Alibaba's Cloud Trajectory Is Akin To Amazon's AWS

What is it that Amazon.com, Inc. AMZN does incredibly well that its online Chinese counterpart Alibaba Group Holding Ltd BABA doesn't? The cloud.

Many investors are uber-bullish on Amazon's stock due to its cloud segment, AWS. After all, during Amazon's most recent quarter, the AWS segment contributed more than 100 percent of the company's total operating profit. Meanwhile, Alibaba derived just 5 percent of its total revenue from its cloud service, but the company continues to ramp up its cloud business and is opening data centers across the world.

Alibaba's cloud business, AliCloud, did grow 96 percent year-over-year to $359 million, which is minuscule compared to its total revenue of $7.403 billion. Encouragingly, the total number of paying customers exceeded 1 million for the first time which paints a bullish picture moving forward.

"AliCloud is replicating the Amazon blueprint," CNBC quoted Neil Campling, head of technology, media, and telecoms research at Northern Trust Capital Market as saying in a report. "Baba (like…. err, Amazon) keep drip feeding price cuts to entice more business, more partners, higher penetration which then maintains high growth and reinvestment in scaling out solutions"

Looking forward as Alibaba continues to increase its cloud scale it will be better able to sell new higher value add services and new solutions which will in turn ramp up the segment's profitability, Campling noted.

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