Alibaba's (BABA) - Get Alibaba Group Holding Ltd. Sponsored ADR Report fast-growing cloud unit scored its millionth customer in the second quarter, but CEO Daniel Yong Zhang said the milestone is just a starting point for the business.
"Cloud actually has huge potential in China and in the world, and every single business is going to the cloud," Zhang told investors during a Thursday call.
Shares of Alibaba rose almost 3% Thursday to a close of $163.92 and traded up almost an one percent in premarket trading Friday. The company topped forecasts with total revenue of $7.4 billion in the quarter ending in June.
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Alicloud grew sales 96% from a year ago to $359 million, and is on pace to exceed more than $1 billion annually. While Alicloud's growth is prodigious, it is less than a tenth the size of Amazon's (AMZN) - Get Amazon.com, Inc. Report market-leading cloud service.
The cloud makes up just 5% of what Executive Vice Chairman Joe Tsai calls "The Alibaba Economy," which spans global e-commerce, digital media, electronics manufacturing and other disparate businesses. Cloud was the second-fastest growing unit in the bunch, behind only international retail commerce, which expanded by 136% to $389 million.
Like everyone else in the cloud computing business, Alicloud is looking up at Amazon Web Services, which grew 42% to $4.1 billion in the second quarter and has 41% of the global market, according to Synergy Research Group
Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report Azure has 13% of the market. Microsoft's Azure cloud service grew 97% in the fourth fiscal quarter of 2017, which closed June 30, but does not disclose sales.
Alicloud opened its first data center in 2010, and Zhang said that the business has a first-mover advantage in China. Big wins in the second quarter included Chinese conglomerate CITIC Group and the finance subsidiary of major Beijing insurer PICC.
While the business is growing quickly, it is a money loser. Alicloud reported negative Ebitda of $103 million in the second quarter.
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