Alibaba misses revenue estimates, but AI boosts cloud business

China's Alibaba (9988), missed market estimates for quarterly revenue on Friday as the company's e-commerce business grappled with tough competition and choppy consumer demand, eclipsing gains in its cloud computing business.

U.S.-listed shares in the company were up 4 percent in premarket trading.

Consumer confidence in China has taken a beating from an economy weighed down by a lingering property sector crisis, weak wage growth and global trade disruptions. Consumers remained cautious even as e-commerce companies resorted to steep discounts and price cuts to drum up demand.

That eclipsed strong growth in Alibaba's cloud segment, where revenue surged 26 percent to 33.40 billion yuan (HK$36.39 billion) against 18 percent growth seen in the prior quarter. Analysts were expecting an 18.4 percent rise to 31.44 billion yuan, according to LSEG data.

Alibaba has been among the most aggressive players in China's AI sector, unveiling upgrades on an almost weekly basis, most recently rolling out a model that converts portrait photos into lifelike video avatars.

"AI-related product revenue is now a significant portion of revenue from external customers," said Alibaba Group CEO Eddie Wu Yongming.

The company reported total revenue of 247.65 billion yuan in the first quarter ended June, compared with an estimate of 252.92 billion yuan compiled by LSEG.

This is the first time Alibaba has reported revenue from its China E-commerce group, which includes platforms Taobao and Tmall, its new instant commerce business, food delivery app Ele.me and travel agency Fliggy. The group reported 10 percent growth in revenue.

Alibaba's income from operations decreased 3 percent on the year, and adjusted earnings before interest, tax and amortisation fell 14 percent due largely to investments in the instant commerce business.

Earlier this week, PDD and food delivery leader Meituan (3690), - which is locked in a subsidy-driven "instant retail" market share war with both Alibaba and JD.com - warned that increased investments would cause fluctuations in profit in future quarters.

Executives at both firms said competition in the industry had intensified further in the quarter.

PDD beat quarterly revenue estimates earlier this week, but flagged more volatility in future profits after reporting a 21 percent drop in its operating income. Meituan on Wednesday reported a 97 percent dive in net income, despite a 12 percent rise in revenue.

Alibaba has also invested in improving its international business's foothold in key markets like Europe and the Middle East. The international unit reported a 20% rise in revenue to 6.5 billion yuan.

Alibaba also announced on Friday it had bought back shares in its Cainiao logistics arm from Fosun International (0656) for US$349.8 million.

REUTERS