Alibaba Group Holding Limited (NYSE: BABA and HKEX:  9988, “Alibaba” or “Alibaba Group”) today announced its financial results for the quarter ended September  30, 2021. 

This quarter, Alibaba continued to firmly invest into our three strategic pillars of domestic consumption,  globalization, and cloud computing to establish solid foundations for our long-term goal of sustainable  growth in the future.

Our  global annual active consumers across the Alibaba Ecosystem reached approximately 1.24 billion, with a  quarterly net increase of 62 million consumers, and we are on track to achieve our longer-term target of  serving two billion consumers globally.

Daniel Zhang, Chairman and Chief Executive Officer of Alibaba Group

“We recorded revenue growth of 29% year-over-year, driven by performance of our diversified businesses,”  said Maggie Wu, Chief Financial Officer of Alibaba Group. “During this quarter, our continued investments  in key strategic areas have resulted in robust growth for these young businesses.” 

BUSINESS HIGHLIGHTS

In the quarter ended September 30, 2021:

• • Revenue was RMB200,690 million (US$31,147 million), an increase of 29% year-over-year. Excluding the consolidation of Sun Art, our revenue would have grown 16% year-over-year to  RMB180,438 million (US$28,004 million). Aggregate revenue of our international commerce retail  and international commerce wholesale was RMB15,092 million (US$2,342 million), an increase of  34% year-over-year. Our cloud computing revenue was RMB20,007 million (US$3,105 million), an  increase of 33% year-over-year. 
• Annual active consumers (“AACs”) of the Alibaba Ecosystem across the world reached  approximately 1.24 billion for the twelve months ended September 30, 2021, an increase of  approximately 62 million from the twelve months ended June 30, 2021. This includes 953 million  consumers in China and 285 million consumers overseas, representing a quarterly net increase of 41  million and 20 million, respectively. 
• Income from operations was RMB15,006 million (US$2,329 million), an increase of 10% year over-year due to a RMB15,690 million decrease in share-based compensation expense related to Ant  Group share-based awards granted to our employees. We excluded share-based compensation  expense from our non-GAAP measurements. Adjusted EBITDA, a non-GAAP measurement, decreased 27% year-over-year to RMB34,840 million (US$5,407 million). Adjusted EBITA, a non GAAP measurement, decreased 32% year-over-year to RMB28,033 million (US$4,351 million). The  year-over-year decreases were primarily due to our increased investments in key strategic areas that  have exhibited robust growth in operations, as well as our support to merchants. These investments  in key strategic areas within our commerce segment, such as Taobao Deals, Local Consumer  Services, Community Marketplaces and Lazada, increased by RMB12,575 million year-over-year. Excluding the impact of these investments, profits of our commerce segment would have remained  stable year-over-year. 
• Net income attributable to ordinary shareholders was RMB5,367 million (US$833 million) and  net income was RMB3,377 million (US$524 million). Non-GAAP net income was RMB28,524 million (US$4,427 million), a decrease of 39% year-over-year.  
• Diluted earnings per ADS was RMB1.97 (US$0.31) and diluted earnings per share was  RMB0.25 (US$0.04 or HK$0.30). Non-GAAP diluted earnings per ADS was RMB11.20 (US$1.74), a decrease of 38% year-over-year and non-GAAP diluted earnings per share was  RMB1.40 (US$0.22 or HK$1.68), a decrease of 38% year-over-year. 
• Net cash provided by operating activities was RMB35,830 million (US$5,561 million). Non GAAP free cash flow was RMB22,239 million (US$3,451 million), a decrease compared to  RMB40,540 million in the same quarter of 2020, mainly due to a decrease in profit as a result of our  increased investments in key strategic areas. 

Reconciliations of GAAP measures to non-GAAP measures presented above are included at the end of this  results announcement. 

Guidance

The guidance below is a forward-looking statement that reflects assumptions that we believe to be  reasonable as of the date of this announcement and involve inherent risks and uncertainties, many of which  we are not able to predict or control. Based on our current view of macroeconomic conditions and the  competitive landscape, and subject to the uncertainties highlighted under the section entitled “Safe Harbor  Statements” below, we are revising our fiscal year 2022 revenue guidance. We expect our fiscal year 2022  revenue to grow 20% to 23% year-over-year. 

BUSINESS AND STRATEGIC UPDATES

Commerce

China Retail Marketplaces – comprehensive product supply and engaging user experience to target  the diverse demands of consumers in China 

For the twelve months ended September 30, 2021, there were approximately 863 million AACs on our  China retail marketplaces and New Retail businesses, with increasing percentage of new consumers from  lower-tier cities, which reflect our success in broadening product offerings to meet diverse consumer  demand. 

For the quarter ended September 30, 2021, we recorded single-digit physical goods GMV year-over-year  growth, primarily due to slowing market conditions and more players in the China e-commerce market. By  categories, physical goods GMV growth was slower in the apparel and accessories category, but continued  to be resilient in the consumer electronics and home furnishing categories. 

