Alibaba Group Holding Ltd. shares declined nearly 4% in early U.S. trading on Thursday after the company reported second-quarter earnings that missed analyst expectations despite strong growth in its AI-driven cloud segment.
The Chinese e-commerce and technology giant posted adjusted earnings before interest, taxes, depreciation and amortization (EBITA) of RMB27.3 billion, a 30% year-over-year decline, with the adjusted EBITA margin contracting to 10% from 16%. The decline was attributed primarily to increased investment in technology, partially offset by improved operating results in the cloud business and enhanced efficiency across other segments.
Total revenue for the quarter rose 9% year-over-year to RMB268.95 billion, marginally exceeding the RMB268.34 billion consensus estimate. Earnings per share (EPS) were reported at RMB8.52, falling short of the RMB10.72 analyst estimate.
Alibaba’s cloud and AI businesses continued to expand rapidly. Revenue from AI cloud and compute services reached RMB48.4 billion, up 45% year-over-year, while AI-related product revenue rose to RMB12.4 billion, marking a twelfth consecutive quarter of triple-digit growth. The cloud segment’s EBITA margin improved to 12%, reflecting operating leverage.
In its core e-commerce operations, China e-commerce customer management revenue (CMR) declined 7% year-over-year to RMB89.12 billion, though it would have grown 1% on a like-for-like basis excluding the impact of a new business development program. Total e-commerce revenue increased 4% to RMB205.9 billion, with e-commerce group EBITA reported at RMB39.7 billion, described by Citi analysts as "better than expected."
Alibaba’s chief executive officer, Eddie Wu, highlighted the company’s progress in commercializing AI capabilities, stating, "We delivered a strong quarter, driven by the improving commercialization of our full-stack AI capabilities. Alibaba Cloud's external revenue growth accelerated to 45%, with AI-related product revenue delivering triple-digit growth for the twelfth consecutive quarter."
Chief financial officer Toby Xu noted continued acceleration in cloud revenue growth, adding that operating leverage had increased the cloud segment’s EBITA margin to 12%.
Analysts at Citi pointed to positive aspects, including CMR slightly ahead of estimates and better-than-expected e-commerce EBITA, but flagged a sharp increase in capital expenditure alongside a significant deterioration in free cash flow, which "could raise concerns around capital needs and investment returns."
