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    BABA
    Earnings call· Dec 2024(Q3 FY25)

    Alibaba Group Holding Ltd BABA

    Feb 20, 2025 Source

    Executive summary

    Alibaba Group Q3 FY25 — Core Business Acceleration and Aggressive AI Investment

    Alibaba Group demonstrated accelerating growth in its core e-commerce and AI+Cloud businesses, supported by strategic divestments and enhanced operating efficiency across other segments. The company is committing to aggressive, multi-year investments in AI infrastructure and foundation models, anticipating significant future demand and monetization opportunities, while maintaining a strong financial position and shareholder return program.

    Highlights

    5

    • Overall revenue, excluding Alibaba consolidated subsidiaries, grew 11% year-over-year this quarter.

    • AI-related product revenue maintained triple-digit year-over-year growth for the sixth consecutive quarter.

    • Taobao and Tmall's Customer Management Revenue (CMR) accelerated to 9% year-over-year, driven by online GMV growth and improved monetization.

    • Alibaba International Digital Commerce (AIDC) revenue grew 32% year-over-year to RMB 37.8 billion, driven by strong cross-border business performance.

    • Amap achieved profitability this quarter, with the majority of loss-making businesses expected to breakeven within 1 to 2 years.

    Concerns

    3

    • Free cash flow decreased 31% to RMB 39 billion, mainly attributed to increased expenditure related to investments in cloud infrastructure.

    • AIDC's adjusted EBITDA was a loss of RMB 5 billion, compared to a loss of RMB 3.1 billion in the same quarter last year, due to increased investments.

    • Cainiao's adjusted EBITDA decreased by 76% year-over-year due to an ongoing restructuring.

    Guidance & targets

    4
    CategoryTargetConfidence
    AIDC Profitability
    Achieve first quarter of profitability
    high materiality
    High
    Loss-making Businesses Profitability
    Achieve breakeven and gradually begin to contribute profitability at scale
    medium materiality
    High
    Cloud and AI Infrastructure Investment
    Exceed what we have spent over the past decade
    high materiality
    High
    Annual CapEx Level (Next 3 Years)
    More or less equal across these 3 years
    medium materiality
    Medium

    Segment performance

    7
    SegmentRevenueYoYQoQMargin
    Taobao and Tmall Group
    Revenue growth primarily driven by growth in online GMV and improvement of take rate. Adjusted EBITDA increased primarily due to increased revenue from customer management service, partly offset by increased investment in user experience.
    Customer management revenue: 9% YoY growth88VIP members: 49 million (double-digit growth)
    		RMB 136.1 billion5%—Adjusted EBITDA RMB 61.1 billion
    Alibaba International Digital Commerce (AIDC)
    Revenue growth primarily driven by strong performance of cross-border businesses. Increased investment during overseas shopping festivals and in selected European markets and the Gulf region to acquire users led to a higher EBITDA loss compared to RMB 3.1 billion loss in prior year.
    International commerce retail revenue: RMB 31.6 billion (36% YoY growth)International commerce wholesale revenue: RMB 6.2 billion (18% YoY growth)AE Choice unit economics: improved sequentially
    		RMB 37.8 billion32%—Adjusted EBITDA loss of RMB 5 billion
    Cloud Intelligence Group
    Revenue growth mainly driven by double-digit revenue growth of public cloud products, including AI-related products. Adjusted EBITDA increased due to shift in product mix to higher-margin public cloud products and improving operating efficiency, partly offset by increasing investments in customer growth and technology.
    AI-related product revenue: triple-digit YoY growth (sixth consecutive quarter)Public cloud products revenue: double-digit growth
    		—13%—Adjusted EBITDA increased by 33%
    Cainiao
    Ongoing restructuring with e-commerce businesses taking on certain logistic platform roles. Cainiao will focus on building its global smart logistics network.
    		—-1%—Adjusted EBITDA decreased by 76%
    Local Service Group
    Revenue growth driven by order growth of Amap and Ele.me and marketing services revenue growth. Unit economics improved due to operating efficiency and increased scale.
    Amap: achieved profitability this quarterOrder growth: Amap and Ele.me
    		RMB 17 billion12%—Adjusted EBITDA loss narrowed significantly
    Digital Media and Entertainment Group
    Revenue growth and narrowing EBITDA loss.
    		RMB 5.4 billion8%—Adjusted EBITDA loss continued to narrow
    All Other Segments
    Revenue increase mainly due to increased revenue from retail businesses, including Freshippo and Alibaba Health.
    		RMB 53.1 billion13%—Adjusted EBITDA loss of RMB 3.2 billion

