Alibaba Reports Fast-growing Cloud Business, Steady Consumer Demand

Alibaba's cloud computing grew 64% year-over-year, though it still brings in less than 10% of the giant's revenue.

Author: Yaning Ying   

Shares in Alibaba Group Holding Ltd. (NYSE: BABA) peaked 3% early on Friday but ended in the red, at $176.46 per American depositary share, following the release of the company's better-than-expected financials thanks to impressive growth in its cloud business.

In a statement posted after markets closed Thursday, Alibaba said its revenue in the three months through September reached $16.7 billion, up 40% year-over-year. Its net income soared 288% to $9.9 million, or $3.85 per ADS, attributable in part to a one-time gain from the deal on Ant Financial, according to the report.

Alibaba is a Chinese multinational conglomerate holding company specializing in e-commerce, retail, internet and technology. In the second quarter, Alibaba said revenue from its core commerce business was $14.2 billion, up approximately 40% year-on-year, indicating that consumer demand persists despite the overall slowdown in China's economy.

"By exceeding expectations, the message is that the Chinese consumer is buying and demand is still out there," analyst Lou Haverty, creator of Financial Analyst Insider, told CapitalWatch on Friday.

"The other piece of the story is that revenue is still growing, but the rate of growth is not as fast as previous quarters. That shouldn't be a surprise because that high level of growth cannot be sustained indefinitely, but a declining growth rate will be something to keep an eye on," Haverty added.

Meanwhile, revenue from Alibaba's cloud computing arm reached $1.3 billion, an increase of 64% from the same period last year, the company reported. That means Alibaba Cloud is growing speedier than the reported growth rates of Amazon (35%) and Microsoft (59%) cloud businesses, as reported by various media.

Haverty said that while the growth in cloud computing is "a positive," it still makes up less than 10% of Alibaba's revenue.

He said, "The business does have high margins, so if they can continue to grow that business meaningfully, the cash flows will benefit from the high margins."

According to the report, as of Sep. 30, the company's mobile monthly active users (MAU) in China's retail market reached 785 million, an increase of 30 million from June 2019, higher than the market's forecast of 752.4 million.

Alibaba is planning to raise $15 billion in its IPO in Hong Kong this month after months of delay for its second listing. November is also the month of Singles' Day, the annual shopping festival which in 2018 ended in a record $31 billion in sales for the giant.

In September, Alibaba celebrated its 20th anniversary and said farewell to its founder and inspiring leader, Jack Ma, who has retired. Chief executive Daniel Zhang succeeded Ma as chairman of the company.

In the company statement on Thursday, Zhang said, "Our digital economy continues to thrive and prosper. We aim to serve over one billion annual active consumers and help our merchants achieve over RMB10 trillion in annual gross merchandise volume by end of fiscal 2024. We will continue to invest in the user experience and innovative technology to create new value for consumers, as well as the millions of enterprises undergoing digital transformation in the new digital economy."