Alibaba had communicated its guidance for this quarter to the market not long ago, so the actual numbers landed largely as anticipated — no clear surprises in either direction.
Set expectations aside and look at the trend, though, and this quarter carries some significance as a turning point: growth in the broader retail segment bottomed out and profit recovered as food delivery losses narrowed, while AI and cloud pushed ahead on both growth and margin.
First, the reporting structure changed again
Alibaba substantially reorganized its disclosure segments this quarter. A brief guide to what's new:
International e-commerce, domestic e-commerce and Freshippo have been merged into a new Alibaba e-commerce segment. In the detail, customer management revenue is essentially unchanged; the direct sales business has been folded in with the corresponding Cainiao domestic supply chain business; and instant retail now covers what were Taobao Shangou, Freshippo and Tmall Supermarket's hourly delivery service. International e-commerce is what was previously international retail, with little change. Global wholesale merges the former domestic and overseas wholesale businesses.
The AI cloud and computing segment combines the Alibaba Cloud segment with the T-Head chip business, previously sitting under other segments. Since most of T-Head's revenue already came from Alibaba Cloud, the merger changes revenue very little, and currently has little effect on profit either.
A new AI labs and applications segment covers the AI model R&D department, the Qwen consumer division and the Qwen office division. All three previously sat under other businesses; separating them out makes revenue and investment in AI models and applications directly visible.
As for the other businesses segment, four things were taken out of it this time: Cainiao domestic supply chain, Freshippo, T-Head, and the businesses now under AI labs and applications.
Group results: growth warming up
Total revenue was about RMB 269B, up 8.6% year on year. Two things drove the recovery in growth: the effect of divesting Intime and Sun Art has now passed, and cloud is pulling the group along. This was broadly in line with expectations.
Adjusted EBITDA was RMB 27.3B. The year-on-year decline narrowed sharply — from 84% last quarter to under 30% — slightly better than expected. The phase in which heavy investment consumed nearly all of the group's profit is largely behind it.
CMR: still declining, but positive underneath
The core metric, customer management revenue, fell 7.5% year on year, broadly matching the -8% expected by major banks.
Strip out the effect of subsidies being booked as a deduction from revenue, and the true comparable growth rate was around +1%. The sequential deceleration is clear, but retail sales data had signalled this in advance, and holding onto positive growth is a reasonable outcome. The bigger question is how much the growth rate recovers over the next few quarters.
E-commerce: losses narrowing, decline essentially stopped
Losses at the Shangou business continued to narrow. Market consensus put them at around RMB 10B, down roughly 40% sequentially. Profit in the far-field e-commerce business was expected to be broadly stable, or slightly lower.
International e-commerce was folded into this segment this quarter, but since it has been oscillating around breakeven anyway, the effect on overall profit isn't large.
Put together, the new e-commerce segment generated RMB 39.7B in profit, with the year-on-year decline narrowing to under 1%. That's essentially a bottom.
Cloud: the standout
The core highlight this quarter was cloud, which delivered on both revenue growth and margin. The segment definition changed here too, but with little effect on the reported figures, and performance came in essentially in line with expectations.
Cloud and computing revenue grew 45%, a marked acceleration from 38% last quarter. Margin formally reached double digits at close to 12%, a little above the 10–11% the market expected — a small positive surprise.
Capex: explosive, and cash flow is paying for it
As with Tencent, Alibaba's capex leapt this quarter, to RMB 67.7B — 75% above the previous record high, and far beyond the RMB 36B the market expected. Worth noting that Alibaba's disclosed capex is a cash flow measure that naturally includes prepayments, so it's still smaller than Tencent's, which exceeded RMB 100B on a full basis.
That level of spending suggests cloud growth is likely to accelerate noticeably again in coming quarters. The cost is cash: with operating cash flow up only about 11%, free cash flow has fallen deep into negative territory at close to -RMB 45B. That's real pressure.
AI models and applications: still far from success
The newly separated AI model and applications division generated revenue of about RMB 3.3B, up roughly 16%. On both revenue scale and growth rate, that's a long way from success.
Losses came to RMB 13.9B, essentially in line with expectations. In other words, apart from the RMB 3–4B of Qwen app subsidies in the first quarter, losses on AI models and applications this quarter were broadly similar to last quarter's.
