Alibaba BABA shares opened 10% higher in Hong Kong on Feb. 21 to reach their highest level in more than three years, after the company reported third-quarter fiscal 2025 revenues of $38.3 million, which beat the Zacks Consensus Estimate by 0.51%. The company said it plans to invest more in e-commerce and AI.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

In domestic currency, revenues of RMB 280.1 billion increased 8% year over year.

The top-line increase was driven by improved monetization of Taobao and Tmall Group, which included gross merchandise value (GMV)-based service charges and merchant adoption of Quanzhantui, Alibaba’s marketing tool. Strength across the cloud business, driven by public cloud products and AI-integrated products, contributed well.

The Chinese e-commerce giant's U.S-listed shares jumped 8% in their biggest one-day percentage gain since September last year following its earnings on Thursday. Shares closed at their highest level in more than three years at $135.97.

BABA reported non-GAAP earnings of $2.93 per ADS, which missed the Zacks Consensus Estimate by 4.87%. In domestic currency, Alibaba reported earnings of RMB 21.39, up 12.8% year over year.

Revenues by Segments

Taobao and Tmall Group (48.6% of total revenues): Alibaba generated RMB 100.79 billion ($13.8 billion) of revenues from the segment, which increased 9% from the year-ago quarter’s figure. This was driven by growth in online GMV and improvement in take rate year over year.

The number of 88VIP members, BABA’s highest-spending consumer group, continued to increase by double digits year over year, reaching 49 million during the quarter. The company will continue to grow the subscription of 88VIP membership by providing attractive benefits and premium services.

China Commerce Retail (95.2% of Taobao and Tmall revenues): The business vertical’s revenues were RMB 129.5 billion ($17.7 billion), reflecting a 5% increase from the year-ago quarter. The increase was attributed to customer management revenues, which increased 9% year over year to RMB 100.7 billion ($13.8 billion) due to online GMV growth, partially offset by a decline in direct sales and other revenues, which were down 9% year over year to RMB 28.7 billion ($3.9 billion) due to lower sales of consumer electronics and appliances.

China Commerce Wholesale (4.8% of Taobao and Tmall revenues): The business generated revenues of RMB 6.57 billion ($901 million), which grew 24% on a year-over-year basis. This upside was attributed to increasing revenues from value-added services.

During the second quarter of fiscal 2025, BABA made strategic investments to enhance user experience. Starting Sept. 1, a software service fee based on the GMV of the transaction was implemented, and the annual service fee for Tmall merchants was canceled. 

Alibaba International Digital Commerce Group (13.5% of total revenues): The segment comprises Lazada, AliExpress, Trendyol, and other businesses operating in the international retail and wholesale markets. Alibaba generated RMB 37.7 billion ($5.17 billion) in revenues from the segment, which grew 32% from the year-ago quarter, primarily driven by the strong performance of cross-border businesses.

International Commerce Retail (83.6% of international revenues): Revenues were RMB 31.5 billion ($4.32 billion), up 36% from the year-ago quarter’s figure, owing to the strong momentum in AliExpress’ Choice and Trendyol. 

International Commerce Wholesale (16.4% of international revenues): The business generated revenues of RMB 6.2 billion ($850 million), which increased 18% on a year-over-year basis.

During the third quarter of fiscal 2025, BABA announced a plan to form a joint venture with Shinsegae in South Korea, which will operate AliExpress Korea and Gmarket, to better serve consumers in South Korea and enhance its competitiveness.

Local Services Group (6.1% of total revenues): The segment’s revenues grossed RMB 16.98 billion ($2.32 billion), up 12% from the year-ago quarter. The rise was driven by strong order growth in the Ele.me and Amap businesses.

Cainiao Smart Logistics Network (10.1% of total revenues): Revenues were RMB 28.2 billion ($3.86 billion), down 1% from the year-ago quarter. This was due to the ongoing restructuring of its e-commerce businesses, taking on certain logistics platform roles. Cainiao will continue to focus on building its global smart logistics network and make its end-to-end logistics capabilities available to its own e-commerce businesses as well as third parties.

Cloud Intelligence Group (11.3% of total revenues): The segment generated revenues of RMB 31.7 billion ($4.34 billion), up 13% from the year-ago quarter. During the quarter, overall revenues, excluding Alibaba-consolidated subsidiaries, achieved double-digit year-over-year growth of 11%. This momentum was primarily driven by double-digit public cloud revenue growth, including the growing adoption of AI-related products.

During the third quarter of fiscal 2025, BABA open-sourced Qwen2.5-VL, BABA’s next-generation multi-modal model, and launched its flagship MoE-based model Qwen2.5-Max. Both models deliver globally leading results across recognized benchmarks and are available to users and enterprises through Qwen Chat and Bailian platform.

Since August 2023, the company has open-sourced various large models under the Qwen family. As of Jan. 31, 2025, more than 90,000 derivative models had been developed on Hugging Face based on the Qwen family of models, making it one of the largest AI model families worldwide.

Digital Media and Entertainment Group (1.9% of total revenues): Revenues were RMB 5.43 billion ($745 million), up 8% from the year-ago quarter’s figure.

All Others (19% of Total Revenues): The segment’s revenues were RMB 53.1 billion ($7.27 billion), up 13% from the year-ago quarter.

Operating Details

In the fiscal third quarter, sales and marketing expenses were RMB 42.6 billion ($5.84 billion), up 26.3% from the year-ago quarter. As a percentage of total revenues, the figure expanded 230 basis points (bps) to 15.2%.

General and administrative expenses were RMB 10.85 billion ($1.48 billion), down 3.6% from the year-ago quarter. As a percentage of total revenues, the figure contracted 50 bps year over year to 3.9%.

Product development expenses were RMB 14.66 billion ($2 billion), up 8.7% year over year. As a percentage of total revenues, the figure remained flat year over year.

Operating income was RMB 41.2 billion ($5.64 billion), up 83% year over year, primarily due to a decrease in impairment of intangible assets as well as an increase in adjusted EBITDA. The operating margin expanded 50 bps to 25.3%.

Adjusted EBITDA increased 4% from the year-ago quarter to RMB 62 billion ($8.5 billion).

Balance Sheet & Cash Flow

As of Dec. 31, 2024, cash and cash equivalents were $22.3 billion (RMB 162.78 billion), down from $26.076 billion (RMB 182.99 billion) as of Sept. 30, 2024.

Short-term investments totaled $32.46 billion (RMB 236.9 billion) at the end of the third quarter of fiscal 2025, up from $22.16 billion (RMB 155.5 billion) in the previous quarter.

Alibaba generated $9.71 billion (RMB 70.9 billion) in cash from operations, up from $4.48 billion (RMB 31.43 billion) in the previous quarter.

BABA’s free cash flow was $5.34 billion (RMB 39.02 billion).

Zacks Rank & Stocks to Consider

Alibaba currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Retail-Wholesale sector are Bath and Body Works BBWI, Beacon Roofing Supply BECN and Cars.com CARS, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bath and Body Works, Beacon Roofing Supply and Cars.com are scheduled to report their respective fourth-quarter 2024 results on Feb. 27.

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