Alibaba has released its financial report, revealing a sharp decline in profitability. The company's performance in the last quarter was challenging across key metrics.
Revenue for the quarter reached 284.8 billion yuan, representing a modest year-over-year increase of just 2%. However, operating profit saw a drastic fall of 74% to 10.6 billion yuan. Net profit followed a similar trend, declining by 66% to 15.631 billion yuan.
The significant drop in profitability is attributed to heavy investments in instant retail services, user experience enhancements, and technology development. In the fourth quarter alone, operating profit decreased by approximately 30.6 billion yuan due to these strategic expenditures. Essentially, the company is engaged in two major battles: competing in the food delivery sector and advancing in the AI arms race, including chip development.
How is Alibaba's substantial investment in its instant retail business performing? The segment reported revenue of 20.842 billion yuan for the quarter, a strong increase of 56% year-over-year. The company noted that this revenue figure is net of consumer subsidies. For the period from April to September, the cumulative net revenue for instant retail reached 58.532 billion yuan, growing 43%.
For comparison, JD.com's new business segment, which is also heavily focused on delivery, reported quarterly revenue of 14.1 billion yuan and full-year revenue of 49.3 billion, suggesting that JD's larger-scale efforts have yielded relatively moderate results so far.
The intense competition in the delivery sector has negatively impacted Alibaba's cash flow. Net cash flow from operating activities in the fourth quarter was 36 billion yuan, a decrease of 34.9 billion yuan, or 49%, compared to the same period last year. Free cash flow fell even more sharply, dropping 71% to 11.3 billion yuan. Free cash flow is calculated after accounting for purchases of property and equipment and funds held in merchant buyer protection accounts. Cumulatively, from the second to the fourth quarter, net cash flow from operating activities was 66.8 billion yuan, while free cash flow was negative 29.3 billion yuan. This indicates that during the core period of the delivery competition, the company had no discretionary cash and was effectively spending an additional 29.3 billion yuan.
Beyond the instant retail battle, Alibaba's core e-commerce business showed modest growth. Domestic commerce revenue increased by 6%, while international commerce revenue grew by 4%. In contrast, the Cloud Intelligence Group was the second-best performing segment after instant retail, with revenue rising 36%. The company's AI-related initiatives showed promising developments. For instance, its chip subsidiary, T-Head, achieved mass production of its self-developed GPUs. Furthermore, its AI model service, Qianwen, reportedly surpassed 300 million monthly active users following significant marketing efforts during the Lunar New Year period, with 140 million users having experienced AI-powered shopping features.
Alibaba's employee headcount also decreased significantly. The total number of employees fell to approximately 128,200, a reduction of 66,100 over the year. This decline may be due to a combination of divestitures and workforce reductions, with recent reports highlighting notable departures from the Qianwen business unit.