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Assessing Alibaba’s Cloud Computing Opportunity

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Sep. 1 2017, Updated 9:07 a.m. ET

Alibaba prioritizes market expansion

In Alibaba’s (BABA) fiscal 1Q18[1. fiscal 1Q18 ended June 2017] earnings, you can see that its Cloud Computing business only supplied 5.0% of the company’s total revenues. Despite the tiny contribution to the company’s top line, its Cloud Computing revenues grew 96% year-over-year, making it one of Alibaba’s fastest-growing businesses.

Alibaba identified the top priority in its Cloud Computing business as market expansion. The company is adding more cloud capacity and rolling out new cloud products and services to support the market share expansion that it seeks.

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Alibaba needs to grow its cloud market share

According to estimates by Synergy Research Group, Alibaba is subdued by Amazon (AMZN), Microsoft (MSFT), Alphabet’s (GOOGL) Google, and IBM (IBM) in terms of worldwide cloud computing market share. The chart above shows the rankings of various cloud providers by market share.

A $383 billion cloud prize

In the cloud computing industry, Alibaba has thrown its hat in the ring for a multi-billion-dollar prize. According to Gartner, the worldwide public cloud services market could grow 18% to reach $246.8 billion in 2017 before expanding to $383.4 billion by 2020. The market was worth ~$209.2 billion in 2016.

Cloud computing has the potential to transform Alibaba’s financial profile if the company can succeed in this sector. Alibaba’s overall revenues in fiscal 2017[2. fiscal 2017 ended March 2017] totaled $23 billion, up 56%. Cloud revenues for that year reached $968 million, up 121%, and represented about 4.2% of the company’s total revenues.

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