Alibaba conference call: Cloud business growth is mainly driven by AI demand, and it will remain in an upward trajectory in the coming quarters, converting more Taobao users into instant retail users

On the evening of May 15, Alibaba announced its fourth quarter and full-year results for the fiscal year 2025. The financial report showed that Alibaba's fourth-quarter revenue grew by 7% year-on-year but fell short of expectations, while net profit saw a significant year-on-year increase. Among them, Taotian's revenue grew by 9% year-on-year, the number of 88VIP members continued to grow in double digits, Alibaba Cloud's quarterly revenue increased by 18%, and AI revenue has seen triple-digit growth for seven consecutive quarters.

In the subsequent earnings call, Alibaba stated: The revenue growth rate of the cloud business has increased to 18%, which is mainly driven by demand related to AI.

The demand related to AI has seen triple-digit growth for seven consecutive quarters, and this growth is largely due to many new enterprises using AI services.

Even in industries like aquaculture and manufacturing, as well as businesses like Yiwu Small Commodity City, they are applying AI and moving services to the cloud.

Alibaba further stated that in the coming quarters, Alibaba Cloud's revenue growth rate is still in an upward channel:

Based on traditional CPU computing shifting to AI computing, from what we see now, we have strong confidence that Alibaba Cloud's revenue growth rate will continue to be in an upward channel in the coming quarters.

Alibaba pointed out that the explosion in inference demand has not yet fully reflected in this financial report:

The demand from new customers is largely driven by their inference applications or inference scenarios, and their actual large-scale upper limit may gradually come online in the coming months.

Perhaps in February, March, or even April and May, so I think the growth rate in the coming months may look closer to the predicted normal working conditions. Because there were some supply chain disruptions in January, February, and March, coupled with various supply chain situations during the Spring Festival, we see that the customer demand driven by inference is still steadily increasing.

Regarding instant retail, Alibaba stated:

In the near future, our focus will be on actively investing, and we will convert more Taobao users into instant retail users, thereby upgrading the business model.

Finally, Alibaba stated:

Full-site promotion + software service fees will provide significant growth for a considerable period. The initial preferential policies will later turn into an overall increase in the take rate; the penetration rate of full-site promotion is still incremental, and the new fiscal year will also have a positive impact.

Alibaba focuses on stabilizing market share, so there will be many investments, and profit margins/EBITDA are not the focus at this stage; there will be fluctuations in profits with changes in competition.

The following is the full transcript of the call:

Shareholders, our board of directors has approved an annual dividend of $1.05 per American Depositary Share, a year-on-year increase of 5%. This increase reflects the impact of our stock buyback program, which has led to a net reduction of 5.1% in the number of shares outstanding after the ESOP issuance for this fiscal year. The board also approved a special dividend of $0.95 per American Depositary Share, up from $0.66 last year This growth indicates that we have made substantial progress in disposing of non-core businesses in our financial investments.

In total, our earnings per American Depositary Share is $2, with a total cash dividend of $4.6 billion this year. Along with $11.99 billion in stock buybacks, we returned $16.5 billion to shareholders in this fiscal year.

Overall, total comprehensive income reached RMB 236.5 billion, a year-on-year increase of 7%. Excluding the revenues from Sanna and In Time, the group's revenue would have increased by 10% year-on-year. Adjusted EBITDA grew by 36% to RMB 32.6 billion, primarily due to revenue growth and improved operational efficiency, partially offset by increased investments in our e-commerce business and technology.

Our non-GAAP adjusted net profit was RMB 29.8 billion, an increase of 22%. Our net profit was RMB 12 billion, up RMB 11.51 billion, mainly due to changes in our equity investment market, increased operating income, and reduced impairment of equity method investments, partially offset by losses from the sale of subsidiaries. Operating cash flow for this quarter was RMB 27.5 billion, an increase of 18%. Free cash flow for this quarter decreased by 76% to RMB 3.7 billion, primarily due to increased cloud infrastructure spending as of March 31, 2025.

We continue to maintain a strong net cash position of RMB 366.4 billion or $55 billion. A strong net cash position and healthy operating cash flow give us confidence and sufficient resources to increase investments in cloud computing and AI infrastructure, thereby leveraging the tremendous growth potential brought by sustained strong demand and the latest AI innovations.