    Operational metrics

    15
    Consolidated Revenue
    RMB 280.2 billion8% YoY
    Q3 FY25

    Total consolidated revenue for the quarter.

    Consolidated Adjusted EBITDA
    RMB 54.9 billion4% YoY
    Q3 FY25

    Primarily attributable to revenue growth and improved operating efficiency, partly offset by increased investments in e-commerce businesses.

    Non-GAAP Net Income
    RMB 51.1 billion6% YoY
    Q3 FY25

    Non-GAAP measure.

    GAAP Net Income
    RMB 46.4 billion333% YoY
    Q3 FY25

    Primarily due to increased income from operations, mark-to-market changes from equity investments, and increased share of results of equity method investees.

    Net Cash Position
    RMB 378.5 billion
    As of 2024-12-31

    Strong net cash position providing confidence for investments.

    Share Buyback (Q3 FY25)
    USD 1.3 billion0.6% net reduction in share count
    Q3 FY25

    Shares repurchased during the December quarter.

    Share Buyback (H1 FY25)
    USD 10 billion5% net reduction in share count over 9 months
    H1 FY25

    Shares repurchased in the first half of the fiscal year.

    Remaining Share Buyback Authorization
    USD 20.7 billion
    As of Q3 FY25

    Dry powder for share buybacks. Analyst initially misstated as $2.07B, then corrected to $20.7B.

    Capital Expenditure
    RMB 31 billionalmost doubled from last quarter
    Q3 FY25

    Increased CapEx for cloud infrastructure.

    Debt Issuance
    USD 5 billion
    November 2024

    Dual currency bond issuance strategically structured to lower overall financing costs.

    AI-related product revenue growth
    triple-digit growthYoY
    Q3 FY25

    Sustained strong growth in AI-related products.

    AI demand for inference
    60-70%
    Q3 FY25

    Percentage of new demand for AI services attributed to inference, particularly from Chinese New Year onward.

    Global GDP manpower
    50%
    Future

    Estimate of global GDP composed of manpower, which AGI could potentially impact or replace.

    Output tokens generated on cloud
    95%
    Future

    Expectation that the majority of AI output tokens will be generated and distributed on cloud computing networks.

    Amap Daily Active Users (DAUs)
    170 million
    Q3 FY25

    Amap's current user base in China, with potential for AI integration to extend its use beyond navigation.

    Industry KPIs

    7
    MetricValueDetails
    Segment revenue mixRMB 280.2 billionRMB
    Ai cloud revenue backlogtriple-digit growth%
    Customer management revenue9%%
    Regional market performance32%%
    Advertising revenue take rate9%%
    Subscription membership program49 millionmembers
    Operating income EBIT and adjusted EBITDARMB 54.9 billionRMB

    Product announcements

    2
    ProductTypeDetails
    Qwen2.5-MAXlaunch
    Deep reasoning model built on Qwen2.5-Maxroadmap

    Deals & partnerships

    2
    Sun ArtDisposal of all interest in Sun ArtUp to USD 1.6 billion

    Entered into agreements to dispose of all interest in Sun Art. PRC antitrust approval obtained for merged control filing.

    IntimeDisposal of all interest in IntimeUSD 1 billion

    Entered into agreements to dispose of all interest in Intime. PRC antitrust approval obtained for merged control filing.

