What is the underlying logic of Alibaba's Taobao Flash Sale?

Text | Wang Yi

On March 19th, Alibaba released its financial report for the fourth quarter of 2025 (the third quarter of fiscal year 2026).

Similar to the previous quarter, the market still focused on the progress of the flash - sale business and its boosting effect on the e - commerce business. The management revealed that the flash - sale business drove an increase of 100 million annual active buyers in Taobao's physical e - commerce. However, considering other dimensions of the financial report, there has been no obvious effect on transaction conversion.

According to the data calculated by China International Capital Corporation, in the third and fourth quarters of 2025, the EBITA (Earnings Before Interest, Taxes, and Amortization) of Taobao's flash - sale business was - 36.7 billion yuan and - 21.1 billion yuan respectively. Considering that the revenue of Taobao's flash - sale business in the fourth quarter of 2025 was about 20.8 billion yuan, showing no obvious decline compared with the third quarter (22.9 billion yuan), the loss - reduction amplitude of the flash - sale business was quite obvious.

Based on the calculation data of J.P. Morgan and Analysys, the current instant retail market basically presents a duopoly pattern. Looking forward, the management pointed out in the earnings conference that in the future, they will further expand the market scale of the flash - sale business, simultaneously improve the Unit Economics (UE), and achieve the goals of reaching a transaction scale of over one trillion yuan in the instant retail market in fiscal year 2028 and overall profitability in fiscal year 2029.

This means that Taobao's flash - sale business will still be in the investment stage in the next two fiscal years. Recently, affected by factors such as international environmental fluctuations and rising inflation expectations, the risk premium in the capital market has increased, and the tolerance for enterprises' short - term financial performance has dropped significantly. Therefore, after the release of the financial report, Alibaba's stock prices in both the U.S. and Hong Kong stock markets declined.

The performance of the financial report has also sparked intense market debates: Facing the current scale of losses, should Alibaba adjust its strategy and "stop in time" to release profits?

This further points to a core issue: What is the underlying logic for Alibaba to persist in promoting Taobao's flash - sale business? In - depth analysis shows that the strategic considerations behind it are difficult to fully measure with short - term financial data.

Seek Growth from Instant Retail

Currently, the domestic e - commerce industry has entered an era of stock competition. As the traffic dividend reaches its peak, the overall growth rate of the industry has been continuously declining, and the corresponding business expansion logic has undergone a fundamental transformation. That is, platforms and merchants have shifted from "grabbing incremental market" to "competing for stock market, seizing market share, and seeking repeat purchases". Against this background, the rapid rise of live - streaming e - commerce has continuously diverted traffic from traditional e - commerce, further deteriorating the industry's competitive landscape and putting continuous pressure on Alibaba's core e - commerce business.

In terms of various categories, Alibaba has long held a leading position in the clothing category. However, various live - streaming e - commerce platforms, relying on content marketing, scene - based displays, and precise algorithm recommendations, are more attractive to consumers and brand owners, squeezing Alibaba's basic market to some extent. In the home appliance category, self - operated e - commerce platforms, combined with their logistics systems, have obvious competitive advantages in terms of consumer experience, fulfillment, and after - sales service.

Instant retail is currently one of the few tracks with clear high - growth potential. According to the forecast data of the Research Institute of the Ministry of Commerce, the market scale of instant retail (excluding takeout) will reach 1.24 trillion yuan and 2 trillion yuan in 2026 and 2030 respectively. Compared with the online retail sales of physical goods in China of about 13 trillion yuan in 2025, instant retail will play an increasingly important role.

The core logic for the long - term prosperity of the instant retail market lies in that instant retail and takeout services have the characteristics of high - frequency repeat purchases by users, rigid demand, and short consumption decision - making cycles. They not only conform to the current consumption trends but also have better user stickiness and conversion efficiency than traditional shelf e - commerce.

It is worth noting that the categories mainly covered by instant retail, such as supermarkets, daily necessities, and food, have a certain degree of overlap with traditional shelf e - commerce. Moreover, as its market scale continues to expand, this degree of overlap will further deepen.

Therefore, once major competitors form a scale advantage in the instant retail field and monopolize users' minds through their original layout in the local - life segment, which will drive the migration of consumption habits, it will not only continuously divert users but also gradually erode the core areas of Alibaba's e - commerce business, such as clothing and standard - product categories.

It can be seen that Alibaba's focus on instant retail and promotion of the flash - sale business is both an active offensive and a defensive measure. For Alibaba, the current stage is a crucial positioning period for instant retail. Promoting the flash - sale business and seizing the incremental market not only opens up a new growth curve but also can activate the resources of offline supermarkets and fresh - food stores through high - frequency and rigid - demand scenarios, effectively hedging the pressure of the diversion of its traditional advantageous categories and is also the key to stabilizing the e - commerce basic market.

User Mindsets Need to Be Further Strengthened

From the development logic of the instant retail industry, price, delivery efficiency, and usage habits (mindsets) are the three core factors influencing users' choice of instant retail platforms. During the rapid expansion period of the industry, price advantages and efficient delivery are effective means to cultivate users' mindsets; after the industry enters a stable state, user mindsets become the decisive factor.

Data from a research report of Founder Securities in 2020 showed that in a questionnaire survey of 300 people, only 23% of users compared prices on multiple platforms when ordering food, 54% of users were unclear about the differences in rider services among platforms, and 68% of users lacked a clear comparative understanding of the overall price level.

However, with the development of the industry, a survey by iResearch in December 2025 (with a sample of 2,000 people) showed that 44.8% of users changed from using only one platform to comparing three platforms before placing an order; 29.5% of users changed from only looking at/using one platform to comparing at least two platforms.

