BABA-W (09988) recently released its Q1 FY2026 financial results. During the subsequent earnings call, Alibaba management stated that regarding growth expectations, they are seeing clear trends of customers using AI products and developing AI applications within their enterprises. The demand is robust, with companies developing new applications due to enhanced AI model capabilities, while traditional functions are being replaced by AI. Under this trend development, customer demand remains strong, with growth seen in both training and inference needs.
In recent quarters, beyond inference demand growth, they are observing new developments in training across industries. Besides basic large model iterations in various sectors, many new opportunities are emerging, such as automotive manufacturers, education companies, and multimedia application firms training proprietary models with their specialized data, driving AI usage volume. Combined with inference demand, Alibaba Cloud business growth will continue to accelerate in the coming quarters.
Regarding AI capital expenditure, the company plans to invest 380 billion yuan over three years. Due to supply chain fluctuations, there will be quarterly variations. Based on global chip changes, the company will also establish external partnerships and backup plans to complete investments according to expected scenarios across different industry changes.
**Q&A Session**
**Q: Regarding instant retail, with increased investment in flash shopping, what is the vision for instant retail growth opportunities in China? What are the investment plans? Will it bring value? What synergistic effects are expected? How do you consider the impact of investment on GMV/CMR?**
A: Flash shopping has been online for 4 months, exceeding expectations in users and merchant orders. Daily average orders peaked at 120 million, with 300 million buyers. In terms of product supply, numerous new merchants have joined Taobao flash shopping. From delivery capacity perspective, Taobao has 2 million delivery riders, three times that of April, creating millions of new jobs.
As indicated last quarter, user scale and mindset building have exceeded expectations. Flash shopping drives e-commerce business, increasing Taobao DAU by 20%, enhancing activity levels. Flash shopping drives advertising value - increased traffic attracts new users and reactivates existing ones, reducing marketing costs. This trend will subsequently benefit the e-commerce segment.
Regarding flash shopping operational efficiency, scale cannot be ignored. The company's scale is only one-third of competitors, with market share gaps. Flash shopping has scale advantages that will improve efficiency. Competitors have higher efficiency, but the company will narrow the gap through improvements. In the short term, losses will decrease through: first, user structure optimization and market investment attracting new users with good retention, optimizing platform UE; second, e-commerce optimization, increasing high-value order proportions; third, fulfillment efficiency and cost optimization.
The primary task is ensuring user experience. Investments in July-August focused on this, with subsequent logistics cost reductions bringing platform UE optimization and AOV improvement. In the short term, comparing logistics versus subsidy efficiency, maintaining discounts while reducing UE losses by half. Logistics costs have improvement potential compared to April, with room for refinement. Long-term, scale is the primary efficiency determinant. The company won't view food delivery in isolation - flash shopping's impact on the platform, combined with e-commerce, is positive. There's confidence in achieving long-term industry leadership.
For non-food retail, the company uses native models with product supply and lightning warehouses exceeding 50,000, growing 360% year-over-year. Lightning warehouses have 25% from Alibaba ecosystem supply chain, leveraging Freshippo and front warehouses for near-far field operations, ensuring quality while guaranteeing delivery experience. The company will actively introduce Tmall stores to flash shopping, combining online and offline to bring new business to 1 million merchants. Over three years, this will generate 1 trillion yuan GMV for the platform. Multi-competitor instant retail helps merchant selection, while platform investment creates billions in employment and drives economic development, promoting industry transformation and upgrading.
**Q: Regarding Alibaba Cloud business growth at 26% YoY, how do you view the accelerating growth sustainability in coming quarters and FY2026? Considering growth compared to overseas markets, how do you view commercialization versus the US? Cloud profit margin reached 8.8% - what's the future outlook? How did different industries perform this quarter versus last quarter? What's the capital expenditure outlook?**
A: First, regarding growth expectations, we see customers using AI products and developing AI applications internally, showing clear trends. Demand is robust as companies develop new applications due to enhanced AI model capabilities, while traditional functions are replaced by AI. Under this development, customer demand remains strong with growth in training and inference needs.
In recent quarters, beyond inference demand growth, we observe new training developments across industries. Besides basic large model iterations, many new opportunities emerge - automotive manufacturers, education companies, multimedia application firms training proprietary models with specialized data, driving AI usage. For training, based on the company's open source capabilities, there's post-training demand from education, medical, and development tool platform companies, creating opportunities for proprietary models using company data and scenarios in Tongyi model post-training on Alibaba Cloud computing platforms. The company will develop commercial opportunities for post-training. Combined with inference demand, Alibaba Cloud business growth will continue accelerating in coming quarters.
