Alibaba Earnings: Cloud Booms, Instant Retail Soars, But Profits Slump
$Alibaba(BABA)$
Core Financial Indicators
- Revenue was RMB 247.8 billion, up 4.8% year over year, compared with the estimate of RMB 243.2 billion.
- Adjusted net profit was RMB 10.35 billion, down 72% year over year, compared with the estimate of RMB 16.8 billion.
- Adjusted earnings per ADS were RMB 4.36, versus RMB 15.06 a year earlier, down 71% year over year.
Business Segment Breakdown
Alibaba China E-commerce Group
China E-Commerce Business Group, the largest revenue contributor, delivered revenue of RMB 132.58 billion, up 16% year over year, exceeding the estimate of RMB 128.53 billion. However, consumer subsidies for this segment were a major reason for the quarter's profit decline.
Alibaba's operating profit fell 85% year over year to RMB 5.37 billion. Free cash flow swung from a net inflow of RMB 13.74 billion in the same period last year to a net outflow of RMB 21.84 billion. The company attributed this to investments in instant retail, user experience, and technology. Sales and marketing expenses doubled year over year this quarter, rising to 26.8% of revenue from 13.7% a year earlier, mainly to support user-experience investments in Alibaba's China e-commerce group. R&D expenses also rose 21% year over year.
The instant retail business performed strongly this quarter, with revenue up 60% year over year to RMB 22.9 billion. Core customer management revenue—primarily advertising and commissions from Taobao and Tmall—grew 10% year over year, indicating that the fundamentals of the e-commerce remain solid. As of October 31, about 3,500 Tmall brands had connected their offline stores to the instant retail network, reflecting early signs of ecosystem synergies.
Cloud Intelligence Group
The Cloud Intelligence Group led all business units with year-over-year growth of 34%, generating revenue of RMB 39.82 billion.
The financial report highlighted that revenue from AI-related products has recorded triple-digit year-over-year growth for nine consecutive quarters and is being rapidly adopted by a broad base of enterprise customers. According to Omdia, Alibaba Cloud ranks first in China's AI cloud market with a 35.8% share. In terms of profitability, the Cloud Intelligence Group's adjusted EBITA rose 35% year over year to RMB 3.6 billion, indicating healthy profitability alongside rapid growth.
Chief Financial Officer Xu Hong disclosed that over the past four quarters, the company's capital expenditures on AI and cloud infrastructure have totaled about RMB 120 billion.
International business swung to a profit
The performance of Alibaba International Digital Commerce Group (AIDC) is another positive sign: The segment grew 10% year over year to RMB 34.8 billion. The group posted adjusted EBITA profit of RMB 162 million this quarter, compared with a loss of RMB 2.91 billion in the same period last year, marking a successful turnaround. The company said this was mainly driven by significant improvements in operational efficiency at AliExpress.
Other Things to Watch
Alibaba has recently accelerated the rollout of AI products. On Monday, the company officially announced that within one week of the public beta, downloads of its QWen app surpassed 10 million. This growth rate has already outpaced ChatGPT, Sora, and DeepSeek, making it the fastest-growing AI application to date.
Summary
Overall, the earnings report was mixed. FY2026 Q2 profit missed expectations, but growth in instant retail and cloud businesses highlighted in the earnings report sent the stock up more than 3% in premarket trading.
– Potential Positive Catalysts: Cloud services acceleration
– Risks to Monitor: China e-commerce competition
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Q4 is going to be a monster.
Next move up takes us above $200+.
Long & Strong.