Alibaba and its cloud are growing like a weed, but the cloud is losing money

‘Fluid situation’ with USA not overly worrying CEO, who says company will comply with any new rules

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Alibaba has reported another rampaging quarter in which it recorded US$21.76bn revenue and net income of $5.59bn, a 34 percent and 28 percent jump respectively, but while its cloud unit also posted strong growth the company can’t yet say when it will turn a profit.

The scale of the company’s customer base remains mind-boggling, as it had 742 million shoppers use its platforms in the year to June 30th and 874 million monthly active users for the quarter. Subscribers to the company’s Youku video streaming business, which combines features of YouTube and Netflix, surged 60 percent year-on-year. Cloud computing revenue grew 59 percent year on year to reach $1,747bn. That growth, like the surge in other services revenue was attributed in part to behaviour changes brought on by the COVID-19 pandemic.

However analysts on the company’s earnings call were not kind to the cloud business, noting that CFO Maggie Wu said it continues to make losses and that while those are narrowing she declined to offer a timetable for the business to become profitable.

Executive vice-chair Joe Tsai pointed out that China’s total cloud market is currently $15bn to $20bn, or just an eighth of the US market. “So the China market is still at a very early stage,” Tsai told investors, adding “And we expect, based on what we've seen of our customers, as well as observing the whole market growth, the China market is going to be a much faster-growing market in cloud than the U.S. market.”

“So we feel very good, very comfortable to be in the China market and just being an environment of faster digitization and faster growth of usage of cloud from enterprises because we're growing from such a smaller base”.

CEO Daniel Zhang also weighed in, describing Alibaba’s cloud efforts as at their midway point.

“Today, Alibaba's cloud is cloud plus intelligence services,” he said. “And it's about cloud plus the power of the data usage. So that's why we work hard to develop industry-specific solutions with PaaS and PaaS services together with our SaaS partners, and we will continue to do that to enhance our market leadership.”

Zhang also addressed tensions between China and the USA, which he said represents “uncertainty” to rank alongside the COVID-19 pandemic.

“As the world's largest e-commerce platform, Alibaba's primary commercial focus in the U.S. is to support American brands, retailers, small businesses and farmers to sell to consumers and trade partners in China as well as the other key markets around the world,” he said.

“We believe global trade will continue, and Alibaba's active pursuit of our mission to make it easy to do business anywhere are fully aligned with the interest of both China and the United States. We are closely monitoring the latest shift in U.S. government policies towards Chinese companies, which is in very fluid situation. We are assessing the situation and any potential impact carefully and thoroughly and will take necessary actions to comply with any new regulations.” ®

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