While the public typically knows Alibaba as the Chinese ecommerce giant, well informed investors are actually most excited about its cloud hosting unit, AliCloud. Alibaba’s cloud revenue has skyrocketed to $224 million in 2016, an increase of 130% year over year. Paying customers have increased by 12.8% to 651,000.
Alibaba’s cloud hosting unit is still in its infancy, in an industry that is currently still dominated by Amazon Web Services and Microsoft, but the service is growing rapidly and is creating potentially large opportunities for investors. According to Pacific Crest Securities, of the $1.3 trillion total spent on information technology, around $60 billion is earmarked for the cloud, providing enormous opportunity for cloud players like Alibaba. Accordingly, Morgan Stanley states that Alibaba’s cloud business is currently undervalued.
Alibaba's Growing Market Share
The current market leaders, Amazon and Microsoft, will be generating $47 billion for Amazon and $35 billion for Microsoft in cloud revenue by 2020. Morgan Stanley expects that Alibaba will be gaining the most market share from now until 2020. It projects Alibaba growing to $10 billion in revenue compared to the $1 billion it generated in 2016, moving to fifth place by 2020 and AliCloud to account for 18% of Alibaba’s overall sales in 2021.
Trump’s isolationist and anti-free-trade rhetoric impacted many China stocks negatively in the closing weeks of 2016. Alibaba’s stock plummeted 13.2 percent during the final two months of 2016, creating a good buying opportunity for new investors. With the market on the way to a more "normal", Alibaba Group Holding Ltd. (NYSE: BABA) closed at $105.50 on Tuesday. For now, technical traders will be watching both the $105 and $110 resistance points to see where Alibaba may be headed next and monitor if the narrowing of losses in the overall business will continue for the Group and finally will turn into profit over a reasonable period of time. The CEO's philosophy seems similar to the early Google approach.
"Making the business profitable is not the top priority for AliCloud at this stage. The top priority is to keep expanding our market leadership, therefore we will continue to make investments to develop our cloud business for rapid expansion," Wu said during an earnings call on Wednesday.
SWI added BABA at $103.69 with the stock closing at 105.50 today. Seventeen analysts
are rating it as a "Strong Buy", twenty (20) as a "Buy" and five (5) as a "Hold".
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