    Risks & headwinds

    3
    Impact of CapEx on ProfitabilityNext 3 years

    Hardware infrastructure will have an impact in terms of depreciation

    Mitigation: Expected huge demand for take-up from internal and external customers; achieving greater scale will optimize cost of build-out.

    Competition in China Cloud MarketOngoing

    Margin in China will be somewhat different from what you'll see internationally

    Mitigation: Cloud business characterized by strong scale and network effects, allowing for cost optimization as scale increases.

    Chip Supply Policy ChangesOngoing

    Potential policy changes may be forthcoming in the future

    Mitigation: Cloud designed to be compatible with a whole range of different chips, ensuring investment plan can be implemented regardless of policy changes.

    What to watch in Q4 FY25

    5

    AIDC Profitability

    Next fiscal year (FY26)
    CurrentAdjusted EBITDA loss of RMB 5 billion
    TargetFirst quarter of profitability

    Why it matters

    AIDC's path to profitability is a key strategic goal and a significant driver for overall group performance.

    We expect AIDC to achieve its first quarter of profitability in the next fiscal year.

    Q&A highlights

    5

    How will AI translate into financial upside for cloud revenue/margins, and can management clarify the significant CapEx spend (RMB 31B this quarter, 3-year plan exceeding past decade) and its impact on profitability?

    Management outlined a long-term AI strategy focused on AGI and integrated cloud-AI. They confirmed aggressive CapEx over the next 3 years, expected to be relatively even annually, which will impact depreciation but is driven by anticipated huge demand for AI services. They expect this to lead to higher margins in AI services over time.

    “Our planned investment in cloud and AI infrastructure over the next 3 years is set to exceed what we have spent over the past decade.”

    asked by Alicia Yap · answered by Yongming Wu

    2 min read5 chapters

    Detailed Narrative

    01

    AI Strategy and Investment

    Alibaba is pursuing an integrated AI plus cloud strategy, with the primary objective of achieving Artificial General Intelligence (AGI). The company plans to aggressively invest in AI infrastructure, foundation models, and AI-native applications over the next three years, with CapEx exceeding the total spent over the past decade. This investment is driven by the belief that 95% of future AI output tokens will be generated and distributed on the cloud, positioning Alibaba Cloud as the 'power grid' for AI.

    02

    E-commerce Performance and Strategy

    Taobao and Tmall focused on user growth and experience enhancements, leading to strong growth in new consumers and orders, and a 9% year-over-year increase in Customer Management Revenue (CMR). Alibaba International Digital Commerce (AIDC) maintained strong growth with a 32% revenue increase, driven by cross-border businesses. AIDC is optimizing unit economics for its AE Choice business and targets achieving profitability in the next fiscal year.

    03

    Operating Efficiency and Profitability Across Segments

    The company demonstrated enhanced operating efficiency across its internet platform businesses. Amap achieved profitability for the first time this quarter, and the majority of other loss-making businesses are expected to reach breakeven and contribute profitability within the next 1 to 2 years. This reflects a strategic shift towards streamlining operations and focusing on sustainable business growth.

    04

    Strategic Divestments and Capital Allocation

    Alibaba continued to optimize its balance sheet through strategic divestments of non-core assets, including Sun Art (up to $1.6 billion) and Intime ($1 billion), with antitrust approvals obtained. The company also executed significant share buybacks, repurchasing $1.3 billion this quarter and $10 billion in the first half of the fiscal year, resulting in a 5% net reduction in share count over nine months. A capital management committee oversees capital allocation to enhance shareholder returns.

    05

    Cloud and AI Monetization Pathways

    While AI-related product revenue showed triple-digit growth, the primary monetization pathway for AI is currently through cloud computing offerings that host and support AI models. Alibaba sees opportunities for cross-selling other cloud services through access to its Qwen model APIs. The company anticipates significant future demand for post-training and customization of models for various sectors, which will also drive cloud consumption.

    AI-generated summary of the company’s earnings call. Not investment advice.