uploads/2017/05/2.jpg

How Is Alibaba Doing in the Cloud?

By

Updated

A $20 billion economy

Alibaba Group Holding (BABA) is a leading cloud computing provider in China (FXI) (MCHI), controlling an estimated 40.0% share of the market. China’s cloud computing market is projected to explode in the next few years. According to a report by the International Trade Administration, China’s cloud computing market will be worth ~$20.0 billion by 2020. Since the market was estimated at just $1.5 billion in 2013, that’s an average annual growth rate of 40.0%.

Article continues below advertisement

Alibaba will report its fiscal 4Q17 results on May 18, 2017. Investors have their eyes fixed on new and potentially lucrative businesses such as cloud computing. So how did Alibaba’s cloud unit fare in the quarter? Is revenue accelerating or slowing down? Those are some of the questions Alibaba is expected to answer in its upcoming report.

Alibaba’s cloud revenue and customer metric

In the previous quarter, fiscal 3Q17, Alibaba Cloud (or AliCloud) reported revenue of 1.8 billion yuan ($254.0 million), implying a rise of 115.0% from the previous year. Paying cloud customers also rose to 765,000 from 651,000 in the prior quarter. In fiscal 4Q16, cloud revenue was 1.1 billion yuan ($165.0 million), and year-over-year growth was 175.0%.

Potentially lucrative industry

Alibaba’s cloud business is younger than Amazon’s (AMZN), the worldwide industry leader. While that may seem like a disadvantage, Alibaba has the advantage of learning from the leader and avoiding pitfalls that could slow down its progress in the cloud.

Alibaba’s 40.0% share of the Chinese cloud computing market also means it has a head start in one of the most promising cloud markets. The complex regulatory framework in China means it will be difficult for foreign rivals such as Amazon, Microsoft (MSFT), and Alphabet’s (GOOGL) Google to overtake Alibaba in its domestic market.

But the upcoming report will be a test of how resilient AliCloud can be against domestic and international competition.

Advertisement

More From Market Realist