Alibaba Group Holding Limited (NYSE: BABA)

Alibaba’s Q2 2025 revenue increased 2% year-over-year to RMB 247.7 billion, but this modest growth masks a more robust underlying performance. Excluding revenue from disposed businesses (Sun Art and Intime), revenue would have grown 10% on a like-for-like basis, demonstrating the core business strength across key segments.

The headline net income figure showed impressive growth of 76% to RMB 42.4 billion, primarily driven by mark-to-market gains from equity investments and disposal gains from Trendyol’s local consumer service business. However, this masks underlying operational challenges, with non-GAAP net income declining 18% to RMB 33.5 billion, reflecting increased investments in strategic initiatives.

Adjusted EBITA decreased 14% to RMB 38.8 billion, primarily due to significant investments in “Taobao Instant Commerce,” user experience enhancements, user acquisition, and technology development. While these investments pressured near-term profitability, they represent strategic positioning for long-term growth in the competitive quick commerce market.

Operating income declined 3% to RMB 35.0 billion with operating margin compressing to 14% from 15% in the prior year. This was partly offset by decreased amortization of intangible assets and lower share-based compensation expenses compared to the prior year, which included a one-time provision for shareholder class action lawsuits.

The company’s cash flow profile showed significant changes, with free cash flow turning negative at an outflow of RMB 18.8 billion compared to an inflow of RMB 17.4 billion in Q2 2024. This shift was primarily attributed to increased cloud infrastructure expenditure and substantial investments in the Taobao Instant Commerce initiative.

Alibaba China E-commerce Group delivered solid revenue growth of 10% to RMB 140.1 billion, driven by strong performance across customer management revenue (+10%) and the rollout of Taobao Instant Commerce. However, adjusted EBITA declined 21% due to significant investments in quick commerce capabilities and user experience improvements. The successful launch of “Taobao Instant Commerce” at the end of April contributed to a 25% year-over-year increase in monthly active consumers on the Taobao app.

Alibaba International Digital Commerce Group (AIDC) showed impressive momentum with 19% revenue growth to RMB 34.7 billion. More importantly, the segment made substantial progress toward profitability, with losses narrowing dramatically from RMB 3.7 billion to just RMB 59 million, representing a 98% improvement. This reflects enhanced operational efficiency across AliExpress, Alibaba.com, Lazada, and Trendyol, with particular strength in cross-border businesses.

Cloud Intelligence Group was the standout performer with 26% revenue growth to RMB 33.4 billion, matching this with 26% growth in adjusted EBITA to RMB 3.0 billion. AI-related product revenue maintained triple-digit year-over-year growth for the eighth consecutive quarter, highlighting Alibaba’s strong position in the rapidly expanding AI infrastructure market. Revenue excluding Alibaba-consolidated subsidiaries also accelerated to 26% growth.

All Others segment revenue declined 28% to RMB 58.6 billion, primarily due to the disposal of Sun Art and Intime businesses and decreased Cainiao revenue. However, this was partially offset by growth in Freshippo, Alibaba Health, and Amap. The segment’s adjusted EBITA loss widened due to increased investments in technology businesses, though this was partly offset by improved performance from Freshippo, Amap, Hujing DME, and Alibaba Health.

Alibaba’s strategic focus on “consumption and AI + Cloud” delivered strong results during Q2 2025, with significant milestones achieved across both pillars:

Quick Commerce & Consumption Strategy

• Taobao Instant Commerce Launch: Successfully launched at the end of April 2025, providing on-demand delivery across food, groceries, electronics, and apparel
• Consumer Growth: 25% year-over-year increase in monthly active consumers on the Taobao app in the first three weeks of August
• Ecosystem Synergies: Generated substantial synergies by combining resources across consumer platforms, resulting in new highs in monthly active consumers and daily order volume
• 6.18 Shopping Festival Success: Delivered strong consumer growth through user-friendly promotion mechanisms and increased support for high-quality merchants
• 88VIP Growth: Continued double-digit growth in 88VIP members, surpassing 53 million highest-spending consumers

AI + Cloud Strategic Pillar

• AI Revenue Leadership: AI-related product revenue maintained triple-digit year-over-year growth for the eighth consecutive quarter
• GenAI Market Position: Highlighted as a leader in Omdia’s “Market Radar: GenAI Cloud Titans in Asia & Oceania 2025” report
• Platform Innovation: Model Studio and Platform for AI (PAI) offer enterprises comprehensive GenAI application development capabilities
• Infrastructure Demand: Increased demand for compute, storage, and public cloud services to support AI adoption
• Market Leadership: Full-stack GenAI solutions and developer-friendly AI platform offerings strengthen competitive position

Management emphasized their commitment to investing in both strategic pillars to “capture historic opportunities and drive long-term growth,” with the strength of core businesses providing confidence and resources for significant investments in quick commerce and AI initiatives.

Alibaba’s cost structure showed mixed trends in Q2 2025, reflecting both efficiency improvements and strategic investments:

• Cost of Revenue: Improved to 55.1% of revenue from 60.1% in Q2 2024, primarily due to disposal of Sun Art and Intime, reduced low-margin direct sales businesses, and improved monetization
• Sales and Marketing: Increased significantly to 21.5% of revenue from 13.4%, driven by investments in “Taobao Instant Commerce,” user experiences, and user acquisition
• Product Development: Rose to 6.1% of revenue from 5.5%, reflecting continued investment in technology and innovation
• General and Administrative: Decreased to 3.0% of revenue from 5.5%, primarily due to the absence of the one-time provision for shareholder class action lawsuits from Q2 2024

Share-based compensation expense decreased 14% to RMB 3.5 billion, reflecting the company’s shift toward increased long-term cash incentives in response to macroeconomic conditions and talent market trends.

The company executed well against its commitment to improve operating efficiency, with AIDC significantly narrowing its loss to approach breakeven. This demonstrates management’s ability to balance growth investments with operational discipline across the organization.

Alibaba maintained its strong financial position despite increased investments in strategic initiatives:

• Cash Position: RMB 585.7 billion in cash and other liquid investments, providing substantial financial flexibility
• Total Assets: RMB 1.85 trillion, up from RMB 1.80 trillion at March 31, 2025
• Shareholders’ Equity: RMB 1.01 trillion, maintaining strong balance sheet fundamentals
• Free Cash Flow Shift: Outflow of RMB 18.8 billion compared to inflow of RMB 17.4 billion in Q2 2024

The negative free cash flow primarily resulted from increased cloud infrastructure expenditure and substantial investments in “Taobao Instant Commerce.” While this represents a near-term cash outflow, these investments are critical for maintaining competitive position in high-growth markets.

During Q2 2025, Alibaba repurchased 56 million ordinary shares (equivalent to 7 million ADSs) for US$815 million, with US$19.3 billion remaining under the share repurchase program authorization through March 2027. This demonstrates management’s confidence in the company’s long-term prospects and commitment to returning capital to shareholders.