Alibaba's cloud progress outperforms Amazon and Microsoft because the Chinese language tech large pushes for profitability
The headquarters of Alibaba Group Holdings Ltd. will be lit at night before the annual Singles' Day online shopping event on November 11th in Hangzhou, China on Sunday November 10th, 2019.
Qilai Shen | Bloomberg | Getty Images
GUANGZHOU, China – Alibaba's cloud business outpaced Amazon and Microsoft in the quarter ended September, and the Chinese tech giant reiterated its commitment to making the unit profitable by next March.
Alibaba reported that cloud computing had sales of 14.89 billion yuan ($ 2.24 billion) in the three months ended September 30. This represents a year-over-year increase of 60% and the fastest growth rate since the December quarter of 2019.
That was faster than Amazon Web Service's 29% year-over-year revenue growth and Microsoft Azure's 48% growth in the September quarter.
It's important to note that Alibaba's cloud computing business is significantly smaller than these two leaders.
We believe cloud computing is a fundamental infrastructure for the digital age, but it is still at an early stage of growth.
For comparison: Amazon Web Services had sales of $ 11.6 billion, while Microsoft's sales of intelligent clouds, which include other products in addition to Azure, were $ 13 billion in September.
Alibaba is the fourth largest public cloud computing provider in the world, according to the Synergy Research Group.
Daniel Zhang, CEO of Alibaba, said the public sector and financial services have contributed the highest growth to the company's cloud business.
"We believe cloud computing is a fundamental infrastructure for the digital age, but it is still in the early stages of growth. We are determined to continue increasing our investment in cloud computing," said Zhang in the call for results.
In September, Maggie Wu, Alibaba's chief financial officer, said the company's cloud computing business is expected to be profitable for the first time this fiscal year. Alibaba's fiscal year began in April 2020 and ends on March 31, 2021.
Alibaba's cloud computing business loss was 3.79 billion yuan in the September quarter, well above its 1.92 billion yuan loss for the same period last year. However, Wu pointed out earnings before interest, taxes, depreciation and amortization (EBITA), another measure of profitability.
The EBITA loss decreased to 156 million yuan from 521 million yuan in the same period last year. The EBITA margin was minus 1%.
Based on this, Wu said on the call for profits that Alibaba management "definitely expects profitability in the next two quarters."
"As I mentioned on Investor Day, we see no reason why Alibaba Cloud Computing cannot achieve the margin level that we see in other comparable companies in the long term. Before that, we will continue to focus on expanding our market leadership in cloud computing and increasing our profits ", she said.