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Alibaba is expecting its cloud business to yield profit in the current fiscal year. The company is now reworking the cloud arm for growth.
Alibaba Group Holding Ltd (NYSE: BABA) expects its cloud business to yield profit in a few months. Specifically, the company expects profit for the first time in the current fiscal year, which began in April.
On the 30th of September, Alibaba chief financial officer Maggie Wu Wei revealed expectations for profits in the company’s cloud business. While speaking at the company’s webinar for investors, Wu said the gain should come in before the end of the current fiscal year in March 2021.
Alibaba Expects Profit in Cloud Business
In addition, the chief financial officer said that Alibaba’s logistics company, Cainiao Smart Logistics Network Limited, would equally pull in profit.
“We are redefining cloud computing to integrate data with commerce and business use cases, so as to create real value for the real economy and industry verticals.”
The CEO of the Chinese technology company Daniel Zhang also commented on Alibaba’s growth in the cloud space. Along with Alibaba, Zhang also said other service providers are in the “nascent stage of the global era”.
Speaking to CNBC in 2018, Zhang predicted that cloud computing would become the company’s main business. Speaking further, the CEO expressed his belief that every business in the future will be powered by cloud. At that time, Alibaba’s cloud business was growing significantly. In the third quarter of the year, the business yielded 5.67 billion yuan (nearly $820 million), a 90% year-on-year increase.
Since then, the Chinese e-commerce giant’s cloud business has continued to expand. In Q2 2019, the company pulled in revenue of 7.79 billion yuan ($1.13 billion). This signifies a 66% year-on-year increase with cloud computing generating 7% of the total revenue.
In Q2 2020, Alibaba’s cloud business recorded a 59% year-on-year revenue increase to 12.3 billion yuan, which equals $1.7 billion. Since its inception in 2009, Alibaba’s cloud business has grown to be the biggest cloud services provider in China. Also, the cloud business arm is Alibaba’s second-largest revenue contributor.
In the quarter, there was a significant increase in the adoption of cloud services. South China Morning Post (SCMP) noted that the growth is due to the coronavirus lockdown. During the stay-home period, there was a high demand for online collaborations, constant streaming, and remote working tools.
Furthermore, SCMP noted that Alibaba caters to more than three million customers in over 300 countries and territories. Globally, the company is in partnership with about 10,000 companies.
Currently trading at $283.40, Alibaba is 2.30% up over its previous close of $276.93. In the last twelve months, the e-commerce giant has jumped more than 67%. Also, BABA has increased 30.57% in 2020 and over 28% in the last three months. However, the company fell 6.46% over the past month but gained 1.46% in the last five days.
A Wedbush analyst Dan Ives commented on the rapid growth of Alibaba’s cloud computing service business. According to a CNBC report in 2019, Ives was confident that the cloud is the next frontier for Alibaba.
Similarly, CRFA research equity analyst John Freeman added at the time that Alibaba’s cloud business was poised to further growth.