M+E Connections

Alibaba Cloud was again a strong driver of revenue growth for Alibaba in its third quarter (ended Dec. 31) and the company continues to see new growth opportunities for that segment of its business, company executives said Feb. 24 on an earnings call.

In the quarter, Alibaba Cloud revenue before inter-segment elimination, which includes revenue from services provided to other Alibaba businesses, grew 19% from a year ago to RMB 26.4 billion ($4.1 billion), the company said. After inter-segment elimination, revenue in the segment grew 20% to RMB 19.5 billion ($3.1 billion).

Total Alibaba Q3 revenue increased 10% to RMB 242.6 billion ($38.1 billion), the company reported.

“We saw very strong growth in demand from financial services and the telecom sectors, which partially offset slowing demand from some customers in [the] Internet sector,” according to Daniel Zhang, Alibaba CEO and chairman.

During the quarter, Alibaba Cloud “continued to invest in expanding its international infrastructure,” he told analysts on an earnings call, noting: “We added two data centers in Asia Pacific: one in Korea and one in Thailand.”

The company now provides cloud computing services in 25 regions globally, he pointed out.

“China’s cloud market will be a RMB 1 trillion opportunity by 2025, and industrial digitalization today is still in a very early stage,” he added.

“Alibaba Cloud was one of the company’s top three revenue contributors in the quarter despite “continued impact of a top cloud customer’s decision to stop using our overseas cloud services for its international business due to nonproduct-related requirements and slowing demand from customers in the Internet industry such as online entertainment and education,” according to Toby Xu, Alibaba deputy CFO. He didn’t identify the customer by name.

“Our cloud and international commerce segments maintained solid growth and are expected to become increasingly important growth drivers in the future,” said Xu, who is replacing Maggie Wu as Alibaba CFO on April 1. “These two segments will continue to contribute to diversification of our revenue base,” he told analysts.

“Excluding the impact of the top customer from the Internet industry, Alibaba Cloud’s revenue after intersegment elimination would have grown by 29 percent year over year,” Xu said.

Alibaba Cloud revenue is “becoming more diversified with revenue contribution from non-Internet industries steadily increasing,” Xu pointed out. Revenue from non-Internet industries represented  52% of Alibaba Cloud revenue after intersegment elimination during the quarter, he said.

DingTalk

Adjusted EBITDA was RMB 134 million, “primarily due to economies of scale [in the] profitable core cloud computing businesses, partially offset by increasing investments in DingTalk,” Alibaba’s enterprise communication and collaboration platform, Xu told analysts.

“DingTalk offers solutions to enterprises to facilitate their digital transformation, enhance” their work collaboration and gain easy access to Alibaba Cloud’s big data analytics and artificial intelligence (AI) capabilities, Xu noted.

“Since integrating DingTalk into our cloud business in 2021, we have identified new opportunities and growth initiatives for our overall cloud business, giving us confidence that increased investments in DingTalk will create long-term value for Alibaba Cloud,” Xu explained.

Alibaba Cloud Container Service for Kubernetes, meanwhile, has been upgraded to ACK Anywhere, the company said. “This latest edition improves the container technology performance, allowing customers to experience low-cost, low-latency and localized public cloud products in all types of data centers,” Alibaba said in its earnings news release.

The company sees its Alibaba Cloud “advantages” as its “proprietary technology and Alibaba Group’s continued commitment to invest in research and development in new product offerings and industry-specific solutions for our customers and partners,” it said.

AAC Growth

At the end of Q3, Alibaba’s annual active consumers (AACs) reached 1.3 billion globally, representing quarterly net additions of 43 million, Zhang told analysts. In China, AACs increased from 953 million to 979 million during the quarter, while AACs outside China grew from 285 million to 301 million, he noted.

“We are fully on track to deliver the target of 1 billion China AACs by the end of this fiscal year,” Zhang added.

“Alibaba Cloud is committed to serving the real economy for the long-term and the digitalization of all industries,” Zhang also told analysts.

As an example, he said: “Recently, we helped the International Olympic Committee migrate 100 percent of their core systems onto Alibaba Cloud during the Beijing Winter Olympics. This is the first time in the history of Olympic games that cloud computing has replaced traditional IT infrastructure to support the planning and operations of the games. In the past, each Olympic host city would have to build extensive IT infrastructure and dismantled it after the end of the games.”

“Zhang explained: “By replacing the physical infrastructure with cloud-based services, hardware costs will be significantly reduced while application development and deployment will be much more efficient. We see similar opportunities and advantages for digitalization in many industries in the future, such as new energy vehicles, financial services and healthcare. These industries have high potential with massive demand for cloud computing and digital intelligence. We will leverage Alibaba Cloud proprietary technology and products to deliver tailored industry solutions.”

“Meanwhile, “as China continues to advance toward its carbon peak and neutrality goals, we foresee increasing demand for more reliable and sustainable technology infrastructure as digital transformation deepens across industries,” he said. “We aim to leverage Alibaba Cloud’s product and technology innovations to help our customers find greater energy efficiency.”

As an example, he noted that Alibaba data centers, “equipped by liquid cooling technology, achieved industry-leading energy efficiency level with a PUE of as low as 1.09.” The company’s facilities “can deliver high performance with lower power consumption, leveraging our proprietary product and technologies,” he added.