The Alibaba office building in Nanjing, Jiangsu province, China, on Aug. 28, 2024.
CFOTO | Future Publishing | Getty Images
Alibaba (BABA) delivered a Q1 fiscal year earnings beat, fueled by a surge in its cloud computing arm and a continued recovery in its e-commerce operations. The figures, however, weren’t universally rosy; revenue fell shy of analyst expectations, presenting a mixed bag for the tech behemoth.
Despite the mixed data, Alibaba’s stock showed resilience, initially dipping before climbing over 1% in premarket trading in the U.S. Investors appear to be cautiously optimistic, digesting both the good and the less-good news.
Here’s a breakdown of Alibaba’s performance in its fiscal first quarter ended June, compared with LSEG estimates:
- Revenue: 247.65 billion Chinese yuan ($34.6 billion), versus 252.9 billion yuan expected.
- Net income: 43.11 billion yuan, compared with 28.5 billion yuan expected.
While revenue edged up 2% year-on-year, the real headline was the company’s impressive 78% jump in net income. Alibaba attributed this significant profit increase to gains from its equity investments and the strategic disposal of Turkish e-commerce platform Trendyol. However, it’s worth noting that this was partially offset by a decline in income from operations, signaling that the core business still faces some headwinds.
Cloud Accelerates
The star performer in Alibaba’s portfolio was undoubtedly its cloud division. Revenue here soared to 33.4 billion yuan, marking a robust 26% year-on-year increase. This acceleration from the previous quarter’s 18% growth highlights the division’s increasing importance. Like its Western counterparts, Microsoft and Google, Alibaba sees its cloud unit as the primary vehicle for monetizing its investments in the burgeoning field of artificial intelligence.
“Driven by robust AI demand, Cloud Intelligence Group experienced accelerated revenue growth, and AI-related product revenue is now a significant portion of revenue from external customers,” Alibaba CEO Eddie Wu noted in the official release. This underscores the company’s strategic shift towards leveraging AI to drive further growth.
Investors are keeping a close watch on Alibaba’s deep pockets and ambitious AI initiatives. The company has aggressively launched various AI models and is actively selling related services through its cloud platform.
Alibaba emphasizes open-source AI development, allowing developers to freely use and build upon its models; however, the real monetization comes from the AI services offered through its cloud infrastructure.
Impressively, Alibaba reported that AI-related product revenue “maintained triple-digit year-over-year growth for the eighth consecutive quarter,” a striking testament to the demand for its AI solutions.
The division’s profitability also saw a significant boost, with adjusted earnings before interest, taxes, and amortization (EBITA) jumping 26% year-on-year.
Alibaba shares listed in New York have gained over 40% this year, fueled by both the revitalization of its core China e-commerce business and the aforementioned rapid expansion of its cloud computing segment. This makes it one of the better performing Chinese stocks in the US this past year.
Despite the positive signs, Alibaba, and the broader Chinese economy, faces ongoing challenges. Recent data indicates a slowdown in momentum in July, with ongoing concerns about weak demand and industrial capacity issues. The Chinese government has initiated measures earlier this year aimed at boosting consumer spending, though their ultimate effectiveness remains to be seen. Navigating this macroeconomic uncertainty will be crucial for Alibaba’s continued success.
