Alibaba Group Holding Ltd (NYSE: BABA) (SEHK: 9988) saw its shares soar 6.2% in New York trading with investors liking what they saw at the company’s Investor Day event.
Tim’s Take:
Alibaba isn’t any stranger to the big leagues. The “A” of the traditional Chinese tech triumvirate of BAT (remember Baidu?), the company can also be viewed as a “middle-aged” giant on China’s tech scene.
That hasn’t stopped it from innovating, though. Its latest Investor Day proved how fast-moving and big picture Alibaba remains despite Jack Ma’s departure, and now under the stewardship of CEO Daniel Zhang.
There were lots of initiatives announced at its latest Investor Day event – from monetising original content initiatives to building out its Southeast Asian e-commerce strategy and digitising its logistics capabilities.
However, what really caught my eye has what’s always been the big advantage Alibaba possesses over other China tech plays; the cloud.
The company’s commanding lead in the cloud in China has been established. The company had a 42.4% market share in China in 2019 for Public Cloud Service – which includes Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS).
Massive cloud growth in Asia
In Asia Pacific, for 2019 the company had 28.2% market share in Public Cloud IaaS, up from 26.1% the year before.
The growth of its cloud unit, AliCloud, is astounding. It notched up 59% year-on-year revenue growth in its latest quarter. Yet, even with that, AliCloud’s revenue of RMB 12.3 billion (US$1.81 billion) makes up just 8% of the group’s overall revenue.
The shift to the cloud in China is just starting and as the world’s second-largest economy, China remains a way behind the US in terms of investment (see chart below).
That is bound to change over the coming years and Alibaba is going to play a huge role in that transition.
Source: Alibaba’s Investor Day presentation
Alibaba is a master of building sticky ecosystems and the fact that 60% of A-share listed companies in China are already AliCloud customers is proof of that.
Add in its expansion into cloud services in Southeast Asia and the company is set to continue growing its cloud presence in a region that is fast digitising.
Often seen as the “Amazon of China”, Alibaba does have the e-commerce/cloud combination in common with its American counterpart.
But for me, Alibaba’s cloud growth journey is just beginning. Investors who are in it for the long haul should view this Chinese giant as one of the key beneficiaries of the structural shift to the cloud.
Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares of any companies mentioned.
