Alibaba (BABA) March 2026 Earnings Report
On May 13th BABA reported their FY 2026 March quarter earnings.
The stock opened negative but ended the day up 8% on cloud and AI growth optimism. Then it sold off in the days after.
It was more of the same trend we have been seeing. High spend crushing the bottom line, and cloud and AI accelerating the topline.
In this article I go over what happened in the quarter, if they can keep this investment up, but most importantly if they‘re going to get a good return on all this spending.
Financials & Data
Revenue in the quarter was 243.4B RMB ($35.6B), and for the FY 1,023.7B RMB ($150.5B), both up 3%.
That looks like slow growth but there are two distortions we need to account for.
First, last year included revenue from Sun Art and Intime, which they have since exited. Second, they changed the classification of some expenses for the commerce business as contra-revenue.
Contra-revenue just means instead of in an expense line, it cancels out revenue.
If we adjust for both of those,1 topline growth on a pure like for like basis was 13.25% YoY.
A completely different picture than the headline suggests.
Gross Margin was 34.51% in the quarter and 39.81% for the FY. Down from 38.41% and 39.95% in the previous periods. Both down on increased investment in cloud and instant commerce.
Adjusted EBITDA was 4.1B RMB, down 84% YoY.
Operating Cash Flow was 9.4B RMB, vs 27.52B RMB last year.
Free Cash Flow was -17.3B RMB, vs 3.7B RMB last year.
Falling profits on rising investment is what worries some investors. But investment itself isn’t bad. What matters is the result, so there are two questions to ask.
First, can their balance sheet sustain these investments?
Second, will these investments grow revenue and profits?
The answer to the first question is clearly yes.
Alibaba has a net cash position of 260.82B RMB or $37.8B. So even if they continued burning $2.5B per quarter it would take almost 4 years before net cash dries up. Or up to 7.5 years before their cash hit $0.
Obviously I don't expect them to get anywhere near those levels, but I share that to make it clear. I have no concern on their ability to invest.
The second question is worth digging into. I'll answer it throughout the rest of this article with specific examples and management commentary.
China E-commerce revenue was up 6% YoY, or 10.2% after adjustment for the contra-revenue.2 Adjusted EBITDA for the segment was down 40% YoY.
Growth was mainly driven by quick commerce which was up 57% YoY and their most important business line, customer management revenue (CMR), up 8%.
Adjusted EBITDA declined mainly due to investments enhancing customer and merchant experiences.
For consumers, they integrated Taobao and Tmall into Qwen and launched the Qwen Shopping assistant. They continue merging offerings into Qwen, creating a one-stop shop.
The best part? It’s working.
Alibaba's 88 VIP members, which are their biggest spenders on an annual subscription program often compared to Amazon Prime, hit 62M in the quarter with growth accelerating to ~24% YoY.
For merchants, they started testing Wukong, an AI enterprise agent to improve efficiency and integrate agentic capabilities.
It’s clear merchants continue to come to Alibaba for the consumer reach they get, and the improvements Alibaba has made to their experience.
The proof is their CMR revenue growth of 8% YoY, shown in the chart below.
Looking at Quick Commerce, which is where most of the increased spending is going, they continued to see improved unit economics, higher average order values, and stable market share.
Excluding the losses from their Quick Commerce business, Adjusted EBITDA would have been flat YoY.
Alibaba International Commerce (AIDC) grew 6% YoY and Adjusted EBITA improved massively from -3.57B RMB in March 2025 to just -138M RMB in the quarter.
That big improvement came from “significant improvement in AliExpress’ operating efficiency”.
Despite pressures in other segments, this is clear proof they can greatly improve efficiency from here, not just through lower spending but through execution.
AI & Cloud revenue growth accelerated for the 8th consecutive quarter to 38% YoY, or 40% YoY from external customers. It was also the 11th consecutive quarter of triple-digit AI growth. Adjusted EBITDA also grew 57% YoY, outpacing topline.
Increased adoption of AI agents is driving growth in cloud. Plus they're seeing “exponential growth” in a smaller line, MaaS (Model-as-a-Service). That subsegment grew 8x YoY, mostly due to demand for coding.
In the call, management said their AI is at a “pivotal inflection point” moving from chatbots to “autonomous AI agents, which is directly driving explosive growth… AI and cloud commercialization inflection point has arrived.”
