Alibaba Cloud Spin-Off Ahead Following Cloud Sales Drop

‘Full independence will allow [Alibaba Cloud] to further sharpen its business strategy and optimize its operations and organization,’ says Alibaba CEO Daniel Zhang.

Alibaba Group is planning to spin out Alibaba Cloud as the cloud computing company is witnessing a decrease in cloud sales this year.

The Chinese technology giant is looking to spin off its cloud business within a year and have it become an independent publicly listed company.

“Full independence will allow [Alibaba Cloud] to further sharpen its business strategy and optimize its operations and organization,” said Alibaba CEO and Chairman Daniel Zhang during the company’s recent quarterly earnings report.

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Although Alibaba Cloud isn’t near Amazon Web Services, Microsoft and Google in terms of global cloud market share, Alibaba’s cloud business is very popular in the Asia Pacific region, specifically in China.

Alibaba Cloud Sales Drop 2 Percent

During Alibaba’s quarterly financial results for first quarter calendar year 2023, which ended March 31, the company saw a 2 percent decrease year over year in Alibaba Cloud revenue as sales hit $2.7 billion.

Alibaba’s CEO said the reasons for the drop in cloud sales were due to, “the resurgence of pandemic in China in January [impacting] public cloud consumption and delayed delivery of certain hybrid cloud projects during the quarter.”

Additionally, Zhang pointed at one top Alibaba Cloud customer who had phased out using its cloud services and switched to self-built infrastructure for its international business as another reason for the 2 percent sales drop.

Parent company Alibaba generated total revenue of $30.3 billion during the quarter, representing an increase of 2 percent year over year. Alibaba Cloud’s $2.7 billion in revenue represented about 9 percent of Alibaba’s total revenue.

Cloud Price Cuts

In April, Alibaba announced price reductions of between 15 percent and 50 percent for its core cloud services and products in China in a move to boost its domestic public cloud market share.

“We have introduced a series of new products and pricing policies. We believe these measures can further expand the customer base and cloud consumption of our public cloud services, and drive the usage of high-performance computing power required for AI model training and related services,” said Zhang.

The goal of the price reductions is to provide more sustainable growth for Alibaba Cloud’s long-term development, the CEO said.

Alibaba Cloud competes in China with the likes of Huawei Technologies, China Mobile and Tencent Cloud.

In fiscal year 2022, Alibaba Cloud generated nearly $12 billion in revenue. In March, Zhang personally took over the company’s Cloud Intelligence division.

“If we zoom out from the short-term fluctuation in cloud revenues, and look back at Alibaba Cloud’s development over the past 14 years and cloud’s vast future with the rapid development of AI, we see massive market potential and remain confident at Alibaba Cloud’s future,” Zhang said.