Now, looking at the business segments, starting with Taobao and Tmall Group, the revenue for Taobao and Tmall Group was RMB 101.4 billion, an increase of 9%. Customized minimum revenue grew by 12%, mainly driven by improvements in food delivery. Our food delivery benefited from the impact of software service fees and increased penetration rates, with merchants benefiting from enhanced convenience and marketing efficiency. We continue to invest in user growth for other strategic initiatives, such as competitively priced products, customer service, membership program benefits, and AI technology applications to enhance user experience. These efforts have led to stronger new consumer growth momentum and sustained order growth. On the merchant side, we remain focused on improving their operating environment and ensuring their sustainable development on our platform. In particular, we have increased support for merchants providing high-quality products and customer service, including support for marketing, new product launches, and customer management. In this quarter, the number of 88VIP members continued to grow double digits year-on-year, exceeding 50 million, with an increasing ARPU, and we will continue to focus on their retention rates. The adjusted EBITDA for Taobao and Tmall Group grew by 8% to RMB 41.7 billion, mainly due to increased revenue from customized management services, partially offset by increased user experience and technology investments.

This quarter, AIDC revenue grew by 22% to RMB 33.6 billion, primarily driven by strong performance in cross-border business. AIDC's adjusted EBITA loss was RMB 3.836 billion, compared to a loss of RMB 4.1 billion in the same period last year. AIDC continues to focus on improving operational and investment efficiency, leading to a narrowing of losses this quarter. AIDC has a diversified geographical presence In the future, we will continue to attract local merchants and partners through different business models in various markets, navigating the dynamic macro and geopolitical environment to diversify and enrich our product offerings.

The revenue of the Cloud Intelligence Group grew by 18%, with total revenue growth of 17% excluding Alibaba's consolidation program, primarily driven by faster growth in public cloud revenue. Notably, AI-related product revenue has maintained triple-digit year-on-year growth for the seventh consecutive quarter, with our AI products being more widely adopted across a broad range of industry verticals, including the internet, retail, manufacturing, and media, focusing on value-added applications. In April, we launched the Qwen3 model series, a new generation of hybrid reasoning models that combine fast, simple responses with deeper thinking and reasoning capabilities into one model. The Qwen3 series covers a full range of model sizes, including two Moe models and six Dense models, and has been fully open-sourced in terms of model range. We believe that the complete open-sourcing of Qwen3 will drive innovation and new applications among developers. Adjusted EBITDA for cloud computing grew by 69% year-on-year, mainly due to the rapid growth of public cloud products and improved operational efficiency, partially offset by increased customer growth and investments in technological innovation. We will continue to invest in anticipated customer growth and technological innovation, including services for AI products, to increase AI adoption rates and maintain our market leadership. The adjusted EBITDA margin decreased by 1.9 percentage points quarter-on-quarter. We have increased investments in technology and product development to meet the surge in AI demand, while also increasing infrastructure investments, which have led to rising investments and growing demand, putting pressure on margins due to higher depreciation and monetization costs.

