Hangzhou: Alibaba's core profitability experienced a significant 84% decline year-on-year in the March quarter, primarily due to substantial investments in artificial intelligence, cloud infrastructure, and quick commerce. This financial update was released by the Chinese technology giant on Wednesday.
According to Anadolu Agency, the company's adjusted earnings before interest, taxes, and amortization (EBITA)-a crucial indicator of underlying profitability-dropped to 5.1 billion Chinese yuan ($750.9 million) during the quarter. Alibaba has increased its spending on semiconductors, data centers, and its Qwen family of AI models, while also expanding its quick-commerce business, which focuses on rapid delivery services.
These investments have pressured profitability in Alibaba's China e-commerce division, where adjusted EBITA saw a 40% reduction from the previous year. Despite this, customer management revenue, the group's largest contributor, rose by 1%, and overall China e-commerce revenue increased by 6%. Quick-commerce revenue surged 57% year-on-year, highlighting the growing competition among Chinese e-commerce platforms.
Notably, Alibaba's cloud division showed promising results, with revenue increasing 38% year-on-year to $6.1 billion in the March quarter, marking an acceleration from the previous quarter. Adjusted EBITA for the cloud segment climbed 57%. Toby Xu, the company's Chief Financial Officer, stated that Alibaba's strategic investments are aimed at supporting long-term business growth, citing triple-digit growth in AI-related product revenue for the 11th consecutive quarter. AI-related revenue reached $1.32 billion.
Alibaba CEO Eddie Wu emphasized the strong demand for AI and the clear returns expected from the company's investments over the next three to five years. Wu mentioned that Alibaba might need to exceed its previously announced three-year capital expenditure plan of $55.9 billion on computing capacity within the next five years. Some of this computing power could be rented and recorded as operating expenses instead of capital expenditures.
Furthermore, Alibaba anticipates that annualized recurring revenue from its AI model and application services will exceed $1.47 billion in the June quarter and reach $4.4 billion by the end of the year. The company also showcased its chip-development capabilities, asserting that self-developed AI chips offer greater control over its computing supply chain amid global supply constraints.
Alibaba's US-listed shares initially rose in premarket trading on Wednesday before turning negative, experiencing a drop of up to 4% before recovering some of the losses.