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WHEN: Today, Tuesday, November 4th
Following is the unofficial transcript of a FIRST ON CNBC interview with Joseph Tsai, Alibaba Executive Chairman, today on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET). Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000327323.
All references must be sourced to CNBC.
DAVID FABER: JOINING US FIRST ON CNBC IS ALIBABA'S EXECUTIVE VICE CHAIRMAN JOE TSAI. AND JOE, ALWAYS A PLEASURE. VERY NICE TO HAVE YOU HERE AFTER THIS FIRST QUARTERLY REPORT AS A PUBLIC COMPANY. YOU GUYS HAVE MADE A GREAT DEAL ABOUT MOBILE IN YOUR REMARKS. IN YOUR SLIDE PRESENTATIONS. SO LET ME START THERE. IT'S GROWN TO REPRESENT 35.8% OF GROSS MERCHANDISE VALUE. YOUR TAKE RATE HAS MOVED UP TO 1.87% ON THOSE MOBILE TRANSACTIONS, OR I SHOULD SAY ON THE MONETIZATION OF MOBILE. IS THIS JUST THE BEGINNING? ARE YOU GOING TO SOON SEE IT BE MORE THAN 50% OF YOUR GMV?
JOSEPH TSAI: DAVID, THANKS VERY MUCH. NICE TO BE ON THE SHOW. OUR MOBILE GMV CONTINUES TO TRACK VERY WELL. NOW MORE THAN A THIRD OF OUR GMV IS ON MOBILE. SO ALIBABA IS VERY MUCH OF A MOBILE COMPANY. AND WE ARE ALSO DOING VERY WELL IN TERMS OF MONETIZATION. AND THAT'S BECAUSE THE USERS THAT ARE COMING TO USE OUR MOBILE APPS HAVE VERY STRONG COMMERCIAL INTENT. IT'S NO DIFFERENT FROM WHEN THEY COME TO THE DESKTOP TO VISIT TAOBAO OR TMALL. SO WE FEEL VERY GOOD, VERY CONFIDENT ABOUT THE USERS' BEHAVIOR ON MOBILE. THEY ARE USING IT MORE FREQUENTLY. AND IN THE MOST RECENT MONTH THAT WE REPORTED IN SEPTEMBER, THERE'S 217 MILLION MOBILE ACTIVE USERS THAT ARE USING THE APP. SO WE FEEL VERY GOOD ABOUT IT AND THE TREND CONTINUES TO DO WELL.
FABER: AS I MENTIONED, THE MOBILE MONETIZATION RATE IS 1.87%. UP FROM WHAT WAS 1.49%. A SIGNIFICANT JUMP. BUT STILL WELL BELOW THAT OF PEOPLE WHO USE DESKTOP TO BUY THINGS ON ALIBABA. DO YOU BELIEVE YOU CAN CONTINUE TO MOVE THAT MONETIZATION RATE UP? PERHAPS CAN IT GET TO AS HIGH AS WHAT PEOPLE MONETIZE ON DESKTOPS?
TSAI: IF YOU LOOK AT THE TREND HISTORICALLY, LAST YEAR WE WERE AT LESS THAN 0.5% AND WE'VE SLOWLY BEEN ABLE TO TAKE UP THAT TAKE RATE ON MOBILE NOW TO 1.87%. SO THAT'S SOMETHING THAT WE ARE LOOKING AT. AND WE FEEL PRETTY CONFIDENT THAT OVER TIME, IN THE LONG RUN, MONETIZATION IS GOING TO BE PRETTY MUCH THE SAME AS DESKTOP. AND THE WAY WE LOOK AT THE BUSINESS IS THAT THERE IS REALLY NOT A HUGE DIFFERENCE FROM A USER STANDPOINT WHEN THEY COME TO THE DESKTOP COMPUTER OR WHEN THEY COME TO THE MOBILE SCREEN BECAUSE WHEN THEY COME, THEY HAVE VERY STRONG INTENT TO BUY SOMETHING. AND WE ARE GENERATING $95 BILLION OF GMV OVER THE LAST 12 MONTHS ON THE MOBILE DEVICE. SO THAT BODES VERY, VERY WELL FOR THE FUTURE.
