Alibaba's stock fell more than 6% during trading, hitting a low of HK$123.5, its lowest level since August of last year. The company's U.S.-listed shares closed down over 7% at $124.9 in the previous session.
The decline followed Alibaba's financial results, which showed third-quarter revenue rising 2% year-over-year to 284.843 billion yuan, missing market expectations of 289.795 billion yuan. Net profit attributable to ordinary shareholders dropped 67% to 16.322 billion yuan, while adjusted net profit also fell 67% to 16.71 billion yuan, significantly below the anticipated 29.579 billion yuan. The overall decrease in profitability was primarily due to increased investments in instant retail, user experience, and technology. Sales and marketing expenses as a percentage of revenue surged to 25% during the period, up from 15% a year earlier.
The company's domestic e-commerce business faced pressure, with customer management revenue growth slowing to just 1% year-over-year, reaching 102.664 billion yuan. Free cash flow, a non-GAAP measure, stood at only 11.35 billion yuan, down 71% compared to the same period last year.
Following the earnings release, CICC cut its target price for Alibaba's Hong Kong and U.S. shares by 13% each, to HK$172 and $178 respectively, while maintaining an "Outperform" rating. The firm noted that over the medium to long term, the widespread application of AI agents, iterations of AI models, and exploration of AI commercialization are expected to support revenue growth. However, the company's guidance of achieving $100 billion in external revenue from cloud and AI services over five years remains subject to quarterly verification. Although domestic consumption showed some improvement in the first quarter of 2026, which may help boost customer management revenue growth, challenges persist for both domestic and international e-commerce businesses due to uncertainties in consumer spending, regulatory changes, reduced subsidies, and competitive pressures.
Wall Street investment banks characterized the results as a "critical profit reset," suggesting it is a necessary outcome of strategic investments in AI and instant retail. A key positive highlight from the report was the explosive growth in AI-related data: token consumption for the Bailian API surged sixfold in March compared to December, while T-Head's chip business achieved an annualized revenue in the tens of billions of yuan, with 60% supplied to external customers. Goldman Sachs projected that Alibaba Cloud's growth rate would reach 40% in the March quarter.
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