$Alibaba(BABA.US) reported earnings. Results were solid, but the stock fell, and the read-through for sentiment wasn’t great.

As explained by Dolphin Research on Longbridge and in our earnings take, cloud growth re-accelerating and e-com losses bottoming were already known and priced in ahead of the print.

The incremental surprise was capex of RMB 67bn and negative FCF of RMB 45bn. Management said the capex spike reflected procurement timing (chips available in H2) and cautioned against linear extrapolation of this run-rate.

Seeing such a large capex number, the market’s first reaction was to lock in gains. Then the company launched a sizable placement over the weekend, and sentiment worsened again.

Dolphin Research had flagged that with quarterly profits of RMB 30–50bn (pre food-delivery war), a planned quarterly spend of RMB 30–50bn implies either an abrupt exit from the delivery war or new financing.

Of these paths, a clean exit from the delivery war is highly unlikely. More likely is fight-and-retreat while trying to keep e-com steady, and redeploying the rest of the firepower to bet on an AI-era Alibaba.

During this process, e-com still burns cash while AI requires sustained investment. With that mismatch, financing becomes necessary, and we expected Alibaba to start with debt, adding balance-sheet leverage or using off-B/S compute-asset securitization, then moving to equity only if a funding gap remained.

The main reason: Alibaba’s net cash (cash and equivalents, short-term investments, U.S. Treasuries, and other unrestricted equity investments, less bank borrowings, preferreds, converts, and other interest-bearing debt) stands at RMB 208bn. That should have allowed a debt-first approach rather than going straight to equity.

In reality, over the weekend $BABA-W(09988.HK) executed an HKD 80bn primary placement. It was an overnight bookbuild with T+3 settlement, cash in quickly, and wrapped up fast.

Thinking it through, the likely reasons are as follows. These are our best inferences.

a. Issuing pure offshore USD bonds would mean competing with U.S. CSP giants for capital, and Alibaba’s rating is lower, implying a higher cost of funds. Using China USD credits might also take longer to absorb a ~$10bn-equivalent size.

b. For equity, non-USD orders do not require lengthy processes. And the stock had recovered, making the timing workable.

As for pricing, see below. The terms were notable.

a. Offer price was HKD 112.7 vs Fri close of HKD 123, a ~9% discount. The stock gapped down to that level at today’s open.

b. 710mn new shares were issued vs 19.175bn pre-deal, implying ~3.7% dilution. In other words, the share count rose by ~3.7%.

c. Into 2025, buybacks will only roughly offset SBC releases. After this issuance, getting the stock back into an uptrend will be tougher, leaving little for investors who had expected capital returns.

From a secondary-market perspective, had there been no delivery war in 2025, this large dilution might have been avoidable. Whether the war truly reshapes the domestic delivery market will only be clear in 2–3 years, after subsidies fade and scale effects plus operational granularity determine who gains share.

Directing capital to AI rather than delivery is, as we argued, a long-overdue allocation correction. Precisely because it is late, this HKD 80bn raise might not have been necessary, or at least not this early.

Beyond short-term expectation gaps and capital moves, Alibaba has made a clear strategic pivot. From changing reporting metrics, to e-com losses bottoming, to stepping up AI investment and monetization, the shift is evident.

The focus is moving from ‘full-stack AI + one-stop consumption’ to going ‘all-in’ on full-stack AI. As long as e-com stays broadly stable, it merely needs to fund the AI push.

Relying on e-com alone has already proven costly. The e-com battlefield is a mutually depleting stalemate; adding firepower only defends the perimeter and it is hard for one to take out the other.

Fortunately, versus many e-com peers, the AI era gives Alibaba a second leg to stand on, and this venture-style AI bet is almost mandatory. Based on realized returns from prior equity investments—backing the domestic ‘four tigers’ in foundation models and ChangXin, among others—IRRs are meaningfully higher than e-com’s endless cash burn and the near write-offs from new retail’s offline bets.

Therefore, on relative ROE in capital allocation, Dolphin Research maintains our prior view. This financing likely marks a bottom for Alibaba’s stock (follow-on compute-asset securitization isn’t ruled out) and should add upside convexity.

<End here>

Recent Alibaba pieces from Dolphin Research. Links below:

‘Alibaba (Trans): AI capex payback in 3 years’

‘Alibaba’s big bet: a ‘China Google’?’

‘Post-earnings, notes from Alibaba’s small-group call’

Risk disclosure and disclaimer.See: Dolphin Research Disclaimer & General Disclosure