Alibaba’s cloud services business emerges as bright spot for tech giant amid slower growth in core e-commerce operations
- Alibaba Cloud operates in a domestic market that is worth about US$158 billion annually
- This business unit currently offers cloud computing services in 25 regions around the world
Alibaba Group Holding’s cloud services business emerged as a bright spot in an otherwise sluggish December quarter for the Chinese e-commerce giant, which posted its slowest quarterly revenue growth since going public in 2014.
The Hangzhou-based firm’s Alibaba Cloud unit, which is China’s largest cloud infrastructure services provider, operates in a major domestic market that is worth about 1 trillion yuan (US$158.1 billion) annually, said Daniel Zhang Yong, Alibaba’s chairman and chief executive, in a conference call with analysts on Thursday.
In the three months ended December 31, Alibaba Cloud revenue totalled 19.54 billion yuan, up 20 per cent from a year earlier, on the back of robust demand from the financial services and telecommunications industries. This segment contributed 8 per cent to the group’s overall revenue of 242.58 billion yuan last quarter.
Alibaba Cloud recorded a 134 million yuan profit last quarter, recovering from a 221 million yuan loss a year earlier, according to Alibaba’s financial statements. Alibaba is the parent of the South China Morning Post.
Cloud computing services enable companies to buy, sell, lease or distribute a range of software and other digital resources as an on-demand service over the internet, just like electricity from a power grid. These resources are managed inside data centres.
Alibaba Cloud, which offers cloud computing services in 25 regions around the world, is relying less from major customers in the internet sector, as it pursues business in other industries.
The business unit has “a more diversified customer base”, Alibaba’s Zhang said. “If you look at the large customers who account for more than 2 per cent of [Alibaba Cloud’s] total revenue, they form a very small part [of its business].”
The recent gains made by Alibaba Cloud show that its efforts to engage users in other industries and expand overseas have been paying off, as competition at home and abroad intensifies. In June last year, Alibaba announced a US$1 billion investment to develop its cloud services in Southeast Asia.
The cloud business will continue to occupy a very important position in Alibaba’s ecosystem, according to Peng Lianqi, an analyst at research institute LeadLeo.
“Its development is related to whether Alibaba can be defined as a true internet company, instead of just an e-commerce and retail business,” Peng said. “Digitisation and cloud services are the battlegrounds for the future internet industry.”
Alibaba Cloud, however, faces plenty of challenges, from increased competition to volatile overseas markets.
A major social media client, which a Caixin magazine article reported as short video-sharing app operator TikTok, dropped Alibaba as a cloud services provider in May last year. The ByteDance-owned company signed up with Amazon Web Services and Oracle.
On the mainland, Alibaba Cloud continues to lead the market. It had a 38.3 per cent share of market spending in cloud infrastructure services on the mainland in the third quarter last year, according to data from research firm Canalys. Ranked behind it are the cloud units of Huawei Technologies Co and Tencent Holdings, with market shares of 17 per cent and 16.6 per cent, respectively.
Tensions between Beijing and Washington may also affect how fast and wide Alibaba Cloud can push overseas. The Biden administration is reviewing Alibaba’s cloud business in terms of how the company stores its US clients’ data and whether the Chinese government could gain access to such information, according to a Reuters report last month.
Overseas markets will play an important role in extending the reach of Alibaba’s cloud services, according to Du Yueshuang, an analyst at research firm Analysys International.
“Cloud computing products are highly standardised, which avoids the localisation problems that Chinese companies usually face when going overseas,” Du said. “These factors determine Alibaba Cloud’s continued investment in overseas operations.”
Author: Ann Cao, SCMP