This indicates that currently, users are still in a dynamic stage of comparing prices on multiple platforms and have not formed an absolute habit of using a single platform. Since Alibaba has already gained market share and a large number of new users, it would be unwise to abandon the investment in instant retail to stop losses in the short term, as the previously invested funds and achievements cannot be transformed into long - term advantages.

A prudent approach is to adjust subsidies gradually or dynamically and pay close attention to changes in user stickiness. The appropriate time to reduce subsidies is when user stickiness is no longer sensitive to subsidies.

On the other hand, from the perspective of operational efficiency, a high order volume is a necessary means to improve delivery timeliness and reduce the average delivery cost per order. The order volume determines the upper limit of the number of riders that can be accommodated, and the number of riders determines the average delivery timeliness and delivery cost per order.

According to the data statistics of Founder Securities in 2019, the average number of daily - served users per rider on the takeout platform is higher, while the delivery fee per order is lower. Riders can increase their income by "increasing the volume" with lower delivery fees. Therefore, for Taobao's flash - sale business, in addition to improving technology and operational capabilities, the scale effect brought by a high order volume is also indispensable for optimizing the UE model.

In addition, from the overall strategic perspective of Alibaba, beyond the narrative of Taobao's flash - sale business itself, although Taobao's flash - sale business may not bring considerable direct revenue and book profits in the short term, its core value lies in its role as a moat for the basic market.

As a representative of high - frequency consumption scenarios, instant retail can effectively drive and stabilize users' frequency of opening the app and platform stickiness.

For traditional e - commerce apps, in the current situation where the traffic dividend has reached its peak, user activity is a very crucial lifeline indicator. The flash - sale business can not only feed back to the overall Taobao platform through the "high - frequency drives low - frequency" effect but also serve as a defensive barrier, effectively delaying the downward trend of traffic faced by traditional e - commerce businesses and resisting the risk of cross - border encroachment on the core e - commerce share by local - life platforms or content e - commerce.

Therefore, from any perspective, the decision on whether to stop investing in Taobao's flash - sale business should not be based solely on the cash - flow perspective but should be reasonably planned based on user habits and the optimization degree of the UE model.

How to Evaluate the Investment in Taobao's Flash - Sale Business?

From the perspective of the capital market, against the background of current international macro - environmental fluctuations, the risk - aversion sentiment of funds has increased, and the requirements for enterprises' short - term financial performance have become more stringent. This has also led to a contradictory demand from the market for Alibaba: On one hand, it is required to make rapid progress and quickly seize market share in the highly competitive instant retail market; on the other hand, it is required to significantly reduce losses, and even hopes to see an immediate positive financial feedback from the flash - sale business on the e - commerce basic market.

Obviously, the current "heavy - investment model" of Taobao's flash - sale business is significantly misaligned with the capital market's preference for "short - term returns". However, from the long - term perspective of corporate governance and crossing business cycles, this strategic investment is not only necessary but also forward - looking. From a long - term strategic perspective, instant retail has evolved into the core of the next - generation retail infrastructure. It has irreplaceable dual values of both defense and offense for Alibaba to maintain the stable growth of its overall performance and build a moat to prevent "dimensionality - reduction attacks" on its core e - commerce business.

In fact, objectively examining Alibaba's "interim report card", its strategy has begun to show results: In less than a year, the flash - sale business has not only captured a considerable market share and reshaped the original takeout and instant - delivery industry landscape. More importantly, it has brought over 100 million new active users to the Taobao app, and the actual unit - economic model (UE) of the business has shown a significant narrowing and positive trend.

Furthermore, even if we temporarily strip out these strategic premiums and ecological synergy effects that are difficult to accurately quantify, from a pure financial perspective, the current pricing of Alibaba by the capital market seems overly pessimistic:

According to the traditional discounted cash - flow model, the value of an enterprise is equal to the present value of its future cash flows. Therefore, to quantify the temporary drag on Alibaba's market value caused by the investment in the flash - sale business, it is essentially to calculate the present value of the cash outflows during the investment period of the flash - sale business.

First of all, it should be clear that although the flash - sale business has led to a significant year - on - year decline in Alibaba's free cash flow, this is not a permanent loss. According to the management's guidance to achieve profitability in fiscal year 2029, the cash - outflow period of the flash - sale business is mainly from fiscal year 2026 to fiscal year 2028 (April 2025 - April 2028).

Therefore, under an absolutely conservative assumption - that is, not considering the boost to the company's market value from the positive cash flows generated by the flash - sale business in the future and only calculating the negative drag during the investment period, the maximum quantifiable market - value impairment is the total cash outflows in these three fiscal years (for the sake of simplicity, the time value of money is not considered for now).

The cumulative EBITA outflow of Taobao's flash - sale business in the first three quarters of FY2026 was about 80 billion yuan. Assuming that the outflow remains at 20 billion yuan per quarter in the future, the flash - sale business will cause a cumulative cash outflow of about 260 billion yuan in three fiscal years.

It must be emphasized that this is only an "extreme value" under a pessimistic assumption. To achieve the profit target in fiscal year 2029, the subsidy intensity of the flash - sale business in FY2027 and FY2028 will inevitably show a marginal decline. Therefore, the actual cumulative cash outflow will be significantly lower than the above - calculated value of 260 billion yuan.

Judging from the changes in Alibaba's market value on the day of the release of its financial report and thereafter, the capital market is actually in a state of over - pessimistic pricing. This over - adjustment is largely due to the sudden drop in the risk preference of funds under international geopolitical and macro - environmental fluctuations, rather than a comprehensive deterioration of the company's fundamentals. For Alibaba in the future, the change in its stock price may depend more on the macro - environment than on the fundamentals. If the overseas environmental fluctuations weaken and the liquidity expectation rises again, the company's stock price still has a chance to rebound.

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