Earnings Call Transcript - BABA Q1 2026

Operator, Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba Group's June Quarter 2025 Results Conference Call. I would now like to turn the call over to Lydia Lu, Head of Investor Relations of Alibaba Group. Please go ahead.

Lydia Lu, Head of Investor Relations

Good day, everyone. Welcome to Alibaba Group's June Quarter 2025 Earnings Conference Call. With us today are Joe Tsai, Chairman; Eddie Wu, Chief Executive Officer; Toby Xu, Chief Financial Officer; Jiang Fan, Chief Executive Officer of Alibaba E-commerce Business Group. This call is also being webcast from the IR section of our corporate website. A replay of the call will be available on our website later today. Now I will quickly cover the safe harbor. Today's discussions may contain forward-looking statements, particularly statements about our business and financial results that are subject to risks and uncertainties which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor statements that appear in our press release and investor presentation provided today. Please note that certain financial measures that we use on this call are expressed on a non-GAAP basis. Our GAAP results and reconciliations of GAAP to non-GAAP measures can be found in our earnings press release. And now I will turn the call over to Eddie.

Yongming Wu, CEO

Hello, everybody, and welcome to this quarter's earnings call. This quarter, we delivered solid growth. Excluding revenue from Sun Art and Intime, our total revenue on a like-for-like basis grew 10% year-over-year. Revenue growth of our core businesses remained strong. Customer management revenue from our China e-commerce business rose 10% year-over-year. Cloud Intelligence Group revenue growth accelerated to 26% year-over-year, with AI-related product revenue maintaining triple-digit growth for the eighth consecutive quarter. Revenue from AIDC grew by 19% year-over-year. In AI + Cloud, the accelerated development of AI applications and increasing AI product adoption by customers drove a 26% year-over-year revenue increase from external customers. During the quarter, AI-related revenue accounted for over 20% of revenue from external customers as AI demand continued to grow rapidly. We're also seeing AI applications driving great growth momentum in traditional products, including compute and storage. SAP and Alibaba entered a strategic partnership focused on cloud and AI. As SAP's global cloud computing partner, Alibaba Cloud will support SAP customers in running and managing their core software systems on Alibaba's platform. Leveraging our Q1 models, SAP will also provide AI transformation services for its enterprise customers. This partnership signifies the recognition of our cloud infrastructure and AI capabilities by global leading enterprises in the SAP ecosystem. We've continued to advance the capabilities of our AI foundation model. Since July, Alibaba has released upgraded Qwen3, including a non-thinking model, reasoning model, and AI coding model, which are recognized as global top performers in their respective categories. Notably, our Qwen3 coder model has rapidly increased Qwen's user adoption in overseas markets. We also open-sourced several models such as the video generation model Wan2.2 and the text to image model Qwen-Image. By continuously upgrading our open-source models, we're empowering our customers to develop their own AI applications. Meanwhile, Alibaba's own AI native applications continue to advance. Amap has undertaken a comprehensive AI transformation with the launch of Amap 2025, the world's first AI native location-based application. The upgrade brings spatial intelligence into dynamic real-world scenarios, and Amap is well-positioned to become a new gateway for future lifestyle services. DingTalk has also completed its latest AI upgrade, creating the world's first agent-driven work feeds to explore next-generation workplace application paradigms. On our Taobao platform, we see immense AI-powered opportunities emerging, such as AI search and AI advertising platform. In consumption, we undertook a strategic combination of Taobao and Tmall Group, Ele.me and Fliggy into Alibaba China E-commerce Group. This organizational change creates a comprehensive consumption platform and upgrades our consumer experience. We have consolidated supply chains, user bases, and membership benefits across our businesses and launched a tiered loyalty program that connects Ele.me, Fliggy, and Amap. The newly integrated benefits enhance our members' experience across a full spectrum of consumption scenarios. Since May, our investments in quick commerce have rapidly surpassed key milestones and created synergies. In August, monthly active consumers on our quick commerce business approached 300 million, contributing to a 25% increase in monthly active consumers on the Taobao app. Daily order volume of our China E-commerce Group continued to achieve new records. Looking ahead, Alibaba Group has two historic opportunities: to build a technology platform centered on AI + Cloud and to create a comprehensive shopping and daily life services consumption platform. We will invest significantly to capture these opportunities. This also marks a new entrepreneurial chapter for the company after 26 years. In line with this, in February, we announced an investment of RMB 380 billion over the next three years to build our cloud and AI infrastructure. In July, we announced plans to invest RMB 50 billion in consumption. The transformative impact of AI on all industries, combined with a deep integration of AI and cloud, will present the most significant opportunity in the technology sector over the next decade. For Alibaba, we have the world's fourth largest in Asia's leading cloud infrastructure along with full stack technology capabilities spanning AI computing power, AI cloud platforms, AI models, open source ecosystem, and AI applications. This quarter, our CapEx investment in AI and cloud infrastructure reached RMB 38.6 billion. Over the past four quarters, we have cumulatively invested over RMB 100 billion in AI infrastructure and AI product R&D. Our investments in AI have begun to yield tangible results. This is evidenced by Alibaba Cloud's return to rapid growth driven by AI demand and our AI-enhanced experiences across consumer and enterprise-facing scenarios. So we're seeing an increasingly clear path for AI to drive Alibaba's robust growth. We're also well-positioned in China, the world's largest e-commerce market and the most promising service consumption market. China has a well-developed e-commerce infrastructure, high population density, and strong demand for service consumption providing a solid foundation for the integration of our quick commerce business and the Taobao app. We believe this convergence will fulfill consumer needs for a one-stop consumption experience and meet merchants' desire to serve consumers across multiple scenarios. It will enhance commerce efficiency and pave the way for an all-in-one AI assistant for consumption. Alibaba's strategic positioning in quick commerce has ambitions beyond competing in a single category. We aim to meet the one-stop consumption needs of our 1 billion consumers and shape business models of a comprehensive consumption platform in the AI era. In consumption, our long-term goal is to create a comprehensive consumption platform catering to our 1 billion consumers' full spectrum of shopping and daily life needs. We aim to offer the best experience to the largest consumer base with the highest purchase frequency, ultimately leading in a RMB 30 trillion addressable market. Over the next three years, Alibaba will embark on a new journey with an entrepreneurial mindset to drive robust business growth through sustained investments centered on the strategic areas of consumption and AI + Cloud. We're confident that these investments in the core business will sharpen our competitive edge and fuel long-term growth.