Taobao Deals (淘特) continues to exhibit robust user growth by providing consumers with more high  quality, value-for-money products, enriching food and beverage offerings sourced from our Community  Marketplaces business, and reducing delivery costs as well as improving delivery experience for consumers  in lower-tier cities. For example, Taobao Deals launched programs that incentivize bundling purchases of  products delivered from self-operated warehouses, which reduce costs and improve delivery experience for  consumers. For the twelve months ended September 30, 2021, there were over 240 million AACs on  Taobao Deals with increasing percentage of new consumers from lower-tier cities.

In November 2021, we celebrated the thirteenth annual 11.11 Global Shopping Festival, which generated  RMB540.3 billion in GMV, excluding unpaid orders, during the 11-day campaign. We are leveraging the  power of the festival as a platform to fulfill our social responsibility and build a sustainable future. This  year’s festival is also more inclusive. Among a record of 290,000 brands that participated in the 11.11  Global Shopping Festival this year, 65% are small and medium-sized businesses, manufacturers from  industrial belts and new brands. In addition, a dedicated eco-friendly vertical on Tmall featured 500,000  products with official Green Product Certification from more than 2,000 merchants. 

New Retail – multi-format New Retail businesses built on an expanding digital supply chain and  increasingly diversified fulfillment services 

Our Community Marketplaces business continues to expand coverage into lower-tier cities and grow  rapidly, with GMV growing over 150% quarter-over-quarter. We continue to strengthen consumer  experience by enhancing quality product supply and on-time delivery. In this business, we are able to  leverage the supply chain capabilities of Sun Art, which has strong regional procurement and supply chain  capabilities in the perishables, FMCG and general merchandise categories.  

Local Consumer Services – healthy order growth supported by growing merchant base 

During the quarter, Ele.me continued to invest in user acquisitions and user experience enhancements that  resulted in strong AAC growth of 28% year-over-year. Order volume growth was also strong at over 30%  year-over-year, with increasing percentage from non-restaurant orders, driven by fast growth in number of  merchants as well as user penetration. Order growth was particularly strong in the grocery and healthcare categories.

Cainiao Network – improving efficiency across the Alibaba Ecosystem and the logistics industry in  China and internationally

Cainiao Network continues to expand its global infrastructure by strengthening its end-to-end logistics  capabilities, including international freight service, destination warehousing and fulfilment, and last-mile  delivery service enablement. As of September 30, 2021, Cainiao operated over 3 million square meters of  warehouses dedicated to cross-border businesses. Cainiao has launched initiatives to improve the shopping  experience for international consumers by launching self-pickup lockers in four European countries where AliExpress has operations. 

Cainiao Post continues to expand its coverage into less-developed areas of China to improve delivery  efficiency. As of September 30, 2021, Cainiao Post covered more than 1,000 counties and towns in less developed areas of China with the number of daily packages handled in these markets growing over 280%  year-over-year. 

International Commerce – robust growth of multiple platforms in key international markets  

In September 2021, our international commerce retail business, mainly including Lazada, AliExpress,  Trendyol and Daraz, grew rapidly to achieve approximately 285 million AACs in the twelve months ended  September 30, 2021, representing a quarterly net increase of 20 million. Both international commerce retail  and international commerce wholesale demonstrated a robust growth in the September quarter, with  aggregate year-over-year revenue increase of 34% to RMB15,092 million (US$2,342 million). 

Lazada, our Southeast Asia e-commerce platform, continues to empower brands and merchants with  localized market insights and to accelerate onboarding of local merchants in their respective markets. The  increase in assortment of local and global product supply has resulted in stronger consumer mindshare and  user stickiness as evidenced by improving user visit frequency for the last seven consecutive quarters. For  the quarter ended September 30, 2021, Lazada recorded over 82% year-over-year order growth.

Trendyol, the biggest e-commerce platform in Turkey with best-in-class in-house logistics, is rapidly  growing its local services and wallet businesses. Trendyol has a leading market position in Turkey and  recorded robust GMV growth of over 80% year-over-year based on constant currency in the quarter ended  September 30, 2021.

Cloud Computing

In the September quarter, our cloud computing revenue grew 33% year-over-year to RMB20,007 million  (US$3,105 million), primarily driven by strong growth in revenue from customers in the Internet, financial  services and retail industries.  

Products 

During our 2021 Apsara Conference held in October, we unveiled several new products and technology  upgrades. Highlights include:  

• Yitian 710 Server Chip: We announced a new in-house processor designed for use at our data  centers. The server chips, named Yitian 710, deliver exceptional computing performance and energy  efficiency. Together with our global partners including Intel, Nvidia, AMD and ARM, we will  continue to innovate our computing infrastructure and offer diverse computing services to our global  customers. 
• X-Dragon Architecture: In the fourth generation X-Dragon architecture, we unveiled the industry’s  only large-scale Remote Direct Memory Access (RDMA) networking capability with a latency as  low as 5 microseconds, which will further accelerate data intensive applications on the cloud.  

