All the battles are over. E-commerce serves as the cash cow, food delivery is retreating, and AI is the ultimate destination. On August 20, Alibaba delivered its FY2027Q1 (natural year 2026 Q2) results, with quarterly revenue of 269 billion yuan, up 9% year-on-year. AI cloud revenue hit 48.4 billion yuan, a 45% increase, while single-quarter capital expenditure reached 67.7 billion yuan. However, our focus isn't on these numbers, but on the business restructuring revealed in the report. The filings show Alibaba has consolidated e-commerce, international commerce, and Hema into a single "E-Commerce Group," while splitting AI and cloud into two independent segments.
In simple terms, e-commerce is tasked with generating profits to fund AI, food delivery is expected to gradually reduce losses without causing trouble, and AI is the true priority. A year ago, Alibaba was still promoting the "e-commerce plus instant retail synergy" narrative, where Taobao directed traffic to Flash Purchase, and Flash Purchase brought new users to Taobao, activating shoppers in high-frequency scenarios. However, this storyline appears to have been overturned in the FY2027Q1 report. Data shows China market e-commerce revenue declined 8% year-on-year to 110.9 billion yuan, with customer management revenue down 7%. Instant retail revenue grew 45% to 53.3 billion yuan, but this is a "broad measure" that includes both Hema and Tmall Supermarket. Looking only at pure food delivery, Taobao Flash Purchase's 60 million daily orders include 75% non-restaurant transactions, leaving pure meal delivery at just about 15 million orders.
Alibaba has been adjusting its metrics to make the story coherent. Initially, "Taobao Flash Purchase" was a standalone brand, then Ele.me was merged in, and now Hema and Tmall Supermarket are included in the calculation. To put it plainly, without mixing in non-delivery segments, the standalone delivery business would look quite bleak. After the subsidy tide receded, Meituan has returned to a profitable track, with per-order profit for restaurant delivery around 0.1 to 0.4 yuan. In contrast, Taobao Flash Purchase still loses 1.5 to 1.6 yuan per order, a gap of nearly 2 yuan. This 1.7-yuan differential can't be closed by subsidies alone; it involves factors like average order value, merchant density, fulfillment efficiency, and user stickiness—structural barriers Meituan has built through over a decade of local services operations.
Alibaba acknowledges this loss itself. Jiang Fan stated on the earnings call that "instant retail losses have narrowed significantly," with management setting a target of "turning UE positive in the new fiscal year," but then added a long-term timeline, requiring overall profitability by fiscal 2029. This implies that for the next three years, Alibaba may still need to inject tens of billions annually. Several e-commerce giants appear to be delivery companies on the surface, a perception that puts Alibaba in a passive position. For Alibaba, there are more critical businesses at stake, so why pour resources into the food delivery battlefield, and does the claimed synergy really exist?
Alibaba's strategy now seems to have shifted, appearing to largely abandon the food delivery fight. This isn't an admission of defeat but a calculated decision. With pure restaurant delivery at 15 million orders per day versus Meituan's 65 million, the 4x gap means rider density, merchant coverage, and user habits are unreachable—every additional day of fighting burns billions more. What truly needs defending is the non-restaurant segment, particularly instant retail for fresh produce, supermarkets, and daily necessities. That's the battlefield where Alibaba still has cards to play. The $1.5 billion acquisition of Pudu Supermarket addresses Alibaba's weakness in South China front-warehouse operations. Hema has secured a first-level entry point on Taobao's homepage, with prices for identical items on Taobao being 25% lower than on the Hema app—this leverages Taobao's massive traffic pool to feed Hema users while using Hema's supply chain for fulfillment. Organizationally, Hema's CEO now reports directly to Jiang Fan, with Hema, Flash Purchase, and Tmall Supermarket all consolidated under the instant retail segment, and the standalone IPO has been shelved entirely.
We speculate that Alibaba aims to build a "Taobao Flash Purchase plus Hema plus Pudu" triple formation—Flash Purchase as the platform aggregator, Hema for mid-to-high-end fresh quality, and Pudu covering South China's everyday essentials—specifically to encircle Meituan's "Flash Purchase plus Xiaoxiang plus Dingdong" lineup. This is the core logic of the entire report. The E-Commerce Group generated 205.9 billion yuan in revenue with adjusted EBITA of 39.7 billion yuan, down only 1% year-on-year, suggesting profits have stabilized. Traditional e-commerce CMR, excluding adjustment impacts, grew 1%—not impressive but relatively steady. Management's stance is clear: they want e-commerce to "release more funds for AI investment." AI cloud and computing services revenue grew 45% to 48.4 billion yuan, AI product revenue surged over 150% to 12.4 billion yuan, and profit margins improved 4.4 percentage points year-on-year to 11.6%. The 67.7 billion yuan in quarterly capital expenditure was almost entirely directed toward computing power and model training. Wu Yongming noted that 190 billion yuan of the three-year 380 billion yuan investment plan has been completed, on schedule.
Alibaba has evidently completed its strategic prioritization: e-commerce stabilizes the core as the cash cow, instant retail holds the non-delivery lane without causing disruption, and AI and cloud serve as the true growth engines and future valuation support. The food delivery war that began in the summer of 2025 burned over a hundred billion yuan for Alibaba, yielding one lesson: the platform model can't crack food delivery deeply—subsidies can buy orders but can't buy moats. Now Alibaba is pulling back its chips, pushing Hema and Pudu to the forefront, countering Meituan with supply chain capabilities rather than rider density. That's the pragmatic choice. As for food delivery itself? It's back to the Ele.me era. No, perhaps even worse than that.
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