Alibaba core profit plunges 84% on AI, e-commerce investments

Alibaba’s core profitability plunged 84% year-on-year in the March quarter as heavy investments in artificial intelligence, cloud infrastructure and quick commerce weighed on earnings, the Chinese technology giant said Wednesday.

The company’s adjusted earnings before interest, taxes and amortization (EBITA), a key measure of underlying profitability, fell to 5.1 billion Chinese yuan ($750.9 million) during the quarter.

Alibaba has ramped up spending on semiconductors, data centers and its Qwen family of AI models, while also expanding its quick-commerce business, which offers rapid delivery services.

The investments pressured profitability in its China e-commerce division, where adjusted EBITA dropped 40% from a year earlier.

Customer management revenue, the group’s largest contributor, rose 1%, while overall China e-commerce revenue increased 6%.

Quick-commerce revenue, however, surged 57% year-on-year, underscoring intensifying competition among Chinese e-commerce platforms.

Alibaba’s cloud division emerged as a bright spot, with revenue rising 38% year-on-year to $6.1 billion in the March quarter, accelerating from the previous quarter. Adjusted EBITA for the segment climbed 57%.

The company’s Chief Financial Officer Toby Xu said Alibaba’s strategic investments continued to support long-term business growth, adding that AI-related product revenue posted triple-digit growth for the 11th consecutive quarter.

The company said AI-related revenue reached $1.32 billion.

Alibaba CEO Eddie Wu said demand for AI remained strong and that returns on the company’s investments over the next three to five years were “extremely clear.”

Wu said Alibaba may need to spend more on computing capacity over the next five years than its previously announced three-year capital expenditure plan of $55.9 billion, though some computing power could be rented and recorded as operating expenses rather than capital expenditure.

He added that Alibaba expects annualized recurring revenue from its AI model and application services to exceed $1.47 billion in the June quarter and reach $4.4 billion by year-end.

The company also highlighted its chip-development capabilities, saying self-developed AI chips give Alibaba greater control over its computing supply chain amid constrained global availability.

Alibaba’s US-listed shares initially rose in premarket trading Wednesday before turning negative, falling as much as 4% before trimming losses.