Key Takeaways:
Alibaba Group reported fiscal Q1 revenue of RMB 269 billion, up 9%, as cloud external revenue jumped 45% to a 22-quarter high.
"Compute demand will continue to outstrip supply," Chief Executive Eddie Wu said on the earnings call.
Cloud adjusted EBITA rose 133% to RMB 5.6 billion, lifting margin to 12% from 7.6% a year earlier. AI-related product revenue reached RMB 12.4 billion, an annualized run rate of RMB 49.5 billion, marking a 12th straight quarter of triple-digit growth and 35% of external cloud sales. Qwen models have surpassed 3 billion downloads globally, with more than 300,000 derivative models. GAAP net income fell 75% to RMB 10.4 billion, while adjusted EPS of RMB 8.52 missed consensus by 24%.
Capital expenditure surged 75% to RMB 67.7 billion, pushing free cash flow to negative RMB 44.7 billion. Management guided cloud revenue growth to accelerate past 50% in the September quarter, with the AI product run rate approaching $10 billion and MaaS ARR surpassing RMB 16 billion in August. Wu said proprietary T-Head chips serve more than 650 customers, with the prior generation shipping over 500,000 units. The three-year capex plan of RMB 380 billion is on track, with RMB 190 billion already spent, and cloud margin is expected to expand steadily each quarter.
The profit decline reflected one-time items including a EUR 550 million provision for the EU Digital Services Act fine and RMB 4.5 billion in goodwill impairment, plus a tax rate near 40%. E-commerce revenue rose 4% to RMB 205.9 billion, with quick commerce jumping 45% to RMB 53.3 billion while traditional China e-commerce fell 8%. The company reorganized e-commerce into four segments — China e-commerce, quick commerce, international e-commerce and global B2B — with quick commerce targeted for profitability in fiscal 2029. International e-commerce held steady as AliExpress reached operating profit, while the AI Labs and Applications segment posted an adjusted EBITDA loss of RMB 13.9 billion.
Goldman Sachs, JPMorgan, UBS and Jefferies all kept buy ratings, with UBS raising its target to $206 and JPMorgan calling the initial share drop a buying opportunity. Shares closed down 3.5% at $125.98 on Aug. 20.
The guidance signals management expects AI demand to keep outpacing supply into 2030, with a three-year payback on AI capex that could shorten to 2.5 years as margins improve, and a $100 billion external cloud revenue target by that year. Investors will watch the September-quarter cloud margin and MaaS ARR, targeted at RMB 30 billion by year-end, as the key tests of the spending bet.
This article is for informational purposes only and does not constitute investment advice.
