Cloud profitable for the first time

GUANGZHOU, China – For the first time, Alibaba reported profitability for its cloud computing business in an ongoing push to diversify its business beyond e-commerce as it is confronted by regulatory scrutiny in China.

The Chinese technology giant reported adjusted EBITA (earnings before interest, tax and amortization) of 24 million yuan ($ 3 million) in the December quarter. Adjusted EBITA is one measure of profitability. This compares with a loss of 356 million yuan in the same period in 2019.

Alibaba said earlier that it expects its cloud division to become profitable within its current financial year starting in April and ending on March 31, 2021.

The milestone will be welcomed by investors who have placed the importance of cloud computing to boost Alibaba’s future growth. Current chairman and CEO Daniel Zhang said in an interview with CNBC in 2018 that cloud computing will be Alibaba’s “main business” in the future.

Alibaba’s cloud computing revenue for the third quarter was 16.11 billion yuan, up 50% year-on-year. That is lower than the expected 16.69 billion yuan, according to a StreetAccount consensus estimate.

“Our cloud computing business continues to expand market leadership and show strong growth, reflecting the great potential of China’s emerging cloud computing market, as well as our years of investment in technology,” said Daniel Zhang, CEO of Alibaba, said in a press release.

Alibaba’s earnings come as a result of increasing pressure from Chinese regulators over its business practices. In December, China’s state administration for market regulation (SAMR) opened an investigation into Alibaba over monopolistic practices. The most important issue was a practice that forced sellers to choose one of two e-commerce platforms, rather than being able to work with both.

The Chinese e-commerce giant said it had set up a ‘special task force with leaders of our relevant business units to conduct internal investigations’ related to the SAMR investigation.

“We will continue to actively communicate with the SAMR on compliance with regulatory requirements,” Alibaba said, adding that it will provide an update once the investigation is completed.

In November, regulators pulled the plug on what would be the first record offering (IPO) of Ant Group, the subsidiary of Alibaba’s financial technology. Alibaba founder Jack Ma, whose negative remarks towards regulators are seen as a factor behind the canceled Ant IPO, stayed out of public view for a few months to appear in a short video again in January.

Alibaba said Ant Group was developing a “correction plan that would have to go through the appropriate regulatory procedures”, due to the “significant changes” in the financial technology environment in China.

“Therefore, Ant Group’s business prospects and IPO plans are subject to major uncertainties. At present, we are unable to make a full and fair assessment of the impact that these changes and uncertainties will have on Alibaba Group. We will market the once updated against Ant Group has completed the appropriate regulatory procedures for its rectification plan, ”the company said in its earnings statement.

Alibaba’s total revenue was 221.08 billion yuan ($ 33.88 billion) for the December quarter, beating analysts’ estimates of $ 214.4 billion.

Earnings per share were 22.03 yuan ahead of 20.87 yuan estimated by analysts.

It was Alibaba’s core business, accounting for 89% of revenue, that boosted growth. Core revenue for the third quarter fiscal was 195.54 billion yuan, an increase of 38% year-on-year.