Alibaba 2025Q1 Earnings Review: All-in on AI Pivoting
TradingKey - Alibaba released its earnings for the first quarter of the fiscal 2025 last Friday and the stock popped 13%. The stock is up nearly 60% since the beginning of the year, solidifying the role of the company as the frontrunner of the AI in China.
No longer an e-commerce but a tech firm
The EPS and the revenue numbers somehow do not the convey how good the earnings are, but if we see the cloud business, then another picture shows up. Baba Cloud finished the quarter with a revenue of 33.4 billion yuan, up 26% year-on-year. That was faster than the 18% growth rate seen in the previous quarter. This includes the AI-related product revenue maintaining triple-digit year-over-year growth for the eighth consecutive quarter.
But that wasn’t the only factor triggering the stock jump, the company is developing a proprietary AI chip. The implications for this move are a lot: 1) Reducing its own reliance on foreign chip suppliers amid the complex geopolitical situation; 2) Addressing a huge market pain point in China – not enough chips to feed the Chinese AI machine; 3) Create an integrated AI ecosystem on both software and hardware level, which will lead to increasing the overall competitive moat and achieving cost efficiencies.
However, achieving self-reliance on chips will definitely not be a straightforward path. BABA expertise has always been in commerce and logistics, thus developing a hardware product will be a brand-new challenge for them. Secondly, the production of chips will require partnering with overseas suppliers, keeping the geopolitical risks present. We also see the big US peers like Amazon and Google developing in-house chips, but even for them this process will take years before achieving any meaningful results.
However, BABA still has its own odds. Firstly, they have their e-commerce as a cash-cow that can support such ambitious goal. Not to mention that their balance sheet is very strong. Also, developing in-house chips closely aligns with the government's long-term goals and vision, thus the support will be strong.
Commerce
Alibaba achieved 7% revenue growth in direct sales, logistics, and other revenue (RMB 29,325 million) and 10% in customer management revenue (RMB 89,252 million), with quick commerce up 12% (RMB 14,784 million). However, the issue was not on the top-line but more on the profitability side, mostly due to headwinds in the operating profit from investments in commerce and marketing based on consumer subsidies. However, on the positive note, BABA’s food delivery arm ele.me is currently in a strong momentum stealing market share from Meituan and JD.
Conclusion
The impressive growth in cloud and the news about the in-house chips offset the modest performance in e-commerce. From now on, BABA will mostly be judged on their progress in AI. Currently, the stock is traded at 18x PE - still a significant discount compared to the American cloud giants (Oracle, Amazon, Alphabet and Microsoft).
Alibaba 2025Q1 Earnings Preview: Investors are Hopeful, but the Uncertainties Remain
TradingKey - Alibaba will release its earnings for the first quarter of the fiscal 2025 on August 29th before the bell.
Without doubts, Alibaba earnings are the most anticipated within the Chinese stock universe, as they can be seen as a mirror image of the overall consumer sentiment in the country.
The stock price of the company is up 46% mostly due to the recent AI progress, but it has been rather flat in the recent months.
Even though the earnings are still not released, the fact that their announcement will be on Friday, instead of the usual mid-week, has already made investors raise their eyebrows. So, what shall we pay attention to on Friday?
AI and Cloud
Alibaba’s aggressive investment in AI and cloud infrastructure (planned to exceed the past decade’s investment over the next three years) is a focal point for the future of the company. Q4 2025 saw Alibaba Cloud revenue up 18% year-over-year, with public cloud and AI products as key contributors. While revenue growth is robust, monetization beyond cloud infrastructure remains uncertain, and increased capital expenditures could pressure margins.
Alibaba may discuss enhancements to its LLMs, including new versions of Qwen and adoption of the model from various industries and clients.
E-commerce
Investors will look for signs of sustained user growth and spending, particularly in Taobao and Tmall, as well as progress in international markets via the global AliExpress and the Turkish Trendyol. Stabilization of market share and improved monetization through fees and marketing tools are critical.
For the food delivery business, there was recent news of a strong momentum of ele.me, thus investors will track this development too. Other hot topic would be the level of consumer incentives, which is often a major headwind for profitability.
Divestment in non-core assets
Alibaba’s recently announced the intent to spin off its Banma Network Technology unit via an IPO on the Hong Kong Stock Exchange, reducing its stake from 44.72% to over 30%, aligning with its strategy to exit non-core businesses. This suggests divestment activity remains active and is likely to be further discussed on the call on Friday.
Return to Shareholders
Alibaba has been active in share buybacks, reducing its share count by 5% in the recent quarters, demonstrating the conviction of the management that the stock is undervalued. The company also increased its annual dividend by 5% to $1.05 per ADS. These moves signal confidence but as the AI investments intensify, BABA may need to sacrifice the generous shareholder returns.
Conclusion
Chinese equities are in good shape, but BABA earnings is a major test ahead. The e-commerce business aside, the company is in early stages of catching up its American peers when it comes to AI and cloud, thus the optimistic sentiment prevails. However, this also comes with the risk of margin headwinds.