Technology 

Alibaba Cloud’s unique advantages are its proprietary technology and Alibaba Group’s continued  commitment to invest in research and development in new product offerings and industry-specific solutions  for our customers and partners. Highlights of our proprietary technologies in the quarter include: 

• Database: Our proprietary technologies have consistently won recognition from leading research  and advisory organizations. For example, Alibaba Cloud continues to be the top-ranking cloud  relational database operator in China, according to IDC’s 2020 China Relational Database Market  Research Report. 
• Open Source Anolis OS: Alibaba Cloud announced the new operating system Anolis OS. Anolis  OS is completely open source and provides services through vendors and community. Alibaba Cloud  plans to invest RMB2 billion in Anolis OS that provides technology and services to our ecosystem. 

Digital Media and Entertainment

In the September quarter, Youku’s daily average subscriber base increased 14% year-over-year, driven  primarily by quality content and continued contribution from the 88VIP membership program.  

Alibaba Pictures has consistently shown its solid track record in content investment and distribution. For  example, Alibaba Pictures participated in the production and distribution of almost all of China’s major box  office hits during the Golden Week holiday in October.

Cash Flow from Operating Activities and Free Cash Flow

In the quarter ended September 30, 2021, net cash provided by operating activities was RMB35,830 million  (US$5,561 million), a decrease of 34% compared to RMB54,296 million in the same quarter of 2020. Free  cash flow, a non-GAAP measurement of liquidity, decreased by 45% to RMB22,239 million (US$3,451 million), from RMB40,540 million in the same quarter of 2020, mainly due to a decrease in profit as a result  of our increased investments in key strategic areas. A reconciliation of net cash provided by operating  activities to free cash flow is included at the end of this results announcement. 

Share Repurchases

During the September quarter, we repurchased approximately 26.9 million of our ADSs (the equivalent of  approximately 214.9 million of our ordinary shares) for approximately US$5,147.5 million under our share  repurchase program.

SEPTEMBER QUARTER OPERATIONAL AND FINANCIAL RESULTS

Revenue

Revenue for the quarter ended September 30, 2021 was RMB200,690 million (US$31,147 million), an  increase of 29% compared to RMB155,059 million in the same quarter of 2020. The increase was mainly  driven by the revenue growth of our China commerce retail business, which includes the consolidation of  Sun Art starting in October 2020, and the revenue growth of our cloud computing business. Excluding the  consolidation of Sun Art, our revenue would have grown 16% year-over-year to RMB180,438 million  (US$28,004 million). 

The following table sets forth a breakdown of our revenue by segment for the periods indicated:

Commerce: 

China commerce retail 

– Customer management 69,338 45% 71,695 11,127 36% 3% – Others⁽¹⁾ 26,132 17% 55,132 8,556 27% 111% 95,470 62% 126,827 19,683 63% 33% 

China commerce wholesale 3,637 2% 4,174 648 2% 15% International commerce retail 7,789 5% 10,375 1,610 5% 33% International commerce wholesale 3,510 2% 4,717 732 2% 34% Cainiao logistics services 8,226 5% 9,846 1,528 5% 20% Local Consumer Services 8,839 6% 9,513 1,476 5% 8% Others 3,451 2% 5,718 888 3% 66% Total commerce 130,922 84% 171,170 26,565 85% 31% 

Cloud computing⁽²⁾ 15,029 10% 20,007 3,105 10% 33% Digital media and entertainment 8,066 5% 8,081 1,254 4% 0% Innovation initiatives and others⁽²⁾ 1,042 1% 1,432 223 1% 37% ^Total _{155,059 100% 200,690 31,147 100%} 29% 

(1) “Others” revenue under China commerce retail is primarily generated by our direct sales businesses, comprising mainly Sun  Art, Tmall Supermarket, Freshippo and direct import, where revenue and the cost of inventory are recorded on a gross basis. We started consolidating Sun Art in October 2020.  

(2) Beginning on April 1, 2021, we reclassified the results of our DingTalk business, which was previously reported under the  innovation initiatives and others segment, to the cloud computing segment. This reclassification conforms to the way that we  manage and monitor segment performance and reflects the integration of DingTalk with Alibaba Cloud to further facilitate  the digital transformation of our enterprise customers. Comparative figures were reclassified to conform to this presentation. 

Commerce

• China commerce retail business

Revenue from our China commerce retail business in the quarter ended September 30, 2021 was  RMB126,827 million (US$19,683 million), an increase of 33% compared to RMB95,470 million in  the same quarter of 2020. Customer management revenue grew 3% year-over-year, primarily due to  single-digit physical goods GMV growth that resulted from slowing market conditions and more  players in the China e-commerce market.

“Others” revenue under China commerce retail business was RMB55,132 million (US$8,556 million), achieving year-over-year growth of 111% compared to RMB26,132 million in the same  quarter of 2020. The increase was primarily driven by the consolidation of Sun Art, as well as the  contributions from our direct sales businesses, such as Tmall Supermarket and Freshippo.

