A. Operating Results The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the related notes included in this annual report and in particular, “Business Overview.” This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this annual report. We have prepared our consolidated financial statements in accordance with U.S. GAAP. Our fiscal year ends on March 31 and references to fiscal years 2024, 2025 and 2026 are to the fiscal years ended March 31, 2024, 2025 and 2026, respectively. Overview Our total revenue increased by 6% from RMB941,168 million in fiscal year 2024 to RMB996,347 million in fiscal year 2025, and further increased by 3% to RMB1,023,670 million (US$148,401 million) in fiscal year 2026. Our net income increased by 77% from RMB71,332 million in fiscal year 2024 to RMB125,976 million in fiscal year 2025, and decreased by 19% to RMB102,127 million (US$14,805 million) in fiscal year 2026. Our non-GAAP net income, which excludes the effect of non-cash share-based compensation expense, amortization and impairment of intangible assets, gain or loss on deemed disposals/disposals/revaluation of investments, impairment of goodwill and investments and others, and adjustments for the tax effects, remained stable with RMB157,479 million in fiscal year 2024 and RMB158,122 122 Table of Contents million in fiscal year 2025, and decreased by 62% to RMB60,658 million (US$8,794 million) in fiscal year 2026. For further information on non-GAAP financial measures we use in evaluating our operating results and for financial and operational decision-making purposes, see “— Non-GAAP Measures.” Our Segments We organize and report our business in the following segments: •Alibaba China E-commerce Group; •Alibaba International Digital Commerce Group; •Cloud Intelligence Group; and •All others. This presentation reflects how we manage our business to maximize efficiency in allocating resources. This presentation also provides further transparency to our various businesses that are executing different phases of growth and operating leverage trajectories. In general, revenue, cost of revenue and operating expenses are directly attributable, or are allocated, to each segment. We allocate costs and expenses that are not directly attributable to individual segments, such as those that support infrastructure across different operating segments, to different operating segments mainly on the basis of usage, revenue or headcount, depending on the nature of the relevant costs and expenses. In discussing the operating results of these segments, we present each segment’s revenue and adjusted earnings before interest, taxes and amortization, or adjusted EBITA. Our reported segments are described below: •Alibaba China E-commerce Group, which includes Taobao, Tmall, Quick commerce, Xianyu, 1688.com and other businesses. •Alibaba International Digital Commerce Group, which includes AliExpress, Trendyol, Lazada, Alibaba.com and other businesses. •Cloud Intelligence Group, which includes Alibaba Cloud and other businesses. •All others, which includes Freshippo, Cainiao, Alibaba Health, Hujing Digital Media and Entertainment Group, Amap, Qwen Consumer Business Group, Lingxi Games, DingTalk and other businesses. In fiscal year 2025, the sale of Sun Art was completed and the sale of Intime was substantially completed. The sale of Intime was fully completed during the year ended March 31, 2026. Our Monetization Model Our marketplace, cloud and other businesses are highly synergistic, which create an ecosystem that enables consumers, merchants, brands, retailers, enterprises, third-party service providers, strategic alliance partners and other businesses to interconnect and interact with each other. We leverage our leading technologies to provide various value propositions to participants in our ecosystem and monetize by offering different services and creating value under each of our business segments. Our monetization and profit model primarily comprises the following elements: Alibaba China E-commerce Group E-Commerce We generate revenue from merchants by leveraging our consumer insights and data technologies which enable brands and merchants to attract, engage and retain consumers, complete transactions, improve their branding, enhance operating efficiency and offer various services. On the consumer side, leveraging these insights and technologies, as well as our supply chain capabilities, we also generate revenue from product sales for our direct sales businesses. The revenue of our China commerce retail business primarily consists of customer management revenue and direct sales and others revenue. 123 Table of Contents Customer management We derive a majority of our China commerce retail revenue from customer management services. We generate customer management revenue from merchants by offering an integrated package and a comprehensive solution comprising a diverse array of services to enable them to attract, engage and retain consumers, complete transactions, improve their branding and enhance operating efficiency. The customer management revenue are charged primarily on cost-per-click (CPC) basis, cost-per-thousand impressions (CPM) basis, time basis and cost-per-sale (CPS) basis (e.g., fees charged based on the GMV transacted, including commission on transactions). •Cost-per-click (CPC), Cost-per-thousand impressions (CPM) and time-based marketing and software services, where merchants primarily bid for keywords or bid to market to groups of consumers with similar profiles that match product or service listings appearing in search results or browser results through our online auction system on a CPC basis or CPM basis. We provide these services directly on our marketplaces or through collaboration with third-party marketing affiliates program. •Cost-per-sale (CPS) marketing and software services, where we charged fees from merchants for transactions on Taobao, Tmall and certain other retail marketplaces of the Company. The fees are generally determined as a percentage based on the value of merchandise sold by the merchants and typically range from 0.1% to 5.0% for Tmall depending on the product category. We also implemented software service fee based on the GMV of completed transactions on our platform since September 2024. Direct sales and others Direct sales and others revenue from our China commerce retail businesses is primarily generated by our direct sales businesses as well as other revenue from logistic services and other value-added services. Direct sales revenue comprises mainly Tmall Supermarket and Tmall Global’s direct sales businesses, and primarily consists of revenue from product sales. Quick Commerce We generate revenue from Taobao Instant Commerce primarily through platform commissions and on-demand delivery services. For transactions on the platform, merchants pay a commission based on a percentage of the transaction value, which varies depending on the product category. We also generate revenue through on-demand delivery services, including the delivery of meals, groceries, pharmaceuticals, FMCG, electronics, flowers, and apparel for merchants and customers through Fengniao Logistics, the on-demand delivery network of Taobao Instant Commerce. China Commerce Wholesale We generate revenue from our China commerce wholesale business primarily through membership fees, value-added services and customer management services. Revenue from membership fees are primarily fixed annual fees from the sale of China TrustPass memberships for paying members to reach customers, provide quotations and transact. Paying members may also purchase premium memberships and additional value-added services, such as premium data analytics and upgraded storefront management tools, the prices of which are determined based on the types and duration of the value-added services. Revenue from customer management services is primarily derived from P4P marketing and software services. Alibaba International Digital Commerce Group International Commerce Retail We generate revenue from our International commerce retail businesses primarily through customer management services, logistics services and direct sales. Our revenue from customer management services is mainly contributed by AliExpress, Trendyol and Lazada. We generate logistics services revenue primarily from AliExpress, Trendyol and Lazada. We generate direct sales revenue primarily from Trendyol, Lazada and AliExpress. International Commerce Wholesale We generate revenue from our International commerce wholesale businesses primarily through membership fees, value-added services and customer management services. Revenue from membership fees are primarily fixed annual fees from the sale of memberships for paying members to reach customers, provide quotations and transact. Revenue from value-added services includes fees for various 124 Table of Contents services, which prices are determined based on the nature of transaction. Revenue from customer management services is primarily derived from P4P marketing and software services. Cloud Intelligence Group Our Cloud businesses primarily generate revenue from the provision of public and non-public cloud services to our domestic and international enterprise customers: •Public cloud services, where we generate revenue from a wide range of cloud services, including traditional and AI-related, such as elastic computing, storage, network, database, big data, security, cloud native and Alibaba Cloud model studio (“Bailian”). Enterprise customers can pay for these services on a consumption or subscription basis, such as on-demand delivery of computing services and storage capacities. •Non-public cloud services, where we generate revenue through packaged cloud services, including hardware, software license, software installation service, application development and maintenance service. All others All others include Freshippo, Cainiao, Alibaba Health, Hujing Digital Media and Entertainment Group, Amap, Qwen Consumer Business Group, Lingxi Games, DingTalk and other businesses. The majority of revenue within All others consists of direct sales, where revenue and cost of inventory are recorded on a gross basis, and revenue from logistics services. Factors Affecting Our Results of Operations Our Ability to Create Value for Our Users and Generate Revenue. Our ability to create value for our users and generate revenue is driven by the factors described below: •Number and engagement of consumers. Consumers are attracted to our platforms by our platform’s offerings of high-quality products and services to meet multi-tiered consumer demands, and shopping experiences defined by quality products, competitive pricing and exceptional service. The engagement of consumers in our ecosystem is affected by our ability to continue to enhance and expand our product and service offerings and improve user experience. •Broader value offered to merchants, brands, retailers and other businesses. Merchants, brands, retailers and other businesses use our products and services to help them reach, acquire and retain customers, build brand awareness and engagement, complete transactions, and enhance their operating efficiency. We offer merchants and retailers a complete suite of services and tools, powered by our consumer insights, to help them effectively engage consumers, efficiently manage their operations and provide a seamless online and offline consumer experience. With our proprietary data and technologies, we also facilitate the digital transformation of traditional merchants and retailers. In addition, we empower businesses of different sizes across various industries through our comprehensive “AI + Cloud” service offerings. •AI + Cloud solutions adoption. Our ability to attract and retain AI + Cloud customers and expand our offerings depends on our ability to enhance our full-stack AI capabilities, and demonstrate superior performance compared to other providers. We offer reliable solutions in AI infrastructure, foundational model, MaaS, and both enterprise and consumer AI applications to meet diverse customer needs. •Empowering data and technology. Our ability to engage consumers and empower merchants, brands, retailers and other businesses is affected by the breadth and depth of our consumer insights, such as the accuracy of our shopping recommendations and of our targeted marketing, and our technology capabilities and infrastructure, such as AI + Cloud infrastructure, and our continued ability to develop scalable products and services that adapt to the quickly evolving industry trends and consumer preferences. Operating Leverage of Our Business Model. Our primary business model has significant operating leverage and our ecosystem enables us to realize structural cost savings. For example, Taobao drives significant traffic to Tmall as Tmall product listings also appear on Taobao search result pages. Furthermore, the large number of consumers on our marketplaces attracts a large number of merchants, who become customers for our customer management and storefront services. In addition, the vast consumer base of our ecosystem presents cross-selling opportunities across our various platforms. These network effects allow for lower traffic acquisition costs and provide synergies across our businesses. 