Alibaba's Q2 revenue grew 2% year-on-year, below expectations, with cloud revenue increasing by 26% and Taobao's flash sales boosting monthly active users by 25% | Financial Report Insights

Alibaba's Q2 revenue fell short of expectations, with adjusted EBITA declining 14% to 38.8 billion yuan, primarily impacted by investments in Taobao's instant commerce. Revenue from instant retail business grew 12% year-on-year in the first half of 2025.

Alibaba Cloud's revenue increased by 26% year-on-year, and revenue from AI-related products achieved triple-digit year-on-year growth for eight consecutive quarters. Capital expenditures surged from approximately 11.9 billion yuan in the same period last year to about 38.7 billion yuan this quarter.

On the 29th, Alibaba announced its financial report for the first fiscal quarter of 2026 (referred to as Q2) ending June 30, 2025:

• Revenue of 247.65 billion yuan, a year-on-year increase of 2%, estimated at 253.17 billion yuan.
• Adjusted EBITA decreased 14% year-on-year to 38.8 billion yuan.
• Non-GAAP net profit fell 18% year-on-year to 33.5 billion yuan.
• Free cash flow recorded a net outflow of 18.8 billion yuan, compared to a net inflow of 17.4 billion yuan in the same period last year.
• Adjusted earnings per ADS were 14.75 yuan, below the estimated 15.92 yuan.

Core business progress:

• Revenue from the China e-commerce group grew by 10%, and customer management revenue increased by 10%.
• Revenue from the Cloud Intelligence Group accelerated growth at 26%, with AI-related product revenue achieving triple-digit growth for eight consecutive quarters.
• The International Digital Commerce Group approached breakeven, with losses significantly narrowed by 98%.
• Taobao's instant commerce investment was significant, with monthly active users and order volume hitting record highs.

After the financial report was released, Alibaba's U.S. stock fell over 2% in pre-market trading.

Investment Weighs on Profits, Core E-commerce Profitability Under Pressure

The financial report indicates that Alibaba's profitability is significantly impacted by large-scale investments in its domestic e-commerce business. The "Alibaba China E-commerce Group," which is the core of the group's profits, saw adjusted EBITA decline 21% year-on-year to 38.4 billion yuan this quarter. The company explicitly stated that the profit decline is mainly due to investments in the "Taobao Instant E-commerce" business and in user experience, user acquisition, and technology.

The core of this investment is the launch of the "Taobao Instant E-commerce" service on the Taobao App at the end of April, aimed at meeting consumer demand for instant delivery of various product categories such as food, groceries, and electronics. This move is seen as a key step for Alibaba to solidify its leadership position in the fiercely competitive Chinese e-commerce market. Despite the significant investment, it has also yielded initial results in user growth, with the financial report revealing that monthly active consumers on the Taobao App increased by 25% year-on-year in the first three weeks of August. Alibaba stated:

As of the three months ending June 30, 2025, our instant retail business revenue was RMB 14.784 billion, an increase of 12% compared to RMB 13.196 billion in the same period of 2024, mainly due to the increase in order volume brought by the launch of "Taobao Flash Sale" at the end of April 2025.

While profitability is under pressure, the revenue fundamentals of this sector remain solid. The overall revenue of Chinese e-commerce groups grew by 10% year-on-year, with the most critical customer management revenue (CMR) also increasing by 10% to RMB 89.3 billion, mainly due to the increase in rates. This indicates that, excluding new business investments, the commercialization capability of its core e-commerce platform is still strengthening.

Cloud Business and International E-commerce Shine

As domestic e-commerce business faces growth pressures, Alibaba Cloud and international e-commerce have become the two highlights of this quarter's financial report, showcasing the potential of the company's diversified growth engines.

The Cloud Intelligence Group performed particularly well, with quarterly revenue growing by 26% year-on-year to RMB 33.4 billion, significantly accelerating compared to previous periods. Excluding the revenue from consolidated subsidiaries, its revenue growth also reached 26%, mainly driven by the growth in public cloud revenue. Among them, AI-related product revenue has maintained triple-digit year-on-year growth for the eighth consecutive quarter. Chief Financial Officer Xu Hong stated that the strong growth in AI demand has driven the demand for other public cloud services such as computing and storage. The adjusted EBITA of this department also grew by 26% to RMB 2.95 billion.

Meanwhile, the operational efficiency of Alibaba International Digital Commerce Group (AIDC) continues to improve. The department's quarterly revenue grew by 19% year-on-year to RMB 34.7 billion, while the adjusted EBITA loss narrowed significantly from RMB 3.7 billion in the same period last year to RMB 59 million, essentially achieving break-even. The financial report stated that this was mainly due to the significant improvement in the operational efficiency of AliExpress and the enhancement of efficiency across various businesses.

Negative Cash Flow, Significant Increase in Capital Expenditure

This quarter, Alibaba's financial situation experienced a significant change: free cash flow turned from positive to negative. Financial report data shows that the company's quarterly free cash flow was a net outflow of RMB 18.8 billion, compared to a net inflow of RMB 17.4 billion in the same period last year.

The reversal of cash flow is mainly attributed to two large-scale expenditures: increased spending on cloud infrastructure and investments in "Taobao Instant E-commerce." Capital expenditure (Capex) surged from approximately RMB 11.9 billion in the same period last year to approximately RMB 38.7 billion this quarter, clearly reflecting the company's investment intensity in AI infrastructure and new businesses.

Despite the pressure on cash flow, Alibaba continues to execute its shareholder return plan. In this quarter, the company spent $815 million to repurchase the equivalent of 7 million American Depositary Shares (ADS). As of June 30, there remains an authorized amount of $19.3 billion under its share repurchase plan, valid until March 2027.

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