Alibaba's Q1 2026: Contradictions in CapEx, Quick Commerce, and CMR Growth

Date of Call: Not specified in transcript

Financials Results

• Revenue: RMB 247.8 billion, excluding Sun Art and Intime revenue, grew 15% year-over-year
• EPS: Not specified
• Gross Margin: Not explicitly provided
• Operating Margin: Cloud Intelligence adjusted EBITDA margin remained relatively stable at 9%

Business Commentary:

• Cloud and AI Revenue Growth:
• Alibaba Group's total revenue increased 15% year-over-year, excluding Sun Art and Intime.
• Cloud Intelligence revenue rose 34%, with external customer revenue accelerating by 29%, driven by sustained demand for AI and public cloud services.

• AI-related products continued to post triple-digit year-over-year growth for the 9th consecutive quarter, contributing to the strong performance.

• Quick Commerce and E-commerce Synergy:

• Revenue from Alibaba's Quick commerce business increased 60%, contributing to the overall e-commerce growth.
• Quick commerce improvements in unit economics, including a 50% reduction in per-order loss since July-August, supported by higher average order value and better user retention.

• The integration of quick commerce with broader Alibaba ecosystem, such as Taobao and Tmall, drove increased user engagement and transaction volumes.

• AI Infrastructure Investment:

• Alibaba is reinvesting significantly in AI infrastructure, with plans for aggressive capital expenditures to meet rising customer demand.
• The company's AI infrastructure is used for both internal applications and external customer services, with a focus on improving token consumption and customer willingness to pay.

• Supply chain constraints are expected to persist, making AI resources undersupplied relative to demand for the next 2-3 years.

• Strong User Engagement in Amap:

• Amap's daily active users reached a historical high of 360 million, with the Street Stars feature averaging over 70 million daily active users.
• The feature boosted user engagement with average daily user reviews more than tripling year-over-year, indicating strong future growth potential.
• This growth is attributed to Amap's trust-based rating system enhancing consumer confidence and supporting the local offline services sector.

Sentiment Analysis:

Overall Tone: Positive

• Management reported 'steady and healthy growth' with 15% YOY revenue growth (ex-Sun Art/Intime). Cloud revenue grew 34% YOY with external customer revenue up 29%, and AI-related products grew triple-digits for the 9th consecutive quarter. Quick commerce unit economics improved significantly, and the Qwen app exceeded 10 million downloads in its first week. The tone is confident, citing 'strong momentum' and 'conviction in future AI demand growth.'

Q&A:

• Question from Gary Yu (Morgan Stanley): How should we look at the cloud growth outlook going forward? Should we continue to expect growth to accelerate? And what are the key drivers for external revenue growth given the absence of a large AI company like in the U.S.?
  Response: Customer demand for AI remains very strong and is accelerating, driven by deepening enterprise adoption across operations, which increases compute demand. Conviction in future AI demand growth is strong.

• Question from Kenneth Fong (UBS): Can management share key progress for quick commerce and synergy to core e-commerce? What's the outlook for December quarter CMR and EBITDA for core e-commerce?
  Response: Quick commerce unit economics improved significantly, with per-order UE loss cut by 50% since July/August, driving better unit economics and enhancing user engagement. For December, CMR growth may slow due to base effects, but the focus remains on securing market share through investment, leading to potential short-term fluctuations in CMR and EBITDA.

• Question from Alex Yao (JPMorgan): As quick commerce efficiency is optimized, how will the cost savings be allocated across stakeholders? If consumer subsidies remain intense, what does that mean for merchant subsidies and future UE growth?
  Response: Future improvements will come from increasing average order value and optimizing logistics further. There is considerable potential for further monetization, but approaches will be adjusted dynamically based on competitive market dynamics.

• Question from Ronald Keung (Goldman Sachs): How should we think about CapEx over the next 3 years relative to the $380 billion figure previously mentioned? What is the correlation between CapEx and incremental revenue?
  Response: The $380 billion 3-year CapEx plan might be on the small side given current customer demand outpaces server deployment pace. The ratio between CapEx and incremental revenue is not stable due to the early-stage, fluid nature of AI sector development and infrastructure use.

• Question from Ellie Jiang (Macquarie): How does Alibaba prioritize resource allocation across AI segments (model training, inference, apps) and evaluate ROIC in the current macro environment?
  Response: Highest priority is continual training of foundation models to unlock new demand. Next is ensuring high utilization of the Bailian inference platform. Demand for AI is expected to outstrip supply for at least the next 2-3 years, with no immediate signs of an AI bubble.

• Question from Jialong Shi (Nomura): Apart from quick commerce and e-commerce, what other consumption subsectors are good opportunities for investment to grow market share?
  Response: Focus will be on integrating and driving synergies across existing businesses like fresh food, offline O2O, Fliggy, Amap, and local services to increase overall market share in the consumption sector.

Contradiction Point 1

Capital Expenditure (CapEx) Scale and Strategic Commitment

There is a direct and significant contradiction regarding the magnitude and certainty of Alibaba's planned AI/cloud infrastructure investment. One statement suggests the previously communicated 3-year target is insufficient, while another presents it as a firm plan exceeding all past investment. This represents a major shift in capital strategy and growth signaling.

