Alibaba -China
AMENDMENT TO SHARE AND ASSET PURCHASE AGREEMENT

 On March 17, 2010, the SARFT issued the Internet Audio/Video Program Services Categories (Provisional), or the Provisional Categories, which classified Internet audio/video programs into four categories. Category I is only open to state-owned broadcast media companies operating in the television section, and the other three categories are open to privately held entities.

In 2009, the SARFT released a Notice on Strengthening the Administration of Online Audio/Video Content. This notice reiterated, among other things, that all movies and television shows released or published online must comply with relevant regulations on the administration of radio, film and television. In other words, these movies and television shows, whether produced in the PRC or overseas, must be pre-approved by the SARFT, and the distributors of these movies and television shows must obtain an applicable permit before releasing any of these movie or television shows. In 2012, the SARFT and the State Internet Information Office of the PRC issued a Notice on Improving the Administration of Online Audio/Video Content Including Internet Drama and Micro Films. In 2014, the General Administration of Press and Publication, Radio, Film and Television, or GAPPRFT, formerly the SARFT and the GAPP, released a Supplemental Notice on Improving the Administration of Online Audio/Video Content Including Internet Drama and Micro Films. This notice stresses that entities producing online audio/video content, such as Internet dramas and micro films, must obtain a permit for radio and television program production and operation, and that online audio/video content service providers should not release any Internet dramas or micro films that were produced by any entity lacking the permit. For Internet dramas or micro films produced and uploaded by individual users, the online audio/video service providers transmitting this content will be deemed responsible as the producer. Further, under this notice, online audio/video service providers can only transmit content uploaded by individuals whose identity has been verified and the content must comply with the relevant content management rules. This notice also requires that online audio/video content, include Internet drama and micro films, be filed with the relevant authorities before release.

On October 28, 2011, the SARFT issued the Administrative and Operational Requirements for Licensed Internet TV Organizations, commonly known as Circular 181, which came into effect on the same date. Circular 181 requires that Smart TVs must be exclusively connected to a specific licensed Internet TV organization and must not have access to the public Internet or network operators' databases. Up to now, there are only seven licensed Internet TV organizations and all are state-owned companies.

On September 2, 2014, the GAPPRFT promulgated a Notice on Further Implementing the Relevant Provisions for the Administration of Broadcasting Foreign Films and TV dramas. The notice stresses that any foreign film or TV drama must have a License for Film Publication or a TV drama Issuance License before being broadcast online, and that the annual total number of foreign films and TV dramas broadcast by a website must not exceed 30% of the total amount of domestic films and TV dramas broadcast by the relevant website in the preceding year. Furthermore, online video operators are required to report their annual plans for the import of foreign films and TV dramas to the GAPPRFT before the end of the preceding year. If the online video operators' import plans are approved, the samples, contracts, copyright certificates, plot summaries and other materials relevant to the foreign films and TV dramas are subject to further content examination before the issuance of Licenses for Film Publication or the TV drama Issuance Licenses. The notice also requires these online video operators to upload information about the foreign films and TV dramas to be broadcast to a unified platform for registration before March 31, 2015. Since April 1, 2015, unregistered foreign films and TV dramas are no longer allowed to be broadcast online.

On April 25, 2016, the GAPPRFT promulgated the Administration Measures on Audio/Video Program Services via Special Network and Directional Transmission, or Circular 6, which came into effect on June 1, 2016 and replaced the Rules for the Administration of Broadcasting of Audio/Video Programs through the Internet and Other Information Networks, which was promulgated in July 2004. Pursuant to Circular 6, providers of audio/video program services via special network and directional transmission, including content providing, integrated broadcasting controlling and transmission and delivery, must obtain an audio/video program transmission license, with a term of three years, issued by the GAPPRFT and operate pursuant to the scope as provided in such licenses. Foreign invested enterprises are not allowed to engage in these businesses.

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Regulations on Internet Publication

The GAPPRFT is responsible for nationwide supervision and administration of publishing activities in China. On February 4, 2016, the GAPPRFT and the MIIT jointly promulgated the Online Publication Service Administration Rules, or the Online Publication Rules, which took effect on March 10, 2016 and replaced the Internet Publication Tentative Administrative Measures, which was promulgated in June 2002. Pursuant to the Online Publication Rules, an online publication service provider must obtain the Online Publication Service License from the GAPPRFT. The term "online publication service" is defined as the provision of online publications to the public through information networks. The term "online publications" is defined as digital works characteristic of publishing such as editing, production or processing provided to the public through information networks, and primarily include:
•original digital works such as texts, pictures, maps, games, cartoons and audio-visual reading materials in the fields of literature, art, science, etc., which are of knowledge or ideology;

•digital works, the content of which is the same as that which has already been published, such as books, newspapers, periodicals and electronic publications;

•digital works such as online document databases formed by way of selecting, compiling or collecting the abovementioned works; and

•other types of digital works determined by the GAPPRFT.
The Online Publication Rules expressly prohibit foreign invested enterprises from providing online publication services. In addition, if an online publication service provider intends to cooperate for an online publication services project with foreign invested enterprises, overseas organizations or overseas individuals, it must report to the GAPPRFT and obtain an approval in advance. Also, an online publication service provider is prohibited from lending, leasing, selling or otherwise transferring the Online Publication Service License, or to allow any other online information service provider to provide online publication services in its name.

Pursuant to the Online Publication Rules, book, audio-visual, electronic, newspaper or periodical publishers who intend to engage in online publication services must have:
•a specific publishing platform, such as domain name and smart terminal application, for conducting online publication business;

•a specific online publication service scope; and

•necessary technical equipment for the provision of online publication services, with the related server and storage equipment located within the territory of the PRC.
Other entities which intend to engage in online publication services must have:
•a specific name and articles of association which is not identical to the name of any other publication service provider;

•a legal representative and key responsible persons who shall be a PRC national living permanently in the PRC who has full civil capacity to act, and at least one of these legal representatives or key responsible persons must have a mid-level or higher professional qualification in the field of publication;

•at least eight full-time editing and publishing staff, other than the legal representative and key responsible persons, who have professional qualifications in publishing or other relevant fields recognized by the GAPPRFT and meet the needs of the entity's scope of online publication services, among whom at least three must have mid-level or higher professional qualification;

•a content review system meeting the needs of the provision of online publication services;

•fixed working premises; and

•other items as required by relevant laws, administrative regulations or the GAPPRFT.
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Regulations on Internet Drug Information Service

The State Food and Drug Administration, or the SFDA, promulgated the Administrative Measures on Internet Drug Information Service in July 2004 and certain implementing rules and notices thereafter. These measures set out regulations governing the classification, application, approval, content, qualifications and requirements for Internet drug information services. An ICP service operator that provides information regarding drugs or medical equipment must obtain an Internet Drug Information Service Qualification Certificate from the applicable provincial level counterpart of the SFDA.

Regulations on Internet News Information Services

Publishing and disseminating news through the Internet are highly regulated in the PRC. On November 7, 2000, the State Council Information Office, or SCIO, and the MIIT jointly promulgated the Provisional Measures for Administrating Internet Websites Carrying on the News Publication Business, or Internet News Measures. These measures require an ICP operator (other than a government authorized news unit) to obtain the approval from SCIO to publish news on its website or disseminate news through the Internet. Furthermore, any disseminated news is required to be obtained from government-approved sources based on contracts between the ICP operator and these sources. The copies of these contracts must be filed with relevant government authorities.

On September 25, 2005, the SCIO and the MIIT jointly issued the Provisions on the Administration of Internet News Information Services, requiring Internet news information service organizations to provide services as approved by the SCIO, subject to annual inspection under the new provisions. These Provisions also provide that no foreign invested enterprise, whether jointly or wholly owned by the foreign investment, may be an Internet news information service organization, and no cooperation between Internet news information service organizations and foreign invested enterprises is allowed before the SCIO completes the security evaluation.

On May 2, 2017, the Cyberspace Administration issued the Administrative Provisions on Internet News Information Services, or the 2017 Internet News Information Provisions, which came into effect on June 1, 2017 and redefine news information as reports and commentary on political, economic, military, diplomatic and other social and public affairs, as well as reports and commentary on emergency social events. Pursuant to the 2017 Internet News Information Provisions, the Cyberspace Administration and its local counterparts replaced the SCIO as the government department in charge of supervision and administration of internet news information. Further, an ICP operator must obtain approval from the Cyberspace Administration in order to provide Internet news information services, including through websites, applications, forums, blogs, microblogs, public accounts, instant messaging tools, and webcasts.

Regulations on Internet Culture Activities

On February 17, 2011, the Ministry of Culture promulgated the Internet Culture Administration Tentative Measures, or the Internet Culture Measures. The Internet Culture Measures require ICP operators engaging in "Internet culture activities" to obtain a permit from the Ministry of Culture. The term "Internet culture activities" includes, among other things, online dissemination of Internet cultural products (such as audio-video products, gaming products, performances of plays or programs, works of art and cartoons) and the production, reproduction, importation, publication and broadcasting of Internet cultural products.

On November 20, 2006, the Ministry of Culture issued Several Suggestions of the Ministry of Culture on the Development and Administration of the Internet Music, or the Suggestions, which became effective on November 20, 2006. The Suggestions, among other things, reiterate the requirement for an Internet service provider to obtain an Internet culture business permit to carry on any business relating to Internet music products. In addition, foreign investors are prohibited from operating Internet culture businesses. However, the laws and regulations on Internet music products are still evolving, and there have not been any provisions stipulating whether or how music video will be regulated by the Suggestions.

On August 2, 2013, the Ministry of Culture promulgated the Notice on Implementing the Administrative Measures for the Content Self-examination of Internet Culture Business Entities. According to this notice, any

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cultural product or service shall be reviewed by the provider before being released to the public and the review process shall be done by persons who have obtained the relevant content review certificate.

On October 23, 2015, the Ministry of Culture promulgated the Notice on Further Strengthening and Improving the Content Review of Online Music, which took effect on January 1, 2016 and stipulated that ICPs shall carry out self-examination in respect of the content management of online music, which shall be regulated by the cultural administration departments in process or afterwards. According to this notice, ICP operators are required to submit their content administrative system, review procedures, and work standards to the provincial culture administrative department where they are located for filing within a prescribed period.

Regulations on Producing Audio/Video Programs

On July 19, 2004, the SARFT promulgated the Administrative Measures on the Production and Operation of Radio and Television Programs, effective as of August 20, 2004 and amended on August 28, 2015. These Measures provide that anyone who wishes to produce or operate radio or television programs must first obtain an operating permit for their business.

On February 1, 2002, the State Council promulgated the Regulations for the Administration of Films, or the Film Regulations, which became effective on the same day. The Film Regulations set forth the general regulatory guidelines for China's film industry and address practical issues with respect to production, censorship, distribution and screening. They also establish the SARFT as the sector's regulatory authority, and serve as the foundation for all other legislation promulgated in this area. The Film Regulations provide the framework for an industry-wide licensing system operated by the SARFT, under which separate permits (and permit application procedures) apply.

Regulation of Internet Security

The Decision in Relation to Protection of the Internet Security enacted by the Standing Committee of the National People's Congress of China on December 28, 2000 provides that the following activities conducted through the Internet are subject to criminal punishment:
•gaining improper entry into a computer or system of strategic importance;

•disseminating politically disruptive information or obscenities;

•leaking State secrets;

•spreading false commercial information; or

•infringing intellectual property rights.
The Administrative Measures on the Security Protection of Computer Information Network with International Connections, issued by the Ministry of Public Security on December 16, 1997 and amended on January 8, 2011, prohibit the use of the Internet in a manner that would result in the leakage of State secrets or the spread of socially destabilizing content. The Provisions on Technological Measures for Internet Security Protection, or the Internet Security Protection Measures, promulgated on December 13, 2005 by Ministry of Public Security require all ICPs to keep records of certain information about their users (including user registration information, log-in and log-out time, IP address, content and time of posts by users) for at least 60 days and submit the above information as required by laws and regulations. Under these measures, value-added telecommunications services license holders must regularly update information security and content control systems for their websites and must also report any public dissemination of prohibited content to local public security authorities. If a value-added telecommunications services license holder violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.

The Communication Network Security Protection Administrative Measures, which were promulgated by the MIIT on January 21, 2010, require that all communication network operators, including telecommunications service providers and Internet domain name service providers, divide their own communication networks into units. These communication network units shall be rated in accordance with degree of damage to national security, economic

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operation, social order and public interest in the event a unit is damaged. Communication network operators must file the division and ratings of their communication network with MIIT or its local counterparts. If a communication network operator violates these measures, the MIIT or its local counterparts may order rectification or impose a fine up to RMB30,000 in case a violation is not duly rectified.

Internet security in China is also regulated and restricted from a national security standpoint. On July 1, 2015, the National People's Congress Standing Committee promulgated the New National Security Law, which took effect on the same date and replaced the former National Security Law promulgated in 1993. According to the New National Security Law, the state shall ensure that the information system and data in important areas are secure and controllable. In addition, according to the New National Security Law, the state shall establish national security review and supervision institutions and mechanisms, and conduct national security reviews of key technologies and IT products and services that affect or may affect national security. There are uncertainties on how the New National Security Law will be implemented in practice.

On November 7, 2016, the National People's Congress Standing Committee promulgated the Cybersecurity Law, which came into effect on June 1, 2017, and apply to the construction, operation, maintenance and use of networks as well as the supervision and administration of cybersecurity in China. The Cybersecurity Law defines "networks" as systems that are composed of computers or other information terminals and relevant facilities used for the purpose of collecting, storing, transmitting, exchanging and processing information in accordance with certain rules and procedures. "Network operators," who are broadly defined as owners and administrator of networks and network service providers, are subject to various security protection related obligations including:
•complying with security protection obligations in accordance with tiered cybersecurity system's protection requirements, which include formulating internal security management rules and manual, appointing cybersecurity responsible personnel, adopting technical measures to prevent computer virus and cybersecurity endangering activities, adopting technical measures to monitor and record network operation status, cybersecurity events, retaining user logs for at least six months and adopting measures such as data classification, key data backup and encryption, for the purpose of securing networks from interference, vandalization, or unauthorized visit and preventing network data from leakage, theft or tampering;

•verifying user's identities before signing agreements or providing services such as network access, domain name registration, landline telephone or mobile phone access, information publishing or real-time communication services;

•formulating cybersecurity emergency response plans, timely handling security risks, initiating emergency response plans, taking appropriate remedial measures and reporting to regulatory authorities; and

•providing technical assistance and support for public security and national security authorities for protection of national security and criminal investigations.
According to the Cybersecurity Law, network service providers must inform users about and report to the relevant authorities any known security defects and bugs, and must provide constant security maintenance services for their products and services. Network products and service providers shall not contain or provide malware. Network service providers who do not comply with the Cybersecurity Law may be subject to fines, suspension of their businesses, shutdown of their websites, and revocation of their business licenses.

On April 11, 2017, the Cyberspace Administration released the draft Measures on Security Assessment of the Cross-Border Transfer of Personal Information and Important Data, or the draft Cross-Border Transfer Measures, which requires personal information and important data collected by and produced by all network operators during the course of their operations within China to be stored within China. According to the draft Cross-Border Transfer Measures, self-assessment by network operators or assessment by industrial regulatory authority or the national cyberspace authority under certain circumstances must be completed before transferring personal information or important data overseas.

According to the draft Cross-Border Transfer Measures, personal information or important data may not be transferred overseas without consent from the concerned individual(s), or if the transfer endangers the interests of

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individuals, the public or national security. The export of the following data shall be pre-assessed by industrial regulatory authority or the national cyberspace authority:
•personal information of 500,000 individuals or more;

•data with volume of 1,000 gigabytes or more;

•data in relation to nuclear facilities, chemistry and biology, national defense and military, health of the population, mega project activities, ocean environment, and sensitive geographical information;

•network security information involving system bugs and security protection of key information infrastructure;

•personal information and important data provided by key information infrastructure operators; and

•other data that may affect national security and societal public interests, and considered by the industrial administration authority or regulatory authority necessary to be subject to their assessment.
The Cyberspace Administration will complete the solicitation of comments on the draft Cross-Border Transfer Measures in May 2017, and there are still substantial uncertainties with respect to its final content and enactment timetable.

On May 2, 2017, the Cyberspace Administration issued the Measures for Security Review of Cyber Products and Services, or the Cybersecurity Review Measures, which came into effect on June 1, 2017. According to the Cybersecurity Review Measures, the following cyber products and services will be subject to cybersecurity review:
•important cyber products and services purchased by networks and information systems related to national security; and

•the purchase of cyber products and services by operators of critical information infrastructure in important industries and fields such as public communications and information services, energy, transportation, water resources, finance, public service and electronic administration, and other critical information infrastructure, which may affect national security.
The Cyberspace Administration is responsible for organizing and implementing cybersecurity review, while the competent departments in key industries such as finance, telecommunications, energy and transport shall be responsible for organizing and implementing security review of cyber products and services in their respective industries or fields. There are still substantial uncertainties with respect to the interpretation and implementation of the Cybersecurity Review Measures.

Regulation of Privacy Protection

Under the ICP Measures, ICPs are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes upon the lawful rights and interests of others. Depending on the nature of the violation, ICPs may face criminal charges or sanctions by PRC security authorities for these acts, and may be ordered to suspend temporarily their services or have their licenses revoked.

Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT on December 29, 2011, ICPs are also prohibited from collecting any personal user information or providing any information to third parties without the consent of the user. The Cybersecurity Law provides an exception to the consent requirement where the information is anonymous, not personally identifiable and unrecoverable. ICPs must expressly inform the users of the method, content and purpose of the collection and processing of user personal information and may only collect information necessary for its services. ICPs are also required to properly maintain the user personal information, and in case of any leak or likely leak of the user personal information, ICPs must take remedial measures immediately and report any material leak to the telecommunications regulatory authority.

In addition, the Decision on Strengthening Network Information Protection promulgated by the Standing Committee of the National People's Congress on December 28, 2012 emphasizes the need to protect electronic

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information that contains individual identification information and other private data. The decision requires ICPs to establish and publish policies regarding the collection and use of personal electronic information and to take necessary measures to ensure the security of the information and to prevent leakage, damage or loss. Furthermore, MIIT's Rules on Protection of Personal Information of Telecommunications and Internet Users promulgated on July 16, 2013 contain detailed requirements on the use and collection of personal information as well as the security measures to be taken by ICPs.

The PRC government retains the power and authority to order ICPs to provide an Internet user's personal information if a user posts any prohibited content or engages in any illegal activities through the Internet.

According to the Cybersecurity Law, individuals may request that network operators make corrections to or delete their personal information in case the information is wrong or was collected or used beyond an individuals' agreement with network operators.

Regulation of Consumer Protection

Our online and mobile commerce business is subject to a variety of consumer protection laws, including the PRC Consumer Rights and Interests Protection Law, as amended and effective as of March 15, 2014, and the Administrative Measures for Online Trading, both of which have provided stringent requirements and obligations on business operators, including Internet business operators and platform service providers like us. For example, consumers are entitled to return goods purchased online, subject to certain exceptions, within seven days upon receipt of goods for no reason. On January 6, 2017, the SAIC issued the Interim Measures for No Reason Return of Online Purchased Commodities within Seven Days, which came into effect on March 15, 2017, further clarifying the scope of consumers' rights to make returns without a reason, including exceptions, return procedures and online marketplace platform providers' responsibility to formulate seven-day no-reason return rules and related consumer protection systems, and supervise the merchants for compliance with these rules. To ensure that merchants and service providers comply with these laws and regulations, we, as platform operators, are required to implement rules governing transactions on our platform, monitor the information posted by merchants and service providers, and report any violations by merchants or service providers to the relevant authorities. In addition, online marketplace platform providers may, pursuant to PRC consumer protection laws, be exposed to liabilities if the lawful rights and interests of consumers are infringed in connection with consumers' purchase of goods or acceptance of services on online marketplace platforms and the platform service providers fail to provide consumers with the contact information of the merchant or manufacturer. In addition, platform service providers may be jointly and severally liable with merchants and manufacturers if they are aware or should be aware that the merchant or manufacturer is using the online platform to infringe upon the lawful rights and interests of consumers and fail to take measures necessary to prevent or stop this activity.

Failure to comply with these consumer protection laws could subject us to administrative sanctions, such as the issuance of a warning, confiscation of illegal income, imposition of a fine, an order to cease business operations, revocation of business licenses, as well as potential civil or criminal liabilities.

Regulation of Pricing

In China, the prices of a very small number of products and services are guided or fixed by the government. According to the Pricing Law, business operators must, as required by the government departments in charge of pricing, mark the prices explicitly and indicate the name, production origin, specifications, and other related particulars clearly. Business operators may not sell products at a premium or charge any fees that are not explicitly indicated. Business operators must not commit the specified unlawful pricing activities, such as colluding with others to manipulate the market price, providing fraudulent discounted price information, using false or misleading prices to deceive consumers to transact, or conducting price discrimination against other business operators. Failure to comply with the Pricing Law or other rules or regulations on pricing may subject business operators to administrative sanctions such as warning, orders to cease unlawful activities, payment of compensation to consumers, confiscation of illegal gains, and/or fines. The business operators may be ordered to suspend business for rectification, or have their business licenses revoked if the circumstances are severe. Merchants on Tmall and

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Taobao Marketplace undertake the primary obligation under the Pricing Law. However, in some cases, we have been and may in the future be held liable and be subject to fines or other penalties if the authorities determine that, as the platform operator, our guidance for platform-wide promotional activities resulted in unlawful pricing activities by the merchants on our platforms or if the pricing information we provided for platform-wide promotional activities was determined to be untrue or misleading.

Regulation of Intellectual Property Rights

Patent. Patents in the PRC are principally protected under the Patent Law of the PRC. The duration of a patent right is either 10 years or 20 years from the date of application, depending on the type of patent right.

Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

Trademark. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of this trademark may be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.

Domain Name. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

Regulation of Anti-counterfeiting

According to the Trademark Law of the PRC, counterfeit or unauthorized production of the label of another person's registered trademark, or sale of any label that is counterfeited or produced without authorization will be deemed as an infringement of the exclusive right to use a registered trademark. The infringing party will be ordered to cease infringement immediately, a fine may be imposed and the counterfeit goods will be confiscated. The infringing party may also be held liable for damages suffered by the owner of the intellectual property rights, which will be equal to the gains obtained by the infringing party or the losses suffered by the owner as a result of the infringement, including reasonable expenses incurred by the owner in connection with enforcing its rights.

Under the Tort Liability Law of the PRC, an Internet service provider may be subject to joint liability if it is aware that an Internet user is infringing upon the intellectual property rights of others through its Internet services, such as selling counterfeit products, and fails to take necessary measures to stop that activity. If an Internet service provider receives a notice from an infringed party regarding an infringement, the Internet service provider is required to take certain measures, including deleting, blocking and unlinking the infringing content, in a timely manner.

In addition, under the Administrative Measures for Online Trading issued by the SAIC on January 26, 2014, as an operator of an online trading platform, we must adopt measures to ensure safe online transactions, protect consumers' rights and prevent trademark infringement. ...


Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 added Section 13(r) to the Exchange Act. Section 13(r) requires an issuer to disclose in its annual or quarterly reports, as applicable, whether it or any of its affiliates knowingly engaged in certain activities, including, among other matters, transactions or dealings relating to the government of Iran. Disclosure is required even where the activities, transactions or dealings are conducted outside the U.S. by non-U.S. affiliates in compliance with applicable law, and whether or not the activities are sanctionable under U.S. law.

During the fiscal year ended March 31, 2017, SoftBank Group Corp., one of our major shareholders, through one of its non-U.S. subsidiaries, provided roaming services in Iran through Telecommunications Services Company (MTN Irancell), which is or may be a government-controlled entity. During the fiscal year ended March 31, 2017, SoftBank Group Corp. had no gross revenues from these services and no net profit was generated. This subsidiary also provided telecommunications services in the ordinary course of business to accounts affiliated with the Embassy of Iran in Japan. During the fiscal year ended March 31, 2017, SoftBank Group Corp. estimates that

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gross revenues and net profit generated by these services were both under US$9,400. In addition, during the year end of March 31, 2017, SoftBank Group Corp., through one of its non-U.S. indirect subsidiaries, provided office supplies to the Embassy of Iran in Japan. SoftBank Group Corp. estimates that gross revenue and net profit generated by these services were under US$5,300 and US$1,030, respectively. These activities have been conducted in accordance with applicable laws and regulations, and they are not sanctionable under U.S. or Japanese law. Accordingly, with respect to Telecommunications Services Company (MTN Irancell), the relevant subsidiary of SoftBank Group Corp. intends to continue these activities. With respect to services provided to accounts affiliated with the Embassy of Iran in Japan, the relevant subsidiary of SoftBank Group Corp. is obligated under contract to continue these services. With respect to the provision of office supplies to the Embassy of Iran in Japan, the relevant subsidiary of SoftBank Group Corp. intends to continue these activities. We were not involved in, and did not receive any revenue from, any of these activities by SoftBank.

Organizational Structure

We conduct our business operations across approximately 630 subsidiaries and other consolidated entities. The chart below summarizes our corporate legal structure and identifies the significant subsidiaries described in "— A. History and Development of the Company," as well as our other subsidiaries and variable interest entities that are material to our business and the number of their respective subsidiaries, as of March 31, 2017:




(8)Each of these variable interest entities is 80%-owned by Jack Ma and 20%-owned by Simon Xie, other than Zhejiang Taobao Network Co., Ltd., which is 90%-owned by Jack Ma and 10%-owned by Simon Xie.
Contractual Arrangements among Our Wholly-foreign Owned Enterprises, Variable Interest Entities and the Variable Interest Entity Equity Holders

Due to PRC legal restrictions on foreign ownership and investment in, among other areas, value-added telecommunications services, which include the operations of Internet content providers, or ICPs, we, similar to all other entities with foreign-incorporated holding company structures operating in our industry in China, operate our Internet businesses and other businesses in which foreign investment is restricted or prohibited in the PRC through wholly-foreign owned enterprises, majority-owned entities and variable interest entities. The relevant variable interest entities, which are incorporated in the PRC and 100% owned by PRC citizens or by PRC entities owned by PRC citizens, where applicable, hold the ICP licenses and other regulated licenses and operate our Internet businesses and other businesses in which foreign investment is restricted or prohibited. Specifically, our variable interest entities that are material to our business are Zhejiang Taobao Network Co., Ltd., Zhejiang Tmall Network Co., Ltd., Hangzhou Alibaba Advertising Co., Ltd., Hangzhou Ali Technology Co., Ltd. and Alibaba Cloud Computing Ltd. Each of these variable interest entities other than Zhejiang Taobao Network Co., Ltd. is 80%-owned by Jack Ma, our lead founder, executive chairman and one of our principal shareholders, and 20%-owned by Simon Xie, one of our founders. Zhejiang Taobao Network Co., Ltd. is 90%-owned by Jack Ma and 10%-owned by Simon Xie. We have entered into certain contractual arrangements, as described in more detail below, which collectively enable us to exercise effective control over the variable interest entities and realize substantially all of the economic risks and benefits arising from, the variable interest entities. As a result, we include the financial results of each of the variable interest entities in our consolidated financial statements in accordance with U.S. GAAP as if they were our wholly-owned subsidiaries.

Other than the ICP licenses and other licenses and approvals for businesses in which foreign ownership is restricted or prohibited held by our variable interest entities, we hold our material assets in, and conduct our material operations through, our wholly-foreign owned and majority-owned enterprises, which primarily provide technology and other services to our customers. We generate the significant majority of our revenue directly through our wholly-foreign owned enterprises, which directly capture the profits and associated cash flow from operations without having to rely on contractual arrangements to transfer cash flow from the variable interest entities to the wholly-foreign owned enterprises.


https://www.sec.gov/Archives/edgar/data/1577552/000104746917004019/a2231121z20-f.htm

Alibaba Group Holding Limited


424B4 1 d709111d424b4.htm 424(B)(4)
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Filed pursuant to Rule 424(b)(4)
Registration No. 333-195736
320,106,100 American Depositary Shares
Representing 320,106,100 Ordinary Shares

LOGO

Alibaba Group Holding Limited

This is the initial public offering of Alibaba Group Holding Limited, or Alibaba Group. We are offering 123,076,931 American Depositary Shares, or ADSs, and the selling shareholders named in this prospectus, including Yahoo, one of our principal shareholders, Jack Ma, our executive chairman, and Joe Tsai, our executive vice chairman, are offering, in the aggregate, 197,029,169 ADSs. Each ADS represents one ordinary share, par value US$0.000025 per share. The initial public offering price of the ADSs is US$68.00 per ADS. We will not receive any proceeds from the ADSs sold by the selling shareholders.

Pursuant to our memorandum and articles of association, a partnership, or the Alibaba Partnership, comprised of certain management members of our company, Small and Micro Financial Services Company and China Smart Logistics, will have the exclusive right to nominate a simple majority of the board of directors of our company. See “Alibaba Partnership” and “Description of Share Capital — Ordinary Shares — Nomination, Election and Removal of Directors.”

Prior to this offering, there has been no public market for our ADSs or ordinary shares. Our ADSs have been approved for listing on the New York Stock Exchange under the symbol “BABA.”

Investing in our ADSs involves risk. See “Risk Factors ” beginning on page 25.

Per ADS Total

Price to public
US$ 68.00 US$ 21,767,214,800

Underwriting discounts and commissions
US$ 0.816 US$ 261,206,578

Proceeds, before expenses, to us
US$ 67.184 US$ 8,268,800,532

Proceeds, before expenses, to the selling shareholders
US$ 67.184 US$ 13,237,207,690

We, Yahoo, Jack Ma and Joe Tsai have granted the underwriters the right to purchase up to an aggregate of 48,015,900 additional ADSs.

Neither the United States Securities and Exchange Commission nor any state securities commission or any other regulatory body has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs against payment in U.S. dollars to purchasers on or about September 24, 2014.

Credit Suisse
Deutsche Bank Goldman Sachs J.P. Morgan Morgan Stanley Citi

BOCI


CICC


CLSA DBS Bank HSBC

Mizuho Pacific Crest Stifel Wells Fargo

BNP PARIBAS
Evercore Raymond James SunTrust Robinson Humphrey

September 18, 2014.

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TABLE OF CONTENTS

Page

Prospectus Summary 1

Risk Factors 25

Special Note Regarding Forward-Looking Statements 69

Operating Metrics 70

Use of Proceeds 71

Dividend Policy 72

Capitalization 73

Dilution 75

Exchange Rate Information 77

Enforcement of Civil Liabilities 78

Letter from Jack Ma  80

Our History and Corporate Structure 83

Selected Consolidated Financial and Operating Data 93

Management’s Discussion and Analysis of Financial Condition and Results of Operations 100

Business 160

Regulation 216

Alibaba Partnership 229

Our Directors 235

Our Executive Officers 242

Principal and Selling Shareholders 250

Related Party Transactions 255

Description of Share Capital 272

Description of American Depositary Shares 288

Shares Eligible for Future Sale 297

Taxation 303

Underwriting 310

Expenses Related to this Offering 317

Legal Matters 318

Experts 318

Where You Can Find More Information 319

Index to Financial Statements F-1

This prospectus contains estimates and information concerning our industry, including market position, market size, and growth rates of the markets in which we participate, that are based on industry publications and reports. This prospectus contains statistical data and estimates published by iResearch, the China Internet Network Information Center, or CNNIC, Forrester Research, Euromonitor International, the National Bureau of Statistics of China, State Post Bureau of the PRC, the School of Social Sciences of Tsinghua University and International Data Corporation, or IDC, including a report titled “Global eCommerce Platforms Ranking by Gross Merchandise Volume,” which we requested IDC to prepare and for which we paid a fee and which we refer to in this prospectus as the IDC GMV Report. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in these publications and reports.

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our ADSs.

Until October 13, 2014 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary may not contain all of the information that you should consider before investing in our ADSs. You should carefully read the entire prospectus, including “Risk Factors” and the financial statements, before making an investment decision.

Our Mission

Our mission is to make it easy to do business anywhere.

Our founders started our company to champion small businesses, in the belief that the Internet would level the playing field by enabling small enterprises to leverage innovation and technology to grow and compete more effectively in the domestic and global economies. Our decisions are guided by how they serve our mission over the long-term, not by the pursuit of short-term gains.

Our Business

We are the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013, according to the IDC GMV Report. We operate our ecosystem as a platform for third parties, and we do not engage in direct sales, compete with our merchants or hold inventory.

We operate Taobao Marketplace, China’s largest online shopping destination, Tmall, China’s largest third-party platform for brands and retailers, in each case in terms of gross merchandise volume, and Juhuasuan, China’s most popular group buying marketplace by its monthly active users, in each case in 2013 according to iResearch. These three marketplaces, which comprise our China retail marketplaces, generated a combined GMV of RMB1,833 billion (US$296 billion) from 279 million active buyers and 8.5 million active sellers in the twelve months ended June 30, 2014. A significant portion of our customers have begun transacting on our mobile platform, and we are focused on capturing this opportunity. In the three months ended June 30, 2014, mobile GMV accounted for 32.8% of our GMV, up from 27.4% in the preceding three months and from 12.0% in the same period in the previous year. The number of mobile MAUs increased from 136 million for the month ended December 31, 2013, to 163 million for the month ended March 31, 2014 and to 188 million for the month ended June 30, 2014.

In addition to our three China retail marketplaces, which accounted for 81.6% of our revenues in fiscal year 2014, we operate Alibaba.com, China’s largest global online wholesale marketplace in 2013 by revenue, according to iResearch, 1688.com, our China wholesale marketplace, and AliExpress, our global consumer marketplace, as well as provide cloud computing services.

As a platform, we provide the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the Internet to establish an online presence and conduct commerce with consumers and businesses. We have been a leader in developing online marketplace standards in China. Given the scale we have been able to achieve, an ecosystem has developed around our platform that consists of buyers, sellers, third-party service providers, strategic alliance partners, and investee companies. Our platform and the role we play in connecting buyers and sellers and making it possible for them to do business anytime and anywhere is at the nexus of this ecosystem. Much of our effort, our time and our energy is spent on initiatives that are for the greater good of the ecosystem and the various participants in it. We feel a strong responsibility for the continued development of the ecosystem and we take ownership for this development. Accordingly, we refer to this as “our ecosystem.”

Our ecosystem has strong self-reinforcing network effects that benefit our marketplace participants, who are invested in our ecosystem’s growth and success. Through this ecosystem, we have transformed how commerce is conducted in China and built a reputation as a trusted partner for the participants in our ecosystem.

We have made significant investments in proprietary technologies and infrastructure in order to support our growing ecosystem. Our technology and infrastructure allow us to harness the substantial volume of data generated from our marketplaces and to further develop and optimize the products and services offered on our platform.


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Through contractual arrangements with Alipay, we offer payment and escrow services for buyers and sellers, providing security, trust and convenience to our users. Since 2011, we have not held any interest in or control over Alipay or its parent company. Following the divestment of our interest in and control over Alipay, effective in the first calendar quarter of 2011, we have maintained long-term commercial arrangements with Alipay, which we believe align both companies’ interests in the success of our ecosystem. We also continue to derive economic benefits from our contractual arrangements with Alipay. For further details regarding our relationship with Alipay and its parent company, including the recent restructuring of our contractual arrangements with them in August 2014, see “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — Ownership of Small and Micro Financial Services Company.”

We take a platform approach to shipping and delivery by working with third-party logistics service providers through a central logistics information system operated by Zhejiang Cainiao Supply Chain Management Co., Ltd., or China Smart Logistics, our 48%-owned affiliate. Through our acquisition of UCWeb, we are able to leverage its expertise as a developer and operator of mobile web browsers to enhance our mobile offerings beyond e-commerce, such as general mobile search, which gives us access to UCWeb’s large base of mobile users and offers our existing user base additional mobile solutions.

Our revenue is primarily generated from merchants through online marketing services (via Alimama, our proprietary online marketing platform), commissions on transactions and fees for online services. We also generate revenues through fees from memberships, value-added services and cloud computing services. GMV generated on our China retail marketplaces increased by 55.8% from RMB1,077 billion in fiscal year 2013 to RMB1,678 billion (US$270 billion) in fiscal year 2014. Our total revenue increased by 52.1% from RMB34,517 million in fiscal year 2013 to RMB52,504 million (US$8,463 million) in fiscal year 2014. Our total revenue increased by 46.3% from RMB10,778 million in the three months ended June 30, 2013 to RMB15,771 million (US$2,542 million) in the same period in 2014. We do not allocate revenue among each of our China retail marketplaces. Our net income increased by 170.6% from RMB8,649 million in fiscal year 2013 to RMB23,403 million (US$3,772 million) in fiscal year 2014. Our net income increased by 179.6% from RMB4,448 million in the three months ended June 30, 2013 to RMB12,438 million (US$2,005 million) in the same period in 2014. For the three months ended June 30, 2014, our net income included a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest. Our fiscal year ends on March 31.

Our Key Metrics

We have experienced significant growth across various key metrics for our China retail marketplaces:

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Our business and our ecosystem as a whole have achieved significant scale and size:

Our Scale and Size



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Scale and Size of Our Ecosystem Participants

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Unless otherwise indicated, all figures in the above charts are for the twelve months ended, or as of, June 30, 2014, and in the case of our scale and size, on our China retail marketplaces.

(1) For the three months ended June 30, 2014.

(2) According to iResearch for the three months ended June 30, 2014.

(3) For the month ended June 30, 2014. Based on the aggregate mobile MAUs of apps that contribute to GMV on our China retail marketplaces. The number of mobile MAUs increased from 136 million in the month ended December 31, 2013 to 163 million in the month ended March 31, 2014 and to 188 million in the month ended June 30, 2014.

(4) For the twelve months ended June 30, 2014. Representing 54% of the 11.3 billion packages delivered in the twelve months ended June 30, 2014 by delivery services in China meeting certain minimum revenue thresholds, according to the State Post Bureau of the PRC.

(5) Alibaba Cloud Computing processing capability as of December 31, 2013.

(6) The sum of merchants on our (i) China retail marketplaces who paid fees and/or commissions to us in the twelve months ended June 30, 2014, plus (ii) wholesale marketplaces with current paid memberships as of June 30, 2014. A merchant may have more than one paying relationship with us.

(7) Includes registered countries and territories of (i) buyers that sent at least one inquiry to a seller on Alibaba.com and (ii) buyers that settled at least one transaction on AliExpress through Alipay, in each case in the twelve months ended June 30, 2014, demonstrating the global reach and the potential for cross-border commerce opportunities across our marketplaces.

(8) For the twelve months ended June 30, 2014. Approximately 29.7% of Alipay’s total payment volume in the twelve months ended June 30, 2014 represented payments processed for our China retail marketplaces.

(9) Marketing affiliates who received a revenue share from us in the three months ended December 31, 2013.

(10) Based on data provided by our 14 strategic delivery partners as of June 30, 2014.


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The Network Effect on and across Our Marketplaces

The interactions between buyers and sellers create network effects in that more merchants attract more consumers, and more consumers attract more merchants. In addition, our marketplaces are interconnected in that many buyers and sellers on one marketplace also participate in the activities on our other marketplaces, thereby creating a second-order network effect that further strengthens our ecosystem.

The chart below depicts this network effect dynamic in our ecosystem.



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Buyers

• Chinese consumers buy on Taobao Marketplace, Tmall and Juhuasuan

• While browsing or searching on Taobao Marketplace, consumers see product listings from both Taobao Marketplace and Tmall

• Global consumers buy on AliExpress

• Global wholesalers buy on Alibaba.com

Retail sellers

• Small sellers in China sell on Taobao Marketplace and AliExpress

• Chinese brands sell on Taobao Marketplace, Tmall, Juhuasuan and AliExpress and global brands sell on Tmall Global

• Sellers source products on 1688.com

Wholesale sellers

• Chinese wholesalers and manufacturers supply retail merchants in China on 1688.com and global wholesale buyers on Alibaba.com

• Chinese wholesalers and manufacturers supply directly to global consumers on AliExpress

• Global wholesalers and manufacturers supply global wholesale buyers on Alibaba.com


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Our Market Opportunity

Our market opportunity is primarily driven by the following factors:

• Our business benefits from the rising spending power of Chinese consumers. China’s real consumption in 2013 was 35.8% of total GDP, which is a rate that is significantly lower than that of other countries, such as the United States, which had a consumption penetration rate of 67.1% in 2013, according to Euromonitor International. We believe that growth in consumption will drive higher levels of online and mobile commerce.

• China’s online shopping population is relatively underpenetrated. According to CNNIC, China had the world’s largest Internet population with 618 million users as of December 31, 2013. According to CNNIC, China had 302 million online shoppers in 2013. We believe the number of online shoppers will increase, driven by continued growth in the number of Internet users as well as by the higher percentage of Internet users making purchases online.

• We believe that consumers are expanding the categories of products and services they are purchasing online, which will further increase online and mobile commerce activity.

• We believe that the increased usage of mobile devices will make access to the Internet even more convenient, drive higher online shopper engagement and enable new applications. China has the world’s largest mobile Internet user base with 500 million users as of December 31, 2013, according to CNNIC, and mobile usage is expected to increase, driven by the growing adoption of mobile devices.

• China’s offline retail market faces significant challenges due to few nationwide brick and mortar retailers, an underdeveloped physical retail infrastructure, limited product selection and inconsistent product quality. These challenges in China’s retail infrastructure, which we believe are particularly acute outside of tier 1 and 2 cities, are causing consumers to leapfrog the offline retail market in favor of online and mobile commerce.

• China has an increasingly extensive and rapidly improving logistics infrastructure consisting of nationwide, regional and local delivery services. We believe that the rapid development of China’s distributed logistics infrastructure and nationwide express delivery networks has been driven in part by the growth of e-commerce and will continue to support the unique demands of consumers and merchants conducting e-commerce transactions on marketplaces.

Overall, online shopping, which represented 8.0% of total China consumption in 2013, is projected to grow at a compound annual growth rate, or CAGR, of 36.1% from 2013 to 2016, according to iResearch, as more consumers shop online and e-commerce spending per consumer increases.

Our Strengths

We believe that the following strengths contribute to our success and are differentiating factors that set us apart from our peers.

• Management Team with Owner Mentality and Proven Track Record. Our management team’s clear sense of mission, long-term focus and commitment to the values that define the Alibaba culture have been central to our successful track record. Our management team has created and grown leading businesses organically, including Taobao Marketplace, Tmall, Alibaba.com, Alibaba Cloud Computing and Alipay.

• Trusted Brands. Alibaba, Taobao, Tmall and Alipay are well recognized and trusted brands in China. Due to the strength of these brands, a majority of our customers navigate directly to our China retail marketplaces to find the products and services they are seeking instead of via third-party search engines.

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• Thriving Ecosystem with Powerful Network Effects. We are the steward of a thriving ecosystem, which provides us with the following key advantages:

• participants in our ecosystem are invested in its success and growth;

• interactions among participants create value for one another as our ecosystem expands and generates strong network effects; and

• the scope of our ecosystem and the network effects it creates, including the significant buyer traffic generated by our Taobao Marketplace, provide low-cost organic traffic for our other marketplaces and services and significantly reduce our reliance on a sales force for our marketing services.

• Mobile Leadership. We are the leader in mobile commerce in China in terms of mobile retail GMV, with mobile GMV transacted on our China retail marketplaces accounting for 86.1% of total mobile retail GMV in China in the three months ended June 30, 2014, according to iResearch. Our Mobile Taobao App has been the most popular mobile commerce app in China by mobile MAUs every month since August 2012, according to iResearch. We had 188 million mobile MAUs on our China retail marketplaces in June 2014.

• Scalable Logistics Platform. We offer sellers on our marketplaces the benefits of a distributed and scalable logistics platform and information system to provide high quality delivery services to sellers and buyers on a large scale. Our platform approach helps to address the requirements of facilitating the delivery of packages across a wide range of product categories from millions of sellers to millions of buyers in dispersed locations across China. The scalability of this network was demonstrated by its success in the handling of 156 million packages generated on our Singles Day promotion in 2013 compared to a daily average of 16.6 million packages generated from transactions on our China retail marketplaces in the twelve months ended June 30, 2014.

• Reliable, Scalable and Cost-effective Proprietary Technology. We have developed proprietary technology that is reliable, scalable and cost-effective. Our technology is designed to handle the large volume of transactions on our marketplaces. For example, we successfully processed 254 million orders within 24 hours during our Singles Day promotion on November 11, 2013.

• Data Insights. Data from consumer behavior and transactions completed on our marketplaces and interactions among participants in our ecosystem provide us with valuable insights to help us and our sellers improve the buyer experience, operate more efficiently and create innovative products and services.

• Third-party Platform Business Model. Our exclusively third-party platform business model allows us to scale rapidly without the risks and capital requirements of sourcing, merchandising and holding inventory borne by direct sales companies. This business model drives our profitability and strong cash flow, which give us the flexibility to further invest in and improve our platform, expand our ecosystem and aggressively invest in people, technology, innovative products and strategically important assets.

Our Strategies

The key elements of our strategy to grow our business include:

• Increase Active Buyers and Wallet Share. In the twelve months ended June 30, 2014, the average active buyer on our China retail marketplaces placed 52 orders, up from 45 orders in the same period in 2013 and 35 orders in the same period in 2012. We will continue to develop and market the value proposition of our retail marketplaces to attract new buyers as well as to increase the wallet share of existing buyers through more frequent buying and buying across more product categories. We intend to achieve growth through customer loyalty programs, high quality customer service, marketing and promotional campaigns, and expansion of marketing affiliates, as well as by promoting the usage of our various mobile commerce apps such as our Mobile Taobao App.





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• Expand Categories and Offerings. We aim to enhance the shopping experience for consumers, increase consumer engagement and create additional opportunities for merchants by developing and promoting additional categories and offerings. We believe that growth in the number of product and service categories and products and services purchased within each category contributes to higher average spending per customer and increases GMV.



• Extend Our Mobile Leadership. We intend to build upon our strength in mobile commerce to develop a broader spectrum of consumer offerings, such as location-based services, O2O services and digital content, in order to fulfill our vision of becoming central to the everyday lives of our customers. We will also continue to look for ways to increase our mobile user base and engagement through strategic alliances, investments and acquisitions, such as our acquisition of UCWeb.



• Enhance the Success of Sellers on a Broad Basis. We aim to increase the success of a broad base of sellers on our marketplaces by increasing their exposure to relevant buyer demand and providing them with more tools such as data science applications to manage their relationships with customers.



• Enhance Data and Cloud Computing Technologies. We will continue to implement our data strategy through the application of data intelligence and deep learning technologies to several fields, including marketplace design, user interface, search, targeted marketing, logistics, location-based services and financial services, among others. In addition, we will continue to invest heavily in our cloud computing platform to support our own businesses and those of third parties.



• Develop Cross-border Commerce Opportunities. Our international strategy is focused on leveraging cross-border linkages to our ecosystem that enable foreign brands and merchants to access the Chinese consumer markets without significant capital investments while providing Chinese manufacturers and merchants with a platform to reach businesses and consumers across the world. For example, we will continue to grow our international business by connecting overseas branded retailers to Chinese consumers (Tmall Global) and connecting Chinese suppliers to international retail markets (AliExpress) and international wholesale markets (Alibaba.com).

Alibaba Partnership

Since our founders first gathered in Jack Ma’s apartment in 1999, they and our management have acted in the spirit of partnership. We view our culture as fundamental to our success and our ability to serve our customers, develop our employees and deliver long-term value to our shareholders. In July 2010, in order to preserve this spirit of partnership and to ensure the sustainability of our mission, vision and values, we decided to formalize this partnership as Lakeside Partners, named after the Lakeside Gardens residential community where Jack and our other founders started our company. We refer to the partnership as the Alibaba Partnership.

We believe that our partnership approach has helped us to better manage our business, with the peer nature of the partnership enabling senior managers to collaborate and override bureaucracy and hierarchy. The Alibaba Partnership currently has 30 members comprised of 24 members of our management, five members of management of Small and Micro Financial Services Company and one member of management of China Smart Logistics. Two partners who are members of our management are also members of management of Small and Micro Financial Services Company. The partnership operates under principles, policies and procedures that have evolved with our business and are described below.

Our partnership is a dynamic body that rejuvenates itself through admission of new partners each year, which we believe enhances our excellence, innovation and sustainability. Unlike dual-class ownership structures that employ a high-vote class of shares to concentrate control in a few founders, our approach is designed to embody the vision of a large group of management partners. This structure is our solution for preserving the culture shaped by our founders while at the same time accounting for the fact that founders will inevitably retire from the company.





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• New partners are elected annually after a nomination process based on a number of criteria including not less than five years of tenure with Alibaba Group, one of our affiliates and/or certain companies with which we have a significant relationship such as Small and Micro Financial Services Company, and require a 75% approval of all of the partners. Partnership votes are made on a one-partner-one-vote basis.



• Partners are evangelists for our mission, vision and values, both within our organization and externally to customers, business partners and other participants in our ecosystem.



• We require each partner to maintain a meaningful level of equity interests in our company during such individual’s tenure as a partner.



• The Alibaba Partnership will have the exclusive right to nominate for shareholder approval up to a simple majority of the members of our board of directors. If an Alibaba Partnership director nominee is not elected by our shareholders or departs our board of directors for any reason, the Alibaba Partnership has the right to appoint a different person to serve as an interim director until our next scheduled annual general meeting of shareholders. We expect that our initial board of directors upon completion of this offering will consist of nine members, and the Alibaba Partnership will designate four of those directors as Alibaba Partnership nominees. If at any time our board of directors consists of less than a simple majority of directors nominated or appointed by the Alibaba Partnership for any reason — including because the Alibaba Partnership had previously not exercised its right to nominate or appoint a simple majority of our board of directors — the Alibaba Partnership will be entitled (in its sole discretion and without the need for any additional shareholder approval) to nominate or appoint such number of additional directors as necessary to ensure that the directors nominated or appointed by the Alibaba Partnership comprise a simple majority of our board of directors. For example, as the Alibaba Partnership will designate only four out of nine of our initial directors as Alibaba Partnership nominees, the Alibaba Partnership will have the right, following the completion of this offering, to nominate or appoint two additional directors to our board of directors, which would increase the total number of directors to eleven. We expect to enter into a voting agreement that will take effect upon completion of this offering, pursuant to which both SoftBank and Yahoo will agree to vote their shares in favor of the Alibaba Partnership director nominees at each annual general shareholders meeting until SoftBank’s shareholding declines below 15% of our outstanding ordinary shares. Accordingly, for so long as SoftBank and Yahoo remain substantial shareholders, we expect the Alibaba Partnership nominees will receive a majority of votes cast at any meeting for the election of directors and will be elected as directors.

Our Challenges

We believe some of the major risks and uncertainties that may materially and adversely affect us include the following:



• any failure to maintain the trusted status of our ecosystem could severely damage our reputation and brand;



• we may not be able to maintain or improve the network effects of our ecosystem;



• our operating philosophy may negatively influence our short-term financial performance;



• we may not be able to successfully monetize our mobile traffic;



• we may not be able to maintain our culture, which has been a key to our success;



• we may not be able to innovate or compete effectively;



• if the services Alipay provides to us are limited or restricted, our business would be harmed;







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• we may not be able to sustain our revenue growth rate, and increased investments in our business may negatively affect our margins;



• our revenue and net income may be materially and adversely affected by any economic slowdown in China as well as globally;



• there are risks and uncertainties associated with our variable interest entity structure; and



• the regulatory and legal system in China is complex and developing, and future regulations may impose additional requirements on our business.

We also face other challenges, risks and uncertainties that may materially and adversely affect our business, financial condition, results of operations and prospects. You should consider the risks discussed in “Risk Factors” and elsewhere in this prospectus before investing in our ADSs.

Corporate History and Structure

We have a demonstrated track record of successful organic business creation since our founding in 1999.



• In 1999, we founded Alibaba.com and Alibaba.com.cn, the predecessor of 1688.com.



• In 2003, we launched Taobao Marketplace.



• In 2004, we established Alipay to address the issue of trust between buyers and sellers online. We have continued to offer payment and escrow services on our marketplaces through Alipay following divestment of our interest in and control over Alipay in 2011. This divestment resulted from our management’s response to regulations issued in June 2010 by the People’s Bank of China, or the PBOC, that required non-bank payment companies to obtain a payment business license before September 1, 2011. These regulations provided specific guidelines for license applications only for domestic PRC-owned entities but stated that specific guidelines applicable to license applications for foreign-invested payment entities would be issued separately (although no such guidelines have been issued as of the date of this prospectus). Accordingly, our management restructured the ownership and control of Alipay into a company wholly-owned by PRC nationals in order to obtain a payment business license within the time period prescribed by the PBOC regulations. In August 2014, we entered into a share and asset purchase agreement, or the 2014 SAPA, with Small and Micro Financial Services Company and the other parties to the 2011 restructuring, pursuant to which we further restructured the contractual arrangements between us and Small and Micro Financial Services Company.



• In 2007, we launched Alimama, our online marketing technology platform.



• In 2008, we launched Tmall to address an increasing consumer need for branded products and a premium shopping experience.



• In 2009, we established Alibaba Cloud Computing to handle the increasing data management needs on our platform.



• In 2010, we launched the Mobile Taobao App.

Alibaba Group Holding Limited is a Cayman Islands holding company established on June 28, 1999, and we conduct our business in China through our subsidiaries and variable interest entities.

Due to PRC legal restrictions on foreign ownership and investment in, among other areas, value-added telecommunications services, which include Internet content providers, or ICPs, we, similar to all other entities with foreign-incorporated holding company structures operating in our industry in China, operate our Internet businesses and other businesses in which foreign investment is restricted or prohibited in the PRC through





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wholly-foreign owned enterprises, majority-owned entities and variable interest entities. The relevant variable interest entities, which are 100% owned by PRC citizens or by PRC entities owned by PRC citizens, hold the ICP licenses and operate the various websites for our Internet businesses. Specifically, our material variable interest entities are majority-owned by Jack Ma, our lead founder, executive chairman and one of our principal shareholders, and minority-owned by Simon Xie, one of our founders and a vice president on our China investment team where he works on projects related to our China acquisition and investment activities. These contractual arrangements collectively enable us to exercise effective control over, and realize substantially all of the economic risks and benefits arising from, the variable interest entities. See “Our History and Corporate Structure — Contractual Arrangements among Our Wholly-foreign Owned Enterprises, Variable Interest Entities and the Variable Interest Entity Equity Holders.” The contractual arrangements may not be as effective in providing operational control as direct ownership. See “Risk Factors — Risks Related to Our Corporate Structure.”

As a result, we include the financial results of each of the variable interest entities in our consolidated financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, as if they were our wholly-owned subsidiaries.

Other than the ICP licenses and other licenses and approvals for businesses in which foreign ownership is restricted or prohibited held by our variable interest entities, we hold our material assets in, and conduct our material operations through, our wholly-foreign owned and majority foreign owned enterprises, which primarily provide technology and other services to our customers.

We conduct our business operations across approximately 290 subsidiaries and other consolidated entities. The chart below summarizes our corporate legal structure and identifies our significant subsidiaries as that term is defined under Rule 1-02 of Regulation S-X under the Securities Act, as well as our variable interest entities that are material to our business, and the number of their respective subsidiaries, as of the date of this prospectus:



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(1)
Includes approximately 70 subsidiaries and consolidated entities incorporated in China and approximately 120 subsidiaries incorporated in other jurisdictions that are not illustrated in this chart. In addition, the entities pictured in this chart hold, directly and indirectly,






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an aggregate of approximately 40 additional subsidiaries and consolidated entities incorporated in China and approximately 40 additional subsidiaries incorporated outside of China not pictured in the chart.

(2) Primarily involved in the operation of Taobao Marketplace.

(3) Primarily involved in the operation of Tmall and Juhuasuan.

(4) Primarily involved in the operation of Alimama.

(5) Primarily involved in the operation of Alibaba.com, 1688.com and AliExpress.

(6) Primarily involved in the operation of cloud computing services.

(7) Each of these variable interest entities is 80%-owned by Jack Ma and 20%-owned by Simon Xie, other than Zhejiang Taobao Network Co., Ltd., which is 90%-owned by Jack Ma and 10%-owned by Simon Xie.

We generate the significant majority of our revenue directly through our wholly-foreign owned enterprises, which directly capture the profits and associated cash flow from operations without having to rely on contractual arrangements to transfer such cash flow from the variable interest entities to the wholly-foreign owned enterprises. In fiscal year 2014, RMB6,170 million (US$995 million), or 11.8%, of our revenue was generated by our variable interest entities, and as of March 31, 2014, RMB18,874 million (US$3,042 million), or 16.9%, of our assets were held by our variable interest entities. These assets included RMB13,159 million (US$2,121 million) in micro loans we made in connection with our SME loan business, which loans were principally funded by borrowings of RMB10,364 million (US$1,670 million). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations.” We recently agreed to sell the SME loan business to Small and Micro Financial Services Company. The sale is subject to the receipt of certain regulatory approvals and other customary closing conditions. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — 2014 Restructuring of Our Relationship with Small and Micro Financial Services Company and Alipay.”

Our Corporate Information

The principal executive offices of our main operations are located at 969 West Wen Yi Road, Yu Hang District, Hangzhou 311121, People’s Republic of China. Our telephone number at this address is +86-571-8502-2077. Our registered office in the Cayman Islands is located at the offices of Trident Trust Company (Cayman) Limited, Fourth Floor, One Capital Place, P.O. Box 847, George Town, Grand Cayman, Cayman Islands. Our agent for service of process in the United States is Corporation Service Company located at 1180 Avenue of the Americas, Suite 210, New York, New York 10036. Our corporate website is www.alibabagroup.com. The information contained in our websites is not a part of this prospectus.

Conventions that Apply to this Prospectus

Unless the context otherwise requires, references in this prospectus to:



• “active buyers” in a given period are to user accounts that confirmed one or more orders on the relevant marketplace in that period, regardless of whether or not the buyer and seller settle the transaction;



• “active sellers” in a given period are to seller accounts (representing storefronts) that had one or more orders confirmed by a buyer on the relevant marketplace in that period and that were active at the end of the period, regardless of whether the buyer or seller settle the transaction;



• “Alipay” are to Alipay.com Co., Ltd., a company with which we have a long-term contractual relationship and is a wholly-owned subsidiary of Small and Micro Financial Services Company or, where the context requires, its predecessor entities. We do not have any interest in or control over either Small and Micro Financial Services Company or Alipay;



• “ADRs” are to the American depositary receipts, which, if issued, evidence our ADSs;



• “ADSs” are to our American depositary shares, each of which represents one ordinary share;





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• “China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau;



• “China retail marketplaces” are to Taobao Marketplace, Tmall and Juhuasuan, collectively. Promotional slots on Juhuasuan may only be purchased by Taobao Marketplace and Tmall merchants, and transactions from traffic originating on Juhuasuan are completed on the merchants’ storefronts on Taobao Marketplace or Tmall. For this reason, depending on the context, we may refer only to Taobao Marketplace and Tmall when discussing certain aspects of our China retail marketplaces business;



• “GMV” are to the value of confirmed orders of products and services on our marketplaces, regardless of how, or whether, the buyer and seller settle the transaction. Unless otherwise stated, GMV in reference to our marketplaces includes only GMV transacted on our China retail marketplaces. 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. Our calculation of GMV for our China retail marketplaces includes shipping charges paid by buyers to sellers and excludes vehicle and property transactions with list prices exceeding RMB500,000 (US$80,598) and any other products or services with list prices above RMB100,000 (US$16,120), as well as transactions conducted by buyers who make purchases exceeding RMB1,000,000 (US$161,197) in the aggregate in a single day;



• “ISVs” are to independent software vendors;



• “mobile GMV” are to that portion of GMV generated by orders that were confirmed using a mobile app or wireless application protocol, or WAP, website;



• “mobile MAUs” in a given month are to the number of unique mobile devices that were used to visit or access certain of our mobile applications at least once during that month;



• “mobile monetization rate” are to mobile revenue from China commerce retail expressed as a percentage of mobile GMV for a given period;



• “mobile revenue” are to that portion of revenue generated by online marketing services delivered on a mobile app or WAP website, and commissions on mobile GMV settled through Alipay, as captured by our online auction system, real-time bidding system and other settlement systems;



• “monetization rate” are to revenue from China commerce retail expressed as a percentage of GMV for a given period;



• “O2O” are to online-to-offline and offline-to-online commerce;



• “orders” are to each confirmed order from a transaction between a buyer and a seller for products and services on our China retail marketplaces, even if such order includes multiple items, during the specified period, whether or not the transaction is settled;



• “retail marketplaces” are to Taobao Marketplace, Tmall, Juhuasuan and AliExpress, collectively;



• “RMB” and “Renminbi” are to the legal currency of China;



• “Small and Micro Financial Services Company” are to Zhejiang Ant Small and Micro Financial Services Group Co., Ltd. (formerly known as Zhejiang Alibaba E-Commerce Co., Ltd.), a company organized under the laws of the PRC;



• “SMEs” are to small- and medium-sized enterprises;



• “SoftBank” are to SoftBank Corp., SoftBank BB Corp. and SB China Holdings Pte Ltd., collectively;



• “tier 1 cities” are to the term used by the National Bureau of Statistics of China and refer to Beijing, Shanghai, Shenzhen and Guangzhou;





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• “tier 2 cities” are to the 32 major cities, other than tier 1 cities, as categorized by the National Bureau of Statistics of China, including provincial capitals, administrative capitals of autonomous regions, direct-controlled municipalities and other major cities designated as “municipalities with independent planning” by the State Council;



• “total payment volume” are to the total value amount of the transactions from, to or through any service, offering, system or platform of Alipay during the period;



• “unique daily visitors” are to the number of users who visited our websites per day as measured by (i) in the case of personal computers, the number of users that logged in or, in the case of those who did not log in, the “cookie” tracked on their personal computer device or (ii) in the case of mobile phone devices, the device’s unique identifier;



• “variable interest entities” are to our variable interest entities that are 100% owned by PRC citizens or by PRC entities owned by PRC citizens, where applicable, that hold the Internet content provider licenses, or ICP licenses or other business operation licenses or approvals, and generally operate the various websites for our Internet businesses or other businesses in which foreign investment is restricted or prohibited, and are consolidated into our consolidated financial statements in accordance with U.S. GAAP as if they were our wholly-owned subsidiaries;



• “we,” “us,” “our company” and “our” are to Alibaba Group Holding Limited and its consolidated subsidiaries and its affiliated consolidated entities, including our variable interest entities and their subsidiaries;



• “wholesale marketplaces” are to 1688.com and Alibaba.com, collectively;



• “Yahoo” are to Yahoo! Inc. and Yahoo! Hong Kong Holdings Limited, collectively; and



• “US$,” “dollars” and “U.S. dollars” are to the legal currency of the United States.

Our reporting currency is the Renminbi. This prospectus also contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, all translations of Renminbi into U.S. dollars were made at RMB6.2036 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2014. We make no representation that the Renminbi or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or Renminbi, as the case may be, at any particular rate or at all. On September 12, 2014, the noon buying rate for Renminbi was RMB6.1344 to US$1.00.

The number of our ordinary shares that will be outstanding after this offering is calculated based on 2,341,316,373 ordinary shares (which includes conversion of all outstanding convertible preference shares and 7,054,073 issued but unvested restricted shares as of June 30, 2014) outstanding as of June 30, 2014, and excludes:



• 53,692,833 ordinary shares issuable upon the exercise of outstanding options to purchase ordinary shares as of June 30, 2014;



• 45,899,831 ordinary shares subject to unvested restricted share units, or RSUs, as of June 30, 2014; and



• an additional 71,562,581 ordinary shares reserved for future issuance under our equity incentive plans (which includes 13,333,000 ordinary shares issuable upon the exercise of options to purchase ordinary shares and 31,662,768 ordinary shares subject to RSUs granted after June 30, 2014).

Except as otherwise indicated, all information in this prospectus assumes:



• the automatic conversion of all outstanding convertible preference shares into 91,243,312 of our ordinary shares concurrently with the completion of this offering;





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• the filing and effectiveness of our amended and restated memorandum and articles of association, which will occur immediately prior to the completion of this offering; and



• no exercise by the underwriters of their option to purchase up to an additional 48,015,900 ADSs representing 48,015,900 ordinary shares from us and certain selling shareholders.





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THE OFFERING




Offering price
US$68.00 per ADS




ADSs offered by us
123,076,931 ADSs




ADSs offered by the selling shareholders
197,029,169 ADSs




ADSs outstanding immediately after this offering
320,106,100 ADSs (or 368,122,000 ADSs if the underwriters exercise in full their option to purchase additional ADSs), not including 128,417,070 of our ordinary shares, representing 5.2% of our outstanding ordinary shares immediately after this offering, that will not be subject to lock-up agreements and may be freely converted into ADSs from time to time.




Ordinary shares outstanding immediately after this offering
2,465,005,966 ordinary shares (based on 2,341,929,035 ordinary shares outstanding immediately prior to this offering).




Option to purchase additional ADSs
We and certain selling shareholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an additional 26,143,903 ADSs from us, up to an additional 18,260,870 ADSs from Yahoo, up to an additional 2,708,345 ADSs from Jack Ma and up to an additional 902,782 ADSs from Joe Tsai.




The ADSs
Each ADS represents one ordinary share.



The depositary will be the holder of the ordinary shares underlying the ADSs and you will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time.



You may surrender your ADSs to the depositary to withdraw the ordinary shares underlying your ADSs. The depositary will charge you a fee for such an exchange.



We may amend or terminate the deposit agreement for any reason without your consent. Any amendment that imposes or increases fees or certain charges or which materially prejudices any substantial existing right you have as an ADS holder will not become effective as to outstanding ADSs until 30 days after notice of the amendment is given to ADS holders. If an amendment becomes effective, you will be bound by the deposit agreement as amended if you continue to hold your ADSs.



To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus.





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Directed Share Program
At our request, the underwriters have reserved up to 6% of the ADSs being offered by this prospectus (assuming exercise in full by the underwriters of their option to purchase additional ADSs) for sale at the initial public offering price to certain of our directors, executive officers, employees, business associates and members of their families. The directed share program will be administered by Credit Suisse Securities (USA) LLC. We do not know if these individuals will choose to purchase all or any portion of these reserved ADSs, but any purchases they do make will reduce the number of ADSs that are available to the general public. Any reserved ADSs that are not so purchased will be offered by the underwriters to the general public on the same terms as the other ADSs offered by this prospectus.




Use of proceeds
We estimate that we will receive net proceeds of approximately US$8,250 million from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We plan to use the net proceeds we will receive from this offering for general corporate purposes.



We will not receive any of the proceeds from the sale of the ADSs by the selling shareholders.




Risk factors
See “Risk Factors” and other information included in this prospectus for a discussion of the risks relating to investing in our ADSs. You should carefully consider these risks before deciding to invest in our ADSs.




New York Stock Exchange trading symbol
BABA




Lock-up
We, our directors, independent director appointees and executive officers, the selling shareholders, SoftBank, the partners of the Alibaba Partnership and certain of the other holders of our ordinary shares have agreed with the underwriters to certain lock-up restrictions in respect of our ordinary shares or ADSs, or any securities convertible into or exchangeable or exercisable for any of our ordinary shares or ADSs, for various periods from 90 days up to one year after the date of this prospectus, subject to certain exceptions. Immediately after the completion of this offering, a total of 2,016,482,796 ordinary shares (representing approximately 81.8% of our ordinary shares then issued and outstanding) will be subject to the lock-up agreements and other restrictions on transfer as described under “Shares Eligible for Future Sale” and “Underwriting.” These ordinary shares will become available for sale in the public market during the one-year period following the date of this prospectus as follows:



• 91 days after the date of this prospectus, 8,108,115 ordinary shares will be available for sale in the public market;





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• 181 days after the date of this prospectus, 429,052,673 ordinary shares will be available for sale in the public market; and



• 366 days after the date of this prospectus, 1,579,322,008 ordinary shares will be available for sale in the public market.



See “Shares Eligible for Future Sale” and “Underwriting.”




Depositary
Citibank, N.A.





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Summary Consolidated Financial and Operating Data

The summary consolidated statements of operations data for the years ended March 31, 2012, 2013 and 2014 and the summary consolidated balance sheet data as of March 31, 2012, 2013 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our financial statements have been prepared in accordance with U.S. GAAP.

The summary consolidated statements of operations data for the three months ended June 30, 2013 and 2014 and the summary consolidated balance sheet data as of June 30, 2014 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all normal recurring adjustments that we consider necessary for a fair statement of our financial position and operating results for the periods presented.

The following summary consolidated financial data for the periods and as of the dates indicated are qualified by reference to and should be read in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” both of which are included elsewhere in this prospectus.

Our historical results for any prior period do not necessarily indicate our results to be expected for any future period.





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Summary Consolidated Statements of Operations Data:




Year ended March 31, Three months ended June 30,
2012 2013 2014 2013 2014
RMB RMB RMB US$ RMB RMB US$
(in millions, except per share data)

Revenue


China commerce
15,637 29,167 45,132 7,275 9,193 13,348 2,152

International commerce
3,765 4,160 4,851 782 1,117 1,469 237

Cloud computing and Internet infrastructure
515 650 773 125 174 236 38

Others
108 540 1,748 281 294 718 115






























Total
20,025 34,517 52,504 8,463 10,778 15,771 2,542

Cost of revenue
(6,554 ) (9,719 ) (13,369 ) (2,155 ) (2,727 ) (4,585 ) (739 )

Product development expenses
(2,897 ) (3,753 ) (5,093 ) (821 ) (1,018 ) (1,952 ) (315 )

Sales and marketing expenses
(3,058 ) (3,613 ) (4,545 ) (733 ) (713 ) (1,212 ) (195 )

General and administrative expenses(1)
(2,211 ) (2,889 ) (4,218 ) (679 ) (865 ) (944 ) (152 )

Amortization of intangible assets
(155 ) (130 ) (315 ) (51 ) (35 ) (234 ) (38 )

Impairment of goodwill and intangible assets
(135 ) (175 ) (44 ) (7 ) — — —

Yahoo TIPLA amendment payment(2)
— (3,487 ) — — — — —






























Income from operations
5,015 10,751 24,920 4,017 5,420 6,844 1,103

Interest and investment income, net(5)
258 39 1,648 266 466 6,828 1,100

Interest expense
(68 ) (1,572 ) (2,195 ) (354 ) (1,081 ) (410 ) (66 )

Other income, net
327 894 2,429 391 241 711 115






























Income before income tax and share of results of equity investees
5,532 10,112 26,802 4,320 5,046 13,973 2,252

Income tax expenses
(842 ) (1,457 ) (3,196 ) (515 ) (591 ) (1,445 ) (233 )

Share of results of equity investees
(25 ) (6 ) (203 ) (33 ) (7 ) (90 ) (14 )


Net income
4,665 8,649 23,403 3,772 4,448 12,438 2,005

Net income attributable to noncontrolling interests
(437 ) (117 ) (88 ) (14 ) (4 ) (34 ) (6 )

Net income attributable to Alibaba Group Holding Limited
4,228 8,532 23,315 3,758 4,444 12,404 1,999

Accretion of convertible preference shares
— (17 ) (31 ) (5 ) (8 ) (8 ) (1 )

Dividends accrued on convertible preference shares
— (111 ) (208 ) (33 ) (52 ) (52 ) (8 )

Net income attributable to ordinary shareholders
4,228 8,404 23,076 3,720 4,384 12,344 1,990

Earnings per share attributable to ordinary shareholders:


Basic
1.71 3.66 10.61 1.71 2.02 5.62 0.91

Diluted
1.67 3.57 10.00 1.61 1.93 5.20 0.84


Pro forma earnings per share attributable to ordinary shareholders:(3)


Basic
10.29 1.66 5.42 0.87

Diluted
10.00 1.61 5.20 0.84


Supplemental information:(4)


Adjusted EBITDA
7,274 16,607 30,731 4,954 6,094 8,574 1,382

Adjusted net income
6,452 13,869 27,610 4,451 4,583 7,317 1,179

Free cash flow
8,752 19,745 32,269 5,201 6,090 10,594 1,708





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(1) In fiscal year 2014, these expenses included an equity-settled donation expense of RMB1,269 million (US$205 million) relating to the grant of options to purchase 50,000,000 of our ordinary shares to a non-profit organization designated by Jack Ma and Joe Tsai.

(2) We entered into the Technology and Intellectual Property Licensing Agreement with Yahoo, or the Yahoo TIPLA, in October 2005, pursuant to which we pay royalty fees to Yahoo. We and Yahoo amended the existing TIPLA in September 2012, pursuant to which we made a lump sum payment in the amount of US$550 million.

(3) Pro forma earnings per share attributable to ordinary shareholders is calculated as if our convertible preference shares had been converted into ordinary shares at the beginning of the period, or when the convertible preference shares were issued, if later.

(4) See “— Non-GAAP Measures” below.

(5) For the three months ended June 30, 2014, includes a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest. See note 4 to our unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014.

Non-GAAP Measures

We use adjusted EBITDA, adjusted net income and free cash flow, each a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes.

We believe that adjusted EBITDA and adjusted net income help identify underlying trends in our business that could otherwise be distorted by the effect of the expenses that we include in income from operations and net income. We believe that adjusted EBITDA and adjusted net income provide useful information about our 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 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. We use free cash flow to manage our business, make planning decisions, evaluate our performance and allocate resources. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in our cash balance for a reporting period.

Adjusted EBITDA, adjusted net income and free cash flow should not be considered in isolation or construed as an alternative to net income, cash flows or any other measure of performance or as an indicator of our operating performance. Adjusted EBITDA, adjusted net income and free cash flow presented here 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 income from operations (which excludes interest and investment income (loss), net, interest expense, other income, net, income tax expenses and share of results of equity investees) before (i) certain non-cash expenses, consisting of share-based compensation expense, amortization, depreciation and impairment of goodwill and intangible assets as well as (ii) one-time expense items consisting of the Yahoo TIPLA amendment payment and an equity-settled donation expense that we do not believe are reflective of our core operating performance during the period presented.

Adjusted net income represents net income before share-based compensation expense, amortization, impairment of goodwill, intangible assets and investments, gain (loss) on deemed disposals/disposals/revaluation of investments, and one-time expense items consisting of the Yahoo TIPLA amendment payment, as well as an equity-settled donation expense.





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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 for, and construction of, our office campuses in China) and intangible assets, adjusted for changes in loan receivables relating to micro loans of our SME loan business and the Yahoo TIPLA amendment payment. We present the adjustment for changes in loan receivables because such receivables are reflected under cash flow from operating activities, whereas the secured borrowings and other bank borrowings used to finance them are reflected under cash flows from financing activities, and accordingly, the adjustment is made to show cash flows from operating activities net of the effect of changes in loan receivables.

The table below sets forth a reconciliation of our income from operations to adjusted EBITDA for the periods indicated:




Year ended March 31, Three months ended
June 30,
2012 2013 2014 2013 2014
RMB RMB RMB US$ RMB RMB US$
(in millions)

Income from operations
5,015 10,751 24,920 4,017 5,420 6,844 1,103

Add: Share-based compensation expense
1,254 1,259 2,844 458 396 1,073 173

Add: Amortization of intangible assets
155 130 315 51 35 234 38

Add: Depreciation and amortization of property and equipment and land use rights
715 805 1,339 216 243 423 68

Add: Impairment of goodwill and intangible assets
135 175 44 7 — — —

Add: Yahoo TIPLA amendment payment
— 3,487 — — — — —

Add: Equity-settled donation expense
— — 1,269 205 — — —


Adjusted EBITDA
7,274 16,607 30,731 4,954 6,094 8,574 1,382

The following table sets forth a reconciliation of our net income to adjusted net income for the periods indicated:


Year ended March 31, Three months ended June 30,
2012 2013 2014 2013 2014
RMB RMB RMB US$ RMB RMB US$
(in millions)

Net income
4,665 8,649 23,403 3,772 4,448 12,438 2,005

Add: Share-based compensation expense
1,254 1,259 2,844 458 396 1,073 173

Add: Amortization of intangible assets
155 130 315 51 35 234 38

Add: Impairment of goodwill, intangible assets and investments
399 420 163 27 16 — —

Less: Gain on deemed disposals/disposals/ revaluation of investments(1)
(21 ) (76 ) (384 ) (62 ) (312 ) (6,428 ) (1,037 )

Add: Yahoo TIPLA amendment payment
— 3,487 — — — — —

Add: Equity-settled donation expense
— — 1,269 205 — — —






























Adjusted net income
6,452 13,869 27,610 4,451 4,583 7,317 1,179
































(1) Including a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest. See note 4 to our unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014.





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The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the periods indicated:




Year ended March 31, Three months ended June 30,
2012 2013 2014 2013 2014
RMB RMB RMB US$ RMB RMB US$
(in millions)

Net cash provided by operating activities
9,275 14,476 26,379 4,252 5,131 10,177 1,640

Less: Purchase of property, equipment and intangible assets (excluding land use rights and construction in progress)
(749 ) (1,046 ) (3,285 ) (530 ) (827 ) (1,155 ) (186 )

Add: Changes in loan receivables, net
226 2,828 9,175 1,479 1,786 1,572 254

Add: Yahoo TIPLA amendment payment
— 3,487 — — — — —






























Free cash flow
8,752 19,745 32,269 5,201 6,090 10,594 1,708






























Summary Consolidated Balance Sheet Data




As of March 31, As of June 30,
2012 2013 2014 2014 2014
(Pro forma)(1) 2014
(Pro forma
as adjusted)(2)
RMB RMB RMB US$ RMB US$ RMB US$ RMB US$
(in millions, except for share data)

Cash and cash equivalents and short-term investments(3)
21,744 32,686 43,632 7,034 57,882 9,330 57,882 9,330 109,062 17,580

Investment securities and investment in equity investees(4)
2,483 2,426 22,131 3,567 29,370 4,734 29,370 4,734 29,370 4,734

Property and equipment, net
2,463 3,808 5,581 900 6,738 1,086 6,738 1,086 6,738 1,086

Goodwill and intangible assets
11,791 11,628 13,699 2,208 35,239 5,681 35,239 5,681 35,239 5,681

Total assets
47,210 63,786 111,549 17,981 161,193 25,984 161,193 25,984 212,373 34,234

Current bank borrowings
1,283 3,350 1,100 177 4,241 684 4,241 684 4,241 684

Secured borrowings
— 2,098 9,264 1,493 8,831 1,424 8,831 1,424 8,831 1,424

Redeemable preference shares
— 5,191 — — — — — — — —

Non-current bank borrowings
— 22,462 30,711 4,951 49,033 7,904 49,033 7,904 49,033 7,904

Total liabilities
12,797 52,740 70,731 11,402 99,351 16,015 99,351 16,015 99,351 16,015

Convertible preference shares
— 10,447 10,284 1,658 10,345 1,668 — — — —

Total Alibaba Group Holding Limited shareholders’ equity (deficits)
31,488 (24 ) 29,338 4,729 46,781 7,541 57,126 9,209 108,306 17,459

Total equity(5)
34,383 513 30,417 4,903 51,384 8,283 61,729 9,951 112,909 18,201

Number of outstanding ordinary shares
2,491,952,201 2,160,220,739 2,193,810,660 2,193,810,660 2,210,018,988 2,210,018,988 2,301,262,300
2,301,262,300

2,424,339,231 2,424,339,231





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(1) Reflects the automatic conversion of all of our convertible preference shares into 91,243,312 ordinary shares concurrently with the completion of this offering.

