Alibaba Group posted a second consecutive quarter of earnings per share (EPS) shortfall, with adjusted EPS of RMB 8.52 missing estimates by 20.5% as the company’s China e-commerce customer management revenue declined 7% year-over-year to RMB 89.12 billion. Adjusted EBITDA margins contracted from 16% to 10%, reflecting broader margin pressure across the business.
AI cloud and compute services revenue rose 34% to RMB 48.4 billion, driven by external customer cloud growth of 29%, while AI-related product revenue reached RMB 12.4 billion, marking the 12th straight quarter of triple-digit growth. Total e-commerce revenue increased 4% to RMB 205.9 billion, with international commerce up 16%. The company’s net cash position stood at $41 billion, though free cash flow turned negative at RMB 21.8 billion.
Management outlined a three-year capital expenditure plan totaling RMB 380 billion for AI infrastructure, with capacity to scale beyond that target. The plan follows the divestment of gaming unit Lingxi Games for over $2 billion, which bolstered the company’s liquidity position. Analysts at Benchmark maintained a Buy rating with a $220 price target, implying 69.5% upside from the current ADR level of $130.50.
Regulatory scrutiny intensified as the European Union imposed a €550 million fine on AliExpress for counterfeit products, adding to ongoing compliance challenges. Meanwhile, Apple is collaborating with Alibaba to train a China-specific AI model, signaling potential synergies in the tech giant’s broader AI strategy. Alibaba-backed ShengShu Technology, an AI video platform, is exploring a Hong Kong IPO to raise over $500 million, further diversifying the company’s revenue streams.
Looking ahead, consensus estimates for Q3 FY2027 project EPS of RMB 9.69 on revenue of RMB 270.91 billion, with a December quarter estimate of RMB 13.16 EPS on RMB 312.23 billion in revenue, a period that coincides with the peak holiday shopping season and Singles’ Day. The stock, trading at 18.8x P/E with a beta of 0.51 and a 0.8% dividend yield, remains under scrutiny as investors weigh margin recovery against aggressive AI investment commitments.