125 Table of Contents Our Investment in User Base, Technology, People, Infrastructure, and Innovative Business Model. We have made, and will continue to make, significant investments in our platforms and ecosystem to attract consumers, merchants and enterprises, enhance user experience and expand the capabilities and scope of our platforms. On our strategic initiative in “AI + Cloud”, we expect to invest in full-stack AI capabilities. On consumption, we expect to invest in user growth and focus on competitively priced products, customer service and membership programs, aimed at delivering an exceptional user experience in all aspects. Our operating leverage and profitability enable us to continue to invest in our people, particularly engineers, scientists and product management personnel, as well as in our technology capabilities and infrastructure. Our investment in the above-mentioned new and existing businesses has and may lower our margins but we believe the investment will deliver overall long-term growth. Strategic Investments and Acquisitions. We have made, and intend to make, strategic investments and acquisitions. Our investment and acquisition strategy focuses on strengthening our core businesses and new growth opportunities. We also evaluate and explore potential divestment opportunities for certain of our non-core businesses from time to time. Our strategic investments and acquisitions may adversely affect our future financial results, including our margins and our net income, at least in the short term. In addition, some of our acquisitions and investments may not be successful. We have incurred impairment charges in the past and may incur impairment charges in the future. Recent Investments, Acquisitions, Dispositions 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 further our strategic objectives. The financial results for these strategic transactions that were completed are reflected in our operating results beginning with the period of their respective completion. Investments in which we did not obtain control are generally accounted for under the equity method if we have significant influence over the investee through investment in common stock or in-substance common stock. Otherwise, investments are generally carried at fair value with unrealized gains and losses recorded in the consolidated income statements or accounted for using the measurement alternative based on our accounting policies over different categories of investments. For the details of our accounting policies for each category of our investments, see notes 2(d), 2(t) and 2(u) to our audited consolidated financial statements included in this annual report. We have developed focused investment strategies, targeting to invest, acquire or form alliances that will either complement our existing businesses or drive innovation initiatives. In some cases, we may take a staged approach to our investment and acquisition strategy, by beginning with an initial minority investment followed by business cooperation. When the business results, cooperation and the overall relationship established with the management of the investee company show increasing value to our ongoing business strategy, we may increase our investment or acquire the investee company completely. On the other hand, we have been optimizing our balance sheet through strategic divestments of non-core assets, and focusing on growing our core businesses, improving return on capital and enhancing shareholder value. We have funded our strategic acquisitions and investments primarily from cash generated from our operations and through debt and equity financing. Our debt financing primarily consists of unsecured senior notes and bank borrowings, including an aggregate of US$8.0 billion unsecured senior notes issued in November 2014, of which US$7.3 billion was repaid in 2017, 2019, 2021 and 2024, an aggregate of US$7.0 billion unsecured senior notes issued in December 2017, of which US$0.7 billion was repaid in June 2023, an aggregate of US$5.0 billion unsecured senior notes issued in February 2021, an aggregate of US$5.0 billion convertible unsecured senior notes issued in May 2024, an aggregate of US$2.65 billion and RMB17 billion (US$2.3 billion) unsecured senior notes issued in November 2024, an aggregate of approximately HK$12 billion zero coupon exchangeable bonds issued in July 2025, an aggregate of US$3.2 billion zero coupon convertible unsecured senior notes issued in September 2025, a US$3.17 billion revolving credit facility with ancillary facility arrangement, of which RMB3.9 billion (US$0.6 billion) was drawn under the ancillary facility arrangement by way of short-term loan facilities as of March 31, 2026, as well as a US$3.33 billion revolving credit facility which we have not yet drawn as of March 31, 2026. Going forward, we expect to fund additional investments through cash generated from our operations and through debt and equity financing when opportunities arise in the future. Although we expect our margins to be negatively affected by acquisitions of target companies with lower or negative margins, we do not expect our investment activities to have any significant negative impact on our liquidity or operations. We believe acquired businesses operating at a loss do not detract from our total value because they bring clear strategic value to us in the long run. However, there can be no assurance that our future financial results would not be materially and adversely affected if our strategic investments and acquisitions are not successful. See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Industry — Sustained investment in our businesses and our focus on long-term performance and maintaining the health of our ecosystem may negatively affect our margins and our net income” and “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Industry — We face risks relating to our acquisitions, investments and alliances.” Material Investments, Acquisitions and Dispositions Our material investments, acquisitions and dispositions in fiscal year 2026 and the period through the date of this annual report are set forth below. 126 Table of Contents In May 2025, we agreed to sell 85% of the equity interest in Trendyol GO, a wholly-owned subsidiary of Trendyol that operates local service business in Türkiye. The cash consideration for the disposal is approximately US$0.7 billion (RMB5 billion). The disposal was completed during the year ended March 31, 2026. As of the date of this annual report, we did not have detailed future plans for material investments, although from time to time, we may be evaluating potential opportunities for investments, acquisitions and dispositions, including opportunities that may be significant. Intangible Assets and Goodwill When we make an acquisition, consideration that exceeds the acquisition date amounts of the acquired assets and liabilities is allocated to intangible assets and goodwill. We have and will continue to incur amortization expenses as we amortize intangible assets over their estimated useful life on a straight-line basis. We do not amortize goodwill. We test intangible assets and goodwill periodically or whenever necessary for impairment, and any 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. We recognized impairment charges on intangible assets of RMB634 million in fiscal year 2025, mainly relating to All others, and RMB1,729 million (US$251 million) in fiscal year 2026, mainly relating to Alibaba China E-commerce Group. We recognized impairment charges on goodwill of RMB6,171 million and RMB9,515 million (US$1,380 million) in fiscal years 2025 and 2026 respectively. Impairment charges on goodwill recorded for both years were related to All others. For additional information, see “— Critical Accounting Policies and Estimates — Impairment Assessment on Goodwill and Intangible Assets” and “Item 3. Key Information — D. Risk Factors — Risks Related to Our Business and Industry — We face risks relating to our acquisitions, investments and alliances.” 127 Table of Contents Components of Results of Operations Revenue The following table sets forth our revenues by segment, presented before inter-segment elimination, for the periods indicated (1): Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Alibaba China E-commerce Group: E-commerce - Customer management 307,950 326,769 343,867 49,850 - Direct sales, logistics and others (2) 110,820 103,722 105,518 15,297 418,770 430,491 449,385 65,147 Quick commerce (3) 50,852 53,588 78,520 11,383 China commerce wholesale 20,479 24,301 26,312 3,815 Total Alibaba China E-commerce Group 490,101 508,380 554,217 80,345 Alibaba International Digital Commerce Group: International commerce retail 81,654 108,465 117,731 17,067 International commerce wholesale 20,944 23,835 26,439 3,833 Total Alibaba International Digital Commerce Group 102,598 132,300 144,170 20,900 Cloud Intelligence Group 106,374 118,028 158,132 22,924 All others (4) 317,539 338,347 254,367 36,876 Unallocated 1,297 1,924 2,340 339 Inter-segment elimination (76,741 ) (102,632 ) (89,556 ) (12,983 ) Consolidated revenue 941,168 996,347 1,023,670 148,401 1.During fiscal year 2026, to advance our “user first” strategy and enhance user experience, we undertook a strategic combination of Taobao and Tmall Group, Ele.me and Fliggy into Alibaba China E-commerce Group. We simplified the financial reporting structure by reclassifying Cainiao, Amap and Hujing Digital Media and Entertainment Group into “All others”. The above presentation has been updated to conform with the new reporting structure, as reviewed by our chief operating decision maker. 2.Direct sales, logistics and others revenue under Alibaba China E-commerce Group primarily represents direct sales businesses of Tmall Supermarket, Tmall Global and other businesses, where revenue and cost of inventory are recorded on a gross basis within the business group, as well as revenue from logistics services and other value-added services. 3.Quick commerce revenue represents quick commerce business revenue, including revenue generated through “Taobao Instant Commerce” and the Ele.me app. Quick commerce revenue is net of subsidies that are contra revenue. 4.All others include Freshippo, Cainiao, Alibaba Health, Hujing Digital Media and Entertainment Group, Amap, Qwen Consumer Business Group, Lingxi Games, DingTalk and other businesses. The majority of revenue within All others consists of direct sales, where revenue and cost of inventory are recorded on a gross basis, and revenue from logistics services. See “— Our Monetization Model” for additional information regarding our revenue. 128 Table of Contents Cost of Revenue The principal components of our cost of revenue include: cost of inventories; logistics costs; expenses associated with the operation of our mobile platforms and websites, such as depreciation and maintenance expenses for our servers and computers, call centers and other equipment, as well as bandwidth and co-location fees; salaries, bonuses, benefits and share-based compensation expense relating to customer service, mobile platform and platform operation personnel as well as payment processing consultants; traffic acquisition costs paid to third-party marketing affiliates either at a fixed price or on a revenue-sharing basis; content acquisition costs paid to third parties and production costs of original content for our online media properties; payment processing fees paid to Alipay or other financial institutions; and other miscellaneous costs. Product Development Expenses Product development expenses primarily include salaries, bonuses, benefits and share-based compensation expense for research and development personnel and other expenses that are directly attributable to the development of new technologies and products for our businesses, such as the development of the technology and Internet infrastructure, applications, operating systems, software, databases and networks. Sales and Marketing Expenses Sales and marketing expenses primarily consist of online and offline advertising expenses, promotion expenses, salaries, bonuses, benefits and share-based compensation expense for our employees engaged in sales and marketing functions, and sales commissions paid for membership and user acquisition for our marketplaces and platforms. General and Administrative Expenses General and administrative expenses mainly consist of salaries, bonuses, benefits and share-based compensation expense for our management and administrative employees, office facilities and other support overhead costs, professional services fees, provision for doubtful debts on receivables, charitable contributions, as well as non-recurring items. Interest and Investment Income, Net Interest and investment income, net mainly consists of interest income, gain or loss on deemed disposals, disposals and revaluation of our long-term equity investments and impairment of equity investments. Interest Expense Our interest expense is comprised of interest payments and amortization of upfront fees and incidental charges primarily associated with our US$8.0 billion unsecured senior notes issued in November 2014, of which US$7.3 billion was repaid in 2017, 2019, 2021 and 2024, an aggregate of US$7.0 billion unsecured senior notes issued in December 2017, of which US$0.7 billion was repaid in June 2023, an aggregate of US$5.0 billion unsecured senior notes issued in February 2021, an aggregate of US$5.0 billion convertible unsecured senior notes issued in May 2024, an aggregate of US$2.65 billion U.S. dollar-denominated unsecured senior notes and RMB17 billion (US$2.3 billion) RMB-denominated unsecured senior notes issued in November 2024, US$4.0 billion five-year term loan facility drawn down in fiscal year 2017, which was partially repaid and reduced to US$3.17 billion in January 2025 and was subsequently fully repaid in December 2025, as well as a bank borrowing amounting to RMB3.9 billion (US$0.6 billion) under the ancillary facility arrangement by way of short-term loan facilities. Other Income, Net Other income, net, primarily consists of exchange gain or loss and government grants. Exchange gain or loss, arising from our operations and treasury management activities, recognized in our income statement is largely affected by exchange rate fluctuation among Renminbi, U.S. dollar and Turkish lira. 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 the income when the grants are received and no further conditions need to be met. 129 Table of Contents Income Tax Expenses Our income tax expenses are comprised primarily of current tax expense, mainly attributable to certain profitable subsidiaries in China, and deferred tax expense, mainly related to temporary differences in relation to tax losses carried forward, investments as well as property and equipment, and withholding tax on dividends to be distributed by our PRC operating subsidiaries. Taxation Cayman Islands 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 at a rate of 16.5% in fiscal years 2024, 2025 and 2026. PRC Income Tax Under the 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%. The High and New Technology Enterprise qualification is re-assessed by the relevant authorities every three years. Entities recognized as Software Enterprises are exempt from the EIT for two years beginning from their first profitable calendar year and are entitled to a 50% reduction in EIT for the following three consecutive calendar years. Furthermore, entities recognized as Key Software Enterprises (KSE) within the PRC national plan enjoy a preferential EIT rate of 10%. KSE status is subject to review by the relevant authorities every year and the timing of annual review and notification by the relevant authorities may vary from year to year. The related reduction in tax expense as a result of official notification confirming KSE status is accounted for upon receipt of such notification. Certain subsidiaries received the above preferential tax treatments during calendar years 2023, 2024, 2025 and 2026. Five of our wholly-owned subsidiaries in China, including Alibaba (China) Technology Co., Ltd., Taobao (China) Software Co., Ltd., Zhejiang Tmall Technology Co., Ltd., which are primarily engaged in the operations of wholesale marketplaces, Taobao, and Tmall, respectively, and Alibaba (Beijing) Software Services Co., Ltd. and Alibaba (China) Co., Ltd., which are primarily engaged in the operations of technology, software research and development and relevant services, were qualified as High and New Technology Enterprises and they were subject to an EIT rate of 15%. VAT and Other Levies Our major PRC subsidiaries are subject to VAT on revenue earned for our services under a national VAT reform program. In general, the applicable VAT rate on the revenue earned for services is 6% with companies entitled to crediting 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 25% equity interest in the PRC company and meeting the relevant conditions or requirements pursuant to the tax arrangement between Chinese mainland and Hong Kong SAR. As the equity holders of our PRC operating subsidiaries are qualified Hong Kong incorporated companies, our deferred tax liabilities for distributable earnings are calculated at a 5% withholding tax rate. As of March 31, 2026, we have accrued the withholding tax on substantially all of the earnings distributable by our subsidiaries in China, except for those being reserved for permanent reinvestment in China of RMB278.9 billion (US$40.4 billion). 