FABER: JOE, YOU SAY VERY CLEARLY IN YOUR SLIDE PRESENTATION AND ON THE CALL THAT YOU DON'T MANAGE TO A MARGIN TARGET. NONETHELESS, A FEW PEOPLE I HAVE SPOKEN TO THIS MORNING DO POINT OUT THE SIGNIFICANT DECREASE IN YOUR NON-GAP EBITDA MARGINS. HAVING GONE FROM 59.4% TO 50.5%, THAT IS A SIGNIFICANT DECLINE. IS THAT SOMETHING TO BE EXPECTED FROM HERE? OR WERE THERE POTENTIALLY ADDITIONAL COSTS SOMEHOW THAT WERE ONE TIME IN NATURE?
TSAI: ONE OF THE GREAT THINGS ABOUT OUR BUSINESS MODEL IS IT'S A VERY HIGH MARGIN BUSINESS. AND THAT GIVES US THE LUXURY AND THE CONFIDENCE TO REINVEST THAT MARGIN INTO NEW AREAS FOR GROWTH. SO WHAT YOU SAW IN THE LATEST QUARTER IS EXACTLY THAT. WE INTEGRATED TWO COMPANIES, UCWEB AND AUTONAVI, THAT WE ACQUIRED THAT WILL BRING A LOT OF LONG-TERM POTENTIAL FOR US, LOTS OF USERS. SEVERAL HUNDRED MILLION USERS IN THE CASE OF UCWEB. AND THESE COMPANIES ARE JUST AT THE CUSP, AT THE BEGINNING OF MONETIZING THEIR BUSINESS. SO THAT IS ONE FACTOR OF WHY THE MARGIN IS COMING DOWN. WE ARE ALSO ORGANICALLY MAKING SIGNIFICANT INVESTMENTS IN NEW AREAS. FOR EXAMPLE, OUR MOBILE OPERATING SYSTEM, LOCAL SERVICES AND DIGITAL ENTERTAINMENT. THESE ARE ALL VERY NEW AREAS FOR US. IT'S KIND OF EARLY DAYS. BUT WE ARE VERY LONG-TERM COMMITTED TO MAKING INVESTMENTS IN THESE AREAS FOR FUTURE GROWTH.
JIM CRAMER: ALRIGHT, JOE. JIM CRAMER, THANK YOU SO MUCH FOR COMING ON OUR SHOW. IF I CAN, I WANT TO GO BACK AGAIN AND REFERENCE TO WHAT DAVID SAID BECAUSE THE MARGIN TREND PAGE IS FREAKING PEOPLE OUT. ONE IS THAT PEOPLE FEEL LIKE, WAIT A SECOND, DO WE HAVE AN AMAZON? I HATE TO PUT THEM IN THE SAME SENTENCE, BECAUSE YOU ARE OBVIOUSLY SO MUCH MORE PROFITABLE. TWO, WE HAD FACEBOOK SAY LISTEN, IT'S A RESET YEAR. WE HAVE TO SPEND A LOT MORE MONEY. THREE, TWITTER SPENDS A LOT MORE MONEY, DOESN'T SEEM TO KNOW WHAT THE HECK IT'S DOING WITH IT. I'M WONDERING WHETHER WE ARE IN A SITUATION WHERE YOU GUYS HAVE DECIDED, YOU KNOW WHAT, WE HAVE TO GROW SO FAST. THIS MARGIN IS GOING TO COME DOWN YEAR AFTER YEAR AFTER YEAR. PLUS WE HAD TO SPEND A LOT OF MONEY BECAUSE SINGLES DAY IS COMING UP. ARE WE GOING TO BE – IS THIS THE BEGINNING OF WHEN WE HEAR THAT ALIBABA IS A LOT MORE LIKE AMAZON, A LOT MORE LIKE FACEBOOK AND NOT A LOT MORE LIKE COMPANIES THAT WE THINK MARGINS SHOULD GO HIGHER OVER TIME?
