Alibaba’s Spending Spree: From Cautious Buybacks to Full-Blown Investment Mode

AI, Instant Retail, Cloud, and E-Commerce Are All Demanding Capital—While Free Cash Flow Starts to Crack

Introduction

Last quarter, the big talking point was Jack Ma’s unexpected appearance at a high-level government meeting with China’s tech leaders. I’ve written many times about how quickly the political environment in China can shift, and how things tend to move in cycles. When there is a shift, it usually happens fast. The fact that Ma—who technically holds no title—was standing among the top leadership was more than symbolic. It was a signal.

And yet, the significance of that meeting still seems widely underestimated. What I find more surprising than Ma’s appearance is what followed—or rather, what didn’t. This quarter, the focus shifted completely. Analysts moved on, and suddenly everything was about AI and a bit of macro stimulus—trade-in subsidies and new battlegrounds like JD’s push into food delivery.

What went almost entirely unmentioned was that the government’s stance toward the tech sector has clearly become more supportive. It’s visible. But somehow, nobody thought that was worth discussing.

A Green Light from Beijing

That meeting wasn’t just symbolic. It was the starting point. The quiet signal from Beijing that tech companies are once again needed—this time not just for innovation or employment, but for national security and to help carry the economy while real estate remains in a prolonged slump. Add to that the brewing tariff war with the United States, and it’s clear that China can’t afford to keep its tech giants sidelined.

Until recently, most of these companies played it safe. Growth targets were modest, capital expenditure restrained, and shareholder returns prioritized. With valuations depressed, buybacks became the story—safe, quiet, and politically uncontroversial. Pinduoduo, to its credit—or misfortune—tested the limits by posting eye-popping growth while squeezing its merchants into submission. The results were…educational. But now, things have shifted. The tone of that meeting, combined with recent developments—most notably, the emergence of DeepSeek—has changed the equation. As Tencent put it in their earnings call:

And the good thing on that front is that over the past few months, right, we start to move off the concept or the belief of the American tech companies, which they call the scaling law, which require continuous expansion of the training cluster. And now we can see even with a smaller cluster, you can actually achieve very good training results.

Despite chip restrictions, Chinese tech firms now see a real shot at global relevance in AI. And this time, they’re going for it—with Beijing’s full blessing.

Times have changed

Now it’s all about investment. Not incremental, not cautious—full throttle. Two of China’s largest tech firms, Tencent and Alibaba, both made it clear in their latest earnings: they’re putting their cash to work, and they want you to notice. Both pointed to healthy cash flows and strong reserves, and stated—almost identically—that these funds would be used to support aggressive investment. Buybacks, on the other hand, are being scaled back, in part because the stock price has recovered. In both cases, CAPEX is through the roof, which is already starting to eat into free cash flow.

We also stepped up our spending on new AI opportunities, such as the Yuanbao application and AI in Weixin. We believe the operating leverage from our existing high-quality revenue streams will help absorb the additional costs associated with these AI-related investments and contribute to healthy financial performance during this investment phase.

Ma Huateng - Tencent Q1 earnings

This is an investment period. And certainly, that will have an impact on EBITA in line with competitive developments. You could expect to see fluctuation in EBITA on a quarterly basis. So I think that's what you can expect to see in -- that's what you've already seen over the past several quarters.

Toby Xu Alibaba - March Quarter earnings call

What’s remarkable is how synchronized this messaging has become. Just six months ago, this would’ve been unthinkable. Back then, the mantra was capital discipline—don’t over-earn, don’t attract attention, you definitely don’t want to get a visit from regulators. Now, suddenly, everyone’s investing again. And not quietly either—they’re spelling it out on earnings calls, practically yelling it in your face, just in case you missed the memo.

So much for the broader picture. Let’s take a closer look at Alibaba’s earnings.

Share buybacks

In terms of share buybacks—you can already see how the pace has slowed.

At the same time, they announced a $2 per ADS dividend, split into a regular and a special payout. Wait, what? I thought the cash on Chinese balance sheets was fake. But then again, how did they buy all those expensive Nvidia chips?