130 Table of Contents Share-based Compensation We provide share-based awards to eligible grantees and believe share-based awards are vital to attract, incentivize and retain our employees and are the appropriate tool to align the interests of the grantees with those of our shareholders. For further information about the equity incentive plans of our Company, see “Item 6. Directors, Senior Management and Employees — B. Compensation — Equity Incentive Plans.” In addition, prior to 2023, Junhan and Ant Group granted share-based awards to our employees, and the awards are settled by Junhan or Ant Group respectively. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements and Transactions Related to Ant Group and Its Subsidiaries — Our Commercial Arrangements with Ant Group and Alipay — Share-based Award Arrangements.” We recognized share-based compensation expense of RMB18,546 million, RMB15,577 million and RMB14,821 million (US$2,149 million) in fiscal years 2024, 2025 and 2026, respectively, representing 2%, 2% and 1% of our revenue in those respective periods. The following table sets forth an analysis of share-based compensation expense by function for the periods indicated: Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Cost of revenue 3,012 2,162 2,023 293 Product development expenses 7,623 6,700 6,016 872 Sales and marketing expenses 2,265 2,137 2,321 337 General and administrative expenses 5,646 4,578 4,461 647 Total 18,546 15,577 14,821 2,149 The following table sets forth an analysis of share-based compensation expense by type of awards for the periods indicated: Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Alibaba Group share-based awards(1) 17,974 11,121 9,146 1,326 Others(2) 572 4,456 5,675 823 Total share-based compensation expense(3) 18,546 15,577 14,821 2,149 (1)This represents Alibaba Group share-based awards granted to our employees. (2)This represents share-based awards of our subsidiaries and Ant Group granted to our employees. (3)This includes both cash and non-cash share-based compensation expenses. Share-based compensation expense decreased in fiscal year 2026 compared to fiscal year 2025. This decrease was primarily due to the decrease in the number of the awards granted as we have increased the proportion of long-term cash incentives granted after considering the macroeconomic environment and the general trends in the talent market. Others in fiscal year 2024 includes a net reversal in share-based compensation expense related to Ant Group share-based awards amounted to RMB6,691 million, because we made a mark-to-market adjustment during the fiscal year relating to Ant Group share-based awards granted to our employees, reflecting a decrease in the value of Ant Group. We expect that our share-based compensation expense will continue to be affected by changes in the fair value of the underlying awards and the quantity of awards we grant in the future. See “— Critical Accounting Policies and Estimates — Share-based Compensation Expense and Valuation of the Underlying Awards” below for additional information regarding our share-based compensation expense. 131 Table of Contents Results of Operations The following tables set out our consolidated results of operations for the periods indicated: Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions, except per share data) Revenue 941,168 996,347 1,023,670 148,401 Cost of revenue (586,323 ) (598,285 ) (616,136 ) (89,321 ) Product development expenses (52,256 ) (57,151 ) (66,533 ) (9,645 ) Sales and marketing expenses (115,141 ) (144,021 ) (245,023 ) (35,521 ) General and administrative expenses (41,985 ) (44,239 ) (33,082 ) (4,796 ) Amortization and impairment of intangible assets (21,592 ) (6,336 ) (5,079 ) (736 ) Impairment of goodwill (10,521 ) (6,171 ) (9,515 ) (1,380 ) Other gains, net — 761 1,848 268 Income from operations 113,350 140,905 50,150 7,270 Interest and investment income, net (9,964 ) 20,759 87,512 12,687 Interest expense (7,947 ) (9,596 ) (9,793 ) (1,420 ) Other income, net 6,157 3,387 1,518 220 Income before income tax and share of results of equity method investees 101,596 155,455 129,387 18,757 Income tax expenses (22,529 ) (35,445 ) (30,045 ) (4,356 ) Share of results of equity method investees (7,735 ) 5,966 2,785 404 Net income 71,332 125,976 102,127 14,805 Net loss attributable to noncontrolling interests 8,677 4,133 1,465 213 Net income attributable to Alibaba Group Holding Limited 80,009 130,109 103,592 15,018 (Accretion) Reversal of accretion of mezzanine equity (268 ) (639 ) 2,312 335 Net income attributable to ordinary shareholders 79,741 129,470 105,904 15,353 Earnings per share attributable to ordinary shareholders(1) Basic 3.95 6.89 5.70 0.83 Diluted 3.91 6.70 5.50 0.80 Earnings per ADS attributable to ordinary shareholders(1) Basic 31.61 55.12 45.63 6.61 Diluted 31.24 53.59 44.00 6.38 (1)Each ADS represents eight Shares. 132 Table of Contents Year ended March 31, 2024 2025 2026 % % % (as percentage of revenue) Revenue 100 100 100 Cost of revenue (62 ) (60 ) (60 ) Product development expenses (6 ) (6 ) (7 ) Sales and marketing expenses (12 ) (14 ) (24 ) General and administrative expenses (5 ) (4 ) (3 ) Amortization and impairment of intangible assets (2 ) (1 ) — Impairment of goodwill (1 ) (1 ) (1 ) Other gains, net — — — Income from operations 12 14 5 Interest and investment income, net (1 ) 2 9 Interest expense (1 ) (1 ) (1 ) Other income, net — 1 — Income before income tax and share of results of equity method investees 10 16 13 Income tax expenses (2 ) (4 ) (3 ) Share of results of equity method investees (1 ) 1 — Net income 7 13 10 Net loss attributable to noncontrolling interests 1 — — Net income attributable to Alibaba Group Holding Limited 8 13 10 (Accretion) Reversal of accretion of mezzanine equity — — — Net income attributable to ordinary shareholders 8 13 10 133 Table of Contents Segment Information for Fiscal Years 2024, 2025 and 2026 The tables below set forth certain financial information of our operating segments, before inter-segment elimination, for the periods indicated(1): Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Alibaba China E-commerce Group: E-commerce - Customer management 307,950 326,769 343,867 49,850 - Direct sales, logistics and others (2) 110,820 103,722 105,518 15,297 418,770 430,491 449,385 65,147 Quick commerce (3) 50,852 53,588 78,520 11,383 China commerce wholesale 20,479 24,301 26,312 3,815 Total Alibaba China E-commerce Group 490,101 508,380 554,217 80,345 Alibaba International Digital Commerce Group: International commerce retail 81,654 108,465 117,731 17,067 International commerce wholesale 20,944 23,835 26,439 3,833 Total Alibaba International Digital Commerce Group 102,598 132,300 144,170 20,900 Cloud Intelligence Group 106,374 118,028 158,132 22,924 All others (4) 317,539 338,347 254,367 36,876 Unallocated 1,297 1,924 2,340 339 Inter-segment elimination (76,741 ) (102,632 ) (89,556 ) (12,983 ) Consolidated revenue 941,168 996,347 1,023,670 148,401 (1)During fiscal year 2026, to advance our “user first” strategy and enhance user experience, we undertook a strategic combination of Taobao and Tmall Group, Ele.me and Fliggy into Alibaba China E-commerce Group. We simplified the financial reporting structure by reclassifying Cainiao, Amap and Hujing Digital Media and Entertainment Group into “All others”. The above presentation has been updated to conform with the new reporting structure, as reviewed by our chief operating decision maker. (2)Direct sales, logistics and others revenue under Alibaba China E-commerce Group primarily represents direct sales businesses of Tmall Supermarket, Tmall Global and other businesses, where revenue and cost of inventory are recorded on a gross basis within the business group, as well as revenue from logistics services and other value-added services. (3)Quick commerce revenue represents quick commerce business revenue, including revenue generated through “Taobao Instant Commerce” and the Ele.me app. Quick commerce revenue is net of subsidies that are contra revenue. (4)All others include Freshippo, Cainiao, Alibaba Health, Hujing Digital Media and Entertainment Group, Amap, Qwen Consumer Business Group, Lingxi Games, DingTalk and other businesses. The majority of revenue within All others consists of direct sales, where revenue and cost of inventory are recorded on a gross basis, and revenue from logistics services. 134 Table of Contents Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Alibaba China E-commerce Group 186,970 193,223 107,509 15,586 Alibaba International Digital Commerce Group (8,035 ) (15,137 ) (2,051 ) (297 ) Cloud Intelligence Group 6,121 10,556 14,265 2,068 All others (2) (11,252 ) (9,499 ) (35,737 ) (5,181 ) Unallocated (3) (6,190 ) (4,337 ) (5,150 ) (747 ) Inter-segment elimination (2,586 ) (1,741 ) (2,420 ) (351 ) Consolidated adjusted EBITA 165,028 173,065 76,416 11,078 (1)During fiscal year 2026, to advance our “user first” strategy and enhance user experience, we undertook a strategic combination of Taobao and Tmall Group, Ele.me and Fliggy into Alibaba China E-commerce Group. We simplified the financial reporting structure by reclassifying Cainiao, Amap and Hujing Digital Media and Entertainment Group into “All others”. The above presentation has been updated to conform with the new reporting structure, as reviewed by our chief operating decision maker. (2)All others include Freshippo, Cainiao, Alibaba Health, Hujing Digital Media and Entertainment Group, Amap, Qwen Consumer Business Group, Lingxi Games, DingTalk and other businesses. (3)Unallocated primarily relates to certain costs incurred by corporate functions and other miscellaneous items that are not allocated to individual segments. Non-GAAP Measures We use adjusted EBITDA, adjusted EBITA, non‑GAAP net income, non‑GAAP diluted earnings per share/ADS 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, adjusted EBITA, non‑GAAP net income and non‑GAAP diluted earnings per share/ADS help identify underlying trends in our business that could otherwise be distorted by the effect of certain income or expenses that we include in income from operations, net income and diluted earnings per share/ADS. We believe that these non‑GAAP measures provide useful information about our core operating results, enhance the overall understanding of our past performance and future prospects and allow for greater visibility with respect to key metrics used by our management in its financial and operational decision‑making. We present three different income measures, namely adjusted EBITDA, adjusted EBITA and non-GAAP net income in order to provide more information and greater transparency to investors about our operating results. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by our business that can be used for strategic corporate transactions, including investing in our new business initiatives, making strategic investments and acquisitions and strengthening our balance sheet. Adjusted EBITDA, adjusted EBITA, non‑GAAP net income, non‑GAAP diluted earnings per share/ADS and free cash flow should not be considered in isolation or construed as an alternative to income from operations, net income, diluted earnings per share/ADS, cash flows or any other measure of performance or as an indicator of our operating performance. These non‑GAAP financial measures presented here do not have standardized meanings prescribed by U.S. GAAP and may not be comparable to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently, limiting their usefulness as comparative measures to our data. Adjusted EBITDA represents net income before interest and investment income, net, interest expense, other income (expense), net, income tax expenses, share of results of equity method investees, certain non-cash expenses, consisting of share-based compensation expense, amortization and impairment of intangible assets, impairment of goodwill, depreciation and impairment of property and equipment, and operating lease cost relating to land use rights, and others (including provision in relation to matters outside the ordinary course of business), which we do not believe are reflective of our core operating performance during the periods presented. Adjusted EBITA represents net income before interest and investment income, net, interest expense, other income (expense), net, income tax expenses, share of results of equity method investees, certain non-cash expenses, consisting of share-based compensation expense, amortization and impairment of intangible assets, impairment of goodwill, and others (including provision in relation to matters outside the ordinary course of business), which we do not believe are reflective of our core operating performance during the periods presented. Non‑GAAP net income represents net income before non-cash share-based compensation expense, amortization and impairment of intangible assets, gain or loss on deemed disposals/disposals/revaluation of investments, impairment of goodwill and investments, and others (including provision in relation to matters outside the ordinary course of business), and adjustments for the tax effects. 