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Consolidated Statements of Operations Data:

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Non-GAAP Measures

       We use non-GAAPadjusted EBITDA (including adjusted EBITDA margin), adjusted EBITA (including adjusted EBITA margin), non-GAAP net income, non-GAAP diluted EPS 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 non-GAAPadjusted EBITDA, adjusted EBITA, non-GAAP net income and non-GAAP diluted EPS help identify underlying trends in our business that could otherwise be distorted by the effect of thecertain income or expenses that we include in income from operations, net income and diluted EPS. We believe that non-GAAPadjusted EBITDA, adjusted EBITA, non-GAAP net income and non-GAAP diluted EPS provide useful information about our core operating results, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision-making.

       We 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.

       Non-GAAPAdjusted EBITDA, adjusted EBITA, non-GAAP net income, non-GAAP diluted EPS and free cash flow should not be considered in isolation or construed as an alternative to income from operations, net income, diluted EPS, cash flows or any other measure of performance or as an indicator of our operating performance. Non-GAAP EBITDA,These non-GAAP net income, non-GAAP diluted EPS and free cash flowfinancial measures 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.

       Non-GAAPAdjusted EBITDA represents net income from operations (which excludesbefore (i) interest and investment income, net, interest expense, other income, net, income tax expenses and share of results of equity investees) before (i)investees, (ii) certain non-cash expenses, consisting of share-based compensation expense, amortization, depreciation, impairment of goodwill and intangible assets as well as (ii) one-time expense items consisting of the Yahoo TIPLA amendment payment and(iii) an equity-settled donation expense, thatwhich we do not believe are reflective of our core operating performance during the periods presented.

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

       Non-GAAP net income represents net income before share-based compensation expense, amortization, impairment of goodwill intangible assets and investments, gain (loss)or loss on deemed disposals/disposals/revaluation of investments, amortization of excess value receivable arising from the restructuring of commercial arrangementarrangements with Ant Financial, Services,immediate recognition of unamortized professional fees and one-time expense items consistingupfront fees upon early repayment/termination of the Yahoo TIPLA amendment payment,bank borrowings, an equity-settled donation expense, the expenses relating to the sale of shares by existing shareholders in our initial public offering and chargeothers, as adjusted for financing-related fees as a result of early repayment of bank borrowings.the tax effects on non-GAAP adjustments.

       Non-GAAP diluted EPS represents non-GAAP net income attributable to ordinary shareholders divided by the weighted average number of shares outstanding during the periods on a diluted basis, including accounting for the effects of the assumed conversion of convertible preference shares prior to our initial public offering in September 2014.

       Free cash flow represents net cash provided by operating activities as presented in our consolidated cash flow statement less purchases of property and equipment, and intangible assets and licensed copyrights (excluding acquisition of land use rights

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and construction in progress), and adjusted for changes in loan receivables relating to micro loans of our SME loan business (which we transferred to Ant Financial in February 2015) and the Yahoo TIPLA amendment payment.others. We

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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 following table below sets forth a reconciliation of our net income from operations to non-GAAPadjusted EBITA and adjusted EBITDA for the periods indicated:

       The following table sets forth a reconciliation of our net income from operations to non-GAAP net income for the periods indicated:

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       The following table sets forth a reconciliation of our diluted EPS to non-GAAP diluted EPS for the periods indicated:

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

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Consolidated Balance Sheet Data:

Selected Operating Data

GMVAnnual active consumers

       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:

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Annual Active Buyers

       The following charttable below sets forth the number of annual active buyersconsumers on our China retail marketplaces for the periods indicated:

Mobile MAUs

       The table below sets forth the mobile MAUs on our China retail marketplaces for the periods indicated:

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GMV

       The table below sets forth the GMV, in respect of our China retail marketplaces for the periods indicated:

Exchange Rate Information

       Most of our revenues and expenses are denominated in Renminbi. This annual report contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this annual report were made at a rate of RMB6.2726 to US$1.00, the exchange rate on March 30, 2018 set forth in the H.10 statistical release of the Federal Reserve Board. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, 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 RMB into foreign exchange and through restrictions on foreign trade. On July 20, 2018, the noon buying rate was RMB6.7659 to US$1.00.

       The following table sets forth, for the periods indicated, information concerning exchange rates between the RMB and the U.S. dollar based on the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board.

B.    Capitalization and Indebtedness

       Not Applicable.

C.    Reasons for the Offer and Use of Proceeds

       Not Applicable.

