Alibaba says demand for cloud has dipped – which improved its profits

What? How?

Chinese tech giant Alibaba has reported tiny revenue growth, but a 106 percent surge in earnings for its cloud services, despite a marked slowdown in demand.

The two outcomes are linked: CEO Daniel Zhang yesterday told investors who tuned into a Q2 earnings call "The growth rate was negatively impacted by the normalization of CDN demand as usage of video streaming, remote working, and remote learning came down when offline activities resumed after pandemic measures were lifted."

But less traffic meant lower costs. Zhang said Alibaba's Teams-like collaboration tool DingTalk – which is part of Alibaba Cloud – reported "reduced co-location and bandwidth costs … as a result of normalized usage after the pandemic."

The Chinese cloud champ also improved server utilization rates, and Zhang was also pleased with an "enhanced product mix and efficiency improvement" and "proactive efforts to manage revenue from project-based cloud services."

Those factors left Alibaba Cloud with quarterly revenue of $3.465 billion – fairly meager four percent year over year growth. But EBIDTA for the cloudy business unit popped by 106 percent to $53 million thanks to those lower costs.

Zhang made much of Alibaba's many changes designed to make its cloud capable of handling AI workloads, and the decision to open source its own AI models to drive engagement and consumption. He predicted doing so will boost growth at Alibaba Cloud in coming quarters and years.

He'll have to be the one deliver on that vision, as Alibaba's plan to carve itself into six independent entities will see Zhang stay on as boss of Alibaba Cloud.

Interestingly, though, while Zhang said Alibaba's AI efforts are positioned to compete well with Chinese clouds, he didn't mention offshore rivals.

Alibaba’s overall performance was solid. Quarterly revenue of $32.3 billion was up 14 percent year over year, and net income of $4.7 billion represented a 51 percent jump.

Zhang admitted the behemoth faces "uncertainties in the pace of post-COVID recovery," but said Alibaba's e-commerce and logistics businesses are growing strongly outside China. ®

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