MW Alibaba's stock turns lower as investments to meet AI demand hurt profitability
By Tomi Kilgore
Profit per share beat expectations but revenue missed, as disappointing Taobao and Tmall results offset a cloud intelligence beat
The U.S.-listed shares of Alibaba Group Holding Ltd. reversed into the red Friday, after the China-based e-commerce giant said it was "aggressively" investing to meet the surge in demand for artificial-intelligence related services, which will weigh on short-term profitability.
The company $(BABA)$ also reported adjusted profit per share that beat expectations but revenue that came up short, as disappointing results from the Taobao and Tmall e-commerce businesses offset strength in the cloud intelligence business.
Meanwhile, the company said AI-related revenue grew at a triple-digit percentage rate for a fifth consecutive quarter.
The company said that it was seeing continued "explosive growth" in demand for the AI compute power that drives AI for the application programming interface $(API.UK)$ services to access the models.
"[I]t's not even possible to fully and effectively meet all of that demand," said Chief Executive Eddie Wu on the post-earnings call with analysts, according to an AlphaSense transcript.
"So that explains why we're investing aggressively in AI-related infrastructure for the short term, and in the long term, because we're very optimistic about that demand," Wu added.
But that investment comes at a cost, as adjusted earnings before interest, taxes, depreciation and amortization (Ebitda), a measure of underlying profitability, fell 3.9% to 47.33 billion renminbi ($6.74 billion) to just miss the FactSet consensus of RMB47.37 billion.
The stock had rallied as much as 5.4% at its premarket peak reached 15 minutes after the results were released, but then reversed course.
It was shedding 2.8% toward a two-month low in recent midday trading. It has now tumbled 25.1% since it closed at a 21-month high of $117.52 on Oct. 7 through Thursday, and has dropped 11.2% since Donald Trump's election win amid concerns over increased tariffs.
The company said net income for the quarter to Sept. 30 rose to RMB43.55 billion ($6.21 billion), or RMB18.17 per American depositary share, from RMB29.7 billion, or RMB10.77 per ADS, in the same period a year ago.
Excluding nonrecurring items, adjusted earnings per ADS fell to RMB15.06 from RMB15.63 but beat the FactSet consensus of RMB14.82.
The per-share results benefited from the company's announcement that it repurchased $4.1 billion worth of shares during the quarter, which helped reduce total shares outstanding by 2.1% since the end of June.
Revenue grew 5.2% to RMB236.50 billion ($33.70 billion), but came up short of the FactSet consensus of RMB239.45 billion.
The company's cloud intelligence group saw revenue rise 7.1% to RMB29.61 billion to top the FactSet consensus of RMB29.52 billion.
Revenue from the company's Taobao and Tmall e-commerce businesses increased 1.4% to RMB98.99 billion but was below the FactSet consensus of RMB104.34 billion.
On the bright side, the company said monetization of those businesses improved, with help from new service fees based on gross merchandise value $(GMV.AU)$ and merchant adoption of marketing tool Quanzhantui.
The stock has gained 13.6% year to date, while the iShares MSCI China ETF $(MCHI)$ has advanced 16.2% and the S&P 500 index has rallied 23.3%.
-Tomi Kilgore
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November 15, 2024 11:44 ET (16:44 GMT)
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