135 Table of Contents Non‑GAAP diluted earnings per share represents non-GAAP net income attributable to ordinary shareholders divided by the weighted average number of outstanding ordinary shares, in each case for computing non-GAAP diluted earnings per share on a diluted basis. Non-GAAP diluted earnings per ADS represents non-GAAP diluted earnings per share after adjusting for the ordinary share-to-ADS ratio. Free cash flow represents net cash provided by operating activities as presented in our consolidated cash flow statement less purchases of property and equipment (excluding acquisition of land use rights and construction in progress relating to office campuses) and intangible assets (excluding those acquired through acquisitions), as well as adjustments to exclude from net cash provided by operating activities the buyer protection fund deposits from merchants on our marketplaces. We deduct certain items of cash flows from investing activities in order to provide greater transparency into cash flow from our revenue-generating business operations. We exclude “acquisition of land use rights and construction in progress relating to office campuses” because the office campuses are used by us for corporate and administrative purposes and are not directly related to our revenue-generating business operations. We also exclude buyer protection fund deposits from merchants on our marketplaces because these deposits are restricted for the purpose of compensating buyers for claims against merchants. The following table sets forth a reconciliation of our net income to adjusted EBITA and adjusted EBITDA for the periods indicated: Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Net income 71,332 125,976 102,127 14,805 Adjustments to reconcile net income to adjusted EBITA and adjusted EBITDA: Interest and investment income, net 9,964 (20,759 ) (87,512 ) (12,687 ) Interest expense 7,947 9,596 9,793 1,420 Other income, net (6,157 ) (3,387 ) (1,518 ) (220 ) Income tax expenses 22,529 35,445 30,045 4,356 Share of results of equity method investees 7,735 (5,966 ) (2,785 ) (404 ) Income from operations 113,350 140,905 50,150 7,270 Non-cash share-based compensation expense 18,546 13,970 11,180 1,621 Amortization and impairment of intangible assets 21,592 6,336 5,079 736 Impairment of goodwill, and others 11,540 11,854 10,007 1,451 Adjusted EBITA 165,028 173,065 76,416 11,078 Depreciation and impairment of property and equipment, and operating lease cost relating to land use rights 26,640 29,260 37,067 5,374 Adjusted EBITDA 191,668 202,325 113,483 16,452 The following table sets forth a reconciliation of our net income to non‑GAAP net income for the periods indicated: Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Net income 71,332 125,976 102,127 14,805 Adjustments to reconcile net income to non-GAAP net income: Non-cash share-based compensation expense 18,546 13,970 11,180 1,621 Amortization and impairment of intangible assets 21,592 6,336 5,079 736 Loss (Gain) on deemed disposals/disposals/revaluation of investments 21,659 (8,764 ) (74,416 ) (10,788 ) Impairment of goodwill and investments, and others 33,679 22,435 17,746 2,573 Tax effects(1) (9,329 ) (1,831 ) (1,058 ) (153 ) Non-GAAP net income 157,479 158,122 60,658 8,794 (1)Tax effects primarily comprises tax effects relating to non-cash share-based compensation expense, amortization and impairment of intangible assets and certain gains and losses from investments, and others. 136 Table of Contents The following table sets forth a reconciliation of our diluted earnings per share/ADS to non‑GAAP diluted earnings per share/ADS for the periods indicated: Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions, except per share data) Net income attributable to ordinary shareholders - basic 79,741 129,470 105,904 15,353 Dilution effect on earnings arising from non-cash share-based awards operated by equity method investees and subsidiaries (228 ) (300 ) (410 ) (59 ) Adjustments for interest expense attributable to convertible unsecured senior notes — 235 309 45 Net income attributable to ordinary shareholders - diluted 79,513 129,405 105,803 15,339 Non-GAAP adjustments to net income attributable to ordinary shareholders(1) 78,846 28,535 (41,365 ) (5,997 ) Non-GAAP net income attributable to ordinary shareholders for computing non-GAAP diluted earnings per share/ADS 158,359 157,940 64,438 9,342 Weighted average number of shares on a diluted basis for computing non-GAAP diluted earnings per share/ADS (million shares)(2) 20,359 19,318 19,235 Diluted earnings per share(2) (3) 3.91 6.70 5.50 0.80 Non-GAAP diluted earnings per share(2) (4) 7.78 8.18 3.35 0.49 Diluted earnings per ADS(2) (3) 31.24 53.59 44.00 6.38 Non-GAAP diluted earnings per ADS(2) (4) 62.23 65.41 26.80 3.89 (1)Non-GAAP adjustments excluding the attributions to the noncontrolling interests for computing non-GAAP diluted earnings per share/ADS. See the table above for items regarding the reconciliation of net income to non‑GAAP net income (before taking into account the dilutive impact and excluding the attributions to the noncontrolling interests). (2)Each ADS represents eight ordinary shares. (3)Diluted earnings per share is derived from dividing net income attributable to ordinary shareholders by the weighted average number of outstanding ordinary shares, on a diluted basis. Diluted earnings per ADS is derived from the diluted earnings per share after adjusting for the ordinary share-to-ADS ratio. (4)Non-GAAP diluted earnings per share is derived from dividing non-GAAP net income attributable to ordinary shareholders by the weighted average number of outstanding ordinary shares, in each case for computing non-GAAP diluted earnings per share, on a diluted basis. Non-GAAP diluted earnings per ADS is derived from the non-GAAP diluted earnings per share after adjusting for the ordinary share-to-ADS ratio. 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, 2024 2025 2026 RMB RMB RMB US$ (in millions) Net cash provided by operating activities 182,593 163,509 76,213 11,049 Less: Purchase of property and equipment (excluding land use rights and construction in progress relating to office campuses) (27,579 ) (84,278 ) (122,021 ) (17,689 ) Less: Purchase of intangible assets (excluding those acquired through acquisitions) (842 ) — (874 ) (127 ) Less: Changes in the buyer protection fund deposits 2,038 (5,361 ) 73 10 Free cash flow 156,210 73,870 (46,609 ) (6,757 ) 137 Table of Contents Comparison of Fiscal Years 2025 and 2026 Revenue Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (in millions, except percentages) Alibaba China E-commerce Group: E-commerce - Customer management 326,769 343,867 49,850 5 % - Direct sales, logistics and others (2) 103,722 105,518 15,297 2 % 430,491 449,385 65,147 4 % Quick commerce (3) 53,588 78,520 11,383 47 % China commerce wholesale 24,301 26,312 3,815 8 % Total Alibaba China E-commerce Group 508,380 554,217 80,345 9 % Alibaba International Digital Commerce Group: International commerce retail 108,465 117,731 17,067 9 % International commerce wholesale 23,835 26,439 3,833 11 % Total Alibaba International Digital Commerce Group 132,300 144,170 20,900 9 % Cloud Intelligence Group 118,028 158,132 22,924 34 % All others (4) 338,347 254,367 36,876 (25 )% Unallocated 1,924 2,340 339 Inter-segment elimination (102,632 ) (89,556 ) (12,983 ) Consolidated revenue 996,347 1,023,670 148,401 3 % (1)During fiscal year 2026, to advance our “user first” strategy and enhance user experience, we undertook a strategic combination of Taobao and Tmall Group, Ele.me and Fliggy into Alibaba China E-commerce Group. We simplified the financial reporting structure by reclassifying Cainiao, Amap and Hujing Digital Media and Entertainment Group into “All others”. The above presentation has been updated to conform with the new reporting structure, as reviewed by our chief operating decision maker. (2)Direct sales, logistics and others revenue under Alibaba China E-commerce Group primarily represents direct sales businesses of Tmall Supermarket, Tmall Global and other businesses, where revenue and cost of inventory are recorded on a gross basis within the business group, as well as other revenue from logistics services and other value-added services. (3)Quick commerce revenue represents quick commerce business revenue, including revenue generated through “Taobao Instant Commerce” and the Ele.me app. Quick commerce revenue is net of subsidies that are contra revenue. (4)All others include Freshippo, Cainiao, Alibaba Health, Hujing Digital Media and Entertainment Group, Amap, Qwen Consumer Business Group, Lingxi Games, DingTalk and other businesses. The majority of revenue within All others consists of direct sales revenue, where revenue and cost of inventory are recorded on a gross basis, and revenue from logistics services. Total revenue increased by 3% from RMB996,347 million in fiscal year 2025 to RMB1,023,670 million (US$148,401 million) in fiscal year 2026. Excluding revenue from the disposed businesses of Sun Art and Intime, revenue on a like-for-like basis would have grown by 11% year-over-year. 138 Table of Contents Adjusted EBITA Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (3) (in millions, except percentages) Alibaba China E-commerce Group 193,223 107,509 15,586 (44 )% Alibaba International Digital Commerce Group (15,137 ) (2,051 ) (297 ) 86 % Cloud Intelligence Group 10,556 14,265 2,068 35 % All others (9,499 ) (35,737 ) (5,181 ) (276 )% Unallocated (2) (4,337 ) (5,150 ) (747 ) Inter-segment elimination (1,741 ) (2,420 ) (351 ) Consolidated adjusted EBITA 173,065 76,416 11,078 (56 )% (1)During fiscal year 2026, to advance our “user first” strategy and enhance user experience, we undertook a strategic combination of Taobao and Tmall Group, Ele.me and Fliggy into Alibaba China E-commerce Group. We simplified the financial reporting structure by reclassifying Cainiao, Amap and Hujing Digital Media and Entertainment Group into “All others”. The above presentation has been updated to conform with the new reporting structure, as reviewed by our chief operating decision maker. (2)Unallocated primarily relates to certain costs incurred by corporate functions and other miscellaneous items that are not allocated to individual segments. (3)For a more intuitive presentation, widening of loss in YoY% is shown in terms of negative growth rate, and narrowing of loss in YoY% is shown in terms of positive growth rate. Alibaba China-E-commerce Group (i)Segment revenue •E-commerce Business Revenue from our E-commerce business in fiscal year 2026 was RMB449,385 million (US$65,147 million), increased by 4% compared to RMB430,491 million in fiscal year 2025. Customer management revenue increased by 5% year-over-year, driven by the improvement of take rate. Direct sales, logistics and others revenue under E-commerce business in fiscal year 2026 was RMB105,518 million (US$15,297 million), increased by 2% compared to RMB103,722 million in fiscal year 2025, primarily due to the increase in revenue from logistics services and value-added services, partly offset by the decrease in revenue from certain direct sales businesses. •Quick Commerce Business Revenue from our Quick commerce business in fiscal year 2026 was RMB78,520 million (US$11,383 million), increased by 47% compared to RMB53,588 million in fiscal year 2025, mainly due to order growth as a result of the rollout of “Taobao Instant Commerce” at the end of April 2025. •China Commerce Wholesale Business Revenue from our China commerce wholesale business in fiscal year 2026 was RMB26,312 million (US$3,815 million), increased by 8% compared to RMB24,301 million in fiscal year 2025, primarily due to an increase in revenue from value-added services provided to paying members. (ii)Segment adjusted EBITA Alibaba China E-commerce Group adjusted EBITA decreased by 44% to RMB107,509 million (US$15,586 million) in fiscal year 2026, compared to RMB193,223 million in fiscal year 2025, primarily due to the investment in quick commerce, user experiences, and technology, while there is positive contribution from customer management service. 139 Table of Contents Alibaba International Digital Commerce Group (i)Segment revenue •International Commerce Retail Business Revenue from our International commerce retail business in fiscal year 2026 was RMB117,731 million (US$17,067 million), increased by 9% compared to RMB108,465 million in fiscal year 2025, primarily driven by the increase in revenue contributed by AliExpress and other international businesses, and partly offset by the revenue decrease of Lazada. Of which, the year-over-year growth contributed by AliExpress and other international businesses of 6% and 6%, respectively, partly offset by a 3% decline from Lazada, resulting to a total increase of 9%. As certain of our international businesses generate revenue in local currencies while our reporting currency is Renminbi, AIDC’s revenue is affected by exchange rate fluctuations. •International Commerce Wholesale Business Revenue from our International commerce wholesale business in fiscal year 2026 was RMB26,439 million (US$3,833 million), increased by 11% compared to RMB23,835 million in fiscal year 2025. The increase was primarily due to an increase in revenue generated by cross-border related value-added services. (ii)Segment adjusted EBITA Alibaba International Digital Commerce Group adjusted EBITA was a loss of RMB2,051 million (US$297 million) in fiscal year 2026, compared to a loss of RMB15,137 million in fiscal year 2025, primarily due to significant improvement in AliExpress’ operating efficiency, and enhanced efficiencies across various businesses. Cloud Intelligence Group (i)Segment revenue Revenue from Cloud Intelligence Group was RMB158,132 million (US$22,924 million) in fiscal year 2026, increased by 34% compared to RMB118,028 million in fiscal year 2025. Overall revenue excluding Alibaba-consolidated subsidiaries increased by 33% year-over-year, primarily driven by public cloud revenue growth, including the increasing adoption of AI-related products. (ii)Segment adjusted EBITA Cloud Intelligence Group adjusted EBITA increased by 35% to RMB14,265 million (US$2,068 million) in fiscal year 2026, compared to RMB10,556 million in fiscal year 2025, primarily due to revenue growth and improving operating efficiency, partly offset by the increasing investments in customer growth and technology innovation. All others (i)Segment revenue Revenue from All others segment was RMB254,367 million (US$36,876 million) in fiscal year 2026, decreased by 25% compared to RMB338,347 million in fiscal year 2025, primarily due to the revenue decrease as a result of the disposal of Sun Art and Intime businesses, as well as the decrease in revenue from Cainiao, partly offset by the increase in revenue from Freshippo, Alibaba Health and Amap. (ii)Segment adjusted EBITA Adjusted EBITA from All others segment in fiscal year 2026 was a loss of RMB35,737 million (US$5,181 million), compared to a loss of RMB9,499 million in fiscal year 2025, primarily due to the increased investment in technology businesses, partly offset by the improved results of Hujing Digital Media and Entertainment Group and other businesses. 