Cloud profitable for the first time

GUANGZHOU, China – Alibaba first reported profitability for its cloud computing business in an ongoing effort to diversify its business beyond e-commerce as it faces regulatory oversight in China.

The Chinese tech giant reported adjusted EBITA (earnings before interest, tax and depreciation) of 24 million yuan ($ 3 million) for its cloud operations in the December quarter. Adjusted EBITA is a measure of profitability. That compares to a loss of 356 million yuan in the same period in 2019.

Alibaba previously said it expects its cloud division to become profitable within the current fiscal year that began in April and ends March 31, 2021.

The milestone will be welcomed by investors who have attached great importance to cloud computing to drive Alibaba’s future growth. Current Chairman and CEO Daniel Zhang told CNBC in a 2018 interview that cloud computing would be Alibaba’s “main activity” in the future.

Cloud computing revenue for Alibaba’s fiscal third quarter reached 16.11 billion yuan, up 50% year-on-year. That’s less than the projected 16.69 billion yuan, according to a StreetAccount consensus estimate.

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

Alibaba’s revenues come as the company faces increasing pressure from Chinese regulators on its business practices. In December, China’s State Market Regulation Administration (SAMR) opened an investigation into Alibaba over monopolistic practices. The main issue was a practice that forces merchants to choose one of the two ecommerce platforms, rather than being able to work with both.

The Chinese e-commerce giant said it has set up a “special task force with leaders from our relevant business units to conduct internal assessments” regarding the SAMR investigation.

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

In November, regulators pulled the plug on what would have been the record-breaking initial public offering (IPO) of Ant Group, Alibaba’s financial technology subsidiary. Alibaba founder Jack Ma, whose negative comments to regulators were seen as a factor behind Ant’s canceled IPO, stayed out of the public view for several months before re-appearing in a short video in January.

Alibaba said Ant Group is developing a “recovery plan that will need to go through the relevant regulatory processes,” due to “significant changes” in China’s financial technology regulatory environment.

“Therefore, Ant Group’s business outlook and IPO plans are subject to substantial uncertainties. Currently, we cannot make a full and fair assessment of the impact these changes and uncertainties will have on Alibaba Group. We will update the market once Ant Group has completed the relevant regulatory procedures for its recovery plan, ”the company said in its earnings statement.

Alibaba’s total revenue came in at 221.08 billion yuan ($ 33.88 billion) for the December quarter, exceeding analyst estimates of $ 214.4 billion yuan.

Earnings per share were 22.03 yuan, more than 20.87 yuan, estimated by analysts.

It was Alibaba’s core business, which accounts for 89% of sales, that fueled growth. Core trade sales were 195.54 billion yuan for the fiscal third quarter, up 38% year-on-year.