Alibaba released its 2QF26 earnings before the US stock market opened on November 25. The two issues that the market was most concerned about this quarter were the investment in food delivery and the growth of cloud business. Regarding the former, the loss in food delivery this quarter may be around RMB 36 billion, which is at the lower end of the company's previous guidance range. On the other hand, the revenue growth of cloud business accelerated to 34.5% faster than expected, while the profit margin was flat year-on-year, which was stronger than the not low expectations.

Bloomberg has not been updated in a timely manner this quarter, making it of limited reference value. Below, we will analyze the forecasts of major banks that have been updated promptly:

1. CMR remains at 10%, core e-commerce performance is stable: CMR, a core indicator reflecting traditional e-commerce business, grew by 10.1% year-on-year this quarter. The growth rate remained stable compared to the previous quarter and was completely consistent with the updated expectations of major banks, indicating relative stability.

Considering that a 0.6% service fee was added on September 1st last year and site-wide advertising tools were promoted, the positive impact of improved monetization rates should be somewhat diminished this quarter. The flat CMR growth rate should still be attributed to some extent to flash sales.

2. Losses from food delivery services met expectations: New China E-commerce Group's adj.EBITDA for this quarter was 10.5 billion, a decrease of about 34 billion compared to last year. Although this is still relatively better than JD.com or Meituan, where the group's overall profits were completely wiped out.

As for the actual losses caused by instant retail, based on the expectation of single-digit profit growth in the Chinese e-commerce sector after excluding Taobao flash sales, the net loss caused by flash sales is estimated to be around 36 billion yuan.

Fortunately, the company had already communicated new guidance to the market before the earnings report. The actual loss fell within the lower range of the company's guidance of 35-40 billion yuan, and had been fully anticipated and digested. According to the conference call, Taobao Flash Sale's UE loss in November was half that of July and August, and the average order value increased by more than double digits compared to August. Flash Sale's core strategic position has not changed.

3. Alibaba Cloud continues its strong performance: In another key area—AI—Alibaba's performance this quarter remains outstanding. Alibaba Cloud's revenue grew by 34.5% this quarter, exceeding the expectations of major investment banks, which had already revised upwards to over 30%. Furthermore, the growth rate is nearly 9 percentage points higher than the previous quarter, and the second-derivative acceleration is also increasing.

After excluding internal group demand, Alibaba Cloud's growth rate only increased by 3 percentage points month-on-month, which isn't particularly strong. However, considering leading companies both domestically and internationally, they generally prioritize allocating computing power to meet the needs of internal business development, and Alibaba is likely doing the same, so it's not a major issue.

Meanwhile, Alibaba Cloud's profit margin reached 9% this quarter, flat year-on-year and up quarter-on-quarter, without being dragged down by the increased proportion of AI business (international experience shows that the profit margin of AI business is generally lower than that of traditional business) . Both revenue and profit performance were quite good.

The Capex expenditure in this quarter's cash flow statement reached 31.4 billion, a slight decrease compared to the previous quarter, possibly due to the ban on Nvidia chips. Currently, approximately 70 billion has been spent in the first half of fiscal year 2026. Compared to Tencent, Alibaba is more proactive in its Capex spending.

At this pace, the previous total expenditure guidance of 380 billion will most likely be raised, a point that was confirmed in its conference call.

4. Slower growth and reduced losses in international e-commerce: Partly due to the deteriorating overseas policy environment, and partly due to the need for more resources from domestic business and Alibaba Cloud, Alibaba's international e-commerce business continued its trend of prioritizing profits over scale and shifting towards refined operations this quarter. Revenue growth continued to slow to approximately 10% year-on-year, while adj.EBITDA officially returned to profitability at $160 million. The significant slowdown in growth versus the faster-than-expected turnaround offset each other, resulting in a neutral outcome.

5. Other smaller businesses also started to invest: Including all other businesses besides the three major segments mentioned above, revenue this quarter was approximately 63 billion yuan, a significant year-on-year decrease of 25%, mainly due to the impact of divesting Yintai and Sun Art Retail, as well as the impact of some logistics functions being taken over by the corresponding self-operated retail and international e-commerce businesses.

Meanwhile, losses from other business segments have significantly increased to nearly 3.4 billion yuan this quarter, compared to over one billion yuan in the same period last year and the previous quarter. This reflects the increased investment in Gaode's street sweeping rankings and in Quark and Qianwen in the AI ​​2C field.

