Alibaba Group Holding Limited (NYSE: BABA)

Alibaba Group's Q1 2025 revenue was RMB236.5 billion (US$32.6 billion), representing a 7% increase year-over-year compared to RMB221.9 billion in the same quarter of 2024. This growth was primarily driven by solid performance across multiple business segments, particularly in the Cloud Intelligence Group and Taobao and Tmall Group.

Income from operations saw a significant increase of 93% year-over-year to RMB28.5 billion (US$3.9 billion), compared to RMB14.8 billion in the same quarter of 2024. This substantial growth was primarily due to the increase in adjusted EBITA and a decrease in non-cash share-based compensation expense. Operating margin improved from 7% to 12% year-over-year.

Adjusted EBITA, a non-GAAP measurement, increased by 36% year-over-year to RMB32.6 billion (US$4.5 billion), primarily attributable to revenue growth and improved operating efficiency, partly offset by increased investments in e-commerce businesses and technology. Adjusted EBITA margin improved from 11% to 14% year-over-year.

Net income showed a remarkable increase of 1203% year-over-year, reaching RMB12.0 billion (US$1.7 billion), compared to RMB919 million in Q1 2024. This significant increase was primarily due to mark-to-market changes from equity investments, the increase in income from operations, and the decrease in impairment of equity method investments, partly offset by losses arising from the disposal of subsidiaries.

Non-GAAP net income, which excludes share-based compensation expense, gains/losses of investments, impairment of goodwill and intangible assets, and certain other items, increased by 22% to RMB29.8 billion (US$4.1 billion). Diluted earnings per ADS was RMB5.17 (US$0.71), a 296% increase compared to RMB1.30 in the same quarter of 2024, while non-GAAP diluted earnings per ADS increased by 23% to RMB12.52 (US$1.73).

Taobao and Tmall Group continued to show strong momentum with revenue increasing 9% year-over-year to RMB101.4 billion (US$14.0 billion). Customer management revenue, which includes advertising and commission fees, grew by 12% year-over-year to RMB71.1 billion (US$9.8 billion), primarily driven by improvement in take rate year-over-year. This improvement benefited from the impact of software service fees and increasing penetration of Quanzhantui, which enhances marketing efficiency for merchants. China commerce wholesale business revenue increased by 17% year-over-year to RMB5.8 billion (US$798 million). Adjusted EBITA for this segment increased by 8% to RMB41.7 billion (US$5.8 billion), primarily due to increased customer management service revenue, partly offset by investments in user experience and technology.

Alibaba International Digital Commerce Group (AIDC) demonstrated strong growth with revenue increasing 22% year-over-year to RMB33.6 billion (US$4.6 billion), primarily driven by strong performance in cross-border businesses. International commerce retail revenue grew by 24% to RMB27.6 billion (US$3.8 billion), primarily driven by AliExpress and Trendyol. International commerce wholesale business revenue increased by 16% to RMB6.0 billion (US$823 million). The segment's adjusted EBITA loss narrowed by 13% year-over-year, primarily due to Lazada's significant reduction in operating losses driven by improvement in monetization and operating efficiency.

Cloud Intelligence Group saw accelerated growth with revenue increasing 18% year-over-year to RMB30.1 billion (US$4.2 billion). Revenue excluding Alibaba-consolidated subsidiaries grew even faster at 17% year-over-year, primarily driven by public cloud revenue growth, including increased adoption of AI-related products. Notably, AI-related product revenue maintained triple-digit year-over-year growth for the seventh consecutive quarter. Adjusted EBITA for this segment increased significantly by 69% to RMB2.4 billion (US$333 million), primarily due to faster public cloud revenue growth and improving operating efficiency, partly offset by increasing investments in customer growth and technology innovation.

Cainiao Smart Logistics Network revenue decreased 12% year-over-year to RMB21.6 billion (US$3.0 billion), primarily due to the integration of logistics offerings into e-commerce businesses. Despite the revenue decline, adjusted EBITA loss narrowed by 55% to RMB606 million (US$83 million).