(2) Reflects (i) the automatic conversion of all of our convertible preference shares into 91,243,312 ordinary shares concurrently with the completion of this offering and (ii) the sale of 123,076,931 ordinary shares in the form of ADSs by us in this offering at an initial public offering price of US$68.00 per ADS, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

(3) Includes both cash and cash equivalents and short-term investments, which primarily comprise fixed deposits with original maturities of between three months and one year.

(4) Includes both current and non-current investment securities and investment in equity investees.

(5) The decrease from March 31, 2012 to March 31, 2013 was primarily due to the repurchase of our ordinary shares from Yahoo in September 2012 and the privatization of Alibaba.com, partially offset by the issuance of ordinary shares to finance the repurchase.

Summary Operating Data

GMV

The following chart sets forth the GMV transacted on our China retail marketplaces and mobile GMV as a percentage of GMV for the periods indicated:




Three months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014

GMV
(in billions of RMB)(1)


Taobao Marketplace GMV
114 119 172 145 167 179 255 223 257 275 346 295 342

Tmall GMV
17 22 41 33 42 49 91 71 88 99 183 135 159

Total GMV
131 141 213 178 209 228 346 294 345 374 529 430 501

Mobile GMV (as a percentage of total GMV)
1.4 % 1.7 % 2.5 % 3.8 % 4.6 % 5.6 % 7.4 % 10.7 % 12.0 % 14.7 % 19.7 % 27.4 % 32.8 %



(1) 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. GMV generated from traffic through Juhuasuan was RMB65.6 billion (US$10.6 billion) in the twelve months ended June 30, 2014.

Active buyers

The following chart sets forth the number of active buyers on our China retail marketplaces for the periods indicated:




Twelve months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014

Active buyers (in millions)
98 102 114 123 133 145 160 172 185 202 231 255 279





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RISK FACTORS

You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below and our consolidated financial statements and related notes, before making an investment in our ADSs. Any of the following risks and uncertainties could have a material adverse effect on our business, financial condition, results of operations and prospects. The market price of our ADSs could decline significantly as a result of any of these risks and uncertainties, and you may lose all or part of your investment. Additional risks or uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to Our Business and Industry

Maintaining the trusted status of our ecosystem is critical to our success, and any failure to do so could severely damage our reputation and brand, which would have a material adverse effect on our business, financial condition and results of operations.

We have established a strong brand name and reputation for our ecosystem in China. Any loss of trust in our platform could harm the value of our brand and result in buyers and sellers ceasing to transact business on our marketplaces as well as participants reducing the level of their commercial activity in our ecosystem, which could materially reduce our revenue and profitability. Our ability to maintain our position as a trusted platform for online and mobile commerce is based in large part upon:



• the reliability and security of our platform;



• the functionality of products and the wide range of services and functions we make available to participants on our platform;



• the rules governing our marketplaces;



• the quality and breadth of products and services offered by sellers through our marketplaces;



• the strength of our consumer protection measures; and



• our ability to provide reliable and trusted payment and escrow services through our arrangements with Alipay.

We may not be able to maintain and improve the network effects of our ecosystem, which could negatively affect our business and prospects.

Our ability to maintain a healthy and vibrant ecosystem that creates strong network effects between buyers, sellers and other participants is critical to our success. The extent to which we are able to maintain and strengthen these network effects depends on our ability to:



• offer a secure and open platform for all participants;



• provide tools and services that meet the evolving needs of buyers and sellers;



• provide a wide range of high-quality product and service offerings to buyers;



• provide sellers with a high level of traffic flow with strong commercial intent and effective online marketing services;



• enhance the attractiveness of our mobile platform;



• arrange secure and trusted payment settlement and escrow services;



• coordinate fulfillment and delivery services with third-party logistics and delivery companies;



• attract and retain third party service providers who are able to provide quality services on commercially reasonable terms to our sellers;



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• maintain the quality of our customer service; and



• continue adapting to the changing demands of the market.

In addition, changes we may make to enhance and improve our ecosystem and balance the needs and interests of the various participants on our ecosystem may be viewed positively from one participant group’s perspective (such as buyers) but may have negative effects from another group’s perspective (such as sellers). If we fail to balance the interests of all participants in our ecosystem, buyers, sellers and other participants may stop visiting our marketplaces, conduct fewer transactions or use alternative platforms, any of which could result in a material decrease in our revenue and net income.

Our operating philosophy and interest in maintaining the health of our ecosystem may negatively influence our short-term financial performance.

Consistent with our operating philosophy and focus on the long-term interests of our ecosystem participants, we may take actions that fail to generate short-term financial results and we cannot assure you that these actions will produce long-term benefits. For example, we share a significant portion of the revenue generated from the Taobao Affiliate Network with our third-party marketing partners. In addition, our efforts relating to our mobile platform have emphasized expanding our user base and enhancing user experience, rather than prioritizing monetization of user traffic on our mobile platform. We also make investments in new products and services that may not provide economic benefits to us in the short-term or at all.

User behavior on mobile devices is rapidly evolving, and if we fail to successfully adapt to these changes, our competitiveness and market position may suffer.

Buyers, sellers and other participants are increasingly using mobile devices in China for a wide range of purposes, including for e-commerce. While a significant and growing portion of participants access our platforms through mobile devices, this area is relatively new and developing rapidly and we may not be able to continue to increase the level of mobile access to and engagement on our marketplaces. The variety of technical and other configurations across different mobile devices and platforms increases the challenges associated with this environment. Our ability to successfully expand the use of mobile devices to access our platform is affected by the following factors:



• our ability to continue to provide compelling commerce platforms and tools in a multi-device environment;



• the quality of our mobile offerings, or mobile-based payment services provided by Alipay;



• our ability to successfully deploy apps on popular mobile operating systems that we do not control, such as iOS and Android;



• our ability to adapt to the device standards used by third-party manufacturers and distributors; and



• the attractiveness of alternative platforms.

If we are unable to attract significant numbers of new mobile buyers and increase levels of mobile engagement, our ability to maintain or grow our business would be materially and adversely affected.

We may not be able to successfully monetize traffic on our mobile platform, which could have a material adverse effect on our business.

An increasing percentage of our users are accessing our marketplaces through mobile devices, a trend that we expect to continue. Our ability to monetize our mobile user traffic is critical to our business and our growth. We face a number of challenges to successfully monetizing our mobile user traffic, including:



• providing marketing services in a compelling and effective manner on mobile devices;



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• developing alternative sources of revenue generated from mobile access to our marketplaces;



• offering a comprehensive user experience on our mobile apps; and



• ensuring that the mobile services we provide are secure and trusted.

If as we experience increased use of mobile devices for mobile commerce we are unable to monetize that increased use, our business may not grow or could decline, and our revenues and net income would be materially reduced. For instance, to date we have chosen not to display as many marketing impressions on our mobile apps as compared to on our personal computer-based websites. Although we do not believe the increasing use of mobile devices to conduct commerce has had an adverse effect on our business, our rapid overall growth may make less apparent any adverse effects of this trend on our near-term financial performance. We expect mobile GMV as a percentage of total GMV will grow and that our monetization rates for mobile interfaces in the near term will be lower than those we have achieved from websites because to date our focus has not been on maximizing mobile monetization and we have only recently begun to increasingly monetize mobile activity. Going forward we believe our financial results will become increasingly dependent on our ability to monetize the use of mobile devices to access our marketplaces. We expect this trend will have a greater effect on our business to the extent that shopping on mobile devices displaces transactions that could have occurred on personal computers.

We may not be able to maintain our culture, which has been a key to our success.

Since our founding, our culture has been defined by our mission, vision and values, and we believe that our culture has been critical to our success. In particular, our culture has helped us serve the long-term interests of our customers, attract, retain and motivate employees and create value for our shareholders. We face a number of challenges that may affect our ability to sustain our corporate culture, including:



• failure to identify and promote people in leadership positions in our organization who share our culture, values and mission;



• failure to execute a management succession plan to replace our current generation of management leaders;



• the increasing size and geographic diversity of our workforce;



• competitive pressures to move in directions that may divert us from our mission, vision and values;



• the continued challenges of an ever-changing business environment;



• the pressure from the public markets to focus on short-term results instead of long-term value creation;



• the increasing need to develop expertise in new areas of business that affect us; and



• the integration of new personnel and businesses from acquisitions.

If we are not able to maintain our culture or if our culture fails to deliver the long-term results we expect to achieve, our business, financial condition, results of operations and prospects could be materially and adversely affected.

If we are unable to compete effectively, our business, financial condition and results of operations would be materially and adversely affected.

We face intense competition from Chinese and global Internet companies as well as from offline retailers, particularly those establishing online marketplaces. We compete to attract, engage and retain buyers based on the variety and value of products and services listed on our marketplaces, overall user experience and convenience and availability of payment settlement and logistics services. We compete to attract and retain sellers based on our size and the engagement of buyers, and the effectiveness and value of the marketing services we offer. We



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also compete based on the usefulness of the services we provide, including marketing data and data science, cloud computing services, the availability of supporting services including payment settlement and logistics services and the quality of our customer service. We also compete for motivated and effective talent and personnel, including engineers and product developers that serve critical functions in the development of our products and our ecosystem.

Our ability to compete depends on a number of other factors as well, some of which may be out of our control, including:



• the timely introduction and market acceptance of the services we offer, compared to those of our competitors;



• our ability to innovate and develop new technologies;



• our ability to maintain and enhance our leading position in mobile commerce in China;



• our ability to benefit from new business initiatives; and



• alliances, acquisitions or consolidations within the Internet industry that may result in stronger competitors.

If we are not able to compete effectively, the GMV transacted on our marketplaces and the user activity level on our platform may decrease significantly, which could materially and adversely affect our business, financial condition and results of operations as well as our brand.

We rely on Alipay to conduct substantially all of the payment processing and escrow services on our marketplaces. Alipay’s business is highly regulated, and it is also subject to a range of risks. If Alipay’s services are limited, restricted, curtailed or degraded in any way or become unavailable to us for any reason, our business may be materially and adversely affected.

Alipay provides payment processing and escrow services that are critical to our platform through contractual arrangements with us. In the twelve months ended June 30, 2014, 78.1% of GMV on our China retail marketplaces was settled through Alipay, and the settlement and escrow services and convenient payment mechanisms provided by Alipay are critical factors contributing to our success and the development of our ecosystem. We established Alipay in December 2004 to operate our payment services. In June 2010, the PBOC issued new regulations that required non-bank payment companies to obtain a license in order to operate in China. These regulations provided specific guidelines for license applications only for domestic PRC-owned entities. These regulations stipulated that, in order for any foreign-invested payment company to obtain a license, the scope of business, the qualifications of any foreign investor and any level of foreign ownership would be subject to future regulations to be issued, which in addition would require approval by the PRC State Council. Further, the regulations required that any payment company that failed to obtain a license had to cease operations by September 1, 2011. Although Alipay was prepared to submit its license application in early 2011, at that time the PBOC had not issued any guidelines applicable to license applications for foreign-invested payment companies (and no such guidelines have been issued as of the date of this prospectus). In light of the uncertainties relating to the license qualification and application process for a foreign-invested payment company, our management determined that it was necessary to restructure Alipay as a company wholly-owned by PRC nationals in order to avail Alipay of the specific licensing guidelines applicable only to domestic PRC-owned entities. Accordingly we divested all of our interest in and control over Alipay, which resulted in deconsolidation of Alipay from our financial statements. This action enabled Alipay to obtain a payment business license in May 2011 without delay and without any detrimental impact to our China retail marketplaces or to Alipay. Following the divestment of our interest in and control over Alipay, effective in the first calendar quarter of 2011, we entered into a framework agreement with Small and Micro Financial Services Company (the parent company of Alipay), Alipay, Yahoo, SoftBank, Jack Ma and Joe Tsai to govern our relationship with Alipay and its parent company. In August 2014, we entered into the 2014 SAPA to further restructure the economic terms of



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our relationship with Alipay and its parent company. Pursuant to a commercial agreement we entered into with Alipay in connection with the 2011 framework agreement, as amended through August 2014, Alipay continues to provide payment services to us on terms preferential to us, which arrangement remains unchanged under the 2014 SAPA. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries.”

Alipay’s business is highly regulated, and it is also subject to a number of risks that could materially and adversely affect its ability to provide payment processing and escrow services to us, including:



• increased regulatory focus and the requirement to comply with numerous complex and evolving laws, rules and regulations;



• increasing costs to Alipay, including fees charged by banks to process funds through Alipay, which would also increase our cost of revenues;



• dissatisfaction with Alipay’s services or lower use of Alipay by consumers and merchants;



• changes to rules or practices applicable to payment card systems that link to Alipay;



• leakage of customers’ personal information and concerns over the use and security of any collected information;



• system failures or failure to effectively scale the system to handle large and growing transaction volumes;



• failure to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise; and



• failure to manage business and regulatory risks.

Regulators and third parties in China have been increasing their focus on online and mobile payment services, such as those provided by Alipay, and recent regulatory and other developments could reduce the convenience or utility of Alipay users’ accounts, including the following:



• In March 2014, it was reported that the PBOC had prepared a further draft of regulations relating to online and mobile payment services. The new draft of the regulations includes a number of proposed provisions relating to account management, security measures and other matters. These provisions would, if adopted, prohibit individuals from using the funds in their online and mobile payment accounts with third-party payment providers such as Alipay to make purchases in excess of RMB5,000 (US$806) in any single transaction or over RMB10,000 (US$1,612) in aggregate purchases per month. In addition, these provisions, if adopted, would limit transfers without any underlying e-commerce transaction from an individual’s account with third-party payment providers to other accounts to RMB1,000 (US$161) per transaction and RMB10,000 (US$1,612) in aggregate transfers per year. If the draft regulations were to be adopted in their current or similar form, or other limits were imposed on the size of transactions that may be processed through Alipay, the ability of buyers to pay for purchases on our marketplaces using Alipay payment accounts could be materially limited. The draft regulations, however, do not affect Alipay’s escrow services. Buyers on our marketplaces could continue to pay for purchases through other means, such as online bank transfers and credit cards, and continue to fund their Alipay escrow accounts. So long as payments are not made outside of the Alipay escrow system, we would continue to collect commissions on such purchases if they were made on marketplaces on which we collect commissions. The PBOC has indicated that the purpose of these provisions and other parts of the draft regulations is prudential and that final regulations, including these provisions, would be subject to public consultation and revision.




In March 2014, certain large commercial banks in China reduced their existing limits on the amounts that may be transferred by automatic payment from customers’ bank accounts to their linked accounts with third-party payment services. Certain of these banks imposed lower limits on Alipay than on other




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payment services. These limits on payments funded through Alipay’s automatic payment services range from RMB10,000 per day to RMB50,000 per day depending on the bank, while monthly transfer limits on payments funded through third-party payment companies’ automatic payment services were set as low as RMB50,000 per month by certain banks. Although we believe the impact of these restrictions has not been and will not be significant in terms of the overall volume of payments processed for our China retail marketplaces, and automatic payment services represent only one of many payment mechanisms that buyers may use to settle transactions, the practices of the banks remain in flux. We cannot predict whether these and any additional restrictions could be put in place that could have a material adverse effect on our marketplaces.




• In April 2014, the China Banking Regulatory Commission, or the CBRC, and the PBOC issued Joint Circular 10, which, effective June 30, 2014, will require commercial banks and other financial institutions in China to conduct additional customer verification procedures prior to establishing an automatic payment link between customers’ bank accounts and their accounts with third-party payment services, such as Alipay. As of June 30, 2014, Alipay had established automatic payment links with approximately 72% of Alipay’s active accounts. Once the accounts have been linked, Joint Circular 10 also requires commercial banks and other financial institutions in China to, upon the customer’s request, adjust any limits imposed on the amounts that may be transferred to the linked accounts. It is unclear how commercial banks and other financial institutions will implement the additional customer verification procedures or the requirement to adjust the transfer limits.

We rely on the convenience and ease of use that Alipay provides to our users. If the quality, utility, convenience or attractiveness of Alipay’s services declines as a result of these limitations or for any other reason, the attractiveness of our marketplaces could be materially and adversely affected.

If we need to migrate to another third-party payment service for any reason, the transition would require significant time and management resources, and the third-party payment service may not be as effective, efficient or well-received by buyers and sellers on our marketplaces. These third-party payment services also may not provide escrow services, and we may not be able to receive commissions based on GMV transacted through these systems. In addition, we would no longer have the benefit of the terms preferential to us under our commercial agreement with Alipay and would likely be required to pay more for payment processing and escrow services than we are currently paying. There can be no assurance that we would be able to reach an agreement with an alternative online payments service on acceptable terms or at all.

Moreover, because of our close association with Alipay and overlapping user base, events that negatively affect Alipay could also negatively affect customers’, regulators’ and other third parties’ perception of us. In addition, any actual or perceived conflict of interest between us and Alipay or any other company integral to the functioning of our ecosystem could also materially harm our reputation as well as our business and prospects.

We do not control Alipay or its parent entity, Small and Micro Financial Services Company, over which Jack Ma effectively controls a majority of the voting interests. Accordingly, if conflicts arise between us and Alipay or Small and Micro Financial Services Company, including conflicts that could threaten our ability to continue to receive payment services on preferential terms or conflicts relating to commercial opportunities that we or Alipay or Small and Micro Financial Services Company wish to pursue, such conflicts may not be resolved in our favor and could have a negative effect on our ecosystem and materially and adversely affect our business, financial condition, results of operations and prospects. Moreover, conflicts of interest may arise due to Jack Ma’s role as executive chairman of our company and through his voting control over and his economic interest in Small and Micro Financial Services Company, and he may not act to resolve such conflicts in our favor.

Although we rely on Alipay to conduct substantially all of the payment processing and escrow services on our marketplaces, we do not have any control over Alipay. Following the divestment of our interests in and control over Alipay, effective as of the first calendar quarter of 2011, we entered into an agreement with Alipay



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pursuant to which Alipay provides payment services on terms that are preferential to us. The agreement, as amended through August 2014, has an initial term of 50 years from the date of the original agreement, and is automatically renewable for further periods of 50 years. Following such divestment and subsequent equity holding restructurings, an entity controlled by Jack Ma, our executive chairman, has become the general partner of Hangzhou Junhan Equity Investment Partnership, or Junhan, a PRC limited partnership, and Junao Equity Investment Partnership, or Junao, a PRC limited partnership, which are the current equity holders of Small and Micro Financial Services Company. Accordingly, Jack has an economic interest in Small and Micro Financial Services Company and is able to exercise the voting power of the shareholders of Small and Micro Financial Services Company. We understand that through the exercise of such voting power, Jack will continue to control all of the voting interests in Small and Micro Financial Services Company and so long as Junhan and Junao hold a majority of the outstanding interests in Small and Micro Financial Services Company, Jack will control a majority of the voting interests in Small and Micro Financial Services Company.

As noted in the immediately preceding risk factor, Alipay’s business is subject to a number of risks. If Alipay were not able to successfully manage these risks, its ability to continue to deliver payment services to us on preferential terms may be undermined. Furthermore, if, notwithstanding its existing obligations to us under the agreement, Alipay sought to alter the terms of the agreement and to amend the terms of its arrangements with us in order to improve its business by modifying the payment processing terms or otherwise, there is no assurance that Jack Ma, in light of his voting control over Alipay’s parent, Small and Micro Financial Services Company, will act in our interest. If we were to lose such preferential terms or if Alipay is unable to successfully manage its business, our ecosystem could be negatively affected, and our business financial condition, results of operations and prospects could be materially and adversely affected.

Other conflicts of interest between us, on the one hand, and Alipay and Small and Micro Financial Services Company, on the other hand, may arise relating to commercial or strategic opportunities or initiatives. Jack Ma may not resolve such conflicts in our favor. For example, we cannot assure you that Alipay would not pursue opportunities to provide payment services to our competitors. Furthermore, our ability to explore alternative payment services other than Alipay for our marketplaces may be constrained due to Jack’s relationship with Small and Micro Financial Services Company.

In addition, we have granted share-based awards to employees of Small and Micro Financial Services Company, and Junhan has made share-based awards tied to the value of Small and Micro Financial Services Company to our employees. The provision of awards to our employees tied to the value of Small and Micro Financial Services Company is expected to enhance our strategic and financial relationship with Small and Micro Financial Services Company. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — Share-based Award Reimbursement Arrangements” and “— Share-based Awards to Our Employees by a Related Party.” The share-based awards issued by Junhan to our employees resulted in expenses that are recognized by our company. Following the completion of our initial public offering and subject to the approval of our audit committee, Jack, through his role with us and his control over Junhan could be in a position to propose and promote further share-based grants that result in additional, and potentially significant, expenses to our company. Accordingly, these and other potential conflicts of interest between us and Alipay, and between us and Jack or Junhan, may not be resolved in our favor, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we are not able to continue to innovate or if we fail to adapt to changes in our industry, our business, financial condition and results of operations would be materially and adversely affected.

The Internet industry is characterized by rapidly changing technology, evolving industry standards, new service and product introductions and changing customer demands. Furthermore, our competitors are constantly developing innovations in Internet search, online marketing, communications, social networking and other services to enhance users’ online experience. We continue to invest significant resources in our infrastructure,



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research and development and other areas in order to enhance our platform technology and our existing products and services as well as to introduce new high quality products and services that will attract more participants to our marketplaces. The changes and developments taking place in our industry may also require us to re-evaluate our business model and adopt significant changes to our long-term strategies and business plan. Our failure to innovate and adapt to these changes would have a material adverse effect on our business, financial condition and results of operations.

Our business generates and processes a large amount of data, and the improper use or disclosure of such data could harm our reputation as well as have a material adverse effect on our business and prospects.

Our marketplaces and platform generate and process a large quantity of personal, transaction, demographic and behavioral data. We face risks inherent in handling large volumes of data and in protecting the security of such data. In particular, we face a number of challenges relating to data from transactions and other activities on our platform, including:



• protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior by our employees;



• addressing concerns related to privacy and sharing, safety, security and other factors; and



• complying with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal information, including any requests from regulatory and government authorities relating to such data.

Any systems failure or security breach or lapse that results in the release of user data could harm our reputation and brand and, consequently, our business, in addition to exposing us to potential legal liability.

As we expand our operations, we may be subject to additional laws in other jurisdictions where our sellers, buyers and other participants are located. The laws, rules and regulations of other jurisdictions may impose more stringent or conflicting requirements and penalties than those in China, compliance with which could require significant resources and costs. Our privacy policies and practices concerning the collection, use and disclosure of user data are posted on our websites. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any regulatory requirements or privacy protection-related laws, rules and regulations could result in proceedings or actions against us by governmental entities or others. These proceedings or actions may subject us to significant penalties and negative publicity, require us to change our business practices, increase our costs and severely disrupt our business.

We may not be able to maintain or grow our revenue or our business.

We primarily derive our revenue from online marketing services, commissions based on transaction value derived from certain of our marketplaces and fees from the sale of memberships on our wholesale marketplaces, and we have experienced significant growth in our revenue. In particular, our revenue grew 72.4% from fiscal year 2012 to fiscal year 2013, 52.1% from fiscal year 2013 to fiscal year 2014 and 46.3% from the three months ended June 30, 2013 to the same period in 2014.

Our marketing customers are typically brand owners, distributors and merchants who are sellers on our marketplaces. Marketing customers do not have long-term marketing commitments with us. The price a merchant is willing to pay for online marketing services generally depends on its expected GMV, profit margins and lifetime value of customers derived from such marketing investment. If those services do not generate the rate of return expected by the seller or rates that are competitive to alternatives, the seller may reduce its spending on the marketing services we offer. In addition, as we currently display fewer marketing impressions on our mobile applications as compared to our personal computer-based applications, our revenue growth rate may be affected by the rising usage of mobile devices.



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Sellers on Tmall and Juhuasuan are required to pay a commission typically ranging from 0.3% to 5% of GMV settled through Alipay depending on the product category. If less GMV is transacted through such marketplaces or more GMV is generated from product categories with lower commission rates, or if more transactions are settled directly between buyers and sellers without using Alipay’s payment processing and escrow services, the commissions we receive from transactions would decrease.

For our wholesale marketplaces, we primarily derive revenues from membership fees. Potential changes in our strategy for monetizing our wholesale marketplaces could result in prolonged reductions in revenue from those marketplaces.

In addition, our revenue growth may slow or our revenues may decline for other reasons, including decreasing consumer spending, increasing competition, slowing growth of the China retail or China online retail industry, changes in government policies or general economic conditions. In addition, our revenue growth rate will likely decline as our revenue grows to higher levels.

Increased investments in our business may negatively affect our margins.

We have experienced significant growth in our profit margins and net income. For example, our operating profit and net income grew 114.4% and 85.4% from fiscal year 2012 to fiscal year 2013 and 131.8% and 170.6% from fiscal year 2013 to fiscal year 2014, respectively. We cannot assure you that we will be able to maintain our growth at these levels, or at all. For example, from the three months ended June 30, 2013 to the same period in 2014, our operating profit and net income attributable to ordinary shareholders grew 26.3% and 181.6%, respectively, while our operating margin declined from 50.3% to 43.4%, and margin from net income attributable to ordinary shareholders increased from 40.7% to 78.3% over the same periods, respectively. In the three months ended June 30, 2014, our net income attributable to ordinary shareholders included a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest.

Furthermore, we have made, and intend to continue to make, strategic investments and acquisitions to expand our user base, enhance our cloud computing business, add complementary products and technologies and further strengthen our ecosystem. For example, we expect to continue to make strategic investments and acquisitions relating to mobile, O2O services, digital media, category expansion as well as logistics services. Our strategic investments and acquisitions may affect our future financial results, including by decreasing our margins and net income. Historically, our costs have increased each year due to these factors and we expect to continue to incur increasing costs, which may be greater than we anticipate. Increases in our costs may materially and adversely affect our business and profitability and there can be no assurance that we will be able to sustain our net income growth rates or our margins.

Failure to maintain or improve our technology infrastructure could harm our business and prospects.

We are constantly upgrading our marketplaces and platform to provide increased scale, improved performance for both online and mobile use of our platform and additional built-in functionality and additional capacity for our cloud computing services. Adopting new products and upgrading our ecosystem infrastructure require significant investments of time and resources, including adding new hardware, updating software and recruiting and training new engineering personnel. Maintaining and improving our technology infrastructure require significant levels of investment. Adverse consequences could include unanticipated system disruptions, slower response times, impaired quality of buyers’ and sellers’ experiences and delays in reporting accurate operating and financial information. For example, on Singles Day, there is significantly higher than normal activity on our marketplaces that our systems must handle. In addition, much of the software and interfaces we use are internally developed and proprietary technology. If we experience problems with the functionality and effectiveness of our software or platforms, or are unable to maintain and constantly improve our technology infrastructure to handle our business needs, our business, financial condition, results of operation and prospects, as well as our reputation, could be materially and adversely affected.



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The successful operation of our business depends upon the performance and reliability of the Internet infrastructure in China.

Our business depends on the performance and reliability of the Internet infrastructure in China. Almost all access to the Internet is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology of China. In addition, the national networks in China are connected to the Internet through state-owned international gateways, which are the only channels through which a domestic user can connect to the Internet outside of China. We may not have access to alternative networks in the event of disruptions, failures or other problems with China’s Internet infrastructure. In addition, the Internet infrastructure in China may not support the demands associated with continued growth in Internet usage.

The failure of telecommunications network operators to provide us with the requisite bandwidth could also interfere with the speed and availability of our websites. We have no control over the costs of the services provided by the national telecommunications operators. If the prices that we pay for telecommunications and Internet services rise significantly, our gross margins could be adversely affected. In addition, if Internet access fees or other charges to Internet users increase, our user traffic may decrease, which in turn may significantly decrease our revenues.

Our ecosystem could be disrupted by network interruptions.

Our ecosystem depends on the efficient and uninterrupted operation of our computer and communications systems. Substantially all of our computer hardware and our cloud computing services is currently located in China. In addition, a large number of sellers maintain their enterprise resource planning, or ERP, and customer relationship management, or CRM, systems on our cloud computing platform, which contains substantial quantities of data relating to their accounts, transaction data, buyer information and other data that enables sellers to operate and manage their businesses. Although we have prepared for contingencies through redundancy measures and disaster recovery plans, such preparation may not be sufficient and we do not carry business interruption insurance. Despite any precautions we may take, the occurrence of a natural disaster, such as an earthquake, flood or fire, or other unanticipated problems at our facilities in China, including power outages, telecommunications delays or failures, break-ins to our systems or computer viruses, could result in delays or interruptions to our marketplaces and platforms, loss of our and customers’ data and business interruption for us and our customers. Any of these events could damage our reputation, significantly disrupt our operations and the operations of the sellers and other participants in our ecosystem and subject us to liability, which could materially and adversely affect our business, financial condition and results of operations.

Our sellers use third-party logistics and delivery companies to fulfill and deliver their orders. If these logistics and delivery companies fail to provide reliable delivery services, or our logistics information platform were to malfunction, suffer an outage or otherwise fail, our business and prospects, as well as our financial condition and results of operations, may be materially and adversely affected.

We cooperate with a number of third-party logistics and delivery companies to help our sellers fulfill orders and deliver their products to buyers. We have established a logistics information platform that is operated by China Smart Logistics, our 48%-owned affiliate, that links our information system to those of our logistics partners. Interruptions to or failures in these third-parties’ logistics and delivery services, or in our logistics information platform, could prevent the timely or proper delivery of products to buyers, which would harm the reputation of our marketplaces and our ecosystem. These interruptions may be due to events that are beyond our control or the control of these logistics and delivery companies, such as inclement weather, natural disasters, transportation disruptions or labor unrest. These logistics and delivery services could also be affected or interrupted by industry consolidation, insolvency or government shut-downs. We do not have agreements with logistics and delivery companies that require them to offer services to our sellers. The sellers on our marketplaces may not be able to find alternative logistics and delivery companies to provide logistics and delivery services in a



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timely and reliable manner, or at all. If the logistics information platform we use were to fail for any reason, our logistics providers would be severely hindered from or unable to connect with our sellers, and their services and the functionality of our ecosystem could be severely affected. If the products sold on our marketplaces are not delivered in proper condition, on a timely basis or at shipping rates that marketplace participants are willing to bear, our business and prospects, as well as our financial condition and results of operations could be materially and adversely affected.

If third-party service providers on our ecosystem fail to provide reliable or satisfactory services, our business, financial condition and results of operations may be materially and adversely affected.

In addition to the services provided to our ecosystem by Alipay and logistics providers, a number of third-party participants, including marketing affiliates, retail operational partners, independent software vendors, or ISVs, and various professional service providers, also provide services to sellers. We do not have any agreements that require these third-party participants to provide services to sellers. To the extent these third-party service providers are unable to provide satisfactory services to sellers on commercially acceptable terms or at all or if we fail to retain existing or attract new quality service providers to our marketplaces, our ability to retain or attract sellers and buyers may be severely limited, which may have a material and adverse effect on our business, financial condition and results of operations.

We depend on key management as well as experienced and capable personnel generally, and any failure to attract, motivate and retain our staff could severely hinder our ability to maintain and grow our business.

Our future success is significantly dependent upon the continued service of our key executives and other key employees. If we lose the services of any member of management or key personnel, we may not be able to locate suitable or qualified replacements, and may incur additional expenses to recruit and train new staff, which could severely disrupt our business and growth. In particular, Jack Ma, our lead founder, executive chairman and one of our principal shareholders, has been crucial to the development of our culture and strategic direction.

In addition, we have a number of employees, including many members of management, whose equity ownership in our company could give them a substantial amount of personal wealth following our initial public offering. As a result, it may be difficult for us to continue to retain and motivate these employees, and this wealth could affect their decisions about whether or not they continue to remain with us. If we are unable to motivate or retain these employees, our business may be severely disrupted and our prospects could suffer.

The size and scope of our ecosystem also require us to hire and retain a wide range of effective and experienced personnel who can adapt to a dynamic, competitive and challenging business environment. We will need to continue to attract and retain experienced and capable personnel at all levels as we expand our business and operations. Competition for talent in the PRC Internet industry is intense, and the availability of suitable and qualified candidates in China is limited. Competition for these individuals could cause us to offer higher compensation and other benefits to attract and retain them. Even if we were to offer higher compensation and other benefits, there is no assurance that these individuals will choose to join or continue to work for us. Any failure to attract or retain key management and personnel could severely disrupt our business and growth.

Security breaches and attacks against our systems and network, and any potentially resulting breach or failure to otherwise protect confidential and proprietary information could damage our reputation and negatively impact our business, as well as materially and adversely affect our financial condition and results of operations.

Although we have employed significant resources to develop our security measures against breaches, our cybersecurity measures may not detect or prevent all attempts to compromise our systems, including distributed denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and



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transmitted by our systems or that we otherwise maintain. Breaches of our cybersecurity measures could result in unauthorized access to our systems, misappropriation of information or data, deletion or modification of user information, or a denial-of-service or other interruption to our business operations. As techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate measures to protect against, these attacks.

We have in the past and are likely again in the future to be subject to these types of attacks, although to date no such attack has resulted in any material damages or remediation costs. If we are unable to avert these attacks and security breaches, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from lost sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us, our sellers, buyers or other participants, or the communication infrastructure on which we depend. Actual or anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue and net income.

Our failure to manage the growth of our business and operations could harm us.

Our business has become increasingly complex, both in the types of businesses we operate and their scale. We have significantly expanded our headcount, office facilities and infrastructure, and anticipate that further expansion in certain areas and geographies will be required. This expansion increases the complexity of our operations and places a significant strain on our management, operational and financial resources. We must continue to effectively hire, train and manage new employees. If our new hires perform poorly or if we are unsuccessful in hiring, training, managing and integrating new employees, our business, financial condition and results of operations may be materially harmed.

Moreover, our current and planned personnel, systems, procedures and controls may not be adequate to support our future operations. To effectively manage the expected growth of our operations and personnel, we will need to continue to improve our transaction processing, operational and financial systems, procedures and controls, which could be particularly challenging as we acquire new operations with different and incompatible systems. These efforts will require significant managerial, financial and human resources. We cannot assure you that we will be able to effectively manage our growth or to implement all these systems, procedures and control measures successfully. If we are not able to manage our growth effectively, our business and prospects may be materially and adversely affected.

We face risks relating to our acquisitions, investments and alliances.

We have recently acquired and invested in a significant number of businesses, technologies, services and products in recent years and have a number of pending investments and acquisitions that are subject to closing conditions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Investment, Acquisition and Strategic Alliance Activities.” We expect to continue to evaluate and consider a wide array of potential strategic transactions as part of our overall business strategy, including business combinations, acquisitions and dispositions of businesses, technologies, services, products and other assets, as well as strategic investments and alliances. At any given time we may be engaged in discussions or negotiations with respect to one or more of these types of transactions. These transactions involve significant challenges and risks, including:



• difficulties integrating into our operations the personnel, operations, products, services, technology, internal controls and financial reporting of companies we acquire;



• disrupting our ongoing business, distracting our management and employees and increasing our expenses;



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• losing skilled professionals as well as established client relationships of the businesses we invest in or acquire;



• for investments over which we may not obtain management and operational control, we may lack influence over the controlling partner or shareholder, which may prevent us from achieving our strategic goals in such investment;



• new regulatory requirements and compliance risks that we become subject to as a result of acquisitions in new industries or otherwise;



• actual or alleged misconduct or non-compliance by any company we acquire or invest in (or by its affiliates) that occurred prior to our acquisition or investment, which may lead to negative publicity, government inquiry or investigations against such company or against us;



• unforeseen or hidden liabilities or costs that may adversely affect us following our acquisition of such targets;



• regulatory hurdles including in relation to the anti-monopoly and competition laws, rules and regulations of China and other countries in connection with any proposed investments and acquisitions, including, in the case of our potential future acquisition of an equity interest in Small and Micro Financial Services Company, PRC regulations pertaining to non-bank payment companies;



• the risk that any of our pending or other future proposed acquisitions does not close; and



• challenges in achieving the expected benefits of synergies and growth opportunities in connection with these acquisitions and investments, such as the inability to realize the expected benefits of the restructuring in August 2014 of our relationship with Alipay and Small and Micro Financial Services Company.

Our significant acquisition activity has occurred recently, and we do not have substantial experience in integrating major acquisitions. Any of these difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses, such as impairment charges and write-offs. In particular, we cannot assure you that we will be able to obtain the regulatory approvals necessary for us to acquire an equity interest in Small and Micro Financial Services Company, or that we will be able to acquire such equity interest in the future.

We may be subject to allegations and lawsuits claiming that items listed on our marketplaces are pirated, counterfeit or illegal.

We have received in the past, and we anticipate we will receive in the future, communications alleging that items offered or sold through our online marketplaces by third parties or that we make available through other services, such as our online music platform, infringe third-party copyrights, trademarks and patents or other intellectual property rights. Although we have adopted measures to verify the authenticity of products sold on our marketplaces and minimize potential infringement of third-party intellectual property rights through our intellectual property infringement complaint and take-down procedures, these measures may not always be successful. We have been and may continue to be subject to allegations of civil or criminal liability based on allegedly unlawful activities carried out by third parties through our online marketplaces. We also have been and may continue to be subject to allegations that we were participants in or facilitators of such allegedly unlawful activities.

When we receive complaints or allegations regarding infringement or counterfeit goods, we follow certain procedures to verify the nature of the complaint and the relevant facts. We believe these procedures are important for purposes of investigating the allegations in question so that we can ensure confidence in our marketplace among buyers and sellers; however, these procedures could result in delays in delistings of allegedly infringing product listings. In the event that alleged counterfeit or infringing products are listed or sold on our marketplaces or our other services, we could face claims relating to such listings or sales or for our alleged failure to act in a timely or effective manner in response to infringement or to otherwise restrict or limit such sales or infringement.



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We may implement further measures in an effort to strengthen our protection against these potential liabilities that could require us to spend substantial additional resources and/or experience reduced revenues by discontinuing certain service offerings. In addition, these changes may reduce the attractiveness of our marketplaces and other services to buyers, sellers or other users. A customer whose content is removed or whose services are suspended or terminated by us, regardless of our compliance with the applicable laws, rules and regulations, may dispute our actions and commence action against us for damages based on breach of contract or other causes of action or make public complaints or allegations. Any costs incurred as a result of liability or asserted liability relating to the sale of unlawful goods or other infringement could harm our business. Moreover, we have in the past received negative publicity regarding the sales of counterfeit and pirated items on our marketplaces. In 2008, 2009 and 2010, Alibaba.com, and in 2008, 2009, 2010 and 2011, Taobao Marketplace, were named as “notorious markets” in the annual Special 301 Report or Special 301 Out-of-Cycle Review prepared by the Office of the U.S. Trade Representative. The U.S. Trade Representative subsequently removed these marketplaces from the list. Continued public perception that counterfeit or pirated items are commonplace on our marketplaces or perceived delays in our removal of these items, even if factually incorrect, could damage our reputation, result in lower list prices for goods sold through our marketplaces, harm our business, result in regulatory pressure or action against us and diminish the value of our brand name.

Failure to deal effectively with any fraud perpetrated and fictitious transactions conducted on our marketplaces and other sources of customer dissatisfaction would harm our business.

We face risks with respect to fraudulent activities on our marketplaces and periodically receive complaints from buyers who may not have received the goods that they had purchased, as well as complaints from sellers who have not received payment for the goods that a buyer had contracted to purchase. Although we have implemented various measures to detect and reduce the occurrence of fraudulent activities on our marketplaces, there can be no assurance that such measures will be effective in combating fraudulent transactions or improving overall satisfaction among our sellers, buyers and other participants. Additional measures that we take to address fraud could also negatively affect the attractiveness of our marketplaces to buyers or sellers. In addition, sellers on our marketplaces contribute to a fund to provide consumer protection guarantees. If our sellers do not perform their obligations under these programs, then we may use funds that have been deposited by sellers in a consumer protection fund to compensate buyers. If the amounts in the fund are not sufficient, we may choose to compensate buyers for such losses although we are not legally obligated to do so. Although we have recourse against our sellers for any amounts we incur, there is no assurance that we would be able to collect from our sellers.

In addition to fraudulent transactions with legitimate buyers, sellers may also engage in fictitious or “phantom” transactions with themselves or collaborators in order to artificially inflate their own ratings on our marketplaces, reputation and search results rankings. This activity may harm other sellers by enabling the perpetrating seller to be favored over legitimate sellers, and may harm buyers by deceiving them into believing that a seller is more reliable or trusted than the seller actually is.

Moreover, illegal, fraudulent or collusive activities by our employees could also subject us to liability or negative publicity. For instance, we learned that in early 2011 and 2012 in two separate incidents, certain of our employees had accepted payments from sellers in order to receive preferential treatment on Alibaba.com and Juhuasuan. Although we dismissed the employees responsible for the incidents and have taken action to further strengthen our internal controls and policies with regard to the review and approval of seller accounts, sales activities and other relevant matters, we cannot assure you that such controls and policies will prevent fraud or illegal activity by our employees or that similar incidents will not occur in the future. Any such illegal, fraudulent or collusive activity could severely damage our brand and reputation as an operator of trusted marketplaces, which could drive users and buyers away from our marketplaces, and materially and adversely affect GMV transacted on our marketplaces, our revenues and our net income.

Negative publicity and user sentiment generated as a result of actual or alleged fraudulent or deceptive conduct on our platform or by our employees could severely diminish consumer confidence in and use of our services, reduce our ability to attract new or retain current sellers, buyers and other participants, damage our



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reputation and diminish the value of our brand names, and materially and adversely affect our business, financial condition and results of operations.

We may increasingly become a target for public scrutiny, including complaints to regulatory agencies, negative media coverage, including social media and malicious reports, all of which could severely damage our reputation and materially and adversely affect our business and prospects.

We process millions of transactions on a daily basis on our marketplaces, and the high volume of transactions taking place on our marketplaces and publicity about our business creates the possibility of heightened attention from the public, the media and our participants. For example, we receive complaints from our sellers, buyers and other participants about our marketplaces. In addition, changes in our services or policies have resulted and could result in objections by members of the public, the media, including social media, participants in our ecosystem or others. From time to time, these objections or allegations, regardless of their veracity, may result in public protests or negative publicity, which could result in government inquiry or harm our reputation. Corporate transactions we or related parties undertake may also subject us to increased media exposure and public scrutiny. There is no assurance that we would not become a target for public scrutiny in the future or such scrutiny and public exposure would not severely damage our reputation as well as our business and prospects.

In addition, our directors and management have been, and continue to be, subject to scrutiny by the media and the public regarding their activities in and outside Alibaba Group, which may result in unverified, inaccurate or misleading information about them being reported by the press. Negative publicity about our executive chairman or other founders, directors or management, even if untrue or inaccurate, may harm our reputation.

We and Alipay are subject to regulation, and future regulations may impose additional requirements and other obligations on our business or otherwise that could materially and adversely affect our business, financial condition and results of operations.

The industries in which we and Alipay operate in the PRC, including online and mobile commerce and payments, financial services and cloud computing, are highly regulated. The PRC government authorities are likely to continue to issue new laws, rules and regulations governing these industries, enhance enforcement of existing laws, rules and regulations and require new and additional licenses, permits and approvals from us and our users. These laws, rules and regulations and their application to us could take a direction that is adverse to our or Alipay’s business at any time. In addition, there is no assurance that any required licenses, permits and approvals could be obtained in a timely or cost-effective manner, and failure to obtain them could have a material adverse effect on our business, financial condition and results of operations. Changes in regulatory enforcement as well as tax policy in the PRC could also result in additional compliance obligations and increased costs or place restrictions upon our current or future operations. Any such legislation or regulation could also severely disrupt and constrain our business and the payment services used on our marketplaces.

Transactions conducted through our cross-border marketplaces may be subject to different customs and import/export rules and regulations. These rules and regulations are complex, and customs and tax authorities in the relevant jurisdictions may challenge our interpretation of applicable customs and import/export rules relating to product shipments under their respective customs and import/export laws and treaties. In addition, we will also face the challenge of complying concurrently with the compliance rules and regulations of multiple jurisdictions, and such rules or regulations could conflict or interact with each other in complex ways.

We have from time to time been subject to PRC and other foreign government inquiries and investigations, including those relating to website content and alleged third-party intellectual property infringement. We also face scrutiny, and have been subject to inquiries and investigations, from foreign governmental bodies that focus on cross-border trade, intellectual property protection, human rights and user privacy matters. None of these inquiries and investigations has resulted in significant restrictions on our business operations. However, as we continue to grow in scale and significance, we expect to face increased scrutiny, which will, at a minimum, result



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in our having to increase our investment in compliance and related capabilities and systems. The increasing sophistication and development of our user base will also increase the need for higher standards of user protection, privacy protection and dispute management. Any increased involvement in inquiries or investigations could result in significantly higher legal and other costs, diversion of management and other resources, as well as negative publicity, which could harm our business and reputation and materially reduce our revenue and net income.

Alipay, which provides the substantial majority of the payment processing services on our marketplaces, is subject to various laws, rules and regulations in the PRC and other countries where it operates, including those governing banking, privacy, cross-border and domestic money transmission, anti-money laundering, counter-terrorist financing and consumer protection laws, rules and regulations. These laws, rules and regulations are highly complex and could change or be reinterpreted to make it difficult or impossible for Alipay to comply. In recent years, the PRC government has increasingly focused on regulation of the financial industry, including laws, rules and regulations relating to the provision of payment services. See “— We rely on Alipay to conduct substantially all of the payment processing and escrow services on our marketplaces. Alipay’s business is highly regulated, and it is also subject to a range of risks. If Alipay’s services are limited, restricted, curtailed or degraded in any way or become unavailable to us for any reason, our business may be materially and adversely affected.” In addition, Alipay is required to maintain a payment business license in the PRC. In 2011, we divested our interest in and control over Alipay in response to PBOC regulations issued in June 2010 that required non-bank payment companies to obtain a payment business license before September 1, 2011. These regulations provided specific guidelines for license applications only for domestic PRC-owned entities but stated that specific guidelines applicable to license applications for foreign-invested payment entities would be issued separately (although no such guidelines have been issued as of the date of this prospectus). Accordingly, our management restructured the ownership and control of Alipay into a company wholly-owned by PRC nationals in order to obtain a payment business license within the time period prescribed by the PBOC regulations. In August 2014, we entered into the 2014 SAPA to further restructure the economic terms of our relationship with Alipay and its parent company. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — Share and Asset Purchase Agreement.”

Alipay is also required to maintain other applicable money transmitter or other licenses and approvals from regulatory authorities in other jurisdictions in which it operates, and the expansion by Alipay of its business may require additional licenses and approvals. Currently, in certain jurisdictions where Alipay does not have the required money transmitter or other licenses, Alipay provides payment processing and escrow services through third-party service providers. If these providers were to terminate their relationship with Alipay or otherwise cease providing services to Alipay, cross-border transactions on our marketplaces would be negatively affected. If Alipay fails to obtain and maintain all required licenses and approvals or otherwise fails to comply with applicable laws, rules and regulations, if new laws, rules or regulations come into effect that impact Alipay’s business, its services could be suspended or severely disrupted, and our business, financial condition and results of operations would be materially and adversely affected.

We may be accused of infringing intellectual property rights of third parties and content restrictions of relevant laws.

Third parties may claim that the technology used in the operation of our platforms or our service offerings, including our cloud computing services, infringes upon their intellectual property rights. Although we have not in the past faced material litigation involving direct claims of infringement by us, the possibility of intellectual property claims against us increases as we continue to grow, particularly internationally. Such claims, whether or not having merit, may result in our expenditure of significant financial and management resources, injunctions against us or payment of damages. We may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all. These risks have been amplified by the increase in the number of third parties whose sole or primary business is to assert such claims.



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China has enacted laws and regulations governing Internet access and the distribution of products, services, news, information, audio-video programs and other content through the Internet. The PRC government has prohibited the distribution of information through the Internet that it deems to be in violation of PRC laws and regulations. If any of the information disseminated through our marketplaces and websites were deemed by the PRC government to violate any content restrictions, we would not be able to continue to display such content and could become subject to penalties, including confiscation of income, fines, suspension of business and revocation of required licenses, which could materially and adversely affect our business, financial condition and results of operations.

The outcome of any claims, investigations and proceedings is inherently uncertain, and in any event defending against these claims could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and other personnel. An adverse determination in any such litigation or proceedings could cause us to pay damages, as well as legal and other costs, limit our ability to conduct business or require us to change the manner in which we operate.

We may become the target of anti-monopoly and unfair competition claims, which may result in our being subject to fines as well as constraints on our business.

Although the PRC Anti-Monopoly Law is relatively recent, having taken effect on August 1, 2008, two of the three PRC anti-monopoly enforcement agencies, the National Development and Reform Commission, or the NDRC, and the State Administration for Industry and Commerce, or the SAIC, have in recent years strengthened enforcement actions, including levying significant fines, with respect to cartel activity as well as abusive behavior of companies having market dominance.

The PRC Anti-Monopoly Law also provides a private right of action for competitors or users to bring anti-monopoly claims against companies. In recent years, an increased number of companies have been exercising their right to seek relief under the PRC Anti-Monopoly Law. As public awareness of the rights under the PRC Anti-Monopoly Law increases, more companies, including our competitors, business partners and customers may resort to the remedies under the law to improve their competition position, regardless of the merits of their claims.

We may receive close scrutiny from government agencies under the PRC Anti-Monopoly Law in connection with our business practices, investments and acquisitions. Any anti-monopoly lawsuit or administrative proceeding initiated against us may result in our being subject to profit disgorgement, heavy fines and various constraints on our business, or result in negative publicity which could harm our reputation and negatively affect the trading price of our ADSs. These constraints could include forced termination of any agreements or arrangements that are determined to be in violation of anti-monopoly laws, required divestitures and limitations on certain business practices, which may limit our ability to continue to innovate, diminish the appeal of our services and increase our operating costs. These constraints could also enable our competitors to develop websites, products and services that mimic the functionality of our services, which could decrease the popularity of our marketplaces among sellers, buyers and other participants, and cause our revenue and net income to decrease materially.

We may face challenges in expanding our cross-border operations.

As we plan to continue expanding our existing cross-border operations into existing and other markets, we will face risks associated with expanding into markets in which we have limited or no experience and in which our company may be less well-known. We may be unable to attract a sufficient number of customers and other participants, fail to anticipate competitive conditions or face difficulties in operating effectively in these new markets. The expansion of our cross-border business will also expose us to risks relating to staffing and managing cross-border operations, increased costs to protect intellectual property, tariffs and other trade barriers, differing and potentially adverse tax consequences, increased and conflicting regulatory compliance



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requirements, lack of acceptance of our service offerings, challenges caused by distance, language and cultural differences, exchange rate risk and political instability. Accordingly, any efforts we make to expand our cross-border operations may not be successful, which could limit our ability to grow our revenue, net income and profitability.

Our brand name and our business may be harmed by aggressive marketing and communications strategies of our competitors.

Due to intense competition in our industry, we have been and may be the target of incomplete, inaccurate and false statements about our company and our services that could damage our and our management’s reputation and our brand and materially deter consumers from making purchases on our marketplaces. Our ability to respond to our competitors’ misleading marketing efforts may be limited by legal prohibitions on permissible public communications by us during our initial public offering process or during future periods.

Our revenue and net income may be materially and adversely affected by any economic slowdown in China as well as globally.

The success of our business ultimately depends on consumer spending. We derive substantially all of our revenue from China. As a result, our revenue and net income are impacted to a significant extent by economic conditions in China and globally, as well as economic conditions specific to online and mobile commerce. The global economy, markets and levels of consumer spending are influenced by many factors beyond our control, including consumer perception of current and future economic conditions, political uncertainty, levels of employment, inflation or deflation, real disposable income, interest rates, taxation and currency exchange rates.

The PRC government has in recent years implemented a number of measures to control the rate of economic growth, including by raising interest rates and adjusting deposit reserve ratios for commercial banks as well as by implementing other measures designed to tighten credit and liquidity. These measures have contributed to a slowdown of the PRC economy. According to the National Bureau of Statistics of China, in the second quarter of 2014, China’s GDP growth rate was 7.5%. Any continuing or worsening slowdown could significantly reduce domestic commerce in China, including through the Internet generally and within our ecosystem. An economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which we may operate could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations fluctuate significantly from quarter to quarter which may make it difficult to predict our future performance.

Our results of operations fluctuate significantly from quarter to quarter. In addition, our business is characterized by seasonal fluctuations, which may cause further fluctuations. The fourth quarter of each calendar year generally contributes the largest portion of our annual revenues due to a number of factors, such as sellers allocating a significant portion of their online marketing budgets to the fourth calendar quarter, promotions, such as Singles Day on November 11 of each year and the impact of seasonal buying patterns in respect of certain categories such as apparel. The first quarter of each calendar year generally contributes the smallest portion of our annual revenues, primarily due to a lower level of allocation of online marketing budgets by sellers at the beginning of the calendar year and the Chinese New Year holiday, during which time consumers generally spend less and businesses in China are generally closed. We may also introduce new promotions or change the timing of our promotions in ways that further cause our quarterly results to fluctuate and differ from historical patterns. In addition, seasonal weather patterns may affect the timing of buying decisions. For example, unexpectedly long periods of warm weather could delay the purchase of heavier clothing items that have higher average selling prices, resulting in lower than expected GMV. The performance of our equity investees and of businesses, including internally developed businesses, in which we have made investments may also result in fluctuations in our results of operations. Our results of operations will likely fluctuate due to these and other factors, some of



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which are beyond our control. In addition, our rapid growth has masked the seasonality that might otherwise be apparent in our results of operations. If our growth slows, we expect that the seasonality in our business may become more pronounced.

Our quarterly and annual financial results will likely differ from our historical performance. To the extent our results of operations are below the expectations of public market analysts and investors in the future, or if there are significant fluctuations in our financial results, the market price of our ADSs could decline materially.

We may not be able to protect our intellectual property rights.

We rely on a combination of trademark, fair trade practice, patent, copyright and trade secret protection laws in China and other jurisdictions, as well as confidentiality procedures and contractual provisions, to protect our intellectual property rights. We also enter into confidentiality agreements with our employees and any third parties who may access our proprietary information, and we rigorously control access to our proprietary technology and information.

Intellectual property protection may not be sufficient in China or other countries in which we operate. Confidentiality agreements may be breached by counterparties, and there may not be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rights or to enforce our contractual rights in China or elsewhere. In addition, policing any unauthorized use of our intellectual property is difficult, time-consuming and costly and the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigation to enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources. We can provide no assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become available to, or be independently discovered by, our competitors. Any failure in protecting or enforcing our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to claims under consumer protection laws, including health and safety claims and product liability claims, if property or people are harmed by the products sold on our marketplaces.

Due to several high-profile incidents involving food safety and consumer complaints that have occurred in China in recent years, the PRC government, media outlets and public advocacy groups are increasingly focused on consumer protection. Moreover, as part of our growth strategy, we expect to increase our focus on food and beverage and healthcare products, which could expose us to increasing liability associated with consumer protection laws in those areas. Operators of commerce marketplaces and platforms are subject to certain provisions of consumer protection laws even where such operator is not the seller of the product or service purchased by the consumer. For example, under applicable consumer protection laws in China, e-commerce platform operators may be held liable for consumer claims relating to damage if they are unable to provide consumers with the true name, address and contact details of sellers or service providers. In addition, if we do not take appropriate remedial action against sellers or service providers for actions they engage in that we know, or should have known, would infringe upon the rights and interests of consumers, we may be held jointly liable with the seller or service provider for such infringement. Moreover, applicable consumer protection laws in China hold that trading platforms will be held liable for failing to meet any undertakings such platforms make to consumers with regard to products listed on their websites. Furthermore, we are required to report to SAIC or its local branches any violation of applicable laws, regulations or SAIC rules by sellers or service providers, such as sales of goods without proper license or authorization, and to take appropriate remedial measures, including ceasing to provide services to such sellers or service providers. If claims are brought against us under any of these laws, we could be subject to damages and reputational damage as well as action by regulators, which could have a material adverse effect on our business, financial condition and results of operations. We do not maintain product liability insurance for products and services transacted on our marketplaces, and our rights of indemnity from the sellers on our marketplaces may not adequately cover us for any liability we may incur. Even



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unsuccessful claims could result in the expenditure of funds and management time and resources and could materially reduce our net income and profitability.

Tightening of tax compliance efforts with respect to the revenue or profit generated by our sellers could materially and adversely affect our business, financial condition and results of operations.

E-commerce in China is still developing, and the PRC government may require operators of marketplaces, such as our company, to assist in the collection of taxes with respect to the revenue or profit generated by sellers from transactions conducted on their platforms. A significant number of small businesses and sole proprietors operating businesses through storefronts on Taobao Marketplace may not have completed the required tax registration. PRC tax authorities may enforce registration requirements that target small businesses or sole proprietors on Taobao Marketplace and may request our assistance in these efforts. As a result, these sellers may be subject to more stringent tax compliance requirements and liabilities and their business on our marketplaces could suffer or they could decide to remove their storefronts from our marketplace rather than comply, which could in turn negatively affect us. We may also be requested by tax authorities to supply information on our sellers, such as transaction records and bank account information, and assist in the enforcement of tax regulations, including the payment and withholding obligations against our sellers, in which case, potential sellers might not be willing to open storefronts on our marketplaces.

Heightened enforcement against participants in e-commerce transactions (including imposition of withholding obligations on us with respect to business or value-added tax) could have a material adverse effect on our business, financial condition and results of operations.

We may be subject to material litigation.

We have been involved in litigation relating principally to third-party intellectual property infringement claims, contract disputes, employment related cases and other matters in the ordinary course of our business. As our ecosystem expands, and as litigation becomes more common in China, we may face an increasing number of such claims, including those involving higher amounts of damages. After we become a publicly-listed company with a higher profile, we may face additional exposure to claims and lawsuits inside and outside China.

The outcome of any claims, investigations and proceedings is inherently uncertain, and in any event defending against these claims could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and other personnel. An adverse determination in any such litigation or proceedings could cause us to pay damages as well as legal and other costs, limit our ability to conduct business or require us to change the manner in which we operate.

We may suffer reputational harm and the price of our ADSs may decrease significantly due to business dealings or connections of sellers or buyers on our marketplaces with sanctioned countries.

Cuba, Iran, Syria and Sudan are identified by the U.S. State Department as state sponsors of terrorism and are the target of comprehensive U.S. economic sanctions. We do not have physical staff or operations in these sanctioned countries, and although our websites are open and available worldwide, we do not actively solicit business from users in these sanctioned countries. As a non-U.S. entity, we are not generally required to comply with U.S. sanctions to the same extent as U.S. entities, with certain exceptions principally relating to our U.S. subsidiaries, any of our employees who are U.S. persons or dealings involving U.S.-origin goods or services. In the case of Alibaba.com, our aggregate revenue from members in these sanctioned countries in fiscal year 2014 accounted for less than 0.03% of our international wholesale commerce revenue and less than 0.01% of our international wholesale commerce revenue in the three months ended June 30, 2014. In the case of AliExpress and Taobao Marketplace, an insignificant number of orders have been placed by buyers from the sanctioned countries, with an aggregate GMV of approximately US$1.3 million in fiscal year 2014 and approximately US$0.5 million in the three months ended June 30, 2014. As all transaction fees on AliExpress



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and Taobao Marketplace are paid by sellers, primarily based in China, we do not earn any fees or commissions from buyers in sanctioned countries.

Certain U.S.-based institutional investors, including state and municipal governments and universities, have proposed or adopted divestment or similar initiatives regarding investments in companies that do business with sanctioned countries. Accordingly, as a result of activities on our marketplaces involving users based in the sanctioned countries, certain investors may not wish to invest, and may divest their investment, in us. Such divestment initiatives may negatively impact our reputation and investor sentiment with respect to our ADSs may be materially and adversely affected. Any negative investor sentiment as a result of such reputational issues may cause the price of our ADSs to decline significantly and may materially reduce the value of your investment in our ADSs.

We may be subject to liability for content on our websites and mobile interfaces that is alleged to be socially destabilizing, obscene, defamatory, libelous or otherwise unlawful.

Under PRC law, we are required to monitor our websites and the websites hosted on our servers and mobile interfaces for items or content deemed to be socially destabilizing, obscene, superstitious or defamatory, as well as items, content or services that are illegal to sell online or otherwise in other jurisdictions in which we operate our marketplaces, and promptly take appropriate action with respect to such items, content or services. We may also be subject to potential liability for any unlawful actions of our customers or users of our websites or mobile interfaces or for content we distribute that is deemed inappropriate. It may be difficult to determine the type of content that may result in liability to us, and if we are found to be liable, we may be subject to fines, have our relevant business operation licenses revoked, or be prevented from operating our websites or mobile interfaces in China.

In addition, claims may be brought against us for defamation, libel, negligence, copyright, patent or trademark infringement, tort (including personal injury), other unlawful activity or other theories and claims based on the nature and content of information posted on our marketplaces, including product reviews and message boards, by our buyers, sellers and other marketplace participants.

Regardless of the outcome of such a dispute or lawsuit, we may suffer from negative publicity and reputational damage as a result of these actions.

Failure to comply with the terms of our indebtedness could result in acceleration of indebtedness, which could have an adverse effect on our cash flow and liquidity.

We have incurred substantial indebtedness, primarily relating to our US$8.0 billion credit facility which we have drawn down in full. We have also entered into a US$3.0 billion revolving credit facility, which we have not yet drawn. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations.” Under our credit facilities and under any debt financing arrangement that we may enter into in the future, we are subject to financial and other covenants that could, among other things, restrict our business and operations. If we breach any of these covenants, including by failing to maintain certain financial ratios, our lenders will be entitled to accelerate our debt obligations. Any default under our credit facility could require that we repay these loans prior to maturity as well as limit our ability to obtain additional financing, which in turn may have a material adverse effect on our cash flow and liquidity.

We may need additional capital but may not be able to obtain it on favorable terms or at all.

We may require additional cash resources due to future growth and development of our business, including any investments or acquisitions we may decide to pursue. If our cash resources are insufficient to satisfy our cash requirements, we may seek to issue additional equity or debt securities or obtain new or expanded credit facilities. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including



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our future financial condition, results of operations, cash flows, share price performance, liquidity of international capital and lending markets and PRC governmental regulations over foreign investment and the Internet industry in the PRC. In addition, incurring indebtedness would subject us to increased debt service obligations and could result in operating and financing covenants that would restrict our operations. There can be no assurance that financing will be available in a timely manner or in amounts or on terms acceptable to us, or at all. Any failure to raise needed funds on terms favorable to us, or at all, could severely restrict our liquidity as well as have a material adverse effect on our business, financial condition and results of operations. Moreover, any issuance of equity or equity-linked securities could result in significant dilution to our existing shareholders.

We are subject to interest rate risk in connection with our indebtedness.

We are exposed to interest rate risk related to our indebtedness. The interest rates under our current bank borrowings are based on a spread over LIBOR. As a result, the interest expenses under our bank borrowings will be subject to the potential impact of any fluctuation in LIBOR. Any increase in LIBOR could impact our financing costs if not effectively hedged. Although from time to time, we use hedging transactions in an effort to reduce our exposure to interest rate risk, these hedges may not be effective.

We may not have sufficient insurance coverage.

We have obtained insurance to cover certain potential risks and liabilities, such as property damage. However, insurance companies in China offer limited business insurance products. As a result, we may not be able to acquire any insurance for certain types of risks such as business liability or service disruption insurance for our operations in China, and our coverage may not be adequate to compensate for all losses that may occur, particularly with respect to loss of business or operations. We do not maintain business interruption insurance or product liability insurance, nor do we maintain key-man life insurance. This could leave us exposed to potential claims and losses. Any business disruption, litigation, regulatory action, outbreak of epidemic disease or natural disaster could also expose us to substantial costs and diversion of resources. We cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our current insurance policy on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

An occurrence of a natural disaster, widespread health epidemic or other outbreaks could have a material adverse effect on our business, financial condition and results of operations.

Our business could be materially and adversely affected by natural disasters, such as snowstorms, earthquakes, fires or floods, the outbreak of a widespread health epidemic, such as swine flu, avian influenza, severe acute respiratory syndrome, or SARS, or other events, such as wars, acts of terrorism, environmental accidents, power shortage or communication interruptions. The occurrence of such a disaster or a prolonged outbreak of an epidemic illness or other adverse public health developments in China or elsewhere in the world could materially disrupt our business and operations. Such events could also significantly impact our industry and cause a temporary closure of the facilities we use for our operations, which would severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations. Our operations could be disrupted if any of our employees or employees of our business partners were suspected of having the swine flu, avian influenza or SARS, since this could require us or our business partners to quarantine some or all of such employees or disinfect the facilities used for our operations. In addition, our revenue and profitability could be materially reduced to the extent that a natural disaster, health epidemic or other outbreak harms the global or PRC economy in general. Our operations could also be severely disrupted if our buyers, sellers or other participants were affected by such natural disasters, health epidemics or other outbreaks.



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Risks Related to Our Corporate Structure

The Alibaba Partnership and related voting agreements will limit your ability to nominate and elect directors.

Our articles of association, as we expect them to be amended and become effective upon completion of this offering, will have the effect of allowing the Alibaba Partnership to nominate a simple majority of our board of directors. If at any time our board of directors consists of less than a simple majority of directors nominated or appointed by the Alibaba Partnership for any reason, including because a director previously nominated by the Alibaba Partnership ceases to be a member of our board of directors or because the Alibaba Partnership had previously not exercised its right to nominate or appoint a simple majority of our board of directors, the Alibaba Partnership will be entitled (in its sole discretion) to nominate or appoint such number of additional directors to the board as necessary to ensure that the directors nominated or appointed by the Alibaba Partnership comprise a simple majority of our board of directors. In addition, we expect to enter into a voting agreement that will take effect upon completion of this offering, pursuant to which SoftBank, Yahoo, Jack Ma and Joe Tsai will agree to vote their shares in favor of the Alibaba Partnership director nominees at each annual general shareholders meeting so long as SoftBank owns at least 15% of our outstanding ordinary shares. Furthermore, we expect the voting agreement to provide that SoftBank will have the right to nominate one director to our board until SoftBank owns less than 15% of our outstanding ordinary shares and that right will also be reflected in our articles of association that will become effective upon completion of this offering. In addition, pursuant to such voting agreement, Yahoo, Jack Ma and Joe Tsai will agree to vote their shares (including shares for which they have voting power) in favor of the election of the SoftBank director nominee at each annual general shareholders meeting in which the SoftBank nominee stands for election. Moreover, subject to certain exceptions, pursuant to the voting agreement SoftBank and Yahoo will agree to give Jack and Joe a proxy over, with respect to SoftBank, any portion of its shareholdings exceeding 30% of our outstanding shares and, with respect to Yahoo, all of its shareholdings up to a maximum of 121.5 million of our ordinary shares. These proxies will remain in effect until Jack Ma owns less than 1% of our ordinary shares on a fully diluted basis or we materially breach the voting agreement. This governance structure and contractual arrangement will limit your ability to influence corporate matters, including any matters determined at the board level. In addition, the nomination right granted to the Alibaba Partnership will remain in place for the life of the Alibaba Partnership unless our articles of association are amended to provide otherwise by a vote of shareholders representing at least 95% of shares that vote at a shareholders meeting. The nomination rights of the Alibaba Partnership will remain in place notwithstanding a change of control or merger of our company and, for so long as SoftBank and Yahoo remain substantial shareholders, we expect the Alibaba Partnership nominees will receive a majority of votes cast at any meeting for the election of directors and will be elected as directors. These provisions could have the effect of delaying, preventing or deterring a change in control, and could limit the opportunity for our shareholders to receive a premium for their ADSs, and could also materially decrease the price that some investors are willing to pay for our ADSs. Immediately after the completion of this offering, assuming no exercise of the underwriters’ option to purchase additional shares, we expect the parties to the voting agreement to hold approximately 59.8% of our then issued and outstanding ordinary shares (including unvested shares and shares underlying vested and unvested awards). Immediately after the completion of this offering, the partners of the Alibaba Partnership will hold an additional approximately 4.3% of our then issued and outstanding ordinary shares (including unvested shares and shares underlying vested and unvested awards) not subject to the voting agreement. See “Alibaba Partnership.”

The interests of the Alibaba Partnership may conflict with your interests.

The nomination rights of the Alibaba Partnership will limit your ability to influence corporate matters, including any matters to be determined by our board of directors. The interests of the Alibaba Partnership may not coincide with your interests, and the Alibaba Partnership or its director nominees may make decisions with which you disagree, including decisions on important topics such as compensation, management succession, acquisition strategy and our business and financial strategy. For example, because the Alibaba Partnership will continue to be largely comprised of members of our management team, the Alibaba Partnership and its director nominees, consistent with our operating philosophy, may focus on the long-term interests of our ecosystem participants at the expense of our short-term financial results, which may differ from the expectations and desires



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of shareholders unaffiliated with the Alibaba Partnership. To the extent that the interests of the Alibaba Partnership differ from your interests, you may be disadvantaged by any action that the Alibaba Partnership may seek to pursue.

Our articles of association contain anti-takeover provisions that could adversely affect the rights of holders of our ordinary shares and ADSs.

Our articles of association, as we expect them to be amended and become effective upon completion of this offering, contain certain provisions that could limit the ability of third parties to acquire control of our company, including:



• a provision that grants authority to our board of directors to establish from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series;



• a provision that grants the Alibaba Partnership the right to nominate a simple majority of our board of directors notwithstanding a change of control or merger of our company; and



• a classified board with staggered terms that will prevent the replacement of a majority of directors at one time.

These provisions could have the effect of delaying, preventing or deterring a change in control, and could limit the opportunity for our shareholders to receive a premium for their ADSs, and could also materially decrease the price that some investors are willing to pay for our ADSs.

SoftBank will continue to own more than 30% of our issued and outstanding ordinary shares after the completion of this offering and its interests may differ from those of our other shareholders.

Immediately after this offering and assuming no exercise by the underwriters of their option to purchase additional ADSs, SoftBank will own approximately 32.4% of our issued and outstanding ordinary shares. Subject to certain exceptions, SoftBank has agreed to grant the voting power of any portion of its shareholding exceeding 30% of our issued and outstanding ordinary shares to Jack Ma and Joe Tsai by proxy. Under the terms of the voting agreement we expect to enter into, SoftBank will also have the right to nominate one member of our board of directors, and Yahoo, Jack and Joe will agree to vote their shares (including shares for which they have voting power) in favor of the SoftBank director nominees at each annual general shareholders meeting in which the SoftBank nominee stands for election until such time as SoftBank holds less than 15% of our outstanding ordinary shares. SoftBank’s director nomination right will also be reflected in our amended articles of association that will become effective upon completion of this offering. Except with regard to shareholder votes relating to the Alibaba Partnership director nominees, SoftBank will have significant influence over the outcome of matters that require shareholder votes and accordingly over our business and corporate matters. SoftBank may exercise its shareholder rights in a way that it believes is in its best interest, which may conflict with the interest of our other shareholders. These actions may be taken even if SoftBank is opposed by our other shareholders, including those who purchase ADSs in this offering.

For more information, see “Related Party Transactions — Transactions and Agreements with Yahoo and SoftBank — Voting Agreement.”

If the PRC government deems that the contractual arrangements in relation to our variable interest entities do not comply with PRC governmental restrictions on foreign investment, or if these regulations or the interpretation of existing regulations changes in the future, we could be subject to penalties or be forced to relinquish our interests in those operations.

Foreign ownership of certain types of Internet businesses, such as Internet information services, is subject to restrictions under applicable PRC laws, rules and regulations. For example, foreign investors are generally not



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permitted to own more than 50% of the equity interests in a value-added telecommunication service provider. Any such foreign investor must also have experience and a good track record in providing value-added telecommunications services overseas.

While the significant majority of our revenue was generated by our wholly-foreign owned enterprises in fiscal year 2014, we provide Internet information services in China, which are critical to our business, through a number of PRC incorporated variable interest entities. The variable interest entities are owned by PRC citizens who are our founders or senior employees or by PRC entities owned by such PRC citizens, or the variable interest entity equity holders, with whom we have contractual arrangements, or the contractual arrangements. The contractual arrangements give us effective control over each of the variable interest entities and enable us to obtain substantially all of the economic benefits arising from the variable interest entities as well as consolidate the financial results of the variable interest entities in our results of operations. Although the structure we have adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future.

In the opinion of Fangda Partners, our PRC counsel, the ownership structures of our material wholly-foreign owned enterprises and our material variable interest entities in China, both currently and immediately after giving effect to this offering, do not and will not violate any applicable PRC law, regulation or rule currently in effect; and the contractual arrangements between our material wholly-foreign owned enterprises, our material variable interest entities and their respective equity holders governed by PRC law are valid, binding and enforceable in accordance with their terms and applicable PRC laws and regulations currently in effect and will not violate any applicable PRC law, rule or regulation currently in effect. However, Fangda Partners has also advised us that there are substantial uncertainties regarding the interpretation and application of current PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities and PRC courts may in the future take a view that is contrary to the opinion of our PRC legal counsel.

It is uncertain whether any new PRC laws, rules or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we or any of our variable interest entities are found to be in violation of any existing or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including revoking the business and operating licenses of our PRC subsidiaries or the variable interest entities, requiring us to discontinue or restrict our operations, restricting our right to collect revenue, blocking one or more of our websites, requiring us to restructure our operations or taking other regulatory or enforcement actions against us. The imposition of any of these measures could result in a material adverse effect on our ability to conduct all or any portion of our business operations. In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results of any of our variable interest entities in our consolidated financial statements, if the PRC government authorities were to find our legal structure and contractual arrangements to be in violation of PRC laws, rules and regulations. If the imposition of any of these government actions causes us to lose our right to direct the activities of any of our material variable interest entities or otherwise separate from any of these entities and if we are not able to restructure our ownership structure and operations in a satisfactory manner, we would no longer be able to consolidate the financial results of our variable interest entities in our consolidated financial statements. Any of these events would have a material adverse effect on our business, financial condition and results of operations.

Our contractual arrangements may not be as effective in providing control over the variable interest entities as direct ownership.

We rely on contractual arrangements with our variable interest entities to operate part of our Internet businesses in China and other businesses in which foreign investment is restricted or prohibited. For a description of these contractual arrangements, see “Our History and Corporate Structure — Contractual Arrangements



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among Our Wholly-foreign Owned Enterprises, Variable Interest Entities and the Variable Interest Entity Equity Holders.” These contractual arrangements may not be as effective as direct ownership in providing us with control over our variable interest entities.

If we had direct ownership of the variable interest entities, we would be able to exercise our rights as an equity holder directly to effect changes in the boards of directors of those entities, which could effect changes at the management and operational level. Under our contractual arrangements, we may not be able to directly change the members of the boards of directors of these entities and would have to rely on the variable interest entities and the variable interest entity equity holders to perform their obligations in order to exercise our control over the variable interest entities. The variable interest entity equity holders may have conflicts of interest with us or our shareholders, and they may not act in the best interests of our company or may not perform their obligations under these contracts. For example, our variable interest entities and their respective equity holders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our websites and using our domain names and trademarks which the relevant variable interest entities have exclusive rights to use, in an acceptable manner or taking other actions that are detrimental to our interests. Pursuant to the call option, we may replace the equity holders of the variable interest entities at any time pursuant to the contractual arrangements. However, if any equity holder is uncooperative and any dispute relating to these contracts or the replacement of the equity holders remains unresolved, we will have to enforce our rights under the contractual arrangements through the operations of PRC law and arbitral or judicial agencies, which may be costly and time-consuming and will be subject to uncertainties in the PRC legal system. See “— Any failure by our variable interest entities or their equity holders to perform their obligations under the contractual arrangements would have a material adverse effect on our business, financial condition and results of operations.” Consequently, the contractual arrangements may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership.

Any failure by our variable interest entities or their equity holders to perform their obligations under the contractual arrangements would have a material adverse effect on our business, financial condition and results of operations.

If our variable interest entities or their equity holders fail to perform their respective obligations under the contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. Although we have entered into call option agreements in relation to each variable interest entity, which provide that we may exercise an option to acquire, or nominate a person to acquire, ownership of the equity in that entity or, in some cases, its assets, to the extent permitted by applicable PRC laws, rules and regulations, the exercise of these call options is subject to the review and approval of the relevant PRC governmental authorities. We have also entered into equity pledge agreements with respect to each variable interest entity to secure certain obligations of such variable interest entity or its equity holders to us under the contractual arrangements. However, the enforcement of such agreements through arbitral or judicial agencies may be costly and time-consuming and will be subject to uncertainties in the PRC legal system. Moreover, our remedies under the equity pledge agreements are primarily intended to help us collect debts owed to us by the variable interest entities or the variable interest entity equity holders under the contractual arrangements and may not help us in acquiring the assets or equity of the variable interest entities.

In addition, although the terms of the contractual arrangements provide that they will be binding on the successors of the variable interest entity equity holders, as those successors are not a party to the agreements, it is uncertain whether the successors in case of the death, bankruptcy or divorce of a variable interest entity equity holder will be subject to or will be willing to honor the obligations of such variable interest entity equity holder under the contractual arrangements. If the relevant variable interest entity or its equity holder (or its successor), as applicable, fails to transfer the shares of the variable interest entity according to the respective call option agreement or equity pledge agreement, we would need to enforce our rights under the call option agreement or equity pledge agreement, which may be costly and time-consuming and may not be successful.



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The contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration or court proceedings in China. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States. Moreover, there are very few precedents and little formal guidance as to how contractual arrangements in the context of a variable interest entity should be interpreted or enforced under PRC law, and as a result it may be difficult to predict how an arbitration panel or court would view such contractual arrangements. As a result, uncertainties in the PRC legal system could limit our ability to enforce the contractual arrangements. Under PRC law, if the losing parties fail to carry out the arbitration awards or court judgments within a prescribed time limit, the prevailing parties may only enforce the arbitration awards or court judgments in PRC courts, which would require additional expense and delay. In the event we are unable to enforce the contractual arrangements, we may not be able to exert effective control over the variable interest entities, and our ability to conduct our business, as well as our financial condition and results of operations, may be materially and adversely affected.

We may lose the ability to use, or otherwise benefit from, the licenses, approvals and assets held by our variable interest entities, which could severely disrupt our business, render us unable to conduct some or all of our business operations and constrain our growth.

