Alibaba shares moved slightly up and down in premarket trading after the Chinese internet company reported earnings that missed expectations, even though its AI-related revenue kept growing quickly.
Alibaba reported a net profit of 10.54 billion yuan, or about $1.57 billion, for its fiscal first quarter. This was a 76% drop from a year ago. Revenue increased by 9% to 268.95 billion yuan, beating the average estimate. However, profit was much lower than analysts expected, who had predicted net income of 21.8 billion yuan, according to FactSet.
Alibaba’s American depositary receipts stayed about the same in premarket trading. They have fallen about 12% so far this year through Wednesday’s close.
Like in past quarters, Alibaba said its big drop in earnings was due to ongoing spending on technology. The company also pointed out fast growth in cloud-computing revenue, thanks to strong demand for AI. CEO Eddie Wu said Alibaba had a strong quarter as it improved how it makes money from AI. He noted that Alibaba Cloud’s external revenue grew by 45%, and AI-related product revenue saw triple-digit growth for the twelfth quarter in a row.
Alibaba is still investing a lot in AI and recently agreed to sell its videogame business, Lingxi Games, to an Asian private-equity firm for at least $1.5 billion. This move is part of a bigger plan to free up more resources for AI. Even with this change, both its American depositary receipts and Hong Kong-listed shares are still down about 13% for the year.
Just like in the U.S., investors in China have mostly preferred hardware companies over AI model developers. For example, memory chipmaker CXMT went public in July and quickly became China’s largest company listed on local exchanges.
To show investors it deserves a spot among top AI companies, Alibaba will probably need to keep growing its cloud-computing business and reduce losses in its quick-commerce division.