Cainiao's revenue declined by 12%, while its adjusted EBITDA grew by 55%. This is a result of logistics products increasingly being integrated into our e-commerce business. Driven by order growth from AMAP and Elama, as well as an increase in marketing services revenue, the local services group's revenue grew by 10%, while its adjusted EBITDA loss before interest, taxes, depreciation, and amortization continued to narrow year-on-year due to scale expansion and improved unit economics from operational efficiency. Our adjusted EBITDA loss increased quarter-on-quarter, mainly due to seasonal factors. Including high investments during the Spring Festival holiday, the digital media and entertainment group's revenue grew by 12%, reaching RMB 5.6 billion, primarily due to strong performance in the film and entertainment business and increased advertising revenue from Youku. The adjusted EBITDA loss before interest, taxes, depreciation, and amortization turned positive, mainly driven by Youku's profitability. Revenue from all other segments grew by 5%, mainly due to increased revenue from Alibaba Health, partially offsetting the revenue decline from Sunna due to the sale and cancellation of the merger in February 2025, with an adjusted EBITDA loss before interest, taxes, depreciation, and amortization of RMB 2.5 billion. All other segments include a range of innovative businesses, including some strategic AI-driven technologies, infrastructure, and operations. While we continue to drive efficiency improvements across our business lines, we are also investing in AI opportunities to maintain our competitive advantage and drive future growth Finally, in this quarter, we made significant progress in enhancing the competitiveness of e-commerce within our cloud business. Our Taobao and Tmall marketplaces achieved robust growth, reflecting improved monetization efficiency. In the cloud, revenue growth continued to accelerate sequentially as we saw a surge in demand and increased capacity, which will attract more customers and accelerate business growth. We are also focused on improving efficiency across all segments to establish a clear path to profitability. With profitability achieved this quarter, we strengthened our balance sheet by monetizing non-core assets and financial investments. These actions allow us to concentrate more on our core business and provide greater flexibility to invest broadly for growth and deliver value returns to shareholders. We are executing quickly and precisely to seize the tremendous opportunities I have in the AI era. Thank you. That concludes our prepared remarks. We can now open the Q&A session.

Q&A Session

Hello everyone. Welcome to today's conference call, and you are welcome to ask questions in either Chinese or English. A third-party translator will provide simultaneous interpretation for the Q&A session. Please note that the translation is for convenience only. In case of any discrepancies, our original language management statement shall prevail. If you cannot hear the Chinese translation, a bilingual transcript of this call will be posted on our website within a week. The meeting is now concluded.

Your first question comes from Gary of Morgan Stanley. Please go ahead.

Question 1:

Okay, thank you. I have two questions regarding the cloud. First, we have seen that in the past, monetizing cloud computing with AI has been challenging. I remember management mentioned in previous quarterly earnings calls that over 90% of tokens are provided together in the cloud. So first, over the past few months, I would like to know if you have seen any significant changes in this regard while talking to your customers. In the past, you know, there were companies that were less willing to enter the cloud, but now AI is driving a strong push into the cloud. So I want to know if you are starting to see this growth. If so, I would like to know what kind of companies and which industries are involved. If you could share some relevant information and provide some guidance for FY 26 in terms of cloud service revenue, that would be my first question.

The second question is related to AI applications, particularly in the e-commerce sector. Looking ahead, say two to three years from now, where do we expect to be? Because we are one of the early adopters of applying AI in e-commerce products. So if you could provide some outlook on how much market share the new AI deployments could capture, and additionally, will these new AI tools provide further expansion opportunities in terms of monetization? Thank you.

Answer 1:

As for last quarter, we also saw the revenue growth rate of our cloud business increase to 18%, which is primarily driven by demand related to AI. The demand related to AI has shown three-digit growth for seven consecutive quarters, and this growth is largely due to many new enterprises using AI services As we mentioned earlier, many of the enterprises that first adopted AI services are in industries such as the internet, internet finance, education, or smart vehicles, which were among the earliest applications. However, we are now seeing many other work scenarios, including some companies that previously operated without AI, managing to solve their services in offline IDC or even in their internal data centers.

But with the use of AI, there is a strong impetus to migrate to the cloud. So, the examples we mentioned earlier, including industries like aquaculture and manufacturing, as well as enterprises like Yiwu Small Commodity City, actually have a considerable amount of their previous offline workloads. Because they need to apply AI, they are migrating these services to the cloud.

When migrating to the cloud, they may have some simple applications that might call APIs, but when it comes to integrating with their internal data or processes, in many cases, they will perform some post-training on open-source models to meet the needs of the entire enterprise. We see that these demands can be well met through BaiLian or by renting our entire GPU service and other services on Alibaba Cloud. So, that's my answer to the first question.

I would like to add that we are currently observing a trend in the industry where more and more companies are using cloud services due to AI, and an increasing number of companies are transitioning from traditional CPU-based computing to AI computing. Therefore, based on the current situation, we remain quite confident that Alibaba Cloud's revenue growth rate will continue to be on an upward trajectory in the coming quarters.

