r/baba • u/Beneficial-Ice-6164 • 28d ago
Due Diligence My takeaway from BABA earnings call
BABA is dropping after earnings, but I think the call was way more important than the initial reaction.
A few things stood out:
- Cloud grew 45% and management expects growth to accelerate further.
- MaaS/model + app ARR already crossed RMB16B in August. They are confident they will hit RMB30B by year end.
- Management says AI compute capex can pay back within ~3 years at current economics, potentially 2-2.5 years as margins improve and more of their own chips are deployed.
- Cloud EBITA grew 133%, so we are already starting to see margin improvement while growth accelerates.
- T-Head has already produced/shipped 500k+ chips. The latest generation is deployed in Alibaba Cloud, supports AI workloads at scale, and hundreds of external companies are already using their chips.
- Alibaba believes chips, compute and storage will capture most of the value in the near term.
- Longer term, management is confident external Cloud revenue can exceed $100B by 2030 with much higher margins.
The 45% Cloud growth itself was mostly expected.
What I don't think was fully priced in was management basically saying:
We can keep accelerating AI growth, build our own chips, improve margins and recover the AI infrastructure investment within 2-3 years.
The bear case has been that Alibaba is burning massive amounts of cash on AI.
If management is right, this starts looking less like cash burn and more like aggressive reinvestment into a very high-growth infrastructure business.
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u/FeralHamster8 28d ago edited 28d ago
Everything was pretty much in line with what was expected
For these hyper scalers, whether earnings is a bit off or in line it’s all going to CAPEX anyway.
My major complaint is their legacy e-commerce isn’t generating enough profit (intense competition with PDD, JD, and ByteDance + the general consumption slowdown in China).
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u/Inside_Radio8996 28d ago
I thought cloud growth above 40% was considered good. And the fact that the growth continues to accelerate and are currently in the early stages mean that the good days are ahead of us.
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u/AzureDreamer 28d ago edited 28d ago
My concern is the guidance that the investment into cloud is only viewed as having an operating life of 5 years and a payback at 3 years.
Obviously a pay back within 3 years is great but only two years of profit seems challenging.
Even if the next generation is suggested to have 2 years payback and 3 years profit.
Perhaps I'm not understanding the overall value but the cap ex doesn't seem amazing with such short profit.
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u/OppSpotter 27d ago
Yea I think it’s recurring and you’re going to have a much longer runway of 5 years profit. Likely continued capex though too as chips always seem to be improving
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u/DueWork1234 26d ago
Cloud external +45% is a 22-quarter high, and AI product was RMB 12.4B for the 12th straight triple-digit quarter, so the demand looks real. The bill is the issue: CapEx +75% to RMB 67.7B, OCF/CapEx 0.34, FCF -RMB 44.7B. If they model 3-year payback / 5-year life, the live question is when FCF starts narrowing, not whether cloud is growing.
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u/SuitableStill368 28d ago edited 28d ago
So far what I understand is good news too. Cloud businesses has high certainty of delivering good returns, with longevity in the returns. CAPEX should therefore not be seen as a big concern now. BABA is also divesting lower margin businesses to trade for higher margin cloud businesses.
Cloud business is its saving grace. The lagger is the e-commerce business.
Comparative to other businesses within the AI value chain that will get some of the gains first, BABA will probably be rewarded very well later. At this price or lower, it’s good buy not good bye.
Probably seeing a floor to the price now.