140 Table of Contents Cost of Revenue Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (in millions, except percentages) Cost of revenue 598,285 616,136 89,321 3 % Percentage of revenue 60 % 60 % Share-based compensation expense included in cost of revenue 2,162 2,023 293 (6 )% Percentage of revenue 0 % 0 % Cost of revenue excluding share-based compensation expense 596,123 614,113 89,028 3 % Percentage of revenue 60 % 60 % Our cost of revenue increased by 3% from RMB598,285 million in fiscal year 2025 to RMB616,136 million (US$89,321 million) in fiscal year 2026. Without the effect of share-based compensation expense, cost of revenue as a percentage of revenue would have remained stable at 60% in fiscal year 2026 compared to fiscal year 2025, primarily driven by our expansion in quick commerce business, and the growth in our cloud and technology businesses, partly offset by the disposal of Sun Art and Intime businesses, improvement in monetization and operating efficiency. Product Development Expenses Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (in millions, except percentages) Product development expenses 57,151 66,533 9,645 16 % Percentage of revenue 6 % 7 % Share-based compensation expense included in product development expenses 6,700 6,016 872 (10 )% Percentage of revenue 1 % 1 % Product development expenses excluding share-based compensation expense 50,451 60,517 8,773 20 % Percentage of revenue 5 % 6 % Our product development expenses increased by 16% from RMB57,151 million in fiscal year 2025 to RMB66,533 million (US$9,645 million) in fiscal year 2026. Without the effect of share-based compensation expense, product development expenses as a percentage of revenue would have increased from 5% in fiscal year 2025 to 6% in fiscal year 2026. Sales and Marketing Expenses Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (in millions, except percentages) Sales and marketing expenses 144,021 245,023 35,521 70 % Percentage of revenue 14 % 24 % Share-based compensation expense included in sales and marketing expenses 2,137 2,321 337 9 % Percentage of revenue 0 % 0 % Sales and marketing expenses excluding share-based compensation expense 141,884 242,702 35,184 71 % Percentage of revenue 14 % 24 % Our sales and marketing expenses increased by 70% from RMB144,021 million in fiscal year 2025 to RMB245,023 million (US$35,521 million) in fiscal year 2026. Without the effect of share-based compensation expense, sales and marketing expenses as a percentage of revenue would have increased from 14% in fiscal year 2025 to 24% in fiscal year 2026, primarily attributable to the investment in user experiences of Alibaba China E-commerce Group and user acquisition of Qwen app. 141 Table of Contents General and Administrative Expenses Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (in millions, except percentages) General and administrative expenses 44,239 33,082 4,796 (25 )% Percentage of revenue 4 % 3 % Share-based compensation expense included in general and administrative expenses 4,578 4,461 647 (3 )% Percentage of revenue 0 % 0 % General and administrative expenses excluding share-based compensation expense 39,661 28,621 4,149 (28 )% Percentage of revenue 4 % 3 % Our general and administrative expenses decreased by 25% from RMB44,239 million in fiscal year 2025 to RMB33,082 million (US$4,796 million) in fiscal year 2026. Without the effect of share-based compensation expense, general and administrative expenses as a percentage of revenue would have decreased from 4% in fiscal year 2025 to 3% in fiscal year 2026, primarily due to a one-time provision for the shareholder class action lawsuits in fiscal year 2025 and our enhanced cost control measures. Amortization and impairment of intangible assets Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (in millions, except percentages) Amortization and impairment of intangible assets 6,336 5,079 736 (20 )% Percentage of revenue 1 % 0 % Amortization and impairment of intangible assets decreased by 20% from RMB6,336 million in fiscal year 2025 to RMB5,079 million (US$736 million) in fiscal year 2026, primarily due to the full amortization of certain intangible assets, partly offset by the increase in impairment. During fiscal year 2026, impairment of intangible assets of RMB1,729 million (US$251 million) was recorded mainly relating to Alibaba China E-commerce Group. During fiscal year 2025, impairment of intangible assets of RMB634 million was recorded mainly relating to All others segment. Impairment of goodwill Impairment of goodwill in fiscal year 2026 was RMB9,515 million (US$1,380 million), increased by 54% or RMB3,344 million from RMB6,171 million in fiscal year 2025. Impairment recorded for both years were related to All others segment. Income from Operations Year ended March 31, 2025 2026 RMB RMB US$ YoY % Change (in millions, except percentages) Income from operations 140,905 50,150 7,270 (64 )% Percentage of revenue 14 % 5 % Share-based compensation expense included in income from operations 15,577 14,821 2,149 (5 )% Percentage of revenue 2 % 1 % Income from operations excluding share-based compensation expense 156,482 64,971 9,419 (58 )% Percentage of revenue 16 % 6 % Our income from operations decreased by 64% from RMB140,905 million, or 14% of revenue, in fiscal year 2025 to RMB50,150 million (US$7,270 million), or 5% of revenue, in fiscal year 2026. The year-over-year decrease was primarily attributable to the 142 Table of Contents decrease in adjusted EBITA and increase in impairment of goodwill, partly offset by the decrease in one-time provisions and non-cash share-based expenses. Interest and Investment Income, Net Interest and investment income, net in fiscal year 2026 was RMB87,512 million (US$12,687 million), compared to RMB20,759 million in fiscal year 2025, primarily due to the year-over-year increase in net gain from mark-to-market changes of our equity investments, as well as net gains from disposal of investments, including local consumer service business of Trendyol in fiscal year 2026, compared to losses on disposal of Sun Art and Intime in fiscal year 2025. Other Income, Net Other income, net in fiscal year 2026 was RMB1,518 million (US$220 million), compared to RMB3,387 million in fiscal year 2025, primarily due to the increase in net exchange loss, arising from the exchange rate fluctuation between Renminbi and U.S. dollar. Income Tax Expenses Income tax expenses in fiscal year 2026 were RMB30,045 million (US$4,356 million), compared to RMB35,445 million in fiscal year 2025. Share of Results of Equity Method Investees Share of results of equity method investees in fiscal year 2026 was RMB2,785 million (US$404 million), compared to RMB5,966 million in fiscal year 2025. Share of results of equity method investees in fiscal years 2025 and 2026 consisted of the following: Year ended March 31, 2025 2026 RMB RMB US$ (in millions) Share of profit (loss) of equity method investees: - Ant Group 12,648 5,048 732 - Others (2,276 ) 1,624 235 Impairment loss (2,723 ) (15 ) (2 ) Others(1) (1,683 ) (3,872 ) (561 ) Total 5,966 2,785 404 (1)“Others” mainly include basis differences arising from equity method investees, share-based compensation expense related to share-based awards granted to employees of our equity method investees, as well as gain or loss arising from the deemed disposal of the equity method investees. We record our share of results of all equity method investees one quarter in arrears. The year-over-year decrease in share of profit of Ant Group was mainly attributable to the increase in investments in new growth initiatives, including user growth, and technologies. Net Income Our net income in fiscal year 2026 was RMB102,127 million (US$14,805 million), decreased by 19% or RMB23,849 million, compared to RMB125,976 million in fiscal year 2025, primarily attributable to the decrease in income from operations, partly offset by the year-over-year increase in net gain from mark-to-market changes of our equity investments, as well as net gains from disposal of investments, including local consumer service business of Trendyol in fiscal year 2026, compared to losses on disposal of Sun Art and Intime in fiscal year 2025. Comparison of Fiscal Years 2024 and 2025 For a discussion of our results of operations for the fiscal year ended March 31, 2024 compared with the fiscal year ended March 31, 2025, see “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Comparison of Fiscal Years 2024 and 2025” of our annual report on Form 20-F for the fiscal year ended March 31, 2025, filed with the SEC on June 26, 2025. 143 Table of Contents Since fiscal year 2026, the Company has implemented a new organizational structure, which the CODM started to review information under a new reporting structure, and segment reporting has been updated to conform to this change. Comparative figures for segment presentation in this annual report for the fiscal years ended March 31, 2024 and 2025 were reclassified to conform with the new reporting structure. See note 5 and note 29 to our audited consolidated financial statements included in this annual report for further information. B. Liquidity and Capital Resources Liquidity and Capital Resources We fund our operations and strategic investments from cash generated from our operations and through debt and equity financing. We generated RMB182,593 million, RMB163,509 million and RMB76,213 million (US$11,049 million) of cash from operating activities for fiscal years 2024, 2025 and 2026, respectively. As of March 31, 2026, we had cash and cash equivalents of RMB131,530 million (US$19,068 million), short-term investments and other treasury investments that are unrestricted for withdrawal and use of RMB155,236 million (US$22,505 million) and RMB234,058 million (US$33,931 million) respectively, totaling RMB520,824 million (US$75,504 million). Short-term investments include investments in fixed deposits with original maturities between three months and one year and certain investments in wealth management products, certificates of deposit, marketable debt securities and other investments whereby we have the intention to redeem within one year. Other treasury investments mainly include investments in fixed deposits, certificates of deposit and marketable debt securities with original maturities over one year for treasury purposes. The remaining maturities of these treasury investments held by us generally range from one to five years. In November 2014, we issued unsecured senior notes, including floating rate and fixed rate notes, with varying maturities for an aggregate principal amount of US$8.0 billion. Interest on the unsecured senior notes is payable in arrears, quarterly for the floating rate notes and semi-annually for the fixed rate notes. We used the proceeds from the issuance of the unsecured senior notes to refinance our previous syndicated loan arrangements in the same amount. In November 2017, November 2019, November 2021 and November 2024, we repaid US$7.3 billion of our US$8.0 billion unsecured senior notes that became due. We are not subject to any financial covenant or other significant operating covenants under the unsecured senior notes. See note 22 to our audited consolidated financial statements included in this annual report for further information on unsecured senior notes. In March 2016, we signed a five-year US$3.0 billion syndicated loan agreement with a group of eight lead arrangers, which we subsequently drew down in April 2016. The loan was upsized from US$3.0 billion to US$4.0 billion in May 2016 through a general syndication and the upsized portion was subsequently drawn down in August 2016. The loan had a five-year bullet maturity and was priced at 110 basis points over London Interbank Offered Rate (“LIBOR”). In May 2019, we amended the pricing of the loan to 85 basis points over LIBOR and extended the maturity to May 2024. We further amended the pricing of the loan to 80 basis points over Secured Overnight Financing Rate (“SOFR”) with a credit adjustment spread in May 2023 and extended the maturity to May 2028 in July 2023. Following the partial repayment of US$830 million in January 2025, the size of the US$4.0 billion syndicated loan was reduced to US$3.17 billion. In September 2025, we amended the loan facility and reduced the pricing terms to SOFR plus 66 basis points. Effective in November 2025, the facility was restructured as a revolving credit facility with ancillary facility arrangement. The drawdowns are permitted in both U.S. dollars and Hong Kong dollars, and RMB is also permitted for ancillary facility. The expiration date of the facility was extended to September 30, 2028, with an option to further extend to September 30, 2030. The interest rate of the credit facility is 66 basis points over SOFR or Hong Kong Interbank Offered Rate (“HIBOR”), and the margin will be 81 basis points for the optional extension period. In December 2025, we repaid the outstanding balance of US$3.17 billion under the revolving credit facility. As of March 31, 2026, we had a total outstanding borrowing amount of RMB3.9 billion (US$0.6 billion) under the ancillary facility arrangement by way of short-term loan facilities and unutilised commitment of approximately US$2.6 billion. The use of proceeds of the loan is for general corporate and working capital purposes (including funding our acquisitions). In April 2017, we entered into a revolving credit facility agreement with certain financial institutions for an amount of US$5.15 billion, which we did not draw down during the availability period. The interest rate for this credit facility was calculated based on LIBOR plus 95 basis points. This loan facility is reserved for future general corporate and working capital purposes (including funding our acquisitions). In June 2021, the terms of this facility were amended and the amount of the credit facility was increased to US$6.5 billion. The expiration date of the credit facility was extended to June 2026. Under the terms of the amended facility, the interest rate on any outstanding utilized amount was calculated based on LIBOR plus 80 basis points. In May 2023, we amended the pricing of the outstanding utilized amount to SOFR with a credit adjustment spread plus 80 basis points. In September 2025, we amended the terms of this revolving credit facility agreement. The size of the credit facility was amended to US$3.33 billion and the utilization currency was also amended from U.S. dollar only to both U.S. dollar and Hong Kong dollar. The interest rate of the credit facility was adjusted to SOFR or HIBOR plus 66 basis points. The expiration date of the credit facility was extended to September 30, 2028, with an option to further extend to September 30, 2030 and the margin will be 81 basis points for the optional extension period. We have not yet drawn down this facility as of March 31, 2026. 