Alibaba profit drops 76% on AI spending as revenue climbs 9%

Alibaba grew its revenue 9% last quarter but shares still fell 6% after profit dropped 76% due to a surge in AI spending, the company reported Thursday.

Revenue for the quarter ending June 30 reached 268.95 billion yuan ($39.64 billion), up 9% from a year earlier. Net income fell to 10.54 billion yuan ($1.55 billion), equaling a 76% decline.

Non-GAAP net income after removal of share-based pay, investment swings and one-off items still dropped 38% to 20.72 billion yuan ($3.05 billion), while adjusted EBITA fell 30% to 27.33 billion yuan ($4.03 billion).

Capital spending jumped 75% to feed AI interests

Alibaba’s capital expenditures for Q2 hit 67.68 billion yuan ($9.98 billion), a 75% jump from the same period a year earlier, money the company tied to AI infrastructure.

The expenditure drained cash, as free cash flow swung to an outflow of 44.67 billion yuan ($6.58 billion), more than double the 18.82 billion yuan outflow a year earlier.

The unit housing Alibaba’s model work, its Qwen consumer app and the QwenWork enterprise agent, its AI Labs and Applications segment, ran an adjusted EBITA loss of 13.86 billion yuan ($2.04 billion). This loss was only 3.22 billion yuan one year ago. Alibaba blamed the higher numbers on higher inference costs from the Qwen app and deeper investment in its AI stack.

Cloud carried the quarter

The AI Cloud and Compute Services segment lifted revenue by 45% to 48.44 billion yuan ($7.14 billion). Alibaba credited this to an increased adoption of its AI products.

Revenue from AI-related products specifically came in at 12.38 billion yuan ($1.82 billion), a 12th straight quarter of triple digit growth over a one year span.

Unlike the AI applications unit, cloud brought in significant revenue. Its adjusted EBITA rose 133% to 5.63 billion yuan ($830 million). “We delivered a strong quarter, driven by the improving commercialization of our full-stack AI capabilities,” Chief Executive Officer Eddie Wu said in a statement.

E-commerce divergence amid $100 billion target

Alibaba’s retail engine split in two different directions, with the China Quick Commerce revenue climbing 45% to 53.30 billion yuan, while the larger China E-commerce business slipped 8% to 110.90 billion yuan. Its 88VIP membership tier grew by double digits to about 64 million members as of June 30.

Three months earlier Alibaba posted adjusted net income of just 86 million yuan and its first operating loss since 2021, all caused by the same AI and quick-commerce bills. The company has told investors it aims to reach $100 billion in combined annual revenue from cloud and AI within five years. The scale of the spending in the just completed quarter shows what this target will cost before it is achieved.