Alibaba (BABA 1.90%) shares sank after the company reported its fiscal third-quarter results (ending Dec. 31, 2025), as rising expenses ate into profitability and results fell shy of expectations. The company has been investing heavily in both AI infrastructure and quick commerce. The stock is down nearly 15% on the year, as of this writing.
Let's take a close look at its results and prospects to see if the stock is a rebound candidate.
NYSE: BABA
Key Data Points
Improved revenue growth, but heavy spending weighs on profits
Alibaba's cloud computing business continues to see strong revenue growth, fueled by demand for artificial intelligence (AI) products. Its cloud intelligence revenue jumped by 36% to $6.1 billion. AI product revenue more than doubled for the 10th straight quarter. The segment's adjusted EBITA (earnings before interest, taxes, and amortization), meanwhile, climbed by 25% to $559 million.
The company projected that it could reach $100 billion in AI revenue over the next five years. Before its report, the company said it would raise prices on some of its AI services by as much as 34%.
Alibaba's largest business remains its e-commerce operations, led by Tmall, which serves established brands, and Taobao, which allows both brands and individuals to sell on its platform. The company has worked hard to turn this business around, but the results were mixed in the quarter. E-commerce revenue rose by 6% to $22.8 billion. The growth was fueled by a 56% jump in quick-commerce revenue to $3 billion.
The company's important third-party business revenue, meanwhile, only edged up 1% to $14.7 billion, hurt by the phase-out of its software service fee implementation. Direct sales were flat at $4.1 billion, and wholesale sales rose 5% to $990 million. However, its investment in quick commerce led to a 43% decline in segment EBITA to $4.9 billion.
Overall, Alibaba's revenue rose by 2% to $40.7 billion, or 9% when excluding dispositions. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) plunged 45% to $4.9 billion, while its adjusted earnings per American depositary share (ADS) sank 67% to $1.01.
Image source: The Motley Fool.
Can Alibaba stock rebound?
Alibaba is seeing strong growth in its cloud computing unit, and the company still has a big opportunity ahead as AI demand grows. However, unlike its U.S. counterpart Amazon, whose cloud unit is its most profitable segment, Alibaba's business is still much more reliant on e-commerce. This segment is just a much bigger piece of the pie, and it has struggled in the face of a very competitive market in China. It's seeing nice revenue growth in quick commerce, but it is coming at a price.
As such, I'd remain on the sidelines for now.
