How Do Alibaba’s Swelling Cloud Revenues Compare With Its Cornerstone Commerce Revenues?

Alibaba’s (NYSE:BABA) cloud business now counts 59% of companies listed in China as its customers – something that would have partially explain the 64% y-o-y growth in the company’s cloud revenues for fiscal Q2 2019 (ending September). The recent quarter saw sustained momentum in the company’s business across operating segments, with strong performance by Alibaba’s core commerce segment (+40% y-o-y), Cainiao logistics services segment (+48% y-o-y) as well as cloud segment (+64% y-o-y).

Trefis captures trends in Alibaba’s revenues over the years along with our forecast in an interactive dashboard. Despite strong growth over recent years, the company’s cloud revenues currently contribute less than 8% of the Chinese technology giant’s top line. In comparison, Alibaba’s China and International commerce business together account for almost 73% of its total revenues. We believe that increasing strength in the cloud business coupled with a growing customer base in its core commerce business is likely to help sustain the company’s growth momentum over coming years.

A Quick Look At Alibaba’s Business Model

What Need Does It Serve?

Alibaba makes money through its e-commerce, logistics, cloud, digital media and other subscription software. While the company reports its business in four segments, we have reworked its structure into five segments that better capture Alibaba’s business based on its operations.

What Are The Alternatives?

Alibaba is a conglomerate with business interests spanning across digital and physical goods and services. The company’s most direct competitor is Amazon. However, since Amazon does not operate at scale in China, some other competitors include Baidu, Tencent, Sina etc.

Has 5 Operating Segments

• China Commerce: Segment revenues are derived from retail e-commerce and associated marketing services in China.
• Digital Media & Innovation Initiatives: Segment revenues are derived from content subscription, software subscription and merchant advertising offerings.
• China Wholesale & Other: Segment revenues are derived from wholesale commerce and logistics services, primarily driven by Chinese consumption.
• International Commerce: Segment revenues are derived from retail and wholesale operations as well as from advertising services outside China.
• Cloud Computing: Segment revenues are derived based on customers’ duration and usage of Alibaba’s service.

Alibaba’s revenue grew 144% over 2017-19 to $56 billion and is expected to increase 78% to nearly $100 billion by 2021

[A] China Commerce Division Revenue growth of about $5 billion over the next two years will be driven by growing need for digital transformation among brick and mortar stores in the world’s largest country by population

• Additional details about how Alibaba’s largest revenue driver, its China Commerce Division Revenues, have changed over recent years, is available in our interactive dashboard.

[B] Digital Media & Innovation Initiatives Division Revenues to grow by about $2.7 billion over the next two years due to increase in local language content consumption

[C] China Wholesale & Other Division Revenues to grow by about $4 billion over the next two years due to increase in logistics and wholesale business.

[D] International Commerce Division Revenues to grow by about $3.7 billion over the next two years due to increase in paying customers and growth in average revenue per customer

[E] Cloud Computing Division Revenues to grow by about $5 billion over the next two years due to increase in average revenue per customer, wider partnerships and Alibaba’s launch of newer cloud products

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