China's E-Commerce Wars Are Crushing Alibaba's Profits
Alibaba Group Holding Ltd. (NYSE:BABA) shares tanked on Thursday following its fiscal third-quarter results, as the e-commerce giant co-founded by Jack Ma reported revenue and earnings that missed analyst expectations.
The company posted quarterly revenue of $40.73 billion, up 2% year-over-year, missing the analyst consensus estimate of $41.26 billion.
On a like-for-like basis, excluding revenue from the divested Sun Art and Intime businesses, Alibaba’s revenue would have grown 9% Y/Y.
The adjusted earnings per American Depositary Share (ADS) came in at $1.01, missing the analyst consensus estimate of $1.73.
Adjusted net income declined 67% to $2.39 billion, while adjusted EBITA slipped 57% Y/Y to $3.35 billion, reflecting investments in Taobao Instant Commerce and enhancements to user experiences and technology.
Net income, however, fell 66% Y/Y, primarily attributable to the decrease in income from operations.
Segment Performance
Alibaba’s China E-commerce Group revenue rose 6% to $22.79 billion.
The company expanded its quick commerce business during the quarter, improving user experience and efficiency while focusing more on higher-value food orders and non-food categories. It increased average order value and improved unit economics by improving logistics, optimizing the order mix, and strengthening customer retention.
It rebranded Ele.me to Taobao Instant Commerce to align it more closely with the Taobao app and integrated the service into the Qwen app in January 2026 to reach more users.
Customer management revenue rose 1% Y/Y, as weaker transactions and the phase-out of software service fee benefits slowed growth. However, the Taobao app saw double-digit growth in monthly active users, supported by the expanding quick commerce business.
The company also grew its 88VIP membership base by double digits to over 59 million and plans to improve retention by offering greater value to its top customers.
Alibaba International Digital Commerce Group reported a 4% increase in revenue to $5.61 billion.
For the quarter, AIDC significantly reduced its Y/Y losses by improving logistics and increasing investment efficiency, while also strengthening unit economics in AliExpress’ Choice business.
The company expanded and diversified its product offerings by leveraging Alibaba’s supply chain, including extending its partnership with Shinsegae to bring South Korean products to platforms like Lazada. At the same time, AliExpress’ “Brand+” program accelerated brand onboarding and delivered strong quarter-over-quarter sales growth.
Cloud Segment Sees Strong AI-Driven Growth
The Cloud Intelligence Group posted a 36% revenue increase to $6.19 billion, driven by strong public cloud demand and growing AI product adoption.
AI offerings continued to gain traction, marking the tenth straight quarter of triple-digit growth.
Alibaba Cloud maintained its market leadership by attracting customers to its AI and cloud services suite, while continuing to earn recognition across global and China-based industry rankings. The company also expanded its global footprint to 92 availability zones across 29 regions.
The company advanced its AI push through the Qwen model family, which is seeing rapid adoption across industries and has surpassed 1 billion downloads. It launched Qwen3.5 to improve performance and efficiency, while its Qwen app gained traction with over 300 million monthly users and deeper integration across Alibaba’s ecosystem.
Alibaba also scaled its in-house chip unit, T-Head, to support AI workloads, strengthening its computing capacity and enabling more cost-effective AI services.
Cash Position, Investments, and Workforce
Alibaba’s cash position remained robust, with $80.10 billion in cash and equivalents as of December 31, 2025.
The company generated an operating cash flow of $5.15 billion, down 49%, and free cash flow declined 71% to $1.62 billion, primarily due to investments in Taobao Instant Commerce.
As of December 31, 2025, Alibaba had 128,197 employees, up from 126,661 as of September 30, 2025.
CEO Eddie Wu said Alibaba continued to invest heavily in AI and consumer businesses during the quarter, positioning AI as a key long-term growth driver. “AI is and will continue to be one of our primary growth engines,” Wu said.
He noted that Cloud Intelligence revenue rose 36%, with AI-related products delivering a tenth straight quarter of triple-digit growth, while the Model-as-a-Service platform emerged as a new growth engine.
On the consumer side, he said the company integrated more services into the Qwen app, driving user growth and transactions, with monthly active users surpassing 300 million as AI agents handled real-world tasks at scale.
He added that Alibaba is well-positioned to expand both enterprise and consumer AI businesses, supported by its full-stack capabilities across models, cloud, chips, and ecosystem integration.
BABA Price Action: Alibaba shares were down 3.67% at $129.50 during premarket trading on Thursday, according to Benzinga Pro data.
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