Hong Xu, CFO

Thank you, Eddie. As Eddie said, we are embarking on a new chapter of entrepreneurship by investing in 2 strategic pillars of consumption in the AI + Cloud. These represent the 2 biggest long-term opportunities we are systematically pursuing. To reflect this sharpened focus, we have also adjusted our financial reporting accordingly. Starting from this quarter, we undertook a strategic combination of Taobao and Tmall Group, Ele.me and Fliggy into Alibaba China E-commerce Group, transforming our value proposition into a comprehensive consumption platform. This is not simply an organizational change. It's a major strategic investment aimed at redefining the consumer experience and unlocking long-term value across our ecosystem. This quarter marked meaningful progress on this front as we deepen investment in quick commerce and increasingly essential use case for capturing new demand and shaping future consumer experience. Our quick commerce business achieved key milestones while contributing to the 25% year-over-year growth in the Taobao app monthly active consumers in the first 3 weeks of August. In tandem, we are building the AI + Cloud infrastructure to support the next wave of technological transformation, positioning Alibaba as a key enabler of enterprise AI adoption across industries. Our cloud business delivered accelerated growth as segment revenue and revenue from external customers both grew 26%, driven by a surge in AI demand and increased customer adoption of public cloud services to support AI workloads. At the same time, we remain focused on improving operating efficiency and profitability. In the quarter, AIDC delivered solid progress approaching breakeven while sustaining strong growth momentum. Now let's look at the financial results on a consolidated basis. Total revenue was RMB 247.7 billion. Excluding revenue from Sun Art and Intime, revenue on a like-for-like basis would have grown by 10% year-over-year. The adjusted EBITDA decreased 14%, primarily due to our strategic focus on scaling quick commerce to capture new consumption patterns and drive future monetization opportunities, partly offset by margin improvements across several businesses including AIDC and other units that made continued progress in operating efficiency. Our GAAP net income increased 76%, primarily due to the mark-to-market changes from our equity investments and the gain arising from the disposal of local consumer service business of Trendyol. Operating cash flow was RMB 20.7 billion. Free cash flow was an outflow of RMB 18.8 billion. This was mainly attributed to our accelerated pace on expanding AI + Cloud infrastructure as CapEx ramped up to approximately RMB 39 billion and investment in Taobao Instant Commerce backed by nearly USD 50 billion in net cash, a healthy and low-leveraged balance sheet and our strong access to capital markets. We have ample flexibility to support long-term strategic investments while maintaining financial resilience. This quarter, we bought back approximately 7 million ADSs for a total of USD 815 million under our share repurchase program. We remain committed to shareholders' returns through a mix of share buybacks, dividends and investments for growth, and we will continue to adjust the pace in form of returns based on market conditions and strategic priorities. Now let's look at the segment results, starting with Alibaba China E-commerce Group. Revenue from Alibaba China E-commerce Group was RMB 140.1 billion, an increase of 10%. Customer management revenue of our e-commerce business increased by 10%, primarily driven by the improvement of take rate. We had a successful June 18 shopping festival, which delivered strong consumer growth on the Taobao app as we implemented user-friendly promotion mechanisms and increased support for merchants that provide high-quality products and customer services. The number of 88VIP members, our high-spending consumers group continued to increase by double digits year-over-year, surpassing 53 million. Revenue from our quick