Alibaba shares fell nearly 4% in early U.S. trading on Thursday after the Chinese e-commerce and cloud computing giant reported second-quarter profit below Wall Street expectations.
Despite the earnings miss, Alibaba posted stronger-than-expected revenue and continued to deliver rapid growth across its artificial intelligence and cloud businesses.
Alibaba Q2 Earnings Miss Expectations
Alibaba reported earnings per share of RMB8.52 for the second quarter, falling short of the analyst estimate of RMB10.72.
Quarterly revenue increased 9% year over year to RMB268.95 billion, slightly above the consensus estimate of RMB268.34 billion.
The mixed results pressured Alibaba stock as investors weighed weaker profitability against improving revenue growth.
AI Cloud Revenue Jumps 45%
Alibaba’s cloud business remained one of the strongest areas of the quarter.
Revenue from AI Cloud and Compute Services reached RMB48.4 billion, representing year-over-year growth of 45%.
The acceleration was supported by rising demand for artificial intelligence products and cloud infrastructure.
Alibaba also reported RMB12.4 billion in AI-related product revenue, marking the twelfth consecutive quarter of triple-digit year-over-year growth.
Alibaba CEO Highlights AI Commercialization
Alibaba CEO Eddie Wu said the company benefited from stronger commercialization of its full-stack AI capabilities.
He highlighted the acceleration in Alibaba Cloud’s external revenue growth and continued strong demand for AI-related products.
The results reinforce Alibaba’s push to position artificial intelligence and cloud computing as major long-term growth drivers.
Cloud Profitability Also Improves
Alibaba Chief Financial Officer Toby Xu said cloud revenue growth continued to accelerate while operating efficiency improved.
The cloud segment’s EBITA margin increased to 12%, supported by stronger earnings quality and improved operating leverage.
The improvement in cloud profitability helped offset pressure elsewhere in Alibaba’s business.
China E-Commerce Revenue Faces Pressure
Within Alibaba’s China e-commerce operations, customer management revenue fell 7% year over year to RMB89.12 billion.
However, the company said that excluding the impact of a new business development programme, customer management revenue would have increased by approximately 1% on a comparable basis.
Overall, Alibaba Group e-commerce revenue rose 4% to RMB205.9 billion.
Adjusted EBITA Drops 30%
Profitability remained one of the weaker areas of Alibaba’s quarterly report.
Adjusted EBITA declined 30% year over year to RMB27.3 billion.
The adjusted EBITA margin also fell to 10% from 16% during the same period last year.
Alibaba said the decline was mainly caused by increased technology investment.
Improved performance in the cloud division and greater operating efficiency across other businesses helped partially offset those higher expenses.
Citi Sees Positives in Alibaba Earnings
Citi analysts highlighted several encouraging elements in the quarterly report.
Customer management revenue came in slightly above expectations, while e-commerce Group EBITA reached RMB39.7 billion, which analysts described as stronger than anticipated.
Citi also viewed the rapid expansion of Alibaba Cloud and the growing contribution from AI-related revenue as positive developments.
Capital Spending and Cash Flow Raise Concerns
However, analysts also identified several risks.
Alibaba recorded a sharp increase in capital expenditure as the company continues to invest heavily in artificial intelligence infrastructure and technology.
At the same time, free cash flow deteriorated significantly.
Citi warned that these trends could increase investor concerns about Alibaba’s future capital requirements and whether its growing investment spending will generate sufficient returns.
Alibaba Investors Weigh AI Growth Against Profit Pressure
Alibaba’s second-quarter results presented investors with a mixed picture.
The company continues to achieve impressive growth in AI and cloud computing, while total revenue also exceeded expectations.
However, weaker earnings, falling margins, rising capital expenditure and lower free cash flow remain important concerns.
For Alibaba stock, investor attention is likely to remain focused on whether rapid AI cloud growth can eventually translate into stronger overall profitability and improved shareholder returns.