6. In terms of overall performance, Alibaba's total revenue for the quarter was approximately RMB 247.8 billion, representing a year-on-year increase of 5%. Excluding the impact of the divestiture of Intime and Sun Art Retail, the year-on-year growth rate was 15%. This represents a slight acceleration compared to the previous quarter and is slightly better than Bloomberg's consensus forecast. This is mainly attributed to stronger-than-expected growth in the cloud business and revenue contributions from Taobao Flash Sale.

Gross profit, including stock-based compensation expenses, increased by 5% year-over-year this quarter, roughly in line with revenue growth. The upward trend in gross margin seen in previous quarters reversed, with a slight year-over-year decrease of 0.1 percentage points, likely due to the drag from increased delivery costs resulting from the surge in orders for instant retail business.

7. Profits declined significantly, but this was within expectations: The most noteworthy aspect in terms of expenses (adding back equity incentive expenditures) is undoubtedly the further increase in marketing expenses to 66 billion yuan, slightly lower than the previously estimated loss of 36 billion yuan in the food delivery business. Besides subsidies, the losses in food delivery are also reflected in the impact of delivery costs (and the gross profit margin has indeed declined) .

R&D expenditure increased by 26% year-on-year, accelerating growth and reflecting various R&D investments driven by the AI ​​wave. Administrative expenses, on the other hand, decreased by 25% year-on-year, reflecting efforts to save funds internally amidst rapid growth in the other two expense categories.

Overall, the adjusted EBITA for the group was RMB 9.4 billion, a year-on-year decrease of approximately 77%, which is better than the sellers' expectations that had been lowered under guidance.

8. Declining Shareholder Returns: Alibaba repurchased approximately $250 million worth of shares this quarter, a significant decrease from over $800 million in the previous quarter. Given that the company has already begun issuing bonds to fund its flash sales and AI initiatives, and its share price is not at a low level, the decrease in repurchase amounts is understandable, both from the perspective of necessity and the company's available funds.

Of course, whether to repurchase or invest depends on whether the investment yields results. If investing in AI and consumer goods can turn a crisis into an opportunity, then reducing repurchases is not something to be overly criticized.

Dolphin research perspectives:

Based on the above analysis, regarding the issues that the market is most concerned about regarding Alibaba, the signals conveyed by Alibaba's latest performance are:

1) Taotian's core CMR still maintains a respectable growth of over 10%. Although it has not accelerated compared to the previous quarter, considering that it has entered the favorable base period of improved monetization rate in September last year, it is still a basically stable performance.

In a horizontal comparison, JD.com, whose growth has slowed significantly due to the reduction of national subsidies, and Pinduoduo, whose advertising revenue has dropped sharply, are comparable to Alibaba, whose CMR growth has remained stable (and for the first time in history is higher than Pinduoduo's) . Alibaba can be considered the best performing company in the e-commerce industry at this point.

Meanwhile, the relatively stable core business continues to provide Alibaba with the energy and resources to invest in the development of other businesses.

2) Since the September quarter is the peak of the battle between Taobao Flash Sale and Meituan Waimai, the losses caused by Alibaba's 3Q Waimai ultimately ate up nearly 80% of the profits of the Chinese e-commerce sector. More importantly, the company has expressed guidance in the conference call that, in the absence of a major battle from its competitors, Taobao Flash Sale will maintain its market share while steadily improving its average revenue per order.

Fortunately, the company had communicated this matter thoroughly beforehand, and the market had already largely absorbed the negative impact, so it wasn't entirely unexpected bad news. More importantly, the company's guidance on loss reduction and market share for its Q4 and subsequent food delivery business remains crucial.

3) On another main theme—AI and cloud services—as the absolute leader in China (at least in the B2B sector) , the market generally holds an optimistic view of Alibaba Cloud. Furthermore, Alibaba Cloud's revenue growth rate is quite strong, both in terms of the difference between expectations and the trend of marginal acceleration.

Meanwhile, profit margins did not decline as feared by the AI ​​business. This further validates the expectations of investors who are bullish on Alibaba due to the promising prospects of the domestic AI business.

Overall, the significant increase in losses from food delivery was within expectations, while the performance of AI and cloud businesses, which may be of greater interest, was stronger than anticipated. Overall, Alibaba's performance this quarter was still positive. As for the outlook for future businesses:

1) E-commerce + Instant Retail Business: The first focus of the market is the instant retail battle. Although the erosion of the profits of the entire domestic e-commerce sector by the instant retail business this quarter is far more serious than the "overly optimistic" guidance after the 2Q results.

