Alibaba’s Cloud business ambitions taking shape
If there was one thing that stood out from Alibaba Group Holding Ltd’s quarterly earnings report, it was a tripling of revenue from its fledgling cloud business. Analysts have highlighted sales from its cloud division, known as Aliyun, which soared 175 per cent in the March quarter to more than 1 billion yuan ($154 million). Alibaba now has more than half a million paying customers for its services and Chief Financial Officer Maggie Wu said it’s “getting very close to the break-even point” as it tries to build a challenger to Amazon.com Inc.
Like Amazon, Alibaba’s cloud service emerged from the enormous computational power needed to handle millions of online shopping transactions. But unlike its US counterpart, it enjoys home-field advantage in a vast Chinese market where Internet-based computing is still novel to many enterprises. Its push into cloud, where software and services are provided to customers via server farms the size of football fields, prompted a second data centre in Silicon Valley in October and preparation for its first in Europe.
“Many investors currently opportunity, and we believe Alibaba is well-positioned to be the cloud computing leader in China due to preferential government policy, regional focus, domain expertise,” Colin Sebastian, an analyst at Robert W Baird & Co, wrote on Friday, adding that it could become the Amazon Web Services of China.
Alibaba is taking a page from Amazon, which developed internally and gradually expanded into a commercial enterprise that’s now the US company’s fastest-growing and most profitable division. Along the way, Alibaba forged partnerships with industry giants like Intel Corp and Nvidia Corp. In July, the division’s president proclaimed it could match or even surpass Amazon within three to four years. An Amazon spokeswoman didn’t respond to an e-mailed request for comment.
To be sure, Alibaba has only recently begun to make inroads beyond China and into a global market dominated by Amazon and Microsoft Corp. Cloud computing has matured in the US and Europe, where margins have come under pressure in the face of heated competition.
For now, it’s the growth potential that’s impressing analysts. Even though Alibaba posted a better-than-expected 39 per cent revenue rise in the March quarter, its e-commerce operation remains tied to a decelerating Chinese economy and hasn’t made great strides overseas. Investments into new areas such as on-demand services aren’t expected to contribute much to the bottom line for now.
RJ Hottovy, an analyst at Morningstar Inc, called Alibaba’s cloud unit a “notable standout” and wrote in a note that he plans to increase his fair value estimate for the stock based in part on a better long-term outlook for the business. undervalue Aliyun’s long-term market