Alibaba June‑Quarter Results: Cloud Surge Amid Cash‑Flow Pressure
Alibaba announced its June‑quarter financials after market close, showing a mixed performance. The company’s cloud and compute services revenue reached RMB48.44 billion, representing a 45% year‑over‑year increase. Within this segment, AI‑related product revenue climbed to RMB12.38 billion, marking the 12th consecutive quarter of triple‑digit growth.
Mizuho highlighted that monthly recurring revenue (MRR) from Alibaba’s model‑as‑a‑service business doubled to RMB16 billion in August, up from RMB8 billion in the prior quarter. AI‑related annual recurring revenue (ARR) rose to roughly RMB50 billion from RMB36 billion, indicating an accelerating monetisation cycle for the firm’s AI offerings.
Adjusted EBITA for the AI Cloud and Compute Services segment surged 133% year‑over‑year to RMB5.63 billion, driven by strong revenue growth and improved operating efficiency. Mizuho noted that the combination of higher AI demand, a favourable supply‑demand backdrop, and increased use of Alibaba’s in‑house chips makes a cloud margin above 20% increasingly visible, with supply constraints expected to support pricing over the next few years.
The core commerce business showed slower momentum, with customer‑management revenue growth slowing to around 1% year‑over‑year (excluding accounting changes), down from 8% in the previous quarter, reflecting continued softness in consumer demand. Nevertheless, Mizuho regarded Alibaba’s push into on‑demand commerce as strategically important and potentially synergistic with its broader ecosystem.
Cash generation was pressured by heavy AI investment. Free cash flow recorded an outflow of RMB44.67 billion for the quarter, compared with an outflow of RMB18.82 billion a year earlier. Capital expenditure rose 75% to RMB67.68 billion, primarily due to higher spending on cloud infrastructure and computing capacity. Mizuho expects free cash flow to reach break‑even in fiscal 2029, assuming capital expenditure stabilises, and notes that advance payments from cloud customers could further improve cash flow over time.
On the market side, Alibaba shares fell nearly 1% to HK$125.1, underperforming the broader Hang Seng Index, which rose 0.6%. Despite the share decline, Mizuho maintained its “outperform” rating and a $195 price target, citing strong cloud growth, expanding margins, and rapid AI‑related revenue growth as evidence that Alibaba’s AI investments are beginning to translate into commercial returns.