Alibaba’s third-quarter revenue rose 8% to $38.4bn, ahead of market expectations. All divisions except Logistics contributed positively, with international e-commerce growing at the fastest pace, up 32%. Alibaba Cloud grew 13% in the period, helped by triple-digit growth from AI-related products.
Underlying cash profit (EBITA) rose 4% to $7.5bn, as growth in the top line and efficiency improvements were partly offset by increased investments in its e-commerce businesses.
Free cash flow fell 31% to $5.3bn, largely due to increased investments in its cloud infrastructure. There was a net cash position of $23bn at period-end.
The group completed $1.3bn of share buybacks in the quarter.
The shares rose 8.2% in pre-market trading.
Our view
Alibaba’s third-quarter results impressed markets, beating expectations on both the top and bottom lines. Sentiment towards the company and China in general appears to be improving.
Alibaba is China's largest e-commerce business. It’s battling both a shaky economy and increasing competition on home soil. Efforts to attract and retain higher value customers has seen membership numbers at its loyalty scheme, the 88VIP club, swell to 49mn. But Chinese retail remains a tough battleground, and in the face of intense competition, the fight to keep prices low and retain market share may put a ceiling on growth here in the near term.
Alibaba also houses the impressive AliExpress, which connects global consumers to a vast marketplace, where they can buy directly from manufacturers all over the world. We think the international markets represent a lucrative opportunity for the group. Growth has been impressive but it’s come at the cost of heavy losses. The break-even point doesn’t look to be getting any closer. We’ll need to see a clearer path to profitability before getting too excited.
Alibaba is also looking to carve out a niche in the fast-growing world of cloud-computing. There hasn’t been a high-octane lift-off. But it’s starting to make meaningful profits, which could accelerate further as it pivots to higher-margin cloud services, including AI-related products which have shown triple-digit growth for six consecutive quarters.
The business remains cash-rich and cash-generative enough for Alibaba to make generous returns to shareholders in the form of share buybacks. However, further payouts cannot be guaranteed.
Alibaba is subject to a complex influence of macroeconomic forces. On the one hand, efforts to stimulate the economy by the Chinese authorities should act as a tailwind if they have the desired effect. But the re-election of Donald Trump threatens to ignite a trade war between Washington and Beijing. Until further clarity emerges about the White House’s trade policies, investors are likely to remain cautious.
Despite a strong uplift so far in 2025, the valuation remains well below the long-term average. That reflects relatively underwhelming business performance in recent years as well as disappointment in failed attempts to spin off parts of the company through separate IPOs.
With that distraction seemingly off the table, markets are beginning to embrace the more exciting growth opportunities related to AI. If management can execute well here, shareholders are likely to be rewarded for their patience, but there remains some governance concerns, a lot of execution risk ahead and there are no guarantees.
The author holds shares in Alibaba.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, such as electronic components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Alibaba’s management of ESG risks is strong.
Key risks the group’s exposed to relate to the handling of private information, specifically high volumes of Personally Identifiable Information (PII). Its use of analytics puts it at risk of data and privacy breaches. Increasing regulatory scrutiny in China increases Alibaba’s exposure to business ethics risk. Alibaba’s Chief Risk Officer oversees data protection and information security, with the privacy policy following industry best practice. Controls around business ethics risk could be enhanced through a clear governance structure and regular ethical risk assessments, which are currently lacking.
Alibaba key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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