Breaking It Down

The way I look at Alibaba hasn’t changed. It’s an e-commerce company—both domestically and internationally. That’s the core. It’s supported by a strong AI foundation, which increasingly powers its internal operations and also stands as a business in its own right.

On the logistics side, Cainiao handles the long-haul infrastructure, while Eleme covers instant retail. As I wrote months ago, Elema is not so much about food delivery anymore—it’s a strategic asset for Alibaba’s push into instant retail.

I believe Ele ma’s value is primarily strategic, and I never gave much credence to the rumors about Alibaba selling this unit to ByteDance.

The Great Wall Street

Everything else? Non-core.

Now let’s take a closer look at each part.

Digital Media and Entertainment Group

Non-core — nothing to see here. The only mildly interesting part is that this unit finally stopped losing money. Progress.

Cainiao

I could almost copy and paste what I wrote last time—because not much has changed. Cainiao is still a key part of Alibaba’s logistics infrastructure, but the reported revenue and earnings remain hard to interpret. Alibaba can allocate costs and earnings across business units as needed, so the financials here are more a reflection of internal accounting than operational reality.

This time, revenue fell 12% year-over-year, which they explained as a result of “increasing integration of logistic offerings into our e-commerce business.” In other words, exactly what I said last time. Always nice when the earnings release confirms your own notes—just wish it came with a citation.

Local Services group (Elema and AMAP)

This unit continues to disappoint. Revenue grew just 10% year-over-year, while losses widened QoQ. Once again, the scale disadvantage is visible. Meituan’s food delivery business is not only growing faster but remains highly profitable. The contrast is hard to miss.

Still, Elema isn’t here to win beauty contests. It’s strategic. And that role finally became more visible this quarter. The big news was Taobao formally entering the instant retail space, with Elema playing the backend role. Alibaba is now going directly after the high-frequency delivery model, using Eleme’s rider network as infrastructure rather than pretending it’s about the food.

Meanwhile, JD’s rumored food delivery ambitions are no longer rumors. It’s official: Meituan, Alibaba (via Taobao and Eleme), and JD are all going head-to-head in instant retail. JD’s approach? Subsidies and vouchers (And yes, thank you, JD, for the coffee you’re losing money on. I’m drinking it right now while writing this). Alibaba’s? Activate Eleme and push hard. Everyone suddenly wants to be the app you open three times a day.

The logic behind it is straightforward: high-frequency purchases increase user engagement, which can spill over into the rest of the ecosystem. And frankly, it makes sense. If you live in China, the convenience speaks for itself. Once you’ve had anything - really anything - delivered in under 30 minutes, it’s hard to go back to the old model of “wait three days and hope it arrives.”

And we see a huge potential for the Taobao app to grow its users and to convert existing users into instant commerce users. So in the short term, we will be investing aggressively in this business.

Yongming Wu

My prediction: in most of China, online retail will settle into two tracks. One, slow but cheap—goods shipped from all over the country, priced aggressively. Two, instant—products already nearby, delivered fast. The latter will become the dominant model in urban areas.

All Others

Once again, Alibaba had nothing to say about this segment, and analysts politely pretended it didn’t exist. Which is odd, considering it’s still nearly twice the size of the cloud business—and erasing all of its earnings.

You really get a sense of how badly Alibaba was managed when you look at how much non-core clutter ended up on the books. The good news: under Joe Tsai, they’re finally cleaning house. SunArt and Intime are being sold off, potentially bringing in $2.6 billion. Headcount has dropped from 190,000 to 120,000.

Still, they somehow continue to label these units as “growth businesses.” In reality, they’re growing 5% and burning cash. Not exactly a winning formula. Fliggy, the travel app, is actually performing well—like its peers Ctrip and Tongcheng Travel (HK:0780), especially given the promising travel numbers during the May holiday. But overall? No growth, huge losses. Hard to see the upside in that math. Okay, okay—they promised these units will break even in one or two years. We’ll see.

And now, let’s discuss the core segments—TTM Group, the cloud business, and international e-commerce.