Alibaba Group Holding Limited F-1/A 1 d709111df1a.htm AMENDMENT NO.6 TO FORM F-1 AMENDMENT NO.6 TO FORM F-1
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As filed with the Securities and Exchange Commission on September 5, 2014

Registration No. 333-195736

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 6 to

Form F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Alibaba Group Holding Limited

(Exact name of Registrant as Specified in its Charter)

 

 

 

         
Cayman Islands   5961   Not Applicable

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

c/o Alibaba Group Services Limited

26/F Tower One, Times Square

1 Matheson Street

Causeway Bay

Hong Kong

Telephone: +852-2215-5100

(Address and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Corporation Service Company

1180 Avenue of the Americas, Suite 210

New York, New York 10036

(800) 927-9801

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

Timothy A. Steinert, Esq.

Alibaba Group Holding Limited

c/o Alibaba Group Services Limited

26/F Tower One, Times Square

1 Matheson Street, Causeway Bay

Hong Kong

+852-2215-5100

 

             

Leiming Chen, Esq.

Daniel Fertig, Esq.

Simpson Thacher & Bartlett LLP

c/o 35th Floor, ICBC Tower

3 Garden Road Central

Hong Kong

+852-2514-7600

 

William H. Hinman, Jr., Esq.

Simpson Thacher & Bartlett LLP

2475 Hanover Street

Palo Alto, California 94304

U.S.A.

650-251-5000

 

William Y. Chua, Esq.

Sullivan & Cromwell LLP

28th Floor

Nine Queen’s Road Central

Hong Kong

+852-2826-8688

 

Jay Clayton, Esq.

Sarah P. Payne, Esq.

Sullivan & Cromwell LLP

1870 Embarcadero Road

Palo Alto, California 94303

U.S.A.

650-461-5700

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

CALCULATION OF REGISTRATION FEE

 

                 

 

Title of Each Class of
Securities to be Registered(1)
  Amount
to be
Registered(2)(3)
  Proposed
Maximum
Offering Price
Per Share(3)
 

Proposed
Maximum
Aggregate
 

Offering Price(3)

  Amount of
Registration Fee(4)

Ordinary shares, par value US$0.000025 per share

  368,122,000   US$66.00   US$24,296,052,000   US$3,129,332

 

 

(1) American depositary shares, or ADSs, evidenced by American depositary receipts issuable upon deposit of the ordinary shares registered hereby will be registered under a separate registration statement on Form F-6 (Registration No. 333-198401). Each ADS represents one ordinary share.
(2) Includes (a) ordinary shares represented by ADSs that may be purchased by the underwriters pursuant to their option to purchase additional ADSs and (b) all ordinary shares represented by ADSs initially offered or sold outside the United States that are thereafter resold from time to time in the United States. Offers and sales of shares outside the United States are being made pursuant to Regulation S under the Securities Act of 1933 and are not covered by this Registration Statement.
(3) Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933.
(4) The Registrant previously paid US$128,800 of the total registration fee in connection with the initial filing of the Registration Statement on May 6, 2014.

 

 

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

 

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. Neither we nor the selling shareholders may sell these securities until the registration statement filed with the United States Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting any offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, Dated September 5, 2014

320,106,100 American Depositary Shares

Representing 320,106,100 Ordinary Shares

 

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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. We expect that the initial public offering price of the ADSs will be between US$60.00 and US$66.00 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$                    US$                

Underwriting discounts and commissions

   US$         US$     

Proceeds, before expenses, to us

   US$         US$     

Proceeds, before expenses, to the selling shareholders

   US$         US$     

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                     , 2014.

 

 

 

                     

Credit Suisse

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

 

                 
BOCI   

CICC

           CLSA              DBS Bank    HSBC
                 
Mizuho    Pacific Crest        RBC                        Stifel    Wells Fargo

 

             

BNP PARIBAS

   Evercore    Raymond James    SunTrust Robinson Humphrey

                     , 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                     , 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.

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