R&D, manufacturing and
stake in Haier, 9.9%
sale of electrical appliances, especially
stake in Goodaymart, a large electrical appliance.
wholly-owned
-Goodaymart Logistics ("日日顺物流"), a
subsidiary of Haier
wholly-owned subsidiary of Haier,
engaged in logistics,
mainly focused on large format goods
and additional 24%
delivery and installation of home
stake in Goodaymart
appliance, furniture and sanitary ware for
upon conversion of all Haier and third-party branded products
convertible bonds

page 121 of 130

Please see important disclosure information on pages 126 - 130 of this report.

Implied Strategies
-Advance "live @ Alibaba" vision of
making digital media entertainment
available to customers anywhere,
anytime
-Enhance the quality of services to users
and improve targeted marketing for
online marketing customers

-Gain access to movie and television
program content
-Potentially expand Alibaba's products
and offerings in the digital media
entertainment sector

-Enhance Alibaba's digital
entertainment strategy in original
content development, video
communication, games, music, etc.
-Cooperate on online content and
Internet TV development

-Improve its international logistics
solution
-Facilitate purchase of overseas products
by domestic consumers

-Established a logistic joint venture with
Haier specializing in the delivery,
installation and servicing of large format
goods such as home appliance,
furniture and sanitary ware.
-Provide high quality after-sale customer
service to consumers who shop for
appliances on Tmall Marketplace
-Leverage on Goodaymart's expertise,
experience and infrastructure of
distribution capacity across China
especially in tier 3 and tier 4 cities.

Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

BABA
Initiating Coverage
27 October 2014
Table 4: Alibaba’s M&A activities – disclosed by company
Business area

Date
May,
2013

Target
Zhejiang
Cainiao Supply
Chain
Management
Co, Ltd ("菜鸟")
or China Smart
Logistics
(Private)

e-Commerce
infrastructure
and service

May,
2014/
Nov,
2010

Shenzhen
OneTouch
Business
Services ("深圳
一达通",
private)

Overseas

Mar,
2014

ShopRunner
(Private)

Healthcare

Apr,
2014

CITIC 21
(HKSE: 0241
HK)

Deal Details
RMB2.4bn
(USD385.9mn) for 48%
stake in the Joint
Venture with Intime
Group, Fosun
International and other
five major express
delivery companies.
(Alibaba has invested
RMB1.68bn as of Mar
2014, and will invest
the remaining capital
over a two-year period)
Approx. RMB1.35bn
(USD217mn) in
aggregate for 100%
stake acquisition.
(Initial investment:
approx. RMB560mn for
65% stake; Follow-on
investment:
RMB790mn for the
remaining stake.)
USD202mn for 39%
stake interest

Target Company Description
-An operator of a nationwide logistics
infrastructure and information system in
China. Alibaba Group holds 48% stake of
China Smart Logistics.
-In the 12 months ended Jun 30, 2014,
the logistics system ensured the
successful delivery of an average of
approximately 16.6mn packages per
day.

Implied Strategies
-Enhance user experience by offering
efficient logistics and delivery services.
-China Smart Logistics plans to build a
network of key logistics hubs across
China, including distribution centers,
warehouses and other supply chain
facilities, which could support the
delivery of over 100mn packages per
day to consumers' doorsteps anywhere
in China within 24 hours in the long
term.

-OneTouch is a provider of
comprehensive export-related services
tailored to the needs of small business in
China.
-Shenzhen OneTouch was ranked No.5
in terms of exported value among
general trade enterprises in 2013 in
China, behind Huawei and ZTE,
according to China National Customs
Information Center.
-A company that operates a membersonly service for online shoppers in US,
offering free 2-day shipping with no
minimum order.
-The e-Commerce platform has more
than 1mn members and offers two-day
delivery for retailers, according to Wall
Street Journal.
HKD932mn
-A leading developer of product
(USD120.3mn) for 38% identification, authentication and
stake interest. (Yunfeng tracking systems for pharmaceuticals and
Capital acquired
medical products in China.
another 16% stake in
-Total revenue grew 279% YoY to
CITIC 21 in the amount HKD60.2mn for the year ended Mar 31,
of HKD395mn)
2014. Total profit grew by 389.4% YoY
to HKD9.6mn for the year ended Mar 31,
2014.

-Provide comprehensive export-related
service to SMEs, including customs
clearance, logistics, cargo insurance,
currency exchange, tax refund,
financing and certification, etc.

-Enable Chinese consumers to shop for
authentic American products directly.
-Develop cross-border commerce
opportunities.