• China commerce wholesale business 

Revenue from our China commerce wholesale business in the quarter ended September 30, 2021 was  RMB4,174 million (US$648 million), an increase of 15% compared to RMB3,637 million in the  same quarter of 2020. The increase was primarily due to increase in paying members’ spending on  value-added services on 1688.com. 

• International commerce retail business 

Revenue from our international commerce retail business in the quarter ended September 30, 2021 was RMB10,375 million (US$1,610 million), an increase of 33% compared to RMB7,789 million in  the same quarter of 2020. The increase was primarily due to the growth in revenue generated by  Lazada and AliExpress. 

• International commerce wholesale business 

Revenue from our international commerce wholesale business in the quarter ended September 30,  2021 was RMB4,717 million (US$732 million), an increase of 34% compared to RMB3,510 million  in the same quarter of 2020. The increase was primarily due to increases in both the number of  paying members and average revenue from paying members on Alibaba.com, as well as an increase  in revenue generated by cross-border related value-added services. 

• Cainiao logistics services 

Revenue from Cainiao Network’s logistics services, which represents revenue from its domestic and  international one-stop-shop logistics services and supply chain management solutions, after  elimination of inter-company transactions, was RMB9,846 million (US$1,528 million) in the quarter ended September 30, 2021, an increase of 20% compared to RMB8,226 million in the same quarter  of 2020, primarily due to the increase in volume of orders fulfilled from our fast growing cross border and international commerce retail businesses. 

• Local Consumer Services 

Revenue from Local Consumer Services, which primarily represents platform commissions, fees  from provision of delivery services and other services provided by Ele.me and after elimination of  inter-company transactions which includes services provided to our New Retail businesses, was  RMB9,513 million (US$1,476 million) in the quarter ended September 30, 2021, an increase of 8%  compared to RMB8,839 million in the same quarter of 2020, primarily due to an increase in GMV,  partly offset by an increase in subsidies that was contra revenue. 

Cloud computing 

Revenue from our cloud computing business in the quarter ended September 30, 2021 was RMB20,007 million (US$3,105 million), an increase of 33% compared to RMB15,029 million in the same quarter of  2020, primarily driven by strong growth in revenue from customers in the Internet, financial services and  retail industries.

Digital media and entertainment

Revenue from our digital media and entertainment segment in the quarter ended September 30, 2021 was  RMB8,081 million (US$1,254 million), compared to RMB8,066 million in the same quarter of 2020. 

Innovation initiatives and others

Revenue from innovation initiatives and others in the quarter ended September 30, 2021 was RMB1,432 million (US$223 million), an increase of 37% compared to RMB1,042 million in the same quarter of 2020.

Costs and Expenses

The following tables set forth a breakdown of our costs and expenses, share-based compensation expense  and costs and expenses excluding share-based compensation expense by function for the periods indicated. 

Cost of revenue – Cost of revenue in the quarter ended September 30, 2021 was RMB129,750 million  (US$20,137 million), or 64% of revenue, compared to RMB89,960 million, or 58% of revenue, in the same quarter of 2020. Without the effect of share-based compensation expense, cost of revenue as a percentage of  revenue would have increased from 54% in the quarter ended September 30, 2020 to 63% in the quarter  ended September 30, 2021. The increase was primarily attributable to the higher proportion of our direct  sales businesses, mainly from the consolidation of Sun Art, which resulted in increased cost of inventory.

Product development expenses – Product development expenses in the quarter ended September 30, 2021 were RMB15,297 million (US$2,374 million), or 8% of revenue, compared to RMB19,245 million, or 12%  of revenue, in the same quarter of 2020. Without the effect of share-based compensation expense, product  development expenses as a percentage of revenue would have remained stable at 6% in the quarter ended  September 30, 2021 and the same quarter last year. 

Sales and marketing expenses – Sales and marketing expenses in the quarter ended September 30, 2021 were RMB28,857 million (US$4,479 million), or 14% of revenue, compared to RMB17,371 million, or 11%  of revenue, in the same quarter of 2020. Without the effect of share-based compensation expense, sales and  marketing expenses as a percentage of revenue would have increased from 9% in the quarter ended  September 30, 2020 to 13% in the quarter ended September 30, 2021. The increase was primarily due to an  increase in marketing and promotional spending for user acquisition and engagement for our mobile  commerce apps, such as Taobao Deals, Taobao, Lazada and Ele.me. 

General and administrative expenses – General and administrative expenses in the quarter ended  September 30, 2021 were RMB8,874 million (US$1,377 million), or 5% of revenue, compared to  RMB11,961 million, or 8% of revenue, in the same quarter of 2020. Without the effect of share-based  compensation expense, general and administrative expenses as a percentage of revenue would have  remained stable at 4% in the quarter ended September 30, 2021 and the same quarter last year.  

Share-based compensation expense – Total share-based compensation expense included in the cost and  expense items above in the quarter ended September 30, 2021 was RMB10,121 million (US$1,571 million),  a decrease of 59% compared to RMB24,694 million in the same quarter of 2020. Share-based compensation  expense as a percentage of revenue decreased to 5% in the quarter ended September 30, 2021, as compared  to 16% in the same quarter last year.