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D.    Risk Factors

Risks Related to Our Business and Industry

Maintaining the trusted status of our ecosystem is critical to our success and future growth, 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.operations and prospects.

       We have established a strong brand name and reputation for our ecosystem in China.ecosystem. Any loss of trust in our ecosystem or platformplatforms could harm our reputation and the value of our brand and result in buyersconsumers, merchants, brands and sellers ceasing to transact business on our marketplaces as well asother participants reducing thetheir activity 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 reliabilityquality, breadth and securityfunctionality of products, services and functions and the quality, variety and appeal of content available through our platform;marketplaces and platforms, and offered by the merchants, developers, logistics providers, service providers and other participants in our ecosystem;



•

the qualityreliability and functionalityintegrity of productsour platforms as well as the commitment to high levels of service, reliability and integrity by our company and the wide range of servicesmerchants, developers, logistics providers, service providers and functions we make available toother participants onin our platform;ecosystem;



•

the rules governingsafety, security and integrity of the data on our marketplaces;systems, as well as the effectiveness and security of the procedures and systems we have in place to maintain, and the commitment of the other participants in our ecosystem to maintaining, the security and privacy of data generated on our marketplaces and platforms;



•

the qualityeffectiveness and breadthperceived fairness of productsrules governing our marketplaces and services offered by sellers through our marketplaces;other platforms and overall ecosystem;



•

the strength of our consumer and intellectual property rights protection measures; and



•

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

Sustained investment in our business, strategic acquisitions and investments as well as our focus on long-term performance and on maintaining the health of our ecosystem may negatively affect our margins and our net income.

       We have experienced significant growth in our business and our revenue also continued to increase in recent years. However, we cannot assure you that we will be able to maintain our growth at these levels, or at all. As we continue to invest in our business and make strategic acquisitions and investments, such as in logistics, our New Retail initiatives, our global expansion and our digital media and entertainment business, we expect our margins to decrease. From fiscal year 2017 to fiscal year 2018, adjusted EBITDA margin declined from 47% to 42%. Consistent with our focus on the long-term interests of our ecosystem participants, we may take actions that fail to generate positive short-term financial results or invest in businesses that have lower margins, and we cannot assure you that these actions will produce long-term benefits. There can be no assurance that we will be able to sustain our current net income growth rates or our margins.

       We continue to increase our spending and investment in our business to support our future growth, including:

•

expanding our core commerce offerings, including our New Retail initiatives, our cross-border and international businesses and Tmall Supermarket, as well as enhancing user experience;



•

strengthening our logistics network and enhancing our logistics capabilities;



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researching and developing new technologies and improving our technological infrastructure and cloud computing capacity;



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developing and acquiring content for our digital media and entertainment business; and



•

incubating new innovation initiatives.

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       All of these initiatives are crucial to the success of our business but will have the effect of increasing our costs and lowering our margins and profit, and this effect may be significant in the short term and potentially for longer periods. For example, sustained investments in our New Retail initiatives, such as Intime and Hema fresh food store chain, as well as our logistics network and logistics capabilities, will increase our costs and expenses, including significant operating expenses, capital expenditure and related amortization costs. As we develop our New Retail business, we may also be perceived to be competing with other participants in our ecosystem, such as certain merchants and retailers, which may negatively affect our relationships with them. Moreover, many of our business initiatives emphasize expanding our user base and enhancing user experience, rather than initially prioritizing monetization or profitability.

       We have made, and intend to continue to make, strategic investments and acquisitions to expand our user base and geographic coverage and add complementary offerings and technologies to further strengthen our ecosystem. We may make such strategic investments and acquisitions in a range of areas either directly related to one or more of our businesses, or the infrastructure, technology, services or products that support our businesses and ecosystem. Our strategic investments and acquisitions are important to our overall business but may adversely affect our future financial results, at least in the short term. For example, acquisition of businesses with lower margins or which are loss-making, such as our acquisition of a controlling stake in Cainiao Network and our recent acquisition of Ele.me, will negatively affect our margins and net income. The performance of minority investments we have made and may continue to make may also adversely affect our net income. There is no assurance that we will be able to realize the expected benefits of synergies and growth opportunities in connection with these investments and acquisitions.

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

       We have experienced significant growth in revenue and in our business in recent years. Our ability to continue to generate and grow our revenue depends on a number of factors. If our services do not generate the rate of return we expect or offer prices that are competitive to alternatives, merchants, brands and marketers may reduce their spending on the services we offer. See "Item 5. Operating and Financial Review and Prospects — A. Operating Results — Factors Affecting Our Results of Operations — Our Ability to Create Value for Our Users and Generate Revenue" and "— Our Monetization Model."

