Alibaba Cloud Achieves Profitability

Alibaba Cloud, the cloud computing division of the prominent Chinese e-commerce company Alibaba, reported its first profitable quarter during the period ending in December. This information was disclosed within the company’s latest earnings report.

Positive Adjusted EBITA

The cloud unit attained positive adjusted EBITA – earnings before interest, taxes, and amortization – having operated since 2009. This achievement is largely attributable to the benefits of “realization of economies of scale,” as stated by Alibaba.

Market Position and Growth

Alibaba Cloud provides a comprehensive suite of services, encompassing databases, storage solutions, big data analytics, security protocols, machine learning capabilities, and IoT services. For several years, it has been the leading provider of cloud infrastructure within China, and its global market share is consistently expanding.

According to Gartner data from 2019, the company held the position of the third-largest public cloud provider (infrastructure-as-a-service) globally, capturing 9% of the market. It trailed only Amazon and Microsoft in market share.

Impact of COVID-19

The global pandemic spurred increased adoption of cloud technologies and digital solutions as activities shifted online. Alibaba observed sustained demand for digitalization within the restaurant and service sectors in China following the peak of COVID-19. This trend positively impacted its food delivery and on-demand services application, Ele.me.

Revenue generated by the cloud division reached $2.47 billion in the December quarter, primarily fueled by “robust growth in revenue from customers in the internet and retail industries and the public sector.”

Revenue Contribution

While commerce remains Alibaba’s primary revenue source, contributing approximately 70% of total revenue, the cloud segment accounted for 7% during the quarter.

Competition in the Chinese Market

Tencent’s cloud division represents Alibaba Cloud’s most significant competitor. Gartner’s 2019 data indicated a 2.8% global market share for Tencent. However, Alibaba executive vice-chairman Joe Tsai highlighted substantial growth potential within the Chinese cloud market during an analyst call last August.

“Third-party studies suggest the China cloud market is valued between $15 billion and $20 billion, while the U.S. market is roughly eight times larger,” Tsai explained. “Therefore, the China market is still in a nascent stage of development.”

Tsai further stated, “We are confident in our position within the China market, benefiting from a faster pace of digitization and increased cloud adoption by enterprises. Our growth originates from a considerably smaller base – approximately one-eighth the size of the U.S. market.”

Strategic Integration with DingTalk

A key growth strategy for Alibaba Cloud involves integrating its services with DingTalk, Alibaba’s enterprise chat application. The company anticipates this integration will encourage broader adoption of cloud services across various industries. This approach mirrors the relationship between Microsoft 365 and Azure, as previously noted by Alibaba Cloud president Zhang Jianfeng.

Cloud Plus Intelligence

“Our objective extends beyond simply providing cloud infrastructure services,” stated Alibaba CEO Daniel Zhang during the August earnings call. “Focusing solely on infrastructure and SaaS offerings inevitably leads to price competition, transforming cloud services into a commodity business. Alibaba’s cloud distinguishes itself by combining cloud technology with intelligence services and leveraging the power of data utilization.”