Share-based compensation expense related to Alibaba Group share-based awards increased in this quarter  compared to the previous quarter, mainly due to the full quarter effect of the expense arising from the annual  performance-based awards granted in the middle of the previous quarter. 

Share-based compensation expense related to Ant Group share-based awards decreased significantly in this  quarter as compared to the quarter ended September 30, 2020, mainly due to the recognition of an increase  in the value of these awards in the quarter ended September 30, 2020.  

We expect that our share-based compensation expense will continue to be affected by changes in the fair  value of the underlying awards and the quantity of awards we grant in the future.

Amortization of intangible assets – Amortization of intangible assets in the quarter ended September 30,  2021 was RMB2,906 million (US$451 million), an increase of 1% from RMB2,888 million in the same  quarter of 2020. 

Income from operations and operating margin

Income from operations in the quarter ended September 30, 2021 was RMB15,006 million (US$2,329 million), or 7% of revenue, an increase of 10% compared to RMB13,634 million, or 9% of revenue, in the  same quarter of 2020, primarily due to a RMB15,690 million decrease in share-based compensation expense  related to Ant Group share-based awards granted to our employees. 

Adjusted EBITDA and Adjusted EBITA

Adjusted EBITDA decreased 27% year-over-year to RMB34,840 million (US$5,407 million) in the quarter  ended September 30, 2021, compared to RMB47,525 million in the same quarter of 2020. Adjusted EBITA  decreased 32% year-over-year to RMB28,033 million (US$4,351 million) in the quarter ended September  30, 2021, compared to RMB41,216 million in the same quarter of 2020. The year-over-year decreases were  primarily due to our increased investments in key strategic areas, such as Taobao Deals, Local Consumer Services, Community Marketplaces and Lazada, that have exhibited robust growth in operations, as well as  our support to merchants. A reconciliation of net income to adjusted EBITDA and adjusted EBITA is  included at the end of this results announcement.

Adjusted EBITA and adjusted EBITA margin by segments

Adjusted EBITA and adjusted EBITA margin by segments are set forth in the table below. See the section  entitled “Information by Segments” above for a reconciliation of income (loss) from operations to adjusted  EBITA

Commerce segment – Adjusted EBITA decreased by 28% to RMB33,270 million (US$5,163 million) in  the quarter ended September 30, 2021, compared to RMB45,958 million in the same quarter of 2020,  primarily due to our increased investments in key strategic areas, such as Taobao Deals, Local Consumer  Services, Community Marketplaces and Lazada, to strengthen consumer experience, enhance loyalty,  penetrate into less-developed areas in China and further expand our presence internationally. Commerce  adjusted EBITA before key strategic investments was RMB52,241 million (US$8,108 million), compared to  RMB52,354 million in the same quarter of 2020, primarily reflecting our support to merchants as well as  increased spending on user acquisition and engagement on our marketplaces. 

Adjusted EBITA margin decreased from 35% in the quarter ended September 30, 2020 to 19% in the quarter  ended September 30, 2021, primarily due to the consolidation of Sun Art and our increased investments in  key strategic areas. 

Starting from the quarter ended March 31, 2021, for purposes of presenting our commerce adjusted EBITA  before key strategic investments, we expanded the list of key strategic investment areas that we break out in  order to present the progress of these areas. Comparative figures are presented in the same manner  accordingly. A reconciliation of adjusted EBITA for commerce to commerce adjusted EBITA before key  strategic investments is included at the end of this results announcement.  

We expect that our commerce adjusted EBITA margin will continue to be affected by the pace of our  investment in key strategic areas and growth initiatives, as well as the growth of our direct sales businesses. 

Cloud computing segment – Adjusted EBITA was a profit of RMB396 million (US$61 million) in the  quarter ended September 30, 2021, compared to a loss of RMB567 million in the same quarter of 2020,  primarily attributable to the realization of economies of scale.

Beginning on April 1, 2021, we reclassified the results of our DingTalk business, which was previously  reported under the innovation initiatives and others segment, to the cloud computing segment. This  reclassification conforms to the way that we manage and monitor segment performance and reflects the  integration of DingTalk with Alibaba Cloud to further facilitate the digital transformation of our enterprise  customers. Comparative figures were reclassified to conform to this presentation. Because DingTalk remains  in the investment phase, the reclassification of DingTalk’s financials resulted in lowering of cloud  computing profitability and did not materially add to revenue. 

Digital media and entertainment segment – Adjusted EBITA in the quarter ended September 30, 2021 was a loss of RMB931 million (US$144 million), compared to a loss of RMB710 million in the same  quarter of 2020. Adjusted EBITA margin was negative 12% in the quarter ended September 30, 2021,  compared to negative 9% in the quarter ended September 30, 2020. 

Innovation initiatives and others segment – Adjusted EBITA in the quarter ended September 30, 2021 was a loss of RMB2,882 million (US$447 million), compared to a loss of RMB1,970 million in the same  quarter of 2020, primarily due to our investments in technology and innovation.  

