Alibaba Group (NYSE:BABA) reported a 75% drop in quarterly profit on Thursday, as heavy investment in artificial intelligence infrastructure squeezed margins at China's e-commerce and cloud giant.
Net income for the June quarter fell to 10.4 billion yuan ($1.5 billion), missing analyst estimates of 26.98 billion yuan. Adjusted earnings per ADS came in at 8.52 yuan, well below the 11.26 yuan expected and down 42% from a year earlier.
Capital expenditure jumped 75% to 67.7 billion yuan, far exceeding forecasts of 29.22 billion yuan. Alibaba attributed the increase to uneven timing of customer purchases, expanded CPU-compute capacity and higher prices across a broad range of chip components.
Revenue rose 9% to 269 billion yuan, roughly in line with estimates of 269.3 billion yuan. Free cash flow was negative 44.7 billion yuan, far below the negative 12.80 billion yuan analysts had projected.
The company's AI push continued to show momentum on the top line. AI-related product revenue posted triple-digit growth for the twelfth consecutive quarter, and AI revenue has now tripled for twelve straight quarters.
By segment, AI Cloud and Compute Services generated 48.4 billion yuan in revenue, with adjusted EBITA of 5.6 billion yuan, up 133% year-over-year. China E-commerce Business revenue reached 110.9 billion yuan, while the Alibaba E-commerce Group posted adjusted EBITA of 39.7 billion yuan, down 1% from a year earlier. AI Labs and Applications contributed 3.3 billion yuan in revenue.
Adjusted EBITDA fell 14% to 39.1 billion yuan, above the 37.5 billion yuan estimate, while adjusted EBITDA margin narrowed to 15% from 18% a year earlier. Income from operations dropped 57% to 15.2 billion yuan.
Alibaba's 88VIP loyalty program had approximately 64 million members.
Shares of Alibaba fell more than 3% in US trading Thursday morning.