Although the significant majority of our revenues are generated, and the significant majority of our operational assets are held, by our wholly-foreign owned enterprises, which are our subsidiaries, our variable interest entities hold licenses and approvals and assets that are necessary for our business operations, as well as equity interests in a series of our portfolio companies, to which foreign investments are typically restricted or prohibited under applicable PRC law. The contractual arrangements contain terms that specifically obligate variable interest entity equity holders to ensure the valid existence of the variable interest entities and restrict the disposal of material assets of the variable interest entities. However, in the event the variable interest entity equity holders breach the terms of these contractual arrangements and voluntarily liquidate our variable interest entities, or any of our variable interest entities declares bankruptcy and all or part of its assets become subject to liens or rights of third-party creditors, or are otherwise disposed of without our consent, we may be unable to conduct some or all of our business operations or otherwise benefit from the assets held by the variable interest entities, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, if any of our variable interest entities undergoes a voluntary or involuntary liquidation proceeding, its equity holders or unrelated third-party creditors may claim rights to some or all of the assets of such variable interest entity, thereby hindering our ability to operate our business as well as constrain our growth.

The equity holders, directors and executive officers of the variable interest entities, as well as our employees who execute other strategic initiatives may have potential conflicts of interest with our company.

PRC laws provide that a director and an executive officer owes a fiduciary duty to the company he or she directs or manages. The directors and executive officers of the variable interest entities, including Jack Ma, our lead founder and executive chairman, must act in good faith and in the best interests of the variable interest entities and must not use their respective positions for personal gain. On the other hand, as a director of our company, Jack has a duty of care and loyalty to our company and to our shareholders as a whole under Cayman Islands law. We control our variable interest entities through contractual arrangements and the business and operations of our variable interest entities are closely integrated with the business and operations of our subsidiaries. Nonetheless, conflicts of interests for these individuals may arise due to dual roles both as directors and executive officers of the variable interest entities and as directors or employees of our company, and may also arise due to dual roles both as variable interest entity equity holders and as directors or employees of our company.

We cannot assure you that these individuals will always act in the best interests of our company should any conflicts of interest arise, or that any conflicts of interest will always be resolved in our favor. We also cannot assure you that these individuals will ensure that the variable interest entities will not breach the existing



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contractual arrangements. If we cannot resolve any such conflicts of interest or any related disputes, we would have to rely on legal proceedings to resolve these disputes and/or take enforcement action under the contractual arrangements. There is substantial uncertainty as to the outcome of any such legal proceedings. See “— Any failure by our variable interest entities or their equity holders to perform their obligations under the contractual arrangements would have a material and adverse effect on our business, financial condition and results of operations.”

In addition, we entered into a full recourse loan with aggregate principal amount of RMB6.5 billion with Simon Xie, who is one of our founders, a vice president on our China investment team and an equity holder in certain of our variable interest entities, to finance a minority investment in Wasu by a PRC limited partnership. A company controlled by Jack Ma serves as one of the general partners of this PRC limited partnership. Yuzhu Shi, the founder, chairman and a principal shareholder of Giant Interactive, a China-based online game company that was previously listed on the New York Stock Exchange, and who is also an entrepreneur with significant experience in and knowledge of the media industry in China, serves as the other general partner. Jack, through his control of one of the general partners, and Mr. Shi, as the other general partner and the executive partner, jointly control this PRC limited partnership. Jack’s economic interest is limited to a return of his RMB99,000 capital contribution to the general partner. The proposed financing facilitates our entering into strategic business arrangements with Wasu to pursue our strategy of expanding digital media offerings to our customers. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Investment, Acquisition and Strategic Alliance Activities — Digital Media and Entertainment — Wasu” and “Related Party Transactions — Loan Arrangement with a Related Party.”

We cannot assure you that Jack Ma or Simon Xie will act in our interest given Jack’s ability to control one of the general partners of the PRC limited partnership that is expected to invest in Wasu and Simon’s economic interests as a limited partner of the PRC limited partnership that is expected to invest in Wasu, respectively, nor can we assure you that they will not breach their respective obligations to us as our director and executive officer, in the case of Jack, or as our employee, in the case of Simon, including their respective obligations not to compete with us pursuant to the terms of their employment agreements. In addition, the interests of Mr. Shi, as an independent third party, may not coincide with those of Jack as the other general partner in the PRC partnership that will make the investment, or with our interests in pursuing our digital entertainment strategy. If any such conflicts arise between Jack and Mr. Shi in conducting the business of the PRC partnership, it could potentially have a material adverse effect on our relationship with the shareholder of Wasu and, consequently, on our ability to achieve the strategic objectives of our alliance with Wasu. Furthermore, there is no assurance that Simon will have sufficient resources to repay the loan in a timely manner or at all. The loan will be collateralized by Simon’s equity interest in the PRC limited partnership and by the shares of Wasu that will be held by such PRC limited partnership, However, if Simon fails to repay the loan, our enforcement of such secured interests could be costly and time-consuming and would be subject to the uncertainties in the PRC legal system.

The contractual arrangements with our variable interest entities may be subject to scrutiny by the PRC tax authorities. Any adjustment of related party transaction pricing could lead to additional taxes, and therefore substantially reduce our consolidated net income and the value of your investment.

The tax regime in China is rapidly evolving and there is significant uncertainty for taxpayers in China as PRC tax laws may be interpreted in significantly different ways. The PRC tax authorities may assert that we or our subsidiaries or the variable interest entities or their equity holders owe and/or are required to pay additional taxes on previous or future revenue or income. In particular, under applicable PRC laws, rules and regulations, arrangements and transactions among related parties, such as the contractual arrangements with our variable interest entities, may be subject to audit or challenge by the PRC tax authorities. If the PRC tax authorities determine that any contractual arrangements were not entered into on an arm’s length basis and therefore constitute a favorable transfer pricing, the PRC tax liabilities of the relevant subsidiaries and/or variable interest entities and/or variable interest entity equity holders could be increased, which could increase our overall tax liabilities. In addition, the PRC tax authorities may impose late payment interest. Our net income may be materially reduced if our tax liabilities increase.



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Risks Related to Doing Business in the People’s Republic of China

Changes in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.

Most of our operations are conducted in the PRC and substantially all of our revenue is sourced from the PRC. Accordingly, our financial condition and results of operations are affected to a significant extent by economic, political and legal developments in the PRC.

The PRC economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth by allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, regulating financial services and institutions and providing preferential treatment to particular industries or companies.

While the PRC economy has experienced significant growth in the past three decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but may also have a negative effect on us. Our financial condition and results of operation could be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. In addition, the PRC government has implemented in the past certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity, which in turn could lead to a reduction in demand for our services and consequently have a material adverse effect on our businesses, financial condition and results of operations.

There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.

Most of our operations are conducted in the PRC, and are governed by PRC laws, rules and regulations. Our PRC subsidiaries are subject to laws, rules and regulations applicable to foreign investment in China. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions may be cited for reference but have limited precedential value.

In 1979, the PRC government began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies. In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until after the occurrence of the violation.

Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC administrative and court authorities have



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significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially and adversely affect our business, financial condition and results of operations.

Any requirement to obtain prior approval under the M&A Rules and/or any other regulations promulgated by relevant PRC regulatory agencies in the future could delay this offering and failure to obtain any such approvals, if required, could have a material adverse effect on our business, operating results and reputation as well as the trading price of our ADSs, and could also create uncertainties for this offering.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, or the MOFCOM, the State-Owned Assets Supervision and Administration Commission, or the SASAC, the State Administration of Taxation, the SAIC, the China Securities Regulatory Commission, or the CSRC, and the State Administration of Foreign Exchange, or SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles.

While the application of the M&A Rules remains unclear, we believe, based on the advice of our PRC counsel, Fangda Partners, that the CSRC approval is not required in the context of this offering because our first foreign invested enterprise was established in 1999, long before the adoption of M&A Rules; and we did not acquire any equity interests or assets of a PRC company owned by our controlling shareholders or beneficial owners who are PRC companies or individuals, as defined under the M&A Rules. However, we cannot assure you that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory body subsequently determines that we need to obtain the CSRC’s approval for this offering or if the CSRC or any other PRC government authorities promulgates any interpretation or implements rules before our listing that would require us to obtain CSRC or other governmental approvals for this offering, we may face adverse actions or sanctions by the CSRC or other PRC regulatory agencies. In any such event, these regulatory agencies may impose fines and penalties on our operations in China, limit our operating privileges in China, delay or restrict the repatriation of the proceeds from this offering into the PRC or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as our ability to complete this offering. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered by this prospectus. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery may not occur. See “Regulation — M&A Rules and Overseas Listings.”

PRC regulations regarding acquisitions impose significant regulatory approval and review requirements, which could make it more difficult for us to pursue growth through acquisitions.

Under the PRC Anti-Monopoly Law, companies undertaking acquisitions relating to businesses in China must notify MOFCOM in advance of any transaction where the parties’ revenues in the China market exceed certain thresholds and the buyer would obtain control of, or decisive influence over, the target, while under the M&A Rules, the approval of MOFCOM must be obtained in circumstances where overseas companies established or controlled by PRC enterprises or residents acquire domestic companies affiliated with such PRC enterprises or residents. Applicable PRC laws, rules and regulations also require certain merger and acquisition transactions to be subject to security review. Due to the level of our revenues, our proposed acquisition of control of, or decisive influence over, any company with revenues within China of more than RMB400 million in the



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year prior to any proposed acquisition would be subject to MOFCOM merger control review. As a result of our size, many of the transactions we may undertake could be subject to MOFCOM merger review. Complying with the requirements of the relevant regulations to complete such transactions could be time-consuming, and any required approval processes, including approval from MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. In addition, MOFCOM has not accepted antitrust filings for any transaction involving parties that adopt a variable interest entity structure. If MOFCOM’s practice remains unchanged, our ability to carry out our investment and acquisition strategy may be materially and adversely affected and there may be significant uncertainty as to whether we will be able to complete large acquisitions in the future in a timely manner or at all.

PRC regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries or limit our PRC subsidiaries’ ability to increase their registered capital or distribute profits.

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation, and we have periodically filed SAFE Circular 75 reports prior to the promulgation of SAFE Circular 37 on behalf of certain employee shareholders who we know are PRC residents. However, we may not be aware of the identities of all of our beneficial owners who are PRC residents. We do not have control over our beneficial owners and cannot assure you that all of our PRC-resident beneficial owners will comply with SAFE Circular 37 and subsequent implementation rules. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant to SAFE Circular 37 and subsequent implementation rules, or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 and subsequent implementation rules, may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Furthermore, since SAFE Circular 37 was recently promulgated and it is unclear how this regulation, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant PRC government authorities, we cannot predict how these regulations will affect our business operations or future strategy. Failure to register or comply with relevant requirements may also limit our ability to contribute additional capital to our PRC subsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to our company. These risks may have a material adverse effect on our business, financial condition and results of operations.



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Any failure to comply with PRC regulations regarding our employee equity incentive plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. Our directors, executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who have been granted restricted shares, RSUs or options may follow SAFE Circular 37 to apply for the foreign exchange registration before our company becomes an overseas listed company. After our company becomes an overseas listed company upon completion of this offering, we and our directors, executive officers and other employees who are PRC citizens or who have resided in the PRC for a continuous period of not less than one year and who have been granted restricted shares, RSUs or options will be subject to the Notice on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly Listed Company, issued by SAFE in February 2012, according to which, employees, directors, supervisors and other management members participating in any stock incentive plan of an overseas publicly listed company who are PRC citizens or who are non-PRC citizens residing in China for a continuous period of not less than one year, subject to limited exceptions, are required to register with SAFE through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certain other procedures. Failure to complete the SAFE registrations may subject them to fines and legal sanctions and may also limit the ability to make payment under our equity incentive plans or receive dividends or sales proceeds related thereto, or our ability to contribute additional capital into our wholly-foreign owned enterprises in China and limit our wholly-foreign owned enterprises’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our ability to adopt additional equity incentive plans for our directors and employees under PRC law.

In addition, the State Administration for Taxation has issued circulars concerning employee share options or restricted shares. Under these circulars, employees working in the PRC who exercise share options, or whose restricted shares or RSUs vest, will be subject to PRC individual income tax. The PRC subsidiaries of an overseas listed company have obligations to file documents related to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees related to their share options, restricted shares or RSUs. Although we currently withhold income tax from our PRC employees in connection with their exercise of options and the vesting of their restricted shares and RSUs, if the employees fail to pay, or the PRC subsidiaries fail to withhold, their income taxes according to relevant laws, rules and regulations, the PRC subsidiaries may face sanctions imposed by the tax authorities or other PRC government authorities.

We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financing requirements.

We are a holding company and rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries and on remittances from the variable interest entities, for our offshore cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, fund inter-company loans, service any debt we may incur outside of China and pay our expenses. The terms of our US$8.0 billion credit facility require us to maintain a minimum level of cash in a debt service reserve account, which will not be available to us to fund any dividends or other distributions. Such minimum amount is based on the amount to make required principal and interest payments that are due within a three-month period, as determined from time to time. As of March 31, 2014, this amount was RMB209 million (US$34 million). When our principal operating subsidiaries or the variable interest entities incur additional debt, the instruments governing the debt may restrict their ability to pay dividends or make other distributions or remittances to us. Furthermore, the laws, rules and regulations applicable to our PRC subsidiaries and certain other subsidiaries permit payments of dividends only out of their retained earnings, if any, determined in accordance with applicable accounting standards and regulations.



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Under PRC laws, rules and regulations, each of our subsidiaries incorporated in China is required to set aside a portion of its net income each year to fund certain statutory reserves. These reserves, together with the registered equity, are not distributable as cash dividends. As a result of these laws, rules and regulations, our subsidiaries incorporated in China are restricted in their ability to transfer a portion of their respective net assets to their shareholders as dividends. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. As of March 31, 2014, these restricted assets totaled RMB18,943 million (US$3,054 million).

Limitations on the ability of the variable interest entities to make remittance to the wholly-foreign owned enterprises to pay dividends to us could limit our ability to access cash generated by the operations of those entities, including to make investments or acquisitions that could be beneficial to our businesses, pay dividends to our shareholders or otherwise fund and conduct our business.

The services conducted by our wholly-foreign owned enterprises might be regarded as a form of online advertising or as part of services requiring an Internet content provider license or other licenses and subjecting us to other laws, rules and regulations as well as increased taxes.

Our pay-for-performance, or P4P, services and other related services are currently not classified as a form of online advertising in China or as part of services requiring an ICP license or other licenses. We conduct our P4P and other related business through our wholly-foreign owned enterprises in the PRC, which are not qualified to operate an online advertising business and do not hold an ICP license. However, we cannot assure you that the PRC government will not classify our P4P and other related services as a form of online advertising or as part of services requiring an ICP license or other licenses in the future. If new regulations characterize our P4P and other related services as a form of online advertising or as part of ICP services requiring an ICP license or other licenses, we may have to conduct our P4P business through the variable interest entities, which are qualified to operate online advertising business and hold ICP or other licenses.

If we conducted our P4P business through the variable interest entities, we may face increased scrutiny from the tax authorities and may incur additional taxes on any services fees paid by the variable interest entities to the wholly-foreign owned enterprises. In addition, advertising services are subject to a cultural construction fee under PRC law, which is a 3% surcharge in addition to the applicable business tax or value-added tax. If our P4P and other related services were to be considered a form of online advertising, our revenue from those services would be subject to the 3% surcharge. If that were to occur, our margins would decline and our net income could be reduced. In addition, the substantial revenue streams attributable to our P4P services would then be derived from variable interest entities and subject to the risks associated with the variable interest entities as well as higher average corporate income tax rates. If the change in classification of our P4P and other related services were to be retroactively applied, we might be subject to sanctions, including payment of delinquent taxes and fines.

Moreover, PRC advertising laws, rules and regulations require advertisers, advertising operators and advertising distributors to ensure that the content of the advertisements they prepare or distribute is fair and accurate and is in full compliance with applicable law. Violation of these laws, rules or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke a violator’s license for operating an advertising business.

In addition, for advertising content related to specific types of products and services, advertisers, advertising operators and advertising distributors must confirm that the advertisers have obtained requisite government approvals, including the advertiser’s operating qualifications, proof of quality inspection of the advertised products, government pre-approval of the contents of the advertisement and filing with the local authorities. If we become subject to PRC advertising laws, we would need to take steps to monitor, and to ensure that our third-party marketing affiliates monitor, the content of any advertisements displayed on our platforms. This could



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require considerable resources and time, and could significantly affect the operation of our business, while also subjecting us to increased liability under the relevant laws, rules and regulations. The costs associated with complying with such laws, rules and regulations, including any penalties or fines for our failure to so comply if required, could have a material adverse effect on our business, financial condition and results of operations. Any change in the classification of our P4P and other related services by the PRC government may also significantly disrupt our operations and materially and adversely affect our business and prospects.

We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC income tax on our global income.

Under the PRC Enterprise Income Tax Law and its implementing rules, both of which came into effect on January 1, 2008, enterprises established under the laws of jurisdictions outside of China with “de facto management bodies” located in China may be considered PRC tax resident enterprises for tax purposes and may be subject to the PRC enterprise income tax at the rate of 25% on their global income. “De facto management body” refers to a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise. The State Administration of Taxation issued the Notice Regarding the Determination of Chinese-Controlled Offshore-Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a Chinese-controlled offshore-incorporated enterprise is located in China. Although Circular 82 only applies to offshore enterprises controlled by PRC enterprises, not those controlled by foreign enterprises or individuals, the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises. Currently, we generate only a small portion of our revenues offshore. However, if this proportion were to increase and if we were to be considered a PRC resident enterprise, we would be subject to PRC enterprise income tax at the rate of 25% on our global income. In such case, our profitability and cash flow may be materially reduced as a result of our global income being taxed under the Enterprise Income Tax Law. We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”

Dividends payable to our foreign investors and gains on the sale of our ADSs or ordinary shares by our foreign investors may become subject to PRC tax law.

Under the Enterprise Income Tax Law and its implementation regulations issued by the State Council, a 10% PRC withholding tax is applicable to dividends payable to investors that are non-resident enterprises, which do not have an establishment or place of business in the PRC or which have such establishment or place of business but the dividends are not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC. Similarly, any gain realized on the transfer of ADSs or ordinary shares by such investors is also subject to PRC tax at a current rate of 10%, subject to any reduction or exemption set forth in relevant tax treaties, if such gain is regarded as income derived from sources within the PRC. If we are deemed a PRC resident enterprise, dividends paid on our ordinary shares or ADSs, and any gain realized from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and would as a result be subject to PRC taxation. See “Regulation — Regulations on Tax.” Furthermore, if we are deemed a PRC resident enterprise, dividends payable to individual investors who are non-PRC residents and any gain realized on the transfer of ADSs or ordinary shares by such investors may be subject to PRC tax at a current rate of 20%, subject to any reduction or exemption set forth in applicable tax treaties. It is unclear whether if we or any of our subsidiaries established outside China are considered a PRC resident enterprise, holders of our ADSs or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. If dividends payable to our non-



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PRC investors, or gains from the transfer of our ADSs or ordinary shares by such investors are subject to PRC tax, the value of your investment in our ADSs or ordinary shares may decline significantly.

Discontinuation of preferential tax treatments we currently enjoy or other unfavorable changes in tax law could result in additional compliance obligations and costs.

Operating in the high-technology and software industry, a number of our China operating entities enjoy various types of preferential tax treatment according to the prevailing PRC tax laws. Our PRC subsidiaries may, if they meet the relevant requirements, qualify for three main types of preferential treatment, which are high and new technology enterprises specially supported by the PRC, software enterprises and key software enterprises within the scope of the PRC national plan.

For a qualified high and new technology enterprise, the applicable enterprise income tax rate is 15%. The high and new technology enterprise qualification is re-assessed by the relevant authorities every three years. Moreover, a qualified software enterprise is entitled to a tax holiday consisting of a two-year tax exemption beginning with the first profit-making calendar year and a 50% tax reduction for the subsequent three years. The software enterprise qualification is subject to an annual assessment. For a qualified key software enterprise within the scope of the PRC national plan, the applicable enterprise income tax rate for a calendar year is 10%. The key software enterprise qualification is subject to an assessment every two years. Our effective tax rate in fiscal year 2014 was 11.9%. The discontinuation of any of the various types of preferential tax treatment we enjoy could materially and adversely affect our results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operation — Taxation — People’s Republic of China Taxation.”

We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or Circular 698, issued by the State Administration of Taxation, on December 10, 2009 with retroactive effect from January 1, 2008, where a non-resident enterprise conducts an “indirect transfer” by transferring the equity interests of a PRC resident enterprise indirectly via disposing of the equity interests of an overseas holding company, and such overseas holding company is located in a tax jurisdiction that: (1) has an effective tax rate less than 12.5%; or (2) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, shall report to the relevant tax authority of the PRC resident enterprise such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, currently at a rate of 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction. Circular 698 currently does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock exchange.

There is uncertainty as to the application of Circular 698. For example, while the term “indirect transfer” is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. The relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax rates in foreign tax jurisdictions, and the process and format of the reporting of an indirect transfer to the relevant tax authority of the PRC resident enterprise. In addition, there have not been any formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement in order to avoid PRC tax. Circular 698 may be determined by the tax authorities to be applicable to our offshore restructuring transactions or sale of the shares of our offshore subsidiaries where non-resident enterprises, being the transferors, were



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involved. The PRC tax authorities may pursue such non-resident enterprises with respect to a filing regarding the transactions and request our PRC subsidiaries to assist in the filing. As a result, we and our non-resident enterprises in such transactions may become at risk of being subject to filing obligations or being taxed under Circular 698, and may be required to expend valuable resources to comply with Circular 698 or to establish that we and our non-resident enterprises should not be taxed under Circular 698, for our previous and future restructuring or disposal of shares of our offshore subsidiaries, which may have a material adverse effect on our financial condition and results of operations.

Restrictions on currency exchange may limit our ability to utilize our revenue effectively.

Substantially all of our revenue is denominated in Renminbi. The Renminbi is currently convertible under the “current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital account,” which includes foreign direct investment and loans, including loans we may secure from our onshore subsidiaries or variable interest entities. Currently, our PRC subsidiaries, which are wholly-foreign owned enterprises, may purchase foreign currency for settlement of “current account transactions,” including payment of dividends to us, without the approval of SAFE by complying with certain procedural requirements. However, the relevant PRC governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of our future revenue will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to fund our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of our ADSs. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our subsidiaries and the variable interest entities.

Fluctuations in exchange rates could result in foreign currency exchange losses and could materially reduce the value of your investment.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the RMB and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the RMB to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. In April 2012, the PRC government announced that it would allow more RMB exchange rate fluctuation. However, it remains unclear how this announcement might be implemented. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the Renminbi against the U.S. dollar. Substantially all of our revenues and costs are denominated in Renminbi, and a significant portion of our financial assets are also denominated in Renminbi while a significant portion of our debt is denominated in U.S. dollars. We are a holding company and we rely on dividends paid by our operating subsidiaries in China for our cash needs. Any significant revaluation of the Renminbi may materially reduce any dividends payable on, our ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we receive from this offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount we would receive.



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The audit report included in this prospectus is prepared by auditors who are not inspected fully by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

As an auditor of companies that are publicly traded in the United States and a firm registered with the Public Company Accounting Oversight Board, or PCAOB, PricewaterhouseCoopers is required under the laws of the United States to undergo regular inspections by the PCAOB. However, because we have substantial operations within the People’s Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities, our auditor and its audit work is not currently inspected fully by the PCAOB.

Inspections of other auditors conducted by the PCAOB outside of China have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of audit work undertaken in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, shareholders may be deprived of the benefits of PCAOB inspections, and may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Proceedings instituted by the SEC against five PRC-based accounting firms, including the affiliate of our independent registered public accounting firm, and/or any related adverse regulatory development in the PRC, could result in our financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the mainland Chinese affiliates of the “big four” accounting firms, including the affiliate of our auditor, and also against Dahua, the former BDO affiliate in China. The Rule 102(e) proceedings initiated by the SEC relate to the failure of these firms to produce documents, including audit work papers, in response to the request of the SEC pursuant to Section 106 of the Sarbanes-Oxley Act of 2002, as the auditors located in China are not in a position lawfully to produce documents directly to the SEC because of restrictions under PRC law and specific directives issued by the CSRC. The issues raised by the proceedings are not specific to the Chinese affiliate of our auditor or to us, but potentially affect equally all PCAOB-registered audit firms based in China and all businesses based in China (or with substantial operations in China) with securities listed in the United States. In addition, auditors based outside of China are subject to similar restrictions under PRC law and CSRC directives in respect of audit work that is carried out in China which supports the audit opinions issued on financial statements of entities with substantial China operations.

In January 2014, the administrative judge reached an initial decision that the China-based affiliates of the “big four” accounting firms should be barred from practicing before the SEC for a period of six months. However, it is currently not possible to determine the ultimate outcome of this matter as the accounting firms have filed a petition for review of the initial decision and pending that review the effect of the initial decision is suspended. It will, therefore, be for the commissioners of the SEC to make a legally binding order specifying the sanctions if any to be placed on these audit firms.

The accounting firms can further appeal the decision of the commissioners of the SEC to the U.S. Federal courts, in which case the effect of the order may be further suspended pending the outcome of the further appeal. If the affiliate of our independent registered public accounting firm were denied, temporarily, the ability to practice before the SEC, we would need to consider with our Hong Kong based auditor the alternate support arrangements they would need in their audit of our operations in China. In addition, in May 2014, PRC Ministry of Finance proposed certain draft regulations that would require auditors based outside of China, including our independent registered public accounting firm, to cooperate with mainland Chinese auditors with requisite qualifications in order to conduct audit work for mainland Chinese companies and overseas-registered companies with operating entities in mainland China. Since the proposed regulations are in draft form and the interpretation, application or enforcement of such proposed regulations
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to be adopted in their current form, our independent registered public accounting firm may need to establish appropriate arrangements with mainland Chinese auditors in order to continue to audit our financial statements, which may be difficult in light of the SEC’s administrative proceedings described above. If our auditor were unable to have alternate support or cooperation arrangements or otherwise were unable to address issues related to the production of documents pursuant to Section 106 of the Sarbanes–Oxley Act of 2002 or any adverse regulatory development in the PRC, and we were unable to timely find another independent registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined to not be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to delisting of our ADSs from the New York Stock Exchange or deregistration from the SEC, or both. Moreover, any negative news about the proceedings against these audit firms may adversely affect investor confidence in companies with substantial mainland China based operations listed in the U.S. All these would materially and adversely affect the market price of our ADSs and substantially reduce or effectively terminate the trading of our ADSs in the United States.

Risks Related to our ADSs and this Offering

An active public trading market for our ADSs and ordinary shares may not develop and the ADSs may trade below the public offering price.

Prior to this offering, there has been no public market for our ADSs or ordinary shares underlying the ADSs. The New York Stock Exchange has approved our ADSs for listing. However, a liquid public market for our ADSs may not develop. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs may be materially and adversely affected. The public offering price for our ADSs has been determined by negotiation among us and the underwriters based upon several factors, and the price at which our ADSs trade after this offering may decline below the public offering price. Investors in our ADSs may experience a significant decrease in the value of their ADSs regardless of our operating performance or prospects.

The trading prices of our ADSs is likely to be volatile, which could result in substantial losses to you.

The trading price of our ADSs is likely to be volatile and could fluctuate widely in response to a variety of factors, many of which are beyond our control. In addition, the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States may affect the volatility in the price of and trading volumes for our ADSs. Some of these companies have experienced significant volatility, including significant price declines after their initial public offerings. The trading performances of these PRC companies’ securities at the time of or after their offerings may affect the overall investor sentiment towards other PRC companies listed in the United States and consequently may impact the trading performance of our ADSs. In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons, including:



• variations in our results of operations;



• announcements about our earnings that are not in line with analyst expectations, the risk of which is enhanced because it is our policy not to give guidance on earnings;



• publication of operating or industry metrics, such as GMV, by third parties, including government statistical agencies, that differ from expectations of industry or financial analysts;



• changes in financial estimates by securities research analysts;



• announcements made by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments;



• press reports, whether or not true, about our business;



• changes in pricing made by us or our competitors;



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• conditions in the online retail market;



• additions to or departures of our management;



• fluctuations of exchange rates between the Renminbi and the U.S. dollar;



• release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs;



• sales or perceived potential sales of additional ordinary shares or ADSs;



• changes or developments in the PRC or global regulatory environment; and



• the outcome of proceedings recently instituted by the SEC against five PRC-based accounting firms, including the affiliate of our independent registered public accounting firm.

Any of these factors may result in large and sudden changes in the volume and trading price of our ADSs. In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of management, and, if adversely determined, have a material adverse effect on our financial condition and results of operations.

Substantial future sales or perceived potential sales of our ADSs, ordinary shares or other equity securities in the public market could cause the price of our ADSs to decline significantly.

Sales of our ADSs, ordinary shares or other equity securities in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline significantly. Upon completion of this offering, we will have 2,465,005,966 ordinary shares outstanding, including 320,106,100 ordinary shares represented by ADSs, assuming the underwriters do not exercise their option to purchase additional shares, of which 128,417,070 of our ordinary shares, representing 5.2% of our outstanding ordinary shares immediately after this offering, will not be subject to lock-up agreements and may be freely converted into ADSs after this offering from time to time. All ADSs representing our ordinary shares sold in this offering will be freely transferable by persons other than our “affiliates” without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. The ordinary shares outstanding after this offering will be available for sale, upon the expiration of the lock-up periods described elsewhere in this prospectus beginning from the date of this prospectus (if applicable to such holder), subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act. Any or all of these shares may be released prior to the expiration of the applicable lock-up period at the discretion of one of the designated representatives. To the extent shares are released before the expiration of the applicable lock-up period and sold into the market, the market price of our ADSs could decline significantly. See “Shares Eligible for Future Sale — Lock-up Agreements.”

Certain major holders of our ordinary shares will have the right to cause us to register under the Securities Act the sale of their shares, subject to the applicable lock-up periods in connection with this offering. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline significantly.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our ADSs and trading volume could decline.

It is our policy not to offer guidance on earnings. The trading market for our ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our ADSs or publishes inaccurate or unfavorable research about our business, the market price for our ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish



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reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our ADSs to decline significantly.

As a foreign private issuer, we are permitted to, and we will, rely on exemptions from certain New York Stock Exchange corporate governance standards applicable to domestic U.S. issuers. This may afford less protection to holders of our ordinary shares and the ADSs.

We are exempted from certain corporate governance requirements of the New York Stock Exchange by virtue of being a foreign private issuer. We are required to provide a brief description of the significant differences between our corporate governance practices and the corporate governance practices required to be followed by domestic U.S. companies listed on the New York Stock Exchange. The standards applicable to us are considerably different than the standards applied to domestic U.S. issuers. For instance, we are not required to:



• have a majority of the board be independent (although all of the members of the audit committee must be independent under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act);



• have a compensation committee or a nominating or corporate governance committee consisting entirely of independent directors;



• have regularly scheduled executive sessions with only independent directors; or



• have executive sessions of solely independent directors each year.

We have relied on and intend to continue to rely on some of these exemptions. As a result, you may not be provided with the benefits of certain corporate governance requirements of the New York Stock Exchange.

As a foreign private issuer, we are exempt from certain disclosure requirements under the Exchange Act, which may afford less protection to our shareholders than they would enjoy if we were a domestic U.S. company.

As a foreign private issuer, we are exempt from, among other things, the rules prescribing the furnishing and content of proxy statements under the Exchange Act. In addition, our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit and recovery provisions contained in Section 16 of the Exchange Act. We are also not required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as domestic U.S. companies with securities registered under the Exchange Act. As a result, our shareholders may be afforded less protection than they would under the Exchange Act rules applicable to domestic U.S. companies.

If and when permitted by law, we may conduct a public offering and listing of our shares in China, which may result in increased regulatory scrutiny and compliance costs as well as increased fluctuations in the prices of our ordinary shares and ADSs listed in overseas markets.

Although not currently allowed under PRC law, if and when permitted by law, we may conduct a public offering and listing of our shares on a stock exchange in China in the future. We have not set a specific timetable or decided on any specific form for an offering in China. The precise timing of the offering and listing of our shares in China would depend on a number of factors, including relevant regulatory developments and market conditions. If we complete a public offering in China, we would become subject to the applicable laws, rules and regulations governing public companies listed in China, in addition to the various laws, rules and regulations that we will be subject to in the United States following the completion of this offering. The listing and trading of our securities in multiple jurisdictions and multiple markets may lead to increased compliance costs for us, and we may face the risk of significant intervention by regulatory authorities in these jurisdictions and markets.



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In addition, under current PRC laws, rules and regulations, our ordinary shares will not be interchangeable or fungible with any shares we may decide to list on a PRC stock exchange, and there is no trading or settlement between these markets in the United States and mainland China. Furthermore, these two markets have different trading characteristics and investor bases, including different levels of retail and institutional participation. As a result of these differences, the trading prices of our ADSs, accounting for the share-to-ADS ratio, may not be the same as the trading prices of any shares we may decide to list on a PRC stock exchange. The issuance of a separate class of shares and fluctuations in its trading price may also lead to increased volatility in, and may otherwise materially decrease, the prices of our ordinary shares and ADSs.

As the public offering price is substantially higher than our net tangible book value per ordinary share, you will incur immediate and substantial dilution.

If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately US$63.01 per ADS (assuming no exercise of outstanding options to acquire ordinary shares and no exercise of the underwriters’ option to purchase additional ADSs), representing the difference between our pro forma net tangible book value per ADS as of June 30, 2014, after giving effect to this offering, and the public offering price of US$68.00 per ADS. In addition, you will experience further dilution to the extent that our ordinary shares are issued upon the exercise of share options. All of the ordinary shares issuable upon the exercise of currently outstanding share options will be issued at a purchase price on a per ADS basis that is less than the public offering price per ADS in this offering. See “Dilution” for a more complete description of how the value of your investment in our ADSs will be diluted upon completion of this offering.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited because we are incorporated under Cayman Islands law, we conduct substantially all of our operations in China and most of our directors and all of our executive officers reside outside the United States.

We are incorporated in the Cayman Islands and conduct substantially all of our operations in China through our wholly-foreign owned enterprises and the variable interest entities. Most of our directors and all of our executive officers reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the securities laws of the United States or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States or China, although the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforcement of Civil Liabilities.”

Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and by the Companies Law (2013 Revision) and common law of the Cayman Islands. The rights of shareholders to take legal action against us and our directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which provides persuasive, but not binding, authority in a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws



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than the United States and provides significantly less protection to investors. In addition, shareholders in Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.

As a result, our public shareholders may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

Your voting rights as a holder of our ADSs are limited by the terms of the deposit agreement.

You may exercise your voting rights with respect to the ordinary shares underlying your ADSs only in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from you in the manner set forth in the deposit agreement, the depositary for our ADSs will endeavor to vote your underlying ordinary shares in accordance with these instructions. Under our articles of association, the minimum notice period required for convening a general meeting is ten days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you may not receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested.

The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for our ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not give voting instructions to the depositary, unless:



• we have failed to timely provide the depositary with our notice of meeting and related voting materials;



• we have instructed the depositary that we do not wish a discretionary proxy to be given;



• we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;



• a matter to be voted on at the meeting would have a material adverse impact on shareholders; or



• voting at the meeting is made on a show of hands.

The effect of this discretionary proxy is that, if you fail to give voting instructions to the depositary, you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence our management. Holders of our ordinary shares are not subject to this discretionary proxy.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so



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because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

You may not receive distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares that your ADSs represent. However, the depositary is not responsible for making such payments or distributions if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may materially reduce the value of your ADSs.

The requirements of being a public company may strain our resources and distract our management.

Following the completion of this offering, we will be required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements will be time-consuming and will result in increased costs to us, either or both of which could have a negative effect on our business, financial condition and results of operations.

As a public company, we will be subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual and current reports with respect to our business and financial performance. The Sarbanes-Oxley Act requires that we maintain disclosure controls and procedures and internal control over financial reporting. To improve the effectiveness of our disclosure controls and procedures and our internal control over financing reporting, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns and we will incur significant legal, accounting and other expenses that we did not have as a private company prior to this offering, which could have a material adverse effect on our business, financial condition and results of operations.

We may become a passive foreign investment company, which could result in adverse United States federal income tax consequences to United States investors.

Based on the projected composition of our income and valuation of our assets, including goodwill, we do not expect to be a passive foreign investment company, or PFIC, for our current taxable year, and we do not expect to become one in the future, although there can be no assurance in this regard. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (1) 75% or more of our gross income in a taxable year is passive income, or (2) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of our ADSs, which is subject to change. See “Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”



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Although we do not expect to be a PFIC, it is not entirely clear how the contractual arrangements between us and our variable interest entities will be treated for purposes of the PFIC rules. If it were determined that we do not own the stock of our variable interest entities for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we may be treated as a PFIC. See “Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”

If we were or were to become a PFIC, such characterization could result in adverse United States federal income tax consequences to you if you are a United States investor. For example, if we are a PFIC, our United States investors will become subject to increased tax liabilities under United States federal income tax laws and regulations and will become subject to burdensome reporting requirements. We cannot assure you that we will not be a PFIC for our current taxable year or any future taxable year. See “Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about us, our industry and the regulatory environment in which we and companies integral to our ecosystem operate. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. The forward-looking statements included in this prospectus relate to, among others:



• our growth strategies;



• our future business development, financial condition and results of operations;



• trends in online and mobile commerce, both globally and in the PRC;



• competition in our industry;



• fluctuations in general economic and business conditions in China;



• expected changes in our revenues and certain cost and expense items and our operating margins;



• the regulatory environment in which we and companies integral to our ecosystem operate;



• our proposed use of proceeds from this offering; and



• assumptions underlying or related to any of the foregoing.

The global and PRC Internet, retail, wholesale, online and mobile commerce, cloud computing and data industries market may not grow at the rates projected by market data, or at all. The failure of these industries or markets to grow at the projected rates may have a material adverse effect on our business, financial condition and results of operations and the market price of our ADSs. If any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we have referred to in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.



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OPERATING METRICS

The amount of GMV, mobile GMV, the number of active buyers, active sellers, the number of mobile monthly active users, the number of paying members on our wholesale marketplaces, among others, presented in this prospectus are based on internal company data and we use certain of these numbers in managing our business. These amounts and numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, and we take steps to improve their accuracy, such as eliminating known false or suspicious transactions and accounts. There are inherent challenges in measuring transactions conducted across large online and mobile populations. In particular:



• our metric for GMV on our China retail marketplaces includes shipping charges paid by buyers to sellers and excludes vehicle and property transactions with list prices exceeding RMB500,000 (US$80,598) and any other products or services with list prices above RMB100,000 (US$16,120), as well as transactions conducted by buyers who make purchases exceeding RMB1,000,000 (US$161,197) in the aggregate in a single day, and does not take into account how, or whether, the buyer and seller settle the transaction;



• for our metric for active buyers, although we are able to eliminate, and do not double count, buyers who use the same account to make purchases across several of our marketplaces, if an individual sets up different accounts with us, we will count each such account that makes purchases in our active buyer metrics as we are unable to prevent or accurately track such behavior;



• for our metric for active sellers, each seller account represents one storefront, and sellers may maintain more than one storefront;



• in counting the number of active buyers and active sellers, we do not take into account whether or not the buyers and sellers settle the transactions;



• we base our mobile GMV statistics on orders confirmed using our mobile apps or through our mobile WAP websites. Buyers using mobile devices may access our websites through non-mobile version of a website, and accordingly, our mobile GMV statistics may not reflect such transactions. In addition, buyers could visit our marketplaces using a mobile WAP website through a personal computer, and accordingly, those transactions would be counted within our mobile GMV metric; and



• in calculating our mobile MAUs, we only count unique mobile devices used to access our marketplaces through our mobile apps, and do not count mobile devices used to access our marketplaces through mobile WAPs.

We do not believe these factors materially affect the utility of our metrics.

We regularly review and may adjust our processes for calculating these metrics to improve their accuracy. In addition, our calculation methodology for these metrics may differ from the calculations published by third parties due to differences in methodology. In addition, we may be required by laws or regulations to submit reports on certain of our operating metrics, including GMV, to the relevant government authorities or statistical agencies. The regulators in China may require that the metrics we report to them be prepared on a standardized basis across all industry participants in China. As a result any aggregated industry data by the relevant government authorities or statistical agencies may present information at times, or in a manner, that differs from the periodic metrics we intend to publish.



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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately US$8,250 million after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

We plan to use the net proceeds we will receive from this offering for general corporate purposes.

Pending the use of net proceeds from this offering described above, we intend to invest our net proceeds in short-term, interest bearing, debt instruments or bank deposits. We currently intend to use the net proceeds from this offering outside of China, and do not expect to transfer such funds into China. However, should we determine to transfer a portion or all of the net proceeds from the offering into China, such transfer would need to be conducted in accordance with the applicable procedures and restrictions. As an offshore holding company, we must satisfy applicable PRC government registrations and approval requirements to fund the capital expenditures or working capital of our PRC subsidiaries and variable interest entities. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. Due to PRC legal restrictions on loans in foreign currencies extended to any PRC domestic companies, and because our variable interest entities are generally able to conduct business with revenues generated from their own daily operations, we do not intend to finance the activities of our PRC subsidiaries or our variable interest entities with the net proceeds we will receive from this offering.



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DIVIDEND POLICY

Since our inception, we have not declared or paid any dividends on our ordinary shares. We have no present plan to pay any dividends on our ordinary shares in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Any future determination to pay dividends will be made at the discretion of our board of directors and may be based on a number of factors, including our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Description of American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

We are a holding company incorporated in the Cayman Islands. In order for us to distribute any dividends to our shareholders and ADS holders, we rely on dividends distributed by our PRC subsidiaries. Dividend distributions from our PRC subsidiaries to us are subject to PRC taxes, such as withholding tax. In addition, regulations in the PRC currently permit payment of dividends of a PRC company only out of accumulated distributable after-tax profits as determined in accordance with its articles of association and the accounting standards and regulations in China. See “Risk Factors — Risks Related to Doing Business in the People’s Republic of China — We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financing requirements.”



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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2014 presented on:



• an actual basis;



• a pro forma basis to reflect the automatic conversion of all our outstanding convertible preference shares into 91,243,312 of our ordinary shares concurrently with the completion of this offering; and



• a pro forma as adjusted basis to give effect to (i) the automatic conversion of all our outstanding convertible preference shares into 91,243,312 of our ordinary shares concurrently with the completion of this offering and (ii) the issuance and sale of the 123,076,931 ordinary shares in the form of ADSs by us in this offering at an initial public offering price of US$68.00 per ADS, after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming no exercise of the underwriters’ option to purchase additional ADSs.

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.




As of June 30, 2014
Actual Pro forma Pro forma as adjusted(1)
RMB US$ RMB US$ RMB US$
(in millions, except for share
and per share data)

Long term debt


Non-current bank borrowings
49,033 7,904 49,033 7,904 49,033 7,904


























Total long term debt
49,033 7,904 49,033 7,904 49,033 7,904


























Mezzanine equity


Convertible preference shares, US$0.000025 par value; 2,600,000 shares authorized; 1,688,000 shares issued and outstanding
10,345 1,668 — — — —

Others
113 18 113 18 113 18


























Total mezzanine equity
10,458 1,686 113 18 113 18


























Alibaba Group Holding Limited shareholders’ equity


Ordinary shares, US$0.000025 par value;(1) 2,797,400,000 shares authorized; 2,243,018,988 shares issued and outstanding; pro forma 2,334,262,300 shares issued and outstanding; pro forma, as adjusted 2,457,339,231 shares issued and outstanding
1 — 1 — 1 —

Additional paid-in capital
32,192 5,190 42,537 6,858 93,717 15,108

Treasury shares at cost
— — — — — —

Subscription receivables
(363 ) (59 ) (363 ) (59 ) (363 ) (59 )

Statutory reserves
2,511 405 2,511 405 2,511 405

Accumulated other comprehensive income


Cumulative translation adjustments
(1,077 ) (174 ) (1,077 ) (174 ) (1,077 ) (174 )

Unrealized gain on available-for-sale investment securities, interest rate swap and others
202 33 202 33 202 33

Retained earnings
13,315 2,146 13,315 2,146 13,315 2,146


























Total Alibaba Group Holding Limited shareholders’ equity
46,781 7,541 57,126 9,209 108,306 17,459


























Total capitalization
106,272 17,131 106,272 17,131 157,452 25,381




























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(1) Assumes that the underwriters do not exercise their option to purchase additional ADSs.

The table above excludes 7,054,073 issued but unvested restricted shares as of June 30, 2014, which for accounting purposes are not considered issued. In addition, the table above excludes the following shares:



• 53,692,833 ordinary shares issuable upon the exercise of outstanding options to purchase ordinary shares outstanding as of June 30, 2014;



• 45,899,831 ordinary shares subject to unvested RSUs as of June 30, 2014; and



• an additional 71,562,581 ordinary shares reserved for future issuance under our equity incentive plans (which includes 13,333,000 ordinary shares issuable upon the exercise of outstanding options to purchase ordinary shares and 31,662,768 ordinary shares subject to RSUs granted after June 30, 2014).



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DILUTION

If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares and holders of our series A convertible preference shares which will automatically convert into our ordinary shares concurrently with the completion of this offering.

Our net tangible book value as of June 30, 2014 was approximately US$2,336 million, or US$1.04 per ordinary share as of that date, and US$1.04 per ADS. Net tangible book value represents the amount of our total consolidated assets, less the amount of our land use rights, intangible assets, goodwill, total consolidated liabilities and mezzanine equity. Pro forma net tangible book value per ordinary share is calculated after giving effect to the automatic conversion of all of our issued and outstanding convertible preference shares. Pro forma as adjusted net tangible book value per ordinary share is calculated after giving effect to the automatic conversion of all our issued and outstanding convertible preference shares and the issuance of ordinary shares in the form of ADS by us in this offering. Dilution is determined by subtracting pro forma as adjusted net tangible book value per ordinary share from the public offering price per ordinary share.

Without taking into account any other changes in net tangible book value after June 30, 2014, other than to give effect to (i) the automatic conversion of all of our issued and outstanding convertible preference shares into 91,243,312 of our ordinary shares concurrently with the completion of this offering and (ii) the issuance and sale by us of 123,076,931 ordinary shares in the form of ADSs in this offering at an initial public offering price of US$68.00 per ADS after deduction of underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of June 30, 2014 would have been US$12,254 million, or US$4.99 per outstanding ordinary share and US$4.99 per ADS. This represents an immediate increase in pro forma net tangible book value of US$3.27 per ordinary share and US$3.27 per ADS to the existing shareholders and an immediate dilution in net tangible book value of US$63.01 per ordinary share and US$63.01 per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:




Per ordinary
share Per ADS

Actual net tangible book value per share as of June 30, 2014
US$ 1.04 US$ 1.04

Pro forma net tangible book value per share after giving effect to the automatic conversion of all of our issued and outstanding convertible preference shares into ordinary shares
US$ 1.72 US$ 1.72

Pro forma as adjusted net tangible book value per share after giving effect to (i) the automatic conversion of all of our issued and outstanding convertible preference shares into ordinary shares and (ii) the issuance of 123,076,931 ordinary shares in the form of ADSs in this offering
US$ 4.99 US$ 4.99

Initial public offering price
US$ 68.00 US$ 68.00

Dilution in net tangible book value per share to new investors in the offering
US$ 63.01 US$ 63.01



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The following table summarizes, on a pro forma basis as of June 30, 2014, the differences between existing shareholders, including holders of our series A convertible preference shares, and new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share/ADS paid before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the option to purchase additional ADSs granted to the underwriters.




Ordinary Shares
Purchased Total
Consideration Average Price
per
Ordinary Share Average Price
per
ADS
Number Percent Amount Percent
(in millions of US$, except number of shares and percentages)

Existing shareholders
2,334,262,300 95 % US$ 6,590 44 % US$ 2.82 US$ 2.82

New investors
123,076,931 5 % US$ 8,369 56 % US$ 68.00 US$ 68.00


















Total
2,457,339,231 100 % US$ 14,959 100 % US$ 6.09 US$ 6.09


















The discussion and tables above exclude 7,054,073 issued but unvested restricted shares as of June 30, 2014, which for accounting purposes are not considered issued. In addition, the discussion and tables above exclude the following shares:



• 53,692,833 ordinary shares issuable upon the exercise of outstanding options to purchase ordinary shares outstanding as of June 30, 2014;



• 45,899,831 ordinary shares subject to unvested RSUs as of June 30, 2014; and



• an additional 71,562,581 ordinary shares reserved for future issuance under our equity incentive plans (which includes 13,333,000 ordinary shares issuable upon the exercise of options to purchase ordinary shares and 31,662,768 ordinary shares subject to RSUs granted after June 30, 2014).

See “Our Executive Officers — Equity Incentive Plans.” To the extent that any of these options are exercised or RSUs became vested, there will be further dilution to new investors.



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EXCHANGE RATE INFORMATION

Most of our revenues and expenses are denominated in Renminbi. This prospectus contains translations of Renminbi amounts into U.S. dollars at specific rates. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this prospectus were made at a rate of RMB6.2036 to US$1.00, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2014. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, at the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On September 12, 2014, the noon buying rate was RMB6.1344 to US$1.00.

The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. The exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board.




Noon buying rate

Period
Period end Average(1) Low High
(RMB per US$1.00)

2009
6.8259 6.8295 6.8470 6.8176

2010
6.6000 6.7603 6.8330 6.6000

2011
6.2939 6.4475 6.6364 6.2939

2012
6.2301 6.2990 6.3879 6.2221

2013
6.0537 6.1412 6.2438 6.0537

2014


February
6.1448 6.0816 6.1448 6.0591

March
6.2164 6.1729 6.2273 6.1183

April
6.2591 6.2246 6.2591 6.1966

May
6.2471 6.2380 6.2591 6.2255

June
6.2036 6.2306 6.2548 6.2036

July
6.1737 6.1984 6.2115 6.1712

August
6.1430 6.1541 6.1793 6.1395

September (through September 12)
6.1344 6.1373 6.1480 6.1284



Source: Federal Reserve Statistical Release



(1) Annual averages are calculated using the average of the rates on the last business day of each month during the relevant year. Monthly averages are calculated using the average of the daily rates during the relevant month.



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ENFORCEMENT OF CIVIL LIABILITIES

We are incorporated under the laws of the Cayman Islands as an exempted company with limited liability. We incorporated in the Cayman Islands because of certain benefits associated with being a Cayman Islands corporation, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services. However, the Cayman Islands have a less developed body of securities laws that provide significantly less protection to investors as compared to the securities laws of the United States. In addition, Cayman Islands companies may not have standing to sue before the federal courts of the United States.

Substantially all of our assets are located in China. In addition, most of our directors and officers are residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon us or our directors and officers, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

We have appointed Corporation Service Company, located at 1180 Avenue of the Americas, Suite 210, New York, New York 10036 as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

Maples and Calder, our counsel as to Cayman Islands law, and Fangda Partners, our counsel as to PRC law, have respectively advised us that there is uncertainty as to whether the courts of the Cayman Islands or the PRC would, respectively, (1) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, or (2) entertain original actions brought in the Cayman Islands or the PRC against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. Furthermore, Maples and Calder and Fangda Partners have advised us that, as of the date of this prospectus, no treaty or other form of reciprocity exists between the Cayman Islands and China governing the recognition and enforcement of judgments.

Maples and Calder has informed us that the uncertainty with regard to Cayman Islands law relates to whether a judgment obtained from the United States or PRC courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman company. As the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive in nature, it is uncertain whether they would be enforceable in the Cayman Islands.

Maples and Calder has further advised us that although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States or China, a judgment obtained in such jurisdiction will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine or a penalty and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.

Fangda Partners has advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedure Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedure Law based either on treaties between China and the country



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where the judgment is made or on principles of reciprocity between jurisdictions. Fangda Partners has advised us further that under PRC law, courts in the PRC will not recognize or enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC law or national sovereignty, security or social public interest. As there exists no treaty or other form of reciprocity between China and the United States governing the recognition and enforcement of judgments as of the date of this prospectus, including those predicated upon the liability provisions of the United States federal securities laws, there is uncertainty whether and on what basis a PRC court would enforce judgments rendered by United States courts. In addition, because there is no treaty or other form of reciprocity between the Cayman Islands and China governing the recognition and enforcement of judgments as of the date of this prospectus, there is further uncertainty as to whether and on what basis a PRC court would enforce judgments rendered by a Cayman Islands court.



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LETTER FROM JACK MA

Dear Investors,

Thank you for taking the time to read our prospectus, and for considering investing your precious resources in our company. If you invest with us, you will be embarking on a journey with Alibaba, and in this letter I would like to share with you some of our thoughts and beliefs for the future.

Our Mission and Vision

Alibaba is a values-based company driven by our mission “to make it easy to do business anywhere.” Our proposition is simple: we want to help small businesses grow by solving their problems through Internet technology. We fight for the little guy. Since our founding in 1999, we have helped millions of small businesses to achieve a brighter future, and we hope to do this for at least 102 years, thus spanning our company’s life over at least three centuries.

We do not simply attempt to push the boundaries of technology — instead we seek to harness technological improvements to expand the boundaries of business. Alibaba is not the creation of a few technology innovations or a couple of whiz kids. We have developed an ecosystem that has been built by tens of millions of participants who are passionate about the future and steadfast in their belief that the Internet should be fair, open, transparent and shared. Together, these participants have invested time, energy and passion into this ecosystem, and today the world can see what they have accomplished.

From the very beginning our founders have aspired to create a company founded by Chinese people but that belongs to the world. In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world. This challenge is enormous, but it is also a blessing to have this rare opportunity. This challenge requires us to do our best day-to-day, but most importantly it requires us to think about what is best over the long-term.

Our Ecosystem-based Business Model

Alibaba’s mission makes it impossible for us to become an empire-like business. We believe that only by creating an open, collaborative and prosperous ecosystem that enables its constituents to fully participate can we truly help our small business and consumer customers. As stewards of this ecosystem, we spend our focus, effort, time and energy on initiatives that will benefit the greater good of the ecosystem and its various participants. We can only be successful if our customers and business partners are successful.

We firmly believe that businesses in the 21st century must take responsibility to help solve the problems of society. In the history of our development, social responsibility has always been embedded in our corporate DNA. We believe that a healthy and prosperous ecosystem can only be achieved through solving large-scale problems of society.

The Internet has given us a once-in-a-lifetime opportunity to create a new business paradigm in China. This transformative work will not be easy, and it will require us to be consistent, to work across many dimensions, and to focus on what’s best for the long-term benefit of our ecosystem and its participants. In addition, our mission requires our company to behave with the utmost degree of fairness, transparency and efficiency toward participants in the ecosystem. This is not only a moral duty, but also the foundation of our own survival and growth. Our hard work has awarded us unique advantages — the complexity of our ecosystem and the challenges of sustaining its vigor mean that it is not easily replicated by others.

If you own shares in our company, you will become a part of our ecosystem. This means that the Alibaba team will have a duty to look after your interests. But it will also mean that you will have an important responsibility to help us maintain and grow our ecosystem by sharing our view that success will be defined as sustainable, long-term growth and prosperity.



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How We Will Meet Our Challenges

Our journey over the past 15 years has not been easy, and we have faced our share of challenges. We have often found ourselves in complex situations where we must make difficult choices among competing interests: between buyers and sellers; between competing sellers; between entrepreneurialism and regulation; between innovation and the need for stability. Behind every substantial innovation or step forward, we have encountered and will continue to encounter resistance from vested interests who prefer the status quo.

In addition, many problems in the real world manifest themselves in different shapes and forms in our ecosystem, including intellectual property infringement and those who seek to exploit our ecosystem for unfair gains. Like all companies today, we must grapple with these tough issues. Even an ecosystem built on the Internet cannot be entirely free from problems in the traditional economy, because the participants in our ecosystem and their activities cannot be isolated from the physical world. It is by no means easy to handle these issues because there are no perfect solutions to regulate an economy to begin with. By the same token, an ecosystem cannot be perfectly designed ahead of time because it evolves organically. Alibaba’s development therefore must embrace rapid change according to our evolving environment.

After we become a public company in the United States, we will face new challenging issues. When an Internet company of our scale that originated from China enters the global scene, you should expect that it will encounter skepticism from different directions due to differences in cultural perspectives, values and even geopolitical positioning. While it may be difficult for a public Alibaba to side-step controversy, we hope that controversies generate constructive debate and add fresh perspectives to the dialogue on globalization.

It is not our style to shy away from challenges. As a shareholder of Alibaba, you can rest assured that we will stick to our ideals, be ourselves, focus on the future and adhere to the principles of integrity and transparency in our corporate governance. We will act in a way to safeguard the long-term value and sustainability of the ecosystem. Your trust and support will be our greatest asset, and our creed is to not forsake the trust that people have in us.

How We Set Priorities

I have said on numerous occasions that we will put “customers first, employees second, and shareholders third.” I can see that investors who hear this for the first time may find it a bit hard to understand.

Let me be clear: as fiduciaries of the company, we believe that the only way for Alibaba to create long-term value for shareholders is to create sustainable value for customers. So customers must come first.

Next come our employees, because in today’s knowledge economy, employees are most important in having satisfied customers. Without talented, happy, diligent and passionately committed employees, our commitment to serving customers will be empty. A company that does not have satisfied employees will not have satisfied customers, and without satisfied customers, we could not possibly have satisfied shareholders.

We respect and are grateful for investors who support us with their precious capital. Our history with long-term investors, including Yahoo and SoftBank, has demonstrated that our investors can benefit substantially from sharing our long-term approach. Not only that, our investors will also derive satisfaction in knowing that they will help Alibaba to create jobs, spur innovation, level the playing field for small businesses, and drive transformation for social and economic growth.

Our company will not make decisions based on short-term revenues or profits. Our strategies will be implemented with mission-driven, long-term development in mind. Our people, capital, technology and resources will be utilized to safeguard the sustainable development and growth of the Alibaba ecosystem. We welcome investors with the same long-term mindset.



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Corporate Governance

To ensure the sustainability of the company and the interests of our customers, employees, investors and other ecosystem participants, we have always operated under the principles of collaboration and shared commitment among those who are responsible for our business. This operating philosophy is embodied in the Alibaba Partnership. We believe that our partnership approach has helped us to better manage our business, with the peer nature of the partnership enabling senior managers to work as a team and override bureaucracy and hierarchy.

Our ecosystem is too complex — and too important — for us to depend on one or two founders or executives, no matter how capable they are. We must deal with the issue of sustainability and succession systematically. Our partnership system promotes people with different skill sets but all having the same beliefs and values. It is not a system established to protect individual interests. It exists to safeguard our mission, values, vision and culture. Each year, by admitting new partners, we inject new energy and perspectives. In this way, we can ensure that our operations will continue to improve with time and scale.

In the interest of building a business ecosystem that is healthy, sustainable and growing, the corporate charter of the company empowers the partners in the Alibaba Partnership to have a strong say in charting the strategic direction and moral compass of the company. We have invested a lot of thought into creating this structure and, with a heavy sense of responsibility, we exercise great care in the selection and admission of partners to the partnership. I encourage you to study the description of the Alibaba Partnership in the prospectus to learn more about our philosophical approach to this important aspect of corporate governance, an aspect that we believe is unique and innovative.

Following our IPO, you will receive a letter like this one each year in our annual report. My partners in the Alibaba Partnership will take turns writing the annual letter.

I would like to thank you for considering an ownership in Alibaba. My colleagues and I would like to assure you that we are committed to serving the Alibaba ecosystem for the benefit of all of its constituents.

Jack Ma

Executive Chairman

Alibaba Group Holding Limited



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OUR HISTORY AND CORPORATE STRUCTURE

Our Major Corporate Milestones

We have a demonstrated track record of successful organic business creation and growth, as evidenced by the following description of our major corporate milestones:

LOGO

*Source for China Internet Population: CNNIC



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The following pictures show events from some of our major corporate milestones:




LOGO
Post-founding meeting in Jack Ma’s Lakeside Gardens apartment in Hangzhou, 2000

LOGO


Joe Tsai and Jack Ma at press event announcing the launch of Alibaba.com, 1999 View of Jack Ma’s Lakeside Gardens apartment in Hangzhou where we launched several core Alibaba businesses



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LOGO
Founding of Alimama monetization platform, 2007

LOGO
Founding of Taobao Marketplace, 2003

LOGO
Founding of Alipay, 2004 Singles Day 2013, Company Headquarters



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Our 18 founders first gathered in Jack Ma’s Lakeside Gardens apartment in Hangzhou in 1999 and founded Alibaba.com. Our founders and management would go on to launch a number of our core businesses from that apartment, including Alibaba.com.cn (now known as 1688.com), Taobao Marketplace and Alimama, meeting in the same spirit of partnership and with the same goal: to make it easy to do business anywhere.

We began operations in 1999 with Alibaba.com, an English-language marketplace for global trade. We founded Alibaba.com to help small exporters engaged in manufacturing and trading, primarily located in China, to reach global buyers. In 1999, we also launched a Chinese-language wholesale marketplace for domestic China trade among small businesses, now called 1688.com. This domestic platform has since evolved into a wholesale channel for merchants doing business on our retail marketplaces to source products.

In 2003, we established Taobao Marketplace as a free platform for buyers to explore and discover products and for sellers to establish a low-cost online presence. According to iResearch, Taobao Marketplace was the number one consumer-to-consumer, or C2C, marketplace in terms of gross merchandise volume in China in 2013.

In 2004, we established Alipay to address the issue of trust between buyers and sellers online. Buyers were unwilling to effect payment before receiving and inspecting their purchases, and sellers were unwilling to ship the products until they were assured that payment was forthcoming. This lack of trust posed a stifling challenge for the development of online commerce in China. Alipay introduced its escrow service as a solution to this problem. Since 2011, we no longer control or have an ownership interest in Alipay, although we continue to participate in some of the economic benefits of Alipay through contractual arrangements. We have entered into contractual arrangements with Alipay through which we are able to facilitate the provision of payment and escrow services for our customers. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries.” In 2013, Alipay was the largest online third-party payment services provider in China by total payment volume, according to iResearch.

In 2004, we also launched Aliwangwang, a personal computer-based instant messenger that facilitates text, audio and video communication between buyers and sellers, on Taobao Marketplace.

In 2007, we launched Alimama, our online marketing technology platform that offers sellers on our marketplaces online marketing services for both personal computers and mobile devices. Alimama also offers our sellers these marketing services through third-parties through the Taobao Affiliate Network, which we believe is the largest online marketing affiliate network in China in terms of revenue shared with our affiliates. In 2007, we also started to monetize our Taobao Marketplace through P4P marketing services and display marketing.

In 2008, we launched Tmall as we recognized that Chinese consumers had developed an increased demand for branded products and a premium online shopping experience.

In 2009, we established Alibaba Cloud Computing to handle the traffic volume generated and data management needs resulting from the substantial scale of transactions and data on our platform. Today, Alibaba Cloud Computing addresses the data management needs of our company and companies integral to our ecosystem, including Alipay, and at the same time generates third party revenue from sellers doing business on our marketplaces as well as other businesses and entrepreneurs who have cloud computing needs, and gives our sellers the computing power and scalability to handle spikes in transaction volume such as during our Singles Day promotion.

In 2010, we launched AliExpress, our global consumer marketplace that enables exporters in China to reach and directly transact with consumers around the world. Also in 2010, we launched Juhuasuan, our group buying marketplace that offers quality products at discounted prices by aggregating demand from consumer groups, mainly through flash sales which make products available for a limited period of time. In 2010, we also launched our Mobile Taobao App, which has been the most popular mobile commerce app in China by MAUs every month since August 2012, according to iResearch.



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On November 11, 2013, our Singles Day promotion generated GMV settled through Alipay of RMB36.2 billion (US$5.8 billion) on our China retail marketplaces within a 24-hour period.

Our History with SoftBank and Yahoo

In 2000, a group of investors led by SoftBank invested US$20 million in our company. In 2003, we established a joint venture with SoftBank for the development of the predecessor entity of Taobao Marketplace. Through a series of investments totaling US$50 million, SoftBank subscribed for shares in the Taobao predecessor entity. In 2003, SoftBank purchased US$30 million in our convertible notes, which SoftBank subsequently converted into our ordinary shares.

In 2005, Yahoo completed a strategic investment in our company which resulted in Yahoo owning approximately 40% of our company on a fully-diluted basis at that time. In connection with the consummation of the strategic investment, Yahoo invested a total of US$1,000 million in cash and contributed Yahoo China to Alibaba Group. Specifically, Yahoo purchased US$570 million in ordinary shares from certain shareholders and US$70 million in newly issued ordinary shares from us. In conjunction with the strategic investment, Yahoo also purchased a portion of SoftBank’s shares in the Taobao predecessor entity for an aggregate amount of US$360 million, which Yahoo subsequently exchanged for our ordinary shares. In connection with these transactions, SoftBank exchanged its remaining stake in the Taobao predecessor entity for our ordinary shares and reinvested US$180 million in convertible bonds in our company which were subsequently converted into our ordinary shares.

In 2012, we entered into a share repurchase agreement with Yahoo pursuant to which we repurchased 523 million of our shares from Yahoo for US$7,082 million, and we restructured the Yahoo TIPLA for a lump sum payment to Yahoo of US$550 million. In the same transaction, we entered into an agreement that requires Yahoo, in connection with a qualified initial public offering of our shares (such as this offering), at our election, to either sell to us or include in such qualified initial public offering, an additional 261.5 million of our ordinary shares, which we later amended to 208 million shares. We entered into the share repurchase arrangements with Yahoo to enable Yahoo to carry out a multi-stage divestiture of its holdings in our ordinary shares over time, balancing near-term liquidity with the opportunity to participate in the potential value appreciation of our company, while also providing us with a degree of certainty and predictability in managing such divestiture and related transition. In addition, the repurchase and cancellation of these ordinary shares provided accretion in the percentage ownership of all remaining shareholders. In connection with Yahoo’s proposed staged exit from its investment in our company, we and Yahoo also negotiated an amendment to the Yahoo TIPLA which gave us a transitional license to continue to operate Yahoo! China under the Yahoo brand for up to four years.

Our Corporate Structure

Alibaba Group Holding Limited is a Cayman Islands holding company established on June 28, 1999, and we conduct our business in China through our subsidiaries and variable interest entities.

Our significant subsidiaries, as that term is defined under Section 1-02 of Regulation S-X under the Securities Act, consist of the following entities:



• Taobao Holding Limited, an exempted company incorporated with limited liability under the laws of the Cayman Islands, which is our wholly-owned subsidiary and the indirect holding company of the PRC subsidiaries relating to our Taobao Marketplace and Tmall platform.



• Taobao China Holding Limited, a Hong Kong limited liability company, which is the direct wholly-owned subsidiary of Taobao Holding Limited and the direct holding company of the PRC subsidiaries relating to our Taobao Marketplace and Tmall platform and operating entity for the overseas business of our Taobao Marketplace and Tmall Global.



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• Taobao (China) Software Co., Ltd., a limited liability company incorporated under the laws of the PRC, which is an indirect subsidiary of Taobao Holding Limited and a wholly-foreign owned enterprise, and provides software and technology services for our Taobao Marketplace.



• Zhejiang Tmall Technology Co., Ltd., a limited liability company incorporated under the laws of the PRC, which is an indirect subsidiary of Taobao Holding Limited and a wholly-foreign owned enterprise, and provides software and technology services for our Tmall platform.



• Alibaba.com Limited, an exempted company incorporated with limited liability under the laws of Cayman Islands, which is our wholly-owned subsidiary and the indirect holding company of the PRC subsidiaries relating to our Alibaba.com, 1688.com and AliExpress businesses.



• Alibaba.com Investment Holding Limited, a company incorporated with limited liability under the laws of the British Virgin Islands, which is the direct wholly-owned subsidiary of Alibaba.com Limited and a lower level holding company of the PRC subsidiaries relating to our Alibaba.com, 1688.com and AliExpress businesses.



• Alibaba Investment Limited, a company incorporated with limited liability under the laws of the British Virgin Islands, which is our wholly-owned subsidiary and the principal holding company for our strategic investments.

We conduct our business operations across approximately 290 subsidiaries and other consolidated entities. The chart below summarizes our corporate legal structure and identifies the significant subsidiaries described above, as well as our variable interest entities that are material to our business and the number of their respective subsidiaries, as of the date of this prospectus:



LOGO



(1) Includes approximately 70 subsidiaries and consolidated entities incorporated in China and approximately 120 subsidiaries incorporated in other jurisdictions that are not illustrated in this chart. In addition, the entities pictured in this chart hold, directly and indirectly, an aggregate of approximately 40 additional subsidiaries and consolidated entities incorporated in China and approximately 40 additional subsidiaries incorporated outside of China not pictured in the chart.

(2) Primarily involved in the operation of Taobao Marketplace.



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(3) Primarily involved in the operation of Tmall and Juhuasuan.

(4) Primarily involved in the operation of Alimama.

(5) Primarily involved in the operation of Alibaba.com, 1688.com and AliExpress.

(6) Primarily involved in the operation of cloud computing services.

(7) Each of these variable interest entities is 80%-owned by Jack Ma and 20%-owned by Simon Xie, other than Zhejiang Taobao Network Co., Ltd., which is 90%-owned by Jack Ma and 10%-owned by Simon Xie.

Contractual Arrangements among Our Wholly-foreign Owned Enterprises, Variable Interest Entities and the Variable Interest Entity Equity Holders

Due to PRC legal restrictions on foreign ownership and investment in, among other areas, value-added telecommunications services, which include the operations of Internet content providers, or ICPs, we, similar to all other entities with foreign-incorporated holding company structures operating in our industry in China, operate our Internet businesses and other businesses in which foreign investment is restricted or prohibited in the PRC through wholly-foreign owned enterprises, majority-owned entities and variable interest entities. The relevant variable interest entities, which are incorporated in the PRC and 100% owned by PRC citizens or by PRC entities owned by PRC citizens, where applicable, hold the ICP licenses and other regulated licenses and operate our Internet businesses and other businesses in which foreign investment is restricted or prohibited. Specifically, our variable interest entities that are material to our business are Zhejiang Taobao Network Co., Ltd., Zhejiang Tmall Network Co., Ltd., Hangzhou Alibaba Advertising Co., Ltd., Hangzhou Ali Technology Co. Ltd. and Alibaba Cloud Computing Ltd. Each of these variable interest entities other than Zhejiang Taobao Network Co., Ltd. is 80%-owned by Jack Ma, our lead founder, executive chairman and one of our principal shareholders, and 20%-owned by Simon Xie, one of our founders and a vice president on our China investment team. Zhejiang Taobao Network Co., Ltd. is 90%-owned by Jack Ma and 10%-owned by Simon Xie. We have entered into certain contractual arrangements, as described in more detail below, which collectively enable us to exercise effective control over the variable interest entities and realize substantially all of the economic risks and benefits arising from, the variable interest entities. As a result, we include the financial results of each of the variable interest entities in our consolidated financial statements in accordance with U.S. GAAP as if they were our wholly-owned subsidiaries.

Other than the ICP licenses and other licenses and approvals for businesses in which foreign ownership is restricted or prohibited held by our variable interest entities, we hold our material assets in, and conduct our material operations through, our wholly-foreign owned and majority-owned enterprises, which primarily provide technology and other services to our customers. We generate the significant majority of our revenue directly through our wholly-foreign owned enterprises, which directly capture the profits and associated cash flow from operations without having to rely on contractual arrangements to transfer such cash flow from the variable interest entities to the wholly-foreign owned enterprises.



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The following diagram is a simplified illustration of the ownership structure and contractual arrangements that we typically have in place for our variable interest entities:



LOGO

The following is a summary of the common contractual arrangements that provide us with effective control of our material variable interest entities and that enable us to receive substantially all of the economic benefits from their operations.

Contracts that give us effective control of the variable interest entities

Loan Agreements. Pursuant to the relevant loan agreement, the respective wholly-foreign owned enterprise has granted an interest-free loan to the relevant variable interest entity equity holders, which may only be used for the purpose of a capital contribution to the relevant variable interest entity or as may be otherwise agreed by the wholly-foreign owned enterprise. The wholly-foreign owned enterprise may require acceleration of repayment at its absolute discretion. When the variable interest entity equity holders make early repayment of the outstanding amount, the wholly-foreign owned enterprise or a third party designated by it may purchase the equity interests in the variable interest entity at a price equal to the outstanding amount of the loan, subject to any applicable PRC laws, rules and regulations. The variable interest entity equity holders undertake not to enter into any prohibited transactions in relation to the variable interest entity, including the transfer of any business, material assets, intellectual property rights or equity interests in the variable interest entity to any third party. The parties to the loan agreement for each of our material variable interest entities are Jack Ma and Simon Xie on the one hand, and Taobao (China) Software Co., Ltd., Zhejiang Tmall Technology Co., Ltd., Alibaba (China) Technology Co., Ltd., Hangzhou Alimama Technology Co., Ltd. and Alisoft (Shanghai) Co., Ltd., the respective wholly-foreign owned enterprise on the other hand.

Exclusive Call Option Agreements. The variable interest entity equity holders have granted the wholly-foreign owned enterprise an exclusive call option to purchase their equity interest in the variable interest entity at an exercise price equal to the higher of (i) the registered capital in the variable interest entity; and (ii) the minimum price as permitted by applicable PRC laws. Each relevant variable interest entity has further granted the relevant wholly-foreign owned enterprise an exclusive call option to purchase its assets at an exercise price



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equal to the book value of the assets or the minimum price as permitted by applicable PRC law, whichever is higher. The wholly-foreign owned enterprise may nominate another entity or individual to purchase the equity interest or assets, if applicable, under the call options. Each call option is exercisable subject to the condition that applicable PRC laws, rules and regulations do not prohibit completion of the transfer of the equity interest or assets pursuant to the call option. Each wholly-foreign owned enterprise is entitled to all dividends and other distributions declared by the variable interest entity, and the variable interest entity equity holders have agreed to give up their rights to receive any distributions or proceeds from the disposal of their equity interests in the variable interest entity which are in excess of the original registered capital that they contributed to the variable interest entity, and to pay any such distributions or premium to the wholly-foreign owned enterprise. The exclusive call option agreements remain in effect until the equity interest or assets that are the subject of such agreements are transferred to the wholly-foreign owned enterprise. The parties to the exclusive call option agreement for each of our material variable interest entities are Jack Ma and Simon Xie as the variable interest entity equity holders, the relevant variable interest entity and its corresponding wholly-foreign owned enterprise.

Proxy Agreements. Pursuant to the relevant Proxy Agreement, each of the variable interest entity equity holders irrevocably authorizes any person designated by the wholly-foreign owned enterprise to exercise his rights as an equity holder of the variable interest entity, including the right to attend and vote at equity holders’ meetings and appoint directors. The parties to the proxy agreement for each of our material variable interest entities are Jack Ma and Simon Xie as the variable interest entity equity holders, the relevant variable interest entity and its corresponding wholly-foreign owned enterprise.

Equity Pledge Agreements. Pursuant to the relevant equity pledge agreement, the relevant variable interest entity equity holders have pledged all of their interests in the equity of the variable interest entity as a continuing first priority security interest in favor of the wholly-foreign owned enterprise to secure the outstanding amounts advanced under the relevant loan agreements described above and to secure the performance of obligations by the variable interest entity and/or its equity holders under the other structure contracts. Each wholly-foreign owned enterprise is entitled to exercise its right to dispose of the variable interest entity equity holders’ pledged interests in the equity of the variable interest entity and has priority in receiving payment by the application of proceeds from the auction or sale of such pledged interests, in the event of any breach or default under the loan agreement or other structure contracts, if applicable. These equity pledge agreements remain in force for the duration of the relevant loan agreement and other structure contracts. The parties to the equity pledge agreement for each of our material variable interest entities are Jack Ma and Simon Xie as the variable interest entity equity holders, the relevant variable interest entity and its corresponding wholly-foreign owned enterprise. All of the equity pledges relating to our material variable interest entities have been registered with the relevant office of the Administration for Industry and Commerce in China.

Contracts that enable us to receive substantially all of the economic benefits from the variable interest entities

Exclusive Technical Services Agreements. Each relevant variable interest entity has entered into an exclusive technical services agreement with the respective wholly-foreign owned enterprise, pursuant to which the relevant wholly-foreign owned enterprise provides exclusive technical services to the variable interest entity. In exchange, the variable interest entity pays a service fee to the wholly-foreign owned enterprise which typically amount to what would be substantially all of the variable interest entity’s pre-tax profit (absent the service fee), resulting in a transfer of substantially all of the profits from the variable interest entity to the wholly-foreign owned enterprise.

The exclusive call option agreements described above also entitle the wholly-foreign owned enterprise to all dividends and other distributions declared by the variable interest entity and to any distributions or proceeds from the disposal by the variable interest entity equity holders of their equity interests in the variable interest entity that are in excess of the original registered capital that they contributed to the variable interest entity.



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In the opinion of Fangda Partners, our PRC legal counsel:



• the ownership structures of our material wholly-foreign owned enterprises and our material variable interest entities in China, both currently and immediately after giving effect to this offering, do not and will not violate any applicable PRC law, regulation, or rule currently in effect; and



• the contractual arrangements between our material wholly-foreign owned enterprises, our material variable interest entities and the variable interest entity equity holders governed by PRC laws are valid, binding and enforceable in accordance with their terms and applicable PRC laws, rules, and regulations currently in effect, and will not violate any applicable PRC law, regulation, or rule currently in effect.

However, we have been further advised by our PRC legal counsel, Fangda Partners, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws, rules and regulations. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the opinion of our PRC legal counsel. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our Internet-based business do not comply with PRC government restrictions on foreign investment in the aforesaid business we engage in, we could be subject to severe penalties including being prohibited from continuing operations. See “Risk Factors — Risks Related to Our Corporate Structure.”



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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The selected consolidated statements of operations data for the years ended March 31, 2012, 2013 and 2014, and the selected consolidated balance sheet data as of March 31, 2012, 2013 and 2014 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. Our selected consolidated statements of operations data for the years ended March 31, 2010 and 2011 and the selected consolidated balance sheet data as of March 31, 2010 and 2011 have been derived from our unaudited consolidated financial statements not included in this prospectus. The selected consolidated statement of operations data for the three months ended June 30, 2013 and 2014 and the selected consolidated balance sheet data as of June 30, 2014 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements and include all normal recurring adjustments that we consider necessary for a fair statement of our financial position and operating results for the periods presented.

The following selected consolidated financial data for the periods and as of the dates indicated are qualified by reference to and should be read in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” both of which are included elsewhere in this prospectus.

Our historical results for any prior period do not necessarily indicate our results to be expected for any future period.