Interest and investment income, net

Interest and investment income, net in the quarter ended September 30, 2021 was a loss of RMB11,456 million (US$1,778 million), compared to an income of RMB10,510 million in the same quarter of 2020, primarily due to net losses arising from changes in market prices of our equity investments in publicly traded companies in the quarter ended September 30, 2021, compared to net gains in the same quarter of  2020. 

The above-mentioned gains and losses were excluded from our non-GAAP net income. 

Other income, net

Other income, net in the quarter ended September 30, 2021 was RMB1,663 million (US$258 million),  compared to RMB1,148 million in the same quarter of 2020, primarily due to the increase in net exchange  gain.

Income tax expenses

Income tax expenses in the quarter ended September 30, 2021 were RMB6,087 million (US$944 million),  compared to RMB1,911 million in the same quarter of 2020. In the quarter ended September 30, 2020, tax  expenses were reduced by approximately RMB6.1 billion because during that quarter certain subsidiaries  

were officially notified that they were approved of the Key Software Enterprise status for calendar year  2019, which entitled them to a reduced tax rate of 10%. These subsidiaries did not obtain the Key Software  Enterprise status for calendar year 2020, and therefore no such adjustment of tax expenses was made in this  quarter. 

Excluding share-based compensation expense, revaluation and disposal gains/losses of investments, impairment of investments, as well as the deferred tax effects on basis differences arising from our share of  results of equity method investees, our effective tax rate would have been 24% in the quarter ended September 30, 2021. 

Share of results of equity method investees

Share of results of equity method investees in the quarter ended September 30, 2021 was RMB5,518 million  (US$856 million), compared to RMB4,244 million in the same quarter of 2020. Share of results of equity  method investees in the quarter ended September 30, 2021 and the comparative periods consisted of the following.

We record our share of results of all equity method investees one quarter in arrears. The year-over-year  increase in share of profit of Ant Group was mainly due to an increase in net gains arising from fair value  changes in the investments held by Ant Group. The decrease in share of results of other equity method  investees was mainly due to the general decline in financial performance of our equity method investees. 

Net income and Non-GAAP net income

Our net income in the quarter ended September 30, 2021 was RMB3,377 million (US$524 million), a  decrease of 87% compared to RMB26,524 million in the same quarter of 2020. The year-over-year decrease  was primarily due to net losses arising from changes in market prices of our equity investments in publicly traded companies in the quarter ended September 30, 2021, compared to net gains in the same quarter of  2020, as well as our increased investments in key strategic areas and support to merchants, partly offset by  the decrease in share-based compensation expense related to Ant Group share-based awards granted to our  employees. 

Excluding share-based compensation expense, revaluation and disposal gains/losses of investments,  impairment of investments and certain other items, non-GAAP net income in the quarter ended September  30, 2021 was RMB28,524 million (US$4,427 million), a decrease of 39% compared to RMB47,088 million  in the same quarter of 2020. A reconciliation of net income to non-GAAP net income is included at the end  of this results announcement. 

Net income attributable to ordinary shareholders

Net income attributable to ordinary shareholders in the quarter ended September 30, 2021 was RMB5,367 million (US$833 million), a decrease of 81% compared to RMB28,769 million in the same quarter of 2020. The year-over-year decrease was primarily due to net losses arising from changes in market prices of our  equity investments in publicly-traded companies in the quarter ended September 30, 2021, compared to net  gains in the same quarter of 2020, as well as our increased investments in key strategic areas and support to  merchants, partly offset by the decrease in share-based compensation expense related to Ant Group share based awards granted to our employees. 

Diluted earnings per ADS/share and non-GAAP diluted earnings per ADS/share

Diluted earnings per ADS in the quarter ended September 30, 2021 was RMB1.97 (US$0.31) on a weighted  average of 21,794 million diluted shares outstanding during the quarter, a decrease of 81% compared to  RMB10.48 on a weighted average of 21,962 million diluted shares outstanding during the same quarter in  2020. Excluding share-based compensation expense, revaluation and disposal gains/losses of investments,

impairment of investments and certain other items, non-GAAP diluted earnings per ADS in the quarter  ended September 30, 2021 was RMB11.20 (US$1.74), a decrease of 38% compared to RMB17.97 in the  same quarter of 2020.  

Diluted earnings per share in the quarter ended September 30, 2021 was RMB0.25 (US$0.04 or HK$0.30), a decrease of 81% compared to RMB1.31 in the same quarter of 2020. Excluding share-based compensation  expense, revaluation and disposal gains/losses of investments, impairment of investments and certain other  items, non-GAAP diluted earnings per share in the quarter ended September 30, 2021 was RMB1.40 (US$0.22 or HK$1.68), a decrease of 38%, compared to RMB2.25 in the same quarter of 2020.  

A reconciliation of diluted earnings per ADS/share to non-GAAP diluted earnings per ADS/share is  included at the end of this results announcement. Each ADS represents eight ordinary shares.

