* Alibaba's (BABA) revenue, net income miss analysts' estimates
* Cloud revenue grows 36%, AI business to separate from
cloud arm
* Alibaba's (BABA) shares drop more than 6% in early trading
* Singles' Day promotions fail to boost consumer
enthusiasm
(Updates shares in paragraph 2, adjusted profit in 3, new quote
in 7, analyst comment in 8-9, details in 13)
By Akash Sriram and Casey Hall
March 19 (Reuters) - Alibaba (BABA) on
Thursday reported a 1.7% rise in third-quarter revenue but a
66.3% drop in net income, both below analysts' estimates, as
heavy spending on one-hour delivery and promotions during peak
shopping periods failed to spur demand.
U.S.-listed shares of Alibaba (BABA), China's largest e-commerce
company, dropped more than 6% in early trading after it booked
revenue of 284.84 billion yuan ($41.28 billion) for the three
months through December, versus LSEG estimates of a 3.7% rise.
The company reported an adjusted profit of 7.09 yuan per
American Depository Share, well short of 11.64 yuan estimates.
FIRMS PUSHING TO MAKE AI PROFITABLE
Cloud revenue outpaced expectations with growth of 36%, as
Alibaba (BABA) rolled out numerous AI agent integrations for the
consumer-facing side of its business and scaled investments.
AI monetisation is in ?focus as major tech firms in China and
beyond wrestle with how to make the era-defining technology
profitable.
This week, Alibaba (BABA) said it would separate its AI businesses from
its cloud computing arm.
The newly formed Alibaba Token Hub business group, led by CEO
Eddie Wu, is the company's clearest sign yet that it is shifting
its focus to digital assistants powered by AI models that
consume far more tokens - data units models use to generate
language - than traditional Q&A chatbots.
According to Jamie Chen of Third Bridge, a pre-Chinese New Year
promotional campaign featuring Alibaba's (BABA) chatbot Qwen, which has
moved beyond answering questions to facilitating consumer orders
for food delivery and e-commerce, pushed daily active users to
around 50 million, but usage has since fallen.
"Thirty-day retention remains relatively low, with users
primarily engaging in general entertainment and consumer-related
scenarios, indicating low user loyalty," Chen said.
"Over the next five years, our goal is to surpass $100 billion
in combined cloud and AI external revenue," Wu told analysts in
a call following earnings.
CONSUMER SENTIMENT STILL CLIPPED BY ONGOING PROPERTY CRISIS
At the end of last year, a prolonged property crisis,
coupled with concerns about income stability, continued to weigh
on consumer sentiment, limiting spending even during traditional
periods of high expenditure.
Singles' Day sales in November extended to more than a month
of promotions, but drew muted response.
Retailers ramped up discounts and subsidies to encourage
spending, but cautious consumers and year-round deals diluted
the event's traditional sales surge.
Heavy spending by the likes of Alibaba (BABA) and JD.com (JD) on
discounts and faster delivery to capture market share from
food-delivery leader Meituan (MPNGF) pressured profit margins.
Alibaba (BABA) has said its focus in upcoming quarters will be to
improve unit economics for its Taobao Quick Commerce division.
Executives reiterated on Thursday a target of achieving 1
trillion yuan gross merchandise volume - a commonly used metric
for e-commerce sales - and said the business would be profitable
in fiscal year 2029.
($1=6.9003 Chinese yuan renminbi)
(Reporting by Akash Sriram in Bengaluru and Casey Hall in
Shanghai, additional reporting by Harshita Mary Varghese;
Editing by Shinjini Ganguli, Clarence Fernandez and Jan Harvey)
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