Amazon and Alibaba: Comparing Their Cloud Businesses

On September 10, CNBC reported that Alibaba (BABA) was focusing on cloud computing as its next big opportunity. According to Daniel Ives, the managing director of equity research at Wedbush Securities, Alibaba is currently targeting a $100 billion cloud computing opportunity in China.

According to Gartner, the global public cloud services market will grow 17.5% YoY (year-over-year) to $214.3 billion in 2019. Gartner expects the global IaaS (infrastructure-as-a-service) public cloud services market to grow 27.5% YoY to $38.9 billion in 2019. The research agency expects the global public cloud services market to be worth $331.2 billion in 2022. The global IaaS public cloud services market is expected to be worth $76.6 billion in 2022. Both Amazon (AMZN) and Alibaba mainly focus on leveraging the growth opportunity in the IaaS public cloud space.

Key players in the global public cloud services market

According to Gartner, Alibaba ranked third in terms of its share of the global IaaS public cloud services market in 2018. The company reported cloud business revenue of $2.50 billion, accounting for a 7.7% share of the market. On the other hand, Amazon was the leader in this market in 2018. The company reported cloud business revenue of $15.49 billion and accounted for 47.8% of the total public cloud services market.

Amazon’s market share and revenue from its cloud business are significantly higher than Alibaba’s. However, Amazon and Alibaba reported YoY cloud revenue growth of 26.8% and 92.6%, respectively, in 2018. Gartner expects Alibaba to be able to continue this high growth rate due to its robust financial capability.

Amazon AWS versus Alibaba cloud in 2019

Amazon AWS (Amazon Web Services) reported net sales of $8.38 billion in the second quarter, a YoY rise of 37.28%. The business also reported net sales of $16.08 billion in the first half of 2019, a YoY rise of 39.22%. Its second-quarter AWS revenue, however, fell short of FactSet’s consensus revenue estimate of $8.5 billion.

Amazon AWS reported operating income of $2.12 billion in the second quarter, a YoY rise of 29%. The business also reported operating income of $4.34 billion in the first half of 2019, a YoY rise of 42.72%. Amazon AWS reported operating margins of 25.30% and 26.99%, respectively, in the second quarter and the first half of 2019. Amazon AWS accounted for 13% of the company’s revenue but 52% of its operating income in the second quarter. To learn more about analysts’ response to Amazon’s second-quarter results, read Do Analysts Like Amazon Stock after Q2 Results?

Alibaba Cloud reported revenue of 7.79 billion Chinese yuan (or $1.13 billion), a YoY rise of around 66% in the second quarter. The business accounted for 7% of the company’s total revenue. The cloud computing business, however, is still a loss-making segment for the company. Alibaba Cloud reported losses worth 1.51 billion yuan (or $220 million) in the second quarter. This trend, however, could change, as the company is focusing more on improving its revenue mix.