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It is absolutely not an overstatement to say that Alibaba is the transformational bellwether for AI in China. It is an accurate characterization that Alibaba's valuation over the past decade have been anchored in the growth of its e-commerce business, but AI technology hopefully will be the important engine for Alibaba's growth for the foreseeable future.
Hong Kong-listed shares of Alibaba Group Holdings surged as much as 18.84% Monday, thanks to its better-than-expected bottom line in the June quarter, fueled by accelerated sales at its cloud-computing unit and a continued revival of its e-commerce business.
Here’s how Alibaba performed in its fiscal first quarter ended June: Revenue: 247.65 billion Chinese yuan ($34.6 billion), versus 252.9 billion yuan expected. Net income: 43.11 billion yuan, compared with 28.5 billion yuan expected.
Revenue rose 2% year-on-year, while the company’s net income was up 78%, attributing to gains in some of its equity investments and the disposal of Turkish e-commerce firm Trendyol. This was offset by a decrease in income from operations.
However, excluding investment gains, Alibaba’s net income would have decreased 18% year-on-year as it continues to invest in the instant commerce space in China.
From the earnings report, we could see that Alibaba's business largely includes AI and e-commerce, which Alibaba has been delicately balancing between. Cloud computing was one of the bright spots, Alibaba's revenue at the division totaled 33.4 billion yuan, up 26% year-on-year. That was faster than the 18% growth rate seen in the previous quarter.
Alibaba CEO Eddie Wu said "Driven by robust AI demand, Cloud Intelligence Group experienced accelerated revenue growth, and AI-related product revenue is now a significant portion of revenue from external customers".
In terms of investments in AI, which has become a major global player as well as the focus investors have been paying close attention to, Alibaba has aggressively launched various AI models and is selling services through its cloud computing division. Alibaba said AI-related product revenue “maintained triple-digit year-over-year growth for the eighth consecutive quarter”. Alibaba management said the company is striving to keep the cloud growth rate above the market average, rather than to raise gross margins in the near term.
On the flip side, core e-commerce business, which accounts for more than 50% of revenue, had mixed results. Alibaba has involved in instant commerce wars in Chinese market with major players or rivals including food delivery giant Meituan and JD.com. Alibaba’s own instant commerce division brought in revenue of more than 14.8 billion yuan, or $2 billion, rising 12% year-on-year. However, adjusted earnings in the division fell 21% in the quarter on an annual basis,, signaling that intensified competition has taken a toll on the business of major players. Meituan posted an 89% plunge in Q2 adjusted net profit.
All in all, Alibaba’s business is showing some signs of acceleration, thanks for the continued growth of its key cloud computing division as well as improvements at both its China and international e-commerce businesses. Investors are also satisfied with the earning performance, which pushes the share of Alibaba surging in the trading session and a 40% rally in its U.S.-listed stock this year.
Meanwhile investors are very optimistic about the prospect of Alibaba, considering AI is hopefully the most important engine for Alibaba, and the AI narrative will be seen as a strong factor driving Alibaba's valuation up down the road, which has signaled the important inflection point for Alibaba.
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