The headquarters of Alibaba Group Holdings Ltd. will be lit up in the evening before the November 11 annual Singles Day online shopping event in Hangzhou, China, on Sunday, November 10, 2019.
Qilai Shen | Bloomberg | Getty Images
GUANGZHOU, China – Alibaba reported profitability for its cloud computing business for the first time in an ongoing effort to diversify its business beyond e-commerce as it faces regulatory scrutiny in China.
The Chinese technology giant reported adjusted EBITA (earnings before interest, taxes and amortization) of 24 million yuan ($ 3 million) for its cloud business in the December quarter. Adjusted EBITA is a measure of profitability. This compares to 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 fiscal year, which started in April and ends on March 31, 2021.
The milestone will be welcomed by investors who have placed great importance on cloud computing to drive Alibaba’s future growth. Current President and CEO Daniel Zhang told CNBC in a 2018 interview that cloud computing would be Alibaba’s “core business” in the future.
Alibaba’s third-quarter cloud computing revenue reached 16.11 billion yuan, up 50% year-over-year. This is below the expected 16.69 billion yuan, according to a consensus estimate by StreetAccount.
“Our cloud computing business continues to expand market leadership and show strong growth, reflecting the enormous potential of China’s emerging cloud computing market, as well as our years of technology investment,” said Alibaba CEO Daniel Zhang, in a press release.
Regulatory probe, Ant IPO canceled
Alibaba’s profits come at a time when the company faces increasing pressure from Chinese regulators on its business practices. In December, the State Administration of Market Regulation of China (SAMR) opened an investigation into Alibaba for monopolistic practices. The main problem was a practice that forces salespeople to choose one of the two e-commerce platforms, rather than being able to work with both.
The Chinese e-commerce giant said it has established a “special task force with leaders from our relevant business units to conduct internal reviews” in relation to the SAMR investigation.
“We will continue to actively communicate with SAMR about compliance with regulatory requirements,” said Alibaba, adding that it will provide an update when the investigation is complete.
In November, regulators canceled what would have been the record initial public offering (IPO) of Ant Group, an affiliate of Alibaba’s financial technology. Alibaba founder Jack Ma, whose negative comments to regulators were seen as a factor behind the cancellation of Ant’s IPO, remained out of public view for a few months only to reappear in a short video in January.
Alibaba said the Ant Group is developing a “rectification plan, which will need to undergo the relevant regulatory procedures”, due to “significant changes” in the financial technology regulatory environment in China.
“Therefore, Ant Group’s business prospects and IPO plans are subject to substantial uncertainties. We are currently unable to make a full and fair assessment of the impact that these changes and uncertainties will have on Alibaba Group. We will update the market as soon as Ant Group has completed the regulatory procedures relevant to its rectification plan, “said the company in its income statement.
Earnings Expiration
Alibaba’s total revenue reached 221.08 billion yuan ($ 33.88 billion) in the December quarter, exceeding analyst estimates of $ 214.4 billion yuan.
Earnings per share stood at 22.03 yuan, ahead of the 20.87 yuan estimated by analysts.
It was Alibaba’s main trade business, responsible for 89% of revenue, which boosted growth. Core trade revenue reached 195.54 billion yuan in the third fiscal quarter, up 38% year-on-year.