commerce business increased 12%, mainly due to order growth as a result of the rollout of Taobao Instant Commerce at the end of April. Since its launch, we have seen encouraging business progress reflecting strong user adoption and growing order momentum. In the meantime, we have expanded our product offerings and front warehouse coverage for non-food categories as part of our efforts to improve user experience and enhance operating efficiency. We executed our plan to generate synergies between quick commerce and the rest of Alibaba's ecosystem by leveraging supply chains, users and membership benefits across our businesses. In August, Taobao app launched a tiered loyalty program that connects Alibaba Group's China e-commerce, quick commerce and travel platforms. The adjusted EBITDA from Alibaba China e-commerce group decreased by 21%. Excluding the investments in our quick commerce business, our Alibaba China e-commerce group EBITDA has grown year-over-year. Revenue from AIDC grew 19% primarily driven by strong performance in cross-border businesses. AIDC's adjusted EBITDA loss narrowed significantly approaching breakeven. As we continue to improve our operating efficiency, the UE of choice and the Trendyol's International business improved significantly on a sequential basis. Looking ahead, we are committed to enhancing operating and investment efficiency. As a result, our profitability will continue to improve. Cloud segment revenue grew by 26%, primarily driven by public cloud revenue growth. AI revenue continued its triple-digit growth as AI demand continues to grow rapidly, and we are also seeing increasing demand for compute, storage and other public cloud services to support AI adoption. The adjusted EBITDA margin remained relatively stable year-over-year at 8.8%. We will continue to invest in customer growth and technological innovation, including AI products and services to increase cloud adoption for AI and maintain our market leadership. As previously mentioned, we have updated our segment reporting to better reflect our focus. We simplified the financial reporting structure by reclassifying Cainiao, Amap and Hujing DME into all others. All other segment revenue decreased by 28%, primarily due to the disposal of Sun Art and Intime. All other adjusted EBITDA was a loss of RMB 1.4 billion, primarily due to the increased investment in technology businesses, partly offset by the improved results of businesses, including Freshippo. The all other segment comprises a set of innovative initiatives including several strategic AI-driven technology infrastructure and businesses. While we continue to drive efficiency improvements across business lines, we are also investing in AI opportunities to maintain our competitive edge and to drive future growth. In closing, this quarter marked a meaningful progress in our strategic investment on 2 pillars that will power Alibaba's next phase of growth. Our comprehensive consumption platform and AI + Cloud infrastructure. In commerce, the integration of multiple businesses under Alibaba China E-commerce Group is driving stronger synergy across supply chains, user networks and membership programs, enabling us to better serve evolving consumer needs and capture long-term growth potential. In cloud, revenue growth accelerated on the back of robust AI-driven demand. As we expand infrastructure capacity, we are helping more customers deploy and scale their AI workloads. We are investing with clarity and conviction on the 2 historic opportunities ahead, AI and domestic consumption. Our commitment of RMB 380 billion technology investment reflects our long-term ambition to build infrastructure essential for AI proliferation, while our focused expansion in quick commerce is designed to unlock new demand and long-term consumption potential in China. With strong balance sheet, operating cash flow and business momentum, we are well positioned to support these investments, drive sustainable growth and strengthen core capabilities that would define Alibaba's future.

