The overall investment in the flash sale business is expected to shrink significantly in the next quarter. "The AI bubble will not exist for at least three years." On the evening of November 25, during a conference call after the release of the financial report, Alibaba CEO Wu Yongming said this. He mentioned that the pace of Alibaba Cloud AI servers and other launches seriously failed to keep up with customer demand, and orders on hand are still increasing.
"Flash sales will reduce losses and bring strategic growth. Alibaba Cloud continues to grow and sees broad demand for AI." With the release of the third quarter financial report, these have become the two signals that Alibaba hopes to release most. However, the financial report shows that in this quarter, Alibaba China E-commerce Group’s adjusted EBITA fell by 76% year-on-year. Investment in Taobao’s flash sales and user experience has put pressure on profits. Alibaba still has many questions to answer.
How instant retail improves unit economics (UE) is a big question.
Information revealed during the earnings conference call showed that in the third quarter, losses from the flash sale business exceeded 30 billion yuan. Xu Hong, chief financial officer of Alibaba Group, said that if losses from flash sales are excluded, China's e-commerce group's EBITA would have grown by mid-single digits year-on-year. During the reporting period, the adjusted EBITA of China E-commerce Group was 10.497 billion yuan, a year-on-year decrease of 76% and a decrease of 33.83 billion yuan. Xu Hong said that due to fierce industry competition and Alibaba’s heavy investment in user experience, this EBITA will fluctuate from quarter to quarter.
Jiang Fan, CEO of Alibaba's China e-commerce business group, mentioned that the unit economic benefits (UE) of instant retail have improved significantly in the past few months, and the set goal of reducing the loss per order in the short term by half compared to July and August has been achieved. At the same time, during the convergence of unit economic benefits, user retention and frequency are also better than expected. This is mainly due to the significant reduction in logistics costs brought about by order structure optimization and scale effects, and Taobao flash sales have completed the conversion of a large number of new customers in the past few months.
"Flash sales are one of the core strategies of Taotian platform upgrade." During the earnings call, Jiang Fan related the strategic importance of flash sales to Taotian's upgrade. He said that the rapid expansion of scale and UE optimization were in line with expectations, laying the foundation for the long-term sustainable development of the takeaway business, and also increasing Alibaba's determination to invest in instant retail for the long term.
At the same time, Xu Hong said that the third quarter was the high point of investment in the flash sale business. With the significant improvement in overall efficiency and stable scale, the overall investment in the flash sale business is expected to shrink significantly in the next quarter. Of course, Alibaba will also dynamically adjust its investment strategy based on the competitive status of the entire market.
On the other hand, while Alibaba Cloud is achieving rapid growth, the question that the outside world is paying attention to is, how does Alibaba Cloud view the sustainability of future demand?
Wu Yongming said in the earnings call that the demand from AI customers seen by Alibaba is still very strong. Starting from the second half of this year, global storage manufacturers, CPUs, AI servers and other links are all out of stock. This is a cycle in which AI demand drives manufacturers in all aspects of the supply chain to expand production.
He believes that this is at least a two- to three-year production expansion cycle. At least for three years, the entire AI resources will still be in short supply. Alibaba himself, including many new GPUs in the United States, are basically running at full capacity. Even the previous generation and several generations of GPUs three to five years ago are running at full capacity. At least in three years, he sees that the so-called AI bubble should not exist.
At the same time, he mentioned that in addition to the push on the demand side, the continuous improvement of base model capabilities is also improving the imagination of AI. Judging from the release of Gemini 3, the trend of scaling law has not hit a wall in the industry. AI models will be able to do more and more things, can be adapted to more scenarios, and the penetration rate in various industries will continue to increase.
Wu Yongming revealed that in judging current and future AI needs, Alibaba has accelerated the pace of the supply chain and computer rooms as quickly as possible, but he still mentioned that the 380 billion infrastructure investment plan in the previous three years may increase investment. "Now it seems that this number is too small."