Despite a miss on sales, Alibaba's premarket stock rises 3%.

• The net income of Alibaba increased by 58% year-on-year in the quarter ending September 30, due to the success of its equity investments.
• Despite an analyst forecast of 238.9 billion yuan, revenue came in at 236.5 billion yuan, 5% higher year-on-year but below the forecast.
• The current economic downturn presents a challenge for Chinese commerce businesses.

Despite beating profit expectations in its September quarter, Chinese e-commerce giant Alibaba reported lower sales due to the sluggish economy.

Alibaba reported a 58% increase in net income to 43.9 billion Chinese yuan ($6.07 billion) in the quarter ending Sept. 30, exceeding the LSEG forecast of 25.83 billion yuan.

The increase in our annual profit was mainly due to changes in mark-to-market from our equity investments, a decrease in impairment of our investments, and an increase in income from operations, as stated in our earnings statement.

Despite an analyst forecast of 238.9 billion yuan, revenue came in at 236.5 billion yuan, 5% higher year-on-year but below the forecast.

The company's New York-listed shares have experienced a 17% increase in value this year, with the stock trading 3% higher in premarket trading at 12:24 p.m. London time following the release of the quarterly earnings.

Sales sentiment

The revenue of Alibaba's main business units, Taobao and Tmall Group, increased by 1% annually to 98.99 billion yuan in the September quarter.

The tepid retail environment in China presents a challenge for Chinese commerce businesses, including JD.com, which missed revenue expectations on Thursday, according to Reuters.

The real estate market slump in China may be curbed by the recent stimulus measures announced by Beijing, including a five-year 1.4-trillion-yuan package, and markets are closely monitoring their effectiveness in resuscitating the country's growth.

Sales in the retail space have shown positive growth, with a better-than-expected increase of 4.8% year-on-year in October. Additionally, China's recent Singles' Day shopping holiday has regained some of its popularity, indicating a positive outlook for national consumer sentiment.

During the festival, Alibaba reported a significant increase in gross merchandise volume for its Taobao and Tmall Group businesses, as well as a record number of active buyers.

ING analysts stated on Thursday that Alibaba's outlook closely mirrors the trajectory of the Chinese economy and evolving regulatory policies. They noted that the company's Friday report would provide insight into the Chinese economy's growth momentum.

Meanwhile, the overseas online shopping businesses of the e-commerce giant, including Lazada and Aliexpress, experienced a 29% increase in sales to 31.67 billion yuan year-on-year.

Cloud business accelerates

In the September quarter, Alibaba's Cloud Intelligence Group experienced year-on-year sales growth of 7% to 27.65 billion yuan, compared to a 6% annual increase in the three-month period ending in June. This slight acceleration is due to the company's ongoing efforts to utilize its cloud infrastructure and establish itself as a leader in the rapidly expanding AI market.

Alibaba CEO Eddie Wu stated on Friday that the growth in the company's Cloud business accelerated from previous quarters, with revenues from public cloud products growing in double digits and AI-related product revenue delivering triple-digit growth. He expressed confidence in the company's core businesses and plans to continue investing in supporting long-term growth.

Beijing's 2022 crackdown on large internet and tech companies stymied Alibaba, prompting the company to restructure its division's leadership and position it as a future growth driver. In response, Alibaba has intensified competition with domestic rivals such as JD.com and Huawei, as well as with U.S. companies like Amazon and OpenAI.

Alibaba, which launched its ChatGPT-style product Tongyi Qianwen last year, unveiled an AI-powered search tool for small businesses in Europe and the Americas this week and secured a five-year partnership with Indonesian tech giant GoTo to provide cloud services in September.

At the Apsara conference in September, Alibaba's Wu announced that the company's cloud unit is investing heavily in AI technology research and global infrastructure development, stating that the future of AI is just beginning.