With Profits Plunging, Alibaba (阿里巴巴集团, 阿里) Must Start Focusing on Making Money

Earnings and market reaction

Alibaba (阿里巴巴集团, 阿里) reported weak results for fiscal 2026 Q3 (calendar Q4 2025): revenue was RMB 2843.43 billion, up 2% year‑on‑year (9% on a like‑for‑like basis excluding disposed businesses), but operating profit plunged 74% to RMB 106.45 billion and adjusted EBITA fell 57% to RMB 233.97 billion. The company blamed heavy spending on instant retail, user experience and tech; sales and marketing costs rose to 25.3% of revenue and free cash flow dropped to RMB 113.46 billion. Investors reacted: U.S.-listed shares slid more than 7% at the March 19 close, continuing pressure after a roughly 20% pullback from the year’s highs.

Token-first AI bet and cloud progress

CEO Wu Yongming (吴泳铭) has doubled down on an AI‑led transformation — it has been reported that management plans to spend heavily on AI and instant retail over the next three years — and has reorganized AI units into an Alibaba Token Hub (ATH), shifting the commercial focus from selling raw compute to monetising “tokens” consumed by model inference. Cloud and AI are already the bright spot: cloud intelligent revenue rose 36% to RMB 432.84 billion and adjusted EBITA for that unit grew 25% to RMB 39.11 billion. Analysts from J.P. Morgan and Morgan Stanley have flagged explosive token demand and a cloud pricing cycle that could reopen margin upside for Chinese providers; meanwhile hardware costs are rising amid global supply pressure and U.S. export controls, pushing Chinese cloud vendors to optimise chips and pricing.

The trade‑off: growth now, profits later?

Can investors keep underwriting an extended period of low profits in exchange for a hoped‑for AI payoff? Alibaba’s core e‑commerce business is seeing dwindling profit momentum — China commerce revenue rose just 1% to RMB 1315.83 billion while customer management revenue growth stalled — and other segments widened losses to RMB 97.92 billion. It has been reported that Alibaba’s consumer AI app “Qianwen” (千问) and Taobao Flash Sale are being used to convert AI attention into transactions, even at heavy subsidy: during the Lunar New Year the company reportedly spent roughly RMB 30 billion on promotions to spur adoption. Those orders drive real GMV but also meaningfully higher per‑order compute and logistics costs.

What’s next

Alibaba’s pivot is clear: turn AI from an efficiency tool into a persistent revenue engine that can cover the growing bill from instant retail and subsidies. But the timing mismatch is stark — AI revenue growth and cloud margin expansion must outpace the cash burn from heavy marketing and instant‑retail spend, or the valuation will keep re‑rating lower. For Western readers unfamiliar with China’s tech landscape: this is happening amid broader geopolitical strains over chips and cloud infrastructure, pushing Chinese giants to build vertically (self‑developed chips such as Pingtouge) and new billing models (token economics). The question for shareholders is simple: when does the promise of tomorrow stop being an excuse for today’s losses?