Alibaba's Profit Dips Amid Food Delivery War, but AI Boom Offers Hope

Alibaba's Profit Slides After China Food War Slashes Margins

Alibaba Group Holding Ltd. reported a surge in revenue from China's AI boom, helping offset a surprise drop in profit tied to a worsening battle with Meituan and JD.com Inc. in internet commerce. China's e-commerce leader reported a 3% fall in operating income to 35 billion yuan ($4.9 billion), missing the average estimate. Revenue for the three months ended June rose a less-than-projected 2% to 247.7 billion yuan, despite a triple-digit percentage gain in AI-related product revenue. Sales from the cloud division -- the business most closely tied to the artificial intelligence boom -- rose a better-than-anticipated 26%. The company's shares gained slightly in pre-market US trading.

China's Food-Delivery Price War Takes Bite Out of Alibaba's Earnings -- Update

The fierce competition in China's food-delivery industry has started to show up in Alibaba Group's results, with the e-commerce titan reporting weakness in a key profitability metric in its latest quarter. The Hangzhou, China-based company said Friday that adjusted net profit--which excludes the effects of share-based compensation expenses, investment gains and losses, some impairments and other items--dropped 18% to 33.51 billion yuan, equivalent to $4.70 billion, for three months ended June. The decline comes as Alibaba has been locked in a delivery price war with Meituan and JD.com as it tries to seize market share. Alibaba said its investment in the on-demand delivery business was the main reason for a 14% drop in its adjusted Ebita. Its net profit beat expectations, however, rising 78% from a year earlier to 43.12 billion yuan. The company attributed the increase to changes in equity investments and gains from the disposal of Trendyol's local consumer service business, which offset lower income from operations. Revenue for the quarter increased by a smaller-than-expected 1.8% to 247.65 billion yuan. The company has been facing a cooling Chinese economy and rising competition in online shopping from the likes of PDD Holdings' Pinduoduo e-commerce platform and ByteDance's short-video app Douyin. E-commerce players have in recent quarters rolled out initiatives to support merchants, such as charging a lower service fee, part of efforts to strengthen their ecosystem and drive platform growth. To gain more market share in the food-delivery sector, Alibaba, along with JD.com and Meituan, has resorted to aggressive promotions and steep discounts, prompting China's top market regulator to call for the companies to engage in "rational" competition. For the latest quarter, Alibaba's fast-expanding overseas e-commerce unit posted a 19% 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 10%. Alibaba Chief Executive Eddie Wu described the company's investment in the quick commerce business during the period as decisive, saying it "achieved key milestones as we won consumer mindshare." With all eyes on the price battle in on-demand delivery, some analysts have said that the market could be overlooking Alibaba's long-term growth potential in AI. Revenue from its cloud business grew 26% during the April-June period on the back of surging demand for AI services, one of the best-performing quarters for the segment in recent years. The Chinese internet giant's large-model capabilities and access to rich data position it to benefit from China's AI growth, analysts at Morningstar said in a note. It also has one of the world's highest-rated AI models, called Qwen. Alibaba has also accelerated development of its own chips as Beijing pushes for tech self-reliance. The cloud-computing company has developed a new AI chip that is more versatile than its older chips, The Wall Street Journal reported Friday.