* Alibaba's ( BABA ) revenue, net income miss analysts' estimates

* Cloud revenue grows 36%, AI business to separate from

cloud arm

* Alibaba's ( BABA ) shares drop nearly 4% in premarket trading

* Singles' Day promotions fail to boost consumer

enthusiasm

(Adds cloud revenue, AI initiatives, executive's comment;

paragraphs 3-6,7)

By Akash Sriram and Casey Hall

March 19 (Reuters) - Alibaba ( BABA ) reported

on Thursday a 1.7% rise in third-quarter revenue, while net

income fell 66.3%, both missing analysts' estimates, as heavy

spending on one-hour delivery and promotions during peak

shopping periods failed to spur demand.

U.S.-listed shares of Alibaba,China's largest e-commerce

company, fell nearly 4% in premarket trading after it booked

revenue of 284.84 billion yuan ($41.28 billion) for the three

months through December, versus LSEG estimates of a 3.7% rise.

Cloud revenue outpaced expectations with growth of 36%,

during which Alibaba ( BABA ) rolled out numerous AI agent integrations

for the consumer-facing side of its business, and scaled

investments.

This week, the firm said it would separate its AI businesses

from ‌its cloud computing arm.

The newly formed Alibaba Token Hub business group, led by Chief

Executive Eddie Wu, is the company's clearest sign yet that it

is shifting its focus to digital assistants powered by AI models

that consume far more tokens, or data units models use to

generate language, than traditional Q&A chatbots.

"We are well-positioned to drive growth on both enterprise AI

and consumer AI fronts, powered by our full-stack AI

capabilities," Wu said in a statement accompanying the earnings

release.

Such capabilities span foundation models, cloud infrastructure,

and proprietary chips, alongside deep integration with the

company's broader ecosystem, Wu added.

A prolonged property crisis, coupled with concerns about income

stability, continued to weigh on consumer sentiment, limiting

spending even during traditional periods of high expenditure.

Singles' Day sales in November extended to more than a month

of promotions but drew muted response.

Retailers ramped up discounts and subsidies to encourage

spending, but cautious consumers and year-round deals diluted

the event's traditional sales surge.

Retailers, such as Alibaba ( BABA ) and JD.com ( JD ), stepped up

competition during the quarter, spending heavily on discounts

and faster delivery to capture market share from food-delivery

leader Meituan ( MPNGF ), pressuring profit margins.

Alibaba ( BABA ) has said its focus in upcoming quarters will be to

improve unit economics for its Taobao Quick Commerce division.

($1=6.9003 Chinese yuan renminbi)