Cloud services have become a rare growth point for Chinese tech majors Alibaba, Baidu, and Tencent in this earning season. The tech majors have seen overall growth plateau and profit drop as they navigate an economic downturn made worse by the pandemic resurgence and geopolitical uncertainty.
Why it matters: Over the years, Chinese tech majors Alibaba, Baidu, and Tencent have built up sizable operations in cloud solutions for businesses. Those cloud units have now grown strong enough to offer sustainable business returns.
- Cloud services have become the bedrock of almost all tech firms, as it offers fundamental support for online services and the implementation of algorithms.
Details: Cloud services have become a rare growth point in the lackluster earnings reports of Alibaba, Baidu, and Tencent, as the majors’ businesses were hit by China’s strict Covid-19 control measures, slowing consumption, and external geopolitical challenges.
- On Thursday, Alibaba reported the slowest quarterly growth rate since it went public in 2014. However, Alibaba Cloud reported a net profit in a financial year for the first time since its establishment in 2009, the company’s earnings report shows. The cloud business brought in RMB 100.2 billion ($15.8 billion) for the fiscal year ending in March, a 21% yearly increase and accounting for about 12% of the firm’s overall revenue. The company’s revenue increased 19% year-on-year to RMB 853 billion ($134.6 billion) in the same period.
- Similarly, Baidu’s cloud services outperformed the company. In the first quarter, the cloud service unit saw revenue grow by 45% to RMB 3.9 billion from the same period last year, while the company’s revenue grew by only 1%.
- Tencent’s FinTech and Business Services group, which includes its cloud services, reported a nearly 10% yearly growth for the first quarter. The company reported flat revenue growth of only 0.1% for the same period.
Context: According to Canalys, China’s cloud infrastructure services market grew by 45% to $27.4 billion in 2021.
- Alibaba, Huawei, Tencent, and Baidu are the top four cloud service providers in China, accounting for 80% of the market share in 2021, with Alibaba Cloud leading at 37%.