Cash, cash equivalents and short-term investments

As of September 30, 2021, cash, cash equivalents and short-term investments were RMB443,428 million  (US$68,819 million), compared to RMB470,824 million as of June 30, 2021. The decrease in cash, cash  equivalents and short-term investments during the quarter ended September 30, 2021 was primarily due to  cash used in repurchase of ordinary shares of RMB33,174 million (US$5,149 million) and investment and  acquisition activities of RMB22,950 million (US$3,562 million), partly offset by free cash flow generated  from operations of RMB22,239 million (US$3,451 million) and cash injection from noncontrolling interests  of RMB9,691 million (US$1,504 million). 

Cash flow from operating activities and free cash flow

Net cash provided by operating activities in the quarter ended September 30, 2021 was RMB35,830 million  (US$5,561 million), a decrease of 34% compared to RMB54,296 million in the same quarter of 2020. Free  cash flow, a non-GAAP measurement of liquidity, in the quarter ended September 30, 2021 decreased by  45% to RMB22,239 million (US$3,451 million), from RMB40,540 million in the same quarter of 2020,  mainly due to a decrease in profit as a result of our increased investments in key strategic areas. A  reconciliation of net cash provided by operating activities to free cash flow is included at the end of this  results announcement. 

Net cash used in investing activities

During the quarter ended September 30, 2021, net cash used in investing activities of RMB29,773 million  (US$4,621 million) primarily reflected (i) cash outflow of RMB22,950 million (US$3,562 million) for  investment and acquisition activities, and (ii) capital expenditures of RMB15,938 million (US$2,474  million), which included cash outflow for acquisition of land use rights and construction in progress relating  to office campuses of RMB3,261 million (US$506 million), partly offset by a decrease in short-term  investments by RMB7,968 million (US$1,237 million).

Employees  

As of September 30, 2021, we had a total of 258,578 employees, compared to 254,702 as of June 30, 2021. 

This results announcement contains translations of certain Renminbi (“RMB”) amounts into U.S. dollars  (“US$”) and Hong Kong dollars (“HK$”) for the convenience of the reader. Unless otherwise stated, all  translations of RMB into US$ were made at RMB6.4434 to US$1.00, the exchange rate on September 30,  2021 as set forth in the H.10 statistical release of the Federal Reserve Board, and all translations of RMB  into HK$ were made at RMB0.83306 to HK$1.00, the middle rate on September 30, 2021 as published by  the People’s Bank of China. The percentages stated in this announcement are calculated based on the RMB  amounts and there may be minor differences due to rounding. 

SAFE HARBOR STATEMENTS

This announcement contains forward-looking statements. These statements are made under the “safe  harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking  statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,”  “plans,” “believes,” “estimates,” “potential,” “continue,” “ongoing,” “targets,” “guidance” and similar  statements. In addition, statements that are not historical facts, including statements about Alibaba’s  strategies and business plans, Alibaba’s beliefs, expectations and guidance regarding the growth of its  business and its revenue, the business outlook and quotations from management in this announcement, as  well as Alibaba’s strategic and operational plans, are or contain forward-looking statements. Alibaba may  also make forward-looking statements in its periodic reports to the U.S. Securities and Exchange  Commission (the “SEC”), in announcements made on the website of The Stock Exchange of Hong Kong  Limited (the “Hong Kong Stock Exchange”), in press releases and other written materials and in oral  statements made by its officers, directors or employees to third parties. Forward-looking statements involve  inherent risks and uncertainties. A number of factors could cause actual results to differ materially from  those contained in any forward-looking statement, including but not limited to the following: Alibaba’s  ability to maintain the trusted status of its ecosystem; risks associated with sustained investments in  Alibaba’s business and strategic acquisitions and investments; Alibaba’s expected revenue growth and  ability to maintain or grow its revenue or business; Alibaba’s ability to continue to compete effectively and  maintain and improve the network effects of its ecosystem; company culture; Alibaba’s ability to continue to  innovate; risks and challenges associated with operating a complex and large-scale company; risks  associated with expanding our international and cross-border businesses and operations; fluctuations in  general economic and business conditions in China and globally; impacts of the COVID-19 pandemic;  uncertainties arising from competition among countries and geopolitical tensions, including protectionist or  national security policies; changes in laws, regulations and regulatory environment that affect Alibaba’s  business operations; risks associated with the performance of our business partners, including but not limited  to Ant Group; privacy and data protection regulations and concerns; and security breaches, and assumptions  underlying or related to any of the foregoing. Further information regarding these and other risks is included  in Alibaba’s filings with the SEC and announcements on the website of the Hong Kong Stock Exchange. All  information provided in this results announcement is as of the date of this results announcement and are  based on assumptions that we believe to be reasonable as of this date, and Alibaba does not undertake any  obligation to update any forward-looking statement, except as required under applicable law. 