-Explore e-Commerce opportunities in
the pharmaceutical and healthcare
categories.
-Foster consumer trust through the sale
of genuine pharmaceuticals through the
company's verification and
authentication technology.

Source: Company data, Jefferies.

page 122 of 130

Please see important disclosure information on pages 126 - 130 of this report.

Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

BABA
Initiating Coverage
27 October 2014
Table 5: Alibaba’s M&A activities – reported by public news sources
Business area
Mobile

O2O

Date
Oct, 2014

Target
Peel
Technologies
(Private)

Deal Details
Strategic investment of
USD50mn

Dec, 2013

LBE Security
Master ("LBE 安
全大师", private)

Undisclosed

Oct, 2013

Quixey
(Private)

Apr, 2013

Umeng ("友盟",
private)

Oct, 2012

MoMo
("陌陌", private)

Apr, 2014

Lyft (Private)

Alibaba led a USD50mn A mobile app search engine, which allows
funding
users to find apps based on functionality
search
Acquisition for
-A service provider of applications data
USD80mn
statistical analysis, similar to Google
Analytics for mobile applications in China.
-It has served over 100K mobile apps
across all major mobile platforms
including iOS, Android and Windows
Phone, with more than 50 percent of
Chinese developers using the service,
according to company data.
Strategic investment of -A location-based social network app with
USD40mn
over 100mn registered users, according to
the company as of Feb 2014.
-MAUs and DAUs of Momo reached
18.8mn and 5.1mn in Jul 2014, according
to iResearch.
Alibaba led a
A ride-sharing app developer
USD250mn funding.

Nov, 2013/ KuaiDi DaChe ("
Jun, 2013
快的打车",
private)

Strategic investment,
Alibaba led a
USD100mn funding

Nov, 2012

DDmap ("丁丁地 Strategic investment,
no details disclosed
图", private)

Jul, 2011

Meituan
("美团", private)

Strategic investment
(approx. 10-15% stake,
according to founder)

page 123 of 130

Please see important disclosure information on pages 126 - 130 of this report.

Target Company Description
-Peel is a smart remote control app maker,
enabling users to access to their TV shows
and movies.
-Has a number of mobile device
partnerships, including with Samsung,
HTC and ZTE. Those partnerships have
helped Peel to reach more than 75mn
users that have activated the app in Jun
2014, according to the News released by
Gigaom.
-According to Peel CMO's estimate,
accumulate users will reach 120mn125mn by 2014, and total revenue is
expected to reach USD8mn in FY14E, and
USD20mn-25mn in FY15E.
A mobile security app for Android
platform, accounting for 11.6% mobile
security market share in terms of monthly
time spent in Jun 2014, according to
iResearch.

-A Chinese taxi booking app.
-It accounted for 53.6% market share in
terms of registered accounts in 2Q14 in
China, according to Analysys
International.
-A local lifestyle service provider in China.
DDcoupon, a mobile coupon app offered
by DDmap, allows users to search for
nearby discounts.
-Its accumulated users exceeded 20mn as
of Feb, 2013, according to company.
-China's leading group buy website.
-It accounted for 52.4% of group buying
market share in 2013 in China, with total
GMV of RMB16bn, and is expected to
exceed RMB40bn in 2014, according to
management.

Implied Strategies
-Help Alibaba to extend to Media
and Entertainment areas.
-Gain access to Smart Home area

-Strengthen its presence on
mobile
-Potentially cooperate on
expanding service offerings on
app distribution platform and
Alipay Wallet
-Strengthen its mobile search
technology
-Help to better understand
mobile users data and in-app
behavior
-Strengthen its advertising
technology on mobile eCommerce

-Enhance its positioning on LBS
mobile social network as a
supplement to Taobao's overall
local lifestyle service offering

-Enhance mobile service offering
-Help to increase mobile user
stickiness
-Expand footprint in O2O market
-Enhance mobile user stickiness

- Expand footprint in O2O market
by investing in one of China's top
local O2O startups

- Complement offerings of
Alibaba's "Juhuasuan" groupbuying site, which mostly offers
tangible products, with
Meituan's focus on service
instead
- Acquire additional users outside
of Alibaba's internal e-commerce
ecosystem

