Alibaba recently reported a significant drop in net profit during the fiscal fourth quarter, causing its shares to plummet. The Chinese giant’s revenue for the quarter stood at 221.9 billion yuan ($30.7 billion), slightly exceeding the LSEG consensus estimates of 219.66 billion yuan. However, the net income attributable to ordinary shareholders saw an alarming 86% year-on-year decrease, coming in at 3.3 billion yuan. As a result, Alibaba’s shares experienced a 5% decline in premarket trading in the US.

In 2023, Alibaba underwent its largest-ever corporate structure overhaul, leading to a turbulent year for the company. Additionally, there were several high-profile management changes, including the appointment of company veteran Eddie Wu as the chief executive. In an attempt to reassure shareholders, Alibaba announced an increase in its share buyback program by $25 billion through the end of March 2027.

Alibaba has been grappling with cautious consumer spending in China, but there were indications of a slight recovery in its core e-commerce business during the March quarter. Revenue for the Taobao and Tmall division, which represents Alibaba’s China e-commerce operations, increased by 4% year-on-year to 93.2 billion yuan. Moreover, customer management revenue, derived from services like marketing, saw a 5% year-on-year growth after remaining flat in the previous quarter. The company’s international commerce business also experienced a significant revenue boost of 45% year-on-year, reaching 27.4 billion yuan.

Investors are closely monitoring Alibaba’s cloud computing division, which has been struggling to revive growth. Despite initial plans to spin off the cloud unit, the company abandoned the idea of an IPO last year. In the March quarter, the cloud computing unit generated revenue of 25.6 billion yuan, reflecting a mere 3% year-on-year growth rate consistent with the previous quarter. Alibaba is currently focused on phasing out “low-margin project-based” contracts within the cloud division and anticipates that artificial intelligence-related products and public cloud services catering to enterprise clients will offset the impact of declining project-based revenues. Notably, AI-related revenue witnessed triple-digit growth year-over-year, stemming from various sectors including foundational model companies, internet businesses, and customers from industries like financial services and automotive.

Despite the significant profit drop, CEO Wu expressed optimism in the company’s future growth prospects, citing early signs of progress in the March quarter. Wu declared that the quarter’s results validate the efficacy of their strategies and indicate a return to growth for Alibaba. However, the financial setbacks from investments in publicly-traded companies contributed significantly to the profit decline, as acknowledged by the company. Alibaba is now navigating through a challenging period, marked by evolving consumer behavior, intense competition, and strategic transformations.

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