Alibaba Profitability Remains Under Pressure -- Update

Published: 2026-05-13 08:28:24 ET BABA

Published on 05/13/2026 at 08:28 am EDT

By Tracy Qu

Alibaba Group's profitability remained under pressure as the Chinese tech giant continued to invest heavily in artificial intelligence and fend off intense competition in the food-delivery space.

The Hangzhou-based company has been aggressively pushing its AI ambitions on multiple fronts, and the efforts are still being translated into earnings.

A core profitability measure slid in its fiscal fourth quarter, and revenue growth undershot expectations, but Alibaba expressed confidence in its AI prospects, vowing to keep investing in the technology.

"Our strategic investments continued to translate into business growth," Alibaba Chief Financial Officer Toby Xu said Wednesday.

The company's adjusted net profit--a closely watched metric that excludes share-based compensation, investment gains and losses and other items, plunged more than 99% to 86 million yuan, equivalent to $12.7 million. The figure is tracked by analysts as it reflects core business operation profitability.

Revenue rose by a slower-than-expected 3%, though a top-line breakdown showed that Alibaba's cloud segment remained a strong driver of growth.

"Our Qwen [large language models] demonstrated leadership in reasoning and coding while we strengthened our multimodal model portfolio," Alibaba Chief Executive Eddie Wu said.

Alibaba recently launched Happy Oyster, a model capable of simulating physical reality for applications in gaming and film, while fully integrating its flagship Qwen app with its e-commerce platform Taobao.

Cloud revenue rose 38% in the first three months of 2026 from a year earlier. External customers generated 40% revenue growth.

Alibaba expects AI-related product revenue to cross the 50% threshold in about one year, becoming the primary driver of the cloud business's revenue growth, CEO Wu said on an earnings call after results. External revenue growth is expected to continue accelerating beyond its current 40% rate over the coming quarters, he said.

The trajectory is likely to "sustain strong growth over the medium to long term," he said, thanks to the certainty of long-term AI demand and Alibaba's "full stack technology advantages."

Capital expenditure reached 26.89 billion yuan during the quarter.

Net profit doubled to 25.48 billion yuan, equivalent to $3.75 billion, which Alibaba attributed to mark-to-market changes on equity investments and a low base last year, when it booked losses on the disposals of hypermarket operator Sun Art and department-store operator Intime.

Analysts had expected net profit of 11.16 billion yuan for the quarter, according to a FactSet-compiled estimate.

Alibaba swung to an operating loss of 848 million yuan from an operating profit of 28.465 billion yuan a year ago.

Revenue reached 243.38 billion yuan against an estimate of 246.475 billion yuan. Revenue from its China commerce business, including Taobao, Tmall and on-demand delivery services, rose 6% from the previous year. Overseas e-commerce revenue grew 6%.

Alibaba's American depositary receipts were recently 0.6% lower in premarket trading after the results.

Write to Tracy Qu at [email protected]

(END) Dow Jones Newswires

05-13-26 0827ET