Alibaba Stock Rises on Q2 Revenue Beat Despite Low Profits
Alibaba, a leading Chinese e-commerce company, has recently released its Q2 earnings for Fiscal Year 2026, which concluded on September 30, 2025. The results reveal a mixed performance characterized by strong revenue but reduced profits and cash flow.
Key Financial Highlights
For the second quarter, Alibaba reported:
- Revenue of 247.8 billion yuan (approximately $34.8 billion), marking a 5% increase year-over-year.
- Analysts had anticipated revenue of 242.65 billion yuan.
- Non-GAAP net income at RMB 10.4 billion, a significant drop of 72% compared to the previous year.
- Adjusted diluted earnings per share (EPS) of 4.36 yuan, below the consensus estimate of 6.34 yuan.
- Non-GAAP diluted EPS of $0.08, down 71% year-over-year.
Positive Developments in Cloud and AI
Despite the setbacks, Alibaba’s Cloud Intelligence Group showed remarkable growth. Revenue increased by 34% year-over-year to reach 39.8 billion yuan ($5.6 billion), surpassing the estimated 38 billion yuan. The management noted that AI-related product revenue experienced triple-digit growth for the ninth consecutive quarter, indicating a rising adoption of their AI tools among enterprises.
Additionally, the core China commerce division, encompassing platforms like Taobao and Tmall, demonstrated steady growth. Customer management revenue also improved by 10%, signaling better monetization trends.
Challenges with Cash Flow
Cash generation was a notable concern this quarter. Key metrics include:
- Operating cash flow fell by 68% year-over-year to RMB 10.1 billion, primarily due to increased investments.
- Free cash flow turned negative, with an outflow of RMB 21.8 billion compared to an inflow of RMB 13.7 billion a year earlier.
Despite these cash flow challenges, Alibaba concluded the quarter with RMB 573.9 billion (around $80.6 billion) in cash and liquid assets. CFO Toby Xu emphasized that the company’s current focus is on investing for future growth, indicating potential volatility in earnings moving forward.
Share Repurchase and Future Outlook
During this quarter, Alibaba repurchased 17 million ordinary shares, which is equivalent to 2 million American Depositary Shares (ADS), amounting to $253 million. As of September 30, 2025, the company had $19.1 billion available for share repurchase under its ongoing program, set to continue through March 2027.
Looking ahead, Alibaba has not provided specific revenue guidance for the year. However, it identified cloud computing and artificial intelligence as top priorities for growth.
Analyst Sentiment on Alibaba Stock
Analysts maintain a bullish outlook on Alibaba’s stock performance. The stock holds a Strong Buy consensus with 19 Buy ratings and two Hold ratings. The average price target for Alibaba stands at $198.21, indicating approximately 23.32% potential upside from current trading levels. Nevertheless, estimates may be subject to revisions following the latest earnings report.
