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Alibaba On Wednesday it said its core profit fell in the March quarter amid heavy investment in technology and e-commerce, as executives talked up the company’s AI spending.
CEOs of major technology companies used earnings calls to defend the company’s investments, telling analysts that they would eventually pay off.
“We see the ROI (return on investment) on this investment over the next 3 to 5 years is very clear,” Wu said on Wednesday’s earnings call.
The Chinese tech giant said its adjusted earnings before interest, taxes, and amortization (EBITA), a measure of the company’s underlying earnings, came in at 5.1 billion Chinese yuan ($750.9 million), down 84% year-on-year.
This financial metric excludes one-time gains or losses to focus on the company’s core business.
US-listed Alibaba shares were initially higher in trade before turning negative. Shares fell as much as 4% before paring losses.
Wu said the demand for AI is so strong that the company will have to spend more on computing in the next five years than its previous three-year estimate of 380 billion yuan.
However, this may not necessarily mean an increase in capex as some computing power can be leased as part of Alibaba’s operating costs.
Alibaba’s Hong Kong listed shares have been listed year to date.
Investments are heavy in e-commerce, raising the cloud
The technology giant has been investing heavily in AI semiconductors, data centers, and the development of its family of models under the Qwen brand. This has paid off in its cloud computing segment.
While the cloud has been a bright spot for Alibaba, driven by demand for AI in China, investors have been wary of the company’s continued investment in so-called rapid or rapid commerce. This is a shopping service that allows users to live comfortably with the fastest delivery speed of less than an hour, and it has become a battleground for China’s e-commerce giants.
Adjusted EBITA at Alibaba’s China e-commerce group fell 40% year-on-year in the March quarter after the investment, as customer service revenue – its biggest contributor – grew 1%.
However, Alibaba is seeing strong growth from that investment with rapid e-commerce profits up 57% year over year. China e-commerce giant Alibaba’s net revenue was up 6% year-over-year in the March quarter.
Alibaba’s investment in technology appears to be paying off big for its cloud computing unit, which posted a 38% year-on-year increase in revenue in the March quarter to 41.6 billion yuan. That growth was faster than the previous quarter. Adjusted EBITA for the segment jumped 57%.
“Our strategic investments continued to translate into business growth. Cloud Intelligence Group’s revenue continued to accelerate, as AI-related product revenue achieved triple-digit growth for the eleventh consecutive quarter,” said Alibaba CFO Toby Xu in a press release.
Alibaba said its AI-related revenue reached 9 billion yuan.
On the earnings call, Alibaba CEO Wu said he expects annual recurring revenue (ARR) from its AI model and application services to exceed 10 billion yuan in the June quarter and 30 billion yuan by the end of the year.
Alibaba has indicated that it will not stop investing in AI.
“We are very committed to making that investment over the past year and looking ahead to the next two years, we intend to be equally committed to continuing to invest because we see this as an important window of opportunity,” said an Alibaba executive on the phone.
Alibaba is talking about chips
Alibaba has positioned itself as one of China’s leading players, developing AI chips and selling its services through its cloud computing unit. Its Qwen AI models are among the best in the world. Wu said Alibaba’s chips give it an edge over competitors.
“As the only AI cloud provider in China that can deliver self-developed AI chips at scale, we have secured independence over our computing supply chain while providing customers with highly competitive AI services,” Wu said.
“In the context of computer shortages, this structural advantage favors revenue growth and net worth improvement.”
The Hangzhou-headquartered company has rolled out AI throughout its business. This week, the company announced that it will launch a Qwen-powered AI shopping assistant on Taobao, its main e-commerce product in China.