How should we assess CapEx over the next three years, considering the previously mentioned $380 billion and $120 billion already spent? What is the relationship between CapEx and incremental revenue? - Ronald Keung (Goldman Sachs)

20251125-2026 Q2: The $380 billion CapEx figure for a 3-year period may be on the small side given current customer demand... Aggressive investment in AI infrastructure will continue; further scaling up is possible if needed. - Unknown Executive

How will Alibaba's cloud and AI models drive revenue and margin growth? Can you clarify the comment about AI infrastructure investment over the next three years exceeding the past decade? How will capital expenditures impact profitability? - Alicia Yap (Citigroup)

2025Q3: The planned investment in cloud and AI infrastructure over the next three years will exceed that of the past decade. - Eddie Wu(CEO)

Contradiction Point 2

Quick Commerce Investment Timeline and Profitability Synergy

This contradiction involves conflicting signals on the investment horizon and expected financial impact of the quick commerce business. One statement indicates a peak and imminent scaling back, while another describes it as an ongoing, long-term investment period not yet profitable. This creates uncertainty about the timing of returns and near-term EBITDA pressure.

What progress has management made in quick commerce and its synergy with core e-commerce? How will the synergy impact Q4 core e-commerce CMR and EBITDA guidance? - Kenneth Fong (UBS)

20251125-2026 Q2: Investment in quick commerce will be highest in the September quarter, with a significant scaling down expected by next quarter as efficiency improves. - Toby Xu(CFO)

What are Alibaba's plans, rationale, and expected impact on local service group profitability from the RMB10 billion Ele.me instant commerce investment amid intensified food delivery competition? - Kenneth Fong (UBS)

2025Q4: This is an investment period that will impact EBITDA... New investments in instant commerce will also affect EBITDA, but they are seen as replacing some original market growth investments. - Jiang Fan(CEO)

Contradiction Point 3

CMR (Commissions and Revenue) Growth Outlook

This is a clear contradiction in financial forecasting regarding a core business segment's near-term growth trajectory. One statement projects continued rapid growth, while the other explicitly forecasts a slowdown. This directly impacts revenue expectations for the company's primary commerce business.

What is the investment plan and pace for commerce/consumption beyond quick commerce, including supply chain and user growth? How will declining software service fee and QZT penetration, along with quick commerce traffic/GMV, impact CMR growth? - Kenneth Fong (Bank of America)

2026Q1: Therefore, rapid CMR growth is expected to continue in the coming quarters. - Hong Xu(CFO)

Has management provided an update on quick commerce progress and synergy with core e-commerce? What is the outlook for December quarter CMR and EBITDA from core e-commerce? - Kenneth Fong (UBS)

20251125-2026 Q2: CMR growth may slow next quarter due to base effects from payment processing fees and QCT rollout. - Toby Xu(CFO)

Contradiction Point 4

Quick Commerce Profitability Timeline

This contradiction centers on the expected path to profitability for a major strategic investment. One statement emphasizes it is a long-term investment that is not yet profitable, while another highlights strategic progress and synergy benefits, suggesting a more imminent or different path to value capture. This affects assessment of the investment's risk and return profile.

How should we assess the ROIC of the ~RMB 50 billion quick commerce investments compared to AI/cloud investments with a larger TAM and faster growth? How is capital allocated between retail and AI? - Gary Yu (Morgan Stanley)

2026Q1: While quick commerce investments are not yet profitable, they are driving increased traffic and user engagement on the Taobao app, which in turn benefits advertising and CMR. The company is focused on long-term returns and is confident in its resource position. - Hong Xu(CFO)

Can management highlight key progress in quick commerce and its synergy with core e-commerce? What is the outlook for Q4 CMR and EBITDA in core e-commerce? - Kenneth Fong (UBS)

20251125-2026 Q2: Quick commerce is a core strategic pillar for driving platform upgrades and generating RMB 1 trillion in GMV within 3 years. - Fan Jiang(CEO)

Contradiction Point 5

Strategic Focus on Non-Core Asset Divestment

This represents a shift in strategic communication regarding portfolio management. One statement explicitly discusses exploring options to divest or seek investors for a specific non-core asset (Freshippo), while another emphasizes a strategy of integration and synergy across a broad set of consumption assets. This indicates an evolving stance on capital allocation and business focus.

Are there plans to sell other assets like Freshippo and Illuma? Is there a monetization model for the Qwen model besides computing? Will the Chinese AI market remain homogeneous with many models? - Jialong Shi (Nomura)

2025Q3: Alibaba has a broad portfolio in consumption: **fresh food, offline O2O, Fliggy (travel), Amap, and local services**. **Current focus is on integrating and driving synergies across these existing businesses** to increase overall market share in the consumption sector. - Fan Jiang(CEO)

Which consumption market subsectors do you view as good investment opportunities for scaling up? - Jialong Shi (Nomura)

20251125-2026 Q2: The strategy of exiting non-core assets continues... **Freshippo is not for sale**, but options like introducing a strategic investor are being explored to better reflect its value in Alibaba's valuation. - Toby Xu(CFO)