Alibaba's Profit Slumps but AI Business Shines — Update

By Sherry Qin and Tracy Qu

Alibaba Group's profit halved in its fiscal second quarter amid fierce competition in the food-delivery sector, but revenue growth was steady as its artificial-intelligence business gained momentum, with the consumer AI space the latest target in its sights.

The Hangzhou, China-based company said Tuesday that its net profit fell 53% to 20.99 billion yuan, equivalent to $2.96 billion. Adjusted net profit declined by even sharper 72% to 10.35 billion yuan, a tad below market expectations.

Revenue rose about 5% to 247.795 billion yuan for the three months ended September, slightly higher than the consensus in a FactSet poll of analysts.

China's e-commerce players have invested heavily in the food-delivery sector in recent quarters, resorting to aggressive promotions to capture more market share. New entrant JD.com earlier this month reported a 55% drop in net profit for the latest quarter, while sector leader Meituan is expected to post continued operating losses in its food-delivery segment when it reports results later this week.

Despite the sharply lower net profit, Alibaba's American depositary receipts rose almost 5% in premarket trading as investors turned their focus on its AI progress.

For the second quarter, its cloud business revenue climbed 34%, accelerating from the 26% increase in the previous quarter, driven by surging demand for AI services.

"We have entered into an investment phase to build long-term strategic value in AI technologies and infrastructure and a consumption platform integrating daily life services and e-commerce," Chief Executive Eddie Wu said.

On Monday, Alibaba said its Qwen app, a relaunched AI assistant, positioned as a competitor to OpenAI's ChatGPT, reached 10 million downloads within a week of its public beta launch, emerging as a popular consumer AI tool in China. Alibaba aims to integrate the app with other consumer services in its ecosystem and grow it into a fully functioning AI agent.

The development is the latest sign that Alibaba, whose AI strategy has long focused on cloud computing, is also making headway in the consumer AI market, coming as capital spending on AI and cloud infrastructure reached around 120 billion yuan over the past four quarters.

Alibaba's overseas e-commerce unit posted a 10% increase in revenue. Total revenue from its China e-commerce division, which includes Taobao and Tmall as well as on-demand delivery platform Ele.me, rose 16%.

Behind the intense competition in food delivery and instant shopping among the e-commerce players is the fight to become China's everyday app for transactions across goods and services, according to Goldman Sachs analysts.

"We are reinvesting our profits and free cash flow for the future while near-term profitability is expected to fluctuate," Chief Financial Officer Toby Xu said.

While the competition will continue to eat into earnings, analysts said Alibaba stands to benefit in the long term.

Morningstar sees the company as the biggest winner of China's on-demand delivery price battle this year, even though Meituan is expected to continue holding a dominant share of the pie, analysts Chelsey Tam and Junhao Yang wrote in a note, adding that the price war could conclude by the end of 2027.

Write to Sherry Qin at sherry.qin@wsj.com and Tracy Qu at tracy.qu@wsj.com

(END) Dow Jones Newswires

November 25, 2025 07:13 ET (12:13 GMT)