Alibaba Group’s net profit in the second quarter of this year plunged by 75% year-on-year, with operating profit decreasing by 57%. The company attributed this sharp decline primarily to its continued heavy investments in artificial intelligence and computing infrastructure.
According to Alibaba’s quarterly performance report, for the three months ending on June 30, the group’s net profit dropped from 42.382 billion yuan (approximately 6.304 billion US dollars) in the same period last year to 10.444 billion yuan (approximately 1.539 billion US dollars) . The operating profit also decreased from 34.988 billion yuan (approximately 5.204 billion US dollars) in the same period last year to 15.161 billion yuan (approximately 2.234 billion US dollars).
On a non-GAAP basis, Alibaba’s earnings per American Depository Share were 8.52 yuan (approximately 1.26 US dollars), falling below analysts’ expectations of 10.53 yuan (1.55 US dollars).
Alibaba stated that the decline in net profit was mainly due to reduced operating profit, decreased net income from investment sales, and a decrease in net income generated from changes in the valuation of equity investments.
In the first quarter of this year, Alibaba recorded an operating loss of 848 million yuan (approximately 123 million US dollars), compared to an operating profit of 28.465 billion yuan in the same period last year. The company stated that it was the first quarterly operating loss since 2021.
During the financial call in May, CFO Toby Xu mentioned that the negative free cash flow was mainly due to investments made in the past year in the field of artificial intelligence.
The company attributed the expanded losses mainly to increased investments in AI capabilities and rising costs associated with Qwen application inference. The quarterly financial report indicated that the company’s capital expenditures for this quarter were 67.768 billion yuan (approximately 9.975 billion US dollars), a 75% increase from the same period last year.
During the financial call on August 20, company management stated that the Chinese e-commerce market is facing “short-term macroeconomic challenges.”
Alibaba stated that the decline in second-quarter operating income was also affected by impairment of goodwill and intangible assets, as well as the provision of reserves made in response to the European Commission’s imposition of a fine of 550 million euros (approximately 630 million US dollars) on AliExpress under the Digital Services Act.
The European Commission imposed a fine of 550 million euros on AliExpress on July 20, citing its failure to fully assess and reduce the risks of selling illegal, unsafe, or counterfeit products on the platform as required by the Digital Services Act.
In July of this year, Alibaba and its U.S. payment processor, AUS Merchant Services, agreed to pay a total of 600 million US dollars under a non-prosecution agreement with the U.S. Department of Justice to settle investigations related to illegal drugs, controlled chemicals, and pill-making equipment.
According to data from the U.S. Department of Justice and the related agreements, Alibaba admitted that between 2016 and 2024 it failed to prevent merchants from selling around 80,000 transactions involving the importation of illegal goods into the United States through Alibaba.com and AliExpress.com.