Lydia Lu, Head of Investor Relations

Hi, everyone. For today's call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. Please note that the translation is for convenience purposes only. In the case of any discrepancy, our management statement in the original language will prevail. If you are unable to hear the Chinese translation, bilingual transcripts of this call will be available on our website within 1 week after the end of the meeting. Operator, please start Q&A session. Thank you.

Operator, Operator

Your first question comes from Alicia Yap at Citigroup.

Alicia Yap, Analyst

Congrats on your solid cloud revenue growth. I have a question related to your recent step-up investment in the quick commerce and also the food delivery business. So can management share with us what is your vision for the quick commerce growth opportunity in China? And what is your investment plan for the quick commerce? How long will the heavy investment last? And how will the investment bring long-term value for overall Taobao and your China E-commerce platform? Can management share a bit of the latest progress of your quick commerce business? What are the synergies you have realized so far? And how should we expect the investment to impact our GMV and also the CMR growth in the coming quarters?

Yongming Wu, CEO

Thank you for your question. I will start by discussing the progress we've made in our Instant Commerce business and our expectations moving forward. Since launching Taobao Instant Commerce four months ago, we've successfully engaged users and merchants, and built logistics capabilities and marketing efforts. Beginning in July, we've seen substantial growth in order volume, user scale, merchant supplies, and delivery capacity that have all surpassed our expectations. For instance, in the food delivery sector, we are now the market leader in terms of orders. Our peak daily order volume hit 120 million, with an average of 80 million daily orders in August. Our monthly active consumers reached 300 million, reflecting a 200% growth since before April. Additionally, high-quality merchant supplies have significantly increased, and our daily active riders have exceeded 2 million, marking a threefold increase since April, creating over a million new jobs. As I mentioned last quarter, our initial goals for quick commerce were user growth and building brand recognition, and we’ve exceeded those expectations in just a few months. Quick commerce has also greatly enhanced our e-commerce business, driving 20% growth in daily active users on the Taobao app in August. The frequent usage of quick commerce has led to more days of purchases per user, which is boosting incremental income for our e-commerce segment through increased traffic and advertising revenue while reducing sales and marketing costs. We anticipate this trend will persist and expand. Regarding operating efficiency and unit economics in quick commerce, scale is a critical factor. Previously, our scale was just a third of our competitors', and in many areas, our market share was under 20%. Now, with our growth in scale, we can significantly improve our operating efficiency. We're focusing on closing the gap in efficiency seen among our peers in the food delivery space. In the short term, we expect our losses to decrease due to several factors: optimizing our customer mix, enhancing the mix of higher-value orders, and improving fulfillment efficiency and costs. Our focus on user experience during the initial ramp-up resulted in substantial investments, and as we stabilize our order volume, logistics costs will lower, leading to improved unit economics. We aim to cut our losses in half while continuing consumer benefit investments. Looking longer term, as we improve order density and engagement with offline merchants, we believe our scale will enable us to reach industry-leading efficiency. We don't solely consider the profitability of quick commerce delivery. When combined with benefits to our e-commerce business, we foresee quick commerce contributing positive economic value while staying competitively priced. On the development of the non-food category, we differentiate between hyperlocal quick commerce and a hybrid model combining quick commerce with traditional e-commerce. We’ve expanded our lightning warehouse model, with order growth over 360% year-on-year. Our front warehouses, used by Freshippo, have also seen a significant rise in order volume. Our Tmall Supermarket brand is transitioning to a quick commerce model, which will speed up shipping and maintain competitive pricing. We're also bringing Tmall's offline stores onto the Taobao Instant Commerce platform, anticipating the addition of up to a million stores over time. Overall, we believe Taobao Instant Commerce will add a trillion RMB in annualized incremental gross merchandise value over the next three years. The shift from a single dominant food delivery player to a multi-platform landscape enhances choices for merchants and consumers, benefiting the industry in the long run. Throughout this transition, we are investing significantly to create over a million direct jobs and stimulate consumption and the broader economy. Thank you.

