Alibaba’s reported first quarter revenue of $34.6bn in the first quarter, up 10% on an underlying basis (slightly below analyst expectations). However, cloud computing revenue growth of 26% came in well ahead of market forecasts.
Underlying cash profit (EBITDA) fell 11% to $6.4bn primarily due to increased investments in E-commerce.
Free cash flow moved into negative territory with an outflow of $2.6bn, driven by investment in cloud infrastructure and on-demand delivery services. Net cash came in at $20bn.
Alibaba spent $815mn on share repurchases in the quarter.
The shares rose 11.2% in early trading.
Our view
Alibaba is investing heavily in AI and cloud computing, and better-than-expected first-quarter growth in this part of the business was warmly received by the market. The group’s capabilities in the space stand head and shoulders above the regional competition. Its infrastructure and software offering is further strengthening its position as a key part of Asia’s technology ecosystem.
The cloud division is starting to see some impressive profit growth, which could accelerate further as it pivots to higher-margin cloud services, including AI-related products which have shown triple-digit for eight consecutive quarters. But at less than 10% of this year’s forecasted operating profits, it’s likely to be some time before the division makes a material impact on the group’s bottom line.
Alibaba is China's largest e-commerce company, and that part of the business remains the key profit driver. But Chinese retail remains a tough battleground, and in the face of intense competition, the fight to keep prices low and retain market share may put a ceiling on growth. In an effort to stay relevant, Alibaba is throwing its weight behind its on-demand delivery service. It’s enjoyed a successful launch, but here too competition could keep a lid on both profits and margins.
The business has a strong balance sheet, but increased investment in cloud, AI, and delivery services is putting cash generation under pressure. Alibaba continues to return cash to shareholders through share buybacks and offers a modest dividend yield. However, no payouts are guaranteed, especially if ongoing investments fail to generate a good return.
Alibaba is subject to a complex influence of macroeconomic forces. So far, efforts to stimulate the Chinese economy haven’t had the desired effect. Further, Donald Trump’s tariff offensive has the potential to dampen both exports and domestic consumer confidence, and there’s plenty of uncertainty as to whether a trade deal can be reached between Washington and Beijing.
Despite a strong uplift so far in 2025, the valuation remains well below the long-term average. That reflects ongoing challenges and competitive pressure in the core e-commerce business. We support the bold investment plans in future facing technology but there’s plenty of execution risk ahead. Investors seeking exposure to themes such as AI and instant delivery need to weigh up Alibaba’s prospects against established international players with greater geographic diversity.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, such as electronic components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Alibaba’s management of ESG risks is strong.
Key risks the group’s exposed to relate to the handling of private information, specifically high volumes of Personally Identifiable Information (PII). Its use of analytics puts it at risk of data and privacy breaches. Increasing regulatory scrutiny in China increases Alibaba’s exposure to business ethics risk. Alibaba’s Chief Risk Officer oversees data protection and information security, with the privacy policy following industry best practice. Controls around business ethics risk could be enhanced through a clear governance structure and regular ethical risk assessments, which are currently lacking.
Alibaba key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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