How BABA (Alibaba Group Holding) Makes Money in 2026: A Deep-Dive With Income Statement

Welcome to the Value Sense Blog, your resource for insights on the stock market! At Value Sense, we focus on intrinsic value tools and offer stock ideas with undervalued companies. Dive into our research products and learn more about our unique approach at valuesense.io

Explore diverse stock ideas covering technology, healthcare, and commodities sectors. Our insights are crafted to help investors spot opportunities in undervalued growth stocks, enhancing potential returns. Visit us to see evaluations and in-depth market research.

Understanding how a e-commerce and technology giant like Alibaba makes money is essential for investors and anyone interested in the business of digital commerce and cloud services. In this post, we break down Alibaba's quarterly income statement (Q3 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

* *

Quick Alibaba Overview

Alibaba operates as a leading global e-commerce, cloud computing, and digital services platform, connecting buyers and sellers through marketplaces like Taobao and Tmall, while expanding into logistics, entertainment, and international commerce. Revenue comes primarily from its core commerce platforms, including commissions, advertising, and merchant services, with additional contributions from cloud infrastructure and logistics networks. The company's business segments encompass China commerce, international commerce, cloud intelligence, Cainiao logistics, and local services, though detailed segment breakdowns for Q3 2025 aggregate most activity under broader "Other" revenue categories reflecting integrated operations.

Revenue Breakdown

• Total Revenue (Q3 2025): $34.6B (+4.8% YoY)
  • Other (Primary Commerce and Integrated Segments): $34.6B (100% of total)
  • Segments like Local Services Group, Cainiao Smart Logistics Network, Total Taobao and Tmall Group - China, and Digital Media and Entertainment Group: $0.0B each (0% of total)
  • Growth is powered by steady expansion in core e-commerce transactions, advertising monetization, and cloud services adoption amid competitive pressures in China's digital economy.

Gross Profit and Margins

• Gross Profit: $13.6B (39.2% gross margin)
  • Cost of Revenue: $21.1B (+4.7% YoY)
  • Alibaba maintains robust margins due to its scalable digital business model, high-volume transaction fees, and efficient supply chain logistics with low incremental costs for additional platform users.
• Most costs come from fulfillment services, transaction processing, server infrastructure for cloud operations, and content delivery in entertainment segments.

Operating Income and Expenses

• Operating Income: $0.75B (+-84.8% YoY, 2.2% margin)
• Operating Expenses: $12.8B (+60.1% YoY)
  • R&D: $2.39B (+20.5% YoY, 6.9% of revenue) — focused on AI enhancements, cloud computing innovations, and next-generation e-commerce technologies like personalized recommendations and logistics optimization.
  • SG&A: $10.38B (+74.9% YoY, 29.8% of revenue) — driven by marketing campaigns, administrative scaling for international expansion, and sales team investments in merchant acquisition.
  • Alibaba continues to prioritize innovation while expanding operations amid rising competitive investments in user growth and ecosystem development.

Net Income

• Pre-Tax Income: $3.66B (+-47.6% YoY, 10.6% margin)
• Income Tax: $0.78B (21.2% effective tax rate)
• Net Income: $2.94B (+-52.3% YoY, 8.5% net margin)
• Alibaba converts a significant portion of sales into profit due to scalability, strong pricing power in advertising, and non-operating income boosts like net interest earnings.

Most investors waste time on the wrong metrics. We've spent 10,000+ hours perfecting our value investing engine to find what actually matters.

Want to see what we'll uncover next - before everyone else does?

Find Hidden Gems First!

What Drives Alibaba's Money Machine?

• Core Commerce Platforms: 100%+ of revenue from integrated e-commerce, advertising, and transaction services via Taobao, Tmall, and international arms.
• Net Interest and Other Income: Added $2.46B in net interest and $0.45B in other income, providing a critical buffer that lifted pre-tax income despite operating pressures.
• Cloud and Logistics Investments: Heavy R&D spending supports Alibaba Cloud growth and Cainiao network enhancements for future dominance in digital infrastructure.
• International and Entertainment Expansion: Emerging areas like global commerce and digital media, though not yet profitable at scale, position Alibaba for diversified long-term revenue.

Visualizing Alibaba's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant investments in R&D and expansion, 8.5% of revenue drops to the bottom line.

Key Takeaways

• Alibaba's money comes overwhelmingly from core e-commerce and integrated commerce platforms
• High gross and net margins illustrate the power of Alibaba's asset-light digital platform model
• Heavy investment in R&D and SG&A, balanced by efficiency in cost of revenue control
• Ongoing growth is driven by e-commerce transaction volume, cloud adoption, and non-operating income

Explore More Investment Opportunities

For investors seeking undervalued companies with high fundamental quality, our analytics team provides curated stock lists:

📌 50 Undervalued Stocks (Best overall value plays for 2026)

📌 50 Undervalued Dividend Stocks (For income-focused investors)

📌 50 Undervalued Growth Stocks (High-growth potential with strong fundamentals)

🔍 Check out these stocks on the Value Sense platform for free!

FAQ About Alibaba's Income Statement

1. What is the main source of Alibaba's revenue in 2025?

Alibaba generates over 100% of its revenue from core commerce platforms and integrated "Other" segments including Taobao, Tmall, and related services. Additional streams like cloud and logistics contribute but are aggregated without separate breakout in Q3 2025.

2. How profitable is Alibaba in Q3 2025?

Alibaba reported net income of $2.94B in Q3 2025, with a net margin of approximately 8.5%, reflecting moderate profitability driven by gross margin strength and non-operating income despite elevated operating expenses.

3. What are the largest expense categories for Alibaba?

The biggest expenses on Alibaba's income statement are operating expenses, particularly Research & Development (R&D) and Sales, General & Administrative (SG&A) costs. R&D investment reached $2.39B in Q3 2025, as Alibaba prioritizes AI, cloud infrastructure, and e-commerce innovations.

4. Why does Cainiao Smart Logistics Network operate at a loss?

Cainiao, despite generating $0.0B in reported revenue for Q3 2025, is part of broader investments posting operating pressures. This is because Alibaba aggressively invests in logistics network expansion and smart delivery technologies, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does Alibaba's effective tax rate compare to previous years?

Alibaba's effective tax rate in Q3 2025 was 21.2%, consistent with previous years. This moderate rate is primarily due to international structuring, tax benefits from R&D credits, and share-based compensation deductions.