Left Hand Taobao Flash Sales, Right Hand AI! Net Profit Down 66%, Where Is Alibaba Headed?

Ask AI · How does Alibaba’s AI strategy reshape the future business engine?

Alibaba’s latest quarterly earnings show a 2% year-over-year revenue increase, with operating profit down 74% year-over-year.

Investment Time Network, Punctuation Finance Researcher Li Lu

Alibaba Group Holding Limited (hereafter Alibaba, stock ticker: Alibaba-W, stock code: 9988.HK) recently released its quarterly results ending December 31, 2025.

From the financial data, in the quarter, Alibaba achieved revenue of 284.843 billion yuan, up 2% year-over-year. Excluding the impact of disposed businesses like RT-Mart and Intime, comparable revenue grew 9%. In terms of core profitability indicators, net profit attributable to ordinary shareholders was 15.631 billion yuan, down 66% year-over-year; non-GAAP net profit declined 67%; operating profit fell 74%, with operating margin dropping sharply from 15% in the same period last year to 4%.

Looking at business segments, the instant retail sector centered around Taobao Flash Sale is a key factor affecting the company’s profitability, as the “food delivery war” impact has yet to subside.

Financial reports show that instant retail revenue increased 56% year-over-year, making it one of the few fast-growing business lines within Alibaba’s e-commerce segment. However, due to Taobao Flash Sale’s high-intensity subsidy strategies, combined with expanded fulfillment systems, increased rider wages, and merchant commission waivers, sales and marketing expenses surged significantly. Although Alibaba did not disclose the loss specifically for Taobao Flash Sale in the report, the decline in adjusted EBITA of its China e-commerce group indicates that investments in instant retail have significantly dragged down segment profitability.

Alibaba’s segments’ adjusted EBITA (RMB/USD, %)

Data source: Company announcement

On the positive side, despite ongoing losses in Taobao Flash Sale, operational efficiency is gradually improving. With enhanced logistics efficiency and optimized order structure, the unit economic efficiency (UE) and average transaction value continue to improve sequentially, narrowing losses.

On the evening of March 19, Jiang Fan, CEO of Alibaba’s e-commerce business group, stated during an analyst conference that over the past year, Taobao Flash Sale has significantly boosted the platform’s overall growth. Including Taobao Flash Sale, the annual active buyers in the e-commerce sector increased by 150 million, with physical goods e-commerce active buyers growing by 100 million. The growth of active buyers in Taobao’s physical goods e-commerce exceeded the total of the past three years. He also said that Alibaba will maintain its goal of achieving over one trillion yuan in total transaction volume for instant retail in fiscal year 2028, and on this basis, realize scaled positive cash flow, with the expectation that the entire instant retail segment will be profitable by fiscal year 2029.

Amid intensified competition in e-commerce and substantial investments in local services, overall profit margins are compressed. Meanwhile, Alibaba’s cloud business has shown strong growth. The financial report indicates that this quarter, the cloud intelligence group’s revenue was 43.28 billion yuan, up 36% year-over-year, mainly driven by growth in public cloud services, including increased adoption of AI-related products.

According to Alibaba CEO Wu Yongming, AI has become one of the company’s main growth engines this quarter, with the Qianwen App and Alibaba’s consumer ecosystem applications accelerating integration, significantly boosting new user growth and transaction activity.

Alibaba’s revenue composition for Q4 2025 (RMB/USD, %)

Data source: Company announcement

Based on this, Wu Yongming announced a grand financial goal during the earnings call: to increase cloud and AI commercialization revenue, including MaaS, from over 100 billion yuan currently to 100 billion USD within five years, with a compound annual growth rate of up to 47%.

Market analysts believe this target is supported by certain market trends. In the past mobile internet era, growth for tech companies was mainly limited by the physical cap of individual users and fragmented time. Whether e-commerce or social networks, their core business model revolves around competing for advertising and channel distribution fees. Currently, the marginal returns of this model are rapidly declining.

In the era of generative AI, the core billing unit has shifted to tokens. For cloud service providers, this breaks the previous physical ceiling. As massive AI agents—digital labor—are widely deployed by enterprises, the main consumption of computing power is shifting from limited human resources to theoretically unlimited machines.

Investment Time Network and Punctuation Finance Researcher note that on March 16, Alibaba established the Token Hub Business Group, including Tongyi Laboratory, MaaS business line, Qianwen Division, Wukong Division, and AI Innovation Division, covering the full spectrum from foundational model development and model service platforms to AI applications for individuals and enterprises. This makes Alibaba the world’s first tech giant organized around the fundamental measurement unit “Token”—used for processing text, code, and images with large language models.

A few days ago, Alibaba Cloud announced that due to exploding global AI demand and supply chain price increases, prices for Alibaba Cloud AI computing power, storage, and related products have risen by up to 34%. Among them, services related to computing cards like the PingTouGe ZhenWu 810E increased by 5% to 34%, and the file storage product CPFS (Intelligent Computing Edition) increased by 30%. This price hike further confirms the hotness of the sector.

Notably, the newly revealed Wukong Division aims to build an AI-native B-end work platform. This indicates that, beyond the C-end Qianwen App, Alibaba plans to deeply integrate large model capabilities into enterprise workflows, focusing on B-end markets.

Wu Yongming stated in the earnings report that in the future, relying on a full-stack AI capability of “large models + cloud + chips” and full integration with Alibaba’s commercial ecosystem, Alibaba will continue to develop both AI-to-B and AI-to-C.

In fact, before this financial report was released, the market still viewed Alibaba primarily as a mature e-commerce company. However, as MaaS revenue increasingly accounts for a larger share of total revenue, if the company can establish a vast AI Token distribution network and achieve Wu Yongming’s goal of $100 billion in revenue, it would mean a complete shift in Alibaba’s core business engine.

It should be noted that although Alibaba is already leading, it still needs to prove its AI’s commercial transformation capabilities amid fierce technological competition. Whether it can shed its traditional e-commerce label and usher in an AI era remains to be further validated.

Keywords for Investment Timing: Alibaba-W (9988.HK)

Author’s note: Personal opinions for reference only.