Cynthia Meng, Equity Analyst, +852 3743 8033, cmeng@jefferies.com

2014 Kabam (Private) Shanghai Yunxi.cn is China's largest domain service provider with 20. +852 3743 8033. private) Apr. -Plan to launch 10 games over the next three years A network service provider engaged in Internet data monitoring and analysis An e-commerce service provider for merchants including IT. 2011/ 淘搜". no details disclosed Jan. -One of the top mobile music players in China. private) Strategic investment.8mn) page 124 of 130 Please see important disclosure information on pages 126 . etc. logistics. including 21st Century Business magazine. Global Enterpreneur maganize. mobile accounted 70% of its total users. client service. 2010 Sept.com . 2014. 2014 21st Century Media ("21 世纪 传媒". no details disclosed e-Commerce infrastructure and service Jun.Complement Alibaba's ecommerce portfolio with the rich community contents of Koubei . private) Acquisition. 2010 May. etc. 2014 Huxiu.48mn). accumulated search process users and online merchants has exceeded 100mn and 1mn.Merged Koubei into Taobao in pursuance of the "Big Taobao" strategy in August 2009 -Gain access to media content -An interactive entertainment company that develops and publishes massive multiplayer social games.cn's massive SME data base and client resources. 21cbh. 2013/Oct. .130 of this report. a company fully owned by Small and Micro Financial Services Company (formerly known as Zhejiang Alibaba e-Commerce) Strategic investment of USD120mn Jun.cn ("万网". catering. 2013 Kanbox ("酷盘".BABA Initiating Coverage 27 October 2014 Table 5: Alibaba’s M&A activities – reported by public news sources Business area Date Oct. A major free music streaming website -Reach a partnership to publish and distribute mobile games. -One of the largest professional media operators in Chinese financial and business media industry.com (1) (“虎嗅”. respectively. private) Acquisition. by facilitating their product -According to company data.com and Licai Weekly. -A leading domain registeration and cloud computing service provider. 2013/ Taotaosou ("淘 Nov. -Its total MAUs and DAUs reached 30.57% market share in Apr.net. cmeng@jefferies.Gain access to net. private) Acquisition of RMB540mn (USD86. private) Strategic investment Jul.5mn and 6mn in Jul 2014.cn to form a new Aliyun business division on Jan. and further investment undisclosed CNZZ Acquisition of (Private) USD15mn Baozun (" Strategic investment. respectively Cynthia Meng.6.Enhance data and cloud computing technologies -Gain access to media content -Gain access to music content -Expand its mobile offering to customers -Improve Taobao user experience given the integration of Xiami's music-streaming services onto Taobao platform -Gain access to content from music A leading personal cloud storage service -Expand Aliaba's products offered provider in China to customers -Enable customers to access their content and media across different platforms -An image search-based shopping -Improve buyers' user experience platform in China. -According to Wall Street Journal. private) net. Digital Media and Entertainment Jun. private) Strategic investment of RMB500mn (USD80.4mn) Dec.Enhance Taobao's service capabilities to consumers and enterprises . 2006 Target Koubei ("口碑". no details disclosed Sept. and its revenue is expected to reach more than USD550mn in FY14. -Net. marketing. 2009 Strategic investment with initial investment of RMB3mn (USD0. 2011 Jan. private) Deal Details Strategic investment. 2013 . Equity Analyst. no details disclosed 宝尊". no details disclosed Target Company Description Leading Chinese classified listing and community website on accommodation. according to WebHosting. Forbes. 2013 Xiami ("虾米". 2012 Ttpod ("天天动 听".Merged Aliyun with www. Implied Strategies . -Enhance its service capabilities to merchants . according to iResearch.