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements, which are prepared and presented in accordance with  GAAP, we use the following non-GAAP financial measures: for our consolidated results, adjusted EBITDA  (including adjusted EBITDA margin), adjusted EBITA (including adjusted EBITA margin), commerce  adjusted EBITA before key strategic investments, non-GAAP net income, non-GAAP diluted earnings per  share/ADS and free cash flow. For more information on these non-GAAP financial measures, please refer to  the section entitled “Information about Segments” and the table captioned “Reconciliations of Non-GAAP  Measures to the Nearest Comparable U.S. GAAP Measures” in this results announcement. 

We believe that adjusted EBITDA, adjusted EBITA, commerce adjusted EBITA before key strategic  investments, non-GAAP net income and non-GAAP diluted earnings per share/ADS help identify  underlying trends in our business that could otherwise be distorted by the effect of certain income or  expenses that we include in income from operations, net income and diluted earnings per share/ADS. We  believe that these non-GAAP measures provide useful information about our core operating results, enhance  the overall understanding of our past performance and future prospects and allow for greater visibility with  respect to key metrics used by our management in its financial and operational decision-making. We present  three different income measures, namely adjusted EBITDA, adjusted EBITA and non-GAAP net income, as  well as one measure that provides supplemental information on our commerce segment, namely commerce

adjusted EBITA before key strategic investments, in order to provide more information and greater  transparency to investors about our operating results.  

We consider free cash flow to be a liquidity measure that provides useful information to management and  investors about the amount of cash generated by our business that can be used for strategic corporate  transactions, including investing in our new business initiatives, making strategic investments and  acquisitions and strengthening our balance sheet. 

Adjusted EBITDA, adjusted EBITA, commerce adjusted EBITA before key strategic investments, non GAAP net income, non-GAAP diluted earnings per share/ADS and free cash flow should not be considered  in isolation or construed as an alternative to income from operations, adjusted EBITA for commerce, net  income, diluted earnings per share/ADS, cash flows or any other measure of performance or as an indicator  of our operating performance. These non-GAAP financial measures presented here do not have standardized  meanings prescribed by U.S. GAAP and may not be comparable to similarly titled measures presented by  other companies. Other companies may calculate similarly titled measures differently, limiting their  usefulness as comparative measures to our data. 

Adjusted EBITDA represents net income before (i) interest and investment income, net, interest expense, other income, net, income tax expenses and share of results of equity method investees, (ii) certain non-cash expenses, consisting of share-based compensation expense, amortization of intangible assets, depreciation of  property and equipment and operating lease cost relating to land use rights, which we do not believe are  reflective of our core operating performance during the periods presented. 

Adjusted EBITA represents net income before (i) interest and investment income, net, interest expense,  other income, net, income tax expenses and share of results of equity method investees, (ii) certain non-cash expenses, consisting of share-based compensation expense and amortization of intangible assets, which we  do not believe are reflective of our core operating performance during the periods presented. 

Commerce adjusted EBITA before key strategic investments represents adjusted EBITA for commerce  excluding the effects of (i) New Retail businesses (primarily Community Marketplaces, Freshippo, Tmall  Supermarket, Sun Art and Taoxianda), (ii) Local Consumer Services, (iii) Taobao Deals, (iv) Lazada, (v)  Cainiao Network, and others. Commerce adjusted EBITA before key strategic investments reflects the  performance of our most established businesses, namely, those of our China retail marketplaces and  wholesale marketplaces. By excluding certain businesses that are in the earlier stages of their development  and with business approaches that continue to evolve, commerce adjusted EBITA before key strategic  investments enables investors to clearly evaluate the performance of our most established businesses on a  like-for-like basis. 

Non-GAAP net income represents net income before share-based compensation expense, amortization of  intangible assets, impairment of investments, gain or loss on deemed disposals/disposals/revaluation of  investments and others, as adjusted for the tax effects on non-GAAP adjustments. 

Non-GAAP diluted earnings per share represents non-GAAP net income attributable to ordinary shareholders divided by the weighted average number of shares outstanding during the periods on a diluted  basis. Non-GAAP diluted earnings per ADS represents non-GAAP diluted earnings per share after  adjustment to the ordinary share-to-ADS ratio. Free cash flow represents net cash provided by operating activities as presented in our consolidated cash  flow statement less purchases of property and equipment (excluding acquisition of land use rights and  construction in progress relating to office campuses) and intangible assets, as well as adjustments to exclude  from net cash provided by operating activities the consumer protection fund deposits from merchants on our  marketplaces. We deduct certain items of cash flows from investing activities in order to provide greater

transparency into cash flow from our revenue-generating business operations. We exclude “acquisition of  land use rights and construction in progress relating to office campuses” because the office campuses are  used by us for corporate and administrative purposes and are not directly related to our revenue-generating 

business operations. We also exclude consumer protection fund deposits from merchants on our marketplaces because these deposits are restricted for the purpose of compensating consumers for claims  against merchants. 

The section entitled “Information about Segments” and the table captioned “Reconciliations of Non-GAAP  Measures to the Nearest Comparable U.S. GAAP Measures” in this results announcement have more details  on the non-GAAP financial measures that are most directly comparable to GAAP financial measures and the  related reconciliations between these financial measures.