However, it can be said that many investors, including Dolphin Jun, believe that the subsidies and peak losses of Q3 are a thing of the past. The more important question is whether Q4 and subsequent Alibaba Flash Sale can reduce losses while still maintaining Meituan's size and market share.

According to recent market research, Alibaba Flash Sale has largely kept pace with Meituan in terms of order volume during Q4, while its user experience (UE) losses have gradually improved (nearly halved compared to the peak loss per order in Q3) , and the gap with Meituan's UE is narrowing. The earnings call also released relevant data , mentioning that UE optimization met expectations, and user retention and frequency were better than expected. This is clearly a very positive trend for Alibaba (the opposite for Meituan) .

Although the data from different surveys vary, the general trend is that both sides have reduced their subsidies and the order structure has shifted more from beverages to full meals.

On the one hand, Meituan's market share has rebounded marginally (roughly from just over 40% to nearly 50%) , while the corresponding Taobao Flash Sale order volume has fallen from being almost equal to Meituan's to about 80% to 85% of Meituan's. On the other hand, for the same reason, the gap between Taobao Flash Sale's average order loss and Meituan's may have narrowed from more than 2 yuan to just over 1 yuan.

According to Dolphin's communication with the company, in the future competition in instant retail, Alibaba will ensure that its market share can keep up with Meituan , and will not excessively pursue rapid loss reduction, which would result in Meituan surpassing it by too much in terms of order volume.

Therefore, in the long run, Dolphin believes that as both parties work together to gradually reduce subsidies, an ideal and possible outcome is that, with the instant retail market share at approximately 5:4:1 (Meituan: Alibaba: JD.com) , Taobao Flash Sale can achieve a slight loss (such as 20-30 billion RMB or less per year) .

As for the ability of instant retail to drive traffic to traditional e-commerce and its domestic business and create cross-selling (reflected in the accelerated revenue growth of Taotian's original business) , judging from this quarter's financial report, it should have made some limited contribution, but it is certainly not very considerable, and it is difficult to make a quantitative judgment unless officially disclosed by the company.

However, a clear trend is that flash sales have indeed led to a significant increase in Taobao App's daily active users (DAU) and the frequency of app openings per user. According to QM statistics, Taobao's monthly active users (MAU) increased by 9% year-on-year in October (Pinduoduo's increased by about 3%) . In March of this year, the DAU of Taobao and Pinduoduo Apps were roughly the same, but now Taobao has a lead of over 66 million users.

As Dolphin Jun previously mentioned in his PDD review, since flash sales have proven effective in attracting users, increasing user retention, opening frequency, and usage time, it can be said that food delivery has indeed achieved good results in terms of customer acquisition.

Dolphin King's consistent view is that e-commerce companies don't necessarily need to generate significant incremental revenue or profit from food delivery. For Alibaba, whose total marketing expenditure reached 144 billion yuan in fiscal year 2025, as long as the losses from food delivery can be controlled within a reasonable range, it can simply exist as a customer acquisition entry point business for the Taobao Group as a whole.

Furthermore, considering Pinduoduo's previous performance, Dolphin believes that after attempting to build a comprehensive consumer platform encompassing e-commerce, instant retail, in-store shopping, and travel, it is expected to create a new landscape in traffic distribution within the broader e-commerce industry.

2) Alibaba Cloud: Regarding Alibaba's cloud and AI businesses, Dolphin Jun has consistently held the view that the domestic AI story is still in its early stages, and its future growth potential has undoubtedly not yet been fully realized. Alibaba Cloud, on the other hand, is a company with an absolute leading position in China in terms of both technological capabilities and business scale, making it one of the top choices for AI-optimistic investors in China.

Therefore, as long as AI as a whole is not disproven, Dolphin remains optimistic about Alibaba Cloud's long-term prospects. Alibaba Cloud's performance this quarter has validated this expectation.

In addition to its previously focused B2B business, Alibaba recently launched the independent Q&A app for consumers, announcing that it has exceeded 10 million downloads in its first week (surpassing the downloads of current mainstream AI apps shown in the image below) .

In this regard, we believe that while "technology is not the sole deciding factor" in consumer-facing applications, having suitable use cases and excellent user UI/functional design are extremely important factors. This is evident from the absolute leading position of Douyin's Doubao.