Local Services Group revenue grew 10% year-over-year to RMB16.1 billion (US$2.2 billion), driven by order growth from both Amap and Ele.me, as well as revenue growth from marketing services. The segment's adjusted EBITA loss narrowed by 28% to RMB2.3 billion (US$319 million) as unit economics improved due to operating efficiency and increased scale.

Digital Media and Entertainment Group revenue increased 12% year-over-year to RMB5.6 billion (US$765 million), primarily driven by the strong performance of movie and entertainment businesses and increased Youku advertising revenue. The segment turned profitable on an adjusted EBITA basis, reaching RMB36 million (US$5 million) compared to a loss of RMB884 million in the same quarter of 2024, primarily driven by Youku's profitability.

Alibaba continues to execute on its "user first, AI-driven" strategy, with several key initiatives driving growth across its various business segments:

Taobao and Tmall Strategic Focus

• Enhanced User Experience: Continued investments in user growth initiatives including price-competitive products, customer service improvements, and membership program benefits
• 88VIP Membership Growth: The number of 88VIP members, Alibaba's highest spending consumer group, continued to increase by double digits year-over-year, surpassing 50 million
• Merchant Support: Increased support for merchants that provide high-quality products and customer services, including marketing, new product launches, and customer management assistance
• Monetization Improvements: Enhanced take rates benefited from software service fees and increasing penetration of Quanzhantui, which improves marketing efficiency for merchants

International Expansion Strategy

AIDC has maintained a diverse geographical presence with a consistent strategic focus on key regions such as select European markets and the Gulf Region. AliExpress and Trendyol continue to diversify and enrich their product offerings by engaging local merchants and partners through different business models in different markets. The unit economics of AliExpress' Choice business improved on a sequential basis as the company focused on enhancing operating and investment efficiency.

Cloud and AI Innovation

• AI Product Growth: AI-related product revenue maintained triple-digit year-over-year growth for the seventh consecutive quarter, with broader adoption across a wide range of industry verticals including Internet, retail, manufacturing, and media
• Lingma AI Coding Assistant: Launched last year, has seen strong adoption among enterprise customers and delivered robust revenue growth
• Qwen3 Series Launch: In April, the company launched the Qwen3 series, a new generation of hybrid reasoning models that combine fast, simple responses and deeper chain-of-thought reasoning into a single model
• Open-Source Initiatives: All Qwen3 models have been fully open-sourced on ModelScope, Hugging Face, and other platforms to drive innovation and new applications by developers, startups, and enterprises
• Industry Recognition: In the 2025 Gartner® Innovation Guide for Generative AI Technologies, Alibaba Cloud was the only Chinese provider named an Emerging Leader in all four assessed areas

Capital Allocation and Shareholder Returns

During fiscal year 2025, Alibaba repurchased a total of 1,197 million ordinary shares (equivalent to 150 million ADSs) for a total of US$11.9 billion, resulting in a 5.1% net reduction in outstanding shares. The board of directors approved a two-part dividend totaling US$0.25 per ordinary share or US$2.00 per ADS, comprised of an annual regular cash dividend and a one-time extraordinary cash dividend as a distribution of proceeds from dispositions. The aggregate amount of the dividend will be approximately US$4.6 billion.

Alibaba demonstrated significant margin expansion and improved profitability in Q1 2025:

• Operating Margin: Improved from 7% in Q1 2024 to 12% in Q1 2025, reflecting enhanced operational efficiency and reduced share-based compensation expense
• Adjusted EBITA Margin: Increased from 11% to 14% year-over-year, driven by revenue growth and improved operating efficiency across business segments
• Adjusted EBITDA Margin: Expanded from 14% to 18% year-over-year
• Net Income Margin: Improved from 0.4% to 5.1% year-over-year, reflecting strong bottom-line performance
• Non-GAAP Net Income Margin: Increased from 11.0% to 12.6% year-over-year

The significant improvement in operating margin was primarily driven by both revenue growth and cost optimization. Cost of revenue as a percentage of revenue decreased from 66.7% in Q1 2024 to 61.6% in Q1 2025. Without the effect of share-based compensation expense, cost of revenue as a percentage of revenue would have decreased from 66.3% to 61.4%, primarily due to the decrease in scale of low-margin direct sales businesses and improvement in monetization and operating efficiency.

