Analysis of Alibaba's Financial Report

In an eagerly awaited announcement, Alibaba Group released its financial results for the third quarter of its fiscal year 2025 after the market closedThe figures showcased robust growth across several key metrics, indicating a strong performance in e-commerce and technology sectorsFor the quarter ending December 31, 2024, Alibaba reported revenues of approximately 280.15 billion RMB (around 40.06 billion USD), marking an 8% increase compared to the same period the previous yearThis growth trend was accompanied by a remarkable surge in operating profit, which reached about 41.21 billion RMB (approximately 5.65 billion USD), representing a staggering 83% year-over-year increaseFurthermore, the net profit attributable to ordinary shareholders soared to around 48.94 billion RMB (about 6.88 billion USD), experiencing a phenomenal growth of 333%.

During a subsequent earnings call, Alibaba Group CEO Wu Yongming outlined the company’s strategic focus moving forward, emphasizing a commitment to its core businesses in e-commerce, AI, and cloud computingWu articulated that the next three years will see Alibaba pivot significantly towards AI, with increased investment in foundational infrastructure and native AI applications, as well as the transformation of existing business processes through AI technologies. “In the coming three years, our investments in AI infrastructure will exceed the total investments made over the past decade," he noted confidently.

In addition to substantial growth in revenues, the report highlighted the company's plans to enhance its international e-commerce operations, with expectations of achieving overall profitability on a quarterly basis in the upcoming fiscal yearThis optimistic forecast is bolstered by the performance of Alibaba's Taotian Group, which recorded total revenue of 136.09 billion RMB (approximately 19.49 billion USD), a 5% increase from last yearThe adjusted EBITA for this segment was 61.08 billion RMB, reflecting a 2% increase compared to the same quarter in 2023.

A significant driver of this growth has been Alibaba's strategic investment in improving user experience and expanding its user base, ensuring that both new buyers and order volumes saw robust growth

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The 88VIP program, which targets core users, continued its strong development, achieving double-digit growth and totaling approximately 49 million membersThe commercial initiatives introduced during the quarter bore fruit, with Taotian's Customer Market Revenue (CMR) accelerating to an impressive growth rate of 9% year-over-year.

Meanwhile, the Alibaba International Digital Commerce Group saw an impressive revenue increase of 32% compared to the same quarter last year, totaling 37.76 billion RMB (around 5.27 billion USD), although it still posted an adjusted EBITA loss of 4.95 billion RMB against a loss of 3.15 billion RMB the previous yearNonetheless, optimism prevailed among executives, with Wu Yongming projecting a profitable outlook for the international e-commerce segment in the upcoming fiscal yearData provided by Alibaba International indicated a staggering 50% year-on-year increase in B2B outbound orders on its international platform following the Spring Festival, with emerging markets, particularly in Europe and the United States, noting substantial growth rates exceeding 70%.

Further underlined in the financial report was the improvement in operational efficiency across other Internet platform segments, exhibiting steady growth in revenueThe local life services group reported a 12% increase in revenue with a significant narrowing of losses, while the digital entertainment division experienced an 8% growth in revenue, also enjoying a decrease in losses.

To optimize its balance sheet, Alibaba has continued its strategy of divesting non-core assets and engaging in stock buybacksThis quarter, the company made headlines with the sale of its entire stake in Gaoxin Retail for up to 1.6 billion USD and its share in Intime Group for approximately 1 billion USD, both undergoing antitrust reviews which were successfully grantedThis proactive maneuver aims to streamline operations and direct capital towards more strategic growth areas.

Amidst these developments, the cloud computing division exhibited strong recovery, attributed largely to the rising demand for AI services

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For the quarter ending December 31, 2024, Alibaba Cloud recorded revenues of approximately 31.74 billion RMB, reflecting a robust year-on-year growth of 13%, effectively doubling its growth rate compared to the previous quarterThis surge was propelled by rising demand for AI-driven products, with cloud revenue enjoying triple-digit growth for six consecutive quarters.

Driving this success, the adjusted EBITA for Alibaba Cloud grew by 33% to 3.14 billion RMB, benefiting from the shift in product offerings towards high-margin public cloud services and improved operational efficienciesHowever, this was paired with a notable increase in capital expenditures, which soared to 31.78 billion RMB—an 80% increase quarter-over-quarter—as the company ramped up investments in data centers, cloud computing, and AI technologyWu Yongming attributed the decline in free cash flow, which fell 31% year-on-year to approximately 39.02 billion RMB, to these aggressive investments, particularly in AI infrastructure.

In line with these advancements, Alibaba Cloud announced the launch of its flagship Qwen2.5-Max foundational AI model and will soon introduce a deep reasoning model based on this technologyStatistics from Hugging Face indicated that by January 31, 2025, over 90,000 derivative models had been developed based on the Qwen family, showcasing significant traction and interest in AI capabilities.

Additionally, as part of its global expansion efforts, Alibaba Cloud has been enhancing its infrastructure, recently expanding its data center operations in Thailand and establishing new centers in Mexico, along with ongoing developments in South Korea, Malaysia, and the Philippines.

Wu Yongming highlighted ambitious plans for the next three years, detailing expectations that investments in AI and cloud computing infrastructure will surpass total spend over the past decadeHe expressed the importance of foundational AI models for transforming industry productivity and articulated Alibaba’s strategy to remain at the forefront of technological advancement and maintain industry leadership

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