Therefore, it's too early to say whether Alibaba will ultimately achieve absolute leadership in the AI-driven 2C business. We need to pay attention to the company's subsequent investments and development directions in this area. However, this fills a gap in Alibaba's previous 2C capabilities and could potentially bring unexpected surprises.

Therefore, Dolphin's overall view of Alibaba Cloud is that it represents a long-term opportunity, with its valuation gradually increasing as the domestic AI industry market grows and Alibaba Cloud's "S" (revenue) continues to grow. If management can share more optimistic signals regarding Capex spending and/or subsequent AI business development in the consumer market during the conference call, it could drive sentiment and valuation to explore optimistic boundaries.

The following is a detailed analysis.

I. Alibaba's New Financial Reporting Standards

In the new fiscal year of 2026, with Ele.me's instant retail business and Fliggy's travel and hotel business being merged into the former Taotian Group to form the new China E-commerce Group, Alibaba's organizational structure and financial reporting methods have been updated once again. As shown in the diagram below, Alibaba Group's new organizational structure is divided into four major segments:

1) China Electronic Commerce Group: including the original Taotian Group + Fliggy + Taotian Flash Sale/Ele.me business;

2) The original international e-commerce group remains unchanged;

3) Alibaba Cloud Group also remains unchanged;

4) All other entities, including Cainiao, China Local Services, and Alibaba Entertainment Group, which were originally disclosed independently, have been reclassified into other business segments.

II. Core e-commerce growth remains robust

1. The new China e-commerce group, which includes Ele.me's instant retail business and Fliggy's travel and hotel business, saw its core indicator of long-distance e-commerce business , CMR, grow by 10.1% year-on-year to RMB78.9 billion this quarter, with the growth rate remaining flat compared to the previous quarter and completely in line with the updated expectations of major banks .

Since September 1st of last year, a 0.6% service fee has been added, along with the promotion of site-wide advertising tools. Therefore, the positive impact of improved monetization rates should be somewhat diminished. Taking this into account, the flat growth in CMR this quarter is still acceptable.

2. With the integration of Taobao Flash Sale/Ele.me, instant retail revenue reached nearly 14.9 billion yuan this quarter, an increase of about 55% quarter-on-quarter. However, according to research, Alibaba's daily order volume for instant retail increased by about 120% quarter-on-quarter in Q3 compared to Q2, but the revenue growth rate was significantly lower, indicating that subsidies basically offset most of the new revenue.

3. Two business segments whose revenue metrics remained largely unchanged after the restructuring: self-operated retail (including related fulfillment) business, saw revenue increase by 5% year-on-year this quarter, continuing the slowdown compared to the previous quarter.

The wholesale business of 1688.com, a long-standing player and one of the main pillars of its "cost-effective" strategy, saw a 12.6% year-on-year revenue increase this quarter, maintaining a relatively stable growth rate and continuing to perform well. The company explained that this growth was primarily driven by revenue from additional services provided to 1688 members.

Overall, the growth of domestic e-commerce groups rose to 15.5% this quarter, as CMR and other business lines saw relatively stable growth this quarter, while food delivery revenue increased by nearly 60% year-on-year.

Third, with rising losses in the food delivery sector, the focus now shifts to improving efficiency and coordination.

One of the most pressing questions for the market is how much loss Taobao Flash Sale incurred this quarter. According to the company's disclosure, the new China e-commerce group's adj.EBITDA for this quarter was 10.5 billion, a decrease of approximately 34 billion compared to the same period last year. This represents a significant drop compared to the previous quarter. Although it did not completely wipe out the group's overall profits like JD.com or Meituan, it still resulted in a nearly 77% year-on-year decline in the profits of the China e-commerce segment.

Fortunately , the company had already readjusted its market guidance before the earnings report. Leading banks expected the Chinese e-commerce sector to generate profits of around 7.5 billion to 10 billion yuan this quarter, and the actual performance fell at the upper end of that range.

（adj.EBITA口径下）

As for the actual loss caused by instant retail, excluding Taobao Flash Sale, the profit of the Chinese e-commerce sector grew at a rate slightly higher than revenue. The net loss caused by Flash Sale is calculated to be around 39 billion (adj.EBITA) . Although it is on the upper limit, it is still within the range of 35-40 billion guided by the company.

Meanwhile, continued attention should be paid to the improvement of Taobao Flash Sale's own operational efficiency and its driving effect on e-commerce. According to the earnings call, Taobao Flash Sale's order structure has been optimized, and the scale effect has also brought about a significant reduction in logistics costs. Since November, Flash Sale's UE loss has been reduced by half compared to July and August, and the unit price has increased by more than double digits compared to August.

