Alibaba's net profit has unexpectedly but understandably experienced a significant decline.

Recently, Alibaba released its Q3 2025 (Q2 FY2026) financial report, showing a 5% year-on-year revenue increase to RMB 247.795 billion. Excluding the impact of divested businesses like Sun Art Retail and Intime, revenue grew 15% on a like-for-like basis. Adjusted EBITA dropped 78% to RMB 9.073 billion, while non-GAAP net profit fell 72% to RMB 10.352 billion.

The profit decline was primarily attributed to increased investments in instant retail, user experience, and technology. Notably, in late April, Alibaba upgraded its instant retail service "Taobao Now" to "Taobao Flash Sale," consolidating all instant retail operations under this brand with Ele.me's support.

Alibaba's e-commerce chief Jiang Fan highlighted the potential synergy between flash sales and Alibaba's ecosystem, targeting RMB 1 trillion in GMV within three years. However, while long-term effects remain unseen, short-term profitability has been significantly impacted.

**Profit Plunge Over 70% as Instant Retail Burns Cash** In late April, Alibaba launched Taobao Flash Sale with a "Over RMB 10 Billion Subsidy" campaign alongside Ele.me. By July 2025, it expanded to a RMB 50 billion subsidy plan for store, product, and delivery incentives over 12 months.

Alibaba's cash reserves dwindled from RMB 614.399 billion at end-2023 to RMB 373.572 billion by Q3 2025, reflecting a 10.29% quarterly drop post-subsidy rollout.

The Q3 report showed an 85% decline in operating profit to RMB 5.365 billion, with sales and marketing expenses doubling to RMB 66.5 billion (26.8% of revenue). Operating cash flow plummeted 68% to RMB 10.1 billion.

Dolphin Research estimated Taobao Flash Sale caused a RMB 36 billion net loss, dragging China e-commerce EBITA down 77%. Independent analyst Zhang Cailiang noted Alibaba's move was defensive: "The key is whether post-subsidy GMV growth justifies the strategy." Fitch's Asia-Pacific director He Dan predicted subsidy wars would peak in Q3 2025 before rationalizing.

**Synergy Debate: Strong or Weak?** Alibaba executives repeatedly emphasized "synergy effects" during earnings calls, claiming Flash Sale boosted Taobao's August DAU by 20%, lifting ad revenue and reducing churn. However, skeptics like private fund manager Liu Chenggang dismissed these claims as unsubstantiated.

CITIC Securities analysis showed instant retail contributed just 1% of Double 11 GMV, indicating minimal cross-selling. Industry expert Yuan Shuai acknowledged theoretical synergy potential but noted operational integration challenges between traditional e-commerce and instant retail models.

CFO Toby Xu hinted at subsidy contraction next quarter as efficiency improves, though adjustments would depend on competition. Yuan Shuai interpreted this as strategic optimization rather than retreat.

**Cross-Subsidization and Merchant Burden** The subsidy war required massive funding, partially supported by Alibaba's core e-commerce monetization. Client management revenue grew 10% to RMB 78.927 billion, driven by higher take rates from new promotion tools and software service fees introduced in September 2024.

Zhang Cailiang noted platforms face growth pressure in a post-GMV boom era, potentially increasing merchant burdens. Yuan Shuai characterized this as cross-subsidization, where stable e-commerce cash flow supports loss-making instant retail.

While higher take rates and promotion costs squeeze merchant margins, iMedia CEO Zhang Yi suggested volume growth could offset this. Yuan Shuai cautioned that excessive platform fees might harm long-term ecosystem health.

The question remains: Will Alibaba's RMB 50 billion flash sale bet ultimately align with its strategic goals?