144 Table of Contents In December 2017, we issued an additional aggregate of US$7.0 billion unsecured senior notes. In June 2023, we repaid US$0.7 billion of our US$7.0 billion unsecured senior notes that became due. We are not subject to any financial covenant or other significant operating covenants under the unsecured senior notes. See note 22 to our audited consolidated financial statements included in this annual report for further information on unsecured senior notes. In February 2021, we issued unsecured fixed rate senior notes with varying maturities for an aggregate principal amount of US$5.0 billion. Interest on the unsecured senior notes is payable semi-annually. Except for the sustainability notes we set aside for an aggregate principal amount of US$1.0 billion, we have used the proceeds from the issuance of the remaining unsecured senior notes for general corporate purposes, including working capital needs, repayment of offshore debt and potential acquisitions of or investments in complementary businesses. We have used the net proceeds from the issuance of the sustainability notes to finance or refinance, in whole or in part, one or more of our new or existing eligible projects in accordance with our sustainable finance framework as described in the final prospectus supplement relating to the offering. Examples of eligible projects include those in the sectors of green buildings, energy efficiency, COVID-19 crisis response, renewable energy and circular economy and design. See note 22 to our audited consolidated financial statements included in this annual report for further information on unsecured senior notes. In May 2024, we issued convertible unsecured senior notes for an aggregate principal amount of US$5.0 billion due on June 1, 2031. The convertible unsecured senior notes are senior unsecured obligations, and interest at an annual rate of 0.5% is payable in arrears semiannually. We have used the proceeds from the issuance of the convertible unsecured senior notes to fund share repurchases and fund the cost of entering into capped call transactions. We are not subject to any financial covenant or other significant operating covenants under the convertible unsecured senior notes. See note 23 to our audited consolidated financial statements included in this annual report for further information on convertible unsecured senior notes. In November 2024, we issued unsecured fixed rate senior notes with varying maturities, consisting of U.S. dollar-denominated notes for an aggregate principal amount of US$2.65 billion and RMB-denominated notes for an aggregate principal amount of RMB17 billion (US$2.3 billion). The senior notes are senior unsecured obligations, and interest is payable in arrears semiannually. We intend to use the net proceeds from the offering of the unsecured fixed rate senior notes for general corporate purposes, including repayment of offshore debt and share repurchases. We are not subject to any financial covenant or other significant operating covenants under the unsecured senior notes. See note 22 to our audited consolidated financial statements included in this annual report for further information on unsecured senior notes. In July 2025, we issued zero coupon exchangeable bonds due 2032 by reference to the ordinary shares of our subsidiary, Alibaba Health Information Technology Limited, that are listed on the Hong Kong Stock Exchange, for an aggregate principal amount of approximately HK$12 billion. We intend to use the net proceeds from the offering of the exchangeable bonds for general corporate purposes, including investments to support the development of our cloud infrastructure and international commerce businesses. We are not subject to any financial covenant or other significant operating covenants under the exchangeable bonds. See note 24 to our audited consolidated financial statements included in this annual report for further information on exchangeable bonds. In September 2025, we issued zero coupon convertible unsecured senior notes due 2032 for an aggregate principal amount of approximately US$3.2 billion. We intend to use the net proceeds from the offering of the convertible unsecured senior notes for general corporate purposes, with a strategic focus on strengthening its cloud infrastructure capabilities and international commerce business operations. We are not subject to any financial covenant or other significant operating covenants under the convertible unsecured senior notes. See note 23 to our audited consolidated financial statements included in this annual report for further information on convertible unsecured senior notes. As of March 31, 2026, we also had other bank borrowings of RMB71,774 million (US$10,405 million), primarily used for our capital expenditures and other working capital purposes. See note 21 to our audited consolidated financial statements included in this annual report for further information. We believe that our current levels of cash and cash flows from operations will be sufficient to meet our anticipated cash needs for at least the next twelve months. However, we may need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions, which may include investing in technology, infrastructure, including data management and analytics solutions, or related talent. If we determine that our cash requirements exceed our amounts of cash on hand or if we decide to further optimize our capital structure, we may seek to issue additional debt or equity securities or obtain credit facilities or other sources of funding. 145 Table of Contents The following table sets out a summary of our cash flows for the periods indicated: Year ended March 31, 2024 2025 2026 RMB RMB RMB US$ (in millions) Net cash provided by operating activities 182,593 163,509 76,213 11,049 Net cash used in investing activities (21,824 ) (185,415 ) (67,336 ) (9,762 ) Net cash used in financing activities (108,244 ) (76,215 ) (20,573 ) (2,983 ) Cash Flows from Operating Activities Net cash provided by operating activities in fiscal year 2026 was RMB76,213 million (US$11,049 million), and primarily consisted of net income of RMB102,127 million (US$14,805 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 gain related to equity securities and other investments of RMB66,089 million (US$9,581 million), depreciation and impairment of property and equipment, and operating lease cost relating to land use rights of RMB37,067 million (US$5,374 million), impairment of goodwill, intangible assets and licensed copyrights of RMB11,244 million (US$1,631 million), equity-settled share-based compensation expense of RMB11,180 million (US$1,621 million), and amortization of intangible assets and licensed copyrights of RMB10,051 million (US$1,456 million). Changes in working capital and other activities mainly consisted of an increase of RMB67,931 million (US$9,847 million) in prepayments, receivables and other assets, and long-term licensed copyrights, partially offset by an increase of RMB37,933 million (US$5,499 million) in accrued expenses, accounts payable and other liabilities. Net cash provided by operating activities in fiscal year 2025 was RMB163,509 million, and primarily consisted of net income of RMB125,976 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 depreciation and impairment of property and equipment, and operating lease cost relating to land use rights of RMB29,260 million, gain related to equity securities and other investments of RMB28,652 million, loss on disposals of subsidiaries of RMB21,509 million, equity-settled share-based compensation expense of RMB13,970 million, and amortization of intangible assets and licensed copyrights of RMB13,199 million. Changes in working capital and other activities mainly consisted of an increase of RMB50,590 million in prepayments, receivables and other assets, and long-term licensed copyrights, partially offset by an increase of RMB25,873 million in accrued expenses, accounts payable and other liabilities. Net cash provided by operating activities in fiscal year 2026 was RMB76,213 million (US$11,049 million), decreased by 53% compared to RMB163,509 million in fiscal year 2025. The year-over-year decrease mainly attributed to the investment in quick commerce and increase in our cloud infrastructure expenditure. Please also see our consolidated statements of cash flows set forth in our audited consolidated financial statements included in this annual report. Cash Flows from Investing Activities Net cash used in investing activities in fiscal year 2026 was RMB67,336 million (US$9,762 million) primarily reflected capital expenditures of RMB126,063 million (US$18,275 million), partly offset by a net decrease in short-term investments and other treasury investments by RMB29,548 million (US$4,284 million) and net cash inflow of RMB29,045 million (US$4,211 million) from investment and acquisition activities. Net cash used in investing activities in fiscal year 2025 was RMB185,415 million primarily reflected an net increase in short-term investments and other treasury investments by RMB102,646 million and capital expenditures of RMB85,972 million. Cash Flows from Financing Activities Net cash used in financing activities in fiscal year 2026 was RMB20,573 million (US$2,983 million) primarily reflected dividend payment of RMB33,732 million (US$4,890 million) and acquisition of additional equity interests in non-wholly owned subsidiaries of RMB16,768 million (US$2,431 million), partly offset by the net proceeds from issuance of convertible unsecured senior notes and the payments for capped call transactions of RMB20,967 million (US$3,040 million) and the net proceeds from issuance of exchangeable bonds of RMB10,986 million (US$1,593 million). Net cash used in financing activities in fiscal year 2025 was RMB76,215 million and was primarily reflected cash used in repurchase of ordinary shares of RMB86,662 million, dividend payment of RMB29,077 million and acquisition of additional equity interests in 146 Table of Contents non-wholly owned subsidiaries of RMB21,949 million, partly offset by net proceeds from the issuance of unsecured and convertible senior notes and the payments for capped call transactions of RMB67,032 million. Capital Expenditure and Capital Commitment Our capital expenditures have been incurred primarily in relation to (i) the acquisition of computer equipment and construction of data centers relating to our Cloud business and the operation of our mobile platforms and websites; (ii) the acquisition of infrastructure for logistics services and direct sales businesses; and (iii) the acquisition of land use rights and construction of corporate campuses and office facilities. In fiscal years 2024, 2025 and 2026, our capital expenditures totaled RMB32,087 million, RMB85,972 million and RMB126,063 million (US$18,275 million), respectively. Our capital commitments primarily relate to capital expenditures contracted for purchase of property and equipment, including the cloud infrastructure and construction of corporate campuses. Total capital commitments contracted but not provided for amounted to RMB45,321 million and RMB54,136 million (US$7,848 million) as of March 31, 2025 and 2026, respectively. We announced that we have been and will continue to invest in our cloud and AI infrastructure. Save as disclosed above, as at the date of this annual report, we did not have other detailed future plans for material capital assets. Holding Company Structure and Cash Flows through Our Company We are a holding company with no operation other than ownership of operating subsidiaries in Chinese mainland, Hong Kong SAR, 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 for our cash and financing requirements, including the funds necessary to repurchase shares, to pay dividends and other cash distribution to our shareholders, fund inter-company loans, service outstanding debts and pay our expenses. If our operating subsidiaries incur additional debt on their own, the instruments governing the debt may restrict the ability of our operating subsidiaries to pay dividends or make other distributions or remittances, including loans, to us. Our holding company structure differs from some of our peers in that, although the variable interest entities hold licenses and approvals and assets for regulated activities that are necessary for our business operations, as well as certain equity interests in businesses, to which foreign investments are typically restricted or prohibited under applicable PRC law, we hold the significant majority of assets and operations in our subsidiaries and the significant majority of our revenue is captured directly by our subsidiaries. Therefore, our subsidiaries directly capture the significant majority of profits and associated cash flow from operations, without having to rely on contractual arrangements to transfer cash flow from the variable interest entities to our subsidiaries. In fiscal years 2024, 2025 and 2026, the significant majority of our revenues were generated by our subsidiaries. See “Item 4. Information on the Company — C. Organizational Structure” for a description of these contractual arrangements and the structure of our company. Also see “ Item 3. Key Information — The VIE Structure Adopted by Our Company — Variable Interest Entity Financial Information” for further financial information of Alibaba Group Holding Limited, the major variable interest entities and their subsidiaries, our subsidiaries that are, for accounting purposes only, the primary beneficiaries of the major variable interest entities, and other subsidiaries and consolidated entities. Investors in our securities, including our ADSs, Shares and notes, should note that, to the extent cash or assets in our business is in the PRC or a PRC entity, the funds or assets may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries, or the VIEs by the PRC government to transfer cash or assets. Under PRC laws and regulations, our PRC subsidiaries are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Applicable PRC law permits payment of dividends to us by our operating subsidiaries in China only out of their retained earnings, if any, determined in accordance with PRC accounting standards and regulations. 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 this 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 distribution. As of March 31, 2026, these restricted net assets totaled RMB344.6 billion (US$50.0 billion). See note 26 to our audited consolidated financial statements included in this annual report. Also see “ — D. Risk Factors — Risks Related to Doing Business in the People’s Republic of China — We rely to a significant extent on dividends, loans and other distributions on equity paid by our operating subsidiaries in China.” Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to certain restrictions on currency exchange or outbound capital flows. See “ — D. Risk Factors — Risks Related to Doing Business in the People’s Republic of China — Regulations on currency exchange or outbound capital flows may limit our ability to utilize our PRC revenue effectively.” 