As rumored and expected in the market, following the 6.18 shopping festival and students entering the summer vacation, the intensity of the instant retail battle among Taobao, Meituan, and JD.com has gradually escalated. Today, Taobao officially announced that starting from July, it will directly subsidize consumers and merchants with a total of 50 billion yuan over the next 12 months. What does this news imply?

1. Assuming this 50 billion refers to the total subsidy amount on Taobao Flash Sale and Ele.me, rather than a net increase on the current subsidy level. A simple mathematical calculation shows a monthly subsidy of approximately 4 billion yuan, and a quarterly subsidy of about 12 billion yuan. Based on research, this subsidy level is roughly equivalent to the recent subsidy levels in May and June. Assuming a daily average of 60 million orders is maintained, the subsidy per order would be 2.2 yuan.

Taobao is likely to maintain the current subsidy level over the next year without significant reduction. In this scenario, Meituan and JD.com are also likely to be forced to follow suit, extending the duration of high subsidies. This means the market's original expectation that the peak period of this round of the food delivery battle subsidies would last at most 1-2 quarters has been broken. As we previously emphasized, this round of the instant retail battle is a long-term war of attrition, not a short-term "trial run."

2. Another piece of information revealed is that the impact of this round of the instant retail battle on company profitability may also be greater than originally expected. Taking Taobao Flash Sale as an example, the subsidy for a single quarter is 12 billion yuan, while Alibaba Group's overall quarterly marketing expenses are only about 36 billion yuan.

Since both Taobao and JD.com have emphasized that subsidies for Flash Sale can be considered as traffic acquisition expenses for the main site, assuming about 40% of this 12 billion is transferred from the main site's marketing expenses, the net additional expenditure per quarter would be 7.2 billion yuan. In comparison, Alibaba Group's average quarterly operating profit for the fiscal year is about 35 billion yuan.

Additionally, Dolphin Research has heard rumors that Meituan's recent (June) food delivery business profit decline is more severe than expected. According to some research, Meituan's current subsidy per order has also increased to around 2-2.2 yuan, whereas previously it was generally below 1 yuan. Meituan's original profit per order fluctuated around 1-1.5 yuan, and if the subsidy per order indeed increases by 1-1.2 yuan, it would nearly wipe out the profit.

In the short term, in the second quarter and possibly including the third quarter, the profits of JD.com, Meituan, and Taobao are likely to look bleak. The worst time has not yet passed, and the stock prices of these companies are likely to further decline.