stake interest -Hundsun's total revenue grew by 9. Tmall and Alipay -Expand into financial services -Leverage on Hundsun’s software technology to integrate more financial-related services in Alibaba’s mobile apps Source: Bloomberg. Apr. -It launched a mobile commerce product Taozailushang (“淘在路上”) recently. -Help Taobao Travel to build a closed-loop O2O ecosystem in hotel and F&B industries. according to mgmt. Hilton. membership and payment service.18bn (USD189.3bn -China's leading supplier of financial (USD530. (3) Investment in Hundsun was completed through Zhejiang Rongxin Network Technology. Total users reached 40mn with 10mn on mobile as of Jun 2014. Tech Crunch.2bn as of Jun 2014. Sheraton. according to 1stdibs mgmt. -In-depth cooperation in hotel system integration. with mobile daily transaction volume exceeding RMB2mn. net profit reached RMB113. 2014 Hundsun (3) ("恒生电子". private) Jointly invested USD100mn with Temasek and Qiming Venture Partners RMB1. Strategic investment.S. Tech Web and Tencent News. cmeng@jefferies. local lifestyle service and payment to amass big data and explore opportunities in O2O -Potentially expand service offerings into online education -Enhance Alibaba's positioning in Internet finance -Enable buyers to take money from their Alipay accounts and invest in a money-market fund. Strategic investment of -Founded in 1995. no details disclosed Online Education Feb. It has serviced over 400 hotels and stake interest has been selected as the preferred vendor for many international hotel group such as Grand Hyatt. +43% YoY. 2014 Beijing Shiji Information Technology ("北 京中长石基". a company owned by Jack Ma and Simon Xie with 99. funds. according to company data. futures. SHSE: 600570 CH) Jul.9% stake.com . Tech in Asia. including hotel reservation. 2013 Tian Hong Asset Management (2) ("天弘基金". NetEase News.7mn) invested through Zhejiang Alibaba eCommerce for 51% stake interest -A mobile travel journal and experiencesharing app with total users of 20mn as of May. SZSE: 002153 CH) Mar. 2013 Deal Details Strategic investment of USD15mn Target Company Description -A New York-based luxury e-Commerce company. -It has about 2mn monthly unique visitors. private) Jointly invested with CBC Capital of USD20mn A Chinese outbound travel service provider. is the largest fund in China which has attracted more than 100mn customers and raised RMB574. Note: (1) Investment in Huxiu was completed through Shanghai Yunxi. with an average purchase price of over USD2K.8% YoY to RMB462. +852 3743 8033. respectively page 125 of 130 Please see important disclosure information on pages 126 .130 of this report. -Enhance Alibaba's presence in overseas e-Commerce market -Data connection between Taobao Travel and hotel information system.1% and 0. -Provide users with high quality travel-related services and content -Complement own travelbooking website Taobao Travel with high-quality outbound travel information and service -Capture potential synergy among travel.8mn) for 15% hotels. as well as Taodiandian and restaurant enterprise management system. 2013 117go. Mar. -Tian Hong Asset Management is an asset management company in China. private) Strategic investment.81bn service provider and system integrator for (USD451. insurances and financial Technology for 20. 2014 TutorGroup (Private) Financial Services Oct. Sina News.com ("在路上". local lifestyle service and payment to amass big data and explore opportunities in O2O -Capture potential synergy among travel.5mn) software and network services including invested by Zhejiang securities. Cynthia Meng. Shangri-la and Marriott. etc. travel document processing. An online education platform for language learning. no details disclosed An outbound travel site.7mn in 1H14. banks. -YueBao. private) Qyer ("穷游网". Wall Street Journal. after-sales. Equity Analyst. Implied Strategies -Enable Chinese consumers to shop for authentic American products directly from U.9mn in FY13. trust Rongxin Network fund. 2014 Target 1 stdibs (Private) Online Travel Sept.BABA Initiating Coverage 27 October 2014 Table 5: Alibaba’s M&A activities – reported by public news sources Business area Overseas Date Jan. the money market fund launched by Alipay and Tianhong. established in 2001. according to company. a company fully owned by Small and Micro Financial Services Company (2) Investment in Tian Hong was done through Small and Micro Financial Services. which will increase buyers' stickiness in Taobao.62% management. Shiji is the leading IT RMB2. RMB3. 2014. 2014 Bai Cheng Travel Network ("百程 旅行网".

Registration of non-US analysts: Nick Wang is employed by Jefferies Hong Kong Limited. I also certify that no part of my compensation was. directly or indirectly.com/sellside/ Disclosures. public appearances and trading securities held by a research analyst. certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). Karen Chan. is. I also certify that no part of my compensation was. Equity Analyst. is. a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. related to the specific recommendations or views expressed in this research report. and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company. page 126 of 130 Please see important disclosure information on pages 126 . compete with its merchants or hold inventory. according to industry sources. or will be. related to the specific recommendations or views expressed in this research report. I also certify that no part of my compensation was. a FINRA member firm. This analyst(s) may not be an associated person of Jefferies LLC. certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). Company Specific Disclosures For Important Disclosure information on companies recommended in this report. or will be. I. is. Qin Wang. or will be. We seek to update our research as appropriate. but various regulations may prevent us from doing so. +852 3743 8033. The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Underperform rated stocks with an average stock price consistently below $10. The company operates its marketplaces as a platform for third parties. I also certify that no part of my compensation was. and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company.BABA Initiating Coverage 27 October 2014 Company Description Alibaba is the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013. cmeng@jefferies. As is the case with all Jefferies employees. including investment banking income. directly or indirectly. Hold . public appearances and trading securities held by a research analyst. Nick Wang. Brian Pitz. I. a FINRA member firm. This analyst(s) may not be an associated person of Jefferies LLC. This analyst(s) may not be an associated person of Jefferies LLC.com . directly or indirectly. directly or indirectly. a FINRA member firm. related to the specific recommendations or views expressed in this research report. and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company. the expected total return (price appreciation plus yield) is minus 20% within a 12month period. directly or indirectly. a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. directly or indirectly. Cynthia Meng. This analyst(s) may not be an associated person of Jefferies LLC. I. related to the specific recommendations or views expressed in this research report. or will be.Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-month period. and does not engage in direct sales. the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm. a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. a non-US affiliate of Jefferies LLC and is not registered/ qualified as a research analyst with FINRA. certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies).2300. Underperform . or will be. I. a FINRA member firm. is. and therefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company.284.action or call 212. I also certify that no part of my compensation was. Cynthia Meng. Meanings of Jefferies Ratings Buy .130 of this report. public appearances and trading securities held by a research analyst.bluematrix. public appearances and trading securities held by a research analyst. Brian Fitzgerald. Analyst Certification: I. For Hold rated stocks with an average stock price consistently below $10.Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Registration of non-US analysts: Cynthia Meng is employed by Jefferies Hong Kong Limited. related to the specific recommendations or views expressed in this research report. or will be. Aside from certain industry reports published on a periodic basis. is. I also certify that no part of my compensation was. Registration of non-US analysts: Qin Wang is employed by Jefferies Hong Kong Limited. is.Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. please visit our website at https://javatar. certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. related to the specific recommendations or views expressed in this research report. Registration of non-US analysts: Karen Chan is employed by Jefferies Hong Kong Limited. certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I.

