Alibaba Group Holding Ltd. reported a significant 86% decline in net profit for its fiscal fourth quarter, sending its shares down by 5% in premarket trading on Tuesday. The Chinese e-commerce giant attributed the steep profit drop to valuation changes in its equity investments. Despite the profit downturn, Alibaba managed to surpass revenue expectations, reporting 221.87 billion yuan ($30.7 billion) against the forecasted 219.66 billion yuan, according to data from LSEG.

The March-quarter net income came in at 3.3 billion yuan ($452 million), a sharp decline from 23.52 billion yuan a year earlier. Alibaba explained that the decrease was primarily due to a net loss from investments in publicly traded companies during the quarter, contrasting with a net gain in the same period last year.

Alibaba has had a tumultuous year marked by a major corporate restructure and several high-profile management changes. In September, company veteran Eddie Wu took over as chief executive, signaling a new direction for the company. Earlier this year, Alibaba expanded its share buyback program by $25 billion through March 2027 to demonstrate confidence to shareholders.

Despite the challenges, Alibaba saw signs of recovery in its core e-commerce business in China. Revenue for its Taobao and Tmall division, which handles its domestic e-commerce operations, rose 4% year-over-year to 93.2 billion yuan. This growth rate outpaced the 2% increase seen in the previous quarter. Customer management revenue, which includes sales from marketing services provided to merchants on Taobao and Tmall, grew by 5% year-over-year after remaining flat in the previous quarter.

Internationally, Alibaba's commerce business demonstrated robust growth, with revenue soaring by 45% year-over-year to 27.4 billion yuan. This exceeded analyst expectations of a 39% increase. However, the international division's losses nearly doubled to 4.1 billion yuan ($567 million) from 2.2 billion yuan a year ago, reflecting heavy investments to stay competitive and improve delivery times.

Alibaba's cloud computing division, a critical area of focus, showed modest growth with revenue reaching 25.6 billion yuan, a 3% increase year-over-year. This matches the growth rate from the previous quarter, indicating ongoing challenges in the cloud sector. Alibaba announced plans to spin off its cloud unit but abandoned the initial public offering (IPO) plans last year. The company is now focusing on reducing low-margin project-based contracts in its cloud division while boosting AI-related products and public cloud services.

During the March quarter, AI-related revenue exhibited triple-digit growth year-over-year, driven by demand from foundational model companies, internet firms, and industries such as financial services and automotive. Alibaba's commitment to AI is seen as a strategic move to offset the impact of reduced project-based revenues in its cloud division.

In addition to its financial results, Alibaba announced a plan to upgrade its secondary listing in Hong Kong to a primary listing, retaining its primary listing in New York. This dual-primary listing, expected to be completed by August, aims to provide Chinese investors with greater access to Alibaba shares.

"The profit drop casts a long shadow on the earnings. However, this quarter's results demonstrate that our strategies are working and we are returning to growth," CEO Eddie Wu stated in the earnings release. Wu has vowed to "reignite" growth in Alibaba's e-commerce operations with further investments, with early signs of this strategy taking hold in the March quarter.