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Consolidated Statements of Operations Data:




Year ended March 31, Three months ended
June 30,
2010(1) 2011(1) 2012 2013 2014 2013 2014
RMB RMB RMB RMB RMB US$ RMB RMB US$
(in millions, except per share data)

Revenue


China commerce
3,716 7,665 15,637 29,167 45,132 7,275 9,193 13,348 2,152

International commerce
2,620 3,433 3,765 4,160 4,851 782 1,117 1,469 237

Cloud computing and Internet infrastructure
144 425 515 650 773 125 174 236 38

Others
190 380 108 540 1,748 281 294 718 115






































Total
6,670 11,903 20,025 34,517 52,504 8,463 10,778 15,771 2,542

Cost of revenue
(1,634 ) (3,497 ) (6,554 ) (9,719 ) (13,369 ) (2,155 ) (2,727 ) (4,585 ) (739 )

Product development expenses
(1,135 ) (2,062 ) (2,897 ) (3,753 ) (5,093 ) (821 ) (1,018 ) (1,952 ) (315 )

Sales and marketing expenses
(2,335 ) (3,154 ) (3,058 ) (3,613 ) (4,545 ) (733 ) (713 ) (1,212 ) (195 )

General and administrative expenses(2)
(1,000 ) (1,724 ) (2,211 ) (2,889 ) (4,218 ) (679 ) (865 ) (944 ) (152 )

Amortization of intangible assets
(131 ) (144 ) (155 ) (130 ) (315 ) (51 ) (35 ) (234 ) (38 )

Impairment of goodwill and intangible assets
(1,308 ) — (135 ) (175 ) (44 ) (7 ) — — —

Yahoo TIPLA amendment payment(3)
— — — (3,487 ) — — — — —






































Income (loss) from operations
(873 ) 1,322 5,015 10,751 24,920 4,017 5,420 6,844 1,103

Interest and investment income, net(6)
384 549 258 39 1,648 266 466 6,828 1,100

Interest expense
— (4 ) (68 ) (1,572 ) (2,195 ) (354 ) (1,081 ) (410 ) (66 )

Other income, net
200 68 327 894 2,429 391 241 711 115






































Income (loss) before income tax and share of results of equity investees
(289 ) 1,935 5,532 10,112 26,802 4,320 5,046 13,973 2,252

Income tax expenses
(181 ) (327 ) (842 ) (1,457 ) (3,196 ) (515 ) (591 ) (1,445 ) (233 )

Share of results of equity investees
(33 ) — (25 ) (6 ) (203 ) (33 ) (7 ) (90 ) (14 )






































Net income (loss)
(503 ) 1,608 4,665 8,649 23,403 3,772 4,448 12,438 2,005

Net income (loss) attributable to noncontrolling interests
(299 ) (425 ) (437 ) (117 ) (88 ) (14 ) (4 ) (34 ) (6 )






































Net income (loss) attributable to Alibaba Group Holding Limited
(802 ) 1,183 4,228 8,532 23,315 3,758 4,444 12,404 1,999

Accretion of convertible preference shares
— — — (17 ) (31 ) (5 ) (8 ) (8 ) (1 )

Dividends accrued on convertible preference shares
— — — (111 ) (208 ) (33 ) (52 ) (52 ) (8 )






































Net income (loss) attributable to ordinary shareholders
(802 ) 1,183 4,228 8,404 23,076 3,720 4,384 12,344 1,990







































Earnings (loss) per share attributable to ordinary shareholders:


Basic
(0.34 ) 0.49 1.71 3.66 10.61 1.71 2.02 5.62 0.91

Diluted
(0.34 ) 0.48 1.67 3.57 10.00 1.61 1.93 5.20 0.84


Pro forma earnings per share attributable to ordinary shareholders:(4)


Basic
10.29 1.66 5.42 0.87

Diluted
10.00 1.61 5.20 0.84


Supplemental information:(5)


Adjusted EBITDA
1,390 3,009 7,274 16,607 30,731 4,954 6,094 8,574 1,382

Adjusted net income
1,291 2,778 6,452 13,869 27,610 4,451 4,583 7,317 1,179

Free cash flow
2,280 4,881 8,752 19,745 32,269 5,201 6,090 10,594 1,708



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(1) Financial results of Alipay were consolidated into our financial statements prior to the year ended March 31, 2012. Due to regulatory requirements relating to payment service providers in China, our relationship with Alipay was restructured. See “Related Party Transactions” for more details. Since then, as we do not have any ownership interest in, or control over, Alipay, the financial results of Alipay have not been included in our consolidated financial statements starting from the end of fiscal year 2011.

(2) In fiscal year 2014, these expenses included an equity-settled donation expense of RMB1,269 million (US$205 million) relating to the grant of options to purchase 50,000,000 of our ordinary shares to a non-profit organization designated by Jack Ma and Joe Tsai.

(3) We entered into the Yahoo TIPLA in October 2005, pursuant to which we pay royalty fees to Yahoo. We and Yahoo amended the existing TIPLA in September 2012, pursuant to which we made a lump sum payment in the amount of US$550 million.

(4) Pro forma earnings per share attributable to ordinary shareholders is calculated as if our convertible preference shares had been converted into ordinary shares at the beginning of the period, or when the convertible preference shares were issued, if later.

(5) See “— Non-GAAP Measures” below.

(6) For the three months ended June 30, 2014, include a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest. See note 4 to our unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014.

Non-GAAP Measures

We use adjusted EBITDA, adjusted net income and free cash flow, each a non-GAAP financial measure, in evaluating our operating results and for financial and operational decision-making purposes.

We believe that adjusted EBITDA and adjusted net income help identify underlying trends in our business that could otherwise be distorted by the effect of the expenses that we include in income from operations and net income. We believe that adjusted EBITDA and adjusted net income provide useful information about our 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 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. We use free cash flow to manage our business, make planning decisions, evaluate our performance and allocate resources. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in our cash balance for a reporting period.

Adjusted EBITDA, adjusted net income and free cash flow should not be considered in isolation or construed as an alternative to net income, cash flows or any other measure of performance or as an indicator of our operating performance. Adjusted EBITDA, adjusted net income and free cash flow presented here 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 income (loss) from operations (which excludes interest and investment income, net, interest expense, other income, net, income tax expenses and share of results of equity investees) before (i) certain non-cash expenses, consisting of share-based compensation expense, amortization, depreciation and impairment of goodwill and intangible assets as well as (ii) one-time expense items consisting of the Yahoo TIPLA amendment payment and an equity-settled donation expense that we do not believe are reflective of our core operating performance during the period presented.

Adjusted net income represents net income (loss) before share-based compensation expense, amortization, impairment of goodwill, intangible assets and investments, gain (loss) on deemed disposals/disposals/revaluation of investments, and one-time expense items consisting of the Yahoo TIPLA amendment payment and an equity-settled donation expense.

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 for, and construction of, our office campuses in China) and intangible assets, adjusted for changes in loan receivables



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relating to micro loans of our SME loan business and the Yahoo TIPLA amendment payment. We present the adjustment for changes in loan receivables because such receivables are reflected under cash flow from operating activities, whereas the secured borrowings and other bank borrowings used to finance them are reflected under cash flows from financing activities, and accordingly, the adjustment is made to show cash flows from operating activities net of the effect of changes in loan receivables.

The table below sets forth a reconciliation of our income (loss) from operations to adjusted EBITDA for the periods indicated:




Year ended March 31, Three months ended
June 30,
2010 2011 2012 2013 2014 2013 2014
RMB RMB RMB RMB RMB US$ RMB RMB US$
(in millions)

Income (loss) from operations
(873 ) 1,322 5,015 10,751 24,920 4,017 5,420 6,844 1,103

Add: Share-based compensation expense
362 932 1,254 1,259 2,844 458 396 1,073 173

Add: Amortization of intangible assets
131 144 155 130 315 51 35 234 38

Add: Depreciation and amortization of property and equipment and land use rights
462 611 715 805 1,339 216 243 423 68

Add: Impairment of goodwill and intangible assets
1,308 — 135 175 44 7 — — —

Add: Yahoo TIPLA amendment payment
— — — 3,487 — — — — —

Add: Equity-settled donation expense
— — — — 1,269 205 — — —






































Adjusted EBITDA
1,390 3,009 7,274 16,607 30,731 4,954 6,094 8,574 1,382








































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The following table sets forth a reconciliation of our net income (loss) to adjusted net income for the periods indicated:




Year ended March 31, Three months ended June 30,
2010 2011 2012 2013 2014 2013 2014
RMB RMB RMB RMB RMB US$ RMB RMB US$
(in millions)

Net income (loss)
(503 ) 1,608 4,665 8,649 23,403 3,772 4,448 12,438 2,005

Add: Share-based compensation expense
362 932 1,254 1,259 2,844 458 396 1,073 173

Add: Amortization of intangible assets
131 144 155 130 315 51 35 234 38

Add: Impairment of goodwill, intangible assets and investments
1,308 — 399 420 163 27 16 — —

Add: (Gain) loss on deemed disposals/disposals/revaluation of investments(1)
(7 ) 94 (21 ) (76 ) (384 ) (62 ) (312 ) (6,428 ) (1,037 )

Add: Yahoo TIPLA amendment payment
— — — 3,487 — — — — —

Add: Equity-settled donation expense
— — — — 1,269 205 — — —






































Adjusted net income
1,291 2,778 6,452 13,869 27,610 4,451 4,583 7,317 1,179








































(1) Including a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest. See note 4 to our unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014.

The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the periods indicated:




Year ended March 31, Three months ended June 30,
2010 2011 2012 2013 2014 2013 2014
RMB RMB RMB RMB RMB US$ RMB RMB US$
(in millions)

Net cash provided by operating activities
2,989 5,914 9,275 14,476 26,379 4,252 5,131 10,177 1,640

Less: Purchase of property and equipment and intangible assets (excluding land use rights and construction in progress)
(709 ) (1,033 ) (749 ) (1,046 ) (3,285 ) (530 ) (827 ) (1,155 ) (186 )

Add: Changes in loan receivables, net
— — 226 2,828 9,175 1,479 1,786 1,572 254

Add: Yahoo TIPLA amendment payment
— — — 3,487 — — — — —






































Free cash flow
2,280 4,881 8,752 19,745 32,269 5,201 6,090 10,594 1,708








































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Consolidated Balance Sheet Data:




As of March 31, As of June 30,
2010 2011 2012 2013 2014 2014
RMB RMB RMB RMB RMB US$ RMB US$

(in millions, except for share data)


Cash and cash equivalents and short-term investments(1)
14,643 15,940 21,744 32,686 43,632 7,034 57,882 9,330

Investment securities and investment in equity investees(2)
2,250 3,933 2,483 2,426 22,131 3,567 29,370 4,734

Property and equipment, net
1,666 1,905 2,463 3,808 5,581 900 6,738 1,086

Goodwill and intangible assets
11,518 11,846 11,791 11,628 13,699 2,208 35,239 5,681

Total assets
41,707 37,830 47,210 63,786 111,549 17,981 161,193 25,984

Current bank borrowings
— 807 1,283 3,350 1,100 177 4,241 684

Secured borrowings
— — — 2,098 9,264 1,493 8,831 1,424

Redeemable preference shares
— — — 5,191 — — — —

Non-current bank borrowings
— — — 22,462 30,711 4,951 49,033 7,904

Total liabilities
15,208 9,413 12,797 52,740 70,731 11,402 99,351 16,015

Convertible preference shares
— — — 10,447 10,284 1,658 10,345 1,668

Total Alibaba Group Holding Limited shareholders’ equity (deficits)
24,583 26,052 31,488 (24 ) 29,338 4,729 46,781 7,541

Total equity(3)
26,493 28,402 34,383 513 30,417 4,903 51,384 8,283

Number of outstanding ordinary shares
2,421,257,567 2,435,156,669 2,491,952,201 2,160,220,739 2,193,810,660 2,193,810,660 2,210,018,988 2,210,018,988



(1) Includes both cash and cash equivalents and short-term investments, which primarily comprise fixed deposits with original maturities of between three months and one year.

(2) Includes both current and non-current investment securities and investment in equity investees.

(3) The decrease from March 31, 2012 to March 31, 2013 was primarily due to the repurchase of our ordinary shares from Yahoo in September 2012 and the privatization of Alibaba.com, partially offset by the issuance of ordinary shares to finance the repurchase.



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Selected Operating Data

GMV

The following chart sets forth the GMV transacted on our China retail marketplaces and mobile GMV as a percentage of GMV for the periods indicated:




Three months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014

GMV
(in billions of RMB)(1)


Taobao Marketplace GMV
114 119 172 145 167 179 255 223 257 275 346 295 342

Tmall GMV
17 22 41 33 42 49 91 71 88 99 183 135 159

Total
GMV
131 141 213 178 209 228 346 294 345 374 529 430 501

Mobile GMV (as a percentage of total GMV)
1.4 % 1.7 % 2.5 % 3.8 % 4.6 % 5.6 % 7.4 % 10.7 % 12.0 % 14.7 % 19.7 % 27.4 % 32.8 %



(1) 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. GMV generated from traffic through Juhuasuan was RMB65.6 billion (US$10.6 billion) in the twelve months ended June 30, 2014.

Active buyers

The following chart sets forth the number of active buyers on our China retail marketplaces for the periods indicated:




Twelve months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014

Active buyers (in millions)
98 102 114 123 133 145 160 172 185 202 231 255 279



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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the sections entitled “Summary Consolidated Financial and Operating Data” and “Selected Consolidated Financial and Operating Data” and our audited and unaudited consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and the timing of events may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those set forth in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and elsewhere in this prospectus. We have prepared our financial statements in accordance with U.S. GAAP. Our fiscal year ends on March 31 and references to fiscal years 2012, 2013 and 2014 are to the fiscal years ended March 31, 2012, 2013 and 2014, respectively.

Overview

We are the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013, according to the IDC GMV Report. We operate our marketplaces as a platform for third parties, and we do not engage in direct sales, compete with our merchants or hold inventory. We operate Taobao Marketplace, China’s largest online shopping destination, Tmall, China’s largest third-party platform for brands and retailers, in each case in terms of gross merchandise volume, and Juhuasuan, China’s most popular group buying marketplace by its monthly active users, in each case in 2013 according to iResearch. These three marketplaces, which comprise our China retail marketplaces, generated a combined GMV of RMB1,833 billion (US$296 billion) from 279 million active buyers and 8.5 million active sellers in the twelve months ended June 30, 2014. In addition to our three China retail marketplaces, we operate Alibaba.com, China’s largest global wholesale marketplace in 2013 by revenue, according to iResearch, 1688.com, our China wholesale marketplace, and AliExpress, our global consumer marketplace, as well as provide cloud computing services.

We provide the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the Internet to establish an online presence and conduct commerce with consumers and businesses. We have been a leader in developing online marketplace standards in China, including consumer protection programs, marketplace rules, qualification standards for merchants, and buyer and seller rating systems. Given the scale we have been able to achieve, an ecosystem has developed around our platform that consists of buyers, sellers, third-party service providers, strategic alliance partners, and investee companies. Our platform and the role we play in connecting buyers and sellers and making it possible for them to do business anytime and anywhere is at the nexus of this ecosystem. Much of our effort, our time and our energy is spent on initiatives that are for the greater good of the ecosystem and the various participants in it. We feel a strong responsibility for the continued development of the ecosystem and we take ownership for this development. Accordingly, we refer to this as “our ecosystem.”

Consumers and businesses benefit from our ecosystem because they can access products and services with a combination of selection, value, quality, convenience and customer experience that is not available elsewhere. Merchants are enabled by our tools and infrastructure to do business and flourish on our platform. Other participants in our ecosystem – including marketing affiliates, logistics providers, independent software vendors and various professional service providers – provide valuable services to our buyer and seller customers. Our ecosystem has strong self-reinforcing network effects that benefit our marketplace participants, who are invested in our ecosystem’s growth and success.



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We have experienced significant growth across various key metrics for our China retail marketplaces:




LOGO




LOGO



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We have also recently experienced significant growth in our mobile monetization on our China retail marketplaces:



LOGO

We have achieved significant scale and growth. Our total revenue increased by 72.4% from RMB20,025 million in fiscal year 2012 to RMB34,517 million in fiscal year 2013, and further increased by 52.1% to RMB52,504 million (US$8,463 million) in fiscal year 2014. Our total revenue increased by 46.3% from RMB10,778 million in the three months ended June 30, 2013 to RMB15,771 million (US$2,542 million) in the same period in 2014. Our net income increased by 85.4% from RMB4,665 million in fiscal year 2012 to RMB8,649 million in fiscal year 2013 and further increased by 170.6% to RMB23,403 million (US$3,772 million) in fiscal year 2014. Our net income increased by 179.6% from RMB4,448 million in the three months ended June 30, 2013 to RMB12,438 million (US$2,005 million) in the same period in 2014. For the three months ended June 30, 2014, our net income included a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest. See note 4 to our unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014.

Key Marketplaces and Services

Our marketplaces and services include the following:

Commerce Businesses





China

International

Retail Taobao Marketplace AliExpress


Online shopping destination

Global consumer marketplace


Tmall Platform


Brands and retail platform


Juhuasuan


Group buying marketplace


Wholesale 1688.com Alibaba.com


Wholesale marketplace

Global wholesale marketplace




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Cloud Computing and Internet Infrastructure

Alibaba Cloud Computing offers a complete suite of cloud computing services, including elastic computing, database services and storage and large scale computing services for our platforms and the platforms of companies integral to our ecosystem, such as Alipay, to sellers on our marketplaces, and other third-party customers, such as start-up companies in mobile applications and Internet gaming to established corporations in digital entertainment, consumer electronics, financial services, mobile communications, healthcare and education. We also provide Internet infrastructure services, such as web hosting and domain name registration.

Our Monetization Model

The revenue we generate on our retail marketplaces is highly correlated to the amount of GMV transacted as well as to the monetization rate achieved on such GMV. The revenue on our wholesale marketplaces is largely driven by the number of paying members. We primarily derive revenue from online marketing services where sellers pay us marketing fees to acquire user traffic, commissions based on GMV for transactions settled through Alipay and membership fees. In fiscal year 2014, pay-for-performance, or P4P, marketing services, display marketing services, commissions and fees from memberships and value-added services accounted for 45.3%, 7.7%, 24.3% and 9.8% of our total revenue, respectively. As described below, our marketing services are primarily performance-based, using market-based bidding systems so that each merchant determines the price it is willing to pay for such services. The price a merchant is willing to pay for marketing services generally depends on the merchant’s expected GMV, profit margins and lifetime value of customers acquired from such marketing investment.

China Commerce Retail. We generate revenue from our China retail marketplaces – Taobao Marketplace, Tmall and Juhuasuan – primarily through the monetization models described below. In the twelve months ended June 30, 2014, 78.1% of GMV on our China retail marketplaces was settled through Alipay. The percentage of GMV transacted on our China retail marketplaces that settles through Alipay does not vary significantly across such marketplaces. In fiscal year 2014, 69.4% and 28.1% of our China retail marketplaces revenue were generated from online marketing services and commissions, respectively.



• Online Marketing Services. Online marketing services consist of:

P4P marketing services, where sellers bid for keywords that match product or service listings appearing in search or browser results on a cost-per-click, or CPC, basis at prices established by our online auction system, which facilitates price discovery through a market-based bidding mechanism. P4P marketing services are provided both on our marketplaces as well as through third-party marketing affiliates;

Display marketing, where sellers bid for display positions on the relevant marketplaces or through our third-party marketing affiliates at fixed prices or prices established by a real-time bidding system on a cost-per-thousand impression, or CPM, basis;

For both P4P marketing and display marketing services, we generate a portion of such revenue through third-party marketing affiliates. Revenue from P4P and display marketing services provided through third-party marketing affiliates represented 6.6%, 6.4%, 6.0% and 5.1% of our total revenue in fiscal years 2012, 2013 and 2014 and the three months ended June 30, 2014, respectively.

Taobaoke program, where sellers on Taobao Marketplace and Tmall pay us commissions based on a percentage of GMV for transactions settled through Alipay from users sourced from third-party marketing affiliates. Commissions on Taobaoke are set by the sellers and depend on the amount the seller is willing to pay to generate incremental sales through this channel. A significant portion of that commission (of which only our share is recognized as our revenue) is shared with our third-party marketing affiliates; and



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Placement Services, where sellers pay placement fees to purchase promotional slots on our Juhuasuan marketplace for a specified period;



• Commissions on Transactions. In addition to purchasing online marketing services, sellers on Tmall and Juhuasuan also pay a commission based on a percentage of GMV for transactions settled through Alipay in the respective marketplaces. The commission percentages typically range from 0.3% to 5% depending on the product category. The commission rate we establish varies according to our estimate of the industry profit margins in specific product categories, which we believe mainly determines the amount a seller is willing to pay to generate sales or attract buyers through this channel, and our strategic considerations. For example, for categories that typically have lower gross margins, such as consumer electronics, we charge a lower commission rate, whereas for categories such as apparel and luxury goods, where gross margins are generally higher for the merchants, we charge a higher commission rate; and



• Storefront Fees. Our revenue from storefront fees is primarily comprised of monthly subscription fees for Wangpu ( LOGO ), our storefront software that includes a suite of tools that assist sellers in upgrading, decorating and managing their storefronts.





Marketplace or platform


Purchaser of services:

Taobao Marketplace(1)

Tmall

Juhuasuan


Taobao Marketplace sellers

• P4P marketing fees

• Display marketing fees

• Not applicable

• Commissions

• Placement fees


• Taobaoke commissions

• Storefront fees



Tmall merchants

• P4P marketing fees

• Display marketing fees

• Commissions

• Commissions


• P4P marketing fees

• Display marketing fees

• Taobaoke commissions

• Placement fees




(1) Revenue from Taobao Marketplace also includes lottery commissions.

China Commerce Wholesale. We generate revenue from our China wholesale marketplace – 1688.com – primarily through:



• Fees from Memberships and Value-added Services. Revenue from our China wholesale marketplace is primarily generated from the sale of China TrustPass memberships, which allow wholesalers to host premium storefronts, with access to basic data analytic applications, and upgraded storefront management tools, as well as from value-added services, such as premium data analytics. In fiscal year 2014, 74.1% of our China wholesale marketplace revenue was generated from fees from memberships and value-added services.



• Online Marketing Services. Revenue from online marketing services on our China wholesale marketplace is derived from P4P marketing services and keyword bidding. In fiscal year 2014, 25.9% of our China wholesale marketplace revenue was generated from online marketing services.

Historically, 1688.com was a marketplace that enabled buyers to locate sellers and find products, and it did not enable buyers and sellers to transact with each other through the platform. We have extended our business model to create a transaction platform on 1688.com to enable wholesalers to transact with buyers, the majority of whom are merchants on our retail marketplaces. Buyers and sellers are able to conduct transactions through Alipay directly on 1688.com and have access to settlement and other services on the platform. We have not yet determined what methods we will use to monetize this transaction service.



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International Commerce Retail. We generate revenue from our international commerce retail marketplaces, primarily AliExpress, through commissions, which are 5% of GMV for transactions settled through Alipay. We also generate revenue on AliExpress from sellers who participate in the third-party marketing affiliate program for this marketplace. Revenue generated by the third-party marketing affiliate program is in addition to the 5% commission sellers pay. In the twelve months ended June 30, 2014, 65% of GMV generated on AliExpress was settled through Alipay.

International Commerce Wholesale. We generate revenue from our global wholesale marketplaces – Alibaba.com – primarily through:



• Fees from Membership and Value-added Services. Revenue from our global wholesale marketplace is primarily generated from the sale of our Gold Supplier memberships on Alibaba.com, which allow wholesalers to host premium storefronts, with product listings on the marketplace, as well as value-added services, such as product showcase, custom clearance, value-added tax, or VAT, refund and other import/export business solutions. In fiscal year 2014, 87.6% of our global wholesale marketplace revenue was generated from fees from memberships and value-added services.



• Online Marketing Services. Revenue from online marketing services on our global wholesale marketplace is primarily derived from P4P marketing services. In fiscal year 2014, 12.4% of our global wholesale marketplace revenue was generated from online marketing services.

Cloud Computing and Internet Infrastructure. We generate revenue from cloud computing and Internet infrastructure services primarily from the time- and usage-based provision of cloud computing services, such as elastic computing, database services and storage and large scale computing services, as well as from web-hosting and domain name registration.

Others. We generate revenue from other services that we provide to our marketplace participants, including micro-finance services through our SME loan business.

Our Operating Philosophy

Our operating philosophy is to manage our various business units to a single profit and loss, or “P&L,” rather than setting compartmentalized P&L targets for each business unit. We believe placing specific financial targets, such as revenue, margin or profit, for individual businesses or managers would create barriers against cooperation, damage the network effects among our marketplaces and negatively impact the long-term profit potential of our business. We instead ask our managers to be accountable for operating metrics that reflect the health of our marketplaces and the contribution of their units to our entire business. We believe this approach is consistent with the spirit of the Alibaba Partnership as it closely aligns interests, encourages collaboration and focuses leaders on building a sustainable and thriving ecosystem.

We do not manage our business by allocating revenue among individual marketplaces or business units. We assess the financial performance of our business by reviewing revenues generated in the China commerce and international commerce categories and, within each category, between retail and wholesale. We cross-promote and provide services of our various marketplaces to our users. We believe this approach improves the user experience and enhances our monetization opportunities across our entire business. For example, when searching for product listings, buyers on Taobao Marketplace will also see products from Tmall merchants. In addition, Tmall merchants purchase online marketing services displayed on Taobao Marketplace. Furthermore, we do not manage the business by cross-charging for internal traffic acquisition cost between Taobao Marketplace and Tmall as we believe such cross-charge or cost allocation creates friction and discourages cooperation among business units. We believe this “cross-pollination” among marketplaces improves the buyer experience, is beneficial for our merchants and encourages and develops the network effects in our ecosystem.



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Factors Affecting our Results of Operations

Number and Engagement of Buyers and Sellers and GMV Transacted on Our Marketplaces. Buyers are attracted to our marketplaces by the breadth and depth of product listings, the attractive online shopping experience and the convenient and secure payment and escrow services offered by Alipay. Sellers are attracted to our marketplaces by our strong user traffic as well as the marketing, cloud computing, sourcing, data and communications services we offer, which allow them to effectively target potential buyers and operate more efficiently. The GMV transacted on our marketplaces is driven by the level of user traffic visiting our marketplaces, buyer engagement and activity on our marketplaces, the relevance of product or service listings when a user searches or browses our content and the number of product categories from which buyers purchase products and services.

Our Ability to Achieve and Increase Monetization.

Retail marketplaces. We primarily generate our revenue from monetization models that include online marketing services, such as P4P marketing services, as well as commissions based on a percentage of GMV transacted on Tmall, Juhuasuan and AliExpress and settled through Alipay. Our ability to increase monetization is affected by a number of factors, including:



• the GMV mix between Taobao Marketplace and Tmall. An increase in the GMV contribution of Tmall as a portion of total GMV enhances our ability to increase revenue because Tmall merchants generally pay marketing service fees for their products to be displayed on Taobao Marketplace and Tmall in addition to commissions. Accordingly, for the same amount of GMV transacted on our China retail marketplaces, the average amount of revenue we generate from Tmall merchants is higher than from Taobao Marketplace merchants; and



• the category mix of GMV transacted on our marketplaces. Our ability to monetize GMV transacted on our marketplaces is related to the profitability of various product categories to the seller and the seller’s ability and willingness to pay customer acquisition or sales generation costs in the form of fees for online marketing services or commissions. For example, for categories that generally have lower gross margins for the merchants, such as consumer electronics, we typically achieve lower monetization rates, whereas for categories such as apparel, where gross margins are generally higher for the merchants, we can achieve higher monetization rates.

Monetization of our mobile platforms. The increasing use of mobile devices to access our marketplaces requires us to develop and improve mobile monetization technologies. The success of this effort will be increasingly important to the extent shopping on mobile devices displaces transactions that could have occurred on personal computers. We expect mobile GMV as a percentage of total GMV will continue to grow, as we see increasing number of users accessing our platforms through mobile devices. Our mobile MAUs were 188 million in the month ended June 30, 2014, compared with 163 million in the month ended March 31, 2014 and 136 million in the month ended December 31, 2013. We believe that users of our mobile apps have commercial intent and that our display of performance-based mobile marketing services provides useful content for users in a native format. Our current focus is on increasing mobile GMV and user engagement.

We are working with merchants on our marketplaces to increasingly take advantage of our mobile interfaces to drive growth in their businesses. While mobile GMV is increasing, we expect monetization rates for mobile interfaces in the near term will be lower than those we have achieved from personal computer interfaces. Over time, we expect the increasing use of mobile devices to have a positive impact on our business. We expect that our mobile monetization rates will continue to approach the rates we realize on our personal computer interfaces as:



• we enhance our mobile-based marketing products for sellers;



• we realize the benefits associated with the increased convenience of mobile shopping;



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• our sellers utilize the ability of our mobile shopping apps to provide more personalized and targeted marketing messages to buyers, including location-based promotions;



• our mobile shopping apps make it easier to do business anywhere, anytime; and



• payment apps developed by Alipay facilitate seamless mobile transactions.

The impact of growth in mobile activity is particularly significant on our China retail marketplaces. The following table sets forth information with respect to GMV, revenue and rates of monetization realized in respect of our China retail marketplaces for the periods presented:




Three months ended
Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014
(in millions of RMB except percentages)

China retail marketplaces:


GMV
209,221 228,068 345,696 294,184 345,134 373,659 528,709 430,085 500,916

Mobile GMV
9,583 12,703 25,661 31,507 41,299 54,823 104,391 118,001 164,428

as a percentage of GMV
4.6 % 5.6 % 7.4 % 10.7 % 12.0 % 14.7 % 19.7 % 27.4 % 32.8 %

Revenue
5,028 5,600 9,588 6,754 8,667 8,645 16,149 9,371 12,639

Mobile revenue
42 60 140 147 240 332 1,171 1,162 2,454

as a percentage of revenue
0.8 % 1.1 % 1.5 % 2.2 % 2.8 % 3.8 % 7.3 % 12.4 % 19.4 %


Monetization rate
2.40 % 2.46 % 2.77 % 2.30 % 2.51 % 2.31 % 3.05 % 2.18 % 2.52 %

Mobile monetization rate
0.44 % 0.47 % 0.55 % 0.47 % 0.58 % 0.61 % 1.12 % 0.98 % 1.49 %

Over time, we have begun to increasingly monetize mobile GMV beyond commissions through the introduction of online marketing services through mobile interfaces. As a result of these monetization efforts, our mobile monetization rate began to increase significantly starting from the three months ended December 31, 2013. The mobile monetization rate of 1.49% in the three months ended June 30, 2014 was more than double the 0.58% in the same period in the prior year, while mobile revenue increased by 923% over the same period.

Wholesale Marketplaces. Revenue on our wholesale markets – 1688.com and Alibaba.com – is primarily driven by the number of paying members, membership renewal rates and other value-added marketing services we provide to members. The number of buyers using our wholesale marketplaces will affect sellers’ willingness to purchase and renew membership packages with us and to use our marketing services. We periodically review ways to increase value for our participants and create new monetization opportunities for our wholesale marketplaces. For example, going forward, we may generate revenue on 1688.com through monetization of activity on the transaction platform, although we have not yet determined what methods we will use to monetize this transaction service.

Perception of Merchants of the Expected Value of Marketing Spending across Periods. On our China retail marketplaces, revenue may be viewed as the fees sellers are willing to pay to distribute and promote their products and services, build their brands and acquire more customers through our marketplaces. The willingness of a seller to pay these fees is a function of the sales and profit the seller expects to generate on our marketplaces. These fees may be derived from online marketing services, commissions or from various other fee-based services. The mix of services chosen by a seller to achieve its business goals and promote its products and storefronts may shift over time. On an annual basis, revenue generally grows at a similar rate as GMV, even though the differential between GMV and revenue growth rates is more pronounced on a quarterly basis. Due to promotional events and higher consumer spending in the quarters ended June 30 and December 31, merchants are inclined to allocate more of their marketing spending during these periods to compete for and attract this consumer spending, which therefore drives revenue growth during those periods disproportionately to GMV growth and because increased demand for such services also increases pricing. Conversely, during the quarters ending September 30 and March 31, when merchants expect lower seasonal sales, they generally allocate less advertising spend and revenue growth is less pronounced than GMV growth. These trends tend to even out over any given year such that revenue growth correlates with GMV growth on an annual basis.



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Operating Leverage of Our Marketplace Business Model. Our business model has significant operating leverage and our ecosystem enables us to realize structural cost savings, particularly for our retail marketplace businesses. For example, Taobao Marketplace drives significant traffic to Tmall as Tmall product listings also appear on Taobao Marketplace search result pages. In addition, promotional slots purchased on Juhuasuan by Taobao Marketplace and Tmall sellers also drive buyers to Taobao Marketplace and Tmall storefronts, thereby enabling sellers to introduce buyers to additional product and service offerings beyond those featured on the particular Juhuasuan promotion and drive additional user traffic. This network effect allows for lower traffic acquisition costs across our marketplaces. In addition, due to the large number of buyers on our marketplaces, we are able to attract a large number of sellers, which in turn provides a strong source of customers for our online marketing and storefront services. Sellers purchase marketing services through a self-service platform on our China retail marketplaces. As a result, we do not rely on a field sales force to generate revenue for our China retail marketplaces. Our business model also enables us to avoid the costs, risks and capital requirements associated with sourcing merchandise or holding inventory.

Our Investment in User Base, Technology, People and Infrastructure. We have made, and will continue to make, significant investments in our platform and ecosystem to attract consumers and businesses, enhance user experience and expand the capabilities and scope of our marketplaces. We expect our investments will include developing and marketing new online and mobile products and services, enhancing our cloud computing business, including YunOS, an operating system for mobile and entertainment devices, and developing new tools and enablers to attract additional buyers and sellers to our marketplaces. Our operating leverage and margin levels enable us to continue to invest in our people, particularly engineers, scientists and product management personnel, as well as in our underlying technology infrastructure. In addition, as a result of our financial strength, we expect to invest in new and existing businesses which will lower our margins but deliver overall long-term growth.

Strategic Investments and Acquisitions. We have made, and intend to continue to make, strategic investments and acquisitions to expand our user base and add complementary products and technologies. For example, we expect to continue to make strategic investments and acquisitions relating to mobile, O2O services, digital media and category expansion as well as logistics services. Our strategic investments and acquisitions may affect our future financial results. For example, our recently completed acquisitions, including UCWeb, OneTouch and Alibaba Pictures, resulted in an increase of approximately 3,200 additional employees but are not expected to materially increase our revenue in the short term. Our acquisition of AutoNavi, which closed in the quarter ending September 30, 2014, is similarly not expected to materially increase our revenue in the short term. Moreover, we expect acquisitions of entities with lower overall margins than our margins will have the effect of lowering our margins.



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Components of Results of Operations

Revenue

The following table sets forth the principal components of our revenue for the periods indicated:




Year ended March 31, Three months ended June 30,
2012 2013 2014 2013 2014
RMB % of
revenue RMB % of
revenue RMB US$ % of
revenue RMB % of
revenue RMB US$ % of
revenue
(in millions, except percentages)

China commerce


Retail
13,422 67.0 % 26,970 78.1 % 42,832 6,904 81.6 % 8,667 80.4 % 12,639 2,037 80.1 %

Wholesale
2,215 11.1 % 2,197 6.4 % 2,300 371 4.4 % 526 4.9 % 709 115 4.5 %


Total China commerce
15,637 78.1 % 29,167 84.5 % 45,132 7,275 86.0 % 9,193 85.3 % 13,348 2,152 84.6 %


International commerce


Retail
223 1.1 % 392 1.1 % 938 151 1.8 % 179 1.7 % 358 58 2.3 %

Wholesale
3,542 17.7 % 3,768 10.9 % 3,913 631 7.4 % 938 8.7 % 1,111 179 7.0 %



Total International commerce
3,765 18.8 % 4,160 12.0 % 4,851 782 9.2 % 1,117 10.4 % 1,469 237 9.3 %

Cloud computing and Internet infrastructure
515 2.6 % 650 1.9 % 773 125 1.5 % 174 1.6 % 236 38 1.5 %

Others
108 0.5 % 540 1.6 % 1,748 281 3.3 % 294 2.7 % 718 115 4.6 %


Total revenue
20,025 100.0 % 34,517 100.0 % 52,504 8,463 100.0 % 10,778 100.0 % 15,771 2,542 100.0 %


GMV
663,412 1,077,169 1,677,587 270,422 345,134 500,916 80,746

We generate substantially all of our revenue from our retail and wholesale marketplaces. We also earn revenue from services associated with our cloud computing and Internet infrastructure services as well as other revenue primarily consisting of interest income generated by our SME loan business. See “— Our Monetization Model.” Substantially all of our revenue is attributable to our businesses in China.

Cost of Revenue

The principal components of our cost of revenue include: payment processing fees paid to Alipay or other financial institutions; traffic acquisition costs paid to third-party marketing affiliates either at a fixed price or on a revenue sharing basis; expenses associated with the operation of our websites, such as bandwidth and co-location fees, and depreciation and maintenance expenses for our computers, servers, call centers and other equipment; salary, bonuses, benefits and share-based compensation expense relating to customer service and web operation personnel and payment processing consultants; unit-volume driven rebates; business taxes and related surcharges; and allowance for doubtful accounts in relation to the micro loans. Due to tax reform in China that replaced the business tax with VAT, which is netted against revenue, business tax is no longer a significant part of cost of revenues starting from late fiscal year 2013.

Product Development Expenses

Product development expenses primarily include salaries, bonuses, benefits and share-based compensation expense for our employees engaged in the development, maintenance and enhancement of the infrastructure, applications, operating systems, software, databases and networks for our marketplaces, mobile products and service platforms. In addition, product development expenses include royalty fees paid to Yahoo pursuant to the



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Yahoo TIPLA. These royalty fees will terminate upon completion of this offering. We expense all of our product development costs as they are incurred.

Sales and Marketing Expenses

Sales and marketing expenses primarily consist of online and offline advertising expenses, promotion expenses, sales commissions paid for membership acquisition for our wholesale marketplaces, and salaries, bonuses, benefits and share-based compensation expense for our employees engaged in sales and marketing functions.

General and Administrative Expenses

General and administrative expenses consist mainly of salaries, bonuses, benefits and share-based compensation expense for our management and administrative employees, professional services fees, office facilities, other support overhead costs and charitable contributions. In fiscal year 2014, these expenses included an equity-settled donation expense of RMB1,269 million (US$205 million) relating to the grant of options to purchase 50,000,000 of our ordinary shares to a non-profit organization designated by Jack Ma and Joe Tsai. As there are no vesting conditions attached to the above share options, equity-settled donation expense of RMB1,269 million (US$205 million) was recognized in full. See note 9 to our consolidated financial statements for the years ended March 31, 2012, 2013 and 2014 included elsewhere in this prospectus for further information on this expense.

Other Income, Net

Other income, net primarily consists of royalty fees and software technology service fees paid by Alipay as well as government grants. Alipay pays us royalty fees and software technology service fees pursuant to an intellectual property and software technology services agreement. In August 2014, we, Small and Micro Financial Services Company and Alipay amended the terms of the intellectual property and software technology services agreement, including the amount of the royalty fees and service fees. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — Alipay Intellectual Property License and Software Technology Services Agreement” for further information on the arrangements between us and Alipay. Government grants primarily relate to grants by central and local governments in connection with our contributions to technology development and investments in local business districts. These grants may not be recurring in nature, and we recognize such income when the grants are received and no further conditions need to be met.

Interest Expense

Our interest expense is comprised of interest payments, incidental charges associated with our bank borrowings and dividends on our redeemable preference shares. Our interest expense became more significant starting from fiscal year 2013 as a result of our previous credit facilities with an aggregate principal amount of US$4.0 billion, which were used to fund our privatization of Alibaba.com and to partially finance the repurchase of our ordinary shares from Yahoo in September 2012, and the payment of dividends on the US$800 million redeemable preference shares we issued to Yahoo in September 2012. We have also incurred interest expense and transaction costs in connection with the US$8.0 billion credit facility that we obtained in April 2013, which was fully drawn down as of June 30, 2014. The US$8.0 billion credit facility has a lower average interest rate than that of the US$4.0 billion credit facilities. In addition, we obtained a US$3.0 billion revolving credit facility in August 2014, which we have not yet drawn.

Income Tax Expense

Our income tax expense is comprised primarily of current tax expense, mainly attributable to certain profitable subsidiaries in China, and deferred tax expense, mainly including withholding tax on dividends to be distributed by our major subsidiaries operating in China.



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Taxation

Cayman Islands Profits Tax

Under Cayman Islands law, our company is not subject to income, corporation or capital gains tax, and no withholding tax is imposed upon the payment of dividends.

Hong Kong Profits Tax

Our company’s subsidiaries incorporated in Hong Kong were subject to Hong Kong profits tax rate of 16.5% in fiscal years 2012, 2013 and 2014.

PRC Income Tax

Under the PRC Enterprise Income Tax Law, or EIT Law, the standard enterprise income tax rate is 25%. Entities qualifying as High and New Technology Enterprises enjoy a preferential tax rate of 15%. Entities recognized as Software Enterprises are exempt from the EIT for two years beginning from their first profitable year and are entitled to a 50% reduction in EIT for the following three years. Furthermore, entities recognized as key software enterprises within the PRC national plan enjoy a preferential EIT rate of 10%. Certain subsidiaries received the above preferential tax treatments during calendar years 2012 and 2013. One of our major subsidiaries in China, Zhejiang Tmall Technology Co. Ltd., or ZTT, which is a wholly foreign-owned enterprise primarily involved in the operation of Tmall, is currently in its third profitable year, and as a result is no longer fully exempt from paying EIT but will be subject to an EIT rate of 12.5% (or 50% of the standard statutory rate) in calendar years 2014, 2015 and 2016, and to an EIT rate of 15% thereafter for so long as the subsidiary continues to qualify as a High and New Technology Enterprise. Accordingly, we expect our effective tax rate to increase in fiscal year 2015. Had ZTT been subject to an EIT rate of 12.5% or 15.0% for the entire fiscal year 2014, our overall effective tax rate, after taking into account the 5% withholding tax on our distributable earnings, would have been 20.0% or 22.0%, respectively, in fiscal year 2014 instead of 11.9%.

Business Tax, VAT and Other Levies

Our PRC subsidiaries were subject to business tax and related surcharges on the revenue earned for services provided in China. The applicable business tax rate was 5%. In our consolidated income statement, business tax and related surcharges for revenue earned from customers are recognized as cost of revenue. Effectively starting from late fiscal year 2013, our major PRC subsidiaries became subject to VAT on revenue earned for most services under a national VAT reform program which replaced the business tax regime in China. In general, the applicable VAT rate on the revenue earned for services is 6% with companies entitled to credit VAT paid on certain purchases against VAT on sales. Revenue is recognized net of VAT in our consolidated income statement.

PRC Withholding Tax

Pursuant to the EIT Law, a 10% withholding tax is generally levied on dividends declared by companies in China to their non-resident enterprise investors. A lower withholding tax rate of 5% is applicable for direct foreign investors incorporated in Hong Kong with at least a 25% equity interest in the PRC company and who meet the relevant conditions or requirements pursuant to the tax arrangement between the PRC and Hong Kong. As the equity holders of our major subsidiaries in China are qualified Hong Kong incorporated companies, our deferred tax liabilities for distributable earnings are calculated based on a 5% withholding tax.

Share-based Compensation

We have various equity incentive plans pursuant to which the employees, consultants and directors of our company, our affiliates and certain other companies are granted options or awarded RSUs to acquire our ordinary



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shares. We believe share-based awards are vital to attract, motivate and retain our employees, and in the case of grants to non-employees, to incentivize such non-employees. In addition to on-hire grants for new recruits above a specific job level, we also make performance grants and promotion grants on an annual basis to our top performing employees. RSUs and share options granted in the above categories are generally subject to a four-year vesting schedule. Depending on the nature and the purpose of the grant, share options and RSUs generally vest 25% upon the first anniversary of the vesting commencement date or 50% upon the second anniversary of the vesting commencement date, and thereafter 25% every year. We believe share-based awards are the appropriate tool to align the interests of the grantees with those of our shareholders.

We recognized share-based compensation expense of RMB1,254 million, RMB1,259 million and RMB2,844 million (US$458 million) in fiscal years 2012, 2013 and 2014, respectively, representing 6.3%, 3.6% and 5.4% of our revenue in those respective periods. Share-based compensation expense is affected by the fair value of our shares, including in the case of share-based awards to non-employees, changes in the fair value of our shares over the requisite service period, which could result in fluctuations in share-based compensation expense for the unvested portion of any award, and the quantity of awards granted. See “— Critical Accounting Policies and Estimates — Share-based Compensation Expense and Valuation of Our Ordinary Shares” for additional information regarding our share-based compensation expense.

Recent Investment, Acquisition and Strategic Alliance Activities

In addition to organic growth, we have made, or have entered into agreements to make strategic investments, acquisitions and alliances that are intended to increase our service offerings and expand our capabilities. The financial results for these strategic transactions that were completed are reflected in our operating results beginning with the period of their respective completion. Minority investments are accounted for under the equity method if we have significant influence through investment in common stock or in-substance common stock over the investees, or otherwise under the cost method.

Our investment and acquisition strategy focuses on enhancing three aspects of our business: increasing user acquisition and engagement, improving customer experience, and expanding our products and services. In doing so, we aim to remain focused on our mission to make it easy to do business anywhere and realize our vision that our customers will “meet, work and live @ Alibaba.” See “Business — Our Vision.”

Consistent with our goal to deliver sustainable, long-term growth, we take a deliberate and staged approach to our corporate development strategy. In some cases, we may begin with an initial minority investment followed by business cooperation. Where the business results, cooperation and the overall relationship established with the management of the investee company fit with our ongoing business strategy, we may increase our investment or acquire the investee company in full. Examples of this type of approach include our investments in UCWeb Inc., or UCWeb, AutoNavi Holdings Limited, or AutoNavi, and Weibo Corporation, or Weibo, where the period from initial investment to eventual acquisition or increase in investment spanned across more than one fiscal year. Our investment approach also involves supporting entrepreneurs to innovate and develop leading products and technologies.

The following summary illustrates our execution of our investment and acquisition strategy.

Increasing User Acquisition and Engagement



• We recently completed the acquisition of UCWeb, China’s largest mobile browser company in terms of monthly mobile active users, according to iResearch, which had 264 million active users globally during June 2014, providing us with access to hundreds of millions of mobile users.



• We invested in Guangzhou Evergrande Football Club, or Evergrande FC, China’s first-ever winner of the Asian Football Confederation Champions League Cup, which would potentially provide us with a marketing platform with access to millions of soccer fans across China.



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• We invested in Weibo, a leading social media platform in China, to increase user acquisition and engagement on our marketplaces, as well as gain insights into our and Weibo’s users for improved service offerings and targeted marketing. We believe this can be accomplished through the equity investment relationship which encourages close cooperation on content, behavior data integration and marketing solutions.

Improving Customer Experience



• We invested in Haier Electronics Group Co., Ltd., or Haier, a leading “white goods” appliances manufacturer in China, and established a logistics joint venture with Haier specializing in the delivery, installation and servicing of large appliances such as refrigerators and air conditioners to provide high quality after-sale customer service to consumers who shop for appliances on our China retail marketplaces.



• We invested in one of China’s leading department store operators, Intime Retail (Group) Company Limited, or Intime, to develop a new “offline-to-online” multi-channel retailing model that would enable users to purchase online inventory through their mobile devices while shopping in physical stores. This new model, if successful, could be rolled out to other department stores, shopping malls and supermarkets.



• Through our investment relationships, we work with one of the leading Internet television companies in China, Youku Tudou Inc., or Youku Tudou, and Weibo, to enhance our insights into user behavioral data in commerce, entertainment and social media. We believe that through these insights, we and our business partners will be able to enhance the quality of services to users and improve targeted marketing for online marketing customers.

Expanding Products and Services



• We have invested, entered into agreements to invest in or established strategic arrangements with leading media content providers and distributors such as Youku Tudou, Alibaba Pictures Group Limited (formerly known as ChinaVision Media Group Ltd.), or Alibaba Pictures, and an affiliate of Wasu Media Holdings Co., Ltd., or Wasu, to advance our “live @ Alibaba” vision of making digital media entertainment available to our customers anywhere, anytime.



• We invested in and later acquired AutoNavi, one of China’s leading providers of digital map, navigation and location-based services, so that we can develop and provide O2O and location-based services to our increasing mobile commerce user base.



• We invested in CITIC 21CN Company Limited, or CITIC 21, a leading developer of product identification, authentication and tracking systems for pharmaceuticals and medical products in China, to enable us to expand into e-commerce in the pharmaceutical and healthcare categories, as well as foster consumer trust through the sale of genuine pharmaceuticals through the company’s verification and authentication technology.

We have funded our strategic acquisitions and investments primarily from cash generated from our operations and from credit facilities. Going forward, we expect to fund any additional investments through cash generated from our operations and through debt and equity financing. Our recently completed acquisitions, including UCWeb, OneTouch and Alibaba Pictures, resulted in an increase of approximately 3,200 additional employees but are not expected to materially increase our revenue in the short term. Our acquisition of AutoNavi, which closed in the quarter ending September 30, 2014, is similarly not expected to materially increase our revenue in the short term. Moreover, we expect that acquisitions of entities with lower overall margins than our margins will have the effect of lowering our margins. Although we expect our margins to be negatively affected by acquisitions of target companies with lower margins, we do not expect our investment activities to have any significant negative impact on our liquidity or operations. However, there can be no



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assurance that our future financial results would not be materially and adversely affected if our strategic investments and acquisitions are not successful. See “Risk Factors — Risks Related to Our Business and Industry — Increased investments in our business may negatively affect our margins” and “— Risks Related to Our Business and Industry — We face risks relating to our acquisitions, investments and alliances.”

Our significant recent and pending strategic investments and acquisitions are set forth below and are categorized by business area. For those investments and acquisitions described below that have not yet closed, there can be no assurance that the closing conditions will be satisfied in a timely manner or at all.

Mobile

UCWeb, China’s largest mobile browser company in terms of monthly mobile active users, according to iResearch. Over several years through several rounds of investments, the last of which was completed in April 2014, we acquired 66% of the economic interests of UCWeb in the form of convertible preferred shares. In June 2014, we exchanged all the issued and outstanding shares in UCWeb held by the other shareholders with cash of US$458 million and restricted shares and RSUs in the aggregate number of 12.3 million.

Weibo, a leading social media platform in China that is listed on the Nasdaq Global Select Market. In April 2013, we entered into an agreement to form a strategic alliance with Weibo to jointly explore social commerce and develop innovative marketing solutions. In addition, we invested US$586 million to purchase preferred and ordinary shares representing an approximately 18% equity interest in Weibo on a fully-diluted basis. In connection with Weibo’s initial public offering in April 2014, we acquired additional shares of Weibo for an aggregate purchase price of US$449 million pursuant to our option to increase our equity interest in Weibo to approximately 30% on a fully-diluted basis. All of the preferred shares we held in Weibo were automatically converted into ordinary shares of Weibo upon completion of Weibo’s initial public offering.

TangoMe, Inc., or Tango, a leader in mobile messaging services based in the United States offering free voice, video and text messaging to consumers globally. In March 2014, we completed an investment in preferred shares in Tango, representing a 20% equity interest on a fully-diluted basis. The total purchase price consisted of cash of US$200 million. In April 2014, we invested an additional US$17 million to maintain our 20% equity interest.

O2O

AutoNavi, a leading provider of digital map content and navigation and location-based solutions in China that was previously listed on the Nasdaq Global Select Market. In May 2013, in order to enhance our O2O and location-based services, we invested US$294 million in newly issued preferred and ordinary shares of AutoNavi, representing approximately 28% of its total issued and outstanding shares on a fully-diluted basis. In April 2014, we entered into a definitive merger agreement with AutoNavi, pursuant to which the shareholders of AutoNavi will receive US$5.25 in cash per ordinary share of AutoNavi, corresponding to US$21.00 per American depositary share. We paid the total merger consideration of approximately US$1,032 million upon the closing of the merger in July 2014.

Intime, a company that is listed on the Hong Kong Stock Exchange and is primarily engaged in the business of managing and operating department stores and shopping malls in China. In July 2014, we completed our subscription for newly issued ordinary shares representing approximately 9.9% equity interest in Intime and convertible bonds which upon conversion would increase our equity interest in Intime to approximately 26%. We paid the total purchase price of approximately HK$5,368 million upon the closing of the above-mentioned transactions. In July 2014, we established a joint venture with Intime, in which we paid approximately US$13 million for an 80.1% equity interest in the joint venture, to develop an O2O business in China relating to shopping malls, department stores and supermarkets.



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Digital Media and Entertainment

Youku Tudou, one of China’s leading Internet television companies that is listed on the New York Stock Exchange. In May 2014, we, through a holding company, completed an investment in Class A ordinary shares of Youku Tudou, representing an effective equity interest of 16.5% on a fully-diluted basis. The shares include newly issued Class A ordinary shares and Class A ordinary shares purchased from an existing shareholder, at a purchase price of US$1.6944 per Class A ordinary share, corresponding to US$30.50 per American depositary share. We appointed one director to Youku Tudou’s board of directors and we paid the total investment amount of US$1,090 million upon the closing of the transaction.

Alibaba Pictures (formerly known as ChinaVision), a company listed on the Hong Kong Stock Exchange and primarily engaged in production and distribution of films and television programs. In June 2014, as part of our digital media strategy, we completed an investment in newly issued ordinary shares representing approximately 60% of the issued share capital of Alibaba Pictures. We paid the total purchase price of HK$6,244 million (RMB4,955 million) upon the closing of the transaction. As part of our integration strategy, we made a number of changes at the board and operating management levels of Alibaba Pictures, including appointing a new chief executive officer with significant experience in the film industry and a chief financial officer who is a former audit partner of one of the Big Four accounting firms. In addition, we appointed our chief risk officer as chairman of Alibaba Pictures and also appointed two new audit committee members from the financial and accounting industry. On August 14, 2014, Alibaba Pictures announced under Hong Kong Stock Exchange rules that there may be insufficient provision for impairments of certain assets and possible non-compliant accounting treatments for accounting periods prior to the completion of our investment. We made certain provisions to the value of assets that we acquired with a corresponding adjustment to goodwill for the purpose of our purchase price allocation in the course of preparing our unaudited interim condensed consolidated financial statements as of June 30, 2014. These provisions are not material to, and we have no reason to believe that the issues referred to in Alibaba Pictures’ August 14 announcement would materially affect, our overall financial position. Any subsequent changes to these estimates relating to the period prior to our investment will be retrospectively adjusted to the goodwill within the twelve month period from the completion of our investment.

Wasu, a company listed on the Shenzhen Stock Exchange and engaged in the business of digital media broadcasting and distribution in China. In April 2014, we entered into a full recourse loan with aggregate principal amount of RMB6.5 billion with Simon Xie, one of our founders, a vice president on our China investment team and an equity holder in certain of our variable interest entities, to finance a minority investment in Wasu by a PRC limited partnership. The proposed financing enables us to enter into strategic business arrangements with Wasu to enhance our digital entertainment strategy. The loan to Mr. Xie will be made at an interest rate of 8% per annum and is repayable in ten years. The loan will be collateralized by Mr. Xie’s equity interest in the limited partnership and by the shares of Wasu held by such limited partnership. We have entered into strategic cooperation agreements with a major shareholder of Wasu in order to enhance our capabilities and profile in the digital media sector in China. The drawdown of the loan is pending regulatory approval of the underlying investment, which has not yet been obtained. A company controlled by Jack Ma will serve as one of the general partners of the limited partnership. Yuzhu Shi, the founder, chairman and a principal shareholder of Giant Interactive, a China-based online game company that was previously listed on the New York Stock Exchange, and who is also an entrepreneur with significant experience in and knowledge of the media industry in China, serves as the other general partner. Jack, through his control of one of the general partners, and Mr. Shi, as the other general partner and the executive partner, jointly control this PRC limited partnership. Jack’s interest as a general partner is limited to the return of his RMB99,000 contributed capital.

Evergrande FC, one of the most popular soccer teams in China and China’s first ever winner of the Asian Football Confederation Champions League Cup. In July 2014, we completed an investment in newly issued shares which represents a 50% ownership interest in Evergrande FC. We paid the total cash consideration of RMB1.2 billion upon the closing of the transaction.



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Pharmaceuticals and Medical Products

CITIC 21, a company that is listed on the Hong Kong Stock Exchange and is primarily engaged in the business of developing product identification, authentication and tracking system for pharmaceutical and medical products in China. We believe that healthcare will be an important retail marketplace category in the future. In April 2014, we completed an acquisition of newly issued ordinary shares representing an effective equity interest of approximately 38% in CITIC 21. We paid the total purchase price of HK$932 million upon the closing of the transaction.

Logistics

Zhejiang Cainiao Supply Chain Management Co., Ltd., which we refer to as China Smart Logistics, an operator of a nationwide logistics infrastructure and information system. In May 2013, we joined with other partners and logistics services businesses in China to form a joint venture to build and operate China Smart Logistics. Other equity partners in China Smart Logistics include five major express delivery companies in China that provide services on our China retail marketplaces, as well as firms specializing in real estate development. We now own 48% of the joint venture and will subscribe for our proportionate share of the joint venture’s RMB5,000 million registered capital, or RMB2,400 million. As of June 30, 2014, we had invested RMB1,680 million, and we are committed to make the capital contribution payment in full by May 2015. See “Business — Other Major Elements of Our Ecosystem — Logistics.”

Haier, a company that is listed on the Hong Kong Stock Exchange and is principally engaged in the research, development, manufacture and sale of electrical appliances, especially large electrical appliances such as refrigerators and air conditioners. In March 2014, as part of our strategy for providing better delivery and installation services to our buyers of electrical appliances, we completed an acquisition of ordinary shares representing an approximately 2% equity interest in Haier, an acquisition of a 9.9% equity interest in a wholly-owned subsidiary of Haier, which is engaged in the logistics business in China, and a subscription for a convertible and exchangeable bond which is either convertible into an approximately 2.6% equity interest in Haier or exchangeable into an approximately 24% equity interest in the wholly-owned subsidiary of Haier engaged in logistics business in China, subject to the receipt of certain regulatory approvals. We paid the total purchase price of HK$2,821 million upon the closing of the transactions.

Singapore Post Limited, or SingPost, the national postal service provider in Singapore and a leading provider of e-commerce and logistics solutions in the Asia-Pacific region that is listed on the Singapore Stock Exchange. In July 2014, we completed our acquisition of ordinary shares in SingPost, which consists of newly issued ordinary shares and existing ordinary shares held in treasury by SingPost, representing approximately 10.32% of the issued share capital of SingPost. We paid the total purchase price of approximately S$313 million upon the closing of the transaction.

2014 Restructuring of Our Relationship with Small and Micro Financial Services Company and Alipay

On August 12, 2014, we entered into a share and asset purchase agreement, or the 2014 SAPA, and entered into or amended certain ancillary agreements including an amendment and restatement of the Alipay IPLA. Pursuant to these agreements, we restructured our relationships with Small and Micro Financial Services Company and its wholly-owned subsidiary Alipay, and terminated the 2011 framework agreement. Except for the transfer of the SME loan business, the restructuring contemplated by the 2014 SAPA and the ancillary agreements described below have taken effect and these agreements now govern our economic and commercial relationships with Small and Micro Financial Services Company and Alipay. We believe this restructuring will strengthen and benefit our company as well as better position us for future growth.

Pursuant to the 2014 SAPA, we agreed to sell, subject to receipt of regulatory approvals and other customary closing conditions, certain equity interests and assets primarily relating to the SME loan business and



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related services, or the transferred business, to Small and Micro Financial Services Company for aggregate cash consideration of RMB3,219 million (US$519 million). In addition, we entered into software system use and service agreements with entities operating the SME loans business relating to the know-how and related intellectual property that we have agreed to sell together with the SME loan business and related services to Small and Micro Financial Services Company. In calendar years 2015 to 2017, we will receive an annual fee equal to 2.5% of the average daily book balance of the micro loans made by such entities. In calendar years 2018 to 2021, we will receive an annual fee equal to the amount paid for the calendar year 2017, or collectively the SME annual fee.

In connection with the 2014 SAPA, we also entered into the amended Alipay IPLA, pursuant to which we will license certain intellectual property and provide certain software technology services related to Alipay’s current operations and the SME loan business. Under the amended Alipay IPLA, we will receive royalty streams and a service fee, or collectively the profit share payments, which will be paid at least annually, amounting to the sum of an expense reimbursement plus 37.5% of the consolidated pre-tax income of Small and Micro Financial Services Company, subject to certain adjustments. In addition, if we acquire any equity interest in Small and Micro Financial Services Company, we will transfer an agreed portion of the underlying intellectual property to Small and Micro Financial Services Company at the time of such equity issuance. At the same time, the profit share payments will also be reduced in proportion to such equity issuances made to us.

Pursuant to the terms of the 2014 SAPA, in the event of an initial public offering of Small and Micro Financial Services Company or Alipay at an implied equity value exceeding US$25 billion which results in gross proceeds of at least US$2 billion , or a qualified IPO, if our total ownership of equity interests in Small and Micro Financial Services Company has not reached 33%, we would be entitled at our election to receive a one-time payment equal to 37.5% of the equity value of Small and Micro Financial Services Company as determined immediately prior to such qualified IPO. There is no cap on the maximum value of such liquidity event payment. If we acquire equity interests in Small and Micro Financial Services Company in an aggregate amount less than 33%, the percentage of Small and Micro Financial Services Company’s equity value used to calculate such liquidity event payment will be adjusted proportionately.

For additional details of the new and amended agreements and a comparative summary of certain economic terms of the 2014 SAPA and related agreements and certain economic terms of the 2011 framework agreement and related agreements see “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries.”

For accounting purposes, as determined by an independent appraiser, the expected fair value of the restructured arrangement is expected to exceed the expected fair value of our pre-existing arrangement with Small and Micro Financial Services Company. As Small and Micro Financial Services Company is controlled by a director and major shareholder of our company, the excess value provided to us in this related party transaction is accounted for as an equity contribution by the shareholder. We are currently in the process of finalizing accounting and valuation work to determine the excess value, which we currently expect will be approximately RMB1.3 billion. Such excess amount is primarily attributable to the removal of the cap on the liquidity event payment, with the remainder attributable to the new profit sharing arrangement. Such excess amount will be amortized to our consolidated income statements over the expected term of the restructured arrangement, which is initially estimated to be five to eight years. Because such amortization is a non-cash expense, the future amortization expense will not impact our adjusted net income. In addition, as described above, we have agreed to sell the SME loan business to Small and Micro Financial Services Company. We will receive a premium over the book value of the SME loan business, which we expect will result in a gain of approximately RMB300 million. Finally, we will account for the profit share payments and the SME annual fee in the periods when the services are provided and such payments are expected to approximate the estimated fair values of the services provided.

Assuming the restructuring had been completed at the beginning of our most recent completed fiscal year, which ended on March 31, 2014, we would have generated additional income on a pro-forma basis from the



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annual fees based on the SME loan balance, offset by: (i) a decrease in other income resulting from the lower profit sharing percentage applicable to Alipay profits; (ii) the decrease in net income attributable to the disposed business; and (iii) additional amortization expense relating to the excess value of approximately RMB1.3 billion received from our restructured arrangements with Small and Micro Financial Services Company. The aggregate impact of these items, if the transaction occurred at the beginning of our fiscal year ended March 31, 2014, would represent a decrease of less than 2.5% of our net income for such fiscal year. The amortization of the excess value received from the restructuring, which is a non-cash expenses, would have been responsible for an approximately 1.1% decrease in our net income in fiscal year 2014. Under the restructuring, there is no change to our payment processing fees, which are recorded under costs of revenue, as there is no change to the economic terms of the existing commercial agreement.

Acquired Intangible Assets and Goodwill

We have and will continue to incur amortization expenses as we amortize acquired intangible assets over their estimated useful life. We do not amortize our goodwill. We test intangible assets and goodwill periodically for impairment, and any such impairment may materially and adversely affect our financial condition and results of operations. Some of our acquisitions and investments may not be successful, and we may incur impairment charges in the future. For additional information, see “— Critical Accounting Policies and Estimates — Impairment Assessment on Goodwill and Intangible Assets” and “Risk Factors — Risks Related to Our Business and Industry — We face risks relating to our acquisitions, investments and alliances.”



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Results of Operations

The following table sets out our consolidated results of operations for the periods indicated:




Year ended March 31, Three months ended June 30,
2012 2013 2014 2013 2014
RMB RMB RMB US$ RMB RMB US$
(in millions, except per share data)

Revenue


China commerce
15,637 29,167 45,132 7,275 9,193 13,348 2,152

International commerce
3,765 4,160 4,851 782 1,117 1,469 237

Cloud computing and Internet infrastructure
515 650 773 125 174 236 38

Others
108 540 1,748 281 294 718 115






























Total
20,025 34,517 52,504 8,463 10,778 15,771 2,542

Cost of revenue
(6,554 ) (9,719 ) (13,369 ) (2,155 ) (2,727 ) (4,585 ) (739 )

Product development expenses
(2,897 ) (3,753 ) (5,093 ) (821 ) (1,018 ) (1,952 ) (315 )

Sales and marketing expenses
(3,058 ) (3,613 ) (4,545 ) (733 ) (713 ) (1,212 ) (195 )

General and administrative expenses
(2,211 ) (2,889 ) (4,218 ) (679 ) (865 ) (944 ) (152 )

Amortization of intangible assets
(155 ) (130 ) (315 ) (51 ) (35 ) (234 ) (38 )

Impairment of goodwill and intangible assets
(135 ) (175 ) (44 ) (7 ) — — —

Yahoo TIPLA amendment payment
— (3,487 ) — — — — —






























Income from operations
5,015 10,751 24,920 4,017 5,420 6,844 1,103

Interest and investment income, net
258 39 1,648 266 466 6,828 1,100

Interest expense
(68 ) (1,572 ) (2,195 ) (354 ) (1,081 ) (410 ) (66 )

Other income, net
327 894 2,429 391 241 711 115






























Income before income tax and share of results of equity investees
5,532 10,112 26,802 4,320 5,046 13,973 2,252

Income tax expenses
(842 ) (1,457 ) (3,196 ) (515 ) (591 ) (1,445 ) (233 )

Share of results of equity investees
(25 ) (6 ) (203 ) (33 ) (7 ) (90) (14 )
















Net income
4,665 8,649 23,403 3,772 4,448 12,438 2,005

Net income attributable to noncontrolling interests
(437 ) (117 ) (88 ) (14 ) (4 ) (34 ) (6 )



Net income attributable to Alibaba Group Holding Limited
4,228 8,532 23,315 3,758 4,444 12,404 1,999

Accretion of convertible preference shares
— (17 ) (31 ) (5 ) (8 ) (8 ) (1 )

Dividends accrued on convertible preference shares
— (111 ) (208 ) (33 ) (52 ) (52 ) (8 )


Net income attributable to ordinary shareholders
4,228 8,404 23,076 3,720 4,384 12,344 1,990

Earnings per share attributable to ordinary shareholders


Basic
1.71 3.66 10.61 1.71 2.02 5.62 0.91

Diluted
1.67 3.57 10.00 1.61 1.93 5.20 0.84



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Year ended March 31, Three months ended
June 30,
2012 2013 2014 2013 2014
% % % % %
(as a percentage of revenue)

Revenue


China commerce
78.1 84.5 86.0 85.3 84.6

International commerce
18.8 12.0 9.2 10.4 9.3

Cloud computing and Internet infrastructure
2.6 1.9 1.5 1.6 1.5

Others
0.5 1.6 3.3 2.7 4.6






















Total
100.0 100.0 100.0 100.0 100.0

Cost of revenue
(32.7 ) (28.2 ) (25.5 ) (25.3 ) (29.1 )

Product development expenses
(14.5 ) (10.9 ) (9.7 ) (9.4 ) (12.4 )

Sales and marketing expenses
(15.3 ) (10.5 ) (8.7 ) (6.6 ) (7.7 )

General and administrative expenses
(11.0 ) (8.3 ) (7.9 ) (8.0 ) (6.0 )

Amortization of intangible assets
(0.8 ) (0.4 ) (0.6 ) (0.4 ) (1.4 )

Impairment of goodwill and intangible assets
(0.7 ) (0.5 ) (0.1 ) — —

Yahoo TIPLA amendment payment
— (10.1 ) — — —

Income from operations
25.0 31.1 47.5 50.3 43.4

Interest and investment income, net
1.3 0.1 3.1 4.3 43.3

Interest expense
(0.3 ) (4.6 ) (4.2 ) (10.0 ) (2.6 )

Other income, net
1.6 2.7 4.6 2.2 4.5


Income before income tax and share of results of equity investees
27.6 29.3 51.0 46.8 88.6

Income tax expenses
(4.2 ) (4.2 ) (6.1 ) (5.5 ) (9.2 )

Share of results of equity investees
(0.1 ) (0.0 ) (0.3 ) — (0.5 )


Net income
23.3 25.1 44.6 41.3 78.9

Net income attributable to noncontrolling interests
(2.2 ) (0.4 ) (0.2 ) (0.1 ) (0.2 )






















Net income attributable to Alibaba Group Holding Limited
21.1 24.7 44.4 41.2 78.7

Accretion of convertible preference shares
— (0.0 ) (0.1 ) (0.1 ) (0.1 )

Dividends accrued on convertible preference shares
— (0.3 ) (0.4 ) (0.4 ) (0.3 )






















Net income attributable to ordinary shareholders
21.1 24.4 43.9 40.7 78.3






















Comparison of Three Months Ended June 30, 2013 and 2014

Revenue




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

China commerce
9,193 13,348 2,152 45.2%

International commerce
1,117 1,469 237 31.5%

Cloud computing and Internet infrastructure
174 236 38 35.6%

Others
294 718 115 144.2%














Total revenue
10,778 15,771 2,542 46.3%














Total revenue increased by 46.3% from RMB10,778 million in the three months ended June 30, 2013 to RMB15,771 million (US$2,542 million) in the same period in 2014. The increase was mainly driven by the



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continued rapid growth of our China commerce retail business. Our revenue growth rate will likely decline as our revenue grows to higher levels.

China Commerce




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Revenue


China commerce retail business


Online marketing services
6,514 8,400 1,354 29.0%

Commission
1,880 4,026 649 114.1%

Others(1)
273 213 34 (22.0% )













8,667 12,639 2,037 45.8%

China commerce wholesale business
526 709 115 34.8%














Total
9,193 13,348 2,152 45.2%
















(1) Primarily consists of storefront fees.

Revenue from our China commerce retail business increased by 45.8% from RMB8,667 million in the three months ended June 30, 2013 to RMB12,639 million (US$2,037 million) in the same period in 2014.

Revenue growth during this period occurred in the context of and reflected an increase of 45.1% in GMV transacted on these marketplaces, including a 33.1% increase in GMV transacted on Taobao Marketplace from RMB257 billion in the three months ended June 30, 2013 to RMB342 billion (US$55 billion) in the same period in 2014 and an 80.7% increase in GMV transacted on Tmall from RMB88 billion in the three months ended June 30, 2013 to RMB159 billion (US$26 billion) in the same period in 2014. The overall increase in total GMV transacted on these marketplaces was primarily driven by a 50.8% increase in the number of buyers. The rapid increase in GMV transacted on Tmall in particular was attributable to the increase in the number of buyers making purchases on Tmall, reflecting consumer preferences for branded products and a premium shopping experience, increases in the level of spending of buyers and the beneficial impact of promotional events. Monetization rate during this period remained stable, with a slight increase from 2.51% in the three months ended June 30, 2013 to 2.52% in the same period in 2014. This reflected the higher GMV contribution from Tmall as a portion of total GMV and an increase in lottery commission income in June 2014 during the World Cup soccer competition, which resulted in higher growth in commission revenue. This was partially offset by a higher proportion of mobile GMV, which we are currently monetizing at a lower rate than GMV generated through personal computer interfaces. Mobile monetization rate increased from 0.58% in the three months ended June 30, 2013 to 1.49% in the same period in 2014.

Online marketing services revenue increased by 29.0% from RMB6,514 million in the three months ended June 30, 2013 to RMB8,400 million (US$1,354 million) in the same period in 2014. The lower growth rate of online marketing services revenue relative to the 45.1% growth of GMV transacted on our China retail marketplaces reflected the greater proportion of GMV generated on mobile devices. Mobile GMV accounted for 32.8% of total GMV in the three months ended June 30, 2014, up from 12.0% in the same period in 2013. This increase in mobile GMV reflected the ongoing shift of consumer engagement from personal computer interfaces to mobile devices. We currently monetize mobile GMV at a lower rate than GMV transacted on personal computer interfaces due to merchants allocating a smaller proportion of their budget to purchase online marketing services on mobile devices relative to the GMV generated on mobile devices. Consequently, mobile revenue accounted for 2.8% and 19.4% of China commerce retail business revenue during the three months ended June 30, 2013 and 2014, respectively, which was lower than the proportion of mobile GMV in the same



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periods. This lower proportion of revenue from mobile GMV, driven by lower but increasing levels of monetization, reflected our focus on prioritizing mobile user activity and engagement over monetization and the fact that we increased our efforts to promote online marketing services for mobile interfaces beginning in the three months ended December 31, 2013. The increase in online marketing services revenue during this period was primarily driven by a 39.2% increase in the number of clicks attributable to our P4P marketing services, which was partially offset by a 6.9% decrease in the cost-per-click paid by our merchants, reflecting a higher proportion of mobile marketing services, for which our merchants currently pay a lower cost-per-click than for marketing services placed through personal computer interfaces. To a lesser extent, our online marketing services revenue during this period was also positively impacted by an increase in the number of impressions displayed through our display marketing services.

Commission revenue increased by 114.1% from RMB1,880 million in the three months ended June 30, 2013 to RMB4,026 million (US$649 million) in the same period in 2014, primarily due to an 80.7% increase in GMV transacted on Tmall during the same period as well as an increase of RMB372 million (US$60 million) in lottery commission income from Taobao Marketplace mainly due to significantly higher activity in June 2014 during the World Cup soccer competition. While the published commission rates we charge by category remained relatively stable, our blended commission rate increased during this period due to a greater proportion of sales in product categories with higher commission rates. As Tmall GMV increased at a higher rate than Taobao Marketplace GMV, commission revenue grew at a faster rate than online marketing services revenue because we charge commissions on Tmall transactions. Commission revenue from transactions on Tmall is generated from both personal computer and mobile devices, for which commission rates are identical, and accordingly the ongoing shift of consumer engagement towards mobile devices did not negatively affect commission revenue from GMV transacted on Tmall.

Revenue from our China commerce wholesale business increased by 34.8% from RMB526 million in the three months ended June 30, 2013 to RMB709 million (US$115 million) in the same period in 2014. The increase in revenue was due to an increase in paying members and an increase in average revenue from paying members.

International Commerce




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Revenue


International commerce retail business
179 358 58 100.0%

International commerce wholesale business
938 1,111 179 18.4%














Total
1,117 1,469 237 31.5%














Revenue from our international commerce retail business increased by 100.0% from RMB179 million in the three months ended June 30, 2013 to RMB358 million (US$58 million) in the same period in 2014. The main reason for this increase was an increase in GMV transacted on AliExpress, primarily from the increasing number of buyers, particularly in Russia, Brazil and the United States.

Revenue from our international commerce wholesale business increased by 18.4% from RMB938 million in the three months ended June 30, 2013, of which 88.7% was from membership fees and value-added services and 11.3% was from online marketing services, to RMB1,111 million (US$179 million) in the same period in 2014, of which 86.4% was from membership fees and value-added services and 13.6% was from online marketing services. The increase in revenue was primarily due to an increase in the number of paying members.



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Cost of Revenue




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Cost of revenue
2,727 4,585 739 68.1 %

Percentage of revenue
25.3 % 29.1 %

Our cost of revenue increased by 68.1% from RMB2,727 million in the three months ended June 30, 2013 to RMB4,585 million (US$739 million) in the same period in 2014. This increase was primarily due to increases of RMB837 million in payroll and benefits expense mainly resulting from an increase in share-based compensation expense, which primarily related to the re-measurement to fair value of share-based awards granted to Alipay employees (these awards are re-measured to fair value at each period end), an increase of RMB376 million in bandwidth and co-location fees mainly as a result of increased user traffic on our websites as well as depreciation expenses related to equipment acquired in anticipation of increases in user traffic and an increase of RMB246 million in payment processing fees resulting from an increase in GMV transacted on our retail marketplaces. Our traffic acquisition costs did not change significantly, with an increase of RMB29 million from RMB453 million in the three months ended June 30, 2013 to RMB482 million in the same period in 2014. We expect our cost of revenue will continue to increase in absolute dollar amounts and will likely continue to increase as a percentage of revenues as we continue to invest in our business, customer service initiatives and infrastructure. Cost of revenue will also continue to be affected by changes in the value of our ordinary shares, which will affect share-based compensation related to share-based awards granted to non-employees.

Product Development Expenses




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Product development expenses
1,018 1,952 315 91.7 %

Percentage of revenue
9.4 % 12.4 %

Our product development expenses increased by 91.7% from RMB1,018 million in the three months ended June 30, 2013 to RMB1,952 million (US$315 million) in the same period in 2014. The increase was largely due to an increase of RMB858 million in payroll and benefits expenses, including share-based compensation expenses, mainly resulting from an increase in product development headcount as we continue to focus on new and existing product development and increased compensation packages to attract and retain product development talent. We expect our product development expenses will continue to increase in absolute amounts and may over time increase as a percentage of revenue.

Sales and Marketing Expenses




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Sales and marketing expenses
713 1,212 195 70.0 %

Percentage of revenue
6.6 % 7.7 %

Our sales and marketing expenses increased by 70.0% from RMB713 million in the three months ended June 30, 2013 to RMB1,212 million (US$195 million) in the same period in 2014. The increase was primarily



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due to an increase of RMB315 million in advertising and promotional spending, which included an increase of RMB130 million from RMB54 million to RMB184 million (US$30 million) in online advertising expenses, mainly to promote our China retail marketplaces and mobile commerce, as well as an increase of RMB99 million in payroll and benefit costs, including share-based compensation expense and commissions paid to our sales staff, as we increased compensation packages to retain sales and marketing talent. We expect our sales and marketing expenses will continue to increase in absolute amounts and may increase as a percentage of revenue as we continue to invest in marketing and promotion.

General and Administrative Expenses




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

General and administrative expenses
865 944 152 9.1 %

Percentage of revenue
8.0 % 6.0 %

Our general and administrative expenses increased by 9.1% from RMB865 million in the three months ended June 30, 2013 to RMB944 million (US$152 million) in the same period in 2014. The increase was primarily due to an increase of RMB48 million in payroll and benefits expenses mainly relating to an increase in share-based compensation expense as a result of the increase in fair value of our shares over the periods. The increase was also due to an increase of RMB19 million in depreciation expense which primarily related to the expansion of our corporate campuses.

Income from Operations and Operating Margin




Three months ended June 30,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Income from operations
5,420 6,844 1,103 26.3 %

Percentage of revenue
50.3 % 43.4 %

As a result of the foregoing, our income from operations increased by 26.3% from RMB5,420 million in the three months ended June 30, 2013 to RMB6,844 million (US$1,103 million) in the same period in 2014.

Our operating margin decreased from 50.3% in the three months ended June 30, 2013 to 43.4% in the same period in 2014. The decrease was primarily attributable to increases in our costs. The increase in costs was primarily due to increases in payroll and benefits expenses, including share-based compensation expense and an increase in advertising and promotional expenses.