147 Table of Contents Under the PRC Enterprise Income Tax Law, a withholding tax of 5% to 10% is generally levied on dividends declared by companies in China to their non-resident enterprise investors. As of March 31, 2026, we have accrued the withholding tax on substantially all of the earnings distributable by our subsidiaries in China, except for those being reserved for permanent reinvestment in China of RMB278.9 billion (US$40.4 billion). See “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Taxation — PRC Withholding Tax.” We do not have specific cash management policies in place that dictate how funds are transferred between Alibaba Group Holding Limited, our subsidiaries, the VIEs or our investors. However, we have implemented procedures and control mechanisms to manage the transfer of funds within our organization to support our business needs and in compliance with applicable laws and regulations. For the fiscal years ended March 31, 2024, 2025 and 2026, Alibaba Group Holding Limited provided capital contributions and loans, and repaid loans, in the aggregate amounts of RMB74,951 million, RMB94,307 million and RMB119,141 million (US$17,272 million), respectively, to our subsidiaries, and our subsidiaries provided dividends and loans, and repaid loans, in the aggregate amounts of RMB193,629 million, RMB175,208 million and RMB153,964 million (US$22,320 million), respectively, to Alibaba Group Holding Limited. For the fiscal years ended March 31, 2024, 2025 and 2026, our subsidiaries and consolidated entities provided loans and repaid loans, in the aggregate amounts of RMB17,986 million, RMB29,008 million and RMB72,469 million (US$10,506 million) to the major VIEs and their subsidiaries, and the major VIEs and their subsidiaries provided loans, repaid loans and paid technical service fees to our subsidiaries and consolidated entities in the aggregate amounts of RMB25,432 million, RMB38,462 million and RMB47,408 million (US$6,873 million), respectively. See “— Variable Interest Entity Financial Information” for classification of cashflow detailed in footnotes to the condensed consolidating schedule. We have settled and will continue to settle fees under the contractual arrangements with the variable interest entities. For a condensed consolidating schedule of financial information that disaggregates the operations and depicts the financial position, cash flows, and results of operations for the same periods for which audited consolidated financial statements are required, see “ —Variable Interest Entity Financial Information.” Please also see the consolidated financial statements included in this annual report for more financial information. For fiscal year 2024, we declared a cash dividend in the amount of US$0.2075 per Share or US$1.66 per ADS, consisting of (i) a regular dividend in the amount of US$0.1250 per Share or US$1.00 per ADS and (ii) a one-time extraordinary dividend in the amount of US$0.0825 per Share or US$0.66 per ADS as a distribution of proceeds from disposition of certain financial investments, for a total amount of US$4 billion. For fiscal year 2025, we declared a cash dividend in the amount of US$0.2500 per Share or US$2.00 per ADS, consisting of (i) a regular dividend in the amount of US$0.13125 per Share or US$1.05 per ADS and (ii) a one-time extraordinary dividend of US$0.11875 per Share or US$0.95 per ADS as a distribution of proceeds from disposition of certain businesses and financial investments, for a total amount of US$4.6 billion. For fiscal year 2026, we declared a regular cash dividend in the amount of US$0.13125 per Share or US$1.05 per ADS for a total amount of US$2.5 billion. See “Item 10. Additional Information — E. Taxation— Material United States Federal Income Tax Considerations — Taxation of Dividends.” For tax consequences to U.S. investors, see “Item 10. Additional Information — E. Taxation—Material United States Federal Income Tax Considerations — Taxation of Dividends.” For PRC and United States federal income tax considerations of an investment in our ADS, see “Item 10. Additional Information — E. Taxation.” Inflation Inflation in China has not materially impacted our results of operations in recent years. 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. 148 Table of Contents Recent Accounting Pronouncements In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” and issued subsequent amendment within ASU 2025-01. The amendments require disaggregation disclosure for certain expense captions presented on the face of income statement, as well as additional disclosure about selling expenses. This guidance is effective for us for the year ending March 31, 2028 and interim reporting periods during the year ending March 31, 2029. Early adoption is permitted. We are evaluating the impact of the adoption of this guidance on our disclosures. In November 2024, the FASB issued ASU 2024-04, “Debt - Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments,” which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion. The amendments also clarify some specific applications of induced conversion guidance and that the guidance applies to a convertible debt instrument that is not currently convertible as long as it had a substantive conversion feature as of both its issuance date and the date the inducement offer is accepted. The new guidance is required to be applied either prospectively or retrospectively. This guidance is effective for us for the year ending March 31, 2027. Early adoption is permitted. As of March 31, 2026, we do not expect that the adoption of this guidance will have a material impact on the financial position, results of operations and cash flows. In May 2025, the FASB issued ASU 2025-03, “Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity,” which requires an entity involved in an acquisition transaction effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider specific factors to determine the accounting acquirer and removes the requirement that the primary beneficiary always is the acquirer for certain transactions. Under the amendments, acquisition transactions in which the legal acquiree is a VIE will, in more instances, result in the same accounting outcomes as economically similar transactions in which the legal acquiree is a voting interest entity. The amendments do not change the accounting for a transaction determined to be a reverse acquisition or a transaction in which the legal acquirer is not a business and is determined to be the accounting acquiree. The new guidance is required to be applied prospectively to any acquisition transaction that occurs after the initial application date. This guidance is effective for us for the year ending March 31, 2028. Early adoption is permitted. We are evaluating the impact of the adoption of this guidance. In July 2025, the FASB issued ASU 2025-05, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets”. The amendments provide all entities with a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. In developing reasonable and supportable forecasts as part of estimating expected credit losses, all entities may elect a practical expedient that assumes that current conditions as of the balance sheet date do not change for the remaining life of the asset. The new guidance is required to be applied prospectively. This guidance is effective for us for the year ending March 31, 2027. Early adoption is permitted. As of March 31, 2026, we do not expect that the adoption of this guidance will have a material impact on the financial position, results of operations and cash flows. In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”, which removes all references to prescriptive and sequential software development stages (“project stages”) throughout Subtopic 350-40. The amendments provide guidance on determining whether there is significant development uncertainty in evaluating the probable-to-complete recognition threshold. The amendments also supersede the website development costs guidance and incorporate the recognition requirements for website-specific development costs. This guidance also specifies the disclosures requirements for capitalized internal-use software costs. The new guidance is required to be applied using either the prospective transition approach, the modified transition approach or the retrospective transition approach. This guidance is effective for us for the fiscal year ending March 31, 2029. Early adoption is permitted. We are evaluating the impact of the adoption of this guidance. In November 2025, the FASB issued ASU 2025-08, “Financial Instruments—Credit Losses (Topic 326): Purchased Loans”, which defines purchased seasoned loans and expands the use of the gross-up approach in ASC 326 to the purchased seasoned loans. The new guidance is required to be applied prospectively to loans that are acquired on or after the initial application date. This guidance is effective for us for the fiscal year ending March 31, 2028. Early adoption is permitted. We are evaluating the impact of the adoption of this guidance. 149 Table of Contents In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements”, which clarifies certain aspects of the guidance on hedge accounting and addresses several incremental hedge accounting issues arising from the global reference rate reform initiative. The amendments include: (i) expanding the hedged risks permitted to be aggregated in a group of individual forecasted transactions in a cash flow hedge and clarifying the circumstance under which a group of individual forecasted transactions can be considered to have a similar risk exposure; (ii) providing a model to facilitate the application of cash flow hedge accounting to forecasted interest payments on choose-your-rate debt instruments; (iii) expanding hedge accounting for forecasted purchases and sales of nonfinancial assets; (iv) eliminating the requirement to apply the net written option test to a compound derivative comprising a swap and a written option designated as the hedging instrument in a cash flow hedge or a fair value hedge of interest rate risk; and (v) eliminating the recognition and presentation mismatch related to a dual hedge strategy. The new guidance is required to be applied prospectively for all hedging relationships. This guidance is effective for us for the fiscal year ending March 31, 2028. Early adoption is permitted. We are evaluating the impact of the adoption of this guidance. In December 2025, the FASB issued ASU 2025-10, “Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities,” which establishes the accounting for a government grant received by a business entity, including recognition and measurement guidance for a grant related to an asset and a grant related to income. This guidance also requires certain presentation and disclosures for the grant. The new guidance is required to be applied using either the modified prospective approach, the modified retrospective approach or the retrospective approach. This guidance is effective for us for the fiscal year ending March 31, 2030. Early adoption is permitted. We are evaluating the impact of the adoption of this guidance. In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements,” which clarifies interim disclosure requirements, the applicability of Topic 270, the types of interim reporting, and the form and content of interim financial statements in accordance with U.S. GAAP. The amendments also includes a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. The new guidance is required to be applied either prospectively or retrospectively. This guidance is effective for us for the interim reporting periods during the year ending March 31, 2029. Early adoption is permitted. We are evaluating the impact of the adoption of this guidance. C.Research and Development, Patents and Licenses, etc. Research and Development We have built our core technologies for our online and mobile commerce and cloud businesses in-house. We employ research and development personnel to build our technology platform and develop new online and mobile products. We recruit top and experienced talent locally and overseas, and we have advanced training programs designed specifically for new campus hires. 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 March 31, 2026, we had around 19,100 issued patents and approximately 8,100 publicly filed patent applications in China, and approximately 5,500 issued patents and approximately 1,800 publicly filed patent applications in various other countries and jurisdictions globally. 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. D.Trend Information We have been and will continue investing at scale in cloud computing and AI capabilities as well as consumption, including quick commerce. Other than as discussed above and disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the current fiscal year that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital reserves, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions. 150 Table of Contents E.Critical Accounting Estimates Critical Accounting Policies and Estimates Our significant accounting policies are set forth in note 2 to our audited consolidated financial statements included in this annual report. The preparation of our consolidated financial statements requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Our management periodically re-evaluates these estimates and assumptions based on historical experience and other factors, including expectations of future events that they believe to be reasonable under the circumstances. The estimates or assumptions related to the impacts of the conflict on economic conditions also require our significant judgment. 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. Principles of Consolidation A subsidiary is an entity in which (i) we directly or indirectly control more than 50% of the voting power; or (ii) we have the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meetings of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders. However, there are situations in which consolidation is required even though these usual conditions of consolidation do not apply. Generally, this occurs when an entity holds an interest in another business enterprise that was achieved through arrangements that do not involve voting interests, which results in a disproportionate relationship between the entity’s voting interests in, and its exposure to the economic risks and potential rewards of, the other business enterprise. This disproportionate relationship results in what is known as a variable interest, and the entity in which we have the variable interest is referred to as a variable interest entity. We consolidate a variable interest entity if we are determined to be the primary beneficiary of the variable interest entity for accounting purposes only. The primary beneficiary has both (i) the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance, and (ii) the obligation to absorb losses or the right to receive benefits from the variable interest entity that could potentially be significant to the variable interest entity. For the entities that we invested in or are associated with but in which the usual conditions of consolidation mentioned above do not apply, we continuously re-assess whether these entities possess any of the characteristics of a variable interest entity and whether we are the primary beneficiary. We consolidate our subsidiaries and the variable interest entities of which we are the primary beneficiary. On a periodic basis, we reconsider the initial determination of whether a legal entity is a consolidated entity upon the occurrence of certain events provided in Accounting Standards Codification (“ASC”) 810 “Consolidation.” We also continuously reconsider whether we are the primary beneficiary of our affiliated entities as facts and circumstances change. Recognition of Revenue Revenue is principally generated from customer management services, membership fees and value-added services, logistics services, cloud services, sales of goods and other revenue. Revenue represents the amount of consideration we are entitled to upon the transfer of promised goods or services in the ordinary course of our activities and is recorded net of VAT. Consistent with the criteria of ASC 606 “Revenue from Contracts with Customers,” we recognize revenue when performance obligations are satisfied by transferring control of a promised good or service to a customer. For performance obligations that are satisfied at a point in time, we also consider the following indicators to assess whether control of a promised good or service is transferred to the customer: (i) right to payment, (ii) legal title, (iii) physical possession, (iv) significant risks and rewards of ownership and (v) acceptance of the good or service. For performance obligations satisfied over time, we recognize revenue over time by measuring the progress toward complete satisfaction of a performance obligation. 