Alibaba’s (BABA) cloud computing business is on investors’ radar as the company gets set to report its results for the first quarter of fiscal 2020. It plans to release its fiscal 2020 first-quarter results on August 15. Its cloud revenue increased 76% YoY (year-over-year) to $1.2 billion in the fourth quarter of fiscal 2019. Its cloud computing business contributed 8.0% to its total revenue in the quarter.
When Alibaba reports its first-quarter results, investors will likely be looking to see if cloud’s contribution to its top line is rising. The cloud business contributed 5.8% of Alibaba’s total revenue in the first quarter of fiscal 2019. There are many reasons Alibaba’s cloud business is on investors’ radar as it reports its first-quarter results.
The first reason is that Alibaba is allocating a lot of resources to its cloud business. For example, the company recently tripled its cloud computing capacity in India to be able to serve customers there better. Europe is another region in which Alibaba has been expanding its cloud capacity. Last year, the company opened two cloud availability zones in Britain in addition to its cloud facility in Germany.
Cloud market presents a huge revenue opportunity
The second reason is that there’s a massive revenue opportunity in the cloud market. Gartner estimates show that the global public cloud market generated $182.4 billion in revenue in 2018. By 2022, the global public cloud market is expected to be worth over $330 billion. Alibaba is one of the top contenders for cloud dollars.
In its reports, Synergy Research has consistently ranked Alibaba among the top five cloud vendors in the world. Amazon (AMZN) currently leads the pack with a 33% share of the global cloud market as of the end of June. Microsoft comes in second with a 16% share, and Google (GOOGL) comes in third with an 8% share. IBM and Alibaba rank fourth and fifth with market shares of around 7% and 6%, respectively.
Alibaba is keen to diversify outside commerce
The third reason Alibaba’s cloud business is on the radar has to do with its efforts to diversify. Currently, the commerce business accounts for the vast majority of Alibaba’s revenue. In the fourth quarter of fiscal 2019, commerce contributed 85% of Alibaba’s total revenue. However, as competition in the e-commerce industry escalates, growth there is slowing. Consequently, there’s pressure on Alibaba to open new revenue sources, which is why the company has ventured into cloud computing.
However, Alibaba’s business diversification push goes beyond the cloud. Alibaba is also into the digital media business. Through its digital media unit, Alibaba has landed contracts to supply Netflix with content for its video service.
Additionally, Alibaba is into the hardware business. It’s one of the leading makers of smart speaker devices, according to Strategy Analytics. The market for smart speakers was worth $4.4 billion in 2017, and it’s on track to top $23.3 billion by 2025. Alibaba shipped 3.7 million smart speakers in the first quarter of 2019 and captured a 14.1% share of the global smart speaker market. Amazon currently leads the smart speaker market with a 21.7% share. Google ranks second with an 18% market share, and Baidu ranks third with a 15.8% market share.