Interest and Investment Income, Net

Our net interest and investment income increased significantly from RMB466 million in the three months ended June 30, 2013 to RMB6,828 million (US$1,100 million) in the same period in 2014. The increase was primarily due to a net gain of RMB6,251 million (US$1,008 million) recognized with respect to the revaluation of previously held equity interests, relating primarily to the step acquisitions of UCWeb and OneTouch. See note 4 to our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus for further information on these gains.



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Interest Expense

Our interest expense decreased by 62.1% from RMB1,081 million in the three months ended June 30, 2013 to RMB410 million (US$66 million) in the same period in 2014, primarily due to a decrease of RMB614 million in professional fees and upfront fees in connection with the refinancing of our US$4.0 billion credit facilities in the three months ended June 30, 2013 and a reduction in dividend payments to Yahoo due to the redemption of our preference shares in May 2013.

Other Income, Net

Our other income, net increased by 195.0% from RMB241 million in the three months ended June 30, 2013 to RMB711 million (US$115 million) in the same period in 2014, primarily due to an increase in royalty fee and software technology service fee received from Alipay as a result of an increase in the volume of transactions processed by, and the pre-tax income of, Alipay.

Income Tax Expenses

Our income tax expenses increased by 144.5% from RMB591 million in the three months ended June 30, 2013 to RMB1,445 million (US$233 million) in the same period in 2014, primarily due to the increase in taxable profit from our operations in China. While the PRC EIT law imposes a unified enterprise income tax rate of 25% for both domestic enterprises and foreign invested enterprises, a number of our operating entities have enjoyed various tax incentives, such as the preferential tax rate of 15% granted to entities qualifying as High and New Technology Enterprises and a preferential tax rate of 10% granted to entities qualifying as key software enterprises. Our effective tax rate was 11.7% and 10.3% in the three months ended June 30, 2013 and 2014, respectively. In calendar year 2014, one of our major subsidiaries is no longer fully exempt from paying EIT but subject to an EIT rate of 12.5% (or 50% of the standard statutory rate). Despite this increase in tax rate, our effective tax decreased because we had a one-time investment net gain from our step-up acquisitions of RMB6,251 million (US$1,008 million) recorded in the three months ended June 30, 2014 that was not subject to income tax.

Net Income

As a result of the foregoing, our net income increased significantly from RMB4,448 million in the three months ended June 30, 2013 to RMB12,438 million (US$2,005 million) in the same period in 2014.

Comparison of Fiscal Years 2013 and 2014

Revenue




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

China commerce
29,167 45,132 7,275 54.7 %

International commerce
4,160 4,851 782 16.6 %

Cloud computing and Internet infrastructure
650 773 125 18.9 %

Others
540 1,748 281 223.7 %














Total revenue
34,517 52,504 8,463 52.1 %














Total revenue increased by 52.1%, from RMB34,517 million in fiscal year 2013 to RMB52,504 million (US$8,463 million) in fiscal year 2014. The increase was mainly driven by the continued rapid growth of our China commerce retail business. Our revenue growth rate will likely decline as our revenue grows to higher levels.



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China Commerce




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Revenue


China commerce retail business


Online marketing services
19,697 29,729 4,792 50.9 %

Commission
6,161 12,023 1,938 95.1 %

Others(1)
1,112 1,080 174 (2.9 )%













26,970 42,832 6,904 58.8 %

China commerce wholesale business
2,197 2,300 371 4.7 %














Total
29,167 45,132 7,275 54.7 %
















(1) Primarily consists of storefront fees.

Revenue from our China commerce retail business increased by 58.8% from RMB26,970 million in fiscal year 2013 to RMB42,832 million (US$6,904 million) in fiscal year 2014.

Revenue growth during this period occurred in the context of and reflected an increase of 55.8% in GMV transacted on these marketplaces, including a 42.4% increase in GMV transacted on Taobao Marketplace from RMB824 billion in fiscal year 2013 to RMB1,173 billion (US$189 billion) in fiscal year 2014 and a near-doubling of GMV transacted on Tmall from RMB253 billion in fiscal year 2013 to RMB505 billion (US$81 billion) in fiscal year 2014. The overall increase in total GMV transacted on these marketplaces was primarily driven by a 48.3% increase in the number of buyers and, to a lesser extent, by a moderate increase in the level of their spending. The rapid increase in GMV transacted on Tmall in particular was attributable to the increase in the number of buyers making purchases on Tmall, reflecting consumer preferences for branded products and a premium shopping experience, increases in the level of spending of buyers and the beneficial impact of promotional events. Revenue growth during this period was also positively affected by an increase in monetization rate from 2.50% in fiscal year 2013 to 2.55% in fiscal year 2014, reflecting the higher GMV contribution from Tmall as a portion of total GMV and accordingly higher growth in commission revenue, and was partially offset by a higher proportion of mobile GMV which we are currently monetizing at a lower rate than GMV through personal computer interfaces.

Online marketing services revenue increased by 50.9% from RMB19,697 million in fiscal year 2013 to RMB29,729 million (US$4,792 million) in fiscal year 2014, consistent with GMV growth of 55.8% from RMB1,077 billion in fiscal year 2013 to RMB1,678 billion (US$270 billion) in fiscal year 2014. The slightly lower growth rate of online marketing services revenue relative to the GMV growth rate reflected the ongoing shift of consumer engagement from personal computers to mobile devices, as we monetize mobile GMV at a lower rate than GMV transacted on personal computer interfaces because merchants allocated a smaller proportion of their budget to purchase online marketing services on mobile relative to the GMV generated on mobile. As a result, mobile GMV accounted for 7.4% and 19.0% of total GMV in fiscal years 2013 and 2014, respectively, while mobile revenue accounted for 1.4% and 6.8% of China commerce retail business revenue, respectively, during those periods. This lower but increasing level of mobile monetization reflected our focus on prioritizing mobile user activity and engagement over monetization and the fact that we increased our efforts to promote online marketing services for mobile interfaces beginning in the three months ended December 31, 2013. The increase in online marketing services revenue during this period was primarily driven by a 35.2% increase in the number of clicks attributable to our P4P marketing services and a 14.6% increase in the cost-per-click paid by our merchants, reflecting increased demand from our merchants, which drove up pricing due to the bid-based nature of the mechanism used by merchants to purchase such services. To a lesser extent, our online marketing services revenue during this period was also positively impacted by an increase in the number of impressions displayed through our display marketing services.



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Commission revenue increased by 95.1% from RMB6,161 million in fiscal year 2013 to RMB12,023 million (US$1,938 million) in fiscal year 2014, primarily due to the near-doubling of GMV transacted on Tmall during the same period. The published commission rates we charge by category as well as our blended commission rate remained relatively stable over this period, and accordingly, the increase in revenue from commissions during this period was principally a result of increased GMV transacted rather than any change in the pricing of commission rates. As Tmall GMV increased at a higher rate than Taobao Marketplace GMV, commission revenue grew at a faster rate than online marketing services revenue because we charge commissions on Tmall. Commission revenue from transactions on Tmall is generated from both personal computer and mobile transactions, and accordingly the ongoing shift of consumer engagement towards mobile devices did not negatively affect commission revenue from GMV transacted on Tmall.

Revenue from our China commerce wholesale business increased by 4.7% from RMB2,197 million in fiscal year 2013 to RMB2,300 million (US$371 million) in fiscal year 2014. The modest increase in revenue was due to a slight increase in paying members, reflecting our transition to a transaction platform that does not emphasize growing paying members.

International Commerce




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Revenue


International commerce retail business
392 938 151 139.3 %

International commerce wholesale business
3,768 3,913 631 3.8 %














Total
4,160 4,851 782 16.6 %














Revenue from our international commerce retail business increased by 139.3% from RMB392 million in fiscal year 2013 to RMB938 million (US$151 million) in fiscal year 2014. The main reason for this increase was an increase in GMV transacted on AliExpress, primarily from the increasing number of buyers, particularly in Brazil, Russia and the United States.

Revenue from our international commerce wholesale business increased by 3.8% from RMB3,768 million in fiscal year 2013, of which 90.5% was from membership fees and value-added services and 9.5% was from online marketing services, to RMB3,913 million (US$631 million) in fiscal year 2014, of which 87.6% was from membership fees and value-added services and 12.4% was from online marketing services. The modest increase in revenue was due to a slight increase in the number of paying members reflecting the slow growth of China exports.

Cost of Revenue




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Cost of revenue
9,719 13,369 2,155 37.6 %

Percentage of revenue
28.2 % 25.5 %

Our cost of revenue increased by 37.6% from RMB9,719 million in fiscal year 2013 to RMB13,369 million (US$2,155 million) in fiscal year 2014. This increase was primarily due to increases of RMB1,337 million in



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payroll and benefits expense mainly resulting from an increase in share-based compensation expense which primarily related to the re-measurement to fair value of share-based awards granted to Alipay employees (these awards are re-measured to fair value at each period end), an increase of RMB1,081 million in bandwidth and co-location fees mainly as a result of increased user traffic on our websites as well as depreciation expenses related to equipment acquired in anticipation of increases in user traffic, an increase of RMB864 million in payment processing fees resulting from an increase in GMV transacted on our retail marketplaces and an increase of RMB497 million in traffic acquisition costs from RMB1,582 million in fiscal year 2013 to RMB2,079 million in fiscal year 2014 as a result of the expansion of our use of third-party marketing affiliate programs to drive additional user traffic to our marketplaces, partially offset by a decrease of RMB750 million in business tax resulting from the replacement of business tax with VAT, which is netted against revenue. We expect our cost of revenue will increase in absolute dollar amounts and will likely increase as a percentage of revenues as we continue to invest in our business, customer service initiatives and infrastructure. Cost of revenue will also continue to be affected by changes in the value of our ordinary shares, which will affect share-based compensation related to share-based awards granted to non-employees.

Product Development Expenses




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Product development expenses
3,753 5,093 821 35.7 %

Percentage of revenue
10.9 % 9.7 %

Our product development expenses increased by 35.7% from RMB3,753 million in fiscal year 2013 to RMB5,093 million (US$821 million) in fiscal year 2014. The increase was largely due to an increase of RMB1,135 million in payroll and benefits expenses mainly resulting from an increase in product development headcount as we continue to focus on new and existing product development, and an increase in share-based compensation expense related to increased headcount. The increase was also due to an increase of RMB156 million in the royalty fee paid to Yahoo driven by the increase in our revenue and partially offset by a decrease in the royalty fee rate pursuant to the amended Yahoo TIPLA in September 2012. Following completion of our initial public offering, we will no longer pay royalty fees to Yahoo. We expect our product development expenses will increase in absolute amounts and may over time increase as a percentage of revenues.

Sales and Marketing Expenses




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Sales and marketing expenses
3,613 4,545 733 25.8 %

Percentage of revenue
10.5 % 8.7 %

Our sales and marketing expenses increased by 25.8% from RMB3,613 million in fiscal year 2013 to RMB4,545 million (US$733 million) in fiscal year 2014. The increase was primarily due to an increase in advertising and promotional spending, which included an increase of RMB165 million from RMB367 million to RMB532 million (US$86 million) in online advertising expenses, mainly to promote our China retail marketplaces and mobile commerce. We expect our sales and marketing expenses will increase in absolute amounts and may increase as a percentage of revenues as we continue to invest in marketing and promotion.



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General and Administrative Expenses




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

General and administrative expenses
2,889 4,218 679 46.0 %

Percentage of revenue
8.3 % 7.9 %

Our general and administrative expenses increased by 46.0% from RMB2,889 million in fiscal year 2013 to RMB4,218 million (US$679 million) in fiscal year 2014. The increase was primarily due to a one-time equity-settled donation expense of RMB1,269 million (US$205 million) in fiscal year 2014 relating to the grant of options to purchase 50,000,000 of our ordinary shares to a non-profit organization designated by Jack Ma and Joe Tsai. The increase was also due to an increase of RMB145 million in professional services fees.

Yahoo TIPLA Amendment Payment

We entered into the Yahoo TIPLA in October 2005, pursuant to which we pay royalty fees to Yahoo. We and Yahoo amended the then existing TIPLA in September 2012, pursuant to which we made a lump sum payment to Yahoo in the amount of US$550 million in fiscal year 2013.

Income from Operations and Operating Margin




Year ended March 31,
2013 2014
RMB RMB US$ % Change
(in millions, except percentages)

Income from operations
10,751 24,920 4,017 131.8 %

Percentage of revenue
31.1 % 47.5 %

Our income from operations increased by 131.8% from RMB10,751 million in fiscal year 2013 to RMB24,920 million (US$4,017 million) in fiscal year 2014. The increase was primarily due to the overall growth in our revenue and due to our revenue growing faster than the increases in our cost of revenue and expenses during the same period. Our income from operations in fiscal years 2013 and 2014 were affected by one-time expense items consisting of the Yahoo TIPLA amendment payment and an equity-settled donation expense, respectively.

Our operating margin increased from 31.1% in fiscal year 2013 (taking into account the one-time Yahoo TIPLA amendment payment, which amounted to 10.1% as a percentage of revenue) to 47.5% in fiscal year 2014 (taking into account the one-time equity-settled donation expense, which amounted to 2.4% as a percentage of revenue). The increase was primarily attributable to increases in our revenue without a corresponding significant increase in costs as we continued to benefit from the ongoing network effects of our online marketplaces and a highly scalable business model, as well as the effects of tax reform in China that replaced the business tax with VAT.

Interest and Investment Income, Net

Our net interest and investment income increased significantly from RMB39 million in fiscal year 2013 to RMB1,648 million (US$266 million) in fiscal year 2014. The increase was primarily due to an increase of RMB755 million in interest income as a result of higher interest rates and cash balances during the period, a decrease of RMB243 million in foreign exchange loss due to an exchange gain arising from a foreign currency denominated deposit held by us and an increase of RMB308 million of gain from our disposal of investments.



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Interest Expense

Our interest expense increased by 39.6% from RMB1,572 million in fiscal year 2013 to RMB2,195 million (US$354 million) in fiscal year 2014, primarily due to an increase of RMB677 million in professional fees and upfront fees in connection with the refinancing of our US$4.0 billion credit facilities and an increase of RMB122 million in bank interest expense resulting from a higher average loan amount outstanding during the period following entry into our US$8.0 billion credit facility in April 2013, of which US$5.0 billion was immediately drawn down, partially offset by a lower overall interest rate during that period. The increase was also partially offset by a decrease of RMB175 million in dividends paid on redeemable preference shares issued to Yahoo in September 2012, which we redeemed in May 2013.

Other Income, Net

Our other income, net increased by 171.7% from RMB894 million in fiscal year 2013 to RMB2,429 million (US$391 million) in fiscal year 2014, primarily due to an increase in royalty fees and software technology service fees received from Alipay as a result of an increase in the volume of transactions processed by, and the pre-tax income of, Alipay.

Income Tax Expenses

Our income tax expenses increased by 119.4% from RMB1,457 million in fiscal year 2013 to RMB3,196 million (US$515 million) in fiscal year 2014, primarily due to the increase in taxable profit from our operations in China. While the PRC EIT law imposes a unified enterprise income tax rate of 25% for both domestic enterprises and foreign invested enterprises, a number of our operating entities have enjoyed various tax incentives, such as the preferential tax rate of 15% granted to entities qualifying as High and New Technology Enterprises and a preferential tax rate of 10% granted to entities qualifying as key software enterprises. Our effective tax rate was 14.4% and 11.9% in fiscal year 2013 and 2014, respectively. The one-time Yahoo TIPLA amendment payment made in fiscal year 2013 did not reduce our taxable income and we were not able to use it to offset our taxable income.

Net Income

As a result of the foregoing, our net income increased significantly from RMB8,649 million in fiscal year 2013 to RMB23,403 million (US$3,772 million) in fiscal year 2014. Net income in fiscal year 2013 was also reduced by the one-time Yahoo TIPLA amendment payment.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest mainly represents the net income of Alibaba.com attributable to its public shareholders prior to its privatization in June 2012. Net income attributable to noncontrolling interest decreased by 24.8% from RMB117 million in fiscal year 2013 to RMB88 million (US$14 million) in fiscal year 2014, as there was no further net income attributable to noncontrolling interests related to Alibaba.com after the completion of its privatization.



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Comparison of Fiscal Years 2012 and 2013

Revenue




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

China commerce
15,637 29,167 86.5 %

International commerce
3,765 4,160 10.5 %

Cloud computing and Internet infrastructure
515 650 26.2 %

Others
108 540 400.0 %










Total revenue
20,025 34,517 72.4 %










Total revenue increased by 72.4% from RMB20,025 million in fiscal year 2012 to RMB34,517 million in fiscal year 2013. The increase was primarily driven by our rapidly growing China commerce retail business.

China Commerce




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

Revenue


China commerce retail business


Online marketing services
9,804 19,697 100.9 %

Commission
2,915 6,161 111.4 %

Others(1)
703 1,112 58.2 %









13,422 26,970 100.9 %

China commerce wholesale business
2,215 2,197 (0.8 )%










Total
15,637 29,167 86.5 %












(1) Primarily consists of storefront fees.

Revenue from our China commerce retail business increased by 100.9% from RMB13,422 million in fiscal year 2012 to RMB26,970 million in fiscal year 2013.

Revenue growth during this period occurred in the context of and reflected an increase of 62.4% in GMV transacted on these marketplaces, including a 50.1% increase in GMV transacted on Taobao Marketplace from RMB549 billion in fiscal year 2012 to RMB824 billion in fiscal year 2013 as well as a 121.9% increase in GMV transacted on Tmall from RMB114 billion in fiscal year 2012 to RMB253 billion in fiscal year 2013, the commencement of monetization of Juhuasuan in fiscal year 2013 (we launched Juhuasuan in 2010) and increase in demand for online marketing services. The overall increase in total GMV transacted on these marketplaces was primarily driven by a 39.8% increase in the number of buyers and to a lesser extent by an increase in the level of their spending. The rapid increase in GMV transacted on Tmall in particular was attributable to the increasing number of buyers making purchases on Tmall, reflecting consumer preferences for branded products and a premium shopping experience, increases in the level of spending of buyers and the beneficial impact of promotional events. Revenue growth was also positively affected by an increase in monetization rate from 2.02% in fiscal year 2012 to 2.50% in fiscal year 2013, which was mainly a result of an increase in demand for online marketing services, the higher GMV contribution from Tmall as a proportion of total GMV and correspondingly



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higher growth in commissions revenue which also benefited from the commencement of monetization of Juhuasuan. The increase in China commerce retail revenue included a 100.9% increase in online marketing services revenue from RMB9,804 million in fiscal year 2012 to RMB19,697 million in fiscal year 2013, mainly as a result of increasing engagement by Taobao and Tmall merchants in using such services as well as the commencement of monetization of Juhuasuan. This increase in online marketing services revenue was primarily driven by a 59.2% increase in the number of clicks attributable to our P4P marketing services and a 20.7% increase in the cost-per-click paid by our merchants, reflecting increased demand from our merchants, which drove up pricing due to the bid-based nature of the mechanism used by merchants to purchase such services. To a lesser extent, our online marketing services revenue during this period was also positively impacted by an increase in the number of impressions displayed through our display marketing services. In addition, a 123.9% increase in GMV transacted on Tmall and commencement of monetization of Juhuasuan drove the 111.4% increase in commission revenue from RMB2,915 million in fiscal year 2012 to RMB6,161 million in fiscal year 2013. The published commission rates we charge by category as well as our blended commission rate remained relatively stable during this period, and accordingly, the increase in revenue from commissions during this period was principally a result of increased GMV transacted rather than any change in the pricing of commission rates.

Mobile revenue represented an immaterial amount of revenue during both of these periods.

Revenue from our China commerce wholesale business was RMB2,215 million in fiscal year 2012 and RMB2,197 million in fiscal year 2013, as the number of paying members remained relatively stable between the periods.

International Commerce




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

Revenue


International commerce retail business
223 392 75.8 %

International commerce wholesale business
3,542 3,768 6.4 %










Total
3,765 4,160 10.5 %










Revenue from our international commerce retail business increased by 75.8% from RMB223 million in fiscal year 2012 to RMB392 million in fiscal year 2013. The main reason for the increase was an increase in GMV transacted on AliExpress, primarily from an increase in the number of buyers, particularly in the United States, Russia and Brazil.

Revenue from our international commerce wholesale business increased by 6.4% from RMB3,542 million in fiscal year 2012, of which 95.9% was from membership fees and value-added services and 4.1% was from online marketing services, to RMB3,768 million in fiscal year 2013, of which 90.5% was from membership fees and value-added services and 9.5% was from online marketing services. Revenue growth during this period was primarily due to an increase in the average revenue we generated from each member resulting from higher sales of value-added services.



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Cost of Revenue




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

Cost of revenue
6,554 9,719 48.3 %

Percentage of revenue
32.7 % 28.2 %

Our cost of revenue increased by 48.3% from RMB6,554 million in fiscal year 2012 to RMB9,719 million in fiscal year 2013. The increase was primarily due to an increase of RMB578 million in traffic acquisition costs from RMB1,004 million in fiscal year 2012 to RMB1,582 million in fiscal year 2013 resulting from the expansion of our use of third-party marketing affiliate programs to drive additional user traffic to our marketplaces, an increase of RMB407 million in payment processing fees resulting from an increase in GMV transacted on our retail marketplaces, an increase of RMB281 million in costs associated with our logistics services, an increase of RMB275 million in bandwidth and co-location fees and depreciation expenses primarily due to increased user traffic on our websites, an increase of RMB248 million in business taxes and related surcharges mainly as a result of revenue growth, which was partially offset by the effects of the replacement of the business tax with VAT in China starting from late fiscal year 2013, which is netted against revenue, and an increase of RMB245 million in payroll and benefits costs, including share-based compensation expense, mainly resulting from an increase in employee headcount to support our user growth, increased user engagement and delivery of new products and services.

Product Development Expenses




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

Product development expenses
2,897 3,753 29.5 %

Percentage of revenue
14.5 % 10.9 %

Our product development expenses increased by 29.5% from RMB2,897 million in fiscal year 2012 to RMB3,753 million in fiscal year 2013. The increase was primarily due to an increase of RMB694 million in payroll and benefits costs, including share-based compensation expense, as we increased compensation packages to retain product development talent and an increase of RMB234 million in royalty fees paid to Yahoo driven by an increase in our revenue.

Sales and Marketing Expenses




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

Sales and marketing expenses
3,058 3,613 18.1 %

Percentage of revenue
15.3 % 10.5 %

Our sales and marketing expenses increased by 18.1% from RMB3,058 million in fiscal year 2012 to RMB3,613 million in fiscal year 2013. The increase was primarily due to an increase of RMB375 million in advertising and promotional spending, which included an increase of RMB166 million from RMB201 million to



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RMB367 million in online advertising expenses, to strengthen marketing of our Taobao Marketplace and Tmall brands, as well as an increase of RMB144 million in payroll and benefits costs, including share-based compensation expense and commissions paid to our sales staff, as we increased compensation packages to retain sales and marketing talent.

General and Administrative Expenses




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

General and administrative expenses
2,211 2,889 30.7 %

Percentage of revenue
11.0 % 8.3 %

Our general and administrative expenses increased by 30.7% from RMB2,211 million in fiscal year 2012 to RMB2,889 million in fiscal year 2013. The increase was primarily due to an increase of RMB612 million in payroll and benefits expenses, including share-based compensation expense, as we increased compensation packages to incentivize our management and other administrative staff, which was partially offset by the decrease of RMB178 million in professional services fees.

Impairment of Goodwill and Intangible Assets

We conduct impairment assessments of our goodwill and intangible assets annually. In fiscal years 2012 and 2013, we concluded that the carrying amounts of certain reporting units exceeded their fair value and recorded an impairment charge of RMB135 million and RMB175 million, respectively.

Yahoo TIPLA Amendment Payment

Pursuant to the Yahoo TIPLA amendment, we made a lump sum payment in the amount of US$550 million in fiscal year 2013.

Income from Operations and Operating Margin




Year ended
March 31,
2012 2013
RMB RMB % Change
(in millions, except percentages)

Income from operations
5,015 10,751 114.4 %

Percentage of revenue
25.0 % 31.1 %

Our income from operations increased by 114.4% from RMB5,015 million in fiscal year 2012 to RMB10,751 million in fiscal year 2013. The increase was primarily due to the overall growth in our revenue and due to our revenue growing faster than the increases in our cost of revenue and expenses during the same period, taking into account the one-time Yahoo TIPLA amendment payment made in fiscal year 2013 as discussed above.

Our operating margin increased from 25.0% in fiscal year 2012 to 31.1% in fiscal year 2013, taking into account the one-time Yahoo TIPLA amendment payment, which amounted to 10.1% as a percentage of revenue. The increase was primarily attributable to increases in our revenue. We also benefited from the network effects



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of our online marketplaces and a highly scalable business model as well as the effects of tax reform in China that replaced the business tax with VAT.

Interest and Investment Income, Net

Our net interest and investment income decreased by 84.9% from RMB258 million in fiscal year 2012 to RMB39 million in fiscal year 2013. The decrease was primarily due to foreign exchange losses of RMB271 million arising from the revaluation of a foreign currency denominated inter-company loan and a decrease in interest income of RMB149 million as a result of lower interest rates, partially offset by investment gains of RMB100 million in fiscal year 2013 from a loss of RMB135 million in fiscal year 2012, resulting from changes in the fair value of our investment securities held for trading.

Interest Expense

Our interest expense increased significantly from RMB68 million in fiscal year 2012 to RMB1,572 million in fiscal year 2013, primarily due to an increase of RMB849 million in interest expense relating to bank borrowings to partially finance the privatization of Alibaba.com in June 2012 and repurchase of our ordinary shares from Yahoo in September 2012, as well as RMB271 million of dividends paid on redeemable preference shares issued to Yahoo in September 2012, which we redeemed in May 2013.

Other Income, Net

Our other income, net, increased by 173.4% from RMB327 million in fiscal year 2012 to RMB894 million in fiscal year 2013. The increase was primarily due to an increase of RMB250 million in royalty fees and software technology service fees paid by Alipay as a result of an increase in the volume of transactions processed by, and the pre-tax income of, Alipay, as well as an increase of RMB188 million in government grants received from central and local governments.

Income Tax Expenses

Our income tax expenses increased by 73.0% from RMB842 million in fiscal year 2012 to RMB1,457 million in fiscal year 2013, primarily due to the increase in taxable profit from our operations in China. While PRC income tax law imposes a unified corporate income tax rate of 25% for both domestic enterprises and foreign invested enterprises, a number of our operating entities enjoyed various tax incentives in fiscal year 2012 through fiscal year 2013. Our effective tax rate was 15.2% and 14.4% in fiscal years 2012 and 2013, respectively.

Net Income

As a result of the foregoing, our net income increased by 85.4% from RMB4,665 million in fiscal year 2012 to RMB8,649 million in fiscal year 2013. Net income in fiscal year 2013 was reduced by the one-time Yahoo TIPLA amendment payment in the amount of US$550 million.

Net Income Attributable to Noncontrolling Interest

Net income attributable to noncontrolling interest primarily represents the net income of Alibaba.com attributable to its public shareholders prior to its privatization in June 2012, which decreased by 73.2% from RMB437 million in fiscal year 2012 to RMB117 million in fiscal year 2013, as there was no further net income attributable to noncontrolling interests related to Alibaba.com after the completion of its privatization.



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Quarterly Results of Operations

The following table sets forth our unaudited consolidated statement of operations data for each of the thirteen quarters from April 1, 2011 to June 30, 2014. The unaudited quarterly statement of operations data set forth below have been prepared on a basis consistent with our audited annual consolidated financial statements and we believe includes all normal recurring adjustments necessary for a fair statement of the financial information contained in those statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following quarterly financial data should be read in conjunction with our audited consolidated financial statements and the related notes included elsewhere in this prospectus.




Three months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014
(in millions of RMB)

Revenue:


China commerce
3,007 3,285 5,371 3,974 5,601 6,152 10,172 7,242 9,193 9,213 16,761 9,965 13,348

International commerce
950 949 945 921 974 1,049 1,094 1,043 1,117 1,176 1,264 1,294 1,469

Cloud computing and Internet infrastructure
129 104 138 144 155 164 165 166 174 190 196 213 236

Others
17 14 31 46 63 92 162 223 294 371 524 559 718






















































Total revenue
4,103 4,352 6,485 5,085 6,793 7,457 11,593 8,674 10,778 10,950 18,745 12,031 15,771

Costs and expenses:(1)


Cost of revenue
(1,356 ) (1,441 ) (2,027 ) (1,730 ) (2,158 ) (2,373 ) (2,911 ) (2,277 ) (2,727 ) (3,001 ) (4,171 ) (3,470 ) (4,585 )

Product development expenses
(640 ) (692 ) (816 ) (749 ) (848 ) (888 ) (1,163 ) (854 ) (1,018 ) (1,168 ) (1,707 ) (1,200 ) (1,952 )

Sales and marketing expenses
(662 ) (826 ) (929 ) (641 ) (869 ) (974 ) (1,249 ) (521 ) (713 ) (657 ) (1,897 ) (1,278 ) (1,212 )

General and administrative expenses
(524 ) (534 ) (583 ) (570 ) (537 ) (804 ) (1,003 ) (545 ) (865 ) (793 ) (2,046 ) (514 ) (944 )

Yahoo TIPLA amendment payment
— — — — — (3,487 ) — — — — — — —

Total costs and expenses
(3,218 ) (3,537 ) (4,529 ) (3,726 ) (4,448 ) (8,563 ) (6,533 ) (4,222 ) (5,358 ) (5,702 ) (9,944 ) (6,580 ) (8,927 )






















































Income (loss) from operations
885 815 1,956 1,359 2,345 (1,106 ) 5,060 4,452 5,420 5,248 8,801 5,451 6,844

































Net income (loss) attributable to ordinary shareholders
775 560 1,502 1,391 1,722 (1,560 ) 4,045 4,197 4,384 4,883 8,266 5,543 12,344


Adjusted EBITDA
1,546 1,352 2,577 1,799 2,852 3,073 5,774 4,908 6,094 6,505 11,246 6,886 8,574

Adjusted net income
1,387 1,024 2,302 1,739 2,097 2,430 4,834 4,508 4,583 5,893 10,463 6,671 7,317

(1) Share-based compensation expense
457 314 263 220 279 462 293 225 396 864 659 925 1,073



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The following table sets forth our quarterly results of operations as a percentage of revenues of the relevant period.




Three months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014
(as a percentage of revenue)

Revenue:


China commerce
73.3 75.5 82.8 78.2 82.5 82.5 87.8 83.5 85.3 84.1 89.4 82.8 84.6

International commerce
23.2 21.8 14.6 18.1 14.3 14.1 9.4 12.0 10.4 10.7 6.7 10.8 9.3

Cloud computing and Internet infrastructure
3.1 2.4 2.1 2.8 2.3 2.2 1.4 1.9 1.6 1.7 1.0 1.8 1.5

Others
0.4 0.3 0.5 0.9 0.9 1.2 1.4 2.6 2.7 3.5 2.9 4.6 4.6


Total revenue
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Costs and expenses:(1)


Cost of revenue
(33.0 ) (33.1 ) (31.3 ) (34.0 ) (31.8 ) (31.8 ) (25.1 ) (26.3 ) (25.3 ) (27.4 ) (22.3 ) (28.8 ) (29.1 )

Product development expenses
(15.6 ) (15.9 ) (12.6 ) (14.7 ) (12.5 ) (11.9 ) (10.0 ) (9.8 ) (9.4 ) (10.7 ) (9.1 ) (10.0 ) (12.4 )

Sales and marketing expenses
(16.1 ) (19.0 ) (14.3 ) (12.6 ) (12.8 ) (13.1 ) (10.8 ) (6.0 ) (6.6 ) (6.0 ) (10.1 ) (10.6 ) (7.7 )

General and administrative expenses
(12.8 ) (12.3 ) (9.0 ) (11.2 ) (7.9 ) (10.8 ) (8.7 ) (6.3 ) (8.0 ) (7.2 ) (10.9 ) (4.3 ) (6.0 )

Yahoo TIPLA amendment payment
— — — — — (46.8 ) — — — — — — —

Total costs and expenses
(78.4 ) (81.3 ) (69.8 ) (73.3 ) (65.5 ) (114.8 ) (56.4 ) (48.7 ) (49.7 ) (52.1 ) (53.0 ) (54.7 ) (56.6 )

Income (loss) from operations
21.6 18.7 30.2 26.7 34.5 (14.8 ) 43.6 51.3 50.3 47.9 47.0 45.3 43.4

Net income (loss) attributable to ordinary shareholders
18.9 12.9 23.2 27.4 25.3 (20.9 ) 34.9 48.4 40.7 44.6 44.1 46.1 78.3

Adjusted EBITDA
37.7 31.1 39.7 35.4 42.0 41.2 49.8 56.6 56.5 59.4 60.0 57.2 54.4

Adjusted net income
33.8 23.5 35.5 34.2 30.9 32.6 41.7 52.0 42.5 53.8 55.8 55.4 46.4



(1) Share-based compensation expense
11.1 7.2 4.1 4.3 4.1 6.2 2.5 2.6 3.7 7.9 3.5 7.7 6.8

The following table sets forth GMV and the percentage of mobile GMV transacted on our China retail marketplaces during the relevant period.




Three months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014

GMV (in billions of RMB)(1)


Taobao Marketplace GMV
114 119 172 145 167 179 255 223 257 275 346 295 342

Tmall GMV
17 22 41 33 42 49 91 71 88 99 183 135 159

Total GMV
131 141 213 178 209 228 346 294 345 374 529 430 501

Mobile GMV (as a percentage of total GMV)
1.4 % 1.7 % 2.5 % 3.8 % 4.6 % 5.6 % 7.4 % 10.7 % 12.0 % 14.7 % 19.7 % 27.4 % 32.8 %



(1) 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. GMV generated from traffic through Juhuasuan was RMB65.6 billion (US$10.6 billion) in the twelve months ended June 30, 2014.



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Non-GAAP Measures

We use adjusted EBITDA and adjusted net income, each non-GAAP financial measures, in evaluating our operating results and for financial and operational decision-making purposes.

We believe that adjusted EBITDA and adjusted net income help identify underlying trends in our business that could otherwise be distorted by the effect of the expenses that we include in income from operations and net income. We believe that adjusted EBITDA and adjusted net income provide useful information about our 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.

Adjusted EBITDA and adjusted net income should not be considered in isolation or construed as an alternative to net income or any other measure of performance or as an indicator of our operating performance. Adjusted EBITDA and adjusted net income presented here 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 income (loss) from operations (which excludes interest and investment income, net, interest expense, other income, net, income tax expenses and share of results of equity investees) before (i) certain non-cash expenses, consisting of share-based compensation expense, amortization, depreciation and impairment of goodwill and intangible assets as well as (ii) one-time expense items consisting of the Yahoo TIPLA amendment payment and an equity-settled donation expense that we do not believe are reflective of our core operating performance during the period presented.

Adjusted net income represents net income (loss) before share-based compensation expenses, amortization, impairment of goodwill, intangible assets and investments, gain (loss) on deemed disposals/disposals/revaluation of investments, and one-time expense items consisting of the Yahoo TIPLA amendment payment and an equity-settled donation expense.



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The table below sets forth a reconciliation of our income (loss) from operations to adjusted EBITDA for the periods indicated:




Three months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014
(in millions of RMB)

Income (loss) from operations
885 815 1,956 1,359 2,345 (1,106 ) 5,060 4,452 5,420 5,248 8,801 5,451 6,844

Add: Share-based compensation expense
457 314 263 220 279 462 293 225 396 864 659 925 1,073

Add: Amortization of intangible assets
36 44 39 36 36 37 32 25 35 39 123 118 234

Add: Depreciation and amortization of property and equipment and land use rights
168 179 184 184 192 193 214 206 243 310 394 392 423

Add: Impairment of goodwill and intangible assets
— — 135 — — — 175 — — 44 — — —

Add: Yahoo TIPLA amendment payment
— — — — — 3,487 — — — — — — —

Add: Equity-settled donation expense
— — — — — — — — — — 1,269 — —


Adjusted EBITDA
1,546 1,352 2,577 1,799 2,852 3,073 5,774 4,908 6,094 6,505 11,246 6,886 8,574

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The following table sets forth a reconciliation of our net income (loss) to adjusted net income for the periods indicated.




Three months ended
Jun. 30,
2011 Sep. 30,
2011 Dec. 31,
2011 Mar. 31,
2012 Jun. 30,
2012 Sep. 30,
2012 Dec. 31,
2012 Mar. 31,
2013 Jun. 30,
2013 Sep. 30,
2013 Dec. 31,
2013 Mar. 31,
2014 Jun. 30,
2014
(in millions of RMB)

Net income (loss)
894 679 1,608 1,484 1,847 (1,558 ) 4,094 4,266 4,448 4,937 8,357 5,661 12,438

Add: Share-based compensation expense
457 314 263 220 279 462 293 225 396 864 659 925 1,073

Add: Amortization of intangible assets
36 44 39 36 36 37 32 25 35 39 123 118 234

Add: Impairment of goodwill, intangible assets and investments
— — 399 — 3 2 415 — 16 53 55 39 —

Add: Gain on deemed disposals/disposals/revaluation of investments(1)
— (13 ) (7 ) (1 ) (68) — — (8) (312) — — (72) (6,428)

Add: Yahoo TIPLA amendment payment
— — — — — 3,487 — — — — — — —

Add: Equity-settled donation expense
— — — — — — — — — — 1,269 — —



Adjusted net income
1,387 1,024 2,302 1,739 2,097 2,430 4,834 4,508 4,583 5,893 10,463 6,671 7,317


(1) Including a net gain of RMB6,251 million (US$1,008 million) from step-up acquisitions arising from revaluations of previously held equity interest. See note 4 to our unaudited interim condensed consolidated financial statements for the three months ended June 30, 2014.

Quarterly Trends

Our overall operating results fluctuate from quarter to quarter as a result of a variety of factors, including seasonal factors and economic cycles that influence consumer spending as well as promotional shopping activities we conduct.

Historically, we have experienced the highest levels of revenues in the fourth calendar quarter of each year due to a number of factors, including sellers allocating a significant portion of their online marketing budgets to the fourth calendar quarter, promotions, such as Singles Day on November 11 of each year and the impact of seasonal buying patterns in respect of certain categories such as apparel. We have also experienced lower levels of revenues in the first calendar quarter of each year due to a lower level of allocation of online marketing budgets by sellers at the beginning of the calendar year and the Chinese New Year holiday, during which time consumers generally spend less and businesses in China are generally closed. In addition, seasonal weather patterns may affect the timing of buying decisions. For example, unexpectedly long periods of warm weather could delay the purchase of heavier clothing items that have higher average selling prices, resulting in lower than expected GMV.

During the quarter ended December 31, 2012, we generated revenues of RMB11,593 million, which represented 33.6% of our revenues in fiscal year 2013, and during the quarter ended December 31, 2013, we



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generated revenues of RMB18,745 million, which represented 35.7% of our revenues in fiscal year 2014. During the quarter ended December 31, 2013, our revenue grew 61.7% over the same period in 2012, which was primarily driven by the growth of revenue from our China retail marketplaces while our GMV growth was 52.9%. The higher growth in revenue was due to a higher monetization rate of 3.05% in the quarter ended December 31, 2013 compared to 2.77% in the same period in 2012. The increase in monetization rate was primarily a result of the higher GMV contribution from Tmall as a portion of total GMV, higher online marketing budgets by merchants, particularly for promotional events related to Singles Day, as well as an increase in the mobile monetization rate from 0.55% in the quarter ended December 31, 2012 to 1.12% in the quarter ended December 31, 2013 as we began monetizing our mobile GMV beyond commissions through the introduction of online marketing services through mobile interfaces in this quarter. The net loss of RMB1,560 million in the quarter ended September 30, 2012 was due to the one-time Yahoo TIPLA amendment payment of US$550 million. The decrease in cost of revenue as a percentage of revenue starting from the quarter ended December 31, 2012 was mainly due to the replacement of business tax with VAT, which is netted against revenue, and due to increased operating leverage of our marketplace business model. The quarter-over-quarter increase of RMB1,253 million in general and administrative expenses during the quarter ended December 31, 2013 was due to a one-time equity-settled donation expense of RMB1,269 million.

Revenues increased by 38.7% from RMB8,674 million in the quarter ended March 31, 2013 to RMB12,031 million in the quarter ended March 31, 2014, which was primarily driven by the growth of revenue from our China retail marketplaces while GMV grew by 46.2% from RMB294 billion to RMB430 billion over the same periods, including 32.3% and 90.1% increases in Taobao Marketplace GMV and Tmall GMV, respectively. The revenue growth was lower than the GMV growth in this period due to lower monetization rates, which was primarily a result of higher mobile GMV as a percentage of total GMV from 10.7% to 27.4% in the quarter ended March 31, 2014 over the same period in 2013. While our mobile monetization rate increased from 0.47% to 0.98% in the quarter ended March 31, 2014 over the same period in 2013, it was lower than our non-mobile monetization rate. The year-over-year decrease in operating margin during the quarter ended March 31, 2014 was primarily due to an increase in sales and marketing expenses to promote our China retail marketplaces and mobile commerce as well as the increase in share-based compensation relating to the re-measurement to fair value of share-based awards granted to employees of Alipay, which awards are re-measured to fair value at each period end.

Our business is directly affected by the behavior of buyers and sellers on our marketplaces as well as overall consumer sentiment and activity levels. Consequently, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating or financial performance.

Liquidity and Capital Resources

We fund our operations primarily from cash generated from our operations. As of June 30, 2014, we had cash and cash equivalents and short-term investments of RMB51,912 million (US$8,368 million) and RMB5,970 million (US$962 million), respectively. Short-term investments mainly consist of fixed deposits with maturities between three months and one year.

The following table sets out a summary of our cash flows for the periods indicated.




Year ended March 31, Three months ended June 30,
2012 2013 2014 2013 2014
RMB RMB RMB US$ RMB RMB US$
(in millions)

Net cash provided by operating activities
9,275 14,476 26,379 4,252 5,131 10,177 1,640

Net cash (used in) provided by investing activities
(125 ) 545 (32,997 ) (5,319 ) (10,928 ) (10,410 ) (1,678 )

Net cash provided by (used in) financing activities
475 (1,406 ) 9,364 1,509 2,522 19,090 3,077



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We believe that our current levels of cash and cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next twelve months. However, we may need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions, which may include investing in technology, our underlying technical infrastructure, including data management and analytics solutions, or related talent. If we determine that our cash requirements exceed our amounts of cash on hand or if we decide to further optimize our capital structure, we may seek to issue debt or equity securities or obtain additional credit facilities or other sources of funding.

Cash Provided by Operating Activities

Cash provided by operating activities in the three months ended June 30, 2014 was RMB10,177 million (US$1,640 million) and primarily consisted of net income of RMB12,438 million (US$2,005 million), as adjusted for non-cash items and the effects of changes in working capital and other activities. Adjustments for non-cash items primarily included a net gain from our step-up acquisitions arising from revaluation of previously held equity interests totaling RMB6,251 million (US$1,008 million), RMB1,073 million (US$173 million) of share-based compensation expense, RMB473 million (US$76 million) of deferred income taxes and RMB423 million (US$68 million) of depreciation and amortization expenses. Changes in working capital and other activities primarily consisted of an increase of RMB1,906 million (US$307 million) in accrued expenses, accounts payable and other current liabilities as a result of the growth of our business and an increase of RMB1,121 million (US$181 million) in merchant deposits, which relate to merchants operating on Tmall, partially offset by an increase of RMB1,572 million (US$254 million) in loan receivables as a result of the continued growth of our SME loan business. We recently agreed to sell the SME loan business to Small and Micro Financial Services Company. The sale is subject to the receipt of certain regulatory approvals and other customary closing conditions. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — 2014 Restructuring of Our Relationship with Small and Micro Financial Services Company and Alipay.”

Cash provided by operating activities in fiscal year 2014 was RMB26,379 million (US$4,252 million) and primarily consisted of net income of RMB23,403 million (US$3,772 million), as adjusted for non-cash items and the effects of changes in working capital and other activities. Adjustment for non-cash items primarily included RMB2,844 million (US$458 million) of share-based compensation expense, RMB1,269 million (US$205 million) of equity-settled donation expense, RMB1,466 million (US$236 million) of deferred income taxes and RMB1,339 million (US$216 million) of depreciation and amortization expenses. Changes in working capital and other activities primarily consisted of an increase of RMB9,175 million (US$1,479 million) in loan receivables as a result of the continued growth of our SME loan business and an increase of RMB3,567 million (US$575 million) in prepayments, receivables and other assets as a result of the growth of our business, partially offset by an increase of RMB3,992 million (US$644 million) in accrued expenses, accounts payable and other current liabilities as a result of the growth of our business and an increase of RMB1,628 million (US$262 million) in merchant deposits, which relate to merchants operating on Tmall.

Cash provided by operating activities in fiscal year 2013 was RMB14,476 million and primarily consisted of net income of RMB8,649 million, as adjusted for non-cash items and the effects of changes in working capital and other activities. Adjustment for non-cash items primarily included RMB1,259 million of share-based compensation expense and RMB805 million of depreciation and amortization expenses. Changes in working capital and other activities primarily consisted of an increase of RMB3,657 million in accrued expenses and other current liabilities as a result of the growth of our business and an increase of RMB2,338 million in merchant deposits, which relate to merchants operating on Tmall, partially offset by an increase of RMB2,828 million in loan receivables as a result of the growth of our SME loan business.

Cash provided by operating activities in fiscal year 2012 was RMB9,275 million and primarily consisted of net income of RMB4,665 million, as adjusted for non-cash items and the effects of changes in working capital and other activities. Adjustment for non-cash items primarily included RMB1,254 million of share-based



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compensation expense, RMB715 million of depreciation and amortization expenses and RMB138 million of realized and unrealized loss on investment securities. Changes in working capital and other activities primarily consisted of an increase of RMB1,332 million in accrued expenses and other current liabilities as a result of the growth of our business and headcount, and an increase of RMB583 million in merchant deposits, which relate to merchants operating on Tmall.

Cash (Used in) Provided by Investing Activities

Cash used in investing activities was RMB10,410 million (US$1,678 million) in the three months ended June 30, 2014 and was primarily attributable to RMB11,483 million (US$1,851 million) in equity investments mainly held for strategic purposes, including Youku Tudou and Weibo, RMB2,471 million (US$398 million) in cash paid for business combinations, net of cash acquired, including UCWeb and OneTouch, and acquisitions of equipment, intangible assets and construction in progress of RMB1,307 million (US$211 million) primarily in connection with the purchase of computer equipment and the continued expansion of our corporate campus. These amounts were partially offset by proceeds from the net decrease in short-term investments of RMB5,033 million (US$811 million).

Cash used in investing activities was RMB32,997 million (US$5,319 million) in fiscal year 2014 and was primarily attributable to RMB16,468 million (US$2,655 million) in equity investments mainly held for strategic purposes, including UCWeb, Weibo and AutoNavi, a net increase in short-term investments of RMB8,304 million (US$1,339 million) and acquisitions of land use rights, construction in progress and other property, equipment and intangible assets of RMB4,776 million (US$770 million) primarily in connection with the continued expansion of our corporate campuses and the purchase of computer equipment.

Cash provided by investing activities was RMB545 million in fiscal year 2013 and was primarily attributable to a net decrease in short-term investments of RMB2,589 million and a net decrease in restricted cash of RMB334 million. The net decrease in restricted cash was mainly attributable to the release of restricted cash of RMB1,177 million from an escrow account following the completion of the Alibaba.com privatization in June 2012 and a release of RMB1,000 million in deposits for a one-time consumer protection program offered by Tmall that we funded in fiscal year 2012, which was partially offset by the increase in restricted cash of RMB1,884 million for our debt servicing reserve account required by our US$4.0 billion credit facilities drawn in fiscal year 2013. These amounts were partially offset by payments for acquisitions of land use rights, construction in progress and other property, equipment and intangible assets of RMB2,503 million primarily in connection with the expansion of our corporate campuses and the purchase of computer equipment.

Cash used in investing activities was RMB125 million in fiscal year 2012 and was primarily attributable to acquisitions of land use rights, construction in progress and other property, equipment and intangible assets of RMB2,168 million primarily in connection with the expansion of our corporate campuses and the purchase of computer equipment, restricted cash of RMB2,108 million, primarily including RMB1,177 million that was put into escrow pending completion of the privatization of Alibaba.com and RMB1,000 million for consumer protection programs offered by Tmall in connection with a one-time program that we funded using our own money for consumer protection, acquisitions of equity investees of RMB761 million, acquisitions of available-for-sale and held-to-maturity investment securities of RMB508 million and loans to employees, net of repayments, of RMB305 million. These amounts were partially offset by proceeds from the net decrease in short-term investments of RMB3,728 million and proceeds from disposals of available-for-sale investment securities of RMB1,966 million.

Cash (Used in) Provided by Financing Activities

Cash provided by financing activities was RMB19,090 million (US$3,077 million) in the three months ended June 30, 2014, and was primarily attributable to the additional drawdown of RMB18,240 million, or US$3.0 billion, from our US$8.0 billion credit facility.



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Cash provided by financing activities was RMB9,364 million (US$1,509 million) in fiscal year 2014, and was primarily attributable to a drawdown of RMB29,947 million, or US$5.0 billion, from our US$8.0 billion credit facility, RMB24,788 million (US$3,997 million) of which was used for the refinancing of the US$4.0 billion credit facilities drawn in fiscal year 2013 and the payment of accrued and unpaid interest, and RMB5,131 million (US$827 million) of which was used to redeem the Yahoo preference shares and the accrued and unpaid dividends thereon, as well as a net increase of RMB7,166 million (US$1,155 million) in secured borrowings underlying our transfers of micro loans to third-party financial institutions.

Cash used in financing activities was RMB1,406 million in fiscal year 2013 and was primarily attributable to the repurchase of our ordinary shares from Yahoo of RMB40,111 million and the privatization of Alibaba.com of RMB15,134 million. These amounts were partially offset by a drawdown of RMB24,463 million from our US$4.0 billion credit facilities, proceeds from the issuance of ordinary shares to third-party investors and through the exercise of options by our employees totaling RMB16,792 million, proceeds from the issuance of convertible preference shares issued to third-party investors of RMB10,542 million and a net increase of RMB2,098 million in secured borrowings underlying our transfers of micro loans to third-party financial institutions.

Cash provided by financing activities was RMB475 million in fiscal year 2012, and was primarily attributable to proceeds from the issuance of ordinary shares in connection with the exercise of options by our employees of RMB618 million, and a net increase in borrowings of RMB121 million. These amounts were offset by payments for the acquisition of shares of Alibaba.com as part of an open market share repurchase program of RMB419 million.

Contractual Obligations

The following table sets forth our contractual obligations and commercial commitments as of March 31, 2014:




Payment due by period
Total Less than
1 Year 1-3
Years 3-5
Years More than
5 Years
(in millions of RMB)

Contractual Obligations


Short term borrowings(1)
1,100 1,100 — — —

Long term borrowings(2)
31,484 — 26,699 4,785 —

Secured borrowings
9,264 9,264 — — —

Contractual Commitments


Purchase of property and equipment
980 980 — — —

Construction of corporate campuses
1,562 919 643 — —

Leases for office facility and transportation equipment
420 198 210 4 8

Investment commitments
12,333 12,333 — — —

Co-location, bandwidth fees and marketing expenses
3,407 884 1,431 1,092 —


Total
60,550 25,678 28,983 5,881 8


(1) Excluding estimated interest payments of RMB23 million assuming the applicable interest rates in effect as of March 31, 2014. The majority of the borrowings are subject to floating interest rates.

(2) Excluding estimated interest payments of RMB2,301 million in total (RMB866 million, RMB1,240 million and RMB195 million over the periods of less than one year, one to three years and three to five years from April 1, 2014, respectively), assuming the applicable interest rates in effect as of March 31, 2014. Substantially all of the borrowings are subject to floating interest rates.

As of March 31, 2014, our bank borrowings consisted of a US$8.0 billion credit facility, of which US$5.0 billion had been drawn down. We subsequently drew down the remaining US$3.0 billion under this credit facility in April 2014. The interest rate for this credit facility is calculated based on LIBOR plus an applicable margin.



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The facility was entered into for purposes of refinancing credit facilities with an aggregate principal amount of US$4.0 billion entered into during fiscal year 2013 and paying any accrued and unpaid interest thereon, redeeming the Yahoo preference shares together with any accrued and unpaid dividends thereon, and for working capital and general corporate purposes. Bank borrowings are secured by equity interests in our major offshore subsidiaries and a pledge of bank deposits of RMB209 million (US$34 million), which are included in restricted cash and escrow receivables. In August 2014, we entered into a new US$3.0 billion revolving credit facility, which we have not yet drawn down. The interest rate for this credit facility is calculated based on LIBOR plus an applicable margin. We have entered into the facility for working capital and general corporate purposes. Borrowings under the facility will be secured on a pari passu basis with our US$8.0 billion credit facility by equity interests in our major subsidiaries outside the PRC. Our obligations to provide security under this credit facility will cease and the pledged equity interests will be released when we obtain an investment grade credit rating. If we refinance our US$8.0 billion credit facility with another credit facility or issuance of debt securities, borrowings under our US$3.0 billion revolving credit facility would be secured, on a pari passu basis, by any assets securing such refinancing debt. We intend to repay our U.S. dollar-denominated loans through the remittance of dividends from our wholly foreign-owned enterprises in the PRC through conversion of Renminbi into U.S. dollars in compliance with relevant laws, rules and regulations governing foreign-invested enterprises in China and the conversion of Renminbi into foreign currencies. See “Risk Factors — Risks Relating to Doing Business in the People’s Republic of China — We rely to a significant extent on dividends and other distributions on equity paid by our principal operating subsidiaries to fund offshore cash and financing requirements” and “Risk Factors — Risks Relating to Doing Business in the People’s Republic of China — Restrictions on currency exchange may limit our ability to utilize our revenue effectively” elsewhere in this prospectus. In addition, following the completion of this offering, we expect to have additional offshore financing resources, including the availability of equity or debt financing to generate cash that may be used to repay our U.S. dollar-denominated loans or other obligations.

Under the terms of our US$8.0 billion credit facility, we are required to maintain certain financial ratios and are subject to certain other covenants. These include a requirement to maintain an offshore group leverage ratio of no more than 3:1 and an interest cover ratio of no less than 4:1. Offshore group leverage is defined as the ratio of total net debt of our company (excluding, among others, indebtedness of project companies and finance companies and deducting offshore cash) less the amount credited to the debt service reserve account to EBITDA, as defined in our credit facility, which differs from the definition of adjusted EBITDA included in this prospectus. Interest cover is defined as the ratio of EBITDA to gross interest paid or payable by our company. We are also restricted from, among other covenants:



• disposing all or a substantial part of any major material subsidiary, which are subsidiaries representing 5% of EBITDA or more;



• maintaining an aggregate outstanding onshore indebtedness of certain subsidiaries of more than RMB9,500 million;



• creating any security interest over assets of Alibaba Group Holding Limited and certain of our subsidiaries;



• engaging in certain financing transactions; and



• changing the general nature of our business.

In addition, we are required to continue to own 100% of Taobao China Holding Limited and 100% of Alibaba.com China Limited. We are also required to repay the US$8.0 billion credit facility upon a change of control of our company or if it becomes unlawful for a lender to perform its obligations under the credit facility.

The covenants of our US$3.0 billion revolving credit facility are substantially the same as those of our US$8.0 billion credit facility described above, except that under our US$3.0 billion revolving credit facility we are not required to maintain a minimum level of cash in a debt service reserve account. If we refinance our



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US$8.0 billion credit facility with another credit facility or issuance of debt securities, the covenants of our US$3.0 billion revolving credit facility would be amended to match the covenants of such refinancing debt, with certain exceptions.

We have entered into arrangements with certain third-party financial institutions under which we transferred the legal title or economic benefits in micro loan receivables in exchange for cash proceeds. We continue to provide management, administration and collection services on the transferred loan receivables and are subject to certain provisions which require us to absorb a portion of the losses incurred in the outstanding portfolio of loan receivables upon an event of default. We are considered to have retained control over the transferred loan receivables due to the existence of such provisions; accordingly such loan receivables did not meet the requirements for asset derecognition. We recognize such loan receivables as pledged assets, and the proceeds received from the transfers are recognized as secured borrowings. Such pledged assets are included in loan receivables totaling RMB10,217 million (US$1,647 million) as of March 31, 2014 and RMB9,866 million (US$1,590 million) as of June 30, 2014. In the event of defaults under these pledged loan receivables, our maximum potential loss would have been RMB3,152 million (US$508 million) as of March 31, 2014 and RMB3,561 million (US$574 million) as of June 30, 2014.

In addition to our bank borrowings as of March 31, 2014, one of our PRC subsidiaries entered into a RMB1.0 billion loan facility agreement with the International Finance Corporation, a member of the World Bank Group, in April 2014. The principal of the loan will be repayable in twelve months from the drawdown date, and may be extended for an additional twelve months at our option. The loan facility carries interest at a rate based on the lender’s cost of capital plus a spread of 2.25% or 2.75% per annum during the first and second year of the loan period, respectively. Interest payments are made semi-annually in arrears. There is no collateral or guarantee provided by our company for this loan facility. The drawdown of this loan facility was completed in May 2014. This loan facility will primarily be used to expand the capital base of our micro loan business. In connection with our sale of our SME loan business as part of our restructuring of our relationship with Small and Micro Financial Services Company, the entity that entered into this loan facility, along with the benefits and obligations of that facility, will be transferred to Small and Micro Financial Services Company upon the closing of the SAPA. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries.”

Capital Expenditures

Our capital expenditures have been incurred primarily in relation to (1) the acquisition of land use rights and construction of corporate campuses and office facilities in Hangzhou, Beijing and Shenzhen and (2) the acquisition of computer equipment relating to the operation of our websites, furniture and office equipment and leasehold improvements for our office facilities. In fiscal years 2012, 2013 and 2014, our capital expenditures totaled RMB2,168 million, RMB2,503 million and RMB4,776 million (US$770 million), respectively. In the three months ended June 30, 2014, our capital expenditures totaled RMB1,307 million (US$211 million).

Inflation

Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of China, the year-over-year increase in the consumer price index in calendar years 2011, 2012 and 2013 was 5.4%, 2.6% and 2.6%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher inflation rates in China.

Contingent Liabilities

As part of the repurchase of a portion of our ordinary shares from Yahoo in September 2012, we agreed to reimburse Yahoo in the event PRC tax is imposed on the capital gains realized by Yahoo in connection with the



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repurchase, equal to the lesser of (i) one half of the excess of (a) such PRC tax liability over (b) certain tax credits which Yahoo may utilize to reduce the amount of tax imposed in the United States, and (ii) US$100 million (RMB620 million). As of June 30, 2014, given the uncertainty in interpretation of the applicability of PRC tax to the repurchase as well as the magnitude of such capital gain, we have determined that the amount of such payment is not reasonably estimable. As such, we have not accrued any contingent loss in connection with this arrangement as of June 30, 2014.

Off-balance Sheet Commitments and Arrangements

We did not have any off-balance sheet arrangements in fiscal year 2012, 2013 or 2014.

Holding Company Structure

We are a holding company with no operations other than ownership of operating subsidiaries in Hong Kong, China and elsewhere that own and operate our marketplaces and other businesses as well as a portfolio of intellectual property rights. As a result, we rely on dividends and other distributions paid by our operating subsidiaries, including funds to pay dividends to our shareholders or to service our outstanding debts. The terms of our US$8.0 billion credit facility require us to maintain a minimum level of cash in a debt service reserve account, which will not be available to us to fund dividends or other distributions. Such minimum amount is stipulated as the amount for us to make required principal and interest payments that are due within a three-month period as determined from time to time, which amount was RMB209 million (US$34 million) as of March 31, 2014. If our operating subsidiaries incur additional debt on their own behalf in the future, the instruments governing the debt may restrict the ability of our operating subsidiaries to pay dividends or make other distributions to us. In addition, applicable PRC law permits payment of dividends to us by our operating subsidiaries in China only out of their net income, if any, determined in accordance with PRC accounting standards and regulations. Moreover, our operating subsidiaries in China are also required to set aside a portion of their net income, if any, each year to fund general reserves for appropriations until such reserve has reached 50% of the related subsidiary’s registered capital. These reserves are not distributable as cash dividends. In addition, registered share capital and capital reserve accounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each operating subsidiary. As of March 31, 2014, these restricted assets totaled RMB18,943 million (US$3,054 million). See note 22 to our consolidated financial statements for the years ended March 31, 2012, 2013 and 2014 included elsewhere in this prospectus.

Our holding company structure differs from some of our peers in that we hold our material assets and operations, except for ICP and other licenses for regulated activities, in our wholly-foreign owned enterprises and most of our revenue is generated directly by the wholly-foreign owned enterprises. As revenue is generated directly by our wholly-foreign owned enterprises, the wholly-foreign owned enterprises directly capture the profits and associated cash flow from operations, without having to rely on contractual arrangements to transfer such cash flow from the variable interest entities to the wholly-foreign owned enterprises. In fiscal years 2012, 2013 and 2014, the significant majority of our revenues were generated by our wholly-foreign owned enterprises in China. See “Our History and Corporate Structure” for a description of these contractual arrangements and the structure of our company.

Quantitative and Qualitative Analysis about Market Risk

Foreign Exchange Risk

Foreign currency risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. Although we operate businesses in different countries, substantially all of our revenue-generating transactions, and a majority of our expense-related transactions, are denominated in Renminbi, which is the functional currency of our major operating subsidiaries and the reporting currency of our financial statements. We do not hedge against currency risk.



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The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Following the removal of the U.S. dollar peg, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the PRC government has allowed the Renminbi to appreciate slowly against the U.S. dollar again, and it has appreciated more than 10% since June 2010. In April 2012, the PRC government announced that it would allow greater Renminbi exchange rate fluctuation. However, it remains unclear how this announcement might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuations of the Renminbi against the U.S. dollar. Accordingly, it is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future.

To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert RMB into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, servicing our outstanding debts, or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amounts available to us. As of March 31, 2014, we had U.S. dollar-denominated debt outstanding of US$5.0 billion. If the U.S. dollar had appreciated/depreciated by 10% against the Renminbi, our interest payments as to these debt would have increased/decreased by RMB126 million (US$20 million) in fiscal year 2014.

As of March 31, 2014, we had Renminbi-denominated cash and cash equivalents and short term investments of RMB43,024 million and U.S. dollar-denominated cash and cash equivalents of US$89 million. Assuming we had converted RMB43,024 million into U.S. dollars at the exchange rate of RMB6.2036 for US$1.00 as of June 30, 2014, our total U.S. dollar cash balance would have been US$7,024 million. If the Renminbi had depreciated by 10% against the U.S. dollar, our U.S. dollar cash balance would have been US$6,394 million.

Interest Rate Risk

Our main interest rate exposure relates to bank borrowings. We also have interest-bearing assets, including cash and cash equivalents, short-term investments, restricted cash and loan receivables. We manage our interest rate exposure with a focus on reducing our overall cost of debt and exposure to changes in interest rates. From time to time, we use derivatives, such as interest rate swaps, to manage our interest rate exposure. After taking into consideration the interest rate swaps that are entered into for hedging purposes, approximately 80% of the aggregate principal amount of our bank and other debt was at floating rates, and the remaining 20% was at fixed rates as of March 31, 2014.

As of March 31, 2014, if interest rates increased/decreased by 1%, with all other variables having remained constant, and assuming the amount of bank borrowings outstanding at the end of the year was outstanding for the entire year, profit attributable to equity owners of our company would have been RMB365 million (US$59 million) higher/lower, respectively, mainly as a result of higher/lower interest income from our cash and cash equivalents and loan receivables.

Market Price Risk

We are exposed to market price risk primarily with respect to investment securities held by us which are reported at fair value. A substantial portion of our investment in equity investees are all held for long-term appreciation or for strategic purposes. All of these are accounted for under cost or equity method and not subject to market price risk. We are not exposed to commodity price risk.



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The sensitivity analysis is determined based on the exposure of financial assets at fair value to market price risks related to equity and debt securities at the end of each reporting period. The securities we hold are accounted for as trading or available-for-sale based on our investment intent. Their changes in fair values are recorded as income for trading securities or through equity for available-for-sale securities, respectively. If market prices of the respective instruments held by us had been 1% higher/lower as of March 31, 2014, our investment securities would have been approximately RMB22 million (US$4 million) higher/lower, of which the majority of such amounts relating to trading securities will be recognized as income or loss during the respective period.

Critical Accounting Policies and Estimates

Our significant accounting policies are set forth in note 2 to our audited consolidated financial statements included elsewhere in this prospectus. The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the amount reported in consolidated financial statements. These estimates and assumptions are periodically re-evaluated by management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ significantly from those estimates and assumptions. We have identified the following accounting policies as the most critical to an understanding of our financial position and results of operations, because the application of these policies requires significant and complex management estimates, assumptions and judgment, and the reporting of materially different amounts could result if different estimates or assumptions were used or different judgments were made.

Recognition of Revenue

Revenue principally represents online marketing services revenue, commissions on transactions, membership and storefront fees and cloud computing revenue. Revenue comprises the fair value of the consideration received or receivable for the provision of services in our ordinary course activities and is recorded net of VAT. Consistent with the criteria of ASC 605 “Revenue Recognition,” we recognize revenue when the following four revenue recognition criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been provided, (iii) the selling price is fixed or determinable, and (iv) collectability is reasonably assured.

The application of various accounting principles related to the measurement and recognition of revenue requires us to make judgments and estimates. Specifically, complex arrangements with non-standard terms and conditions may require significant contract interpretation to determine the appropriate accounting treatment, including whether the deliverables specified in a multiple element arrangement should be treated as separate units of accounting. Other significant judgments include determining whether we are acting as the principal or the agent in a transaction and whether separate contracts are considered part of a single arrangement.

For multiple element arrangements with customers, which primarily relate to the sale of membership packages and online marketing services on our international wholesale marketplace, the arrangement consideration is allocated at the inception of the arrangement to each element based on their relative fair values for revenue recognition purposes. The consideration is allocated to each element using vendor-specific objective evidence or third-party evidence of the standalone selling price for each deliverable, or if neither type of evidence is available, using management’s best estimate of selling price. Significant judgment is required in assessing the fair values of these elements by considering standalone selling price and other observable data. Changes in the estimated fair values may cause the revenue recognized for each element to change but not the total amount of revenue allocated to a contract. We periodically re-assess the fair value of the elements as a result of changes in market conditions. These multiple element arrangements are currently not significant to our operations. Revenue recognition for P4P marketing service and display marketing on our marketplaces does not require our management to exercise significant judgment or estimate. For other arrangements, we apply significant judgment in determining whether we are acting as the principal or agent in a transaction; we record P4P marketing services revenue and display marketing revenue generated through third-party marketing affiliate programs on a gross



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basis, and revenue relating to the Taobaoke program on a net basis. Generally, when we are primarily obligated in a transaction and are subject to inventory risk or have latitude in establishing prices, or have several but not all of these indicators, we record revenue on a gross basis. We record the net amount as revenue share earned if we are not primarily obligated and do not have inventory risk or latitude in establishing prices. In addition, we also assess whether separate contracts are treated as a single transaction. These judgments could have significant implications on the amount of revenue recognized by us.

Share-based Compensation Expense and Valuation of Our Ordinary Shares

We account for various types of share-based awards granted to the employees, consultants and directors of our company, our affiliates and certain other companies, such as Alipay, in accordance with the authoritative guidance on share-based compensation expense. Under the fair value recognition provision of such guidance, compensation for share-based awards granted, including share options, restricted shares and RSUs, is measured at the grant date, or at future vesting date in the case of consultants or other grantees, based on the fair value of the awards and is recognized as expense over the requisite service period, which is generally the vesting period of the respective award, on an accelerated attribution method. Therefore, in the case of share-based awards to non-employees, the fair value of the unvested portion is re-measured each period, with the resulting difference, if any, recognized as expense during the period the related services are rendered. Under the accelerated attribution method, each vesting installment of a graded vesting award is treated as a separate share-based award, accordingly each vesting installment is separately measured and attributed to expense, resulting in accelerated recognition of share-based compensation expense.

Share-based compensation expense is recorded net of estimated forfeitures in our consolidated income statement and as such is recorded for only those share-based awards that we expect to vest. We estimate the forfeiture rate based on historical forfeitures of equity awards and adjust the rate to reflect changes in facts and circumstances, if any. We revise our estimated forfeiture rate if actual forfeitures differ from our initial estimates.

Determining the fair value of share-based awards requires significant judgment. We estimated the fair value of our share options using the Black-Scholes option-valuation model, which requires inputs such as the fair value of our ordinary shares, risk-free interest rate, expected dividend yield, expected life and expected volatility on the following assumptions:



• Fair value of our ordinary shares – as our ordinary shares are not publicly traded, the fair value was based on management estimates, as discussed in the paragraphs below.



• Risk free interest rate – the risk free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected life of the share options.



• Expected dividend yield – we have never declared or paid any cash dividends on our ordinary shares and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.



• Expected life – the expected term was estimated based on the average between the vesting period and the contractual term.



• Expected volatility – as we do not have a trading history for our ordinary shares, the expected volatility for our ordinary shares was estimated by taking the average historical price volatility for industry peers based on the price fluctuations of their shares over a period equivalent to the expected term of the share options granted. Industry peers consist of several public companies in the technology industry similar in size, which are engaged in similar business sectors in China and worldwide. We intend to continue to consistently apply this process using the same or similar public companies until a sufficient amount of historical information regarding the volatility of our own ordinary share price becomes available, or unless circumstances change such that the identified companies are no longer similar to us, in which case, more suitable companies whose share prices are publicly available would be utilized in the calculation.



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The following table presents the assumptions used to estimate the fair value of options granted during the periods presented:




Year ended March 31, Three months ended
June 30,
2012 2013 2014 2014

Risk-free interest rate
0.71% – 1.17% 0.67% – 0.70% 0.69% –1.52% 1.41%

Expected dividend yield
0.00% 0.00% 0.00% 0.00%

Expected life (years)
4.38 4.38 4.25 – 4.38 4.38

Expected volatility
48.3% – 48.8% 41.7% – 44.9% 37.0% –39.3% 37.3%

If any of the assumptions used in the Black-Scholes model changes significantly, share-based compensation expense for future awards may differ materially compared with the awards granted previously.

The administrators of our share incentive plans, comprising two of our executive officers, have the discretion to determine the fair value of our ordinary shares. Such plans require that all options granted be exercisable at a price not less than the fair value of our ordinary shares on the date of grant. In the absence of a public trading market, the determination of the fair value of our ordinary shares by the administrators was made with reference to the price at which we had recently sold our ordinary shares to third party investors, or other representative private share sale transactions entered into on an arms-length basis known to us. If such references were not available, the valuations of our ordinary shares were determined in accordance with the guidelines outlined in the American Institute of Certified Public Accountants’ Practice Aid, Valuation of Privately–Held Company Equity Securities Issued as Compensation, and with the assistance of an independent appraisal firm from time to time. The assumptions we use in the valuation model are based on future expectations combined with management judgment, with inputs of numerous objective and subjective factors, to determine the fair value of our ordinary shares, including the following factors:



• our operating and financial performance;



• current business conditions and projections;



• our stage of development;



• the prices, rights, preferences and privileges of our convertible preference shares relative to our ordinary shares;



• the likelihood of achieving a liquidity event for the ordinary shares underlying these share-based awards, such as an initial public offering;



• any adjustment necessary to recognize a lack of marketability for our ordinary shares; and



• the market performance of industry peers.

In order to determine the fair value of our ordinary shares underlying each share-based award grant, we first determined our business enterprise value, or BEV, and then allocated the BEV to each element of our capital structure (convertible preference shares and ordinary shares) using a hybrid method comprising the probability-weighted expected return method and the option pricing method. In our case, two scenarios were assumed, namely: (i) the redemption scenario, in which the option pricing method was adopted to allocate the value between convertible preference shares and ordinary shares, and (ii) the mandatory conversion scenario, in which equity value was allocated to convertible preference shares and ordinary shares on an as-if converted basis. Increasing probability was assigned to the mandatory conversion scenario during fiscal year 2014 and the subsequent periods in light of preparations for our initial public offering.

Up until the contemporaneous valuation report as of January 15, 2014, our BEV was estimated using a combination of two generally accepted approaches: the market approach using the guideline company method, or GCM, and the income approach using the discounted cash flow method, or DCF. The market approach considers



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valuation metrics based on trading multiples of a selected industry peer group of companies. Three multiples, adjusted for different growth rates, profit margins, tax rates and risk levels, are calculated for the guideline companies, namely (i) enterprise value to sales; (ii) enterprise value to earnings before interest, tax, depreciation and amortization; and (iii) enterprise value to earnings before interest and tax. The median price multiples for the first forecasted year of the guideline companies are applied to our respective valuation metrics to derive our enterprise value. The DCF method estimates enterprise value based on the estimated present value of future net cash flows that the business is expected to generate over a forecasted period and an estimate of the present value of cash flows beyond that period, which is referred to as terminal value. The estimated present value is calculated using a discount rate based on the guideline companies’ weighted average cost of capital, which accounts for the time value of money and the appropriate degree of risks inherent in the business. Discount rates of 14.5%, 13.0%, 13.5%, 11.5% and 11.5% were used in connection with our DCF analysis included in our contemporaneous valuation reports issued by an independent appraisal firm on April 30, 2013, October 10, 2013, January 15, 2014, April 16, 2014 and June 25, 2014, respectively. Significant management judgment is involved in determining the projected cash flows and the discount rates, which reflect the risks of our business and other variables. The GCM and DCF methods are then weighted equally in determining our BEV. In addition, a marketability discount, taking into consideration the plans for and status of our proposed initial public offering, of 12.0%, 10.0%, 10.0%, 5.0% and 4.0% was applied to arrive at the BEV as of April 30, 2013, October 10, 2013, January 15, 2014, April 16, 2014 and June 25, 2014, respectively.

In addition to the GCM and DCF methods, for the contemporaneous valuation reports as of April 16, 2014 and June 25, 2014, the market transaction method, or MTM, was also adopted. MTM considers recent transactions of secondary shares by our existing shareholders, which indicate the equity value of the underlying business being evaluated. We assigned a 50% weighting to MTM and the remaining 50% weighting equally to GCM and DCF. We assigned a higher weighting to MTM than GCM and DCF due to the higher volume of third-party private transactions that have taken place since April 2014, because we consider independent market transactions to be important indicators of fair value as the Company approaches an initial public offering.



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We granted share-based awards between April 1, 2011 and the date of this prospectus at these fair values:





Grants made during the three months
ended

Type of awards/

issuance
Ordinary shares
underlying each award Fair value of our
ordinary shares Exercise price

June 30, 2011

RSU
3,900,534 US$8.00 N/A

Option
310,000 US$8.00 US$8.00


September 30, 2011

Option
420,000 US$10.00 US$10.00

RSU
1,617,500 US$10.00 N/A


December 31, 2011

Option
460,000 US$13.50 US$13.50

RSU
1,869,000 US$13.50 N/A


June 30, 2012

RSU
15,615,589 US$13.50 N/A


September 30, 2012

Option
230,000 US$13.50 US$13.50

RSU / restricted shares
3,993,682 US$13.50 N/A


December 31, 2012

RSU
587,563 US$15.50 N/A


March 31, 2013

Option
250,000 US$15.50 US$15.50

RSU
2,073,673 US$15.50 N/A


June 30, 2013

RSU
793,256 US$15.50 N/A

RSU
19,424,081 US$18.50 N/A

Option
7,590,500 US$18.50 US$18.50


September 30, 2013

RSU / restricted shares
3,083,819 US$18.50 N/A

Option
20,000 US$22.00 US$22.00

RSU
3,386,346 US$22.00 N/A


December 31, 2013

Option
235,000 US$22.00 US$22.00

RSU / restricted shares
129,779 US$22.00 N/A

Option
250,000 US$25.00 US$25.00

RSU
1,947,661 US$25.00 N/A


March 31, 2014

RSU
2,236,888 US$25.00 N/A

Option
42,500 US$32.00 US$32.00

RSU
56,000 US$32.00 N/A

RSU
1,256,720 US$40.00 N/A


June 30, 2014

RSU
4,513,292 US$50.00 N/A

Option
110,000 US$50.00 US$50.00


September 30, 2014

RSU
9,220,000 US$56.00 N/A

(Up to September 5, 2014)

Option
13,000,000 US$56.00 US$56.00

RSU
22,442,768 US$59.00 N/A

Option
333,000 US$59.00 US$59.00

During the same period, we also had the following transactions for the subscription of restricted shares and subscription of rights to acquire restricted shares at these fair values:





Transactions

during the three months
period ended

Type of issuance
Ordinary shares
underlying each
transaction Fair value of our
ordinary shares Subscription price
/exercise price

June 30, 2011
Subscription of restricted shares 17,010,000 US$8.00 US$6.50


September 30, 2013
Subscription of rights to acquire our restricted shares 18,000,000 US$18.50 US$14.50



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Subscription of rights to acquire our restricted shares. In July 2013, we offered selected partners of the Alibaba Partnership subscription rights to acquire our restricted shares. These rights are not subject to any vesting conditions and entitle the holders to purchase restricted shares at a price of US$14.50 per share during a four year period. Upon the exercise of such rights, the underlying ordinary shares may not be transferred for a period of eight years from the date of subscription of the relevant rights. The fair value of the rights was determined by the Black-Scholes option-valuation model and was paid in full in cash by the subscribers. Therefore, no compensation expense was recorded for these rights. A discount for post-vesting sales restriction of 38% was applied to arrive at the estimated value of the restricted shares for the determination of the fair value of the rights. Subsequent to June 30, 2014, we repurchased 5,000,000 of the rights from a member of our management who was previously holding these rights on behalf of future members of the Alibaba Partnership at their original subscription price. Following the repurchase, we offered 1,500,000 of these rights to subscribe for our restricted shares to new members of the Alibaba Partnership under the same terms. We will record compensation expense equivalent to the entire fair value of these rights less the initial subscription price in the period of subscription.

The following table sets forth the fair value of our ordinary shares estimated at different times for the purpose of the accounting of our share-based awards based on representative transactions among our shareholders, our issuance of ordinary shares to third-party investors, contemporaneous valuation reports from an independent appraisal firm and the other factors described above:





For the three months ended

Fair value per share


June 30, 2011
US$8.00

September 30, 2011
US$10.00

December 31, 2011
US$13.50

March 31, 2012
US$13.50

June 30, 2012
US$13.50

September 30, 2012
US$13.50 – US$15.50

December 31, 2012
US$15.50

March 31, 2013
US$15.50

June 30, 2013
US$15.50 – US$18.50

September 30, 2013
US$18.50 – US$22.00

December 31, 2013
US$22.00 – US$25.00

March 31, 2014
US$25.00 – US$40.00

June 30, 2014
US$40.00 – US$56.00

September 30, 2014 (up to September 5, 2014)
US$56.00 – US$59.00

We believe the growth of the fair value of our ordinary shares since the second calendar quarter of 2011 was primarily due to the organic growth of our business and the continuous improvement in our financial performance as a whole.