In the quarter, AI-related revenue reached 30% of the cloud segment's external revenue.
At T-Head, “over 60% of compute capacity is already serving external customers.” They have shipped 470,000 chips as of Feb 2026.
They are the only AI cloud provider in China able to deliver AI chips at scale. “We’ve secured autonomy over our compute supply chain while providing customers with highly competitive AI inference and training services.”
Increased capex to build or buy chips and to build data centers is directly driving growth. It's clear their strategy is working, with continued acceleration in revenue and profits.
All Others shrank 21% YoY, but adjusting for Sun Art and Intime, revenue was only down 0.5%. Adjusted EBITDA loss in the quarter jumped 520%, from -3.4B RMB in March 2025 to -21.16B RMB in March 2026.
This segment was hit by a decrease from Cainiao, partially offset by growth in Freshippo and Amap.
The growing loss in this segment is their biggest drag on profitability. In the quarter, management said it was “primarily due to the increased investment in technology businesses (including investment in user acquisition of Qwen app)”.
Critical for this segment is the Qwen app, which on May 7th was integrated with Taobao and Tmall capabilities. Users can get on the app to place orders. So all that spend on user acquisition will now drive repeat purchases from their core China e-commerce business.
The Qwen app is now “China’s first all-in-one personal assistant”.
Looking Forward
Management was clear they are focused on taking advantage of the tailwinds in technology and innovation to grow the business long term. When asked about how they will balance investment in growth and generating positive cash flows, this is what management said.
“We’ve been very resolute in making those investments over the past year. And looking forward to the next 2 years we intend to be equally resolute in continuing… because we see this is a critical window of opportunity.”
To put this in perspective, management believes they need 10x the number of data centers they had in 2022 to meet 2033 demand. That is a massive investment, and to hit it they expect to overshoot their original 380B RMB 2025-2028 Capex figure.
Along the way though they expect Taobao and Tmall to continue generating cash, quick commerce losses to narrow significantly with positive UE by the end of FY 2027, and AIDC to flip from loss-making to profitable in that same time frame. Their balance sheet gives them the strength to continue on this high investment path, but improvements will be choppy.
They see investments, especially in AI and cloud, as clear drivers of value. In fact, the Alibaba CEO said “there isn’t a single card on our service that is idle. So we see the ROI on this investment in the next 3 to 5 year period as being extremely clear.”
Later, when asked about China customers’ willingness to pay for these AI offerings, management framed it simply. Once their offering becomes valuable enough, people will come. They see demand for AI “as a long term certainty.”
To back that up they highlighted that the Bailian platform, which is essentially the host, customization, and delivery layer for their MaaS, has grown more than 10x from December last year through May of this year. ARR is already over 8B RMB and management is “highly certain” they can hit 10B ARR in the current quarter and expects 30B RMB by year end.
On the cloud + AI segment as a whole, management was direct. “We expect that in about 1 year, AI-related product revenue will cross the 50% threshold, (share of segment revenue), becoming the primary engine driving the Cloud business’s revenue growth.” They added that “External revenue growth is expected to continue accelerating beyond its current 40% rate over the coming quarters.” Even more impressive, though, is that they “expect this trajectory to sustain growth over the medium to long term.”
When asked about token price hikes and their effects on MaaS and cloud margins, management reiterated the same as last quarter. “Our ability to supply this demand is not able to keep up with all the growth and demand. We actually have a lot of customers still waiting to access the service.” Then, answering the question directly, they said they are seeing continued optimization that will lower costs to deliver outputs. At the same time, they expect to increase prices. Together this will result in “a very positive impact on our overall gross profit margin.”
When asked about EBITDA margins and if they can reach similar levels to US peers, management was clear their objective today is still to grow. “Margin is still secondary.”
That said, the cost to build out these servers has doubled from a year ago, which gives Alibaba some pricing power. Plus MaaS, which is inherently very high-margin, will lift segment margins as it grows. Efficiency gains will reduce costs. And sourcing chips internally through T-Head will naturally reduce costs further.
So, while maximizing profitability isn’t the focus right now, margins should rise “significantly” in the next 2-3 years according to management. We will start to see this in the next 1-2 quarters.
Here is a quick map of what to expect based on managements guidance over the coming years.