Operator, Operator

Your next question comes from Thomas Chong at Jefferies.

Thomas Chong, Analyst

Congratulations on a solid result. My question is about Alibaba Cloud. We have seen our cloud business is doing very well and accelerate to 26% year-on-year this quarter. My first question is, how should we think about this acceleration? Should we expect acceleration to continue for coming quarters as well as our expectation for FY '26? Because when I look into our acceleration and look into overseas peers, how should we think about the pace of monetization versus the U.S.? And on the other hand, we also see our cloud margin reaching 8.8%. How should we think about the margin outlook into the future? And on that front, given our acceleration is very impressive. Can we talk about how different industry sectors actually performed in this quarter? I remember last quarter, we talked about multiple sectors, including the traditional sectors also embrace the cloud opportunities. Are we actually seeing something different or making a lot more progress for this quarter? And on that CapEx, how should we think about our CapEx outlook given we have seen our CapEx is realized during this quarter?

Yongming Wu, CEO

Thank you for the questions. I'll start with the first one about our growth rate outlook. We are observing a clear trend among our customers who are increasingly using and developing AI products, indicating strong demand. As AI model capabilities improve, we see a rise in new AI applications and their deployment across various use cases. Many vendors are transitioning from traditional CPU workloads to leveraging large models and AI for their original functions. Consequently, demand remains strong and continues to grow rapidly. Recently, we have experienced significant growth in inference workloads, alongside ongoing expansion in training and inferencing. Additionally, we've noted emerging trends in training, with many industries such as automotive, education, and multimedia actively training their own proprietary models using their data to fulfill specific needs. This is enhancing the utilization of our AI infrastructure. Simultaneously, new opportunities for training are arising from companies utilizing our open-source models, especially in education, healthcare, and platform development. These organizations are training their proprietary models to better meet their unique demands, using our Alibaba cloud computing platform. In parallel, this allows us to gradually develop commercialized post-training services for our open-source models. Regarding your question about gross margin in comparison to international markets, I believe the Chinese cloud market is experiencing greater concentration than overseas markets. Developers in China often require comprehensive capabilities, and we offer a full stack that spans traditional cloud computing and AI. Our goal is to outperform the market growth rate while expanding our user base and embracing new use cases, rather than focusing solely on short-term gross margin increases. Concerning our capital expenditures in AI, we will stick to our 3-year investment plan of RMB 380 billion in cloud and AI. While we anticipate some fluctuations due to varying supply chain conditions each quarter and possible changes in AI chip policies, we have contingency plans to collaborate with various partners to address any supply chain challenges. I am confident that we will proceed with our planned CapEx investment of RMB 380 billion despite any industry changes.

Operator, Operator

Your next question comes from Kenneth Fong at UBS.

Kenneth Fong, Analyst

Given the cross-selling that we have seen already achieved in our food delivery part, do we plan to ramp up the in-store part of local service? Because we noticed that Ele.me's in-store coupons have been stepping up promotion in certain regions. So how should we think about further investment or expansion in this in-store part of business in the coming months on top of the food delivery?