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 relevant contract interpretation to determine the appropriate accounting treatment, including whether the promised goods and services specified in a multiple element arrangement should be treated as separate performance obligations. Other significant judgments include determining whether we are acting as the principal or the agent from an accounting perspective in a transaction. 151 Table of Contents For multiple element arrangements with customers, which primarily relate to the provision of non-public cloud services, which include hardware, software licenses, software installation services, application development and maintenance services, significant judgment is required to determine whether each good and service element is a distinct performance obligation and is separately accounted for. To determine whether a performance obligation is distinct, we consider its level of integration, customization, interdependence and interrelation with other elements within the arrangement. If an arrangement involves multiple distinct performance obligations, each distinct performance obligation is separately accounted for and the total consideration is allocated to each performance obligation based on the relative standalone selling prices at contract inception. If directly observable standalone selling prices are not available, we need to apply significant judgment and perform assessments on market conditions and entity-specific factors to estimate the standalone selling prices for each element. Changes in the estimated standalone selling price may cause the amount of revenue to be recognized for each performance obligation to differ, but the total amount of revenue to be recognized within a contract should not be affected. We periodically re-assess the standalone selling price of the elements as a result of changes in market conditions. Revenue recognition for customer management services on our marketplaces does not require us to exercise significant judgment or estimate. For certain arrangements, we apply significant judgment in determining whether we are acting as the principal or agent in a transaction. We are acting as the principal if we obtain control over the goods and services before they are transferred to customers. 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 act as the principal and record revenue on a gross basis. We act as the agent and record the net amount as revenue earned if we do not obtain control over the goods and services before they are transferred to the customers. We record customer management revenue generated through third‑party marketing affiliate programs on a gross basis when we act as the principal. In addition, we report revenue from the sales of goods and revenue generated from certain platforms in which we operate as a principal on a gross basis. Share‑based Compensation Expense and Valuation of the Underlying Awards Share‑based awards relating to 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/or certain other companies in accordance with the authoritative guidance on share-based compensation expense. All share-based awards granted including RSUs, share options and restricted shares are measured at the grant date based on the fair value of the awards and were recognized as an expense over the requisite service period, which is generally the vesting period of the respective award, using the accelerated attribution method. Under the accelerated attribution method, each vesting installment of a graded vesting award is treated as a separate share-based award, and accordingly each vesting installment is separately measured and attributed to expense, resulting in accelerated recognition of share-based compensation expense. Determining the fair value of share‑based awards requires significant judgment. The fair values of RSUs and restricted shares are determined based on the fair value of our ordinary shares. The market price of our publicly traded securities is used as an indicator of fair value for our ordinary shares. We generally estimate the fair value of share options using the Black‑Scholes 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. If the fair value of the underlying equity and 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. Share‑based awards relating to Ant Group Prior to 2023, Junhan and Ant Group granted share-based awards to our employees, and the awards are settled by Junhan or Ant Group respectively. See “Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements and Transactions Related to Ant Group and Its Subsidiaries — Our Commercial Arrangements with Ant Group and Alipay — Share‑based Award Arrangements.” These awards meet the definition of a financial derivative. The cost relating to these awards is recognized by us and the related expense is recognized over the requisite service period in the consolidated income statements with a corresponding credit to additional paid-in capital. Subsequent changes in the fair value of these awards are recorded in the consolidated income statements. The expenses relating to these awards are remeasured at the fair value on each reporting date until their settlement dates. See note 8(b) to our audited consolidated financial statements included in this annual report. Share-based compensation expense will be affected by changes in the fair value of awards granted to our employees by Junhan and Ant Group. The fair value of the underlying equity is primarily determined based on the contemporaneous valuation report, external information and information obtained from Ant Group. Given that the determination of the fair value of underlying equity requires judgment and such fair value is beyond our control, the magnitude of the related accounting impact is unpredictable and may affect our consolidated income statements significantly. 152 Table of Contents Share-based compensation expense of awards relating to our ordinary shares and Ant Group is recorded net of estimated forfeitures in our consolidated income statements and accordingly is recorded only for those share-based awards that are expected to vest. We estimate the forfeiture rate based on historical forfeitures of share-based awards and adjust the rate to reflect changes when necessary. We revise our estimated forfeiture rate if actual forfeitures significantly differ from the initial estimates. 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. The expenses associated with these awards will be recognized across the functions in which the award recipients are employed and may continue to be significant in future periods. 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 of 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, the differences will impact the income tax and deferred tax provisions in the period in which the determination is made. 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 tax losses carried forward, as well as temporary differences arising from licensed copyrights, property and equipment, and 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 tax when the subsidiaries resolve to distribute dividends to us. We have also recognized deferred tax for temporary differences in relation to certain investments in equity method investees, as well as equity securities and other investments. As of March 31, 2026, we have accrued the withholding tax on substantially all of the distributable earnings of the PRC subsidiaries, except for those undistributed earnings that we intend to invest indefinitely in the PRC. If the plan to invest the undistributed earnings indefinitely in the PRC changes or if these funds are in fact distributed outside of China, we would be required to accrue or pay the withholding tax on some or all of these undistributed earnings and our effective tax rate would be adversely affected. 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 that require us to perform purchase price allocations. In order to recognize the acquisition date amounts 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 with reference to comparable companies in similar industries under the income approach, market approach and cost approach. Major assumptions used in determining the fair value of these intangible assets include future growth rates and weighted average cost of capital. Most of the valuations of our acquired businesses have been performed by independent 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, these 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 financial instruments that are categorized within Level 2 and Level 3 according to ASC 820 “Fair Value Measurement.” The valuations for certain financial instruments categorized within Level 2, such as interest rate swap contracts, cross currency swap and certain option and forward agreements, are performed based on inputs derived from or corroborated by observable market data. Investments in convertible and exchangeable bonds that do not have a quoted price are categorized within Level 2 or Level 3, of which the valuations are generally performed using valuation models such as the binomial model with unobservable inputs including risk-free interest rate and expected volatility. The valuation of exchangeable bonds is primarily determined based on quoted market price in the over-the-counter market. The valuation of contingent consideration categorized within Level 3 is performed using an expected cash flow method with unobservable inputs including the probability to achieve the contingencies in connection with the contingent consideration arrangements. Significant judgment is required to determine the appropriateness of those unobservable inputs. 153 Table of Contents Investments in privately held companies for which we elected to record using the measurement alternative are recorded at cost, less impairment, with subsequent adjustments for observable price changes resulting from orderly transactions for identical or similar investments of the same issuer. The valuations of these investments are categorized within Level 3, and are estimated based on valuation methods using the observable transaction price at the transaction date and considering the rights and obligations of the securities and other unobservable inputs including volatility. The determination of whether an observable transaction is orderly and whether the investment involved is identical or similar to our investment, and the amount of fair value adjustment requires significant judgment. 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 in this annual report. For the impairment assessment on goodwill, we may first perform a qualitative assessment to determine whether quantitative impairment testing of goodwill is necessary. In this assessment, we identify the reporting units, consider factors such as macroeconomic conditions, industry and market considerations, overall financial performance of the reporting units, and other specific information related to the operations, business plans and strategies of the reporting units. Based on the qualitative assessment, if it is more likely than not that the fair value of a reporting unit is less than the carrying amount, the quantitative impairment test is performed. We may also bypass the qualitative assessment and proceed directly to perform the quantitative impairment test. For the quantitative assessment of goodwill impairment, we compare the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. If the carrying amount of a reporting unit exceeds its fair value, the amount by which the carrying amount exceeds the reporting unit’s fair value is recognized as impairment. For intangible assets other than licensed copyrights, 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 or a longer period if necessary. 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 Assessment on Investments in Equity Method Investees We continually review our investments in equity method investees to determine whether a decline in fair value below the carrying value is “other‑than‑temporary.” The primary factors that we consider include: •the severity and length of time that the fair value of the investment is below its carrying value; •the stage of development, the business plan, the financial condition, the sufficiency of funding, the operating performance and the prospects of the investee companies; •the geographic region, market and industry in which the investee companies operate; and •other entity specific information such as recent financing rounds completed by the investee companies and post balance sheet date fair value of the investment. Fair value of listed securities is subject to volatility and may be materially affected by market fluctuations. Judgment is required to determine the weighting and impact of the abovementioned factors and changes to this determination can significantly affect the results of the impairment tests. Impairment Assessment on Equity Securities Equity securities without readily determinable fair values that are accounted for using the measurement alternative are subject to periodic impairment reviews. Our impairment analysis considers both qualitative and quantitative factors that may have a significant effect on the fair value of these equity securities. Qualitative factors considered may include market environment and conditions, financial performance, business prospects, and other relevant events and factors. When indicators of impairment exist, we perform quantitative assessments of the fair value, which may include the use of market and income valuation approaches and the use of estimates, which may include discount rates, investees’ liquidity and financial performance, and market data of comparable companies 154 Table of Contents in similar industries. Judgment is required to determine the appropriateness of the valuation approaches and the weighting and impact of the abovementioned factors. Changes to this determination can significantly affect the results of the quantitative assessments. 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.