Profitable cloud for the first time

GUANGZHOU, China – Alibaba has 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 the cloud business in the December quarter. Adjusted EBITA is a measure of profitability. This compares with a loss of 356 million yuan in the same period in 2019.

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

The benchmark will be welcomed by investors who have given great importance to cloud computing to stimulate the future growth of Alibaba. Current President and CEO Daniel Zhang told CNBC in a 2018 interview that cloud computing will be Alibaba’s “main business” in the future.

Alibaba’s cloud computing revenue for the third fiscal quarter reached 16.11 billion yuan, up 50% year-on-year. This is below the expected level of 16.69 billion yuan, according to a consensus StreetAccount estimate.

“Our cloud computing business continues to expand and grow strongly, reflecting the massive potential of China’s national cloud computing market, as well as our years of technology investment,” said Alibaba CEO. Daniel Zhang, in a press release.

Alibaba’s earnings come as the company faces growing pressure from Chinese regulators on its business practices. In December, China’s State Administration for Market Regulation (MRSA) opened an investigation into Alibaba’s monopolistic practices. The main problem was a practice that forces sellers to choose one of the two e-commerce platforms, rather than being able to work with both.

The Chinese e-commerce giant said it had set up a “special working group with leaders from our relevant business units to conduct internal reviews” on the MRSA survey.

“We will continue to actively communicate with MRSA on compliance with regulatory requirements,” Alibaba said, adding that it will provide an update upon completion of the investigation.

In November, regulators finalized what would have been the initial public offering (IPO) for the registration of Ant Group, a subsidiary of financial technology Alibaba. Alibaba founder Jack Ma, whose negative comments to regulators were seen as a factor behind IP Ant’s cancellation, was left out of public view for several months, only to reappear in a short video in January.

Alibaba said Ant Group is developing a “rectification plan, which will have to go through relevant regulatory procedures,” due to “significant changes” in China’s financial technology regulatory environment.

“Therefore, Ant Group’s business prospects and IPO plans are subject to substantial uncertainties. At present, we cannot make a complete and accurate assessment of the impact that these changes and uncertainties will have on the Alibaba Group. We will update the market once Ant Group has completed the relevant regulatory procedures for its rectification plan, “the company said in its earnings statement.

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

Earnings per share stood at 22.03 yuan ahead of analysts’ estimated 20.87 yuan.

It was Alibaba’s core business, accounting for 89% of revenue, which boosted growth. Basic trade revenues amounted to 195.54 billion yuan for the third fiscal quarter, up 38% year-on-year.