Alibaba Group Holding expects its cloud computing services business to become profitable before the company’s current financial year ends in March 2021, driven by demand from China’s fast-growing digital economy and strategic overseas expansion.
Hangzhou-based Alibaba Cloud – ranked by Gartner as the world’s third-biggest infrastructure-as-a-service provider in 2019, behind Amazon Web Services and Microsoft Corp’s Azure – is expected to turn a profit by the end of March next year, according to Alibaba chief financial officer Maggie Wu Wei, who spoke at the e-commerce giant’s webinar for investors on Wednesday.
Wu also said Cainiao Network, the smart logistics business of Alibaba, will generate positive operating cash flow in the same period. Alibaba is the parent company of the South China Morning Post.
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Established in 2009, Alibaba Cloud has already become China’s biggest cloud computing services provider as well as the company’s second-largest revenue contributor behind its core e-commerce operations. Alibaba’s cloud services revenue reached 12.3 billion yuan (US$1.7 billion) in the quarter ended June, up 59 per cent from a year ago, on the back of more than three million paying customers.
“We are redefining cloud computing to integrate data with commerce and business use cases, so as to create real value for the real economy and industry verticals,” said Daniel Zhang Yong, Alibaba’s chairman and chief executive, in a separate webinar for investors on Wednesday.
Zhang indicated that Alibaba and other service providers remain in the nascent stage of the global cloud era. “We believe this is an industry-wide opportunity across all sectors,” he said. “It’s the kind of opportunity that comes only once in a generation.”
Cloud computing enables 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, each of which typically runs tens of thousands of servers.
China experienced an accelerated adoption of cloud services in the second quarter on the back of increased demand for online collaboration and remote working tools, e-commerce, remote learning and content streaming, as the country emerged from Covid-19 lockdown.
The country also maintained its position as the world’s second-largest cloud services market, behind the United States, amid record spending of US$4.3 billion in the second quarter, fuelled by that online services growth and government stimulus measures, according to a report by research firm Canalys.
“In the midst of so many uncertainties, the future of digitalisation is the biggest certainty we can see,” Zhang said. “Digitalisation is the biggest opportunity of our time.”
That potential has put Alibaba Cloud on a fast track to international expansion even as its home market pushes forward a post-Covid-19 economic recovery. China is forecast to record 2 per cent economic growth this year.
Alibaba Cloud said it operates 64 availability zones that cover its more than three million customers located in more than 200 countries and territories. It is also working with about 10,000 global partners to serve more than 350,000 business customers worldwide.
While about 60 per cent of public companies listed on China’s A-share stock market is already Alibaba Cloud customers, its data centre revenue in Southeast Asia grew 200 per cent in the previous financial year, according to the company. Still, Alibaba Cloud is also facing formidable domestic competition, which include the cloud services units of Huawei Technologies and Tencent Holdings.
“No matter how the geopolitical landscape changes and how international relations evolve, we believe that global consumers are living in one digital world,” Zhang said. “The global supply chain is deeply integrated. Collaboration is the only way to drive higher efficiency and stronger synergy.”
Wu, meanwhile, indicated that the overall value of Alibaba in the market continues to reflect its main domestic e-commerce operations, led by Taobao Marketplace and Tmall, but not the other businesses under them, which include Cainiao, Tmall Global and Lazada Group.
She said investors have also assigned “very little value” to Alibaba’s cloud business or its stake in Ant Group, which is preparing for a blockbuster dual public listing in Hong Kong and Shanghai.
“Since many of you want to invest in Ant and you’re looking for allocation, you know the valuation,” Wu said. “The market will soon (be able to) tell its valuation.”
Additional reporting by Alison Tudor-Ackroyd.
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