Now, let me answer the second question regarding the application of AI in the e-commerce sector. The application of AI in e-commerce has a very large space. At this stage, we are more focused on how AI can enhance user experience. Everyone knows that AI has the opportunity to restructure our search, recommendation, and advertising systems that were previously based on traditional algorithms. I believe this is our priority in the near term, and I am confident that through these attempts, we have already seen some results. It has significantly helped improve our search experience, the accuracy of recommendations, and advertising efficiency.

Additionally, we will also focus on how AI can enhance the work efficiency of our internal employees and merchants. As we all know, e-commerce is a labor-intensive industry. Besides the platform, merchants also represent a very large group. We believe that with the popularization of AI technology, there will be an improvement in the overall efficiency of this ecosystem Yes, and the third point is that we also believe that AI will generate new interaction methods in the long term. When this is an innovative future interaction experience, we are actively trying it out, and we believe that AI will play a very key driving force for the long-term user experience and commercial efficiency improvement on Taobao. Thank you.

Question 2:

I would like to ask about the growth situation of Alibaba Cloud, because I remember the management mentioned last quarter that since January, there has been an explosive growth in inference demand during the Spring Festival. If we look at it this way, is there a significant acceleration in February and March compared to January? Are we seeing an acceleration in our cloud growth every month? The 18 points for the entire quarter should be an average for January, February, and March, right? We also see that the Qianwen model has some small but beautiful models that can be used for some edge applications. How should we evaluate this AI model? There are both large and small models, but since we are cloud-based, I would like to hear our views on the growth of this model becoming smaller and more beautiful, and its implications for our future cloud growth and inference growth. Thank you.

Answer 2:

Okay, I will answer this question. Regarding your first question about the monthly revenue rhythm, in January, February, and March, due to the Spring Festival, many rhythms are not as evenly distributed as in normal months, so I think the reference significance may not be great. However, during the quarter around the Spring Festival, we indeed had quite a number of new customer demands, most of which were driven by their inference applications or inference scenarios. In fact, their real large-scale upper limits may gradually come online in the following months.

Perhaps in February, March, or even April and May, so I think the growth rate in these months may look closer to what we can predict as normal working conditions. Because there were some supply chain disruptions in January, February, and March, along with various supply chain situations during the Spring Festival. Therefore, we see that customer demand driven by inference is still steadily increasing. Additionally, regarding the impact of the AI model on cloud business, our open-source Qianwen model indeed has many edge model applications that are suitable for the cloud. What we are seeing now is that in many cases, especially in 3B or smaller scale models, large-scale applications are mostly seen in customers' mobile phones or toys or smart devices.

The business on these may have limited impact on cloud business, but because these customers often need some cloud model support when using Qianwen's models, it is not just the edge models that can provide good service. Therefore, we see that for models above 32B, although they can run on consumer-grade graphics cards, to run large-scale applications, they still need to be placed in the cloud, as this will provide better adaptability to workload elasticity and better pricing So I think our edge computing models are, to some extent, actually complementary to some of our large parameter models in the cloud, forming a mutually supportive logic. Therefore, I believe this will enhance our customers' reliance on Alibaba Cloud's related products.

Question 3:

Thank you. May I ask about the investment plan for instant retail, which is set at 10 billion? How will this affect the related profitability?

Answer 3:

Well, let me answer this question. Actually, Alibaba is not entering the instant retail sector for the first time today; we have been laying out in this market for many years. In the past, we invested in Ele.me, and we have also developed businesses like Hema, which are all part of our strategy. So, entering this market is a very natural thing for us, especially since there have been significant changes in the market recently.

I would like to mention some reasons for our entry into this market, including our advantages. First of all, I believe the retail sector is very large; it is a very broad demand that exists among the Chinese populace. Currently, it may be around 500 to 600 million users, and in the future, it could be a demand of 1 billion users. Moreover, it is a rapidly developing sector. We believe that Taobao already has a very broad user base. Therefore, it is quite natural for us to incorporate instant retail as a new service or category into the Taobao platform.

Secondly, as we enter this market, we have existing merchants who are very mature because our Ele.me has been operating in the market for many years. We also have a very mature logistics system. This allows us to provide an instant retail experience on Taobao. I believe these are some of our advantages. Based on these advantages, I think we can quickly achieve a very good experience while maintaining a good balance in commercial efficiency.