Yongming Wu, CEO

Yes, thank you. Let me address this question. The first thing to highlight is our significant scale in quick commerce, which I mentioned earlier. We now have around 150 million active users on our quick commerce channel every day. Among these users, some go to the store for self-pickup, and this also includes group purchases with coupons. From the standpoint of meeting our users' needs, especially those who shop offline, there is a lot of synergy to explore. We are also looking to provide more diverse services to these users and are already testing and piloting initiatives in select cities.

Operator, Operator

Your next question comes from Joyce Ju at Bank of America.

Joyce Ju, Analyst

My first question is about the pace of investments going forward. You mentioned your commitment to the 3-year plan to invest RMB 380 billion in cloud and AI. Could you provide insights into your investment plans on the commerce side? Specifically, what will the pace of those investments be on the consumption side, and apart from quick commerce, what other investments are you considering, such as in supply chains or user acquisition? Additionally, I'd like to ask about CMR. We observed strong growth in CMR this quarter, with a 10% year-on-year increase. However, as we approach September, the positive effect of the software service fee initiated last year will start to fade. Looking ahead, what will be the positive impact of QZT penetration on CMR growth? Furthermore, how much positive impact on CMR can we expect from the additional traffic and GMV generated by quick commerce?

Hong Xu, CFO

Thank you. Let me address your question. We are seizing the significant opportunity to invest in the consumer market today, but our investments in this area are not new. We have consistently invested on the user side. The Taobao and Tmall Group, as well as Freshippo and our other businesses, have been focusing on user investment within the supply chain. The recent large investment of RMB 50 billion in quick commerce is an addition to the prior investments we have been making. We will adjust the pace and timing of our investment based on market conditions to ensure it is appropriate. Regarding your second question about CMR, the key takeaway is the impact of the take rate. In this quarter, CMR growth was strong and positive, mainly due to a significant increase in take rate. There are two primary reasons for this: the 0.6% software service fee and the continued deeper penetration of QZT, which is driven by AI. We anticipate that these factors will positively influence CMR in the coming quarters. Additionally, quick commerce will also contribute positively to CMR through user growth and increased user frequency, leading to a higher take rate. Therefore, over the next couple of quarters, we expect to see rapid growth in CMR.

Operator, Operator

The next question comes from Yuan Liao from Citic.

Yuan Liao, Analyst

We've been closely monitoring the progress of your models and examining the Qwen3 block. It appears that we are moving from a focus on training to an agent-centered approach. My question is, what additional capabilities, resources, or investments are necessary during this transition period? Also, can you share some insights into your recent developments related to agent products and applications?

Hong Xu, CFO

Let me address that question. We are observing a clear evolution in AI, moving from basic chatbots to more advanced agents. A significant trend in this shift is the need for models to have larger context windows to handle more complex tasks that involve longer sequences of reasoning. These agents must utilize various tools and connect with different internal systems within companies. This progress offers us new opportunities as an infrastructure provider. Many agents will require virtual servers, the ability to manage multiple browser windows at once, and various mobile virtual machines and sandbox environments. For a cloud provider like Alibaba Cloud, these trends are very promising. We are assisting numerous clients across various industries and have introduced a new product called AgentBay, which offers a dedicated sandbox environment for agents. This marks the onset of an agent-driven era in AI and cloud advancements, presenting us with a great opportunity. Additionally, I want to highlight the importance of coding capabilities, as models that excel in coding can integrate with numerous tools and internal enterprise systems, enabling them to tackle a wide range of tasks, both within enterprises and for more complex consumer applications. It's also important to note that we have various products that integrate well into this agent-driven framework, particularly within the Alibaba ecosystem. Many businesses, especially in e-commerce, require client service solutions from Alibaba Cloud beyond just compute and infrastructure; we can also collaborate with Taobao, DingTalk, Amap, and Alipay to provide advanced automated solutions. These tools enable enterprises to create AI agents that effectively address their various operational needs.