TSAI: WELL, WE ARE NOT LIKE AMAZON BECAUSE THE FUNDAMENTAL DIFFERENCE IN BUSINESS MODEL. AMAZON'S MARGIN IS HAMPERED BY THE FACT THAT THEY TAKE ON INVENTORY AND THEY HAVE A LARGE COST OF GOOD SOLD ITEMS. SO THEIR GROSS MARGIN STARTS WITH A VERY, VERY LOW NUMBER, SOMEWHERE IN THE LOW TEENS. AND IN OUR CASE, WE OPERATE ON A MARKETPLACE MODEL WHERE THE REVENUE WE GENERATE COMING FROM COMMISSIONS AND ALSO ONLINE MARKETING SERVICES HAVE INHERENTLY VERY HIGH MARGINS. SO IN OUR CORE BUSINESS, WE DON'T SEE REALLY ANY REASON WHY THE MARGIN NEEDS TO DECLINE OVER TIME. SO IN TERMS OF THE MARGIN THAT YOU'RE SEEING IN THE LATEST QUARTER IS REALLY REFLECTED IN THE FACT THAT WE ARE MAKING INVESTMENTS FOR GROWTH. NOW, WE ARE GOING TO BE VERY DISCIPLINED IN TERMS OF THESE TYPES OF INVESTMENTS BECAUSE YOU CAN ONLY FOCUS ON A FEW AREAS. AND WE HAVE STRATEGICALLY IDENTIFIED THESE LONG-TERM GROWTH AREAS LIKE DIGITAL ENTERTAINMENT, LIKE LOCAL SERVICES AND ALSO DOUBLING DOWN ON OUR INVESTMENTS AND MOBILE OPERATING SYSTEM. THESE ARE ALL LONG-TERM STRATEGIC PROJECTS. AND WE TAKE A VERY DISCIPLINED APPROACH TO THAT.
FABER: JOE, FEW COMPANIES WOULD HAVE A BETTER SENSE OF THE STATE OF THE CHINESE CONSUMER THAN ALIBABA. HOW WOULD YOU DESCRIBE THE CHINESE CONSUMER RIGHT NOW?
TSAI: LET'S START WITH THE BIG PICTURE. THERE'S 300 MILLION CHINESE CONSUMERS THAT ARE SHOPPING ONLINE. AND MOST OF THEM ARE SHOPPING ON OUR PLATFORM. WE JUST REPORTED THAT WE HAVE 307 MILLION ACTIVE BUYERS COMING TO OUR MARKETPLACE OVER THE LAST 12 MONTHS. NOW, YOU CAN SEGMENT THESE CONSUMERS INTO CITIES AND RURAL CONSUMERS. WE HAVE JUST RECENTLY DECIDED TO MAKE A BIG PUSH INTO THE LESSER DEVELOPED AREAS OF CHINA WHERE ONLY 9% OF THE POPULATION IS ON E-COMMERCE. AND WE THINK THE GROWTH POTENTIAL IS VERY, VERY GOOD. WE ALSO THINK THAT THIS WILL HELP US TO DEVELOP A STRATEGY WHERE WE HELP THOSE THAT ARE IN THE VILLAGES THAT ARE FARMING, THOSE ARE SMALL BUSINESS AND SMALL CONSUMERS, AND HELP THEM TO GROW AS THEY ACQUIRE MORE ECONOMIC SPENDING POWER.
FABER: YEAH, OK. JOE, WE HAVE TO LET YOU GO. REAL QUICK. ANY PREDICTION ON WHAT YOU GUYS WILL SEE FOR GMV ON SINGLES DAY, A WEEK FROM NOW?
TSAI: WE DON'T GIVE ANY PREDICTIONS. BUT THE THING ABOUT SINGLES DAY THIS YEAR IS WE ARE GOING TO BE FOCUSED ON GLOBALIZATION. MEANING THAT WE ARE BRINGING A LOT OF MERCHANTS FROM OUTSIDE OF CHINA TO SELL ON OUR TMALL PLATFORM. WE ARE ALSO GOING TO BE FOCUSED ON MOBILE BECAUSE THE USER BEHAVIOR IS VERY RAPIDLY SHIFTING TO BUYING STUFF ON MOBILE DEVICES. SO THAT'S GOING TO BE VERY INTERESTING TO US. AND WE ARE ALSO GOING TO FOCUS ON OUR BROADER ECOSYSTEM TO BRING IN ECOSYSTEM PARTNERS, SUCH AS OPERATING PARTNERS THAT HELP OUR RETAILERS, SOFTWARE PROVIDERS THAT HELP OUR RETAILERS TO DO THEIR BUSINESS BETTER ON TO OUR PLATFORM TO CREATE A VERY, VERY EXCITING SHOPPING DAY.
FABER: ALL RIGHT. WELL, I HOPE TO ACTUALLY BE THERE PERHAPS EVEN IN PERSON TO WATCH IT. JOE TSAI, ALWAYS VERY MUCH APPRECIATE YOUR TIME. JOE TSAI, EXECUTIVE VICE CHAIRMAN OF ALIBABA.
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