       Our future revenue growth also depends on our ability to continue to grow our core commerce, cloud computing business, digital media and entertainment business, as well as the businesses we have acquired or which we consolidate. We are exploring and will continue to explore in the future new business initiatives, including in industries in which we have limited or no experience, as well as new business models, which may be untested. In particular, New Retail, which we believe will be an important driver of our future growth, involves a new model of commerce. We may encounter difficulties or setbacks in the execution of our New Retail strategy, and it may not generate the expected returns in the timeframe we anticipate, or at all.

       In addition, developing new businesses and initiatives requires significant investments of time and resources, and may present new and difficult technological, operational and legal challenges, as well as subject us to additional regulatory risks. For example, the expansion of our digital media and entertainment business requires substantial and long-term investment in high quality content, which may take an extended period of time to produce. Due to changes in industry trends, regulatory requirements and the business environment, we may be unable to produce or license quality content on commercially reasonable terms or at all, fail to attract, acquire and retain users, paying subscribers and marketers on our digital media and entertainment platforms, fail to expand or maintain our market share or anticipate or keep up with changes in user preferences, user behavior and technological developments, or fail to gain access to content distribution channels. We also face significant challenges in attracting brands and marketers and monetizing our digital media and entertainment content, such as that we offer through Youku. In addition, we may face challenges in expanding and operating our logistics network and cooperating with third-party logistics service providers, and we may be unable to continue to enhance our logistics data technology, or fail to expand our logistics capacity quickly enough to meet increasing demand and improve user experience. Expanding our logistics network will also require us to increase our employee count and

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acquire more facilities, which will have attendant costs and risks, such as potential labor disputes and compliance costs and risks. In addition, as we expand the scope of our business operations, we are entering new business areas in which we have limited or no experience. We will face challenges in providing new services, including new compliance requirements and additional liabilities. For example, as we expand our direct sale businesses, such as Intime, Tmall Imports and Hema, and service offerings to enterprises, such as our cloud business, we will face new and increased challenges and risks relating to inventory procurement and management, accounts receivable and related potential impairment charges, as well as new and heightened regulatory requirements and increased liabilities specific to these new businesses, such as those relating to customs, quarantine and consumer protection. In order to continue expanding and offer products and services in new areas or markets, we may have to invest significant financial and human resources for an extended period of time, and may fail to achieve the strategic goals or financial returns that we expect, or at all. As we focus on the above efforts, we may miss out on other investments and growth opportunities.

       We may also fail to identify or anticipate industry trends and competitive conditions or fail to allocate sufficient resources to new growth areas. In addition, our overall or segment revenue growth may slow or our revenues may decline for other reasons, including decreasing consumer spending, increasing competition and slowing growth of the China retail industry, as well as changes in government policies or general economic conditions.

       In addition, although our revenue grew at a faster rate in fiscal year 2018 than fiscal year 2017, as our revenue grows to a higher base level, our revenue growth rate may slow in the future. Furthermore, due to the size and scale we have achieved to date, our user base may not continue to grow as quickly as prior periods, or at all.

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

       We face increasingly intense competition, principally from established Chinese Internet companies, such as Tencent, and their respective affiliates, as well as global and regional e-commerce players, other service providers in cloud computing and digital media and entertainment areas. We mainly compete to:

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attract, engage and retain consumers based on the variety and value of products and services listed on our marketplaces, the engagement of digital media and entertainment content available on our platforms, the overall user experience of our products and services and the effectiveness of our consumer protection measures;



•

attract and retain merchants, brands and retailers based on the size and the engagement of consumers on our platforms and the effectiveness of our products and services to help them build brand awareness and engagement, acquire and retain customers, complete transactions, expand service capabilities, protect intellectual property rights and enhance operating efficiency;



•

attract and retain businesses of different sizes across various industries based on the effectiveness of our cloud service offerings to help them enhance operating efficiency and realize their digital transformation ambitions;



•

attract and retain marketers, publishers and demand side platforms operated by agencies based on the reach and engagement of our media coverage, the depth of our consumer data insights and the effectiveness of our branding and marketing solutions;



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attract other participants of our ecosystem based on access to business opportunities created by the large scale of economic activity on our platforms, the strength of the network effect of our ecosystem, as well as tools and technologies that help them operate and grow their businesses;