Operator, Operator

Your next question comes from Alex Yao, JPMorgan.

Alex Yao, Analyst

I have a question regarding quick commerce or Instant Commerce. This isn't the first time Alibaba has attempted to enter this market. Since the acquisition of Ele.me in 2018, we invested considerable time and resources to grow our market share, but over a span of 2 to 3 years, that initial strategy did not materialize as expected. So, I wonder why Ele.me under Alibaba has not been able to surpass Meituan. I was told that the son of a wealthy merchant cannot outdo the entrepreneurial spirit of someone raised in a less affluent environment. Regardless of whether that's accurate, I'm sure there has been significant reflection and strategy revisiting as we enter this new phase of competition. Could you explain what makes this approach different this time and what new tactics we are implementing?

Yongming Wu, CEO

Well, I can attempt to answer that. It's true that we have invested in Ele.me, acquiring it and supporting its growth over the years. However, Ele.me has made significant strides during this time, even if that progress isn't fully represented in market share, which is influenced by our investments, strategies, and traffic. Ele.me has improved its infrastructure and capabilities tremendously. Without these advancements, it would not have been feasible for Taobao Instant Commerce to develop as quickly as it has in such a short time. Achieving the ability to service 120 million orders in just 2 to 4 months while ensuring an excellent user experience is a testament to Ele.me’s strengths and the capabilities we've developed since the acquisition. To succeed in this business, it's crucial to have a sufficient number of merchants, delivery capacity, and users. A deficiency in any one of these areas would compromise our investment efficiency. Currently, following Ele.me's integration into the Taobao app, we have amassed a large, active user base on Taobao, along with a solid merchant network built through Ele.me and an established logistics system. These elements form the foundation of our investment. Additionally, our approach to investment has evolved. We are not viewing the quick commerce business as a separate entity but considering its potential overall positive impact on our e-commerce business in the short, medium, and long term. Our strategy now differs from the past. However, there is still much work ahead to ensure we achieve our objectives in this endeavor.

Operator, Operator

Your next question comes from Gary Yu at Morgan Stanley.

Gary Yu, Analyst

I have a question regarding return on invested capital. Given that we are now spending close to RMB 50 billion in probably a couple of months on quick commerce, how should we look at the rate of return on invested capital from these investments? Because I would imagine, if the same amount were to be spent on something on AI, maybe with much bigger TAM and much bigger faster growth in cloud, we may be able to see a much better return on investment. So how should we think about how we allocate capital internally between retail and AI investment going forward?

Hong Xu, CFO

Well, as Eddie and I have mentioned, we are currently presented with two significant historic opportunities. The first is artificial intelligence, which we have been discussing, and the second is consumption. The opportunity lies in transforming consumption from e-commerce to hyperlocal e-commerce and instant commerce, and it's essential for us to seize both of these opportunities as they are crucial. Our investments in both areas will be very substantial. From our perspective, these are historic investments based on our capabilities and resources. This includes our cash reserves and cash flows as well as resources across our balance sheet. We have enough resources to make these large-scale investments in both opportunities. The key for us is balancing short-term and long-term returns and determining our priorities. This applies to our AI investments, which have already contributed to an increase in the growth rate of our cloud business. We anticipate continued growth in the coming quarters. Our primary focus is on making these investments rather than prioritizing profits. This does not mean we are disregarding profit rates, but our emphasis is on growth. Regarding our investments in instant commerce, we are not currently profiting from them, but the integration of instant commerce into the Taobao app has increased traffic and frequency, which in turn boosts advertising on the platform. As we move from e-commerce to instant commerce, these investments are expected to yield good returns in the future. I am confident that we have the resources necessary to do this while remaining focused on what is truly important. It is crucial not to concentrate solely on short-term returns, as this could prevent us from achieving long-term gains. Proper balance is required.

Lydia Lu, Head of Investor Relations

Thank you, everyone, for joining us today. We appreciate your time, and we look forward to speaking with you again soon.

Operator, Operator

Thank you. That concludes our conference for today. You may now disconnect your lines. Thank you.