IV. Biggest Highlight – Alibaba Cloud Continues to Exceed Expectations in Speed

In another key area—AI/cloud business—Alibaba's performance remained strong this quarter. Alibaba Cloud revenue grew by 34.5%, significantly exceeding expectations even though major investment banks had revised their forecasts upward to over 30%. Furthermore, the growth rate increased by 9 percentage points compared to the previous quarter, and the second-derivative acceleration also improved.

However, we also noted that after excluding internal group demand, Alibaba Cloud's sequential growth rate dropped to 3 percentage points. Nevertheless, leading domestic and international companies generally prioritize allocating computing power to meet the needs of internal business development, and Alibaba's situation is likely similar.

In addition to accelerated growth, Alibaba Cloud's profit margin reached 9% this quarter, flat year-on-year and up quarter-on-quarter. There was no drag on profit margins due to the increased proportion of AI business (international experience shows that AI business profit margins are generally lower than traditional business margins) . This is likely due to the improved economies of scale and the positive effects of eliminating low-quality businesses, which offset other adverse impacts.

In addition, Capex expenditures in this quarter's cash flow statement reached $31.4 billion, a slight decrease compared to the previous quarter, but still at a high level, possibly due to the impact of the ban on Nvidia chips. Currently, approximately $70 billion has been spent in the first half of fiscal year 2026, exceeding the previously guided three-year plan of $380 billion.

V. International e-commerce achieves profitability

Partly due to the deteriorating overseas policy environment and partly due to the need to invest more resources in domestic business and Alibaba Cloud, Alibaba's international e-commerce business continued its trend of prioritizing profits over scale and focusing on refined operations this quarter. Revenue growth continued to slow to approximately 10% year-on-year this quarter.

Correspondingly, the company officially returned to profitability this quarter, achieving positive adj.EBITDA of 160 million. The significant slowdown in growth versus the faster-than-expected turnaround offset each other, resulting in a performance that was neither particularly good nor bad.

VI. Gaode Street Sweeping & Qianwen Quark, other smaller projects are also in the investment phase.

Beyond the three major segments mentioned above, including newly added Cainiao, Alibaba Entertainment, Gaode Maps, and businesses already in other categories, revenue this quarter was approximately 63 billion yuan, a significant year-on-year decrease of 25%. This was mainly due to the impact of divesting Yintai and Sun Art Retail, as well as the impact of some logistics functions being taken over by the corresponding self-operated retail and international e-commerce businesses.

Meanwhile, losses from other business segments this quarter have significantly widened to nearly 3.4 billion yuan, compared to over one billion yuan in the same period last year and the previous quarter. However, major banks have generally revised their expected losses upward to 5 billion yuan, meaning the actual figure is slightly lower. This mainly reflects the investment in Gaode's street sweeping rankings and Quark and Qianwen in the AI ​​2C field.

VII. Overall performance was largely in line with expectations and relatively stable.

Overall, Alibaba's total revenue for the quarter was approximately RMB 247.8 billion, a year-on-year increase of 5%. Excluding the impact of the divestiture of Intime and Sun Art Retail, the year-on-year growth rate was 15%. This represents a slight acceleration compared to the previous quarter and is slightly better than Bloomberg's consensus forecast. This is mainly attributed to stronger-than-expected growth in the cloud business and the revenue contribution from Taobao Flash Sale.

Gross profit, including stock-based compensation expenses, increased by 5% year-over-year this quarter, roughly in line with revenue growth. The upward trend in gross margin seen in previous quarters reversed, with a slight year-over-year decrease of 0.1 percentage points, likely due to the increased delivery costs resulting from the surge in orders for instant retail business.

Regarding expenses (all figures below exclude share-based compensation expenses) , the most noteworthy is that marketing expenses further increased to 66 billion this quarter, a significant increase of 34 billion compared to last year. This should include subsidies included in sales expenses, as well as reductions in delivery costs (gross profit margin did indeed decline) .

In other expenses, R&D expenditure increased by 26% year-on-year, accelerating from 17% in the previous quarter, reflecting the growth in various R&D investments driven by the AI ​​wave. Administrative expenses, however, continued to decline by 25% year-on-year. Despite the rapid growth in the other two expense categories, Alibaba still managed to save some money through internal administrative expenses.