The first element of the "Internet plus" infrastructure is the cloud. At present, cloud computing has become the "water, electricity, and coal" of the Internet, and having independent and controllable cloud technology is even more related to national information security.
On the evening of November 16th, Alibaba Group's financial report revealed that due to various uncertain factors, it will no longer promote the complete separation of Cloud Intelligence Group and will continue to evaluate various solutions to highlight the value of Cloud Intelligence Group. At the same time, Alibaba will resolutely increase its continuous strategic investment in Alibaba Cloud, ensuring that Alibaba Cloud focuses on the development strategy of "AI+cloud computing" and creates a technologically leading cloud computing service in the AI era.
Chen Xiaohua, Chief Digital Economy Expert of the National Engineering Laboratory for Modeling and Simulation of Electronic Government, told Securities Daily: "Alibaba can continue to provide more stable financial support for Alibaba Cloud and better leverage synergies with the group, without further promoting complete spinoffs
No longer pushing for complete separation
What is the impact?
As the only profitable cloud manufacturer in China, Alibaba Cloud's performance in the second quarter of fiscal year 2024 (i.e. the third quarter of natural year 2023) showed a significant increase in adjusted EBITA profit from 387 million yuan in the previous quarter to 1.409 billion yuan, a month on month increase of 264%, exceeding the total of the previous three quarters and achieving profitability for 12 consecutive fiscal quarters.
For the profit growth of this quarter, Alibaba Cloud told Securities Daily: "Mainly due to actively reducing project based orders with lower profit margins and continuously improving revenue quality. At the same time, the revenue growth of public cloud products and services in this quarter, the optimization of revenue structure, and the release of profits exceeding expectations
It is worth noting that Alibaba's financial report shows that "the restrictions on the export of advanced computing chips have brought uncertainty to the prospects of Cloud Intelligence Group. We believe that a complete split of Cloud Intelligence Group may not enhance shareholder value as originally envisioned. Therefore, we have decided not to promote a complete split of Cloud Intelligence Group, but will instead face an uncertain environment and focus on establishing a sustainable growth model for Cloud Intelligence Group.
An insider close to Alibaba Cloud told Securities Daily: "Not splitting up does not mean not going public. For Alibaba Cloud, not splitting up is a good thing. Alibaba's strong cash flow can support cloud technology investment, continue to expand technology generation and scale effects
Alibaba Cloud's positioning is to become the computing infrastructure of the AI era. But just after the Double 11, Alibaba Cloud experienced an "accident" where multiple Alibaba series apps were unable to access or had abnormal services. Is the choice not to split at this time related to the 'accident'? As far as I know, there is no relationship between the two, "the person familiar with the matter told reporters
But this widely perceived 'accident' remains a critical test for Alibaba Cloud, which is in the midst of organizational change and business entry into deep waters.
E-commerce retail expert Zhang Qiang told Securities Daily that the current global liquidity cannot support such a split, and the Alibaba series enterprises after the split need to be incubated one by one by the group. Alibaba should concentrate its efforts and approach the competition of other cloud computing professional companies as a whole
In the view of industry insiders, enterprises must dynamically evaluate the rapidly changing market environment and respond flexibly during their development process. The arrival of the AI era means a new development opportunity for Alibaba Cloud. No longer promoting complete separation, Alibaba will continue to increase strategic investment, which is the most favorable decision for Alibaba Cloud's future development and the realization of shareholder value.
AI explosive demand growth
Promote the development of public cloud
In the industry boom brought about by technological innovation in large models, computing power resources are increasingly becoming valuable assets that technology enterprises compete for. The report "China Public Cloud Service Market (First Half of 2023) Tracking" shows that Alibaba Cloud, Huawei Cloud, China Telecom, Tencent Cloud, and AWS are among the top five in the IaaS market, with a total market share of 72.4% and a year-on-year decrease in market concentration of 3.0%; In terms of PaaS, Alibaba Cloud, Tencent Cloud, AWS, Huawei Cloud, and China Telecom rank in the top five, with a total market share of 66.9%. The strong efforts of operators and service providers in the IaaS field, as well as the rapid growth of emerging public cloud service providers, are quietly affecting the market landscape.
It can be seen that Alibaba Cloud has a leading advantage in the Chinese market and has expanded this advantage to the global market. According to market research firm Gartner, Alibaba Cloud ranked first in the Asia Pacific market and third globally in 2022. Alibaba Cloud has opened 88 availability zones in 29 regions worldwide, serving over 4 million customers in over 200 countries and regions worldwide, providing services to over 60% of A-share listed companies and 80% of Chinese technology innovation enterprises.
The explosive growth of AI demand promotes the development of public clouds. "IDC research report suggests that in the first half of 2023, AI related demand grew rapidly, and the attention of society and enterprises and institutions to AIGC and AI big models significantly increased. The computing market and PaaS layer related products were affected by market heat, and the growth rate was significant.
Alibaba told reporters that facing the AI era, Alibaba Cloud needs long-term strategic investment more than ever. Alibaba will resolutely increase its investment in Alibaba Cloud, allowing it to focus on the "AI+cloud computing" development strategy without any distractions, and minimizing the adverse impact of uncertain factors on future development.