company policy or applicable securities regulations prohibit certain types of communications.Not covered.41. BUY) • Qihoo 360 (QIHU: $68.Describes stocks whose company fundamentals and financials are being monitored.76.10. Cynthia Meng. free cash flow (FCF). Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based. investors in securities such as ADRs. The price targets are based on several methodologies. BUY) page 127 of 130 Please see important disclosure information on pages 126 . maturity. BUY) • Tian Ge Interactive Holdings (1980 HK: HK$4.50. Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization. HOLD) • HC International Inc. If a financial instrument is denominated in a currency other than the investor's home currency. and for which no financial projections or opinions on the investment merits of the company are provided. BUY) • Baidu Inc. net asset value. Other Companies Mentioned in This Report • Alibaba Group Holding Limited (BABA: $95. analyses of market risk.BABA Initiating Coverage 27 October 2014 NR . EV/EBITDA.94. and return on equity (ROE) over the next 12 months. any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic. cmeng@jefferies. Monitor . Jefferies Franchise Picks Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. which may include. revenue stream. (JD: $24. value of. Inc. (2280 HK: HK$9. and income from. in conjunction with Jefferies engagement in certain transactions.84. sum of the parts. CS . As such. effectively assume currency risk. PE/growth. Inc. UNDERPERFORM) • Sina Corp.Describes issuers where. Equity Analyst. the stock has met its desired return. Jefferies has suspended coverage of this company. but we may note where we believe a Pick falls within an investment style such as growth or value. the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. BUY) • eBay. growth rate. value of. Inc (AMZN: $287. cash flow (CF). The price. Stocks will be added as new opportunities arise and removed when the reason for inclusion changes. premium (discount)/average group EV/EBITDA. EPS. (EBAY: $51. BUY) • JD. or income derived from the financial instrument described in this report.com . P/E. including investment recommendations. (700 HK: HK$119. whose values are affected by the currency of the underlying security. growth/value. volatility and expected total return over the next 12 months. discounted cash flow (DCF). but are not restricted to. Jefferies does not cover this company. BUY) • Vipshop Holdings Limited (VIPS: $213. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. In addition. (SINA: $39. BUY) • Ourgame International Holdings (6899 HK: HK$4.19. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction. BUY) • Renren Inc.93. if it is no longer rated Buy and/or if it underperforms the S&P by 15% or more since inclusion. BUY) • Amazon. Such suspensions are in compliance with applicable regulations and/ or Jefferies policies. +852 3743 8033. dividend returns.06. Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors.59. financial and political factors. P/CF.02.Coverage Suspended. premium (discount)/average group P/E.130 of this report. NC .The investment rating and price target have been temporarily suspended. differentiated analysis.12. (RENN: $3. EBITDA. a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. P/FCF.55. Restricted .com. HOLD) • Tencent Holdings Ltd. a change in exchange rates may adversely affect the price of.com. (BIDU: $222.

26% 263 139 6 26. cmeng@jefferies.09% 17.29% page 128 of 130 Please see important disclosure information on pages 126 .130 of this report.80% 4.com .49% 7./Past 12 Mos. +852 3743 8033. Cynthia Meng. Equity Analyst.26% 40. Rating BUY HOLD UNDERPERFORM Count Percent Count Percent 1008 781 140 52.BABA Initiating Coverage 27 October 2014 Distribution of Ratings IB Serv.

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