00:00Well, Alibaba's US-listed share swung from losses to a narrow gain after it reported a first-quarter profit plunge
00:06of more than 75%.
00:07The Chinese tech giant also increased capital spending to almost $10 billion, aiming to safeguard its position in a fiercely
00:13competitive global AI arena.
00:16Let's bring our China correspondent, Min Lo, in Hong Kong with the latest.
00:19So how are we seeing Baba faring in this broad environment?
00:24Yes, well, its revenue was up about 9% or so, but the concerning thing for investors is a net
00:30income which plunged, as you said, 75%.
00:33This is on the back of very strong investment into AI, which this quarter hit close to $10 billion.
00:40Now, you consider that $10 billion in a quarter, that's an annualized rate of about $40 billion of spending.
00:47And this tracks far above the company's guidance earlier.
00:51They initially said they were spending over $50 billion in three years when it comes to CapEx.
00:56So they are spending a lot more than that.
00:58And the CEO, Eddie Wu, has blamed this on memory costs because the cost of setting up a server has
01:04now doubled because of that, he said.
01:06So when you look at its earnings breakdown, you take a look at that free cash outflow increased by 100
01:12over percent compared to the previous year.
01:15So that is a negative cash outflow, mind you.
01:17So overall, if you break down its business segments, cloud has been showing a lot of potential with its revenue
01:26accelerating to a 45% growth.
01:28Its margins also increased to over 11%, and that is above industry average.
01:34But then you look at its AI models, that only saw a 16% or so increase.
01:40And the losses there are widening, which shows you that the cost of inference and training these models is still
01:47very, very expensive.
01:48And the path to monetization is still very concerning.
01:54Min Min, the price action on Barber's ADRs in the U.S. were interesting.
01:58Started off with some heavy losses, ended the day in the green.
02:02To what degree is there a bit of a narrative tug of war going on at the moment?
02:08Yes, it's interesting because at the start, we saw as much as 4.7% losses in the pre-market
02:14trading.
02:15But then as the earnings call went on, we started to see a bit of stabilization, and it ended in
02:19the green.
02:20And perhaps this is related to what the CEO, Eddie Wu, has been saying and the reassurance to investors that
02:25their return on investment is doing quite okay.
02:29Because he said that AI revenue for the quarter, or annualized AI revenue, could hit $10 billion.
02:36And they are expecting to recoup their investments within these three years, and they're confident about their spending.
02:43So perhaps that maybe is a little bit reassuring to investors.
02:47But of course, remember that Alibaba's key business is not the AI and cloud business.
02:52It's e-commerce.
02:53That is still more than 50% of its revenue.
02:56And even there, we saw e-commerce revenue missing estimates slightly, slowing down from the previous year.
03:02And this is reflective of the broader environment, right?
03:05If you look at the monthly retail sales data, it's been pretty flat over the last few months.
03:09But Alibaba has really been emphasizing, at least in its earnings call, it was all about their ambition to build
03:17up to this full-stack AI service provider.
03:20And I think if you look at the results so far, in terms of the Quen model, for example, they
03:24are the most downloaded open-source models globally.
03:28So perhaps investors still believe that Alibaba is one of the best positioned in China to capture those AI gains.
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