Alibaba's Earnings Miss Expectations, Though AI and Cloud Business Growing Rapidly

Alibaba Group shares fell nearly 4% at the start of US trading on Thursday after the Chinese technology and e-commerce giant published its second-quarter financial results. The company's earnings came in significantly below analyst forecasts.

Alibaba's earnings per share in the second quarter totaled 8.52 yuan, while analysts expected 10.72 yuan. Revenue grew 9% year-over-year and reached 268.95 billion yuan, slightly exceeding the 268.34 billion yuan consensus.

One of the key bright spots for the company remains its AI and Cloud business. AI Cloud and Compute Services revenue reached 48.4 billion yuan, representing 45% year-over-year growth. Revenue from AI-related products reached 12.4 billion yuan and has now recorded double-digit annual growth for 12 consecutive quarters.

Alibaba's Chief Executive Officer Eddie Wu stated that the results were driven by improvements in commercializing the company's full-scale AI capabilities. According to him, Alibaba Cloud's external revenue grew 45%, while AI products revenue continued to show double-digit growth.

The company's Chief Financial Officer Toby Xu noted that the growth pace of Cloud revenues accelerated and improvements in business operational efficiency increased EBITDA margin to 12%.

However, China's core e-commerce business proved weaker. Revenue from Consumer Management (CMR) declined 7% year-over-year and totaled 89.12 billion yuan. Excluding the impact of new business initiatives, the metric would have grown approximately 1%.

Alibaba's total e-commerce revenue in China grew 4% and reached 205.9 billion yuan.

The company's adjusted EBITDA declined 30% year-over-year and equaled 27.3 billion yuan. EBITDA margin contracted from 16% to 10%. According to Alibaba, the main driver of the decline was increased investment in technologies, which was partially offset by improved results from the Cloud business and higher operational efficiency in other segments.