The determined fair value of our ordinary shares increased from US$8.00 per share in the second calendar quarter of 2011 to US$13.50 per share in the fourth calendar quarter of 2011. Valuation during the fourth calendar quarter of 2011 was determined with reference to a liquidity program offered by institutional investors to our employees and other shareholders of a total consideration of US$2.0 billion (RMB12.4 billion).

Fair value of our ordinary shares further increased from US$13.50 per share in the fourth calendar quarter of 2011 to US$15.50 in the third calendar quarter of 2012 based on the issuance of ordinary shares to third-party investors of a total consideration of US$2.6 billion (RMB16.1 billion).

Since then, changes in fair value were determined by management with reference to contemporaneous valuation reports at various times. Fair value of our ordinary shares increased from US$15.50 in the third calendar quarter of 2012 to US$18.50 in the second calendar quarter of 2013. We believe the change was



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primarily attributable to an updated business outlook based on a review of our actual financial performance at the time.

Fair value of our ordinary shares increased from US$18.50 in the second calendar quarter of 2013 to US$22.00 in the third calendar quarter of 2013. We believe the change was primarily attributable to the increase in valuation metrics of our industry peer group of companies during the period.

Fair value of our ordinary shares increased from US$22.00 in the third calendar quarter of 2013 to US$25.00 in the fourth calendar quarter of 2013. We believe the change was primarily attributable to an updated business outlook based on a review of our actual financial performance, as well as decreases in both the discount rate and marketability discount during this period.

Fair value of our ordinary shares increased from US$25.00 in the fourth quarter of 2013 to US$32.00 in mid-January 2014. We believe the change was primarily attributable to an updated business outlook based on a review of our actual financial performance and an increase in the valuation metrics of our industry peer group of companies.

Fair value of our ordinary shares increased from US$32.00 in January 2014 to US$40.00 in March 2014 and US$50.00 in April 2014, respectively. We believe the increases were primarily attributable to our stated intention to conduct an initial public offering in the United States, which led to decreases in both the discount rate and marketability discount, as reflected in the increases in the volume and price of our ordinary shares in secondary transactions which provided benchmarks for a higher fair value. The increase was also attributable to the impact of the rolling forward of the Company’s financial metrics from fiscal year 2014 to fiscal year 2015 used in the GCM method.

Subsequently in June 2014, the fair value of our ordinary shares increased to US$56.00. We believe the increase was attributable to an updated business outlook based on a review of our actual financial performance. Such fair value also reflected the trading price of our ordinary shares with respect to secondary transactions. In July 2014, the fair value of our ordinary shares further increased to US$59.00 based on an update using the latest valuation metrics of our industry peer group of companies as well as a lower marketability discount given the reduction in the assumed timing to a liquidity event.

Based upon an initial public offering price of US$68.00 per share, the aggregate intrinsic value of our share-based awards outstanding as of June 30, 2014 was approximately US$4,998 million, of which approximately US$1,699 million related to vested share-based awards and approximately US$3,299 million related to unvested share-based awards. Subsequent to June 30, 2014, 13,333,000 ordinary shares issuable upon the exercise of options and 31,662,768 ordinary shares subject to RSUs were granted. In addition, under the Partner Capital Investment Plan, rights to purchase 1,500,000 of our restricted shares were issued to new members of the Alibaba Partnership. The aggregate intrinsic value of these share-based awards subsequently granted or issued was approximately US$2,392 million.

As of June 30, 2014, the total unamortized share-based compensation expense related to our ordinary shares that we expect to recognize was RMB4,157 million or US$676 million with a weighted-average remaining requisite service period of 1.9 years. Subsequent to June 30, 2014, the total unamortized share-based compensation expense that we expect to recognize increased by approximately US$2,023 million (RMB12,552 million) given the share-based awards granted through September 5, 2014. To the extent the actual forfeiture rate is different from what we have anticipated, share-based compensation expense related to these awards will be different from our expectations. Furthermore, share-based compensation expense will be affected by changes in the fair value of our shares, as certain share-based awards were granted to non-employees where the unvested portions of the awards are re-measured at each reporting date through the vesting dates in the future. As of June 30, 2014, share-based awards granted to non-employees included 621,770 share options and 6,518,743 restricted shares and RSUs. In addition, share-based compensation expense will also be affected by changes in the fair value of awards granted to our employees by Junhan, which is controlled by Jack Ma. Small and Micro Financial



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Services Company has informed us that they expect Junhan will also issue additional share-based awards to our employees from time to time in the future. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — Ownership of Small and Micro Financial Services Company and Alipay.” The expenses associated with these awards will be recognized across the functions in which the award recipients are employed and may be significant in future periods. These awards are similar to share appreciation awards linked to the valuation of Small and Micro Financial Services Company and accounted for as financial derivatives. See note 8(f) to our consolidated financial statements for the years ended March 31, 2012, 2013 and 2014 included elsewhere in this prospectus.

Alibaba.com Limited, a consolidated subsidiary that was listed on the Hong Kong Stock Exchange from November 2007 to June 2012, also issued various types of share-based awards to its employees prior to its privatization and delisting. Share-based compensation expense underlying those subsidiary awards was insignificant.

Equity-settled Donation Expense

In October 2013, we granted options to acquire 50,000,000 of our ordinary shares to a non-profit organization designated by Jack Ma and Joe Tsai, subject to irrevocable instructions to designate and transfer these share options to the separate charitable trusts to be established by Jack and Joe. These share options were approved by our board of directors and the options are not subject to any vesting condition and are exercisable for a period of four years starting from the grant date. The exercise price of these options is US$25.00 per share based on a fair market value appraisal process. For each of the eight years beginning one year after the date of listing of our ordinary shares on a recognized stock exchange, the charitable trusts are permitted to sell only up to 6,250,000 ordinary shares (or one-eighth of the total number of ordinary shares subject to the options) per year excluding such number of unsold ordinary shares carried forward from previous years. The fair value of the share options was determined using the Black-Scholes option valuation model, which requires inputs such as the fair value of the underlying restricted shares, risk-free interest rate, expected dividend yield, expected life and expected volatility. As we do not have a history of granting such options for charity purposes, the expected life was estimated to be the exercisable period of the options. To determine the fair value of the restricted shares, discounts for post-vesting sales restrictions from 18% to 38% were applied to the fair value of our ordinary shares depending on the duration of the restriction period of each particular tranche. We have determined the fair value of these options based on the methodology described above, with the assistance of an independent appraisal firm. As there are no vesting conditions attached to the above share options, equity-settled donation expense of RMB1,269 million (US$205 million) was recognized in full and recorded in general and administrative expenses during fiscal year 2014.

The considerations, assumptions and valuations of ordinary shares as well as assumptions for risk-free interest rate, expected dividend yield and expected volatility used to calculate the equity-based donation expense are the same as those used in connection with our share-based awards during the corresponding period. See “—Share-based Compensation Expense and Valuation of Our Ordinary Shares.”

Recognition of Income Taxes and Deferred Tax Assets/Liabilities

We are mainly subject to income tax in China, but are also subject to taxation on profit arising in or derived from the tax jurisdiction where our subsidiaries are domiciled and operate outside China. Income taxes are assessed and determined on an entity basis. There are transactions (including entitlement to preferential tax treatment and deductibility of expenses) where the ultimate tax determination is uncertain until the final tax position is confirmed by relevant tax authorities. In addition, we recognize liabilities for anticipated tax audit issues based on estimates of whether additional taxes could be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.



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Deferred income tax is recognized for all temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available in the future against which the temporary differences, the carry forward of unused tax credits and unused tax losses could be utilized. Deferred income tax is provided in full, using the liability method. The deferred tax assets recognized are mainly related to the temporary differences arising from accrued expenses which are not deductible until paid under the applicable PRC tax laws. We have also recognized deferred tax liabilities on the undistributed earnings generated by our subsidiaries in China, which are subject to withholding taxes when they are remitted offshore to us. As of March 31 and June 30, 2014, the amounts accrued in deferred tax liabilities relating to such withholding tax on dividends were determined on the basis that 100% of the distributable reserves of the major subsidiaries operating in China will not be indefinitely reinvested in China. A change in our judgment as to whether we will reinvest the profits in China indefinitely will impact the deferred tax liabilities to be provided in the future.

Fair Value Determination Related to the Accounting for Business Combinations

A component of our growth strategy has been to acquire and integrate complementary businesses into our ecosystem. We complete business combinations from time to time which require us to perform purchase price allocations. In order to recognize the fair value of assets acquired and liabilities assumed, mainly consisting of intangible assets and goodwill, as well as the fair value of any contingent consideration to be recognized, we use valuation techniques such as discounted cash flow analysis and ratio analysis in comparison to comparable companies in similar industries under the income approach, market approach and cost approach. Major factors considered include historical financial results and assumptions including future growth rates, an estimate of weighted average cost of capital and the effect of expected changes in regulation. Most of the valuations of our acquired businesses have been performed by valuation specialists under our management’s supervision. We believe that the estimated fair value assigned to the assets acquired and liabilities assumed are based on reasonable assumptions and estimates that market participants would use. However, such assumptions are inherently uncertain and actual results could differ from those estimates.

Fair Value Determination Related to Financial Instruments Accounted for at Fair Value

We have a significant amount of investments and liabilities that are classified as Level 2 and Level 3 according to ASC 820 “Fair Value Measurement and Disclosures.” The valuations for the investments classified as Level 2 relating to financial derivatives and interest rate swaps are provided by independent third parties such as the custodian banks. The valuation for the liabilities classified as Level 3 relating to contingent consideration and put liability in relation to investments and acquisitions are determined based on unobservable inputs, such as historical financial results and assumptions about future growth rates, which require significant judgment to determine the future outcome of such contingencies.

Impairment Assessment on Goodwill and Intangible Assets

We test annually, or whenever events or circumstances indicate that the carrying value of assets exceeds the recoverable amounts, whether goodwill and intangible assets have suffered any impairment in accordance with the accounting policy stated in note 2 to our audited consolidated financial statements included elsewhere in this prospectus. For the impairment assessment on goodwill, we have elected to perform a qualitative assessment to determine whether the two-step impairment testing of goodwill is necessary. In this assessment, we consider primary factors such as industry and market considerations, overall financial performance of the reporting unit, and other specific information related to the operations. Based on the qualitative assessment, if it is more likely than not that the fair value of each reporting unit is less than the carrying amount, the quantitative impairment test is performed.

For the quantitative assessment of goodwill impairment, we identify the reporting units and compare the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required.



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If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit’s goodwill. For intangible assets, we perform an impairment assessment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These assessments primarily use cash flow projections based on financial forecasts prepared by management and an estimated terminal value. The expected growth in revenues and operating margin, timing of future capital expenditures, an estimate of weighted average cost of capital and terminal growth rate are based on actual and prior year performance and market development expectations. The periods of the financial forecasts generally range from three to five years. Judgment is required to determine key assumptions adopted in the cash flow projections and changes to key assumptions can significantly affect these cash flow projections and the results of the impairment tests.

Impairment of Investments in Equity Investees

We continually review our investments in equity investees to determine whether a decline in fair value below the carrying value is other than temporary. Factors that we consider include the length of time that the fair value of the investment is below our carrying value; the financial condition, operating performance and the prospects of the equity investee; and other company specific information such as recent financing rounds completed by these equity investees. Judgment is required to determine the weighting and impact of the aforementioned factors and changes to such determination can significantly affect the results of the impairment tests.

Depreciation and Amortization

The costs of property and equipment and intangible assets are charged ratably as depreciation and amortization expenses, respectively, over the estimated useful lives of the respective assets using the straight-line method. We periodically review changes in technology and industry conditions, asset retirement activity and residual values to determine adjustments to estimated remaining useful lives and depreciation and amortization rates. Actual economic lives may differ from estimated useful lives. Periodic reviews could result in a change in estimated useful lives and therefore depreciation and amortization expenses in future periods.

Allowance for Doubtful Accounts Relating to Micro Loans

We record allowances for doubtful accounts on the micro loans according to our best estimate of the losses inherent in the outstanding portfolio of loans. The loan periods extended by us to merchants generally range from 7 days to 360 days. We estimate the allowances by multiplying pre-determined percentages to the outstanding loan amounts based on the aging of the loans. Given that substantially all borrowers are merchants on our marketplaces, we are able to monitor the transaction history of these merchants and other operating data accumulated on our platforms, and assess the general financial health of these borrowers. Judgment is required to determine the percentages used to determine the allowance amounts and whether such amounts are adequate to cover potential bad debts, and periodic reviews are performed to ensure such percentages continue to reflect our best estimate of the inherent losses based on our assessment of the merchants’ ability to repay the loans.

Recent Accounting Pronouncements

In July 2012, the FASB issued revised guidance on “Testing Indefinite-Lived Intangible Assets for Impairment.” The revised guidance provides an entity the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform a quantitative impairment test by comparing the fair value with the carrying amount in accordance with U.S. GAAP. The revised guidance was adopted by us beginning in fiscal



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year 2014. The revised guidance does not have a material effect on our financial position, results of operations or cash flows.

In February 2013, the FASB issued revised guidance on “Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The revised guidance does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the revised guidance requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The revised guidance was early adopted by us beginning in fiscal year 2012. The revised guidance does not have a material effect on our financial position, results of operations or cash flows.

In July 2013, the FASB issued ASU 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which provides that a liability related to an unrecognized tax benefit would be presented as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. The new guidance is effective prospectively for us for fiscal year 2015. The new guidance will not have a material effect on our financial position, results of operations or cash flows.

In April 2014, the FASB issued ASU 2014-08, “Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity,” which provides a narrower definition of discontinued operations than under existing U.S. GAAP. ASU 2014-08 requires that only a disposal of a component of an entity, or a group of components of an entity, that represents a strategic shift that has, or will have, a major effect on the reporting entity’s operations and financial results should be reported in the financial statements as discontinued operations. ASU 2014-08 also provides guidance on the financial statement presentations and disclosures of discontinued operations. The new guidance is effective prospectively for us to all new disposals of components and new classifications as held for sale beginning April 1, 2015. We are evaluating the effects, if any, that the adoption of this guidance will have on our financial position, results of operation or cash flows.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Topic 605, Revenue Recognition” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective retrospectively for us for the interim reporting period ending June 30, 2017, with early application not permitted. We are evaluating the existing revenue recognition policies to determine whether any contracts in the scope of the guidance will be affected by the new requirements.



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BUSINESS

Our Mission

Our mission is to make it easy to do business anywhere.

Our founders started our company to champion small businesses, in the belief that the Internet would level the playing field by enabling small enterprises to leverage innovation and technology to grow and compete more effectively in the domestic and global economies. We believe that concentrating on customers’ needs and solving their problems – whether those customers are buyers or sellers – ultimately will lead to the best outcome for our business. We have developed a large ecosystem for online and mobile commerce that enables participants to create and share value on our platform. Our decisions are guided by how they serve our mission over the long-term, not by the pursuit of short-term gains.

Our Vision

We aim to build the future infrastructure of commerce. We envision that our customers will meet, work and live at Alibaba, and that we will be a company that lasts at least 102 years.

Meet @ Alibaba. We enable millions of commercial and social interactions among our users, between consumers and merchants, and among businesses every day.

Work @ Alibaba. We empower our customers with the fundamental infrastructure for commerce and data technology, so that they can build businesses and create value that can be shared among our ecosystem participants.

Live @ Alibaba. We strive to expand our products and services to become central to the everyday lives of our customers.

102 Years. For a company that was founded in 1999, lasting at least 102 years means we will have spanned three centuries, an achievement that few companies can claim. Our culture, business models and systems are built to last, so that we can achieve sustainability in the long run.

Our Values

Our values are fundamental to the way we operate and how we recruit, evaluate and compensate our people.

Our six values are:



• Customer First – The interests of our community of buyers and sellers must be our first priority.



• Teamwork – We believe teamwork enables ordinary people to achieve extraordinary things.



• Embrace Change – In this fast-changing world, we must be flexible, innovative and ready to adapt to new business conditions in order to survive.



• Integrity – We expect our people to uphold the highest standards of honesty and to deliver on their commitments.



• Passion – We expect our people to approach everything with fire in their belly and never give up on doing what they believe is right.



• Commitment – Employees who demonstrate perseverance and excellence are richly rewarded. Nothing should be taken lightly as we encourage our people to “work happily, and live seriously.”

Company Overview

We are the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013, according to the IDC GMV Report. We operate our ecosystem as a platform for third parties, and we do not engage in direct sales, compete with our merchants or hold inventory.



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We operate Taobao Marketplace, China’s largest online shopping destination, Tmall, China’s largest third-party platform for brands and retailers, in each case in terms of gross merchandise volume, and Juhuasuan, China’s most popular group buying marketplace by its monthly active users, in each case in 2013 according to iResearch. These three marketplaces, which comprise our China retail marketplaces, generated a combined GMV of RMB1,833 billion (US$296 billion) from 279 million active buyers and 8.5 million active sellers in the twelve months ended June 30, 2014. A significant portion of our customers have begun transacting on our mobile platform, and we are focused on capturing this opportunity. In the three months ended June 30, 2014, mobile GMV accounted for 32.8% of our GMV, up from 27.4% in the preceding three months and up from 12.0% in the same period in 2013. The number of mobile MAUs increased from 136 million for the month ended December 31, 2013, to 163 million for the month ended March 31, 2014 and to 188 million for the month ended June 30, 2014.

In addition to our three China retail marketplaces, we operate Alibaba.com, China’s largest global online wholesale marketplace in 2013 by revenue, according to iResearch, 1688.com, our China wholesale marketplace, and AliExpress, our global consumer marketplace, as well as provide cloud computing services.

We provide the fundamental technology infrastructure and marketing reach to help businesses leverage the power of the Internet to establish an online presence and conduct commerce with consumers and businesses. We have been a leader in developing online marketplace standards in China, including consumer protection programs, marketplace rules, qualification standards for merchants and buyer and seller rating systems. Given the scale we have been able to achieve, an ecosystem has developed around our platform that consists of buyers, sellers, third-party service providers, strategic alliance partners, and investee companies. Our platform and the role we play in connecting buyers and sellers and making it possible for them to do business anytime and anywhere is at the nexus of this ecosystem. Much of our effort, our time and our energy is spent on initiatives that are for the greater good of the ecosystem and the various participants in it. We feel a strong responsibility for the continued development of the ecosystem and we take ownership for this development. Accordingly, we refer to this as “our ecosystem.”

Our ecosystem has strong self-reinforcing network effects that benefit our marketplace participants, who are invested in our ecosystem’s growth and success. Through this ecosystem, we have transformed how commerce is conducted in China and built a reputation as a trusted partner for the participants in our ecosystem. For more discussion of our ecosystem, see “— Our Ecosystem and Its Participants.”

We have made significant investments in proprietary technologies and infrastructure in order to support our growing ecosystem. Our technology and infrastructure allow us to harness the substantial volume of data generated from our marketplaces and to further develop and optimize the products and services offered on our platform.

Through Alipay, we offer payment and escrow services for buyers and sellers, providing security, trust and convenience to our users. We take a platform approach to shipping and delivery by working with third-party logistics service providers through a central logistics information system operated by China Smart Logistics, our 48%-owned affiliate.

In fiscal year 2014, we generated 81.6% of our revenue from our China retail marketplaces, where Chinese consumers have access to millions of merchants offering a broad spectrum of physical goods, virtual items and services. Our revenue on these marketplaces is generated from merchants through online marketing services, commissions on transactions and fees for online services.

In addition to our China retail and wholesale marketplaces, our major business units include our Alimama marketing technology platform, which provides us and our sellers with marketing services including valuable data insights, and Alibaba Cloud Computing, which supports our ecosystem and also provides computing services to third parties. Through our acquisition of UCWeb, we are able to leverage its expertise as a developer and operator of mobile web browsers to enhance our mobile offerings beyond e-commerce, such as general mobile search, which gives us access to UCWeb’s large base of mobile users and offers our existing user base additional mobile solutions.



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The following chart sets forth our key marketplaces and services and the core companies and affiliates in our ecosystem:



LOGO



* Through contractual arrangements

** Our 48% owned affiliate



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Our Scale and Size



LOGO



Unless otherwise indicated, all figures in the above chart are for the twelve months ended June 30, 2014 on our China retail marketplaces.

(1) For the three months ended June 30, 2014.

(2) According to iResearch for the three months ended June 30, 2014.

(3) For the month ended June 30, 2014. Based on the aggregate mobile MAUs of apps that contribute to GMV on our China retail marketplaces. The number of mobile MAUs increased from 136 million in the month ended December 31, 2013, to 163 million in the month ended March 31, 2014 and to 188 million in the month ended June 30, 2014.

(4) For the twelve months ended June 30, 2014. Representing 54% of the 11.3 billion packages delivered in the twelve months ended June 30, 2014 by delivery services meeting certain minimum revenue thresholds in China, according to the State Post Bureau of the PRC.

(5) Alibaba Cloud Computing processing capability as of December 31, 2013.

(6) The sum of merchants on our (i) China retail marketplaces who paid fees and/or commissions to us in the twelve months ended June 30, 2014, plus (ii) wholesale marketplaces with current paid memberships as of June 30, 2014. A merchant may have more than one paying relationship with us.

(7) Includes registered countries and territories of (i) buyers that sent at least one inquiry to a seller on Alibaba.com and (ii) buyers that settled at least one transaction on AliExpress through Alipay, in each case in the twelve months ended June 30, 2014, demonstrating the global reach and the potential for cross-border commerce opportunities across our marketplaces.

Scale and Size of Our Ecosystem Participants



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Unless otherwise indicated, all figures in the above chart are as of June 30, 2014.

(1) For the twelve months ended June 30, 2014. Approximately 29.7% of Alipay’s total payment volume in the twelve months ended June 30, 2014 represented payments processed for our China retail marketplaces.

(2) Marketing affiliates who received a revenue share from us in the three months ended December 31, 2013.

(3) Based on data provided by our 14 strategic delivery partners as of June 30, 2014.



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Our Market Opportunity

Our market opportunity is primarily driven by the following factors:



• Our business benefits from the rising spending power of Chinese consumers. China’s real consumption in 2013 was 35.8% of total GDP, which is a rate that is significantly lower than that of other countries, such as the United States, which had a consumption penetration rate of 67.1% in 2013, according to Euromonitor International. We believe that growth in consumption will drive higher levels of online and mobile commerce.



• China’s online shopping population is relatively underpenetrated. According to CNNIC, China had the world’s largest Internet population with 618 million users as of December 31, 2013. According to CNNIC, China had 302 million online shoppers in 2013. We believe that the number of online shoppers will increase, driven by continued growth in the number of Internet users as well as by the higher percentage of Internet users making purchases online.



• We believe that consumers are expanding the categories of products and services they are purchasing online, which will further increase online and mobile commerce activity.



• We believe that the increased usage of mobile devices will make access to the Internet even more convenient, drive higher online shopper engagement and enable new applications. China has the world’s largest mobile Internet user base with 500 million users as of December 31, 2013, according to CNNIC, and mobile usage is expected to increase, driven by the growing adoption of mobile devices.



• China’s offline retail market faces significant challenges due to few nationwide brick and mortar retailers, an underdeveloped physical retail infrastructure, limited product selection and inconsistent product quality. These challenges in China’s retail infrastructure, which we believe are particularly acute outside of tier 1 and 2 cities, are causing consumers to leapfrog the offline retail market in favor of online and mobile commerce.



• China has an increasingly extensive and rapidly improving logistics infrastructure consisting of nationwide, regional and local delivery services. We believe that the rapid development of China’s distributed logistics infrastructure and nationwide express delivery networks has been driven in part by the growth of e-commerce and will continue to support the unique demands of consumers and merchants conducting e-commerce transactions on marketplaces.

Overall, online shopping, which represented 8.0% of the total China consumption in 2013, is projected to grow at a CAGR of 36.1% from 2013 to 2016, according to iResearch, as more consumers shop online and e-commerce spending per consumer increases.



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Growth in China Consumption. China’s real GDP of RMB58.7 trillion (US$9.5 trillion) in 2013 is projected to grow at a CAGR of 7.0% from 2013 to 2016, according to Euromonitor International. Real consumption in China is projected to experience a higher rate of growth at a CAGR of 8.3% during the same period, according to Euromonitor International, thus becoming an increasingly important contributor to the Chinese economy. The proportion of GDP accounted for by consumption in China was 35.8% in 2013, a level which was significantly lower than the United States, the United Kingdom, Japan and Germany, according to Euromonitor International.




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Source: Euromonitor International Source: Euromonitor International

Consumption as % of GDP

(Consumer expenditure as % of GDP, 2013)



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Source: Euromonitor International

The rising real income level of Chinese consumers has been a major driving force behind the increasing contribution of consumption to the overall economy. According to the National Bureau of Statistics of China, the real annual per capita income of rural households and urban households in China increased by CAGRs of 10.2% and 8.5% between 2008 and 2013, respectively. In addition, the household savings rate in China declined from 40.4% in 2009 to 39.5% in 2013, according to Euromonitor International. We believe the declining trend in savings rate reflects consumers’ increasing propensity to spend on discretionary items, including higher quality products and services. As Chinese consumers continue to experience real wage increases, as well as a higher propensity to spend, we expect that the contribution of consumption to overall GDP in China will continue to increase over time and that the growth rate of consumption will continue to outpace GDP growth.



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Growth in China Internet Population and Penetration. Internet penetration in China is expanding rapidly. Internet users in China grew from 298 million, or 22.6% of China’s total population, as of the end of 2008 to 618 million, or 45.8% of the total population, as of the end of 2013, according to CNNIC. However, Internet penetration in China is still relatively low when compared to that of many other countries. According to iResearch, China’s Internet population is projected to grow to 790 million by the end of 2016.





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Sources: CNNIC for 2008-2013, iResearch for 2014-2016
Sources: CNNIC for China, IDC for other countries

The percentage of Internet users buying products and services online in China is lower than that in many other countries. According to CNNIC, there were 302 million Internet shoppers in China in 2013, representing 48.9% of total Internet users, compared to 63.8% in the United States in the same year, according to IDC.

Online shopper penetration comparison

(Online shoppers as % of total Internet user population, 2013)



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Sources: CNNIC for China, IDC for other countries



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Greater Penetration of Online Shopping Across Consumption Categories. The current product mix in China consumption offers opportunities for increased online shopping in underpenetrated categories. We expect that online shoppers will expand their shopping activities into other consumption categories and that the average online spending per user will increase. The consumption categories that we expect to account for increasing online sales include food and beverages, health goods and medical services as well as recreation and culture. According to an estimate by Euromonitor International, China’s consumption expenditures in 2013 for food and non-alcoholic beverages, health goods and medical services and recreation and culture were RMB5,484 billion (US$884 billion), RMB1,388 billion (US$224 billion) and RMB440 billion (US$71 billion), respectively.

Breakdown of consumption in China

(% total consumption expenditure in China, 2013)



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Source: Euromonitor International

(1) Electronics and home appliances include audio-visual, photographic and information processing equipment, telecommunications equipment and home appliances.

(2) Household goods and services include furniture and furnishings, carpets and other floor coverings, household textiles, glassware, tableware and household utensils, hardware and household and domestic services.

(3) Housing includes actual rentals for housing, imputed rental for housing, maintenance and repair of dwellings, water and miscellaneous domestic services, electricity, gas and other fuels.

(4) Recreation and culture include recreational and cultural services, other major durables for recreation and culture, package holidays, newspapers, magazines, books and stationery, other recreational items and equipment as well as gardens and pets.

(5) Others include alcoholic beverages and tobacco, telecommunication services, postal services, personal care, social protection, insurance, financial services, durable/semi-durable/non-durable goods and other services.

Growth in Mobile Usage. Despite China’s relatively low Internet penetration rate, China’s mobile Internet user base reached 500 million as of December 31, 2013, according to CNNIC. Smartphone shipments in China reached 351 million in 2013 and will exceed 435 million in 2014, according to projections by IDC. We believe this growth in mobile users will make access to the Internet even more convenient and will accelerate the adoption of e-commerce. Increased mobile Internet access through mobile devices will allow Internet users to shop anytime, anywhere.

Challenges in China’s Offline Retail Market Provide Online Retail Opportunity. China’s retail industry is highly fragmented. As of December 31, 2012, there were 127 cities in China with populations greater than 1 million, according to the National Bureau of Statistics of China. According to Euromonitor International, the top 20 retailers in China had a combined market share of approximately 11.6% in 2013, as compared with approximately 40.0% in the United States in the same period.



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In 2013, per capita retail space in China was 0.6 square meters, which was significantly lower than that in the United States, the United Kingdom, Japan and Germany, according to Euromonitor International.

Offline retail infrastructure

(Retail space per capita in square meters, 2013)



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Source: Euromonitor International

The less developed physical retail infrastructure and distribution system in China is especially apparent in smaller cities and towns where we believe China’s national retailing leaders have an even more limited presence. However, a substantial portion of China’s retail sales is attributable to these regions. As seen in the table below, approximately 60% of retail sales in 2012 was attributable to regions outside of tier 1 and 2 cities, according to the National Bureau of Statistics of China. In addition to the 35 tier 1 and tier 2 cities that have populations of over 1 million each, there are 92 other cities with populations greater than one million as of December 31, 2012, according to the National Bureau of Statistics of China. In these smaller cities and towns, consumers are generally served by local merchants and stores, and as a result, product selection may be limited. In addition, quality and safety are major consumer concerns in China across a wide variety of categories, from food, household products to clothing, which has the effect of constraining consumption.

Macro indicators of tier 1 and tier 2 cities and other regions in China




Tier 1 and 2
cities % attribution Other regions % attribution

Population as of December 31, 2012 (in millions)
255 18.8 % 1,099 81.2 %

Total retail sales in 2012 (in billions of RMB)
8,524 40.5 % 12,506 59.5 %



Source: National Bureau of Statistics of China, 2013

Consumers Leapfrogging to Online and Mobile Commerce Due to Underdeveloped Offline Retail Infrastructure. The challenges of an under developed physical retail infrastructure, together with the expected growth of retail sales in China, present a significant opportunity for e-commerce. We believe that as traditional brick and mortar retailers face challenges in reaching Chinese consumers, consumers will increasingly seek online channels to meet their needs and the availability of online shopping will stimulate higher consumption than otherwise would have been the case. In particular, we believe that in regions outside tier 1 and 2 cities, purchases through e-commerce channels could contribute to incremental increases in consumption in China due to the variety of product offerings available through online marketplaces, creating additional demand from local consumers.

Offline Retailers Use Online Marketplaces to Grow Their Business. We believe that the leading brick and mortar retailers are motivated to establish an online presence through an online platform in addition to their own e-commerce websites because of the consumer reach and brand building opportunity that a leading online platform such as Tmall can offer.



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China’s Expanding Logistics Infrastructure Facilitates E-commerce. China has an increasingly extensive and rapidly improving logistics infrastructure, consisting of nationwide, regional and local delivery services. We believe that the rapid development of China’s distributed logistics infrastructure and nationwide express delivery networks has been driven by the growth of e-commerce and will continue to support the unique demands of consumers and merchants engaging in e-commerce transactions on marketplaces. According to data provided as of June 30, 2014 by our 14 strategic delivery partners we work with, they employed over 1,100,000 delivery personnel in more than 600 cities and 31 provinces, directly controlled municipalities and autonomous regions in China. Collectively, they operated more than 1,800 distribution centers and more than 97,000 delivery stations. This network managed the delivery of 6.1 billion packages from our China retail marketplaces to consumers in the twelve months ended June 30, 2014. We believe orders from transactions generated on our marketplaces represented a significant portion of our logistics partners’ total delivery volumes in 2013 and, accordingly, the data of our major logistics partners provide a representative picture of the scope of logistics capabilities in China today.

As a result of these factors, we expect more consumers to shop online and increase the breadth of their purchases across multiple categories. In addition, certain factors that have traditionally limited the growth of online shopping in China, including the quality and coverage of the logistics network and the convenience and availability of online payment services, are no longer limiting factors. According to iResearch, China’s online shopping is expected to increase from RMB1,892 billion (US$305 billion) in 2013 to RMB4,772 billion (US$769 billion) in 2016 at a CAGR of 36.1%. China’s online shopping penetration rate, defined as online shopping market size as a percentage of total consumption, is also expected to increase from 8.0% in 2013 to 14.5% at the end of 2016, according to iResearch.




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Source: iResearch, January 2012 and July 2014 Source: iResearch, January 2012 and July 2014

Our Strengths

We believe that the following strengths contribute to our success and are differentiating factors that set us apart from our peers.

Management Team with Owner Mentality and Proven Track Record

Our management team’s clear sense of mission, long-term focus and commitment to the values that define the Alibaba culture have been central to our successful track record. Our management team has been remarkably stable and has created and grown leading businesses organically, including Taobao Marketplace, Tmall, Alibaba.com, Alibaba Cloud Computing and Alipay. We built early leadership in mobile commerce through self-developed mobile app products, including the Mobile Taobao App and Alipay mobile payment applications. Our management team is organized as a partnership and we believe this partnership culture, as well as substantial long-term equity ownership, encourage our business leaders to think like owners rather than agents. Our management team acts with a keen sense of responsibility for the success of our customers, employees and shareholders.



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Trusted Brands

Alibaba, Taobao, Tmall and Alipay are well recognized and trusted brands in China. Due to the strength of these brands, a majority of our customers navigate directly to our China retail marketplaces to find the products and services they are seeking instead of via third-party search engines. Our brands represent superior product selection, convenience and trust. As a company, we believe consumers perceive us to be a leader in the Internet industry, which engenders trust in our products and services. Through our China retail marketplaces and associated mobile apps, our products and services have become a part of people’s daily lives in China.

Thriving Ecosystem with Powerful Network Effects

We do not just operate a company; we view ourselves as the steward of a thriving ecosystem with responsibility for developing and balancing the ecosystem for the benefit of all participants. This provides us with the following key advantages:



• The participants in our ecosystem are invested in its success and growth. These participants, including buyers, sellers, brands, producers, marketing affiliates, logistics providers, retail operating partners, developers and other service providers, all derive significant economic value from the continued success of the ecosystem. We believe our ecosystem drives the livelihood of many of the sellers and third-party service providers, and as a result the interests of these participants are aligned with ours to ensure the continued success of our ecosystem.



• The interactions among these participants create value for one another as our ecosystem expands and generates strong network effects. More merchants on our marketplaces increase the choices available to consumers, and more consumers on our marketplaces increase the potential sales for merchants through a self-reinforcing, mutually beneficial network effect. In addition, services offered by other participants in our ecosystem enhance the user experience on our platform. These network effects increase the loyalty and frequency of use of our marketplaces by buyers and make it difficult to replicate our ecosystem.



• Our Taobao Marketplace is central to the ecosystem. Taobao Marketplace had an average of over 100 million unique daily visitors in June 2014. These visitors could be tapped as potential buyers for many of our marketplaces and services, including those we currently offer and those that we expect to develop. For example, Tmall and Juhuasuan source a significant amount of buyer traffic from Taobao Marketplace, thereby significantly reducing their customer acquisition costs. Sellers on Tmall may acquire buyer traffic through online marketing services displayed on Taobao Marketplace. In addition, when a buyer conducts a search on Taobao Marketplace, the results include storefronts and product listings across both Taobao Marketplace and Tmall to better meet the buyer’s needs as well as to provide the most relevant results. The Taobao Marketplace homepage also includes links to Tmall and Juhuasuan that draw additional traffic to those marketplaces. In addition, by purchasing promotional slots on Juhuasuan, sellers from Taobao Marketplace and Tmall drive additional traffic to their storefronts on those sites.



• The scope of our ecosystem and the network effects it creates also significantly reduce our reliance on a sales force for our marketing services. The sellers on our marketplaces are also our online marketing customers, and accordingly are drawn to purchase services from us without significant sales or marketing efforts on our part. For example, Alimama accesses the large Taobao Marketplace merchant base as customers for online marketing services without the need to rely on a field sales team.

Mobile Leadership

We are the leader in mobile commerce in China in terms of mobile retail GMV. Mobile transactions represented 32.8% of our total GMV in the three months ended June 30, 2014. According to iResearch,



• mobile GMV transacted on our China retail marketplaces accounted for 86.1% of total mobile retail GMV in China in the three months ended June 30, 2014;



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• our Mobile Taobao App has been the most popular mobile commerce app in China by mobile MAUs every month since August 2012;



• the mobile payment application developed by Alipay that powers payments on our apps as well as on third-party mobile commerce apps has been China’s leading mobile payment application by mobile MAUs since August 2012; and



• the Mobile Taobao App, Alipay and the UCWeb mobile browser were three of the top five mobile apps in China based on mobile MAUs in July 2014 (the most recently available month).

In addition, our mobile leadership is exhibited by our large mobile user base:



• we had 188 million mobile MAUs on our China retail marketplaces in June 2014; and



• UCWeb had 264 million active users globally during June 2014.

Our mobile apps are top-of-mind commerce apps among Chinese consumers and we believe that our leading market position in mobile commerce reflects the strong brands of our China retail marketplaces. As with users visiting our web-based marketplaces, users of our mobile apps have strong commercial intent, generally resulting in significant conversion into sales for merchants. Because of the strong commercial intent of users visiting our marketplaces, we believe that we are well-positioned to monetize our mobile user base in the future.

Scalable Logistics Platform

We offer sellers on our marketplaces the benefits of a distributed and scalable logistics platform and information system to provide high quality delivery services to sellers and buyers on a large scale. In the twelve months ended June 30, 2014, we facilitated the delivery of 6.1 billion packages generated from transactions on our China retail marketplaces, a number of packages that represented 54% of the 11.3 billion packages that, according to the State Post Bureau of the PRC, were delivered by delivery companies in China meeting certain minimum revenue thresholds. The scalability of this network was demonstrated by its success in the handling of 156 million packages generated on our Singles Day promotion in 2013 compared to a daily average of 16.6 million packages generated from transactions on our China retail marketplaces in the twelve months ended June 30, 2014.

We have established a network of logistics providers who are linked to us through our proprietary logistics information system, which is operated by China Smart Logistics. This logistics information system allows all participants to share information on order specifics, delivery status and user feedback and enables us to provide a higher quality experience to both sellers and buyers.

Our platform approach helps to address the requirements of facilitating the delivery of packages across a wide range of product categories from millions of sellers to hundreds of millions of buyers in dispersed locations across China. We do not directly own the physical infrastructure or employ delivery personnel. Instead, we work with multiple logistics providers to achieve flexible, scalable and responsive service and cost effectiveness for both sellers and buyers. Because we do not operate our own logistics network and because of our scale, the logistics companies we work with view us as a key partner rather than as a competitor.

Reliable, Scalable and Cost-effective Proprietary Technology

The substantial volume of transactions and data generated on our marketplaces and interactions among participants in our ecosystem necessitates a reliable, scalable and cost-effective technology infrastructure. We have made significant investments in our infrastructure and data technology to support the strong growth in our business. We have developed proprietary technology such as our distributed relational database, general purpose computing clusters, content delivery networks, data management platform and personalized product search engines. The development of proprietary technology has minimized our reliance on third-party commercial hardware and software, reduced our operating costs and given us the flexibility to innovate and rapidly scale our



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business. The reliability and scalability of our technology infrastructure is evidenced, for example, by our successful processing of 254 million orders within 24 hours during our Singles Day promotion on November 11, 2013. In addition, due to the volume of transactions, the “always-on” nature of our marketplaces and the stringent security demands of commerce and payment transactions, we are able to attract world-class talent looking to solve difficult, complex and large-scale engineering challenges.

Data Insights

Data from consumer behavior and transactions completed on our marketplaces and interactions among participants in our ecosystem provide us with valuable insights to help us and our sellers improve the buyer experience, operate more efficiently and create innovative products and services. For example, we provide data to sellers on a real-time basis to enable them to better understand industry trends in the sectors in which they operate, as well as to help them target and acquire customers. Through our data management platform, or DMP, we work with brands and merchants to enhance understanding of their customer data and to direct targeted marketing to a broader base of consumers with similar attributes. For buyers, we use our data to create a better shopping experience by personalizing search results and shopping recommendations. We also leverage our data to help our logistics partners improve their fulfillment and delivery systems, processes and resource allocation.

Our Third-party Platform Business Model

Our business model is to connect buyers and sellers and enable them to do business. Unlike many e-commerce companies, we do not sell directly to customers and we do not compete against the merchants on our marketplaces or against various service providers, logistics companies or other participants of our ecosystem. Our exclusively third-party platform business model allows us to scale rapidly without the risks and capital requirements of sourcing, merchandising and holding inventory borne by direct sale companies. This business model drives our profitability and strong cash flow, which give us the flexibility to further improve our platform and customer experience, expand our ecosystem and aggressively invest in people, technology, innovative products and strategically important assets.

Our Strategies

The key elements of our strategy to grow our business include:

Increase Active Buyers and Wallet Share

There were 279 million active buyers on our China retail marketplaces in the twelve months ended June 30, 2014. In the twelve months ended June 30, 2014, the average active buyer on our China retail marketplaces placed 52 orders, up from 45 orders in the same period in 2013 and 35 orders in the same period in 2012. We will continue to develop and market the value proposition of our retail marketplaces to attract new buyers as well as increase the wallet share of existing buyers through more frequent buying and buying across more product categories. We intend to achieve growth through customer loyalty programs, high quality customer service, marketing and promotional campaigns, and expansion of marketing affiliates, as well as by promoting the usage of our various mobile commerce apps such as our Mobile Taobao App.

Expand Categories and Offerings

In the twelve months ended June 30, 2014, the average active buyer on our China retail marketplaces placed orders in 10.1 of our 118 product categories, compared to 9.4 product categories in the same period in 2013 and 8.0 product categories in the same period in 2012. We believe that growth in the number of product and service categories and products and services purchased within each category contributes to higher average spending per customer and therefore increases GMV. We aim to enhance the shopping experience for consumers, increase consumer engagement and create additional opportunities for merchants by developing and promoting additional



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categories and offerings. For example, we have recently taken initiatives to launch or expand offerings in specialty categories such as groceries, digital entertainment and local services. We will continue to explore ways to improve consumer satisfaction on our marketplaces so that consumers will buy across more product categories. We intend to complement organic product category expansion with strategic alliances, investments and acquisitions.

Extend Our Mobile Leadership

The number of mobile MAUs increased by 19.9% from 136 million in the month ended December 31, 2013 to 163 million in the month ended March 31, 2014, and by 15.3% to 188 million in the month ended June 30, 2014. In addition, mobile GMV transacted on our China retail marketplaces accounted for 84.7%, 87.2% and 86.1% of total mobile retail GMV in China in the twelve months ended December 31, 2013, the three months ended March 31, 2014 and the three months ended June 30, 2014, respectively, according to iResearch. We intend to extend our leadership in mobile commerce through mobile product improvements that enhance consumer experience. We intend to build upon our strength in mobile commerce to develop a broader spectrum of consumer offerings, such as location-based services, O2O services and digital content, in order to fulfill our vision of becoming central to the everyday lives of our customers. In addition, we have launched mobile apps for sellers to manage their online storefronts and maintain relationships with their customers, thereby enhancing the loyalty among merchants toward our platform. We expect UCWeb will further extend our mobile leadership. In addition to its mobile browser, we will provide various mobile value-added services, including mobile search, mobile reading, app distribution and a mobile games platform. We will also continue to look for ways to increase our mobile user base and engagement through strategic alliances, investments and acquisitions.

By pursuing this “user first” strategy to focus on user experience enhancement and user base expansion, we believe that we will be able to drive more GMV that will provide economic benefits to our sellers and create additional monetization opportunities in the future. We will continue to gather data insights and explore ways to monetize user traffic on our mobile platform without disrupting user experience.

Enhance the Success of Sellers on a Broad Basis

We aim to increase the success of a broad base of sellers on our marketplaces by increasing their exposure to relevant buyer demand and providing them with more tools such as data science applications to manage their relationships with customers, in order to enable a more personalized shopping experience. We offer Qianniu ( LOGO ), an integrated platform for communication and productivity tools that allows sellers on Taobao Marketplace and Tmall to manage their operations more efficiently. Sellers also use Weitao ( LOGO ), our mobile social media platform that enables sellers to provide information regarding their brands, promotions and other topics to buyers. We use data analytics to help sellers target consumers and increase the rate of conversion from visits to transactions. In addition, through our Taobao University program, we offer sellers training and education to help them improve the operation of their online storefronts and marketing and sales activities.

Enhance Data and Cloud Computing Technologies

We believe data generated on our marketplaces can provide significant value to our customers and other ecosystem participants. We will continue to implement our data strategy through the application of data intelligence and deep learning technologies to several fields, including marketplace design, user interface, search, targeted marketing, logistics, location-based services and financial services, among others.

We believe cloud computing will become an essential component of the infrastructure of e-commerce. In the past five years we have invested in and developed our proprietary cloud infrastructure to support our own businesses and those of third parties, including our sellers. We will continue to invest heavily in our cloud computing platform to support our own businesses and those of third parties.



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Develop Cross-border Commerce Opportunities

Our international strategy is focused on leveraging cross-border linkages to our ecosystem that enable foreign brands and merchants to access the Chinese consumer market without significant capital investments while providing Chinese manufacturers and merchants a platform to reach businesses and consumers across the world.

Tmall Global – Chinese consumers buying goods shipped from overseas. To address the increasing demand for foreign brands by Chinese consumers, we have developed Tmall Global as an extension of the Tmall platform. While major foreign brands that have physical operations in China are well-represented on Tmall, we also aim to establish Tmall Global as the premier platform for overseas brands and retailers to reach Chinese consumers without the need for physical operations in China. We will continue to develop Tmall Global as the destination for Chinese consumers to gain access to foreign brands by attracting additional brands and developing more efficient cross-border payment and logistics solutions.

AliExpress – worldwide consumers buying Chinese products. Through AliExpress, consumers worldwide can buy directly from manufacturers and exporters in China at attractive prices. We will continue to develop and market AliExpress globally, especially to consumers in emerging economies such as Russia, Eastern Europe and South America, where quality products from China at direct-to-consumer prices offer significant value.

Alibaba.com – Chinese wholesale exports to the world. Alibaba.com is a global online wholesale marketplace. We seek to expand our import/export marketplace by growing the number of paying members, as well as offering additional value-added services such as customs clearance, VAT rebate services for our exporters and cross-border logistics solutions.

Our Ecosystem and Its Participants

Overview

Buyers and sellers are at the heart of our ecosystem. Buyers and sellers discover, select and transact with each other on our platform. Third-party service providers add value to our platform through service offerings that make it easier for buyers and sellers to do business. The third-party participants in our ecosystem include a payment services provider, logistics providers, retail operational partners, marketing affiliates, independent software vendors and various professional service providers.



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We have developed key policies and procedures that maintain the health and sustainability of our marketplaces, including consumer protection programs, marketplace rules, qualification standards for merchants and buyer and seller rating systems. We have agreements, arrangements and relationships with our ecosystem participants — buyers, sellers and third-party service providers. We also have strategic alliances with and or investments in leading China Internet companies such as AutoNavi, Weibo and Youku Tudou.

We are invested in the success of every participant in our ecosystem and we strive to ensure that our ecosystem partners capture their fair share of the economics.

As our ecosystem expands, new jobs are created. According to a research report jointly authored by AliResearch, our internal research division, and the School of Social Sciences of Tsinghua University, as of June 2013, the merchants on Taobao Marketplace and Tmall employed approximately 9.7 million people to work directly for the online storefronts of those merchants. In addition, various service providers in logistics, marketing, consulting, operations outsourcing, training and other professions employed approximately 2.0 million people, according to the same source.

Value Proposition to Consumers

The large and growing number of the consumers we serve and the increasing frequency with which they shop on our marketplaces reflect our value proposition to consumers. In the twelve months ended June 30, 2014, we had 279 million annual active buyers who placed an average of 52 orders during this period.

Anything you want, anytime, anywhere. With over 1 billion product and service listings offered by sellers on our China retail marketplaces across over 100 product categories and over 2,000 sub-categories as of June 30, 2014, consumers have access to a wide selection of products ranging from high volume items to more niche, tailored and personalized products, or so-called “long-tail” products, all through our websites and mobile apps on a 24-hour a day, 7-day a week basis.

Delightful shopping experience. We believe that our marketplaces deliver a delightful shopping experience to consumers. According to Forrester Research, Tmall and Taobao Marketplace received the number one and number two highest Customer Experience Index rankings, respectively, among all the retailers that Forrester tracked in China in 2014. In the Forrester study, of the 46 Chinese and non-Chinese brands surveyed in the retail, airline, hotel and banking industries, Tmall was the only retail industry brand out of a total of four brands that received an “excellent” overall ranking. It also received an excellent score for “meeting needs” and “being easy to do business with.”

We believe that the following factors drive the consumer experience on our platform:

Selection and value for money. With approximately 8.4 million annual active sellers on Taobao Marketplace in the twelve months ended June 30, 2014 and over 110,000 brands on Tmall as of June 30, 2014, our marketplaces offer consumers competitive pricing across a broad range of categories.

Personalization. Our data analytic and data management capabilities allow us to anticipate buyer needs and tailor product offering displays, matching buyers with the most relevant merchants.

Reliability. Consumers rely on feedback on the sellers, product reviews and seller rating systems to give them the transparency and comfort they need in choosing from whom to buy.

Product quality and consumer protection. Our marketplace rules encourage sellers to make product quality their priority. Sellers on Tmall are required to offer consumer protection programs, such as guaranteed returns and product warranties. Sellers on Taobao Marketplace are required to offer certain consumer protection measures and may also choose to participate in additional return and warranty programs. The sellers who participate in additional consumer protection programs generally do more business on our marketplace.



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Convenient payment. The escrow services provided by Alipay on our China and International retail marketplaces are designed to make payment safe, fast and easy for consumers who use that service whether they shop on a computer or a mobile device.

Reliable and timely delivery. The central logistics information system we provide through China Smart Logistics enables sellers to fulfill and deliver orders in timely and reliable ways, with real-time information being provided to buyers on delivery status. Logistics service providers, such as express delivery companies, relied on this information system to fulfill and deliver an average of 16.6 million packages per day to consumers in the twelve months ended June 30, 2014.

Value Proposition to Sellers

Cost-effective customer acquisition with scale. We believe our marketplaces are the top choices for sellers, whether they are wholesalers or retailers, to establish a presence to gain access to buyer traffic. In June 2014, an average of over 100 million unique daily visitors visited our Taobao Marketplace.

Taobao and Tmall have become synonymous with online and mobile shopping in China. Consumers come to our online or mobile platform with strong commercial intent, which drives high conversion rates for merchants. In addition, we provide sellers with data analytics that enable them to more effectively target their offerings and marketing efforts to increase the rate they convert shoppers to buyers. Accordingly, we believe our marketplaces to be an effective and cost-efficient way to acquire online customers in China.

In addition, sellers can extend their consumer reach through our ecosystem of marketing affiliates. Taobao Affiliate Network, one of the leading marketing affiliate networks in China, enables merchants to generate incremental traffic from third-party affiliates to their storefronts and product listings. For example, Weibo, a leading social media platform in China in which we have an equity investment, offers merchants a marketing medium for messages and alerts such as new products and special promotions with a reach of 157 million monthly active users during June 2014.

Brand building and promotions. Many retailers have successfully built brand awareness and run brand promotions on our retail marketplaces. Because we do not compete with merchants who sell on our marketplaces, brands and retailers embrace Tmall as a platform to distinguish their own brand identities and build brand awareness and image. Through real-time interactions with consumers who have commercial intent, Tmall enables retailers to run special promotions and targeted marketing campaigns utilizing data and interactive media in ways that cannot be achieved through traditional media or social networking platforms.

Infrastructure support for sellers. Sellers not only build their storefronts and product catalogues on our marketplaces; they also rely on our platform for a range of essential support services to operate their businesses. These include Web-based and mobile interfaces to manage listings, orders and customer relationships, as well as cloud computing services for their enterprise resource planning, or ERP, and client relationship management, or CRM, systems. Through China Smart Logistics, we provide sellers with performance analytics on their logistics partners, including delivery performance, customer satisfaction ratings and complaint statistics. Sellers can place shipment orders with our partner logistics providers directly through the China Smart Logistics platform. Through the shipment ordering systems, we aim to enable sellers to improve the buyer shopping experience by providing performance analytics and tools such as shipment fee calculators.

Direct sourcing for merchants. We enable merchants to source products through 1688.com, our domestic wholesale marketplace. Retail merchants have access to a transaction system developed by us to efficiently connect and transact with sellers on 1688.com. By connecting wholesalers and manufacturers with merchants on our retail marketplaces, we make it possible for producers to shorten the distribution chain and for retail merchants to have access to a more cost-effective direct sourcing channel.



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Financing for sellers. Our SME loan business offers financing to certain sellers on our marketplaces. We believe that these financing products can be structured and distributed in a more cost-effective way because we are able to use data from our marketplaces to make informed marketing, credit and risk management decisions.

Value Proposition to Third-party Service Providers

Marketing affiliates. We believe Taobao Affiliate Network is the largest affiliate marketing network in China based on revenue shared with affiliates. Taobao Affiliate Network is powered by Alimama, our proprietary online marketing technology platform. Through this platform, sellers place marketing displays on our marketing affiliates’ websites and mobile apps, and sellers pay us a performance-based marketing fee primarily based on cost-per-click, or CPC, and cost-per-sale, or CPS, models. A significant portion of the marketing fees is shared with the participating affiliates.

Logistics providers. Our scale and the data generated from transactions on our marketplaces enable us to work closely with our logistics partners – including warehouse operators, line haul services providers and express delivery services – to improve the quality of their services. Through China Smart Logistics, we provide real-time information to our logistics partners, including key operating metrics such as distribution center utilization rates, route planning data and order volume forecasts. This information allows our logistics partners to operate more efficiently by optimizing their warehouse, transport and people resources to effectively meet consumer demand.

We collaborate with logistics partners to develop solutions that are tailored for product categories that require special handling, such as perishables, frozen items, large appliances, home improvement products and furniture. This creates additional business opportunities for our logistics partners.

Retail operational partners. As more brands and retailers expand into e-commerce, they look to outsource certain functions to third parties who have experience conducting business on online and mobile commerce platforms. These functions include product planning, supply chain management, inventory storage and fulfillment, marketing and storefront management, customer relationship management and customer service.

Independent software vendors, or ISVs. ISVs provide software tools as well as systems integration services to sellers. Our China retail marketplaces provide open application programming interfaces, or APIs, for ISVs to develop and distribute services for merchants to customize their storefronts. In addition, ISVs that provide systems integration services help merchants manage their ERP and CRM systems that are hosted on our cloud computing platform.

Professional services. The large scale of economic activity on our marketplaces has spawned a number of specialized professional services being offered to merchants. These include, among others, photography specialists, models for clothing and accessories, customer service agents, Internet marketing consultants and professional buying agents.



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The Network Effect on and across Our Marketplaces

The interactions between buyers and sellers create network effects in that more merchants attract more consumers, and more consumers attract more merchants. In addition, our marketplaces are interconnected in that many buyers and sellers on one marketplace also participate in the activities on our other marketplaces, thereby creating a second-order network effect that further strengthens our ecosystem.

The chart below depicts this network effect dynamic in our ecosystem.



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Buyers



• Chinese consumers buy on Taobao Marketplace, Tmall and Juhuasuan



• While browsing or searching on Taobao Marketplace, consumers see product listings from both Taobao Marketplace and Tmall



• Global consumers buy on AliExpress



• Global wholesalers buy on Alibaba.com

Retail sellers



• Small sellers in China sell on Taobao Marketplace and AliExpress



• Chinese brands sell on Taobao Marketplace, Tmall, Juhuasuan and AliExpress and global brands sell on Tmall Global



• Sellers source products on 1688.com

Wholesale sellers



• Chinese wholesalers and manufacturers supply retail merchants in China on 1688.com and global wholesale buyers on Alibaba.com



• Chinese wholesalers and manufacturers supply directly to global consumers on AliExpress



• Global wholesalers and manufacturers supply global wholesale buyers on Alibaba.com




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Our Marketplaces

The following table summarizes the key marketplaces we operate:





Marketplace
Year of launch
Description

Key metrics


Taobao Marketplace

(www.taobao.com)
2003 China online shopping destination
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GMV:(1) RMB1,833 billion

Annual active sellers:(1) 8.5 million

Annual active buyers:(1) 279 million


Tmall

(www.tmall.com)
2008 China brands and retail platform

Juhuasuan

(www.juhuasuan.com)
2010 China group buying marketplace


1688.com

(www.1688.com)
1999 China wholesale marketplace
Paying members:(2) over 729,000

GMV settled through Alipay:(1) RMB141 billion



AliExpress

(www.aliexpress.com)
2010 Global consumer marketplace GMV settled through Alipay:(1) US$2.9 billion


Alibaba.com

(www.alibaba.com)
1999 Global wholesale marketplace Paying members:(2) over 128,000



(1) For the twelve months ended June 30, 2014. 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. GMV generated from traffic through Juhuasuan was RMB65.6 billion (US$10.6 billion) in the twelve months ended June 30, 2014.

(2) As of June 30, 2014.



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Taobao Marketplace

We launched Taobao Marketplace in 2003 as a free platform for buyers to explore and discover products and sellers to establish a low-cost online presence. Taobao means “search for treasure” in Chinese and has become synonymous with online shopping in China. Users may access Taobao Marketplace anytime, anywhere through the Taobao website, our Mobile Taobao App and our mobile-optimized website. According to iResearch, Taobao was the number one C2C marketplace in terms of gross merchandise volume in China in 2013. Our Mobile Taobao App has been the most popular mobile commerce app in China from August 2012 to July 2014 (the most recent month available) in terms of mobile MAUs, according to iResearch. Our Mobile Taobao App not only serves as an extension of desktop access to Taobao Marketplace but has additional in-app services that cater to mobile users, such as comparison shopping, location-based services, social engagement, digital entertainment and payments. For example, Weitao, one of our in-app services on Mobile Taobao App, is a social media platform where buyers sign up to follow a seller and see news and promotions published by the sellers they follow.





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We believe Taobao Marketplace has the most extensive collection of products and services among online marketplaces globally, ranging from everyday to hard to find items. Through personal computers and mobile devices, buyers browse, search and compare products, explore and discover new trends, communicate with sellers and settle transactions with the escrow payment services provided by Alipay anywhere and anytime. The substantial majority of products listed on Taobao Marketplace consist of new merchandise and we believe Taobao Marketplace appeals to buyers, especially younger consumers, who value ease of use, a large product selection and price competitiveness. Taobao Marketplace had an average of over 100 million unique daily visitors in June 2014. With the large number of daily visitors, Taobao Marketplace acts as a starting point for buyers to explore, discover and use our marketplaces and services. For example, Taobao Marketplace drives significant organic traffic to Tmall, lowering customer acquisition costs across our marketplaces.

Taobao Marketplace is open to everyone. Sellers on Taobao Marketplace are primarily individuals and small businesses. Anyone selling on Taobao Marketplace must verify their identity, pass an online examination on Taobao Marketplace rules and execute an honor code pledge. Through individual online storefronts, sellers list their products and services and complete transactions with buyers. In the twelve months ended June 30, 2014, there were approximately 8.4 million active sellers on Taobao Marketplace. In addition to serving buyers and sellers in large cities, Taobao Marketplace also benefits buyers and sellers from lower tier cities. During the twelve months ended June 30, 2014, 173.3 million active buyers, or approximately 62% of all active buyers on our China retail marketplaces, were located outside of tier 1 and tier 2 cities, while approximately 4.5 million sellers, or approximately 52% of total active sellers on our China retail marketplaces, were located outside of tier 1 and tier 2 cities.

Major physical product categories on Taobao Marketplace include apparel and accessories, electronics and appliances, home furnishings and maternity and baby products. Major virtual and digital products on Taobao Marketplace include pre-paid phone cards, game cards and lottery tickets.



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In 2010 we started offering Taobao Local Service, a platform that allows consumers to discover services offered by local merchants and that offers a channel for traditional offline service providers to execute O2O strategies. Taobao Local Services may be accessed through both personal computers and our mobile apps. An example of a local service is Taobao Diandian, our app for restaurant pre-order and takeaway dining service. Other Taobao Local Services include Taobao Travel and Taobao Movie. These and certain of our other mobile apps are described below.





O2O / Local
services mobile apps

Description



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Taobao Diandian

• Restaurant pre-order and takeaway dining service

• Helps to drive incremental sales for restaurants



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Taobao Movie

• Provides real-time movie information to users

• Assists users with seat selections and online movie ticket purchases



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Taobao Travel

• Provides travel services including flight, hotel booking and visa services

• Platform for airlines and travel agents to list their travel related offerings



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AutoNavi*

• Provides comprehensive, integrated navigation and location-based solutions for the China market through its digital map database and proprietary technology platform



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Alipay Wallet†

• Mobile payment services

• Allows users to electronically store and manage credit cards, gift cards and discount coupons, as well as electronically transfer funds via the Internet, through barcode / QR code recognition, among other functions




* Through our investment in AutoNavi.

† Through services provided by Alipay.

The creation of storefronts and listings are free of charge to sellers. The escrow payment services provided by Alipay are free of charge to buyers and sellers unless payment is funded through a credit card, in which case Alipay charges a fee to the seller based on the related bank fees charged to Alipay. We generate revenue on Taobao Marketplace from sellers who purchase P4P and display marketing services to direct traffic to their storefronts either on Taobao Marketplace, Tmall or Juhuasuan. In addition, we also acquire additional traffic for our marketplaces from third-party marketing affiliate websites. We also generate subscription fee revenue from sellers who pay for our storefront software, including a suite of tools to upgrade, decorate and manage their online storefronts.



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Taobao Marketplace Case Studies




Furnishing a house on Taobao – Meeting everyday needs





Although she had no experience in interior design or the lodging business, having previously familiarized herself with the wide range of product listings and convenience of Taobao Marketplace in decorating a home with her husband in Hubei province, Du Jin decided to realize her dream of setting up a guest house in an idyllic spot in a remote region in China. Du, along with some of her friends decided to establish a guesthouse near a natural spring in the mountainous region near Lijiang, a town in Yunnan province, renowned for its natural beauty, but far away from any major commercial center. Sourcing all of the guesthouse furniture and decorations from Taobao Marketplace – from beds and sofas, to tea sets, pillows and curtains and lighting fixtures – Du and her friends not only overcame the logistical challenges of getting the required furnishings to a remote area in China but also differentiated the style of their guesthouse from others in the area, which tended to follow a single-style as those guesthouses all sourced their items locally. Du noted that aside from the convenience and comprehensiveness of the shopping experience on Taobao Marketplace, she also cherished the opportunity to communicate with and get to know many of the merchants through their interactions in the course of the project.

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Living @ Mobile Taobao – Anytime, anywhere




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Wei Shi frequently travels from Hangzhou to Shanghai to spend weekends with his girlfriend. Before taking the train to Shanghai one morning, Wei opened up the Mobile Taobao App on his smartphone to purchase movie tickets and fruit for that evening and also bought a bouquet of flowers from a seller offering same-day delivery. Mobile Taobao has become a destination for products and services for our users’ everyday lives, such as booking cinema tickets and taxis, and ordering take-out meals and gifts for delivery, anytime, anywhere.




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The Taobao Dream Car – Buying virtually anything on Taobao





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Two car aficionados grew up in China in the 1980s, a time when cars were enough of a novelty that children would run to watch whenever one drove by. The two decided to challenge themselves with building their own hand-crafted working sports car. One of the biggest challenges was the sourcing of thousands of auto parts necessary to build the car. They decided to turn to Taobao Marketplace which had over 270,000 auto parts sellers to purchase parts used to build the car to complete the project within a year. Named the “Dream,” the car is a fully functioning model and was showcased at the Beijing International Car Show in April 2012.





Taobao village — Linking villages to nationwide markets





Dongfeng is a small village in Shaji, a town located in Jiangsu province. Historically, the villagers were primarily engaged in waste plastic processing and farming. In 2006, Han Sun, a local resident, decided to embark on a new business — furniture manufacturing and selling on Taobao Marketplace. Han’s success spurred others in the village to follow and their operations have led to local investments in areas such as training programs, product design and logistics. By December 31, 2013, 37 delivery and logistics service providers had established a presence in Shaji to support the local industry of selling on Taobao Marketplace, according to AliResearch. Today, annual sales on the online furniture storefronts operated by residents in Shaji exceed RMB2 billion, with several hundred of the local sellers each achieving annual sales of over RMB5 million.



As of November 30, 2013, there were approximately 20 Taobao Villages in China, according to AliResearch. A Taobao Village generally refers to rural areas where at least 10% of the households are independently involved in e-commerce on Taobao Marketplace and generating a total GMV of over RMB10 million.
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Tmall

We launched Tmall in 2008 as an online platform featuring brands and retailers with each seller having a uniquely identifiable online storefront. Users may access Tmall anytime, anywhere through the Tmall website and the mobile apps and mobile-optimized websites provided by Taobao Marketplace and Tmall. According to iResearch, Tmall is the largest brands and retail platform in China in terms of GMV in 2013, including direct sales companies and platform operators.

Tmall caters to online and mobile consumers looking for branded products and a premium shopping experience. It is a trusted platform for consumers to buy both homegrown and international branded products and products that are not available in traditional retail outlets. Brands and retailers operate their own stores on the Tmall platform with unique identities, look and feel, enabling sellers to control their own branding and merchandising. We believe the strong buyer traffic, autonomy and flexibility for sellers to operate their own stores, and the fact that Tmall does not operate a direct sale business to compete for customer traffic, make Tmall the platform of choice for brands and retailers. Because of the presence of a large number of global brands and the stringent requirements for merchants to operate on Tmall, a presence on Tmall has become a validation of quality, allowing merchants to take advantage of our significant traffic to extend and build brand awareness.



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Major physical product categories on Tmall include apparel and accessories, electronics and appliances, home furnishings, home appliances and maternity and baby products. Major virtual items on Tmall include pre-paid phone and game cards.

Tmall has also pioneered new business models to leverage consumer demand for special product categories, such as fresh produce as detailed in “— Tmall Case Studies — Tmall — Connecting American farmers to Chinese consumers.”

In 2009, Tmall pioneered November 11, known as “Singles Day” in China, as an annual promotional shopping day. Singles Day was established as an annual promotional event on Tmall to reward consumers through discounts. On November 11, 2013, our China retail marketplaces generated GMV of RMB36.2 billion (US$5.8 billion) settled through Alipay within a 24-hour period.

In 2014, we launched Tmall Global, which is a platform for international brands to offer products directly to consumers in China. Tmall Global offers Chinese consumers access to branded products sourced and fulfilled directly from overseas, without the need to travel abroad. In addition, consumers may directly settle payments with the international merchant in Renminbi through Alipay’s international settlement services.

International brands that set up storefronts on Tmall Global benefit from the exposure to the hundreds of millions of visitors on Taobao Marketplace and Tmall, enabling them to establish their brand awareness in China without the need for a physical presence in China. International merchants can register and set up a storefront with Tmall Global with, among other things, registered trademarks from jurisdictions of their home countries. A growing number of foreign brands from the United States, Germany, Australia, New Zealand, Korea, Japan, Taiwan and Hong Kong have used Tmall Global as a stepping stone into China. Representative product categories include maternity and baby products, health food and cosmetics and skincare products.





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Sellers on Tmall and Tmall Global pay commissions based on a pre-determined percentage of GMV for transactions settled through Alipay that varies by product category, and typically ranges from 0.3% to 5%. Sellers also pay an annual upfront service fee, up to 100% of which may be refunded depending on sales volume achieved by the seller within each year. Sellers also pay a security deposit to back-stop potential claims under our consumer protection programs.



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Tmall Case Studies




Gap — Extending its online reach

In February 2011, Gap launched its Tmall flagship store to increase its reach to Chinese consumers. While Gap already operates physical storefronts in 21 cities in China, it supplements its already well-known brand by expanding its offerings to consumers online, reaching beyond China’s tier 1 and tier 2 cities.

On the Tmall platform, Gap enhances its operations through strategic marketing, utilizing data generated from Tmall and capitalizing on Tmall’s capability to display the right product at the right time. For example, when a visitor to the Gap store on Tmall selects a product, the product page displays alternative products that are highly relevant based on a number of data-driven criteria, including personal and aggregated behavioral data such as browsing pattern and purchasing history. Through its Tmall flagship store, Gap’s products were sold to consumers in over 300 cities in China in 2013.



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Inman — Success of a Tao-brand

The story of Inman began in 1998. Starting out as a small garment manufacturer in Guangzhou, Mr. Jianhua Fang designed and manufactured sports and casual clothing for export to Korea, Taiwan and other regions. Leveraging the power of the Internet to provide his products to overseas business buyers, Jianhua became a member on Alibaba.com in 2005. As business continued to grow, Jianhua acquired expertise in supply chain management in the apparel business, and became convinced that developing his own brand was the only way to understand customers’ needs. In 2007, Jianhua established the female casual apparel brand Inman on Taobao Marketplace, positioning his products with an artistic aesthetic presentation. Believing that he could improve Inman’s brand image through Tmall, Jianhua became one of the first merchants to open a flagship store on Tmall in 2008. Since then, Inman has become one of the most popular female apparel brands on Tmall. In the Singles Day promotion in 2013, Inman was one of the top-grossing merchants in the women’s apparel category on Tmall in terms of gross merchandise volume.



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Tmall— Providing safety and peace of mind for parents

Demand for high-quality, imported baby formula in China has grown significantly in recent years. In order to provide authentic, high-quality products of verifiable origin directly to Chinese families, Tmall partnered with Danone Group and its wholly-owned subsidiary, Nutricia Early Life Nutrition in August 2011 to launch its official brand flagship store on Tmall, offering a number of baby formula brands. In 2013, Nutricia Early Life Nutrition sold approximately 3,000,000 packs of baby formula on Tmall.

Nutricia Early Life Nutrition used a pre-sales model whereby the manufacturer ships directly to consumers from the site of production in Europe so Chinese parents could purchase baby formula with peace of mind about its origin, quality and after-sales service.



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Tmall— Connecting American farmers to Chinese consumers

In the summer of 2013, Tmall and the Agricultural Trade Office in Shanghai of the United States Department of Agriculture partnered to sell Chinese consumers fresh American cherries, before they were even harvested in Washington, Oregon, Idaho, Montana and Utah. Consumers placed deposits to reserve boxes of cherries and once the cherries were picked, they were delivered from tree to table within 72 hours through specialized refrigerated transport that we organized with our logistics providers. More than 170 tons of American cherries were sold, and farmers in the United States were able to accurately gauge demand and ship only what had been pre-sold to ensure freshness.

The cherry project is just one of many projects through which we have made fresh overseas produce and perishables available to Chinese consumers, including blueberries from Chile, tulips from The Netherlands, king crab from Alaska and lobsters from Canada.



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Juhuasuan Group Buying Marketplace

Launched in 2010, Juhuasuan was the most popular online group buying marketplace in China based on its monthly active users in 2013, according to iResearch. We believe Juhuasuan is the largest online group buying site in the world based on gross merchandise volume in 2013. GMV generated from traffic through Juhuasuan amounted to RMB65.6 billion (US$10.6 billion) in the twelve months ended June 30, 2014. Juhuasuan is a stand-alone marketplace that operates a distinct website with its own brand identity among consumers. Juhuasuan is another avenue for sellers’ marketing spending to help them generate more sales and acquire additional traffic. All merchants that purchase promotional slots on Juhuasuan are Taobao Marketplace and Tmall merchants, and transactions from traffic originated on Juhuasuan are completed on the merchants’ storefronts on Taobao Marketplace or Tmall. Accordingly, 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 on.



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Juhuasuan offers quality products at discounted prices by aggregating demand from numerous consumers. Juhuasuan mainly does this through flash sales which make products available at discounted prices for a limited period of time. Juhuasuan offers distinct group buying channels featuring branded and private label products, products made to custom specifications and local services. Only sellers on Taobao Marketplace and Tmall may purchase promotional slots on Juhuasuan, and the majority of sellers on Juhuasuan are also Tmall sellers.

Major product categories on Juhuasuan include apparel and accessories, electronics and appliances, home appliance products maternity products and beauty and health products.

Sellers on Juhuasuan pay a placement fee for promotional slots for a specified period and a commission based on a pre-determined percentage of GMV settled through Alipay, which varies by product category.

1688.com

1688.com is a leading online wholesale marketplace in China. 1688.com offers membership packages for sellers to establish an online presence to market relevant product information to wholesale buyers involved in domestic trade in China. We have extended our business model to create a transaction platform on 1688.com to help wholesalers transact with buyers and the majority of buyers are merchants on our retail marketplaces. The majority of sellers on 1688.com are Chinese wholesalers, suppliers or distributors. 1688.com also acts as a wholesale channel for merchants doing business on our retail marketplaces to source products from domestic wholesalers.



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Sellers may join 1688.com and list their products for free. Sellers may purchase a China TrustPass membership that allows wholesalers to host premium storefronts with access to basic data-analytic applications and upgraded storefront management tools. Sellers may also pay for additional services, such as premium data analytics, and online marketing services such as P4P marketing services and keyword bidding.

AliExpress

We launched AliExpress in 2010. This global consumer marketplace enables consumers from around the world to buy directly from wholesalers and manufacturers in China. On AliExpress, consumers have access to a wide variety of products.



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In addition to the global English-language site, AliExpress operates two local language sites in Russia and Brazil. In the three months ended June 30, 2014, the leading countries where active buyers on AliExpress were located were Russia, Brazil and the United States. Sellers primarily consist of small and medium-sized businesses located in China.

Major product categories on AliExpress.com include apparel and accessories, phones and communications products, beauty and health products, sports and entertainment products, jewelry and watches.

Sellers on AliExpress pay a transaction commission at a fixed rate, which is 5% of GMV for transactions settled through Alipay. We also generate revenue on AliExpress from sellers who participate in the third-party marketing affiliate program for this marketplace. In the twelve months ended June 30, 2014, AliExpress generated US$4.5 billion in GMV, US$2.9 billion of which was settled through Alipay.



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AliExpress Case Study




Party supplies from AliExpress

A mother of three school-age children and living in California, Julie Degnan decided to change her career and started her own business leveraging her skills as a cake decorator and her corporate experience in online marketing. Julie began using AliExpress to purchase cake decorations and party supplies that she was unable to find locally and at competitive prices. Three years later, her company, Cakes and Kids, is a thriving venture.



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Alibaba.com

Alibaba.com was our first online commerce platform, launched in 1999. Alibaba.com is a leading English-language wholesale platform focused on supporting global trade, which was 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 United States and Thailand.



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Sellers on Alibaba.com may pay for an annual Gold Supplier membership to host a premium storefront with product listings on the marketplace. Sellers may also purchase an upgraded membership package to receive value-added services such as upgraded storefront management tools, P4P marketing services, higher rankings from keyword search, custom clearance, VAT refund and other import/export business solutions. Buyers on Alibaba.com are located in numerous countries all over the world, with the United States, India and Brazil being



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among the leading countries. Buyers are typically SMEs engaged in the import and export business, trade agents, and wholesalers, retailers and manufacturing companies. Major categories of products purchased on Alibaba.com include consumer electronics, machinery and apparel. We employed a field sales force of 3,488 people in 76 cities across mainland China, as well as in Hong Kong and one city in Taiwan as of June 30, 2014. These sales personnel are engaged in selling membership packages to sellers who want to establish storefronts on this marketplace.

Alibaba.com Case Study




The Little Yoga Mat Company — Entrepreneurship using Alibaba.com

Jensen Wheeler Wolfe, of New York City, decided that she wanted to teach yoga classes for children but she could not find appropriately sized yoga mats. Jensen initially tried cutting up adult-sized yoga mats, but she wanted a better solution. On Alibaba.com, she found a manufacturer in Taiwan to create mats that are biodegradable, hypoallergenic and non-toxic. Six months after taking her first order, Jensen is now working full-time for The Little Yoga Mat company, which she founded. She has two part-time staffers, one is her bookkeeper and the other handles online orders, and her mats are sold in approximately 150 stores across the United States.



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Marketing Services

Our marketing technology platform, Alimama, offers sellers on our marketplaces the following types of marketing services for both personal computer and mobile devices:




P4P marketing service: Using our P4P marketing services platform, sellers bid for keywords that match product or service listings appearing in search or browser results on a CPC basis at prices established by our online auction system, which facilitates price discovery through a market-based bidding mechanism. Over time, we have improved the effectiveness of P4P marketing services by




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refining the algorithms based on consumer behavior and transaction activity. P4P marketing services are provided both on our marketplaces as well as through third-party marketing affiliates.




• Display marketing: We offer display marketing on selected areas of the homepages, channel pages and delivery confirmation pages of Taobao Marketplace and Tmall. Display marketing is typically used to promote recognized product brands or for promotional events. Sellers bid for display positions on the relevant marketplace or through our third-party marketing affiliates at fixed prices or prices established by a real-time bidding system on a CPM basis.

Alimama also offers our sellers these marketing services via third parties through the Taobao Affiliate Network, which we believe is the largest online marketing affiliate network in China in terms of revenue shared with third-party marketing affiliates. Sellers place P4P and display marketing services on the websites of our marketing affiliates by using our auction or bidding systems. The inventory of our websites is consolidated with the inventory of third-party marketing affiliates on our systems. The ultimate placement of the online marketing services on our websites or those of third-party marketing affiliates is based upon the results of our proprietary algorithms that incorporate specific attributes or information, such as demographic and geographic information, to place the services for the sellers in a way that will enhance their return on marketing expenditure. Merchants may choose to opt out of online marketing services offered by third-party marketing affiliates so that any services they bid for on our systems will be for services that appear only on our websites.

Through the Taobao Affiliate Network, we also offer the Taobaoke Program, which connects sellers to our affiliate marketing partners for marketing displays on the affiliate partners’ websites. Under the Taobaoke Program, sellers on Taobao Marketplace and Tmall pay us commissions based on a percentage of GMV for transactions settled through Alipay from users sourced from third-party marketing affiliates. A significant portion of that commission is shared with our third-party affiliate partners.

In addition, sellers may pay placement fees to purchase promotional slots on our Juhuasuan marketplace for a specified period.

P4P marketing, display marketing and Juhuasuan placement services on our websites are generally available only to merchants on Taobao Marketplace and Tmall. P4P marketing and display marketing on third-party marketing affiliates’ websites are available to both merchants on Taobao Marketplace and Tmall as well as to other third parties.

TANX

The Taobao Ad Network and Exchange, or TANX, was one of the earliest and is one of the largest, real-time online advertising exchanges in China. Powered by Alibaba Cloud Computing, TANX automates the buying and selling of billions of advertising impressions on a daily basis by third parties. TANX enables more transparent pricing of advertising inventory, which improves online marketers’ return on investment. Participants on TANX include publishers, merchants, demand side platforms, and third-party data and technology companies.

