Alibaba Earnings Call Interpretation

Reposted from public account: 180K

Before today's earnings call, two very clear reactions;

1/ Major performance metrics fell short of expectations; The first reaction in the WeChat group and the market was a plunge (scared by Meituan's performance a few days ago);

2/ Cloud computing and capex significantly exceeded expectations; Two highlights,

26% growth in cloud computing vs. 20% Bloomberg consensus and 25% buy-side expectations...

Capex 38.7 billion vs. expectations around 30 billion; Interestingly, this number just "met" the expectations from Wednesday's rumors.

3/ Dramatically, WSJ pre-market also released news about AI chips; This further boosted the AI narrative;

4/ Many people probably asked about flash sales this time; I won't analyze the data too much, let's directly look at the analyst Q&A.

Analyst Q&A session:

The first question is from Citi; What is your grand plan for instant retail + flash sales? How long will it last? What is the endgame? How long will the investment last? (180K: First question is about flash sales; Compared to before, flash sales stole the spotlight from AI)

Management;

1/ First, it's been very successful (180K: The tone is clearly confident and positive), basically all exceeded expectations.

Peak daily orders in August reached 120 million, weekly average daily orders in August were 80 million (shouldn't have misheard)

Users reached 300 million (a 200% increase compared to April)

Lots of new users, high-quality users leading the industry

Created many jobs (180K: Very politically correct).

2/ Still need to capture mindshare;

Flash sales' impact on the main platform, boosted Taobao DAU by 20%

Drove traffic (ads + CRM correspondingly higher), because traffic increased, previously required marketing expenses also decreased (180K: Also quite positive here, provided many specific numbers and explained the synergy between flash sales and the main platform)

3/ In the past, our food delivery scale was 1/3 of competitors. In some areas, we only had 20% market share; If the share is low, talking about efficiency is useless.;

But now our flash sales are leading; From this perspective, the operational efficiency improvement from this flash sale is also huge. Short-term,

User structure optimized (more users, more returning users, efficiency improved)

Order structure optimized (higher-value orders increased, so efficiency improved, unit economics/UE naturally improved)

Fulfillment efficiency also improved (invested in peak delivery capacity, so short-term losses)

Short-term, we can quickly reduce losses to half of current levels (unit economics/UE).

Long-term, scale = efficiency; With scale, we are confident in leading industry efficiency; Long-term, this should positively contribute to the main platform.

180K: Honestly, the answer was quite good. Confident + clear strategic goals

4/ Non-food flash sales; Lightning warehouses exceeded 50,000, orders up 360% YoY; For example, Hema also grew 70% YoY; Tmall transitioning from far-field to near-field also needs to step up. (180K: Still provided many numbers, quite convincing)

Long-term, flash sales will add 1 trillion in new GMV.

Food delivery is no longer a monopoly, benefiting society + consumers (180K: Seems well-prepared... Numbers + PR all very thorough; Not just a food delivery battle, but also a PR battle...)

Second question, from Jefferies; Alibaba Cloud, growth of 26% (accelerated), can this acceleration continue? How does monetization efficiency compare to North America? What about margins, currently 8.8%? How are clients across industries? Capex outlook?

(180K: Worth caring about, good question, just asked a bit too many...)

Management

1/ Alibaba Cloud clients show a clear trend, seeing huge demand and certainty

Because model capabilities are getting stronger, many new applications are emerging.

Using large model capabilities to enhance old applications.

(180K: Thanks...but nothing new here, everyone knows this)

From a training perspective, besides these model companies, automakers are also starting, education, healthcare, multimedia application companies, are also using their own data to train their models. This pushes AI usage forward;

(180K: Quite positive, but this part probably isn't huge in absolute terms; From a traditional cloud computing perspective, internet/finance still dominate usage, other industries don't contribute much in absolute terms. Would be better if management provided some numbers...but better than nothing.)