General and administrative expenses as a percentage of revenue decreased from 6.3% to 4.4% year-over-year, contributing to the overall margin expansion. This was partly offset by an increase in sales and marketing expenses as a percentage of revenue from 13.0% to 15.3%, reflecting increased investments in e-commerce businesses.

Share-based compensation expense decreased significantly to RMB3.4 billion (US$473 million) in Q1 2025 from RMB7.1 billion in Q1 2024, a 52% reduction. This decrease was primarily due to a reduction in the number of awards granted and an increase in long-term cash incentives after considering the macroeconomic environment and general trends in the talent market.

The improvement in segment-level profitability was broad-based. Cloud Intelligence Group's adjusted EBITA increased by 69% year-over-year, while Digital Media and Entertainment Group turned profitable on an adjusted EBITA basis. Additionally, loss-making segments like Alibaba International Digital Commerce Group, Cainiao Smart Logistics Network, and Local Services Group all saw meaningful reductions in their adjusted EBITA losses, demonstrating improved unit economics and operational efficiency.

Alibaba maintains a strong financial position with robust cash flow generation and a healthy balance sheet:

Cash Flow Performance

• Operating Cash Flow: Net cash provided by operating activities was RMB27.5 billion (US$3.8 billion) in Q1 2025, an increase of 18% compared to RMB23.3 billion in the same quarter of 2024
• Free Cash Flow: RMB3.7 billion (US$516 million) in Q1 2025, a decrease of 76% compared to RMB15.4 billion in Q1 2024, mainly attributed to increased cloud infrastructure expenditure, partly offset by year-over-year increase in adjusted EBITDA
• Capital Expenditures: RMB24.6 billion (US$3.4 billion) in Q1 2025, reflecting significant investments in infrastructure, particularly for cloud and AI capabilities

Balance Sheet Strength

As of March 31, 2025, Alibaba maintained a strong balance sheet with:

• Cash, Cash Equivalents, Short-term Investments and Other Treasury Investments: RMB597.1 billion (US$82.3 billion) as of March 31, 2025, compared to RMB617.2 billion as of March 31, 2024
• Total Assets: RMB1,804.2 billion (US$248.6 billion)
• Total Liabilities: RMB714.1 billion (US$98.4 billion)
• Shareholders' Equity: RMB1,009.9 billion (US$139.2 billion)

Share Repurchase and Dividends

• Q1 2025 Share Repurchases: Repurchased 51 million ordinary shares (equivalent to 6 million ADSs) for a total of US$0.6 billion
• Fiscal Year 2025 Share Repurchases: Repurchased 1,197 million ordinary shares (equivalent to 150 million ADSs) for a total of US$11.9 billion, resulting in a net decrease of 995 million ordinary shares, or a 5.1% net reduction in outstanding shares
• Dividend Approval: The board approved a two-part dividend totaling US$0.25 per ordinary share or US$2.00 per ADS, comprising an annual regular cash dividend for fiscal year 2025 (US$0.13125 per ordinary share) and a one-time extraordinary cash dividend (US$0.11875 per ordinary share) as a distribution of proceeds from disposition of certain businesses and financial investments
• Total Dividend Amount: Approximately US$4.6 billion, payable on or around July 3, 2025, for holders of ordinary shares and on or around July 10, 2025, for holders of ADSs

The decrease in cash, cash equivalents, short-term investments, and other treasury investments during fiscal year 2025 was primarily due to share repurchases, dividend payments, acquisition of additional equity interests in non-wholly owned subsidiaries, and repayment of unsecured senior notes, partly offset by free cash flow generated from operations and net proceeds from the issuance of unsecured and convertible senior notes.