I would also like to mention that in the past two weeks, the trial of Taobao Flash Sale has actually exceeded our expectations, both in terms of scale growth and efficiency. We believe this will bring us multiple long-term benefits. Firstly, for the Taobao app, which is an e-commerce app, it represents a very high-frequency scenario. I believe that if we can establish such a service on Taobao, it will lead to a long-term and better reflection of Taobao's user activity and scale.

In the near future, our focus will be on actively investing and converting more Taobao users into instant retail users. We believe that in the long term, we can upgrade our business model based on this new business and make our app more active. In the short term, our investment focus will mainly be on the new users mentioned earlier, as we believe there is a huge user space on Taobao that can be converted into instant retail users. Therefore, we will be very proactive in investing in this business in the short term Question 4:

Good evening, management. Thank you for giving me the opportunity to ask my question. We know that our 618 event has already started recently. The first question is, this year's 618 event seems to have some differences in terms of event arrangements and presale rhythms compared to previous years. I wonder what our strategy will be this year? Also, what kind of feedback are we seeing from merchants and users so far?

My second question is actually a continuation of the previous one. In the field of instant retail, have we seen any synergy with our main 618 site in the short term? Has it brought us any surprising effects? How do we view this? In the past month or two, are we expecting any further investments or collaborations from them? Are there any specific achievements or goals we want to accomplish? Thank you.

Answer 4:

Regarding the question about instant retail's strategic direction, I think our short-term focus is still on how to quickly convert more users into instant retail users while establishing this mindset within Taobao. We have also seen in the preliminary experimental results that when users utilize the instant retail service Taobao Flash Purchase, we can observe a significant increase in their activity levels.

However, our main phased goal right now is still to get this business right. I believe there are still many possibilities for long-term integration with e-commerce. So, returning to the 618 question, we may not have deliberately integrated this new business with the e-commerce business for 618.

Now, to answer your second question, 618 has just begun, and we have made some changes for 618 this year. These changes include adjustments in marketing strategies and new rhythms. We hope to better adapt to the new competitive environment. Of course, the starting point is still to provide consumers with a good experience, good prices, and good services. Since 618 has not yet started, it might be more appropriate for us to report the results of 618 next time.

Question 5:

Thank you for the management summary. My question is about CMR (Contribution Margin Ratio). Could you explain the quarterly CMR improvement? How does it relate to GMV, specifically how much is driven by GMV? Additionally, is it related to software service fees? What levers do we have to further improve CMR in fiscal year 26? What level is CMR expected to reach in this fiscal year? Furthermore, regarding investments in instant retail, will it increase the profit pressure on Taotian? Thank you.

Answer: Thank you for your question. First, regarding CMR, the two main factors for the growth of CMR this quarter are as follows: the collection of software service fees, which has been implemented since September last year, and the penetration of the full-site push, which is in line with expectations and continues to improve Looking ahead to the new fiscal year, these two factors will continue to exist: Regarding software service fees: Currently, some merchants have not fully collected them, and during the initial launch of the software service fees, we provided some preferential policies. These preferential policies will gradually be withdrawn by 2025, thereby continuing to drive the increase in CMR. As for the full-site promotion: The penetration rate of full-site promotion is still increasing, especially among newly joined small and medium-sized merchants and white-label merchants who had not previously used our advertising products but are now starting to do so. This will bring incremental budgets and advertising revenue, thus driving the increase in CMR.

At the same time, we still need to stabilize market share, so we will continue to invest, including enhancing user experience and providing competitive product prices. We are still in the investment phase, so the beta value may fluctuate quarterly due to changes in the competitive landscape. The situation over the past few quarters has also indicated this. Additionally, our investments in areas such as instant retail, although they may have some impact on profits, will also lead to user growth, increased frequency, and enhanced stickiness, which in some ways replaces previous market investments. Therefore, we expect Taotian's EBITA to fluctuate in the coming quarters due to changes in the competitive landscape. Whether the investment in instant retail will increase Taotian's profit pressure needs to be assessed in conjunction with specific investment directions and market competition conditions