Alibaba Cloud Sees Modest Growth Fueled by Internal Business Units

Alibaba, the Chinese tech behemoth, disclosed on a recent Wednesday that its cloud computing arm is experiencing moderate growth, significantly aided by the firm's own businesses rather than external clients. Alibaba highlighted in its quarterly financial report that the increased revenue comes principally from enterprises within the Alibaba Group ecosystem. This suggests limited traction among third-party users.

Emphasis on High-Quality Revenue

In a quest to foster high-quality revenue streams, Alibaba Cloud has strategically moved away from low-margin project-based contracts. During an earnings call, Alibaba's Chief Financial Officer, Toby Xu, emphasized this strategy, indicating that the focus on profitable contracts is part of their plan to enhance the overall revenue quality of their cloud services segment.

Investing in Growth

Alibaba's CEO, Eddie Wu, elaborated on their tactics for cultivating growth. He mentioned that the company, apart from phasing out lower-yielding contracts, is restructuring its business and increasing investment in its public cloud offerings. Wu detailed changes in Alibaba Cloud's sales operations to better serve a diverse customer base, suggesting a tailored approach to servicing different types of clients.

Core Business Revitalization

With Alibaba's core business areas being e-commerce and cloud computing, revitalization efforts are underway. Wu highlighted that reigniting growth in these sectors is a top priority for the company heading into the future.

Peer Strategy and Market Movement

This strategic shift towards higher-profit clients is not unique to Alibaba. Tencent Cloud, another Chinese cloud service provider, has embarked on a similar path. In 2022, Tencent's strategy head pointed out their focus on premium PaaS (Platform as a Service) over basic IaaS (Infrastructure as a Service), aiming to shun unprofitable hardware reselling and maintain pricing discipline.

Alibaba's Quarter Performance

Despite facing a challenging retail environment, Alibaba Group recorded third-quarter revenue of approximately $36.7 billion in 2023, marking a five percent increase compared to the previous year. Although this figure fell short of analyst expectations, CFO Xu observed positive trends in the e-commerce domain, indicative of a potential recovery driven by strategic investments.

Alibaba, Cloud, Growth