TANX is an open marketplace and is not limited solely to merchants on Taobao Marketplace and Tmall. It is also available to other third parties wishing to purchase online advertising services available in the TANX inventory.

Data Management Platform

We also offer a data management platform, or DMP, connected to TANX. Our DMP allows participants on TANX to evaluate and select online advertising inventory using both behavioral data they provide us as well as data from browsing behavior and shopping history. By customizing and tagging attributes of consumers, participants on TANX are able to evaluate online advertising inventory even more precisely and reach their targeted audiences more efficiently.



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DMP Case Study




Using offline data to target a wider online consumer base

German car maker Mercedes Benz utilized our DMP to expand the universe of targetable customers. Mercedes Benz implemented a marketing campaign for smart, its compact car brand, on Taobao Marketplace, during a promotional event in December 2013. By matching data collected from visitors to their physical showrooms to our DMP, we were able to identify the showroom visitors who also visited our China retail marketplaces and our partner websites and to add additional attributes to the data set using our proprietary algorithm. We then ran an online marketing program on behalf of Mercedes Benz to deliver targeted advertisements to a much larger set of potential customers with similar attributes without disclosing personally identifiable information. Mercedes Benz reported to us a noticeable increase in foot traffic following launch of the campaign.

Cloud Computing

Alibaba Cloud Computing supports our e-commerce ecosystem by providing a distributed computing infrastructure to handle the large volume of traffic and data generated on our online marketplaces. Our cloud computing infrastructure serves our own platform, our affiliated companies and Alipay, and provides cloud computing services to our sellers and other third parties. Our cloud computing platform offers a complete suite of service offerings, including elastic computing, database services and storage and large scale computing services. Our cloud computing services enable both large and small companies to efficiently develop applications and undertake data processing and data services. We are developing and enhancing an operating system, YunOS, for mobile devices and set-top boxes, which will be integrated into our cloud computing offerings.

We offer our cloud computing services to our sellers and other third parties for a fee primarily based on time and usage. Customers range from start-up companies in mobile applications and Internet gaming to established corporations in digital entertainment, consumer electronics, financial services, mobile communications, healthcare and education. In addition, our cloud computing services are offered to sellers on Taobao Marketplace and Tmall to enable them to achieve flexible capacity expansion and system reliability to address surges in transactional volume. As of June 30, 2014, over 1,400,000 customers were using Alibaba Cloud Computing services directly or indirectly through ISVs. The reliability and scalability of our cloud computing platform is evidenced, for example, by our successful processing of 254 million orders within 24 hours during our Singles Day promotion on November 11, 2013.



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The following table sets forth the types of customers and services used by our cloud computing customers:





Customer category

Description


LOGO

• Users include leading mobile camera apps, photo and video sharing apps and real-time news sharing platforms

• Mainly utilizes elastic computing servers (ECS) to host mobile applications and content delivery network (CDN) services for mass content sharing





LOGO

• Users include Internet game developers, blogging site operators

• Mainly utilizes ECS to host gaming platforms, software load balancers (SLB) to optimize throughput while avoiding system overload, and CDN services to accelerate processing speed of media delivery





LOGO

• We provide a backend hosting system for sellers on our China retail marketplaces utilizing features including ECS and relational database services (RDS)

• Our SME loan business utilizes open data processing services (ODPS) to perform credit assessment and risk management of small and micro loan borrowers using transaction data on our retail marketplaces





LOGO

• Users include local governments, software integrators and digital entertainment platforms

• System integrators utilize ECS, data storage and data processing services for a range of needs including system stability enhancement and system architecture streamlining


Alibaba Cloud Computing Case Studies




Migrating small businesses to Alibaba Cloud Computing in a time of urgent need

Shenzhen Nuozhong, a seller of small household and kitchen appliances, participated in the November 2012 Singles Day promotion and received approximately 15,000 orders during that day. At that time, Shenzhen Nuozhong was still utilizing local servers and its system could not handle the large influx of orders. After learning of this situation, our team worked with Shenzhen Nuozhong to migrate the company’s ERP systems over to Alibaba Cloud Computing and restore business operations. During the 2013 Singles Day promotion, Alibaba Cloud Computing ensured the smooth handling of over 60,000 orders, or four times the number of orders during the 2012 Singles Day promotion.




Maintaining mission critical pharmaceutical databases through Alibaba Cloud Computing

When government authorities had concerns about possible contamination in a locally distributed batch of vaccine, they approached CITIC 21, one of our affiliated companies, which maintains a nationwide database of pharmaceutical batch identity information on our Alibaba Cloud Computing system. CITIC 21 was able to locate all of the approximately 200,000 unused doses from the same vaccine batch within the same day so that the authorities could take precautionary measures against the spread of more contaminated vaccines.



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Tools and Enablers

Tools and Enablers for Buyers

Our tools for buyers enable them to navigate and search our marketplaces, complete transactions efficiently and provide input on their buying experience.

Search, explore and discover

We offer search functions on all of our web pages, mobile apps and many of our marketing affiliates’ websites and apps to make it easy for buyers to find products and services within our marketplaces. In addition to basic product information and sales volumes, search results include other relevant content such as sellers’ sales history, ratings and customer feedback. We also use our proprietary algorithm that takes into account the context of the search to provide a highly relevant search experience.

When a buyer conducts a search on Taobao Marketplace, the results include storefront and product listings across both Taobao Marketplace and Tmall to better meet the buyer’s needs and provide the most relevant results.

Feedback and rating systems

After a transaction is completed, a buyer can rate a seller based on various criteria, including whether the received product matches its description, a seller’s service level and delivery timeliness. These criteria form the basis of the detailed service rating, or DSR. Aggregate DSR scores for each seller over the past six months are displayed prominently on a storefront. DSR scores also affect a seller’s ranking on search results pages.

Tools and Enablers for Sellers

Our tools for sellers help them improve their online storefronts, manage their businesses and make their operations more efficient.

Storefront management

We offer a suite of tools that assist sellers on Taobao Marketplace in upgrading, decorating and managing their storefronts under the Wangpu ( LOGO ) application which is available for a subscription fee. For smaller sellers, we provide Wangpu for free. With Wangpu, our sellers can customize their storefront displays easily and use the various functional modules such as promotion campaign tools, popularity monitoring tools, collaborative marketing tools and customer service tools to manage their online marketing operations.

Communication

We offer Aliwangwang ( LOGO ), a personal computer-based instant messenger that supports text, audio and video communication. We developed Aliwangwang to facilitate open communication between buyers and sellers on Taobao Marketplace and Tmall. Buyers and sellers use it as a tool for a wide range of tasks including negotiation of prices, customer services and delivery notification, in addition to the basic messaging functions. For mobile communications between buyers and sellers, we offer Wangxin ( LOGO ), a mobile instant messenger app.

Productivity management

We offer Qianniu ( LOGO ), an integrated platform for communication and productivity tools which allows sellers on Taobao Marketplace and Tmall to manage their operations more efficiently. Available on both personal



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computers and mobile devices, Qianniu offers a unified interface for sellers to access a number of our tools such as Wangpu, Aliwangwang and Alimama.

Taobao services platform

In 2010, we launched the Taobao Services Platform where a large number of retail operational partners, ISVs and professional services providers provide services to our sellers.

Third-party retail operational partners with e-commerce expertise provide services that improve the operational efficiency of the sellers on our marketplaces. Major categories of services provided by retail operational partners include product planning, supply chain management, inventory storage and fulfillment, marketing promotion and storefront management and CRM services.

In addition, we operate an open platform on which ISVs offer software tools and system integration services to sellers. Through an API offered by our China retail marketplaces, ISVs develop and distribute services for merchants to individualize their storefronts and perform storefront management functions.

The scale of the economics generated on our marketplaces has spawned a large number of professional services providers who offer a wide range of e-commerce-related services to our sellers. Such professional services providers include photography specialists, customer service agents, Internet marketing consultants and professional buying agents.

To maintain and monitor the quality of services provided in our ecosystem, we set specific standards that our third-party service providers must meet in order to be eligible to offer services on the Taobao Services Platform.



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Taobao model platform

In 2010, the Taobao Model Platform was established to consolidate search in the fragmented fashion modeling industry by creating an online platform on which merchants and other parties can find appropriate models based on relevant criteria. As of June 30, 2014, there were over 40,000 models on the Taobao Model marketplace.



LOGO

Other Major Elements of Our Ecosystem

Logistics

In order to meet our current and future logistics demands, we established a distributed and scalable logistics system which links a network of logistics providers to our proprietary information platform, which is operated by China Smart Logistics. We do not own the physical infrastructure but instead work with a variety of logistics partners to ensure we can connect buyers and sellers throughout China. Our logistics platform provides real-time access to information for both buyers and sellers, as well as information that allows delivery service providers to improve the efficiency and effectiveness of their services. Such an approach is uniquely suited to our marketplace model because:



• unlike a first-party logistics model where goods are shipped out of the e-commerce company’s own inventory to customers, our proprietary model facilitates the delivery of packages from millions of sellers to hundreds of millions of buyers, all geographically dispersed across China.



• while the express delivery industry in China has grown rapidly and there is significant capacity, the industry is relatively fragmented, and as a result we developed the skillset to work with multiple delivery partners to achieve flexible and responsive service and cost effectiveness for both sellers and buyers; and



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• by working with multiple delivery companies, sellers on our marketplaces can provide a range of different shipping options to buyers such as normal or express delivery at different prices, and, through our platform, both buyers and sellers have the ability to track packages from order through delivery.

China Smart Logistics is the wholly-owned subsidiary of a joint venture we formed in 2013 with five major express delivery companies in China that provide services on our China retail marketplaces, as well as firms specializing in real estate development. We own a 48% equity interest in the joint venture. Together with these partners, we will continue to look for ways to develop and expand the reach of our logistics platform.

Logistics process

When a customer orders a product from a seller on our marketplaces, the seller selects a delivery partner to fulfill the order. The selected delivery company picks up the package from the seller, while the package status details are loaded into the delivery company’s transportation management system that transmits real time updates to us. This allows buyers and sellers to access tracking information online until the package is delivered. The selected delivery company is responsible for end-to-end delivery. The delivery companies utilize their well-developed transport networks, parts of which may be outsourced, to move packages from the seller directly to the buyer’s door or to a self-service pick-up station selected by the buyer. The buyer then provides feedback on delivery companies which is then accessible to both sellers and delivery companies. In the twelve months ended June 30, 2014, over 1.4 billion packages from transactions on our China retail marketplaces were delivered within 48 hours from shipment to the end customer. Customers can choose longer delivery times at lower cost, and we estimate that the average delivery time of packages tracked by us from shipment to the end consumer was approximately three days.



LOGO

Network of logistics providers

We have established a network of logistics providers through China Smart Logistics. China Smart Logistics has agreements with logistics providers covering several areas, including data sharing, delivery commitments, pricing and services for specific product categories. This network allows sellers to select one of many different logistics providers depending on their needs. The 14 strategic delivery partners working with our logistics platform have a national network and the top six of these delivery partners handled the majority of packages generated on our marketplaces in the twelve months ended June 30, 2014. We believe orders from transactions generated on our marketplaces represented a significant portion of our logistics partners’ total delivery volumes in 2013. According to data provided by them as of June 30, 2014, our top 14 delivery partners employed over 1,100,000 delivery personnel in more than 600 cities and 31 provinces, directly controlled municipalities and autonomous regions in China. Collectively they operated more than 1,800 distribution centers and more than 97,000 delivery stations. This network managed the delivery of 6.1 billion packages from our China retail marketplaces to consumers in the twelve months ended June 30, 2014.



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The map belows illustrates the nationwide infrastructure managed by our 14 strategic delivery partners according to data provided by them as of June 30, 2014:



LOGO

Proprietary logistics information platform

We have developed a proprietary logistics information platform, operated by China Smart Logistics, which links buyers, sellers and logistics partners and allows them to share information on delivery status, order specifics and user feedback. Our logistics information system can interface with a broad range of systems including our marketplace transaction systems, in addition to third party systems such as the transportation management systems of the delivery companies, and the CRM, ERP and warehouse management systems of sellers. This information serves many purposes for sellers, logistics providers and buyers. For example, sellers can review the performance of delivery service providers on different routes. Logistics providers can compare their performance against their peers. Buyers can track their purchases on their personal computers and mobile devices, which we believe is an important feature for consumers in China.

Our logistics platform provides the following services and benefits to consumers:



• delivery time prediction, where we estimate the delivery time of parcels shipped by participating sellers based on our data, allowing them to provide enhanced delivery certainty for buyers;



• real-time package tracking through our website and mobile interfaces, enabling buyers to plan for receipt of their orders;



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LOGO



• self-service pick-up, where the buyer chooses a convenient location for pick-up from our participating network of convenience stores and other locations, allowing buyers to pick up packages at a time and place convenient for them; and



• logistics service evaluations, where the buyer may provide feedback on the logistics service, enabling sellers and logistics service providers to improve their services.

Future Expansion Plans

Our logistics strategy, which employs our proprietary information platform and a network of logistics providers, has proven to be a scalable, effective approach to meet the current and medium-term needs of buyers and sellers. Over the longer term, we plan to further invest in logistics capabilities through China Smart Logistics, with the objectives of significantly increasing capacity, supporting the evolving needs of current and new merchants in a broader set of categories, increasing cost efficiency and shortening average delivery times.

In the twelve months ended June 30, 2014, the logistics system ensured the successful delivery of an average of approximately 16.6 million packages per day. To support the expected growth of our ecosystem over the longer term, China Smart Logistics plans to build a network of key logistics hubs across China, including distribution centers, warehouses and other supply chain facilities. Its goal is to enable China’s logistics and supply chain management industries to support the delivery of over 100 million packages per day to consumers’ doorsteps anywhere in China within 24 hours of an order being placed.

To complete this nationwide network, China Smart Logistics has prioritized a list of key cities where key hubs will be located based on proprietary data we provide on patterns of deliveries and anticipated consumer demand, after considering a variety of factors, including macro data, such as population and GDP, e-commerce penetration rates and existing logistics infrastructure. China Smart Logistics had acquired land use rights or entered into land grant contracts in eight cities as of June 30, 2014, and it intends to continue to acquire land use rights in key locations.

As the build-out of the logistics network is capital intensive, China Smart Logistics will invest in logistics developments together with third parties who may provide debt and passive equity financing on a project-by-project basis. This capital structure for project development by China Smart Logistics is expected to result in



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significant financial leverage for the 48% of equity capital that we have invested in China Smart Logistics. China Smart Logistics has a registered capital of RMB5,000 million, out of which our 48% share is RMB2,400 million, of which we have already contributed RMB1,680 million.

Payments and Other Financial Services

Alipay

Alipay provides payment and escrow services for transactions on Taobao Marketplace, Tmall, 1688.com and certain of our other sites through contractual arrangements with us. Alipay also provides payment and escrow services to third parties in China. Alipay is the principal means by which buyers and sellers settle transactions on our China retail marketplaces. We pay Alipay a fee for the payment and escrow services it provides on our marketplaces. Specifically, we are party to a commercial agreement with Small and Micro Financial Services Company and Alipay, or the Alipay commercial agreement. Under the Alipay commercial agreement, as amended through August 2014, Alipay provides payment processing services to us and our subsidiaries and we pay Alipay a fee for such services on preferential terms to us. The fees reflect, among other things, bank-processing costs and accordingly are subject to adjustment to the extent such costs increase or decline. The Alipay commercial agreement has an initial term of 50 years from the date of the original agreement, and is automatically renewable for further periods of 50 years, subject to our right to terminate at any time upon one year’s prior written notice. If the Alipay commercial agreement is required by applicable regulatory authorities to be modified in certain circumstances, a one-time payment may be payable to us by Small and Micro Financial Services Company to compensate us for the impact of such adjustment. For additional details on our commercial relationship with Alipay, see “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries.”

In a typical transaction on our China retail marketplaces, the buyer would have various options to pay for purchases, including with the buyer’s fund balance in his or her personal Alipay account, credit card or transfers from an online bank account. Personal Alipay accounts may be funded by electronic fund transfer or pre-paid cards, as well as linked directly to the buyer’s credit card or bank debit card under Alipay’s “express payment” function. Whether the buyer chooses to pay with the buyer’s fund balance in his or her Alipay account, credit card or bank transfer, the transaction is settled through Alipay’s escrow and payment processing service – funds are transferred from the buyer to Alipay’s escrow account, and Alipay releases the funds from escrow to the seller only after the buyer has confirmed receipt of goods in satisfactory condition or failed to object to the release of funds within a specified time period. Buyers and sellers may also choose to settle transactions outside of Alipay through other mutually agreed upon payment method, such as cash on delivery.

In the twelve months ended June 30, 2014, 78.1% of GMV on our China retail marketplaces was settled through Alipay’s escrow and payment processing services. On Tmall and Juhuasuan, we earn commissions only on transactions that are settled through Alipay.

SME Loan Business

We started our SME loan business in 2010. Our SME loan business provides micro loans to sellers on our wholesale and retail marketplaces through lending vehicles licensed by the local government. Using transactional and behavioral data from sellers on our retail and wholesale marketplaces, we have developed a proprietary credit assessment model through which we evaluate our borrowers’ ability to service loans, assign credit scores to each borrower, pre-approve credit limits and extend loans. As of June 30, 2014, our SME loan business had over 400,000 borrowers with a total outstanding loan balance, net of allowance for doubtful accounts relating to micro loans, of RMB14.6 billion (US$2.4 billion). We recently agreed to sell the SME loan business to Small and Micro Financial Services Company. The sale is subject to the receipt of certain regulatory approvals and other customary closing conditions. See “Related Party Transactions — Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries — 2014 Restructuring of Our Relationship with Small and Micro Financial Services Company and Alipay.”



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Customer Service

Scalable customer service platform

We trust that our customers can serve their customers better than we do, and our job is to empower them to do their job better. Our business size necessitates a highly scalable approach to customer service, and we achieve this by leveraging our ecosystem through the following methods:



• We provide sellers on our marketplaces the tools that enhance their ability to directly serve buyers. Since sellers desire repeat business, they are highly motivated to provide high-quality service. We pioneered the use of our free instant messengers, Aliwangwang (personal computer) and Wangxin (mobile), to enable buyers to connect real-time with sellers, so that sellers can respond to pre-purchase inquiries as well as provide after-sale service. Many of our merchants have multiple instant messenger accounts managed by their own customer service representatives.



• We have built a network of mostly university students who serve as part-time customer service representatives to support our online instant messaging service platform. As of the end of March 2014, over 4,200 part-time representatives were active in providing services to our customers.



• As of March 31, 2014, we also had a dedicated in-house team of over 2,000 customer service representatives focused on serving consumers and businesses on our marketplaces through telephone hotlines, real-time instant messaging and online inquiry systems.

Return and exchange policy

Consumers on our China retail marketplaces may return the purchased goods within seven days from the receipt of goods, except for physical products such as perishable food items, customized products and digital products downloaded online. In cases where the goods have already been delivered, we require our sellers to respond within 72 hours upon the receipt of a return request and the buyer is required to return the purchased goods within seven days from the purchase if the seller agrees to the return request. If the seller does not make the refund payment within ten days from the date when the return request is made, the refund will be transferred to the buyer’s Alipay account automatically out of the escrow account for the transaction after the buyer has submitted a valid package tracking number to our system. In cases where the buyer requests a return before the goods are delivered, the refund amount will be automatically transferred to the buyer’s Alipay account if the seller does not respond in five days (or three days for virtual items).

Dispute resolution

In the case of disputes with a seller, a buyer can submit evidence through our dispute resolution system and seek compensation from the seller. In the twelve months ended June 30, 2014, we received dispute cases representing approximately 0.06% of annual orders placed on our China retail marketplaces. To resolve minor disputes that might otherwise require disproportionate time and effort on our part, we developed a system to leverage the collective experience of volunteers who have been buyers and sellers on our China retail marketplaces for at least one year to serve on an adjudication panel for disputes. As of June 30, 2014, over 566,000 volunteers have served on the panel. These volunteers review cases and make their deliberations through an online forum. The determination of the panel is final and provides an easy way for buyers and sellers to resolve their disputes. The panel of volunteers also contributes to our ecosystem by suggesting improvements to our marketplace rules. More significant disputes are referred to our customer service representatives.



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Consumer Protection and Transaction Platform Safety Programs

Consumer Protection Programs

Consumer protection fund. We believe every consumer has the right to safety and protection from false and misleading claims. We encourage our sellers to make product quality a priority and have set up various programs such as the following:



• Tmall. All Tmall sellers are required to contribute to and maintain a consumer protection fund for the benefit of buyers. Consumer protection fund deposit requirements range from RMB50,000 to RMB150,000 for standard storefronts and in some instances could be higher depending on the number of brands represented.



• Taobao Marketplace. Sellers on Taobao Marketplace are required to offer certain consumer protection measures and may also choose to participate in additional return and delivery services programs. All Taobao marketplace merchants are required to sign agreements with us authorizing us to make deductions from their Alipay accounts in the event of confirmed consumer claims. In addition, the majority of Taobao Marketplace merchants maintain individual consumer protection funds whose minimum amounts ranged from RMB1,000 to RMB10,000 in 2013.

Many sellers deposit beyond the platform minimum requirement to demonstrate their confidence in the quality of their services and products. To offer better services to consumers, some sellers make additional service commitments such as expedited shipment, free maintenance for electronics and installation services for furniture purchases. We incentivize sellers to set up customer protection funds by programming our search results to prioritize the rankings of product listings for sellers who have established these funds. In addition, the consumer protection fund amounts are displayed on the seller’s information page.

As of June 30, 2014, our China retail marketplace sellers’ consumer protection funds deposited in their respective Alipay accounts in aggregate totaled over RMB13 billion.

If the amounts in the sellers’ consumer protection funds are not sufficient, we may choose to compensate buyers for such losses, although we are not legally obligated to do so.

Measures against counterfeit products. To protect consumers, brand owners and legitimate sellers and to maintain the integrity of our marketplaces, we have put in place a broad range of measures to prevent counterfeit and pirated goods from being offered and sold on our marketplaces. These measures include:



• identifying, issuing warnings and taking down counterfeit products from our marketplaces;



• providing an online complaint platform for brand owners to report infringements;



• conducting random checks by using third parties to purchase suspected counterfeit products on our marketplaces; and



• enhancing our communication with various relevant government authorities to eradicate sources of counterfeit goods.

We have also established cooperative relationships with over 1,000 major brand owners and several industry associations in connection with intellectual property rights protection to enhance the effectiveness of our take-down procedures and other anti-counterfeiting measures.

Measures against fictitious transactions. We have implemented measures to prevent, detect and reduce the occurrence of fictitious transactions on Taobao Marketplace and Tmall including:



• requiring the use of sellers’ real identities to set up accounts with us;



• analyzing transaction patterns to identify anomalies;



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• dynamic password protection and real-time monitoring of user login behavior;



• enabling buyers and sellers to report suspicious transactions to us;



• maintaining a “blacklist” of sellers and buyers who have been involved in fictitious transactions in the past; and



• collaborating with industry partners and law enforcement authorities on Internet security.

Penalties. We maintain a “no tolerance” policy with regard to counterfeit and fictitious activities on our marketplaces. However, because many sellers doing business on our marketplaces depend on us for their livelihood, we have generally eschewed a “shoot-first, ask questions later” approach to handling complaints. When we receive complaints or allegations regarding infringement or counterfeit goods, we follow well-developed procedures to verify the nature of the complaint and the relevant facts before de-listing the items. Generally, we give sellers who have been accused of posting or selling counterfeit products up to three days to refute the allegations and provide evidence of the authenticity of the product.

If allegations of posting or selling counterfeit products have not been refuted or fictitious activities have been confirmed, we penalize the parties involved through a number of means including:



• immediately delisting the products;



• arranging for the seller to reimburse the buyer;



• assessing penalty points against the seller or limiting its ability to add listings for a certain period;



• adopting a “name and shame” policy;



• imposing restrictions from participation in promotional activities on our marketplaces; and



• closing down storefronts and, for Tmall sellers, confiscating the consumer protection security deposits paid. The seller is banned permanently from establishing another storefront on our marketplaces.

In appropriate circumstances we also notify the relevant law enforcement and other authorities to take legal action against the offending party, including in extreme cases criminal proceedings.

Our Technology

Technology is key to our success in achieving efficiency for our business, improving the user experience, and enabling innovation. As of March 31, 2014, we employed a team of over 8,000 engineering and data analysis personnel engaged in building our technology platform and developing new online and mobile products. Key components of our technology include:

Cloud Computing

Our cloud computing platform, called Apsara, is a general purpose distributed computing platform built with proprietary technology that enable server clusters to perform with enhanced computing power. Apsara offers a suite of cloud services including elastic computing, database storage and services, and large-scale data processing services through web-based API. A single Apsara cluster can be scaled up to 5,000 servers with 100 petabyte storage capacity and 100,000 CPU cores.

Content Delivery Network

We operate what we believe to be one of the largest and fastest content delivery networks in China, called AliCDN. The technology underlying AliCDN accelerates the loading of billions of product photographs on web pages delivered to hundreds of millions of users and offers them a fast and smooth experience.



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Data Science

Our data science technology serves various types of data-intensive computational needs, including deep learning, high-volume batch processing and multi-variable and multi-dimensional real-time analytics. The data mining and transaction, payment and behavioral data science capabilities are used extensively in numerous applications such as search and online marketing on our marketplaces, and credit profiling and risk management of our SME loan business.

Distributed Relational Database

We believe that OceanBase, our proprietary distributed relational database management system is one of the largest database systems for online transaction processing in the world. OceanBase runs on servers and can be scaled up to hundreds of nodes to achieve scalability. OceanBase plays a critical role in supporting transaction processing on our marketplaces in a cost-efficient manner.

Search and Online Marketing

We believe we have the industry’s most comprehensive standard product unit, or SPU, database that was built on the vast amount of items listed on Taobao Marketplace and Tmall. The transactional and user behavior data generated on our marketplaces enable us to construct a powerful search engine that generates personalized results.

Our online marketing technology platform powers our performance-based and display marketing on our marketplaces and on Taobao Affiliate Network, as well as our real-time online bidding systems. It supports millions of online marketers and delivers tens of billions of online marketing impressions every day. Our online marketing technology enables us to continuously improve the effectiveness of our online marketing services for our sellers through the use of aggregated behavioral targeting data and analytics.

Deep Learning

Alimama utilizes cloud-based deep learning extensively to enhance the consumer targeting efficiency of our P4P marketing, display marketing and DMP service offerings. Supported by our Apsara cloud computing system, Alimama operates a cluster of servers that is capable of analyzing terabytes of data points for the modeling of tens of billions online advertising impressions. With rich consumer data generated from our China retail marketplaces, we utilize our proprietary algorithms to evaluate the quality of advertising inventory from thousands of publishers and make predictions of click-through rates and conversion rates of online marketing messages. This capability enables sellers to improve consumer targeting efficiency and enhance the return on investments for online marketers.

Security

We are committed to maintaining a secure e-commerce ecosystem. Every day, our backend security system handles more than 15 million instances of malicious attacks to safeguard the security on our platform. In 2012, more than 60% of the phishing sites in China were identified and reported by our security technology according to the 2012 annual report of the Anti-Phishing Alliance of China, a sub-division of CNNIC. Our proprietary anti-phishing software has an installed base of more than 200 million users, and protects users from phishing websites in real-time.

Sales and Marketing

We employ a variety of methods to attract potential sellers and buyers, registered users, paying members, online marketers and other ecosystem participants and promote our brands. Our user base has expanded primarily through word-of-mouth.



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We generate the majority of our revenues through online marketing services to our sellers. As these sellers are mostly participants on our marketplaces, we do not need to rely on a large sales force for our retail marketplaces. The majority of our sales staff are engaged in selling membership packages to registered members of our wholesale marketplaces through telephone sales and field sales.

Intellectual Property

We believe the protection of our trademarks, copyrights, domain names, trade names, trade secrets, patents and other proprietary rights is critical to our business. We rely on a combination of trademark, fair trade practice, copyright and trade secret protection laws and patent protection in China and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect our intellectual property and our trademarks. We also enter into confidentiality and invention assignment agreements with all of our employees, and we rigorously control access to our proprietary technology and information. As of August 31, 2014, we had 385 issued patents and 1,109 publicly filed patent applications in China and 598 issued patents and 2,082 publicly filed patent applications in various countries and jurisdictions internationally. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims.

Competition

We face competition principally from established Chinese Internet companies, such as Tencent, Baidu and their respective affiliates, as well as from offline retailers, in particular those offline retailers establishing e-commerce websites. These competitors generate significant traffic and have established brand recognition, significant technological capabilities and significant financial resources. The areas in which we compete include:



• Buyers – We compete to attract, engage and retain buyers based on the variety and value of products and services listed on our marketplaces, overall user experience and convenience, online communication tools, integration with mobile and networking applications and tools, mobile apps and availability of payment settlement and logistics services.



• Sellers – We compete to attract and retain sellers based on our size and the engagement of buyers, the effectiveness and value of the marketing services we offer, commission rates and the usefulness of the services we provide including data and analytics for potential buyer targeting, cloud computing services and the availability of support services including payment settlement and logistics services.



• Talent – We compete for motivated and effective talent and personnel, including engineers and product developers to build compelling apps, tools and functions for all participants in our ecosystem.

We also face competition from major global Internet companies. However, at this time, foreign e-commerce companies have a limited presence in China.

Employees

As of March 31, 2012, 2013 and 2014, we had a total of 21,930, 20,674 and 22,072 full-time employees, respectively. Substantially all of our employees are based in China.



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The following table sets out the breakdown of our full-time employees by function as of March 31, 2014:





Function
Number of
employees(1)(2)

Engineering and data analysis
8,050

Sales, marketing and business development
5,167

Web operations
2,966

Customer service
2,283

Product management and user experience design
1,594

Others
2,012





Total 22,072








(1) The number of employees presented in this table does not include third-party consultants and contractors that we employ, substantially all of whom are based in China. These consultants and contractors primarily performed work related to sales, research, logistical support and customer service.

(2) Our total number of employees increased to 26,845 as of June 30, 2014 from 22,072 as of March 31, 2014. Of the increase in employees, approximately 3,200 was due to the completion of our acquisitions including UCWeb, OneTouch and Alibaba Pictures, and a majority are engaged in engineering and data analysis and web operations.

Corporate Social Responsibility

Since our founding, we have been highly committed to sustainable corporate responsibility projects, both through charitable endeavors and by extending the benefits of our ecosystem to the community at large in China. We believe the best approach to corporate social responsibility is through embedding elements of social responsibility in our business model. Our achievements and initiatives in the area of corporate social responsibility include the following:

Job Opportunities

The breadth of our ecosystem and the range of different types of service providers needed within it create employment opportunities. In addition to providing direct business opportunities for sellers, our ecosystem has created new opportunities for service providers in logistics, marketing, consulting, operations outsourcing, training and other online and mobile commerce professions. See “ — Our Ecosystem and Its Participants — Overview.” We also provide training through Taobao University and Alibaba Business School, which prepare people on our platform with essential skills. We also promote job opportunities for socially disadvantaged groups and organize recruitment of disabled persons for appropriate positions on our Taobao Services Platform.

Charitable and Socially Responsible Activities

We support and promote a number of charitable and socially responsible initiatives and programs in ways that we believe are in alignment with our core values and our mission. Since 2010, we have earmarked 0.3% of our annual revenue to fund efforts designed to encourage environmental awareness and conservation and other corporate social responsibility efforts. From the program’s inception in 2010 to June 30, 2014, we set aside RMB401 million for various charitable causes and initiatives, including the following:

Alibaba Foundation. In January 2012, we established Alibaba Foundation, a private charity fund that focuses on supporting environmental protection in China and helping the disadvantaged such as children born with heart defects in underdeveloped areas of China. The Alibaba Foundation management committee is comprised of a group of employee volunteers who are elected by our employees every three years. The management committee is responsible for the allocation of the charity fund to worthwhile initiatives.

Environmental protection. We have provided financial support to various non-governmental organizations and charity funds, such as The Nature Conservancy and National Geographic Society. We have also provided different resources to enable these organizations to monitor the environment and conduct their work.



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Case Study—“Operation Origin Tracing”

Organized by the corporate social responsibility program, Operation Origin Tracing was an event aimed at raising the awareness of water contamination and protection of water resources in China. The 76 participants in the event included volunteers from our employees and sellers on our marketplaces. Starting from Wuhu, a city in eastern China, the participants traveled along the Yangtze River and visited 10 cities, including Shanghai, Nanjing, Honghu, Yueyang, Yichang, Chongqing, Yibin and Lijiang, all the way up to the origin of the Yangtze River, where they collected water samples and focused on learning about and reporting on water-pollution related issues that were specific to each location. For example, in April 2013, the participants visited habitats of river dolphins, collected water sample and obtained an in-depth understanding of the impact of pollution on river dolphins. The participants then reported their findings on Weibo. Other topics covered included drinking water sources in urban areas, pollution caused by paper mills and protection of natural wetlands and the environmental impact of the metallurgic industries. We also worked with a number of third-party organizations, such as the local chapters of The Nature Conservancy which helped coordinate events and shared local knowledge with us.



LOGO

Disaster relief. In addition to making donations, we use our platform to host donation programs and provide post-disaster support to people affected by disasters. For example, a charity fund successfully raised RMB48 million on our platform for the victims of the Ya’an earthquake in 2013 and provided free online and mobile commerce training and computer donation and repair to the victims of Sichuan earthquake in 2008.



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Case Study—Sichuan Earthquake

At 2:28 PM on May 12, 2008, Qingchuan County in Sichuan Province was struck by an earthquake with a magnitude 8 on the Richter scale. Upon realizing the extent of the damage, we immediately began to establish a comprehensive relief program. We set up a dedicated donation channel via Alipay that raised RMB24 million from the public towards the relief efforts. Within three days, our employees had donated an additional RMB5 million. Within a week, Jack Ma led the creation of a relief task force of more than 1,000 employee volunteers, including members of our management, and we established a special disaster relief fund totaling RMB25 million. The immediate priorities were helping the elderly and people with disabilities, sourcing food and medical supplies as well as rebuilding critical infrastructure.

Our efforts extended beyond urgent relief to post-disaster reconstruction. As part of our commitment to rebuilding lives and economic activity in Qingchuan, we initiated a program to support the schools, teachers and students that were affected by the disaster through sponsorships, the donation of supplies and volunteer work. Our employees made frequent visits to the stricken areas.

In August 2009, we began hosting seminars and training sessions to help the residents of Qingchuan to learn basic computer skills and how to open and operate online stores to sell local specialties such as honey, mushrooms and tea. Within two years, the cumulative online sales volume on the storefronts operated by local entrepreneurs exceeded RMB2 million and created job opportunities for more than 100 people.

Employee participation. We have a dedicated team that organizes charitable activities and a dedicated website portal where employees can sign up for related events of interests. Many of our social responsibility activities were initiated by our employees, such as reading books to visually impaired children.

Ecosystem participants activities. We encourage our sellers and other ecosystem participants to participate in socially responsible activities. As of December 31, 2013, there were 229 social responsibility organizations with storefronts on our China retail marketplaces to raise funds and awareness for initiatives, ranging from solving environmental issues to helping impoverished areas of China. In 2013, approximately 323,000 sellers on our platforms committed a total of approximately RMB25 million to socially responsible activities through approximately 266 million transactions.

Facilities

As of June 30, 2014, we occupied facilities around the world with an aggregate gross floor area of office buildings owned by us totaling 403,979 square meters, including 380,422 square meters for the headquarters of our principal operating businesses in Hangzhou, China. As of June 30, 2014, we maintained 90 offices in China and 19 offices outside China. In addition, we maintain data centers and logistics facilities in China, Hong Kong and the United States.

Legal Proceedings

From time to time, we have been involved in litigation relating to copyright, trademark and patent infringement, defamation, unfair competition, contract disputes and other matters in the ordinary course of our business. We are not currently a party to any material legal or administrative proceedings.



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REGULATION

We operate in an increasingly complex legal and regulatory environment. We are subject to a variety of PRC and foreign laws, rules and regulations across a number of aspects of our business. This section summarizes the principal PRC laws, rules and regulations relevant to our business and operations. Areas in which we are subject to laws, rules and regulations outside of the PRC include data protection and privacy, consumer protection, content regulation, intellectual property, competition, taxation, anti-money laundering and anti-corruption. See “Risk Factors — Risks Related to Our Business and Industry — We and Alipay are subject to regulation, and future regulations may impose additional requirements and other obligations on our business or otherwise that could materially and adversely affect our business, financial condition and results of operations.”

Our online and mobile commerce businesses are classified as value-added telecommunication businesses by the PRC government. Current PRC laws, rules and regulations restrict foreign ownership in value-added telecommunication services. As a result, we operate our online and mobile commerce businesses and other businesses in which foreign investment is restricted or prohibited through the variable interest entities, each of which is owned by PRC citizens or by PRC entities owned by PRC citizens and holds all licenses associated with these businesses.

The applicable PRC laws, rules and regulations governing value-added telecommunication services may change in the future. We may be required to obtain additional approvals, licenses and permits and to comply with any new regulatory requirements adopted from time to time. Moreover, substantial uncertainties exist with respect to the interpretation and implementation of these PRC laws, rules and regulations. See “Risk Factors — Risks Related to Doing Business in the People’s Republic of China — There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations.”

Regulation on Foreign Investment Restrictions

The Guidance Catalogue of Industries for Foreign Investment, or the Catalogue, which is promulgated by the Ministry of Commerce and the National Development and Reform Commission and governs investment activities in the PRC by foreign investors. The Catalogue divides industries into three categories — “encouraged,” “restricted,” and “prohibited” for foreign investment. Industries not listed in the Catalogue are generally deemed as falling into a fourth category, “permitted.” The businesses of our significant subsidiaries in the PRC are mainly software development, technical services and consultations, which fall into the encouraged or permitted category. Such significant subsidiaries have obtained all material approvals required for their business operations. However, industries such as value-added telecommunication services, including Internet information services, are restricted from foreign investment. Among our significant subsidiaries, Taobao (China) Software Co., Ltd. and Zhejiang Tmall Technology Co., Ltd. are registered in China and mainly engaged in software development, technical services and consultations, which fall into the encouraged or permitted category under the Catalogue. These two significant subsidiaries have obtained all material approvals required for their business operations. The Catalogue does not apply to our significant subsidiaries that are registered and domiciled in Hong Kong, the British Virgin Islands or the Cayman Islands, and operate outside China. The businesses of our other PRC subsidiaries — including PRC subsidiaries of our significant subsidiaries — are generally software development, technical services and consultations, which fall into the encouraged or permitted category. Industries such as value-added telecommunication services, including Internet information services, are restricted to foreign investment. We conduct business operations that are restricted or prohibited to foreign investment through our variable interest entities.

Regulation of Telecommunications and Internet Information Services

Regulation of Telecommunications Services

Under the Telecommunications Regulations of the PRC, or the Telecommunications Regulations, promulgated on September 25, 2000 by the State Council of the PRC, a telecommunication services provider in



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China must obtain an operating license from the Ministry of Industry and Information Technology, or the MIIT, or its provincial counterparts. The Telecommunications Regulations categorize all telecommunication services in China as either basic telecommunications services or value-added telecommunications services. Our online and mobile commerce businesses are classified as value-added telecommunications services.

Foreign investment in telecommunications businesses is governed by the State Council’s Administrative Rules for Foreign Investments in Telecommunications Enterprises, issued by the State Council on December 11, 2001 and amended on September 10, 2008, under which a foreign investor’s beneficial equity ownership in an entity providing value-added telecommunications services in China is not permitted to exceed 50%. In addition, for a foreign investor to acquire any equity interest in a business providing value-added telecommunications services in China, it must demonstrate a positive track record and experience in providing such services. The MIIT’s Notice Regarding Strengthening Administration of Foreign Investment in Operating Value-Added Telecommunication Businesses, or the MIIT Notice, issued on July 13, 2006 prohibits holders of these services licenses from leasing, transferring or selling their licenses in any form, or providing any resource, sites or facilities, to any foreign investors intending to conduct such businesses in China.

In addition to restricting dealings with foreign investors, the MIIT Notice contains a number of detailed requirements applicable to holders of value-added telecommunications services licenses, including that license holders or their shareholders must directly own the domain names and trademarks used in their daily operations and each license holder must possess the necessary facilities for its approved business operations and maintain such facilities in the regions covered by its license, including maintaining its network and providing Internet security in accordance with the relevant regulatory standards. The MIIT or its provincial counterpart has the power to require corrective actions after it discovers any non-compliance of the license holders, and where such license holders fail to take such steps, the MIIT or its provincial counterpart has the power to revoke the value-added telecommunications services licenses.

Regulation of Internet Information Services

As a subsector of the telecommunications industry, Internet information services are regulated by the Administrative Measures on Internet Information Services, or the ICP Measures, promulgated on September 25, 2000 by the State Council and amended on January 8, 2011. “Internet information services” are defined as services that provide information to online users through the Internet. Internet information services providers, also called Internet content providers, or ICPs, that provide commercial services are required to obtain an operating license from the MIIT or its provincial counterpart.

To the extent the Internet information services provided relate to certain matters, including news, publication, education or medical and health care (including pharmaceutical products and medical equipment), approvals must also be obtained from the relevant industry regulators in accordance with the laws, rules and regulations governing those industries.

Regulation of Advertising Services

The principal regulations governing advertising businesses in China are:



• The Advertising Law of the PRC (1994);



• The Advertising Administrative Regulations (1987);



• The Implementing Rules for the Advertising Administrative Regulations (2004); and



• The Administration Rules of Foreign-invested Advertising Enterprises (2008).

These laws, rules and regulations require companies such as ours that engage in advertising activities to obtain a business license that explicitly includes advertising in the business scope from the SAIC or its local branches.



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Applicable PRC advertising laws, rules and regulations contain certain prohibitions on the content of advertisements in China (including prohibitions on misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest). Advertisements for anesthetic, psychotropic, toxic or radioactive drugs are prohibited, and the dissemination of advertisements of certain other products, such as tobacco, patented products, pharmaceuticals, medical instruments, agrochemicals, foodstuff, alcohol and cosmetics, are also subject to specific restrictions and requirements.

Advertisers, advertising operators and advertising distributors, including the businesses that certain of the variable interest entities operate, are required by applicable PRC advertising laws, rules and regulations to ensure that the content of the advertisements they prepare or distribute are true and in compliance with applicable laws, rules and regulations. Violation of these laws, rules and regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the SAIC or its local branches may revoke the violator’s license or permit for advertising business operations. In addition, advertisers, advertising operators or advertising distributors may be subject to civil liability if they infringe the legal rights and interests of third parties, such as infringement of intellectual proprietary rights, unauthorized use of a name or portrait and defamation.

Although advertising services are no longer categorized as a prohibited or restricted area for foreign investment, the Administration Rules of Foreign-invested Advertising Enterprises issued on August 22, 2008 by the SAIC and the Ministry of Commerce, or the MOFCOM, require all foreign investors of advertising enterprises to have a track record in, and mainly engage in, advertising businesses overseas. The establishment of a foreign-invested advertising enterprise is also subject to pre-approval by the SAIC or its local branch.

Regulation of Online and Mobile Commerce

China’s online and mobile commerce industry is at an early stage of development and there are few PRC laws, regulations or rules specifically regulating this industry. The SAIC adopted the Interim Measures for the Administration of Online Commodities Trading and Relevant Services on May 31, 2010 and replaced those measures with the Administrative Measures for Online Trading on January 26, 2014, which became effective on March 15, 2014. The SAIC also issued the Opinions on Strengthening the Administration of Online Group Buying Operations on March 12, 2012 to subject group buying website operators to the foregoing measures, especially those relating to marketplace platform service providers. These newly issued measures impose more stringent requirements and obligations on the online trading or service operators as well as the marketplace platform providers. For example, the marketplace platform providers are obligated to examine the legal status of each third-party merchant selling products or services on the platform and display on a prominent location on the web page of such merchant the information stated in the merchant’s business license or a link to such business license, and a group buying website operator must only allow a third-party merchant with a proper business license to sell products or services on its platform. Where the marketplace platform providers also act as online distributors, these marketplace platform providers must make a clear distinction between their online direct sales and sales of third-party merchant products on the marketplace platform.

Regulation of Internet Content

The PRC government has promulgated measures relating to Internet content through various ministries and agencies, including the MIIT, the News Office of the State Council, the Ministry of Culture and the General Administration of Press and Publication. In addition to various approval and license requirements, these measures specifically prohibit Internet activities that result in the dissemination of any content which is found to contain pornography, promote gambling or violence, instigate crimes, undermine public morality or the cultural traditions of the PRC or compromise State security or secrets. ICPs must monitor and control the information posted on their websites. If any prohibited content is found, they must remove such content immediately, keep a



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record of it and report to the relevant authorities. If an ICP violates these measures, the PRC government may impose fines and revoke any relevant business operation licenses.

Regulation of Internet Security

The Decision in Relation to Protection of the Internet Security enacted by the Standing Committee of the National People’s Congress of China on December 28, 2000 provides that the following activities conducted through the Internet are subject to criminal punishment:



• gaining improper entry into a computer or system of strategic importance;



• disseminating politically disruptive information or obscenities;



• leaking State secrets;



• spreading false commercial information; or



• infringing intellectual property rights.

The Administrative Measures on the Security Protection of Computer Information Network with International Connections, issued by the Ministry of Public Security on December 16, 1997 and amended on January 8, 2011, prohibit the use of the Internet in a manner that would result in the leakage of State secrets or the spread of socially destabilizing content. If a value-added telecommunications services license holder violates these measures, the Ministry of Public Security and the local security bureaus may revoke its operating license and shut down its websites.

Regulation Relating to Privacy Protection

Under the ICP Measures, ICPs are prohibited from producing, copying, publishing or distributing information that is humiliating or defamatory to others or that infringes upon the lawful rights and interests of others. Depending on the nature of the violation, ICPs may face criminal charges or sanctions by PRC security authorities for such acts, and may be ordered to suspend temporarily their services or have their licenses revoked.

Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT on December 29, 2011, ICPs are also prohibited from collecting any user personal information or providing any such information to third parties without the consent of a user. ICPs must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for its services. ICPs are also required to properly maintain the user personal information, and in case of any leak or likely leak of the user personal information, ICPs must take remedial measures immediately and report any material leak to the telecommunications regulatory authority.

In addition, the Decision on Strengthening Network Information Protection promulgated by the Standing Committee of the National People’s Congress on December 28, 2012 emphasizes the need to protect electronic information that contains individual identification information and other private data. The decision requires ICPs to establish and publish policies regarding the collection and use of personal electronic information and to take necessary measures to ensure the security of the information and to prevent leakage, damage or loss. Furthermore, MIIT’s Rules on Protection of Personal Information of Telecommunications and Internet Users promulgated on July 16, 2013 contain detailed requirements on the use and collection of personal information as well as the security measures to be taken by ICPs.

The PRC government retains the power and authority to order ICPs to provide an Internet user’s personal information if such user posts any prohibited content or engages in any illegal activities through the Internet.

Regulation Relating to our SME Loan Business

Our SME loan business is subject to regulations applicable to small loan companies and financial guarantee companies.



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Small loan companies. Under the Guidelines on the Pilot Operation of Small Loan Companies, or the Small Loan Companies Guidelines, jointly issued by the CBRC, and the PBOC on May 4, 2008, small loan companies are approved and regulated at the provincial, rather than national, level. The Small Loan Companies Guidelines provide guidance policies for the industry in a number of areas, including the following:



• the funds borrowed from banks by a small loan company may not exceed 50% of its net capital;



• the balance of loans granted by a small loan company to a single borrower may not exceed 5% of the net capital of such small loan company; and



• the loan interest rate adopted by a small loan company must range from 0.9 times the benchmark loan interest rate published by the PBOC to the ceiling rate allowed by applicable law.

Local provincial governments have issued various local regulations and rules to regulate small loan companies within their respective jurisdictions, and in many cases, these regulations follow the guidance policies under the Small Loan Companies Guidelines. Our small loan companies are registered in Chongqing and Zhejiang. The local rules in Chongqing provide that for a small loan company with sound corporate management and strong risk management ability, the funds borrowed from banks may reach 100% of their net capital and the loans granted to a single borrower may be up to 10% of the net capital of such small loan company. The local rules in Zhejiang require a small loan company to grant 70% of its loans to borrowers having less than RMB1 million loan balance or for agricultural purposes.

Financial guarantee companies. Pursuant to the Interim Measures for the Administration of Financial Guarantee Companies, or the Guarantee Companies Measures, jointly promulgated by eight government ministries in China on March 8, 2010, financial guarantee companies are subject to the licensing, administration and supervision by provincial governments. According to the Guarantee Companies Measures, a financial guarantee company may offer various kinds of guarantees, such as loan guarantees, trade finance guarantees, project finance guarantees and performance guarantees, provided that the outstanding guaranteed amount may not exceed ten times the net assets of such financial guarantee company. In addition, the Guarantee Companies Measures prohibit a financial guarantee company from certain business activities, such as taking deposits from the general public, granting loans, investing as a trustee and providing financial guarantees in favor of its parent company or any of its subsidiaries. Currently, we primarily provide loan guarantees and performance guarantees through one of our subsidiaries that holds a financial guarantee license.

The Guarantee Companies Measures impose certain operating restrictions on financial guarantee companies, including, among others:



• minimum capital requirements;



• maximum outstanding guarantee liability requirements;



• investment restrictions; and



• accounting and financial reporting requirements.

As a result, the restrictions imposed by the Guarantee Companies Measures described above limit our ability to grow our financial guarantee business and diversify the financial guarantee products we can offer.

Regulations Relating to Consumer Rights Protection

Our online and mobile commerce business is subject to a variety of consumer protection laws, including the PRC Consumer Rights and Interests Protection Law, as amended and effective as of March 15, 2014, and the Administrative Measures for Online Trading, both of which have provided stringent requirements and obligations on business operators, including Internet business operators and platform service providers like us. For example, consumers are entitled to return goods purchased online, subject to certain exceptions, within seven days upon



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receipt of such goods for no reason. To ensure that sellers and service providers comply with these laws and regulations, we, as platform operators, are required to implement rules governing transactions on our platform, monitor the information posted by sellers and service providers, and report any violations by such sellers or service providers to the relevant authorities. In addition, online marketplace platform providers may, pursuant to PRC consumer protection laws, be exposed to liabilities if the lawful rights and interests of consumers are infringed in connection with consumers’ purchase of goods or acceptance of services on online marketplace platforms and the platform service providers fail to provide consumers with the contact information of the seller or manufacturer. In addition, platform service providers may be jointly and severally liable with sellers and manufacturers if they are aware or should be aware that the seller or manufacturer is using the online platform to infringe upon the lawful rights and interests of consumers and fail to take measures necessary to prevent or stop such activity.

Failure to comply with these consumer protection laws could subject us to administrative sanctions, such as the issuance of a warning, confiscation of illegal income, imposition of a fine, an order to cease business operations, revocation of business licenses, as well as potential civil or criminal liabilities.

Regulations Relating to Intellectual Property Rights

Patent. Patents in the PRC are principally protected under the Patent Law of the PRC. The duration of a patent right is either 10 years or 20 years from the date of application, depending on the type of patent right.

Copyright. Copyright in the PRC, including copyrighted software, is principally protected under the Copyright Law of the PRC and related rules and regulations. Under the Copyright Law, the term of protection for copyrighted software is 50 years.

Trademark. Registered trademarks are protected under the Trademark Law of the PRC and related rules and regulations. Trademarks are registered with the Trademark Office of the SAIC. Where registration is sought for a trademark that is identical or similar to another trademark which has already been registered or given preliminary examination and approval for use in the same or similar category of commodities or services, the application for registration of such trademark may be rejected. Trademark registrations are effective for a renewable ten-year period, unless otherwise revoked.

Domain names. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and applicants become domain name holders upon successful registration.

Anti-counterfeiting Regulations

According to the Trademark Law of the PRC, counterfeit or unauthorized production of the label of another person’s registered trademark, or sale of any label that is counterfeited or produced without authorization will be deemed as an infringement of the exclusive right to use a registered trademark. The infringing party will be ordered to cease infringement immediately, a fine may be imposed and the counterfeit goods will be confiscated. The infringing party may also be held liable for damages suffered by the owner of the intellectual property rights, which will be equal to the gains obtained by the infringing party or the losses suffered by such owner as a result of the infringement, including reasonable expenses incurred by such owner in connection with enforcing its rights.

Under the Tort Liability Law of the PRC, an Internet service provider may be subject to joint liability if it is aware that an Internet user is infringing upon the intellectual property rights of others through its Internet services, such as selling counterfeit products, and fails to take necessary measures to stop that activity. If an Internet service provider receives a notice from an infringed party regarding an infringement, the Internet service provider is required to take certain measures, including deleting, blocking and unlinking the infringing content, in a timely manner.



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In addition, under the Administrative Measures for Online Trading issued by the SAIC on January 26, 2014, as an operator of an online trading platform, we must adopt measures to ensure safe online transactions, protect consumers’ rights and prevent trademark infringement.

Regulations on Tax

PRC Enterprise Income Tax

The PRC enterprise income tax, or EIT, is calculated based on the taxable income determined under the applicable EIT Law and its implementation rules, which became effective on January 1, 2008. The EIT Law imposes a uniform enterprise income tax rate of 25% on all resident enterprises in China, including foreign-invested enterprises.

The EIT Law and its implementation rules permit certain High and New Technologies Enterprises, or HNTEs, to enjoy a reduced 15% enterprise income tax rate subject to these HNTEs meeting certain qualification criteria. In addition, the relevant EIT laws and regulations also provide that entities recognized as Software Enterprises are able to enjoy a tax holiday consisting of a 2-year-exemption commencing from their first profitable year and a 50% reduction in ordinary tax rate in the subsequent three years, while entities qualified as Key Software Enterprises can enjoy a preferential EIT rate of 10%. A number of our PRC subsidiaries and operating entities enjoy these types of preferential tax treatment. See “Taxation — People’s Republic of China Taxation.”

Uncertainties exist with respect to how the EIT Law applies to the tax residence status of Alibaba Group and our offshore subsidiaries. Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that exercises substantive and overall management and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although Alibaba Group Holding Limited does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in Circular 82 to evaluate the tax residence status of Alibaba Group and our subsidiaries organized outside the PRC.

According to Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met:



• the primary location of the day-to-day operational management is in the PRC;



• decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC;



• the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located or maintained in the PRC; and



• 50% or more of voting board members or senior executives habitually reside in the PRC.

We do not believe that we meet any of the conditions outlined in the immediately preceding paragraph. Alibaba Group Holding Limited and our offshore subsidiaries are incorporated outside the PRC. As a holding



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company, our key assets and records, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that have been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that Alibaba Group Holding Limited and our offshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in Circular 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status. See “Risk Factors — Risks Related to Doing Business in the People’s Republic of China — We may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law and we may therefore be subject to PRC income tax on our global income.”

In the event that Alibaba Group Holding Limited or any of our offshore subsidiaries is considered to be a PRC resident enterprise: (1) Alibaba Group Holding Limited or our offshore subsidiaries, as the case may be, may be subject to the PRC enterprise income tax at the rate of 25% on our worldwide taxable income; (2) dividend income that Alibaba Group Holding Limited or our offshore subsidiaries, as the case may be, receive from our PRC subsidiaries may be exempt from the PRC withholding tax; and (3) dividends paid to our overseas shareholders or ADS holders who are non-PRC resident enterprises as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs may be regarded as PRC-sourced income and as a result be subject to PRC withholding tax at a rate of up to 10%, and similarly, dividends paid to our overseas shareholders or ADS holders who are non-PRC resident individuals, as well as gains realized by such shareholders or ADS holders from the transfer of our shares or ADSs, may be regarded as PRC-sourced income and as a result be subject to PRC withholding tax at a rate of 20%, subject to the provision of any applicable agreement for the avoidance of double taxation.

Under Circular 698, if a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by disposition of the equity interests of an overseas non-public holding company and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5%, or (ii) does not tax foreign income of its residents, the non-resident enterprise, being the transferor, must report such disposition to the PRC competent tax authority of the PRC resident enterprise. The PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding, or deferring PRC tax. As a result, gains derived from such disposition may be subject to a PRC withholding tax rate of up to 10%. Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price which is not on an arm’s length basis and results in reducing the taxable income, the relevant tax authority has the power to make a reasonable adjustment as to the taxable income of the transaction. Circular 698 was retroactively effective on January 1, 2008. On March 28, 2011, the State Administration of Taxation released SAT Public Notice 24 to clarify several issues related to Circular 698. SAT Public Notice 24 became effective on April 1, 2011. According to SAT Public Notice 24, the term “effective tax” refers to the effective tax on the gain derived from disposition of the equity interests of an overseas holding company; and the term “does not impose income tax” refers to cases where the gains derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country or region where the overseas holding company is a resident. There is uncertainty as to the application of Circular 698. If Circular 698 was determined by the tax authorities to be applicable to Alibaba Group Holding Limited, our offshore subsidiaries and our non-resident enterprise investors, Alibaba Group Holding Limited, our offshore subsidiaries and our non-resident enterprise investors might be required to expend valuable resources to comply with this circular or to establish that Alibaba Group Holding Limited, our offshore subsidiaries or our non-resident enterprise investors should not be taxed under Circular 698, which may materially and adversely affect Alibaba Group Holding Limited or our non-resident enterprise investors. See “Risk Factors — Risks Related to Doing Business in the People’s Republic of China — We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.”



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Under applicable PRC laws, payers of PRC-sourced income to non-PRC residents are generally obligated to withhold PRC income taxes from the payment. In the event of a failure to withhold, the non-PRC residents are required to pay such taxes on their own. Failure to comply with the tax payment obligations by the non-PRC residents will result in penalties, including full payment of taxes owed, fines and default interest on those taxes.

PRC Business Tax

Pursuant to applicable PRC tax regulations, any entity or individual conducting business in the service industry is generally required to pay a business tax at the rate of 5% on the revenues generated from providing such services. However, if the services provided are related to technology development and transfer, such business tax may be exempted subject to approval by the relevant tax authorities.

In November 2011, the Ministry of Finance and the State Administration of Taxation promulgated the Pilot Plan for Imposition of Value-Added Tax to Replace Business Tax. Pursuant to this plan and relevant notices, from August 1, 2013, a value-added tax will generally be imposed to replace the business tax in the transport and shipping industry and some of the modern service industries on a nationwide basis. A value-added tax, or VAT, rate of 6% applies to revenue derived from the provision of some modern services. Unlike business tax, a taxpayer is allowed to offset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the modern services provided. Accordingly, although the 6% VAT rate is higher than the previously applicable 5% business tax rate, no materially different tax cost to us has resulted or do we expect to result from the replacement of the business tax with a VAT on our services.

Regulations Relating to Foreign Exchange and Dividend Distribution

Foreign Exchange Regulation

The principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans to our PRC subsidiaries.

In August 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency-registered capital into RMB by restricting how the converted RMB may be used. In addition, SAFE promulgated Circular 45 on November 9, 2011 in order to clarify the application of SAFE Circular 142. Under SAFE Circular 142 and Circular 45, the RMB capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable government authority and may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight of the flow and use of the RMB capital converted from foreign currency registered capital of foreign-invested enterprises. The use of such RMB capital may not be changed without SAFE’s approval, and such RMB capital may not in any case be used to repay RMB loans if the proceeds of such loans have not been used.

Since SAFE Circular 142 has been in place for more than five years, SAFE decided to further reform the foreign exchange administration system in order to satisfy and facilitate the business and capital operations of foreign invested enterprises, and issued the Circular on the Relevant Issues Concerning the Launch of Reforming Trial of the Administration Model of the Settlement of Foreign Currency Capital of Foreign-Invested Enterprises in Certain Areas on August 4, 2014. This circular suspends the application of SAFE Circular 142 in certain areas and allows a foreign-invested enterprise registered in such areas with a business scope including “investment” to use the RMB capital converted from foreign currency registered capital for equity investments within the PRC.



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SAFE promulgated Circular 59 in November 2010, which tightens the regulation over settlement of net proceeds from overseas offerings, such as our initial public offering, and requires, among other things, the authenticity of settlement of net proceeds from offshore offerings to be closely examined and the net proceeds to be settled in the manner described in the offering documents or otherwise approved by our board. Violations of these SAFE regulations may result in severe monetary or other penalties, including confiscation of earnings derived from such violation activities, a fine of up to 30% of the RMB funds converted from the foreign invested funds or in the case of a severe violation, a fine ranging from 30% to 100% of the RMB funds converted from the foreign-invested funds.

In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

We typically do not need to use our offshore foreign currency to fund our PRC operations. In the event we need to do so, we will apply to obtain the relevant approvals of SAFE and other PRC government authorities as necessary.

SAFE Circular 37

SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

We have notified substantial beneficial owners of ordinary shares who we know are PRC residents of their filing obligation, and we have periodically filed SAFE Circular 75 reports prior to the promulgation of SAFE Circular 37, on behalf of certain employee shareholders whom we know are PRC residents. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not have control over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular 37. The failure of our beneficial owners who are PRC residents to register or amend



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their SAFE registrations in a timely manner pursuant to SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in SAFE Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.

Share Option Rules

Under the Administration Measures on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share options, purchase and sale of shares or interests and funds transfers. We will make efforts to comply with these requirements upon completion of our initial public offering.

Regulation of Dividend Distribution

The principal laws, rules and regulations governing dividend distribution by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended, the Wholly Foreign-owned Enterprise Law and its implementation regulations and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set aside as general reserves at least 10% of their after-tax profit, until the cumulative amount of such reserves reaches 50% of their registered capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

M&A Rules and Overseas Listings

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, issued by six PRC governmental and regulatory agencies, including the MOFCOM and the CSRC, on August 8, 2006 and amended on June 22, 2009, require that a SPV formed for listing purposes and controlled directly or indirectly by PRC companies or individuals must obtain the approval of the CSRC in the event that the SPV acquires equity interests in the PRC companies in exchange for the shares of offshore companies.

The application of the M&A Rules remains unclear. Our PRC counsel, Fangda Partners, has advised us that, under current PRC laws, rules and regulations and the M&A Rules, prior approval from the CSRC is not required under the M&A Rules for our initial public offering because our first foreign invested company was established in 1999, prior to the adoption of the M&A Rules, and we have not acquired any equity interests or assets of a PRC company owned by our controlling shareholders or beneficial owners who are PRC companies or individuals, as defined under the M&A Rules. However, as there has been no official interpretation or clarification of the M&A Rules, there is uncertainty as to how these rules will be implemented in practice. See



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“Risk Factors — Risks Related to Doing Business in the People’s Republic of China — Any requirement to obtain prior approval under the M&A Rules and/or any other regulations promulgated by relevant PRC regulatory agencies in the future could delay this offering and failure to obtain any such approvals, if required, could have a material adverse effect on our business, operating results and reputation as well as the trading price of our ADSs, and could also create uncertainties for this offering.”

Labor Laws and Social Insurance

Pursuant to the PRC Labor Law and the PRC Labor Contract Law, employers must execute written labor contracts with full-time employees. All employers must comply with local minimum wage standards. Violations of the PRC Labor Contract Law and the PRC Labor Law may result in the imposition of fines and other administrative and criminal liability in the case of serious violations.

In addition, according to the PRC Social Insurance Law, employers in China must provide employees with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, work-related injury insurance, medical insurance and housing funds.

Regulations on Anti-monopoly Law

The PRC Anti-monopoly Law, which took effect on August 1, 2008, prohibits monopolistic conduct, such as entering into monopoly agreements, abuse of dominant market position and concentration of undertakings that have the effect of eliminating or restricting competition.

Monopoly Agreement

Competing business operators may not enter into monopoly agreements that eliminate or restrict competition, such as by boycotting transactions, fixing or changing the price of commodities, limiting the output of commodities, fixing the price of commodities for resale to third parties, among others, unless such agreement will satisfy the exemptions under the Anti-monopoly Law, such as improving technologies or increasing the efficiency and competitiveness of small and medium-sized undertakings. Sanctions for violations include an order to cease the relevant activities, and confiscation of illegal gains and fines (from 1% to 10% of sales revenue from the previous year, or RMB500,000 if the intended monopoly agreement has not been performed).

Abuse of Dominant Market Position

A business operator with a dominant market position may not abuse its dominant market position to conduct acts, such as selling commodities at unfairly high prices or buying commodities at unfairly low prices, selling products at prices below cost without any justifiable cause, and refusing to trade with a trading party without any justifiable cause. Sanctions for violation of the prohibition on the abuse of dominant market position include an order to cease the relevant activities, confiscation of the illegal gains and fines (from 1% to 10% of sales revenue from the previous year).

Concentration of Undertakings

Where a concentration of undertakings reaches the declaration threshold stipulated by the State Council, a declaration must be approved by the anti-monopoly authority before the parties implement the concentration. Concentration refers to (1) a merger of undertakings; (2) acquiring control over other undertakings by acquiring equities or assets; or (3) acquisition of control over, or the possibility of exercising decisive influence on, an undertaking by contract or by any other means. If business operators fail to comply with the mandatory declaration requirement, the anti-monopoly authority is empowered to terminate and/or unwind the transaction, dispose of relevant assets, shares or businesses within certain periods and impose fines of up to RMB500,000.

See “Risk Factors — Risks Related to Our Business and Industry — We may become the target of anti-monopoly and unfair competition claims, which may result in our being subject to fines as well as constraints on our business.”



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Regulations Applicable to Alipay

Regulation on Non-financial Institution Payment Services

According to the Administrative Measures for the Payment Services Provided by Non-financial Institutions, or the Payment Services Measures, promulgated by the PBOC on June 14, 2010 and effective as of September 1, 2010, a payment institution, a non-financial institution providing monetary transfer services as an intermediary between payees and payers, including online payment, issuance and acceptance of prepaid cards or bank cards, and other payment services specified by the PBOC, is required to obtain a payment business license. Any non-financial institution or individual engaged in the payment business without such license may be ordered to cease its payment services and be subject to administrative sanctions and even criminal liabilities. Applications for payment business licenses are examined by the local branches of the PBOC and then submitted to the PBOC for approval. The registered capital of an applicant that engages in a nationwide payment business must be at least RMB100 million, while that of an applicant engaging in a payment business within a province must be at least RMB30 million.

A payment institution is required to conduct its business within the scope of business indicated in its payment business license, and may not undertake any business beyond that scope or outsource its payment business. No payment institution may transfer, lease or lend its payment business license.

In addition, on February 1, 2013, the SAFE promulgated the Guiding Opinions on the Pilot Services of Cross-Border E-commerce Foreign Exchange Payment by Payment Institutions, or the Guiding Opinions, pursuant to which a payment institution is required to obtain approval from the SAFE in order to provide pilot foreign exchange payment services for cross-border e-commerce transactions. Under the Guiding Opinions, payment institutions may only provide foreign exchange payment services for cross-border e-commerce transactions where there is a real underlying transaction. The payment institution must also verify the real names and identity information of the clients involved in the cross-border transaction, maintain records of the relevant transactions and make monthly reports to the local branch of the SAFE.

We rely on Alipay to provide payment services on our marketplaces and Alipay has obtained a payment business license from the PBOC as well as approval for cross-border e-commerce foreign exchange payment services from the SAFE.

Anti-money Laundering Regulations

The PRC Anti-money Laundering Law, which became effective on January 1, 2007, sets forth the principal anti-money laundering requirements applicable to both financial and non-financial institutions with anti-money laundering obligations, such as Alipay, including the adoption of precautionary and supervisory measures, establishment of various systems for client identification, preservation of clients’ identification information and transactions records, and reports on block transactions and suspicious transactions. The Payment Services Measures also require that the payment institution follow the rules associated with anti-money laundering and comply with their anti-money laundering obligations.

In addition, the PBOC promulgated the Administrative Measures for Payment Institutions Regarding Anti-money Laundering and Counter Terrorism Financing on March 5, 2012, or the Anti-money Laundering Measures, according to which the payment institution must establish and improve unified anti-money laundering internal control systems and file such systems with the local branch of the PBOC. The Anti-money Laundering Measures also require the payment institution to set up an anti-money laundering department or designate an internal department to be responsible for anti-money laundering and counter terrorism financing work.

In the future, if Alipay expands its business internationally, it may become subject to additional laws, rules and regulations of the jurisdictions in which it chooses to operate. These regulatory regimes may be complex and require extensive time and resources to ensure compliance.



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ALIBABA PARTNERSHIP

Since our founders first gathered in Jack Ma’s apartment in 1999, they and our management have acted in the spirit of partnership. We view our culture as fundamental to our success and our ability to serve our customers, develop our employees and deliver long-term value to our shareholders. In July 2010, in order to preserve this spirit of partnership and to ensure the sustainability of our mission, vision and values, we decided to formalize our partnership as Lakeside Partners, named after the Lakeside Gardens residential community where Jack and our other founders started our company. We refer to the partnership as the Alibaba Partnership.

We believe that our partnership approach has helped us to better manage our business, with the peer nature of the partnership enabling senior managers to collaborate and override bureaucracy and hierarchy. The Alibaba Partnership currently has 30 members comprised of 24 members of our management, five members of management of Small and Micro Financial Services Company and one member of management of China Smart Logistics. Two partners who are members of our management are also members of management of Small and Micro Financial Services Company. The number of partners in Alibaba Partnership is not fixed and may change from time to time due to the election of new partners, the retirement of partners and the departure of partners for other reasons.

Our partnership is a dynamic body that rejuvenates itself through admission of new partners each year, which we believe enhances our excellence, innovation and sustainability. Unlike dual-class ownership structures that employ a high-vote class of shares to concentrate control in a few founders, our approach is designed to embody the vision of a large group of management partners. This structure is our solution for preserving the culture shaped by our founders while at the same time accounting for the fact that founders will inevitably retire from the company.

Consistent with our partnership approach, all partnership votes are made on a one-partner-one-vote basis.

The partnership is governed by a partnership agreement that will be amended prior to the completion of this offering and operates under principles, policies and procedures that have evolved with our business and are further described below.

Nomination and Election of Partners

The Alibaba Partnership elects new partners annually after a nomination process whereby existing partners propose candidates to the partnership committee, or the partnership committee, as described below. The partnership committee reviews the nominations and determines whether the nomination of a candidate will be proposed to the entire partnership for election. Election of new partners requires the approval of at least 75% of all of the partners.

To be eligible for election, a partner candidate must have demonstrated the following attributes:



• a high standard of personal character and integrity;



• continued service with Alibaba Group, our affiliates and/or certain companies with which we have a significant relationship such as Small and Micro Financial Services Company for not less than five years;



• a track record of contribution to the business of Alibaba Group; and



• being a “culture carrier” who shows a consistent commitment to, and traits and actions consonant with, our mission, vision and values.

We believe the criteria and process the Alibaba Partnership applicable to the election of new partners, as described above, promote accountability among the partners as well as to our customers, employees and shareholders. In order to align the interests of partners with the interests of our shareholders, we require that each



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partner maintain a meaningful level of equity interests in our company during such individual’s tenure as a partner. Since a partner nominee must have been our employee or an employee of one of our related companies or affiliates for at least five years, as of the time he or she becomes a partner, he or she will typically already own or have been awarded a personally meaningful level of equity interest in our company through our equity incentive and share purchase plans.

Duties of Partners

The main duty of partners in their capacity as partners is to embody and promote our mission, vision and values. We expect partners to be evangelists for our mission, vision and values, both within our organization and externally to customers, business partners and other participants in our ecosystem.

Partnership Committee

The partnership committee must consist of at least five partners and is currently comprised of Jack Ma, Joe Tsai, Jonathan Lu, Lucy Peng and Ming Zeng. The partnership committee is responsible for administering partner elections and allocating the relevant portion of the annual cash bonus pool for all partner members of management, with any amounts payable to partners who are our executive officers or members of the partnership committee subject to approval of the compensation committee of our board of directors. Partnership committee members serve for a term of three years and may serve multiple terms. Elections of partnership committee members are held once every three years. Prior to each election, the partnership committee will nominate a number of partners equal to the number of partnership committee members that will serve in the next partnership committee term plus three additional nominees. Each partner votes for a number of nominees equal to the number of partnership committee members that will serve in the next partnership committee term and all except the three nominees who receive the least votes from the partners are elected to the partnership committee.

Director Nomination Rights

Pursuant to our articles of association, as we expect them to be amended and become effective upon completion of this offering, the Alibaba Partnership will have the exclusive right to nominate up to a simple majority of the members of our board of directors.

The election of each director nominee of the Alibaba Partnership will be subject to the director nominee receiving a majority vote from our shareholders voting at an annual general meeting of shareholders. If an Alibaba Partnership director nominee is not elected by our shareholders or after election departs our board of directors for any reason, the Alibaba Partnership has the right to appoint a different person to serve as an interim director of the class in which the vacancy exists until our next scheduled annual general meeting of shareholders. At the next scheduled annual general meeting of shareholders, the appointed interim director or a replacement Alibaba Partnership director nominee (other than the original nominee) will stand for election for the remainder of the term of the class of directors to which the original nominee would have belonged. See “Description of Share Capital — Ordinary Shares — Nomination, Election and Removal of Directors.”

If at any time our board of directors consists of less than a simple majority of directors nominated or appointed by the Alibaba Partnership for any reason, including because a director previously nominated by the Alibaba Partnership ceases to be a member of our board of directors or because the Alibaba Partnership had previously not exercised its right to nominate or appoint a simple majority of our board of directors, the Alibaba Partnership will be entitled (in its sole discretion and without the need for any additional shareholder action) to appoint such number of additional directors to the board as necessary to ensure that the directors nominated or appointed by the Alibaba Partnership comprise a simple majority of our board of directors.

In determining the Alibaba Partnership director nominees who will stand for election to our board, the partnership committee will propose director nominees who will be voted on by all of the partners, and those nominees who receive a simple majority of the votes of the partners will be selected for such purposes. The director nominees of the Alibaba Partnership will initially all be partners of the Alibaba Partnership, however, we expect that in the future nominees may also include qualified individuals who are not affiliated with the Alibaba Partnership.



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The Alibaba Partnership’s right to nominate a simple majority of our directors is conditioned on the Alibaba Partnership being governed by the partnership agreement in effect as of the completion of this offering, or as may be amended in accordance with its terms from time to time. Any amendment to the provisions of the partnership agreement relating to the purpose of the partnership, or to the manner in which the Alibaba Partnership exercises its right to nominate a simple majority of our directors, will be subject to the approval of the majority of our directors who are not nominees or appointees of the Alibaba Partnership and are “independent directors” within the meaning of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The provisions relating to nomination rights and procedures described above will be incorporated in our amended articles of association effective upon completion of this offering. Pursuant to these amended articles of association, the Alibaba Partnership’s nomination rights and related provisions of our articles of association may only be changed upon the vote of shareholders representing 95% of the votes present in person or by proxy at a general meeting of shareholders.

We expect that our initial board of directors upon completion of this offering will consist of nine members, and the Alibaba Partnership will designate four of those directors as Alibaba Partnership nominees. If at any time our board of directors consists of less than a simple majority of directors nominated or appointed by the Alibaba Partnership for any reason — including because the Alibaba Partnership had previously not exercised its right to nominate or appoint a simple majority of our board of directors — the Alibaba Partnership will be entitled (in its sole discretion and without the need for any additional shareholder approval) to nominate or appoint such number of additional directors as necessary to ensure that the directors nominated or appointed by the Alibaba Partnership comprise a simple majority of our board of directors. Accordingly, upon completion of this offering, the Alibaba Partnership will be entitled to nominate or appoint two directors to our board, which would increase the total number of directors to eleven. We expect to enter into a voting agreement that will take effect upon completion of this offering, pursuant to which both SoftBank and Yahoo will agree to vote their shares in favor of the Alibaba Partnership director nominees at each annual general shareholders meeting so long as SoftBank owns at least 15% of our outstanding ordinary shares. Accordingly, for so long as SoftBank and Yahoo remain substantial shareholders, we expect the Alibaba Partnership nominees will receive a majority of votes cast at any meeting for the election of directors and will be elected as directors. See “Related Party Transactions — Transactions with Yahoo and SoftBank — Voting Agreement.”

The nomination rights of the Alibaba Partnership and the voting agreement will limit your ability to influence corporate matters and the interests of the Alibaba Partnership may not coincide with your interests. See “Risk Factors — Risks Related to Our Corporate Structure — The Alibaba Partnership and related voting agreements will limit your ability to nominate and elect directors.”



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Current Partners

The following table sets forth the names, in alphabetical order by surname, and other information regarding the current partners of the Alibaba Partnership as of the date of this prospectus.





Name
Age
Gender

Year joined
Alibaba
Group

Current position with Alibaba Group or related/affiliated companies


Jingxian CAI ( LOGO )
37 M 2000 Principal Engineer

Li CHENG ( LOGO )
39 M 2005 Chief Architect, Small and Micro Financial Services Company

Trudy Shan DAI ( LOGO )
38 F 1999
Chief Customer Officer


Luyuan FAN ( LOGO )
41 M 2007 President, China Business, Small and Micro Financial Services Company

Yongxin FANG ( LOGO )
40 M 2000 Director, Human Resources

Simon Xiaoming HU ( LOGO )
44 M 2005 Risk Manager, SME Loan Business; Chief Risk Officer, Small and Micro Financial Services Company

Fang JIANG ( LOGO )
40 F 1999 Vice President, Corporate Integrity and Human Resources

Peng JIANG ( LOGO )
41 M 2000 President, Alibaba Cloud Computing, YunOS and Digital Entertainment; Deputy Chief Technology Officer

Jianhang JIN ( LOGO )
44 M
1999
President

Eric Xiandong JING ( LOGO )
41 M
2007
Chief Financial Officer, Small and Micro Financial Services Company

Zhenfei LIU ( LOGO )
42 M 2006 Vice President, Infrastructure Operations

Jonathan Zhaoxi LU ( LOGO )+
44 M 2000 Chief Executive Officer

Jack Yun MA ( LOGO )+
50 M 1999 Executive Chairman

Xingjun NI ( LOGO )
37 M 2003 Principal Engineer, Small and Micro Financial Services Company

Lucy Lei PENG ( LOGO )+
41 F 1999 Chief People Officer, Alibaba Group; Chief Executive Officer, Small and Micro Financial Services Company

Sabrina Yijie PENG ( LOGO )
36 F 2000 Vice President, International, Small and Micro Financial Services Company

Xiaofeng SHAO ( LOGO )
48 M 2005 Chief Risk Officer

Timothy A. STEINERT
54 M 2007 General Counsel and Corporate Secretary

Judy Wenhong TONG ( LOGO )
43 F 2000 Chief Operating Officer, China Smart Logistics

Joseph C. TSAI ( LOGO )+
50 M 1999 Executive Vice Chairman

Jian WANG ( LOGO )
51 M 2008 Chief Technology Officer

Shuai WANG ( LOGO )
40 M 2003 Senior Vice President, China Corporate Communications and Marketing

Sophie Minzhi WU ( LOGO )
38 F 2000 President, Alibaba.com and 1688.com

Maggie Wei WU ( LOGO )
46 F 2007 Chief Financial Officer

Eddie Yongming WU ( LOGO )
39 M 1999 Senior Vice President, Corporate Development

Sara Siying YU ( LOGO )
40 F 2005 Associate General Counsel, China

Ming ZENG ( LOGO )+
44 M 2006 Senior Vice President, Corporate Strategy

Jeff Jianfeng ZHANG ( LOGO )
41 M 2004 President, Taobao Marketplace

Daniel Yong ZHANG ( LOGO )
42 M 2007 Chief Operating Officer

Yu ZHANG ( LOGO )
44 F 2004 Vice President, Corporate Development



+ Member of the partnership committee.