Second, regarding overseas commercialization comparison and profit margins, we judge that China's cloud computing market, due to AI-driven transformation trends, will see continued concentration improvement compared to traditional markets. For customer AI needs and vendor selection, Alibaba Cloud has advantages with open source ecosystems, currently achieving above-average levels in China's market. Current priority is acquiring more users and scenarios rather than focusing on profit margin improvement.
Regarding AI capital expenditure, the three-year 380 billion yuan investment will have quarterly fluctuations due to supply chain volatility. Based on global chip changes, the company will establish external partnerships and backup plans to complete investments according to expected scenarios across industry changes.
**Q: For food delivery segment, regarding cross-selling achievements, will you increase in-store consumption content? Eleme's consumer vouchers are strengthening in some regions - what about future investment and expansion in in-store business?**
A: Flash shopping has 150 million active users. For in-store group buying and pickup needs, considering synergies with delivery business, we'll consider providing diversified services and conduct testing and exploration in some cities.
**Q: First, regarding three-year AI and domestic demand investment - for AI, what about the 380 billion yuan investment plan and domestic demand investment structure beyond food delivery instant retail? What's the pace? Second, how do you view CMR growth? This quarter had 10% growth - after September service fee increases, how do you view full-stack promotion penetration and CMR take rate growth in subsequent quarters? Will flash shopping drive CMR growth?**
A: First, regarding consumer historical opportunity investment, this isn't new investment - we've continuously invested in supply chain and users, including Tmall, Taobao, and supply chains. The 50 billion yuan investment recognizes overall operational proximity opportunities, adjusting market control structures to enhance company capabilities in consumer markets and capitalize on integration opportunities.
Second, regarding CMR and take rate, this quarter's CMR growth came from take rate improvements, mainly from 0.6% service fees and full-stack promotion. This will positively impact subsequent quarters, increasing take rate and CMR improvements. CMR will maintain the high growth of the past two quarters in coming quarters.
**Q: Seeing QWen3 entering the agent era, what does the company need to invest in subsequently? How is scenario progress?**
A: We see large model evolution from chatbots requiring longer context window understanding, tool usage, enterprise system integration, and learning capabilities. AI agent explosion creates opportunities for cloud computing companies in underlying infrastructure. Agents need browsers, virtual machines, etc. Alibaba Cloud's new product Agent Bay provides sandbox environments - a good opportunity for cloud vendors. Alibaba Cloud supports enterprise model iteration evolution suitable for agent usage.
Additionally, first, models enter agent-driven era where coding capabilities are crucial for enterprise system and task connection. Second, agent-Alibaba ecosystem integration products like e-commerce customer service provide basic computing power. Taobao, Amap, and Alipay offer more business-end automation tools, helping enterprises develop agents for better internal task resolution.
**Q: Regarding food delivery and flash shopping, this isn't proactive attack. Previously acquiring Eleme to expand food delivery market, why couldn't Alibaba's well-funded Eleme defeat Meituan? In this round of competition, what different strategies will the company adopt to maximize investment returns? Can you share strategic implementation intentions?**
A: After acquiring Eleme many years ago, Eleme has made significant progress. Market share relates to investment and strategy. Eleme has improved basic capabilities in recent years. Flash shopping's short-term progress - achieving 120 million daily orders in 4 months with good user experience - reflects Eleme's accumulated capabilities.
This business requires strong merchants, delivery capacity, and C-end users. With all three strong, investment efficiency won't be low. Eleme-flash shopping synergies build on logistics and merchant foundations for investment. Investment logic doesn't view food delivery in isolation, differing from before. There's much room for improvement in business execution.
**Q: Regarding capital return rates, spending 50 billion yuan on instant retail in months - how do you view capital returns? Using the same amount for AI business with faster cloud growth and larger potential market scale - how does the company internally view retail versus AI investment allocation?**
A: We see two historical opportunities: first, AI; second, consumer opportunities. Consumer opportunity transitioning from distant to near is historical, like AI - strategic opportunities we must seize. For both fields requiring substantial amounts, whether from capabilities, resources, cash reserves, cash flow, or balance sheet perspective, the company can make saturated investments in both areas.
Investment balances short-term versus long-term returns. AI investment drives continuous cloud business acceleration, with further improvements expected in coming quarters. Current priority is investment with less focus on profit margins, though we still care about them. From consumer perspective, though instant retail isn't profitable now, synergies with Taobao and Tmall bring traffic and advertising business. Key consideration is not abandoning long-term returns for short-term gains - this requires company balance.