Alibaba Cloud Revenue May Return to Double-Digit Growth by Year End amid AI Push

TMTPost -- Alibaba’s cloud unit will gain more momentum and resume strong growth pace as the Chinese tech heavyweight ramps up development and deployment of the cutting-edge artificial intelligence (AI) technology, the executives said.

Credit：Alibaba Cloud

The financial results released last week showed Alibaba Cloud Intelligence Group's revenue, excluding Alibaba-consolidated subsidiaries, returned to positive growth for the first fiscal quarter ended June 30, notably driven by core public cloud and AI products. Alibaba’s overall revenue grew 4% year-over-year (YoY) to RMB243.24 billion (US$33.47billion) that quarter, missing Wall Street projection of RMB249.9 billion, while revenue from Alibaba Cloud rose 6% YoY to RMB26.55 billion from April to June, topping Wall Street forecast of RMB26.07 billion. The increase in revenue represents Alibaba Cloud delivered the fastest growth rate since the June quarter of 2022.

Alibaba said in the financial statement that revenue excluding its consolidated subsidiaries gained over 6% YoY, driven by double-digit public cloud growth and increasing adoption of artificial intelligence (AI)-related products. AI-related product revenue continued to grow at triple-digits YoY.

The Hangzhou-based company suggested upbeat outlook of its cloud technology since the technology enables remote video production and transmission through cloud infrastructure during the Paris 2024 Olympics this month, overtaking satellite as the primary means of broadcast for the first time in Olympics history. Two-thirds of national broadcasters used live signals transmitted by Alibaba Cloud in real-time around the world, reaching billions of viewers. Alibaba Cloud also hosted more than 11,000 hours of Olympic Broadcasting Services-produced games related video content used by the broadcasters. Additionally, this is the first Olympic Games to extensively use AI, with Alibaba Cloud’s AI tech deployed in 14 Olympic venues to generate high-fidelity 360-degree replays in real-time.

Alibaba CEO Eddie Wu outlined the company’s long-term strategy for integrated cloud plus AI development at an earnings call. Wu said the strategy consists of three parts. The first is that Alibaba will continue to optimize its cloud product offerings, focusing on competitive sustainable gross margin and scalable public cloud products. This forms the foundation for Alibaba Cloud's sustainable high-quality growth. The second, Alibaba will strengthen synergies between cloud and AI products, not only supporting existing customers and implementing new AI capabilities on Alibaba Cloud, but also enabling AI-native enterprises to scale and succeed on our platform. Wu stressed the commitment to capitalizing on both opportunities.

The third but not the last, Alibaba will continue to invest in R&D and AI capex to ensure the growth of our AI-driven cloud business. “Looking to the medium and long term, we are confident that Alibaba Cloud's overall revenue, excluding Alibaba-consolidated subsidiaries, will return to double-digit growth in the second half of the fiscal year, with gradual acceleration thereafter,”Wu told analysts. Through intensive R&D investment, Alibaba aims to sustain profitable growth while establishing ourselves as a leading cloud service provider for AI, with healthy profitability and market share leadership, Wu said.

When asked about the AI contribution to total revenue in the long run, given Alibaba's expecting the external cloud revenue back to double-digit growth in the second half of fiscal year, Wu said probably most of that grotth will be driven by AI products, anticipating more than half of that expected growth will come from AI products. He stressed that it's a very clear-cut trend that revenue from external customers will achieve double-digit growth in the second half of the fiscal year.

Alibaba Cloud recorded the adjusted EBITA, excluding share-based compensation expense, impairment of intangible assets and goodwill and certain other items, of RMB2.34 billion with a YoY surgeof 155%in the second quarter, compared with a 45% YoY increasethree months ago.Alibaba Chief Financial Officer (CFO) Toby Xu said the 155% increase was primarily due to improving product mix through the company’s focus on public cloud adoption and operating efficiency, partly offset by the increasing investments in customers and technology. Alibaba is observing strong and sustained demand for AI products and solutions from its customers and are making significant investment to address this demand effectively. The company believes its investments in AI capabilities and infrastructure will help strengthen its market leadership, according to Xu.