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Bonus Pool

Our board of directors, acting on the recommendation of our compensation committee, approves an annual cash bonus pool for management of our company (which in fiscal year 2014 comprised approximately 150 individuals) equal to a percentage of our adjusted pre-tax operating profits. Once the annual cash bonus pool is calculated, our compensation committee will then first determine the proportion to be allocated to the non-partner members of our management. Any remaining portion will then be available for the partner members of our management. The partnership committee will determine the allocation of the relevant portion of the annual cash bonus pool for all partner members of management, with any amounts payable to our executive officers or directors who are partners or members of the partnership committee subject to approval of the compensation committee of our board of directors. We understand that a partner’s level of contribution to our business and to the promoting of our mission, vision and values will be a key factor in determining his or her allocation from the bonus pool. A portion of the annual cash bonus pool that is available to the partner members of management may, upon the recommendation of the partnership committee and approval of our compensation committee, be deferred, with the allocations of deferred payment determined by the partnership committee with any amounts payable to our executive officers or directors who are partners or members of the partnership committee subject to approval of the compensation committee of our board of directors. We understand that participation in deferred distributions, other than retirement pension payments funded out of the deferred pool, is conditioned on a partner’s continued employment with us, our affiliates and/or certain companies with which we have a significant relationship, such as Small and Micro Financial Services Company.

Retirement and Removal

Partners may elect to retire from the partnership at any time. All partners except continuity partners are required to retire upon reaching the age of sixty or upon termination of their qualifying employment. Continuity partners may remain partners until they elect to retire from the partnership, die or are incapacitated or are removed as partners. Either two or three partners may be designated as continuity partners at a time, with Jack and Joe serving as the initial continuity partners. Continuity partners are either designated by a retiring continuity partner or by the serving continuity partners. Any partner, including continuity partners, may be removed upon the vote of a simple majority of all partners present at a duly-called meeting of partners for violations of certain standards set forth in the partnership agreement, including failure to actively promote our mission, vision and values, fraud, gross misconduct or gross negligence. As with other partners, continuity partners must maintain the shareholding levels required by us of all partners as described below. Partners who retire from the partnership upon meeting certain age and service requirements may be designated as honorary partners by the partnership committee. Honorary partners may not act as partners, but may be entitled to allocations from the deferred portion of the annual cash bonus pool described below as retirement pension payments. Continuity partners will not be eligible to receive allocations from the annual cash bonus pool if they cease to be our employees even if they remain partners, but may be entitled to receive allocations from the deferred bonus pool if they are honorary partners.

Restrictive Provisions

Under our amended articles of association, in connection with any change of control, merger or sale of our company, the partners and other holders of our ordinary shares shall receive the same consideration with respect to their ordinary shares in connection with any such transaction. In addition, our amended articles of association will provide that the Alibaba Partnership may not transfer or otherwise delegate or give a proxy to any third party with respect to its right to nominate directors, although it may elect not to exercise its rights in full. In addition, as noted above, our amended articles of association will also provide that the amendment of certain provisions of the Alibaba Partnership agreement relating to the purpose of the partnership or the manner in which the partnership exercises its rights to nominate or appoint a majority of our board of directors will require the approval of a majority of directors who are not appointees of the Alibaba Partnership and are “independent directors” within the meaning of Section 303A of the Corporate Governance Rules of the New York Stock Exchange.



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Amendment of Alibaba Partnership Agreement

Pursuant to the partnership agreement, amendment of the partnership agreement requires the approval of 75% of the partners in attendance at a meeting of the partners at which not less than 75% of all the partners are in attendance, except that the general partner may effect certain administrative amendments. In addition, certain amendments relating to the purposes of the Alibaba Partnership or the manner in which it exercises its nomination rights with respect to our directors require the approval of a majority of our independent directors not nominated or appointed by the Alibaba Partnership.

Alibaba Group Equity Interest Holding Requirement for Partners

Each of the partners holds his or her equity interests in our company directly as an individual or through his or her affiliates. In connection with this offering, we expect to enter into share retention agreements with each partner. These agreements will provide that a period of three years from the date on which such person becomes a partner, or for 27 of the existing partners, from January 1, 2014 and three of the existing partners, from August 26, 2014, we require that each partner retain at least 60% of the equity interests (including unvested shares and shares underlying vested and unvested awards) that he or she held on the starting date of such three-year period. Following the initial three-year holding period and for so long as he or she remains a partner, we require that the partner 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. As of the date of this prospectus, approximately 349,859,983 of our ordinary shares will be deemed owned by partners for the purposes of the share retention agreements (including unvested shares and shares underlying vested and unvested awards) and will be subject to these holding requirements. Exceptions to the holding period rules described in the share retention agreements must be approved by a majority of the independent directors.



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OUR DIRECTORS

Directors

The following table sets forth certain information relating to our current directors and our director appointees for our board of directors immediately following this offering. Upon completion of this offering, our board of directors will be comprised of a total of nine directors.





Name
Age
Position/Title


Jack Yun MA†(1)
50 Executive Chairman

Joseph C. TSAI†(2)
50 Executive Vice Chairman

Masayoshi SON‡(3)
57 Director

Jonathan Zhaoxi LU†**(1)
44 Director Appointee

Daniel Yong ZHANG†**(1)
42 Director Appointee


Independent directors



Chee Hwa TUNG¯**(2)
77 Independent Director Appointee

Walter Teh Ming KWAUK¯**(2)
61 Independent Director Appointee

J. Michael EVANS¯**(2)
57 Independent Director Appointee

Jerry YANG¯**(2)
45 Independent Director Appointee



† Will be designated an Alibaba Partnership nominee effective upon completion of this offering.

‡ Will be designated a SoftBank nominee effective upon completion of this offering.

¯ Will be a nominating and corporate governance committee member upon completion of this offering.



For information about nomination and appointment rights to our board of directors see “Alibaba Partnership,” “Related Party Transactions — Transactions and Agreements with Yahoo and SoftBank — Voting Agreement” and “Description of Share Capital — Ordinary Shares — Nomination, Election and Removal of Directors.”



** Has accepted appointment as our director or independent director, effective upon completion of this offering.



(1) 969 West Wen Yi Road, Yu Hang District, Hangzhou 311121, the People’s Republic of China.

(2) c/o Alibaba Group Services Limited, 26/F Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong S.A.R.

(3) SoftBank Corp., 1-9-1 Higashi-shimbashi, Minato-ku, Tokyo, 105-7303, Japan.

Jack Yun MA ( LOGO ) is our lead founder and, since May 2013, has served as our executive chairman. From our founding in 1999 and until May 2013, Jack served as our chairman and chief executive officer. Jack currently serves on the board of SoftBank Corp., one of our major shareholders and a Japanese corporation listed on the Tokyo Stock Exchange. He is also a director of Huayi Brothers Media Corporation, an entertainment group in China listed on The Shenzhen Stock Exchange, as well as chair of The Nature Conservancy’s China board of directors and a director of its global board of directors. In September 2013, he joined the Breakthrough Prize in Life Sciences Foundation as a director. Jack graduated from Hangzhou Teacher’s Institute with a major in English language education.

Joseph C. TSAI ( LOGO ) joined our company in 1999 as a member of the Alibaba founding team and has served as our executive vice chairman since May 2013. Joe previously served as our chief financial officer and has been a member of our board of directors since our formation. From 1995 to 1999, Joe worked in Hong Kong with Investor AB, the main investment vehicle of Sweden’s Wallenberg family, where he was responsible for Asian private equity investments. Prior to that, he was vice president and general counsel of Rosecliff, Inc., a management buyout firm based in New York. From 1990 to 1993, Joe was an associate attorney in the tax group of Sullivan & Cromwell LLP, a New York-based international law firm. Joe serves on the boards of directors of several of our investee companies. Joe is qualified to practice law in the State of New York. He received his bachelor’s degree in Economics and East Asian Studies from Yale College and a juris doctor degree from Yale Law School.





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Masayoshi SON has been our director since 2000 and is the founder, chairman and chief executive officer of SoftBank Corp., a Japanese corporation listed on the Tokyo Stock Exchange, with operations in broadband, mobile and fixed-line telecommunications, e-commerce, Internet, technology services, media and marketing, and other businesses. Mr. Son founded SoftBank Corp. in 1981. Mr. Son also serves as chairman and chief executive officer of several other SoftBank subsidiaries and affiliates, including SoftBank BB Corp., SoftBank Telecom Corp. and SoftBank Mobile Corp. as well as serving as chairman of Yahoo Japan Corporation since 1996, and of Sprint Corporation since 2013. Mr. Son received a bachelor’s degree in Economics from the University of California, Berkeley.

Jonathan Zhaoxi LU ( LOGO ) will serve as our director upon completion of this offering. Jonathan joined our company in 2000 and succeeded Jack Ma as chief executive officer in May 2013, and has at different points served as the top executive officer of almost all of our key business units. Prior to his current role, he served as our chief data officer and also oversaw our YunOS division. Before that, he served as chief executive officer of Alibaba.com from February 2011 until its privatization in 2012. He joined Taobao in January 2008 and served as its chief executive officer from January 2010 to June 2011. In September 2004, he led a dedicated team to establish Alipay and became Alipay’s first president. From 2000 to 2004, Jonathan held several leadership roles at Alibaba.com and managed its South China sales region. Before joining Alibaba Group, Jonathan was co-founder of a network communications company. Jonathan received a graduate certificate in hotel management from Guangzhou University and a master’s degree in business administration from China Europe International Business School. Since May 2014, Jonathan has served on the board of directors of Youku Tudou.

Daniel Yong ZHANG ( LOGO ) will serve as our director upon completion of this offering. Daniel has been our chief operating officer since September 2013. Daniel was appointed president of Tmall.com in June 2011, when Tmall.com became an independent platform. He was chief financial officer of Taobao from the time he joined our company in August 2007 until June 2011, and also served as general manager of Tmall during the latter three years in this period. Before joining Alibaba Group, Daniel served as chief financial officer of Shanda Interactive Entertainment Limited, an online game developer and operator listed on the NASDAQ Stock Market, from August 2005 to August 2007. From 2002 to 2005, he was senior manager of PricewaterhouseCoopers’ Audit and Business Advisory Division in Shanghai, prior to which he worked in the Shanghai office of Arthur Andersen for seven years. Daniel serves on the boards of directors of CITIC 21 and of Haier, each a company listed on the Hong Kong Stock Exchange. Daniel also has been serving on the board of directors of Weibo since May 2014. Daniel received a bachelor’s degree in finance from Shanghai University of Finance and Economics. He is a member of the Chinese Institute of Certified Public Accountants.

Chee Hwa TUNG ( LOGO ) will serve as our independent director upon completion of this offering. Mr. Tung is the Vice Chairman of the Twelfth National Committee of the Chinese People’s Political Consultative Conference of the PRC, which is an important institution of multiparty cooperation and political consultation in the PRC. Mr. Tung is the Founding Chairman of the China-United States Exchange Foundation, which is a non-profit organization registered in Hong Kong to promote understanding and strengthening relationships between China and the United States. Mr. Tung also serves in various public sector and advisory positions, including as a member of the J.P. Morgan International Council, the China Development Bank International Advisory Committee and the Advisory Board of the Schwarzman Scholars Program at Tsinghua University. Prior to these appointments, Mr. Tung served as the First Chief Executive of the Hong Kong Special Administrative Region from July 1997 to March 2005. Mr. Tung had a successful and distinguished career in business, including serving as the Chairman and Chief Executive Officer of Orient Overseas (International) Limited, a Hong Kong Stock Exchange listed company with its principal business activities in container transport and logistics services on a global scale. Mr. Tung received a bachelor’s degree in science from the University of Liverpool.

Mr. Tung has been asked to serve as an independent director because of his strategic vision, his deep experience and perspective as a business and government leader, and his long history and proven track record of building and strengthening relationships between China and the United States.





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Walter Teh Ming KWAUK ( LOGO ) will serve as our independent director upon completion of this offering. Mr. Kwauk previously served as an independent non-executive director and chairman of the audit committee of Alibaba.com Limited, one of our subsidiaries, which was listed on the Hong Kong Stock Exchange, from October 2007 to July 2012. Mr. Kwauk is currently a senior consultant of Motorola Solutions (China) Co., Ltd. and serves as an independent non-executive director of Thunder Power Co. Ltd., a Taiwan company with its shares traded on Taiwan’s Gre Tai Securities Market; Sinosoft Technology Group Limited, a company listed on the Hong Kong Stock Exchange, of which Mr. Kwauk is also the chairman of its audit committee; and several private companies. Mr. Kwauk was a vice president of Motorola Solutions, Inc. and its director of corporate strategic finance and tax, Asia Pacific from 2003 to 2012. Mr. Kwauk served with KPMG from 1977 to 2002 and held a number of senior positions, including the general manager of KPMG’s joint venture accounting firm in Beijing, the managing partner in KPMG’s Shanghai office and a partner in KPMG’s Hong Kong Office. He is a member of the Hong Kong Institute of Certified Public Accountants. Mr. Kwauk received a bachelor’s degree in science and a licentiate’s degree in accounting from the University of British Columbia.

Mr. Kwauk has been asked to serve as an independent director because of his extensive experience in the areas of international accounting and finance, his strong understanding of technology companies, and his successful history and perspective as both a senior business executive and an independent board member at other companies.

J. Michael EVANS will serve as our independent director upon completion of this offering. Mr. Evans served as Vice Chairman of The Goldman Sachs Group, Inc. from February 2008 until his retirement in December 2013. Mr. Evans served as chairman of Asia operations at Goldman Sachs from 2004 to 2013 and was the global head of Growth Markets at Goldman Sachs from January 2011 to December 2013. He also co-chaired the Business Standards Committee of Goldman Sachs from 2010 to 2013. Mr. Evans joined Goldman Sachs in 1993, became a partner of the firm in 1994 and held various leadership positions within the firm’s securities business while based in New York and London, including global head of equity capital markets and global co-head of the equities division, and global co-head of the securities business. Mr. Evans is chairman of the board of Right To Play USA and a board member of City Harvest. He is also a trustee of the Asia Society and a member of the Advisory Council for the Bendheim Center for Finance at Princeton University. In August 2014, Mr. Evans joined the board of Barrick Gold Corporation. Mr. Evans received his bachelor’s degree in politics from Princeton University in 1981.

Mr. Evans has been asked to serve as an independent director because of his perspective as a proven leader in the international financial community and his unique knowledge and experience across Asia.

Jerry YANG ( LOGO ) will serve as our independent director upon completion of this offering. Mr. Yang previously served as our director from October 2005 to January 2012. Since March 2012, Mr. Yang has served as the founding partner of AME Cloud Ventures, a venture capital firm. Mr. Yang is a co-founder of Yahoo! Inc., and served as Chief Yahoo! and as a member of its board of directors from March 1995 to January 2012. In addition, he served as Yahoo!’s Chief Executive Officer from June 2007 to January 2009. From January 1996 to January 2012, Mr. Yang served as a director of Yahoo! Japan. Mr. Yang also served as an independent director of Cisco Systems, Inc. from July 2000 to November 2012. He is currently an independent director of Workday Inc., a company listed on the New York Stock Exchange. He also serves as a director of various private companies and foundations. Mr. Yang received a bachelor’s degree and a master’s degree in electrical engineering from Stanford University and currently serves on Stanford University’s board of trustees.

Mr. Yang has been asked to serve as an independent director because of his track record as a leading innovator, his knowledge and experience in the Internet industry, his unique experience as a founder and senior business executive, and his deep knowledge and understanding of Alibaba.



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Nomination and Terms of Directors

Pursuant to our articles of association as we expect them to be amended and become effective upon completion of this offering, our board of directors will be classified into three classes of directors designated as Group I, Group II and Group III, each generally serving a three-year term unless earlier removed. Our articles will provide that upon completion of this offering, the Group I directors will initially consist of Joe Tsai, Michael Evans and Jonathan Lu; the Group II directors will initially consist of Daniel Zhang, Chee Hwa Tung and Jerry Yang; and the Group III directors will initially consist of Jack Ma, Masayoshi Son and Walter Kwauk. The articles further provide that immediately following the completion of this offering, Jack Ma, Joe Tsai, Jonathan Lu and Daniel Zhang will be designated Alibaba Partnership nominees; Masayoshi Son will be designated the SoftBank nominee; and Walter Kwauk, Chee Hwa Tung, Michael Evans and Jerry Yang will be deemed nominees of the nominating and corporate governance committee. Unless otherwise determined by the shareholders in a general meeting, our board will consist of not less than nine directors for so long as SoftBank has a director nomination right. The Alibaba Partnership has the exclusive right to nominate up to a simple majority of our board of directors, and SoftBank has the right to nominate one director for so long as SoftBank owns at least 15% of our outstanding shares. If at any time our board of directors consists of less than a simple majority of directors nominated or appointed by the Alibaba Partnership for any reason, including because a director previously nominated by the Alibaba Partnership ceases to be a member of our board of directors or because the Alibaba Partnership had previously not exercised its right to nominate or appoint a simple majority of our board of directors, the Alibaba Partnership shall be entitled (in its sole discretion) to appoint such number of additional directors to the board as necessary to ensure that the directors nominated or appointed by the Alibaba Partnership comprise a simple majority of our board of directors. The remaining members of the board of directors will be nominated by the nominating and corporate governance committee of the board. Director nominees will be elected by the simple majority vote of shareholders at our annual general meeting.

If a director nominee is not elected by our shareholders or departs our board of directors for any reason, the party or group entitled to nominate that director has the right to appoint a different person to serve as an interim director of the class in which the vacancy exists until our next scheduled annual general meeting of shareholders. At the next scheduled annual general meeting of shareholders, the appointed interim director or a replacement director nominee (who, in the case of Alibaba Partnership nominees, cannot be the original nominee) will stand for election for the remainder of the term of the class of directors to which the original nominee would have belonged.

For additional information, see “Alibaba Partnership,” “Related Party Transactions — Transactions and Agreements with Yahoo and SoftBank — Voting Agreement” and “Description of Share Capital — Ordinary Shares — Nomination, Election and Removal of Directors.”

Code of Ethics and Corporate Governance Guidelines

We have adopted a code of ethics, which is applicable to all of our directors, executive officers and employees. We will make our code of ethics publicly available on our website.

In addition, our board of directors has adopted a set of corporate governance guidelines covering a variety of matters, including approval of related party transactions. Our corporate governance guidelines also provide that any adoption of a new equity incentive plan and any material amendments to such plans will be subject to the approval of our non-executive directors and also provide that the director nominated by SoftBank will be entitled to notices and materials for all meetings of committees of our board of directors and, by giving prior notice, may attend, observe and participate in any discussions at any committee meetings. The guidelines reflect certain guiding principles with respect to our board’s structure, procedures and committees. The guidelines are not intended to change or interpret any applicable law, rule or regulation or our amended articles of association.



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Duties of Directors

Under Cayman Islands law, all of our directors owe us fiduciary duties, including a duty of loyalty, a duty to act honestly and a duty to act in good faith and in a manner they believe to be in our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended articles of association, as amended and restated from time to time. We have the right to seek damages if a duty owed by any of our directors is breached.

Board Committees

Our board of directors has established an audit committee, and, prior to the completion of this offering, will establish a compensation committee and a nominating and corporate governance committee. Our corporate governance guidelines provide that a majority of the members of our compensation committee and nominating and corporate governance committee will be independent directors within the meaning of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. All members of our audit committee shall be independent within the meaning of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and will meet the criteria for independence set forth in Rule 10A-3 of the Exchange Act by the end of the one year transition period for companies following an initial public offering.

Audit Committee

At the time of the completion of this offering, our audit committee will consist of Walter Kwauk, Michael Evans and Joe Tsai. Mr. Kwauk will be the chairman of our audit committee. We expect Mr. Kwauk to satisfy the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. We expect Mr. Kwauk and Mr. Evans to satisfy the requirements for an “independent director” within the meaning of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and will meet the criteria for independence set forth in Rule 10A-3 of the Exchange Act.

The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Our audit committee is responsible for, among other things:



• selecting, and evaluating the qualifications, performance and independence of, the independent auditor;



• pre-approving or, as permitted, approving auditing and non-auditing services permitted to be performed by the independent auditor;



• considering the adequacy of our internal accounting controls and audit procedures;



• reviewing with the independent auditor any audit problems or difficulties and management’s response;



• reviewing and approving related party transactions between us and our directors, senior management and other persons specified in Item 6B of Form 20-F;



• reviewing and discussing the quarterly financial statements and annual audited financial statements with management and the independent auditor;



• establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;



• meeting separately, periodically, with management, internal auditors and the independent auditor; and



• reporting regularly to the full board of directors.



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Compensation Committee

At the time of the completion of this offering, our compensation committee will consist of Jerry Yang, Walter Kwauk and Joe Tsai. Mr. Yang will be the chairman of our compensation committee. We expect Mr. Yang and Mr. Kwauk to satisfy the requirements for an “independent director” within the meaning of Section 303A of the Corporate Governance Rules of the New York Stock Exchange.

Our compensation committee will be responsible for, among other things:



• determining the amount of the annual cash bonus pool to be allocated to each executive officer and determining the total proportions of the annual cash bonus pool to be allocated in aggregate to the non-partner members of our management and in aggregate to the partners we employ;



• reviewing, evaluating and, if necessary, revising our overall compensation policies;



• reviewing and evaluating the performance of our directors and executive officers and determining the compensation of our directors and executive officers;



• reviewing and approving our executive officers’ employment agreements with us;



• determining performance targets for our executive officers with respect to our incentive compensation plan and equity-based compensation plans;



• administering our equity-based compensation plans in accordance with the terms thereof; and



• carrying out such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.

Nominating and Corporate Governance Committee

At the time of the completion of this offering, our nominating and corporate governance committee will consist of Jack Ma, Chee Hwa Tung, Michael Evans and Jerry Yang. Jack will be the chairman of our nominating and corporate governance committee. We expect Mr. Tung, Mr. Evans and Mr. Yang to satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange.

Our nominating and corporate governance committee will be responsible for, among other things:



• selecting the board nominees (other than the director nominees to be nominated by the Alibaba Partnership and SoftBank) for election by the shareholders or appointment by the board;



• periodically reviewing with the board the current composition of the board with regards to characteristics such as independence, knowledge, skills, experience and diversity;



• making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of the board; and



• advising the board periodically with regards to significant developments in corporate governance law and practices as well as our compliance with applicable laws and regulations, and making recommendations to the board on corporate governance matters.

Committee Observer

In accordance with our articles and the voting agreement we expect to enter into among us, Jack Ma, Joe Tsai, SoftBank and Yahoo upon completion of this offering, we will agree that the director nominated by SoftBank will be entitled to receive notices and materials for all meetings of our committees and to join as an observer meetings of the audit committee, the compensation committee, the nominating and corporate governance committee and/or our other board committees we may establish upon notice to the relevant committee.



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Compensation of Directors

The board, acting on the recommendation of our compensation committee, may determine the remuneration to be paid to non-employee directors. Employee directors will not receive any additional remuneration for serving as directors other than their remuneration as employees of us or our related entities. Pursuant to our service agreements with our directors, neither we nor our subsidiaries provide benefits to directors upon termination of employment. In fiscal year 2013, we and our subsidiaries did not pay any cash compensation to our non-executive directors. We will grant options to acquire our ordinary shares or RSUs to our non-executive directors. For information regarding compensation and grants to directors of equity-based compensation under our equity incentive plans, see “Our Executive Officers — Compensation of Executive Directors and Executive Officers; — Equity Incentive Plans.”



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OUR EXECUTIVE OFFICERS

The following table sets forth certain information relating to our executive officers upon completion of this offering.





Name
Age Year
joined
Alibaba
Position/Title


Jack Yun MA*(1)
50 1999 Executive Chairman

Joseph C. TSAI*(2)
50 1999 Executive Vice Chairman

Jonathan Zhaoxi LU*(1)
44 2000 Chief Executive Officer

Daniel Yong ZHANG*(1)
42 2007 Chief Operating Officer

Maggie Wei WU(2)
46 2007 Chief Financial Officer

Jian WANG(1)
51 2008 Chief Technology Officer

Peng JIANG(1)
41 2000 President, Alibaba Cloud Computing, YunOS and Digital Entertainment; Deputy Chief Technology Officer

Lucy Lei PENG(1)
41 1999 Chief People Officer

Xiaofeng SHAO(1)
48 2005 Chief Risk Officer

Trudy Shan DAI(1)
38 1999 Chief Customer Officer

Timothy A. STEINERT(2)
54 2007 General Counsel and Corporate Secretary

Jianhang JIN(1)
44 1999 President



* For the biographies of Jack Ma, Joe Tsai, Jonathan Lu and Daniel Zhang, please see “Our Directors.”

(1) c/o 969 West Wen Yi Road, Yu Hang District, Hangzhou 311121, People’s Republic of China.

(2) c/o Alibaba Group Services Limited, 26/F Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong.

Maggie Wei WU ( LOGO ) has been our chief financial officer since May 2013. Maggie served as our deputy chief financial officer from October 2011 to May 2013. Maggie joined our company in July 2007 as chief financial officer of Alibaba.com and was responsible for instituting Alibaba.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.com in 2012. She was voted best CFO in FinanceAsia’s annual poll for Asia’s Best Managed Companies in 2010. Before joining our company, Maggie was an audit partner at KPMG in Beijing. In her 15 years with KPMG, 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. Maggie is a member of the Association of Chartered Certified Accountants (ACCA) and a member of the Chinese Institute of Certified Public Accountants. She received a bachelor’s degree in accounting from Capital University of Economics and Business.

Jian WANG ( LOGO ) has served as our chief technology officer since August 2012. Prior to his current position, he was our chief architect from the time he joined our company in September 2008. He also served as president of Alibaba Cloud Computing from its inception in September 2009 until September 2013. Before joining our company, he was assistant managing director at Microsoft Research Asia, where he had served since 1999. Prior to that, he worked at Zhejiang University in Hangzhou, China as a professor and head of the psychology department. Jian serves on the board of directors of CITIC 21. He received a bachelor’s degree in psychology and a Ph.D in engineering from Hangzhou University.

Peng JIANG ( LOGO ) joined our company in 2000 and has been the president of Alibaba Cloud Computing, YunOS and Digital Entertainment and our deputy chief technology officer since September 2013. Peng is responsible for overseeing various technology teams as well as the data business group, supporting Jian Wang, our chief technology officer. He oversaw our shared-services business from January to September 2013 and served as president of Taobao Marketplace from July 2012 to January 2013. Prior to that, Peng was vice president of Taobao’s consumer business department from August 2009 to July 2012. He served in various management roles in Taobao’s technology development from 2005 to 2009 and held senior positions in the Alibaba.com technology development department from 2000 to 2003, when he joined the team that later



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established Taobao. He received a bachelor’s degree in hydraulic engineering and a master’s degree in hydraulics from Tsinghua University.

Lucy Lei PENG ( LOGO ) joined our company in 1999 as a member of our founding team and was reappointed as our chief people officer in June 2014. Lucy had served as our chief people officer for most of the time since our founding, playing a leading role in formulating our human resources strategies. In March 2013, she was appointed as chief executive officer of Small and Micro Financial Services Company. From January 2010 to February 2013, she served as chief executive officer of Alipay. Lucy graduated from Hangzhou Institute of Commerce of Zhejiang Gongshang University in 1994 with a bachelor’s degree in business administration and taught at Zhejiang University of Finance and Economics for five years after graduation.

Xiaofeng SHAO ( LOGO ) joined our company in 2005 and has been our chief risk officer since June 2012. Xiaofeng has extensive experience in network security, e-commerce, online transactions and payments. From August 2010 to June 2011, he was general manager of Alibaba.com’s China Business Unit. He served as Alipay’s executive president and then president from January 2008 to March 2010. Prior to that, Xiaofeng was vice president of Taobao, responsible for Taobao’s strategic development planning, overall marketing and business modeling. He received an executive master’s degree in business administration from China Europe International Business School.

Trudy Shan DAI ( LOGO ) joined our company in 1999 as a member of our founding team and has been our chief customer officer since June 2014. Prior to her current position, Trudy served as senior vice president of human resources and administration of Taobao and Alibaba.com as well as our deputy chief people officer and chief people officer from 2009 to 2014. She was general manager of Alibaba.com’s international operations from 2007 to 2008. Prior to that, she was vice president of human resources of China Yahoo! and the first general manager of Alibaba.com’s Guangzhou branch, in charge of field and telephone sales, marketing and human resources in Guangdong Province. From 2002 to 2005, Trudy served as senior sales director of China TrustPass in Alibaba.com’s China marketplace division. She received a bachelor’s degree in engineering from Hangzhou Institute of Electrical Engineering.

Timothy A. STEINERT has been our general counsel since July 2007 and also serves as our corporate secretary. Before joining our company, Tim was a partner in the Hong Kong office of Freshfields Bruckhaus Deringer. From 1994 to 1999, he was an associate attorney at Davis Polk & Wardwell in Hong Kong and New York, and from 1989 to 1994, he was an associate attorney at Coudert Brothers in Beijing and New York. Tim is qualified to practice law in the State of New York and in Hong Kong. He received a bachelor’s degree in history from Yale College and a juris doctor degree from Columbia University School of Law.

Jianhang JIN ( LOGO ) joined our company in 1999 as a member of our founding team and has been appointed the president of our company in August 2014. Prior to his current position, he served as senior vice president of corporate affairs from September 2009 to July 2014 and from March 2007 to December 2007. He also served as general manager of China Yahoo! (later Yahoo! Koubei) from January 2008 to August 2009 and was vice president of human resources and the CEO office from January 2006 to February 2007. As a founding member, he has served in a variety of other management roles at different times since our company’s inception, including heading the marketing and website operations functions for one of our marketplaces. He received a bachelor’s degree in journalism from Fudan University.

Employment Agreements

We have entered into employment agreements with each of our executive officers. We may terminate their employment at any time, with cause, and we are not required to provide any prior notice of such termination. We may also terminate their employment in circumstances prescribed under and in accordance with the requirements of applicable labor law, including notice and payment in lieu. Executive officers may terminate their employment with us at any time upon written notice. Although our employment agreements with our executive officers do not



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provide for severance pay, where severance pay is mandated by law, our executive officers will be entitled to such severance pay in the amount mandated by law when his or her employment is terminated. We have been advised by our PRC counsel, Fangda Partners, that we may be required to make such severance payments upon termination without cause to comply with the PRC Labor Law, the labor contract law and other relevant PRC regulations, which entitle employees to severance payments in case of early termination of “de facto employment relationships” by PRC entities without statutory cause regardless of whether there exists a written employment agreement with such entities.

Our grant letter agreements under our equity incentive plans also contain restrictive covenants that enable us to terminate grants and repurchase shares at the original exercise price, among other rights. See “— Equity Incentive Plans” below.

Compensation of Executive Directors and Executive Officers

For fiscal year 2014, we accrued aggregate salaries and benefits (excluding equity-based grants) of approximately RMB140 million to our executive officers (including executive directors) as a group and an aggregate RMB210 million from the share of profits distributed to them as part of the annual cash bonus pool. We do not separately set aside any amounts for pensions, retirement or other benefits for our executive officers, other than pursuant to relevant statutory requirements, and, in the case of executives who are not PRC citizens, health and life insurance. For information regarding equity-based grants to executive officers, see “— Equity Incentive Plans.”

Equity Incentive Plans

We have adopted the following equity incentive plans since our inception:



• 1999 Share Option Plan, or the 1999 Plan;



• 2004 Share Option Plan, or the 2004 Plan;



• 2005 Share Option Plan, or the 2005 Plan;



• 2007 Share Incentive Plan, or the 2007 Plan; and



• 2011 Equity Incentive Plan, or the 2011 Plan.

Currently, awards are only available for issuance under our 2011 Plan. If an award under the 2007 Plan or the 2011 Plan terminates, expires or lapses, or is cancelled for any reason, ordinary shares subject to the award become available for the grant of a new award under the 2011 Plan. As of June 30, 2014, there were:



• 3,692,833 ordinary shares issuable upon exercise of outstanding options and 7,054,073 issued but unvested restricted shares;



• 45,899,831 ordinary shares subject to unvested RSUs; and



• 71,562,581 ordinary shares authorized for issuance under the 2011 Plan (which includes 13,333,000 ordinary shares issuable upon the exercise of options to purchase ordinary shares and 31,662,768 ordinary shares subject to RSUs granted after June 30, 2014).

Our equity incentive plans provide for the granting of options, restricted shares, RSUs, dividend equivalents, share appreciation rights and share payments to any directors, employees, and consultants of ours, our affiliates and certain other companies, such as Alipay. Share options and RSUs granted are generally subject to a four-year vesting schedule as determined by the administrator of the respective plans. Depending on the nature and the purpose of the grant, share options and RSUs in general vest 25% upon the first anniversary of the vesting commencement date for annual incentive awards or 50% upon the second anniversary of the vesting commencement date for on-hire awards, and thereafter 25% every year. We believe share-based awards are vital to attract, motivate and retain our directors, employees and consultants, and those of certain of our affiliates and other companies, such as Alipay, and are the appropriate tool to align their interests with our shareholders.



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Accordingly, we will continue to grant share-based awards to the employees, consultants and directors of our company, our affiliates and certain other companies as an important part of their compensation packages.

In addition, our equity incentive award agreements generally provide that, in the event of a grantee’s termination for cause or violation of a non-competition undertaking, we will have the right to repurchase the shares acquired by such grantee, generally at par or the price paid for such shares.

The following paragraphs summarize other key terms of our equity incentive plans.

Plan administration. The equity incentive plans are generally administered by a committee created and appointed by the board or by our board of directors if no such committee is created or appointed. Grants to any executive directors of the board must be approved by the disinterested directors of our board.

Types of awards. The equity incentive plans provide for the granting of options, restricted shares, restricted share units, dividend equivalents, share appreciation rights, share payments and other rights.

Award agreements. Generally, awards granted under the equity incentive plans are evidenced by an award agreement providing for the number of ordinary shares subject to the award, and the terms and conditions of the award, which must be consistent with the relevant plan.

Eligibility. Any employee, consultant or director of our company, our affiliates or certain other companies, such as Alipay, is eligible to receive grants under the equity incentive plans, but only employees of our company, our affiliates and certain other companies, such as Alipay, are eligible to receive incentive stock options.

Term of awards. The term of awards granted under our equity incentive plans are generally not to exceed ten years from the date of grant.

Acceleration, waiver and restrictions. The administrator of our equity incentive plans has sole discretion in determining the terms and conditions of any award, any vesting acceleration or waiver of forfeiture restrictions, and any restrictions regarding any award or the ordinary shares relating thereto.

Change in control. If a change in control of our company occurs, the plan administrator may, in its sole discretion,



• accelerate the vesting, in whole or in part, of any award;



• purchase any award for an amount of cash or ordinary shares of our company equal to the value that could have been attained upon the exercise of the award or the realization of the plan participant’s rights had such award been currently exercisable or payable or fully vested; or



• provide for the assumption, conversion or replacement of any award by the successor corporation, or a parent or subsidiary of the successor corporation, with other rights or property selected by the plan administrator in its sole discretion, or the assumption or substitution of the award by the successor or surviving corporation, or a parent or subsidiary of the surviving or successor corporation, with such appropriate adjustments as to the number and kind of shares and prices as the plan administrator deems, in its sole discretion, reasonable, equitable and appropriate.

Amendment and Termination. Unless earlier terminated, our equity incentive plans continue in effect for a term of ten years. The board may at any time terminate or amend the 2011 Plan in any respect, including amendment of any form of any award agreement or instrument to be executed, provided, however, that to the extent necessary and desirable to comply with applicable laws or stock exchange rules, shareholder approval of any amendment to the 2011 Plan shall be obtained in such manner and to such degree as required.



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2014 Post-IPO Plan

We plan to adopt the 2014 Plan contingent upon and subject to the completion of this offering. The maximum aggregate number of ordinary shares authorized for issuance for awards under the 2014 Plan will be (i) that number of ordinary shares authorized for issuance under all our previous plans but that were not granted under options or other awards pursuant to all previous plans, (ii) the number of shares that were granted under options or other awards pursuant to all our previous plans but have expired without having been exercised in full or have otherwise become unexercisable or have become available for grant or award under such plans and (iii) on April 1, 2015 and each anniversary thereof, an amount equal to the lesser of (A) 25,000,000 ordinary shares and (B) such lesser number of shares determined by the board. The 2014 Plan will govern outstanding awards issued under all previous plans prior to the effective date of the 2014 Plan except with respect to holders of awards subject to U.S. taxation.

Plan administration. Subject to certain limitations, the 2014 Plan will be administered by the compensation committee of the board (or a subcommittee thereof), or such other committee of the board to which the board has delegated power to act; provided, that in the absence of any such committee, the 2014 Plan will be administered by the board.

Types of awards. The 2014 Plan will allow for the grant of options, restricted shares, restricted share units, dividend equivalents, share appreciation rights and share payments.

Award agreements. All awards under the 2014 Plan will be evidenced by an award agreement in terms of the number of ordinary shares subject to the award and terms and conditions of the award, which shall be consistent with the 2014 Plan.

Eligibility. Any employees, consultants or directors of our company, our affiliates or certain other companies, such as Alipay, will be eligible to receive all forms of awards under the 2014 Plan, but only employees of our company, certain other companies, such as Alipay, or our affiliates will be eligible to receive incentive stock options.

Term of awards. The term of awards granted under the 2014 Plan shall not exceed ten years from the date of grant. Subject to the foregoing, the plan administrator will be authorized to extend the term of any outstanding award.

Vesting schedule and other restrictions. The plan administrator will have sole discretion in setting the vesting period of an award, determining that an award may not vest for a specified period after it is granted and accelerating the vesting period of an award.

Change in control. If a change in control of our company occurs, the plan administrator may, in its sole discretion:



• accelerate the vesting, in whole or in part, of any award;



• purchase any award for an amount of cash or ordinary shares of our company equal to the value that could have been attained upon the exercise of the award or the realization of the plan participant’s rights had such award been currently exercisable or payable or fully vested; or



• provide for the assumption, conversion or replacement of any award by the successor corporation, or a parent or subsidiary of the successor corporation, with other rights (including cash) or property selected by the plan administrator in its sole discretion, or the assumption or substitution of the award by the successor or surviving corporation, or a parent or subsidiary of the surviving or successor corporation, with such appropriate adjustments as to the number and kind of shares and prices as the plan administrator deems, in its sole discretion, reasonable, equitable and appropriate.





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Amendment and termination. Unless earlier terminated, the 2014 Plan will continue in effect for a term of ten years. The board of directors in its sole discretion will have authority to terminate the 2014 Plan at any time. The board of directors will have authority to amend the 2014 Plan at any time in such respects as the board of directors may deem advisable, provided, however, that to the extent necessary to comply with applicable laws or stock exchange rules, shareholder approval of any plan amendment shall be obtained in such manner and to such degree as required.

Senior Management Equity Incentive Plan

We adopted the Senior Management Equity Incentive Plan in 2010, pursuant to which selected management of our company subscribed for preferred shares in a special purpose vehicle, Alternate Solutions Management Limited, which holds our ordinary shares. These preferred shares, subject to a non-compete provision, are redeemable by the holders thereof for our ordinary shares upon the earlier to occur of an initial public offering of our shares (subject to statutory and contractual lock-up periods), and five years from the respective dates of issuance of the preferred shares to the participants. The maximum number of our ordinary shares redeemable upon the redemption of the preferred shares issued under this plan by the participants is 15,000,000. The underlying ordinary shares have already been issued to the special purpose vehicle and are included in our total issued and outstanding share number. The preferred shares are subject to forfeiture if a holder engages in certain activities that compete with us.

Partner Capital Investment Plan

We adopted the Partner Capital Investment Plan in 2013 to provide partners of the Alibaba Partnership an opportunity to invest in interests in our ordinary shares in order to align further their interests with the interests of our shareholders. Pursuant to the Partner Capital Investment Plan, the partners subscribed for convertible preferred shares in two special purpose vehicles, PCIP I Limited and PCIP II Limited. These convertible preferred shares are, for a period of up to four years from the respective dates of issuance thereof, convertible into exchangeable ordinary shares in these special purpose vehicles, which are exchangeable for our ordinary shares after eight years following the respective dates of issuance of the convertible preferred shares. The convertible preference shares and the exchangeable ordinary shares of these special purpose vehicles are subject to forfeiture if a partner engages in certain activities that compete with us. The maximum number of our ordinary shares that may be acquired upon the exchange of exchangeable ordinary shares in the special purpose vehicles by the partners is 18,000,000. The underlying ordinary shares have already been issued by us to the special purpose vehicles and are included in our total issued and outstanding share number. The Partner Capital Investment Plan permits the issuance of additional shares to the partners as the board may approve from time to time.

The following table summarizes, as of June 30, 2014, the outstanding options (including unvested restricted shares related to options early exercised), RSUs and other rights held by our directors and executive officers, as well as by their affiliates, under 2011 Plan, as well as equity held through their investments in our Senior Management Equity Incentive Plan and Partner Capital Investment Plan.





Name
Ordinary shares
underlying
outstanding
options / restricted
shares or RSUs /
other rights
granted or
subscribed Exercise
price
(US$/Share) Date of grant(5) Date of expiration

Jack Yun MA
2,100,000 (1) 5.00 November 12, 2010 —
390,000 (2) — June 26, 2013 June 26, 2019


Joseph C. TSAI
1,200,000 (1) 5.00 November 12, 2010 —
195,000 (2) — June 26, 2013 June 26, 2019



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Name
Ordinary shares
underlying
outstanding
options / restricted
shares or RSUs /
other rights
granted or
subscribed Exercise
price
(US$/Share) Date of grant(5) Date of expiration

Jonathan Zhaoxi LU
* (1) 5.00 November 12, 2010 —
* (1) 5.00 March 17, 2011 —
* (2) — May 3, 2011 May 3, 2017
* (2) — January 24, 2013 January 24, 2019
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Daniel Yong ZHANG
* (1) 5.00 November 12, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Maggie Wei WU
* (1) 5.00 September 30, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — January 24, 2013 January 24, 2019
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Jian WANG
* (1) 5.00 November 12, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Peng JIANG
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Lucy Lei PENG
* (1) 5.00 November 12, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Xiaofeng SHAO
* (1) 5.00 November 12, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Trudy Shan DAI
* (1) 5.00 November 12, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —



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Name
Ordinary shares
underlying
outstanding
options / restricted
shares or RSUs /
other rights
granted or
subscribed Exercise
price
(US$/Share) Date of grant(5) Date of expiration

Timothy A. STEINERT
* (1) 5.00 November 12, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (3) 18.50 May 18, 2013 May 18, 2019
* (4) 14.50 July 26, 2013 —


Jianhang JIN
* (1) 5.00 November 12, 2010 —
* (2) — May 3, 2011 May 3, 2017
* (2) — May 11, 2012 May 11, 2018
* (4) 14.50 July 26, 2013 —



* The options, RSUs and other rights to acquire ordinary shares in aggregate held by each of these directors and executive officers and their affiliates represent less than 1% of our total outstanding shares.

(1) Represents rights under the Senior Management Equity Incentive Plan subscribed for at a subscription price of US$0.50 per preference share in 2010.

(2) Represents RSUs.

(3) Represents unvested restricted shares related to options early exercised.

(4) Represents rights under the Partner Capital Investment Plan subscribed for at US$4.00 per preference share. See Note 8(c) to our consolidated financial statements for the years ended March 31, 2012, 2013 and 2014 included elsewhere in this prospectus for further information.

(5) Date of grant represents the original grant date of the options, RSUs and other rights held by the respective director or executive officer. Each outstanding option, RSU or other right described in this table that is not held by a U.S. resident will be, subject to the completion of the IPO, cancelled prior to the completion of the IPO and replaced with a new grant under the terms of the 2014 Plan (as described herein) immediately following the completion of the IPO with such terms and conditions that are identical to those that applied to the cancelled awards.



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PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information with respect to beneficial ownership of our ordinary shares as of August 31, 2014 by:



• each of our directors and executive officers;



• our directors and executive officers as a group;



• each person known to us to beneficially own 5% or more of our ordinary shares; and



• each selling shareholder.

Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes the power to direct the voting or the disposition of the securities or to receive the economic benefit of the ownership of the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days of August 31, 2014, including through the exercise of any option or other right and the vesting of restricted shares. These shares, however, are not included in the computation of the percentage ownership of any other person.

The calculations in the table below assume there were 2,341,929,035 ordinary shares outstanding immediately prior to this offering, including (i) 91,243,312 ordinary shares into which all of our outstanding convertible preference shares will automatically convert concurrently with the completion of this offering, (ii) 33,000,000 ordinary shares underlying preferred shares of Alternate Solutions Management Limited and convertible preferred shares of PCIP I Limited and PCIP II Limited and (iii) 6,300,573 issued but unvested restricted shares, excluding ordinary shares issuable upon the exercise of outstanding share options, RSUs and ordinary shares reserved for issuance under our equity incentive plans. For purposes of computing percentage ownership after our initial public offering, we have also assumed that 123,076,931 ordinary shares will be issued by us pursuant to this offering, assuming the underwriters do not exercise their option to purchase additional ADSs.




Ordinary shares
beneficially owned prior
to this offering Ordinary shares being
sold in this offering Ordinary shares
beneficially owned after
this offering

Name
Number Percent Number Percent Number Percent

Directors and Executive Officers:


Jack Yun MA
206,100,673 (1) 8.8 % 12,750,000 (2) 0.5 % 193,350,673 7.8 %

Joseph C. TSAI
83,499,896 (3) 3.6 % 4,250,000 (4) 0.2 % 79,249,896 3.2 %

Masayoshi SON
— — — — — —

Jonathan Zhaoxi LU
* * * * * *

Daniel Yong ZHANG
* * * * * *

Maggie Wei WU
* * * * * *

Jian WANG
* * * * * *

Peng JIANG
* * — — * *

Lucy Lei PENG
* * — — * *

Xiaofeng SHAO
* * * * * *

Trudy Shan DAI
* * * * * *

Timothy A. STEINERT
* * * * * *

Jianhang JIN
* * — — * *

All directors and executive officers as a group**
341,920,826 14.6 % 18,700,000 0.8 % 323,220,826 13.1 %

Principal and/or Selling Shareholders:


SoftBank(5)
797,742,980 34.1 % — — 797,742,980 32.4 %

Yahoo
523,565,416 (6) 22.4 % 121,739,130 (7) 4.9 % 401,826,286 16.3 %

Jack Yun MA

206,100,673
(1)
8.8 % 12,750,000 (2) 0.5 % 193,350,673 7.8 %

Fengmao Investment Corporation(8)
66,451,613 2.8 % 14,285,700 0.6 % 52,165,913 2.1 %



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Ordinary shares
beneficially owned
prior to this offering Ordinary shares being
sold in this offering Ordinary shares
beneficially owned after
this offering

Name
Number Percent Number Percent Number Percent

Silver Lake affiliated entities
58,929,509 (9) 2.5 % 4,100,000 (10) 0.2 % 54,829,509 2.2 %

Yunfeng affiliated entities
34,814,817 (11) 1.5 % 6,527,778 (12) 0.3 % 28,287,039 1.1 %

CITIC Capital Excel Wisdom Fund, L.P.(13)
25,806,451 1.1 % 4,910,296 0.2 % 20,896,155 0.8 %

Broad Sino Developments Limited(14)
10,967,742 0.5 % 5,483,871 0.2 % 5,483,871 0.2 %

Prosperous Wintersweet (BVI) Limited(15)
10,516,129 0.5 % 1,051,612 0.0 % 9,464,517 0.4 %

Ever Green Growth Limited(15)
2,258,064 0.1 % 225,806 0.0 % 2,032,258 0.1 %

Entities affiliated with Asia Alternatives Management LLC
1,935,484 (16) 0.1 % 290,321 (17) 0.0 % 1,645,163 0.1 %

Pavilion Capital Fund Holdings Pte. Ltd.(18)
1,935,484 0.1 % 645,000 0.0 % 1,290,484 0.1 %

Li Ka Shing (Canada) Foundation(19)
1,290,323 0.1 % 322,580 0.0 % 967,743 0.0 %

Crescent Holding GmbH(20)
967,742 0.0 % 500,000 0.0 % 467,742 0.0 %

Siguler Guff BRIC Opportunities Fund III, L.P.(21)
645,161 0.0 % 322,581 0.0 % 322,580 0.0 %

Siguler Guff HP China Opportunities Fund, LP(22)
322,581 0.0 % 161,291 0.0 % 161,290 0.0 %

Arctic Capital Holdings Limited(23)
129,032 0.0 % 64,516 0.0 % 64,516 0.0 %

Certain current employees as a group(24)
79,596,549 3.4 % 12,459,282 0.5 % 67,137,267 2.7 %

Certain former employees as a group(25)
21,407,092 0.9 % 3,113,393 0.1 % 18,293,699 0.7 %

Certain consultants and employees of affiliates as a group(26)
12,039,883 0.5 % 2,126,012 0.1 % 9,913,871 0.4 %



* This person beneficially owns less than 1% of our outstanding ordinary shares.



** Does not include independent director appointees, none of whom beneficially owns any of our ordinary shares.



(1) Represents (i) 1,903,177 ordinary shares held directly by Jack Ma, (ii) 35,000,000 ordinary shares held by APN Ltd., a Cayman Islands company with its registered address at Fourth Floor, One Capital Place, P.O. Box 847, Grand Cayman, KY1-1103, Cayman Islands, in which Jack holds a 70% equity interest, which ordinary shares, together with Jack’s equity interest in APN Ltd., have been pledged to us to support certain obligations under the 2014 SAPA, (iii) 35,000,000 ordinary shares underlying options held by SymAsia Foundation Limited, a non-profit organization incorporated as a company limited by guarantee in Singapore with its registered address at 1 Raffles Link #03-01 Singapore 039393, the transfer of which options or underlying ordinary shares Jack is entitled to direct to a charitable trust he will establish, (iv) 65,097,160 ordinary shares held by JC Properties Limited, a British Virgin Islands company with its registered address at Offshore Incorporations Centre, P.O. Box 957, Road Town, Tortola, British Virgin Islands, which is wholly-owned by a trust established for the benefit of Jack’s family and (v) 67,000,336 ordinary shares and 2,100,000 ordinary shares underlying preferred shares of Alternate Solutions Management Limited, in each case held by JSP Investment Limited, a British Virgin Islands company with the address of P.O. Box 916, Woodbourne Hall, Road Town, Tortola, British Virgin Islands, which is wholly-owned by a trust established for the benefit of Jack and his family.

Excludes up to 121,500,000 shares held by Yahoo and shares held by SoftBank representing SoftBank’s share ownership in excess of 30% of our outstanding ordinary shares as of the most recent record date with respect to any shareholders action, over which Jack and Joe will share voting power pursuant to the voting agreement that we, Jack, Joe, SoftBank and Yahoo expect to enter into effective upon completion of this offering as described in “Related Party Transactions — Transactions and Agreements with Yahoo and SoftBank — Voting Agreement.”

Jack has historically voted the ordinary shares held by the family trusts and he is deemed a beneficial owner of the ordinary shares held by the family trusts.

Jack does not have any pecuniary interests in the 35,000,000 ordinary shares underlying options held by SymAsia Foundation Limited.

Jack’s business address is 969 West Yi Road, Yu Hang District, Hangzhou 311121, the People’s Republic of China.



(2) Consists of (i) 6,375,000 ADSs to be sold by JC Properties Limited and (ii) 6,375,000 ADSs to be sold by JSP Investment Limited.



(3)
Represents (i) 1,372,964 ordinary shares held directly by Joe Tsai, (ii) 15,000,000 ordinary shares held by APN Ltd., in which Joe holds a 30% equity interest, which ordinary shares, together with Joe’s equity interest in APN Ltd., have been pledged to us to support certain obligations under the 2014 SAPA, (iii) 15,000,000 ordinary shares underlying options held by SymAsia Foundation Limited, the transfer of which options or underlying ordinary shares Joe is entitled to direct to a charitable trust he has established, (iv) 23,905,952 ordinary shares and 1,200,000 ordinary shares underlying preferred shares of Alternate Solutions Management Limited, in each case held by




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Parufam Limited, a Bahamas corporation with its registered address at Suite 200B, 2nd Floor, Centre of Commerce, One Bay Street, P.O. Box N-3944, Nassau, Bahamas, and over which, Joe, as a director of Parufam Limited, has been delegated sole voting and disposition power, (v) 21,000,000 ordinary shares held by PMH Holding Limited, a British Virgin Islands corporation with its registered address at Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands, and over which, Joe, as sole director of PMH Holding Limited, has voting and dispositive power, (vi) 4,020,980 ordinary shares held by MFG Limited, a British Virgin Islands corporation with its registered address at Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands, and over which, Joe, as sole director of MFG Limited, has voting and dispositive power and (vii) 2,000,000 ordinary shares held by MFG II Ltd., a British Virgin Islands corporation with its registered address at Trident Chambers, P.O. Box 146, Road Town, Tortola, British Virgin Islands, and over which, Joe, as sole director of MFG II Ltd., has voting and dispositive power.

Excludes up to 121,500,000 shares held by Yahoo and shares held by SoftBank representing SoftBank’s share ownership in excess of 30% of our outstanding ordinary shares as of the most recent record date with respect to any shareholders action, over which Joe and Jack will share voting power pursuant to the voting agreement that we, Jack, Joe, SoftBank and Yahoo expect to enter into effective upon completion of this offering as described in “Related Party Transactions — Transactions and Agreements with Yahoo and SoftBank — Voting Agreement.”

Joe does not have any pecuniary interests in the 15,000,000 ordinary shares underlying options held by SymAsia Foundation Limited.

Joe’s business address is c/o Alibaba Group Services Limited, 26/F Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong S.A.R.



(4) Consists of (i) 2,000,000 ADSs to be sold by Parufam Limited; (ii) 450,000 ADSs to be sold by MFG Limited; and (iii) 1,800,000 ADSs to be sold by MFG II, Ltd.



(5) Represents (a) 466,826,180 ordinary shares owned by SoftBank Corp. with its registered office at 1-9-1 Higashi-Shimbashi Minato-ku, Tokyo 105-7303, Japan, (b) 15,000,000 ordinary shares owned by SBBM Corporation with its registered office at 1-9-1 Higashi-Shimbashi Minato-ku, Tokyo 105-7303, Japan and (c) 315,916,800 ordinary shares owned by SB China Holdings Pte Ltd. with its registered office at 20 Raffles Place, #09-01 Ocean Towers, Singapore 048620. SoftBank Corp. is a public company listed on the Tokyo Stock Exchange.



(6) Represents (a) 92,626,716 ordinary shares owned by Yahoo! Inc. with its registered office at 701 First Avenue, Sunnyvale, CA 94089, the United States and (b) 430,938,700 ordinary shares owned by Yahoo! Hong Kong Holdings Limited with its registered office at 15/F Caroline Centre, 28 Yun Ping Road, Causeway Bay, Hong Kong S.A.R. Yahoo! Inc. is a public company listed on the NASDAQ Global Select Market.



(7) Consists of 121,739,130 ADSs to be sold by Yahoo! Hong Kong Holdings Limited.



(8) Fengmao Investment Corporation, a company incorporated under the laws of the People’s Republic of China, is a wholly-owned subsidiary of CIC International Co., Ltd., a company incorporated under the laws of the People’s Republic of China. The address of Fengmao Investment Corporation is 1710-A, No. 1 North Chaoyangmen Street, Dongcheng District, Beijing 100010, China.



(9) Consists of (i) 44,045,770 ordinary shares held by SL Dawn Ltd. and (ii) 14,883,739 ordinary shares held by SL Dawn Tranche III, L.P. Silver Lake Technology Investors III Cayman, L.P., as a shareholder of SL Dawn Ltd., may be deemed to indirectly own 173,848 shares. Silver Lake Partners III Cayman (AIV III), L.P., as a shareholder of SL Dawn Ltd., may be deemed to indirectly own 31,901,421 shares. SL Dawn Co-invest, L.P., as a shareholder of SL Dawn Ltd., may be deemed to indirectly own 11,970,501 shares. SL Dawn Tranche III GP Ltd., as general partner of SL Dawn Tranche III, L.P., may be deemed to have shared voting and dispositive power with respect to the shares owned by SL Dawn Tranche III, L.P. but disclaims beneficial ownership of such shares. Silver Lake Technology Associates III Cayman, L.P., as shareholder of SL Dawn Tranche III GP Ltd. and as general partner of Silver Lake Technology Investors III Cayman, L.P., Silver Lake Partners III Cayman (AIV III) L.P. and SL Dawn Co-invest, L.P., may be deemed to have shared voting and dispositive power with respect to any shares beneficially owned by such entities but disclaims beneficial ownership of such shares, except to the extent of their pecuniary interest therein. Silver Lake (Offshore) AIV GP III, Ltd., as general partner of Silver Lake Technology Associates III Cayman, L.P., may be deemed to have shared voting and dispositive power with respect to any shares beneficially owned by Silver Lake Technology Associates III Cayman, L.P. but disclaims beneficial ownership of such shares, except to the extent of their pecuniary interests therein. Messrs. James A. Davidson, Kenneth Y. Hao, Mike Bingle, Gregory Keith Mondre, Karen M. King, Yolande A. Jun, Andrew Wagner, Andrew Schader, Mark Gillett, Joe Osnoss and Sahil Desai, each of whom serves as a director of Silver Lake (Offshore) AIV GP III, Ltd. and may be deemed to have shared voting and dispositive power with respect to any shares beneficially owned by Silver Lake (Offshore) AIV GP III, Ltd. but disclaims beneficial ownership of such shares, except to the extent of their pecuniary interests therein.



(10) Consists of (i) 3,064,469 ADSs to be sold by SL Dawn Ltd. and (ii) 1,035,531 ADSs to be sold by SL Dawn Tranche III, L.P.



(11) Consists of (i) 20,000,000 ordinary shares held by Yunfeng e-Commerce A Fund, L.P. and (ii) 14,814,817 ordinary shares held by Yunfeng e-Commerce B Fund, L.P. Yunfeng e-Commerce A Fund, L.P.’s general partner is Yunfeng e-Commerce A GPGP Limited. Feng Yu has the sole power to direct Yunfeng e-Commerce A GPGP Limited as to the voting and disposition of shares of the Company directly or indirectly held by Yunfeng e-Commerce A GPGP Limited. The address of Yunfeng e-Commerce A Fund, L.P. is Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands. Yunfeng e-Commerce B Fund, L.P.’s general partner is Yunfeng e-Commerce B GPGP Limited. Mr. Yu has the sole power to direct Yunfeng e-Commerce B GPGP Limited as to the voting and disposition of shares of the Company directly or indirectly held by Yunfeng e-Commerce B GPGP Limited. The address of Yunfeng e-Commerce B Fund, L.P. is Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands.



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(12) Consists of (i) 4,103,536 ADSs to be sold by Yunfeng e-Commerce A Fund, L.P. and (ii) 2,424,242 ADSs to be sold by Yunfeng e-Commerce B Fund, L.P.



(13) CITIC Capital Excel Wisdom Fund, L.P., a limited partnership registered in the Cayman Islands, is controlled and managed by CITIC Capital Holdings Limited, a company incorporated in Hong Kong. The address of CITIC Capital Excel Wisdom Fund, L.P. is Ugland House, South Church St, George Town, Grand Cayman, Cayman Islands.



(14) Broad Sino Developments Limited is a wholly-owned subsidiary of China Development Bank International Holdings Limited. Broad Sino Developments Limited has the sole voting and dispositive powers over the Shares. Mr. Fan Haibin is the natural person exercising such control at such entity. The registered address of Broad Sino Developments Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.



(15) Prosperous Wintersweet (BVI) Limited, a British Virgin Islands company, and Ever Green Growth Limited, a British Virgin Islands company, are each affiliated with Boyu Capital Fund I, L.P., a Cayman Islands partnership. The registered address of Prosperous Wintersweet (BVI) Limited is 171 Main Street, Road Town, Tortola VG1110, British Virgin Islands. The registered address of Ever Green Growth Limited is 171 Main Street, Road Town, Tortola VG 1110, British Virgin Islands. The registered address of Boyu Capital Fund I, L.P. is 190 Elgin Avenue, George Town, Grand Cayman, KY1-9005, Cayman Islands.



(16) Consists of (i) 645,162 ordinary shares held by Asia Alternatives Capital Partners III, LP; (ii) 645,162 ordinary shares held by Asia Alternatives Ivory Partners II, L.P.; (iii) 87,097 ordinary shares held by California Asia Investors, L.P.; (iv) 41,935 ordinary shares held by Fei Asia Investors, L.P.; (v) 64,516 ordinary shares held by Focus Asia 2011 Master, L.P.; (vi) 193,548 ordinary shares held by MD Asia Investors, L.P.; (vii) 193,548 ordinary shares held by New Jersey Asia Investors II, L.P.; and (viii) 64,516 ordinary shares held by New York Balanced Pool Asia Investors, L.P. The general partner of Asia Alternatives Capital Partners III, LP is Asia Alternatives Private Equity Partners III, LLC. The general partner of Asia Alternatives Ivory Partners II, L.P. is Asia Alternatives Ivory Partners II GP, LLC. The general partner of California Asia Investors, L.P. is Asia Alternatives Private Equity Partners II, LLC. The general partner of Fei Asia Investors, L.P. is Fei AA GP, LLC. The general partner of Focus Asia 2011 Master, L.P. is Focus Asia 2011 Master GP, LLC. The general partner of MD Asia Investors, L.P. is Asia Alternatives MD GP, LLC. The general partner of New Jersey Asia Investors II, L.P. is New Jersey Asia Investors II GP, LLC. The general partner of New York Balanced Pool Asia Investors, L.P. is New York Asia Investors GP, LLC. The manager of each of Asia Alternatives Capital Partners III, LP, Asia Alternatives Ivory Partners II, L.P., California Asia Investors, L.P., Fei Asia Investors, L.P., Focus Asia 2011 Master, L.P., MD Asia Investors, L.P., New Jersey Asia Investors II, L.P. and New York Balanced Pool Asia Investors, L.P. is Asia Alternatives Management LLC. The address for each of the foregoing entities is c/o Asia Alternatives Management LLC, One Maritime Plaza, Suite 1000, San Francisco, California 94111.



(17) Consists of (i) 96,774 ADSs to be sold by Asia Alternatives Capital Partners III, L.P.; (ii) 96,774 ADSs to be sold by Asia Alternatives Ivory Partners II, L.P.; (iii) 13,065 ADSs to be sold by California Asia Investors, L.P.; (iv) 6,290 ADSs to be sold by Fei Asia Investors, L.P.; (v) 9,677 ADSs to be sold by Focus Asia 2011 Master, L.P.; (vi) 29,032 ADSs to be sold by MD Asia Investors, L.P.; (vii) 29,032 ADSs to be sold by New Jersey Asia Investors II, L.P.; and (viii) 9,677 ADSs to be sold by New York Balanced Pool Asia Investors, L.P.



(18) Pavilion Capital Fund Holdings Pte Ltd. is a wholly-owned subsidiary of Pavilion Capital Holdings Pte Ltd. The address of Pavilion Capital Fund Holdings Pte. Ltd. is 60B Orchard Road #06-18 Tower 2, The Atrium@Orchard, Singapore 238891.



(19) Li Ka Shing (Canada) Foundation (the “Foundation”) is a company incorporated in Canada and is a private foundation registered with the Minister of National Revenue as a Registered Charity within the meaning of the Income Tax Act (Canada) since July 2005. The Foundation is a charitable foundation founded by Mr. Li Ka-shing. Each of Mr. Li Ka-Shing and Mr. Li Tzar Kuoi, Victor may be regarded as having the ability to exercise or control the exercise of one-third or more of the voting power at the general meetings of the Foundation, thus is deemed to be interested in the ordinary shares of our company held by the Foundation. None of Mr. Li Ka-Shing, the members of his family, and the directors and members of the Foundation may benefit from any of the assets and income of the Foundation, and the same may only be directed towards charitable objects and causes. The registered office of the Foundation is situated at 199 Bay Street, 5300 Commerce Court West, Toronto, Ontario M5L 1B9, Canada.



(20) Represents 967,742 of our ordinary shares owned by Crescent Holding GmbH, a member of the Olayan Group which is beneficially owned by Khaled S. Olayan, Lubna S. Olayan, Hayat S. Olayan, The HSO Family Trust, a trust for the benefit of Hutham S. Olayan, and The MPO Trust, a trust for the benefit of Mary P. Olayan. Khaled S. Olayan, Lubna S. Olayan, Hayat S. Olayan, The HSO Family Trust and The MPO Trust are deemed to have voting and investment control over these ordinary shares held by Crescent Holding GmbH. The address of Crescent Holding GMBH is Opernring 1, Stiege R, top no. 709-714, Vienna A-1010, Austria.



(21)
The general partner of Siguler Guff BRIC Opportunities Fund III, LP (“BRIC III”) is Siguler Guff BRIC III GP, LLC (“BRIC III”). BRIC III is an affiliate of a broker-dealer. However, BRIC III purchased the shares in the ordinary course of business and, at the time of purchase, had no agreements or understandings, directly or indirectly, with any person to distribute our ordinary shares. BRIC III GP is also the general partner of Siguler Guff BRIC Opportunities Fund III (T), LP (“BRIC III T,” and together with BRIC III, the “BRIC III Funds”). The BRIC III Funds have entered into a participation arrangement whereby BRIC III will administer investments on behalf of itself and as nominee for BRIC III T. Accordingly, BRIC III T holds an indirect beneficial interest in the ordinary shares of our company held by BRIC III equal to the proportion of fund commitments to the aggregate commitments to the BRIC III Funds. Siguler Guff Advisers, LLC (“SGA”) is an investment adviser organized under the laws of the State of Delaware. SGA has investment authority with respect to the securities owned by BRIC III. By reason of such authority, SGA may be deemed to indirectly beneficially own our




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ordinary shares held by BRIC III. SGA is controlled through the voting partners of its parent holding company: George W. Siguler, Andrew J. Guff, Donald P. Spencer and Ken Burns. SGA and these partners share voting and investment power over our ordinary shares held of record by BRIC III. BRIC III GP, SGA and these partners each disclaim beneficial ownership of our ordinary shares except to the extent of their pecuniary interest, direct or indirect, or their ownership interests in the BRIC III Funds. The address of BRIC III is 825 Third Avenue, 10th Floor, New York, NY 10022.



(22) The general partner of Siguler Guff HP China Opportunities Fund, LP (“SGHP”) is Siguler Guff HP China GP, LLC (“SGHP GP”). SGHP is an affiliate of a broker-dealer. However, SGHP purchased the shares in the ordinary course of business and, at the time of purchase, had no agreements or understandings, directly or indirectly, with any person to distribute our ordinary shares. Siguler Guff Advisers, LLC (“SGA”) is an investment adviser organized under the laws of the State of Delaware. SGA has investment authority with respect to the securities owned by SGHP. By reason of such authority, SGA may be deemed to indirectly beneficially own our ordinary shares held by SGHP. SGA is controlled through the voting partners of its parent holding company: George W. Siguler, Andrew J. Guff, Donald P. Spencer and Ken Burns. SGA and these partners share voting and investment power over the shares held of record by SGHP. SGHP GP, SGA and these partners each disclaim beneficial ownership of the shares except to the extent of their pecuniary interest, direct or indirect, or their ownership interests in SGHP. The address of SGHP is 825 Third Avenue, 10th Floor, New York, NY 10022.



(23) Arctic Capital Holdings Limited is wholly-owned by Shannon W.H. Cheung. The address of Arctic Capital Holdings Limited is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands.



(24) Consists of the aggregate holding of over 4,000 employees of our company who are selling ADSs in this offering, excluding any of our directors and officers who are separated shown in this table. We have limited sales of our employees in this offering to the lower of 20% of their holdings and total vested holdings.



(25) Consists of the aggregate holding of over 1,000 former employees of our company who are selling ADSs in this offering. We have limited sales of our former employees in this offering to a maximum of 20% of their holdings.



(26) Consists of the aggregate holding of six consultants of our company and over 900 employees of Alipay and China Smart Logistics who are selling ADSs in this offering. We have limited sales of the consultants of our company and employees of Alipay and China Smart Logistics in this offering to the lower of 20% of their total holdings and total vested holdings.

If the underwriters exercise in full their option to purchase additional ADSs, we have agreed to sell to the underwriters up to an additional 26,143,903 ADSs, and Yahoo! Hong Kong Holdings Limited, Jack Ma and Joe Tsai have agreed to sell to the underwriters up to an additional 18,260,870 ADSs, 2,708,345 ADSs and 902,782 ADSs, respectively.

As of August 31, 2014, 196,373,235 of our outstanding ordinary shares were held by shareholders of record in the United States, principally Yahoo. We are not aware of any arrangement that may at a subsequent date, result in a change of control of our company. Each selling shareholder named above acquired its shares in offerings that were exempted from registration under the Securities Act because such offerings involved either private placements or offshore sales to non-U.S. persons.





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RELATED PARTY TRANSACTIONS

Our Related Party Transaction Policy

In order to prevent risks of conflicts of interest or the appearance of conflicts of interest, all of our directors and employees are subject to our code of business conduct and other policies which require, among other things, that any potential transaction between us and an employee or director, their relatives and closely connected persons and certain entities in which they, their relatives or closely connected persons have an interest be approved in writing by an appropriate supervisor or compliance officer.

We have also adopted a new related party transaction policy that will become effective upon completion of this offering to which all of our directors, senior management and other key management personnel, all such person’s family members, Small and Micro Financial Services Company and its subsidiaries as well as the Alibaba Partnership and certain other related entities shall be subject. This new policy is intended to supplement the procedures set forth in our code of business conduct and our other corporate governance policies and does not exempt any person from more restrictive provisions that may exist in our existing procedures and policies.

This related party transaction policy will provide, among other things, that, unless otherwise preapproved by our board of directors:



• each related party transaction, or any material amendment or modification of a related party transaction, shall be adequately disclosed to, and reviewed and approved or ratified by, the disinterested members of our audit committee or any committee composed solely of disinterested independent directors or by the disinterested members of the board; and



• any employment relationship or similar transaction involving our directors or senior management of our company and any related compensation shall be approved by the disinterested members of our compensation committee or recommended by the disinterested members of the compensation committee to our board for its approval.

Our related party transaction policy, code of business conduct and our other corporate governance policies are subject to periodic review and revision by our board.

Transactions and Agreements with Yahoo and SoftBank

Shareholders Agreement

We, SoftBank and Yahoo entered into a shareholders agreement dated October 24, 2005, which was replaced and superseded by a new shareholders agreement dated September 18, 2012, or the shareholders agreement. The shareholders agreement addresses certain matters in relation to shareholder rights, corporate governance arrangements and other related obligations. Upon completion of this offering, the shareholders agreement, including the right of first offer, tag-along rights and preemptive rights in connection with the transfer or sale of our shares thereunder, will terminate.

See also “Description of Share Capital — Registration Rights.”

Voting Agreement

We expect to enter into a voting agreement with Jack Ma, Joe Tsai, SoftBank and Yahoo effective upon completion of this offering. We expect the voting agreement will provide SoftBank with the right to nominate one director to our board of directors who will, subject to certain conditions, have the right to receive notices and materials for all meetings of our committees and to join such meetings as an observer, which rights will also be reflected in our amended and restated memorandum and articles of association that will become effective upon



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completion of this offering. These nomination rights will terminate when SoftBank’s shareholding declines below 15% of our outstanding shares. The voting agreement will also contain provisions to the effect that:



• SoftBank will agree (i) to vote its shares in favor of the election of the Alibaba Partnership’s director nominees at each annual general shareholders meeting until SoftBank’s shareholding declines below 15% of our outstanding shares and (ii) to grant the voting power of any portion of its shareholdings exceeding 30% of our issued and outstanding ordinary shares to Jack and Joe by proxy;



• Jack and Joe 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 in which the SoftBank nominee stands for election until SoftBank’s shareholding declines below 15% of our outstanding ordinary shares;



• Yahoo will agree (i) to vote its shares in favor of the election of all of the Alibaba Partnership’s director nominees and the SoftBank director nominee, if so standing for election, at each annual general shareholders meeting until SoftBank’s shareholding declines below 15% of our outstanding shares and (ii) to grant the voting power over any shares it owns, up to 121.5 million of our ordinary shares, to Jack and Joe by proxy;



• Each party to the voting agreement will use its commercially reasonable efforts to cause any other person with whom it jointly files a statement (or an amendment to a statement) on Schedule 13D or Schedule 13G pursuant to the Exchange Act to become a party to the voting agreement and vote its shares in favor of SoftBank’s and the Alibaba Partnership’s director nominees pursuant to the foregoing; and



• SoftBank and Yahoo will receive certain information rights in connection with the preparation of their financial statements.

SoftBank’s and Yahoo’s proxy obligations described in clause (ii) in the first bullet and the third bullet above, respectively, shall (i) not apply in respect of any proposal submitted to our shareholders that may result in an issuance of shares or other equity interests of us, including securities exchangeable or convertible into shares, that would increase the amount of our then-outstanding shares by 3% or more and (ii) terminate when Jack owns less than 1% of our issued and outstanding shares on a fully diluted basis or if we materially breach the voting agreement.

Yahoo Technology and Intellectual Property License Agreement

We and Yahoo entered into a technology and intellectual property license agreement dated October 24, 2005, as amended and restated on September 18, 2012, or the Yahoo TIPLA. Under the Yahoo TIPLA, Yahoo granted to us the use of certain intellectual property. In consideration of the rights granted under the Yahoo TIPLA, we paid Yahoo a lump sum payment in the amount of US$550 million and agreed to pay Yahoo an annual royalty equal to 2% of our consolidated revenues (less certain costs) for the period from January 1, 2006 to December 31, 2012 and 1.5% of our consolidated revenues (less certain costs) for the period from January 1, 2013 until the completion of this offering. No royalties will be payable thereafter. For the years ended March 31, 2012, 2013 and 2014 and the three months ended June 30, 2014, the royalty fees amounted to RMB358 million, RMB592 million, RMB748 million (US$121 million) and RMB225 million (US$36 million), respectively.

Patent Sale and Assignment Agreement

We and Yahoo entered into a patent sale and assignment agreement during fiscal year 2014 pursuant to which we acquired ownership of certain patents for aggregate consideration of US$70 million.

Our Repurchase of Ordinary Shares from Yahoo

We are party to a share repurchase and preference share sale agreement with Yahoo dated May 20, 2012, as amended through December 13, 2013, or the Yahoo repurchase agreement. The agreement governs the terms on which we have repurchased and may further repurchase from Yahoo, or cause Yahoo to sell in a qualified initial public offering (such as this offering), our ordinary shares. We repurchased 523,000,000 ordinary shares from Yahoo on September 18, 2012 at a price of US$13.5414 per share for an aggregate consideration of US$7,082



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million. Immediately following the repurchase, Yahoo owned 523,565,416 ordinary shares representing approximately 24% of our issued share capital at that time. We paid US$6,282 million of the consideration in cash and US$800 million through our issuance to Yahoo of mandatorily redeemable preference shares of our company, or the Yahoo preference shares. We negotiated the terms of the Yahoo preference shares with Yahoo on an arm’s length basis. On May 16, 2013, we redeemed the Yahoo preference shares in full using funds we borrowed under our loan facility.

The Yahoo repurchase agreement was amended to provide that we are entitled to cause Yahoo either to sell 208,000,000 (prior to such amendment, 261,500,000 ordinary shares) ordinary shares to the public in this offering or sell to us such number of shares using the proceeds from this offering. In July 2014, the Yahoo repurchase agreement was further amended to reduce the number of ordinary shares we are entitled to cause Yahoo to sell to 140,000,000 ordinary shares.

Following the expiration of the lock-up agreement SoftBank and Yahoo will enter into with the underwriters in connection with this offering, SoftBank and Yahoo will be entitled to exercise registration rights under the registration rights agreement. See also “Description of Share Capital — Registration Rights.”

Agreements and Transactions Related to Small and Micro Financial Services Company and its Subsidiaries

Ownership of Small and Micro Financial Services Company and Alipay

We originally established Alipay in December 2004 to operate our payment services business. In June 2010, the PBOC issued new regulations that required non-bank payment companies to obtain a license in order to operate in China. These regulations provided specific guidelines for license applications only for domestic PRC-owned entities. These regulations stipulated that, in order for any foreign-invested payment company to obtain a license, the scope of business, the qualifications of any foreign investor and any level of foreign ownership would be subject to future regulations to be issued, which in addition would require approval by the PRC State Council. Further, the regulations required that any payment company that failed to obtain a license must cease operations by September 1, 2011. Although Alipay was prepared to submit its license application in early 2011, at that time the PBOC had not issued any guidelines applicable to license applications for foreign-invested payment companies (and no such guidelines have been issued as of the date of this prospectus). In light of the uncertainties relating to the license qualification and application process for a foreign-invested payment company, our management determined that it was necessary to restructure Alipay as a company wholly-owned by PRC nationals in order to avail Alipay of the specific licensing guidelines applicable only to domestic PRC-owned entities. Accordingly, we divested all of our interest in and control over Alipay in 2011, which resulted in deconsolidation of Alipay from our financial statements. This action enabled Alipay to obtain a payment business license in May 2011 without delay and without any detrimental impact to our China retail marketplaces or to Alipay.

Following the divestment of our interest in and control over Alipay, effective in the first calendar quarter of 2011, the ownership structure of Alipay’s parent entity, Zhejiang Ant Small and Micro Financial Services Group Co., Ltd. (formerly known as Zhejiang Alibaba E-Commerce Co., Ltd.), which we refer to as Small and Micro Financial Services Company, a company organized under the laws of the PRC, was changed such that Jack Ma held a substantial majority of the equity ownership interest in Small and Micro Financial Services Company. The ownership structure of Small and Micro Financial Services was recently further restructured and currently approximately 58% of its equity interests are held by Hangzhou Junhan Equity Investment Partnership, or Junhan, a PRC limited partnership, and approximately 42% of its equity interests are held by Hangzhou Junao Equity Investment Partnership, or Junao, a PRC limited partnership.

The economic interests in Junhan are owned by Jack Ma and other employees of our company and employees of Small and Micro Financial Services Company. The interests in Junhan held by these employees are in the form of limited partnership interests and interests similar to share appreciation rights tied to potential



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appreciation in the value of Small and Micro Financial Services Company. The econo