Alibaba reports continued profit squeeze from spending on AI and instant retail

The logo of Chinese technology firm Alibaba is seen at its office in Beijing. (AP Photo/Mark Schiefelbein, File)

China’s Alibaba on Wednesday posted a three per cent rise in fourth-quarter revenue, but profits were pressured by growing investments in AI and cloud infrastructure, as well as ongoing spending on the quick commerce segment, which sees deliveries made within 60 minutes.

Adjusted earnings per American Depository Share of 0.62 yuan fell way short of analyst estimates of 5.79 yuan and U.S.-listed shares of the company were down 2.3 per cent in premarket trading.

Like other tech giants, Alibaba has benefited from soaring business demand for artificial intelligence. Revenue from Alibaba’s Cloud Intelligence Group surged 38 per cent to 41.63 billion yuan ($6.13 billion) from a year ago, in line with estimates.

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In addition to big bets on AI assistants, Alibaba has also souped up its chatbot Qwen, which now allows users to shop at its online Taobao and Tmall marketplaces, talking with an agent from the Qwen chat window instead of navigating a range of product listings.

The company earlier this year separated its AI businesses from its cloud computing arm and tasked CEO Eddie Wu with leading the newly formed “Alibaba Token Hub” group, as it races to make its AI efforts profitable.

The company has said it is targeting more than $100 billion in combined external revenue from its AI and cloud divisions over the next five years.

AI-related products account for 30 per cent of external customer revenue for the Cloud division, Alibaba said, which shows it is seeing return from its AI efforts, though those returns come at a cost.

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Excluding one-time items, Alibaba’s net income for the quarter dropped 99.7% and adjusted EBITA decreased 84 per cent, which Alibaba attributed to the investment in its technology businesses as well as instant retail, which it refers to as “quick commerce.”

Alibaba reported revenue of 122.22 billion yuan ($18 billion) in its China e-commerce business, which includes the highly competitive quick commerce segment, topping estimates of 119.85 billion yuan.

Total revenue came in at 243.38 billion yuan for the quarter ended March 31, missing an LSEG consensus estimate of 247.22 billion yuan, as the company’s international e-commerce business lagged.

(Reporting by Deborah Sophia in Bengaluru and Casey Hall in Shanghai; Editing by Edwina Gibbs, Arun Koyyur, Keith Weir and Louise Heavens)