•

optimize the usefulness of the data and technologies we provide, including data-enabled customer relationship management tools, marketing data and data science, media ecosystem for branding, cloud

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computing services, one-stop solutions, data processing capability, availability and quality of supporting services, including payment settlement and logistics services, and the quality of our customer service;

•

thrive in new industries and sectors as we acquire new businesses and expand, bringing us into competition with major players in these and other industries and sectors;



•

attract motivated and capable employees, including engineers and product developers who serve critical functions in the development of our products, services and our ecosystem;



•

identify, bid for, and execute strategic investments, which may involve bidding wars resulting in higher prices and other terms that are less favorable to us; and



•

attract and retain customers and merchants through subsidized programs or promotions, which may result in additional costs and expenses.

       As we acquire new businesses and expand into new industries and sectors, we face competition from major players in these and other industries and sectors. In addition, as we expand our businesses and operations into an increasing number of international markets, including Southeast Asia, India and Russia, we increasingly face competition from domestic and international players operating in these markets.

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

•

the timely introduction and market acceptance of the products and 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 retail commerce and cloud computing in China;



•

our ability to adapt to new international and cross-border markets in a cost-effective manner;



•

our ability to benefit from new business initiatives;



•

alliances, acquisitions or consolidations within the Internet industry that may result in stronger competitors; and



•

changes in the regulatory environment in the markets we operate, including implementation of regulatory restrictions on our ability to operate in overseas markets or relaxation of restrictions on foreign players' ability to offer products and services in China.

       If we are not able to compete effectively, the level of economic activity and user engagement on our platforms may decrease significantly and the use of products and services we offer may not grow as fast as we expect, or at all, which could materially and adversely affect our business, financial condition and results of operations as well as our brand.

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, sellersamong consumers, merchants 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:

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offer a secure and open platformplatforms for all participants;participants and balance the interests of these participants, including consumers, merchants, brands, service providers and others;



•

provide tools and services that meet the evolving needs of buyersconsumers, merchants and sellers;brands;



•

provide a wide range of high-quality product, service and servicecontent offerings to buyers;consumers;

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•

attract and retain merchants and brands of all sizes;



•

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



•

further enhance the attractiveness of our mobile platform;platforms;



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arrange secure and trusted payment settlement and escrow services;



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address user concerns with respect to data security and privacy measures on our platforms and of our systems, products and services;



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improve our logistics data platform and coordinate fulfillment and delivery services with third-party logistics and delivery companies;service providers;



•

attract and retain third partythird-party service providers whothat are able to provide quality services on commercially reasonable terms to our sellers;merchants;



•

maintain the quality of our customer service; and



•

continue adapting to the changing demands of the market.

       In addition, changes to current operations we may make to enhance and improve our ecosystem and balance the needs and interests of the various participants onin our ecosystem, or to comply with regulatory requirements, may be viewed positively from one participant group's perspective, (suchsuch as buyers)consumers, but may have negative effects from another group's perspective, (suchsuch as sellers).merchants. If we fail to balance the interests of all participants in our ecosystem, fewer buyers, sellersconsumers, merchants, brands and other participants may visitspend less time, mind share and resources on our marketplaces, or they mayplatforms and 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 our network of third-party marketing partners, or the Taobao Affiliate Network, with such 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, services and business initiatives 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;



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



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



•

the attractiveness of alternative platforms.

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       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;



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offering a comprehensive user experience on our mobile apps; and



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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. In the quarter ended March 31, 2015, our mobile GMV exceeded 50% of our total GMV for the first time, and we expect mobile GMV as a percentage of total GMV will continue to grow and that our monetization rates for mobile interfaces in the near term will remain 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 activities. 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, attract, promote and promoteretain people in leadership positions in our organization who share our culture, values and mission;



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failure to execute aan effective management succession plan to replace our current generation of management leaders;



•

the increasing size, complexity, geographic coverage and geographiccultural diversity of our business and workforce;



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the integration of new personnel and businesses as we expand our existing businesses and acquire new businesses;



•

challenges of effectively incentivizing and motivating employees, including members of senior management, and in particular those who have gained a substantial amount of personal wealth because of our initial public offering;related to share-based incentives;



•

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;



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



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the increasing need to develop expertise in new areas of business, such as New Retail and expansion of our logistics network services, that affect us; and



•

the integration of new personnel and businesses from acquisitions.us.

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       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 increasingly intense competition, mainly 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 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. In addition, we compete for motivated and effective talent and personnel, including engineers and product developers who serve critical functions in the development of our products and our ecosystem.