Alibaba Stock Falls As Revenue Misses Estimates, Profits Slide Despite AI Growth

Alibaba Group (BABA) stock fell Thursday after the Chinese tech giant reported fiscal third-quarter revenue below expectations and a sharp drop in earnings. The rising costs of Alibaba’s expansion into food delivery overshadowed momentum for its AI offerings.

Alibaba said that it earned an adjusted 7.09 yuan per American depositary receipt for the December-ended quarter, down 67% from a year earlier. Analysts polled by FactSet were forecasting earnings of 11.51 yuan per ADR. Sales increased 2% to 284.8 billion yuan ($41.4 billion), compared with analyst estimates of 285.9 billion yuan.

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Along with operating a massive e-commerce business in China, Alibaba is also the country’s top cloud services provider.

Alibaba’s cloud intelligence unit grew revenue 36% to 43.3 billion yuan, or $6.3 billion. That was a slight acceleration from the 34.5% growth in Alibaba’s September quarter.

Alibaba is working to establish its Qwen large language models as a global leader. The company said early last year that it will spend roughly $53 billion over three years to develop AI infrastructure.

Chief Executive Eddie Wu set an ambitious target for Alibaba’s AI growth during a call with analysts Thursday morning.

“Given the enormous and sustained growth momentum of the AI market, combined with Alibaba’s full-stack positioning across the AI value chain, the business goal of Alibaba’s AI strategy is very clear,” Wu said, according to a FactSet transcript. “Over the next five years, our goal is to surpass $100 billion in combined cloud and AI external revenue.”

Alibaba’s Rapid Delivery Focus

Meanwhile, aggressive discounting to compete in the food delivery and “quick commerce” market with JD.com (JD) and Meituan are contributing to the decline in earnings. Alibaba’s earnings declined 71% during its September quarter. JD.com reported a 92% decline in earnings earlier this month.

While it has eaten into profits, Alibaba’s quick commerce business is by far the fastest-growing part of the company’s broader China e-commerce operations.

Revenue for the Alibaba China e-commerce group grew 6% year-over-year to $22.8 billion. But Alibaba’s two largest sources of e-commerce revenue — customer management fees and direct sales — grew just 1% to $18.8 billion.

Meanwhile, quick commerce revenue grew 56% to $2.98 billion.

“Our quick commerce business continues to scale while unit economics improved steadily,” Alibaba Chief Financial Officer Toby Xu said in a news release. “Our strong liquidity position and resilient cash generation provide a solid foundation to support sustained strategic investment.”

Alibaba Stock Falls

On the stock market today, U.S.-listed Alibaba stock fell more than 6% to 125.27 in afternoon trades.

The food delivery battle and concerns about the Chinese economy had already bruised Alibaba stock this year, with U.S. shares entering Thursday down 8% year to date. Shares are also 4% lower vs. 12 months ago.

Coming into the report, Alibabastock had an IBD Composite Rating of 25 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.

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