Due to above demand, Alibaba Cloud's growth should continue accelerating (meaning acceleration increases). (180K: Very positive, key takeaway. Stock price shot up; After Chinese answer to this question, it was 20:18)

2/ Comparing to overseas markets, what we see now,

AI's impact on Chinese cloud computing, will increase market concentration (180K: New info, key takeaway); From an AI perspective, tech stack is more complex; We at Alibaba have advantages in AI infrastructure + AI open-source ecosystem + overall tech stack; So our goal is to exceed industry average growth (180K: Very positive; Alibaba from a complete tech stack perspective is basically China's Google);

So our current goal is mainly to increase market share, not profits (180K: Still positive, in TMT, topline growth is most important, profits don't matter at this stage)

Regarding AI Capex, the 3-year 380 billion target remains unchanged; Based on global AI chip supply changes, we also have a Plan B with industry partners (180K: Very positive; Basically = chip supply isn't an issue; After this at 8:27, stock price kept rising.)

Third question from UBS; Food delivery has achieved synergy, what about in-store/local services?

Management,

1/ 150 million flash sale users daily, of course also have in-store demand; We will definitely explore (180K: Monetization will follow naturally;)

Fourth question from BofA; From a domestic demand opportunity perspective, how do you view investments? Supply chain + consumer. CMR growth is strong now, what's next? Take rate?

Management

1/ From a historical consumption opportunity investment perspective, we've always been investing. This 50 billion is mainly for near-field opportunities; We will adjust investments based on pace.

180K: This answer made me dizzy. Talked a lot about "investment"; Personally feels like nothing new, can skip.

2/ Take rate should continue to be good. Flash sales also had a positive impact (180K: Here, the strategic significance of flash sales is becoming clear, management's answers this time were quite convincing; Stock price also jumped here, 8:39)

Citic? (Didn't hear clearly), asking about Qwen3; In an agent-centric era, what more do we need to invest + any progress

180K: Quite technical question.

Management

1/ Large models, evolving from chatbot to agent, actually require longer context windows + longer thought chains + better tool usage, so also an opportunity for cloud computing, like needing VMs (180K: Started digressing...originally asked about model capabilities, technical angle, but management bragged about Alibaba Cloud...shifted to commercial angle...Exactly the kind of management we need now! Positive. After this stock surged, 8:46);

2/ Model's coding ability is most important (180K: Qwen members on X often say similar things, like "models are branching, everyone betting on different angles"); On business side, we're applying in DingTalk, Amap, Alipay, etc. (180K: Here stock soared, I didn't really get it. Probably market digesting earlier positive news, finally realizing)

JPM question; Also about food delivery + flash sales; Actually fought a food delivery battle in 2018, why is this time different? But didn't succeed before.. And I asked deepseek, why couldn't Ele.me compete... deepseek said a rich son can't beat a poor wolf.

180K: Bro...creative..

Management

1/ Don't ask me, ask deepseek again.. (180K: Audience laughed); Actually Ele.me has improved over the years, just not reflected in market share. But precisely because of this improvement, we could execute this flash sale battle so quickly and well; This is Ele.me's accumulated capability (180K: Answered very well, basically a "distressed asset" turnaround scenario, honestly, should give Ele.me a new valuation here.)

Final question, from Morgan Stanley; About new business investment returns; Would investing food delivery money in AI be better?

180K: Asked what they were thinking.

Management

1/ We see two historic opportunities, one is AI, one is consumption. Consumption is due to macro trends (far-field to near-field), both are big opportunities we must seize.

2/ Both areas also require historic investments; But from capability + resource perspective (cash + balance sheet), we can make "saturated investments", just need to balance short/long-term returns. (180K: Basically = we have money, can fight, will fight, fight well..so why not fight?)

AI returns are already obvious (like cloud computing improvement, we'll continue improving next few quarters) (180K: So confident...impressive..)

Flash sale investments as mentioned earlier. We see a clear path to drive traffic, benefit main platform.

We have enough resources, not afraid to invest. Just need to balance.

Final summary

180K: I feel very very positive, completely positive.

1/ Strategic significance of flash sales, explained very clearly, very confident. Management capability feels very strong. Main platform foundation solid, new flash sale investments have clear purpose, well-prepared, dispelling food delivery money pit concerns (though still need to fight, but confidence level good);

2/ About AI, also very positive answers; And management's active showcasing of Alibaba AI + cloud capabilities attitude, also very positive.

3/ Compared to Tencent's "stability", Alibaba's confidence is very strong. One of the few highly rated, very impressive earnings calls recently. Analysts asked well, management answered well!