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Alibaba Cloud revenue reaches $1.5B for the quarter on 62% growth rate

Alibaba issued its latest earnings report yesterday, and as part of that the Chinese eCommerce giant reported that cloud revenue grew 62% to $1.5 billion U.S., crossing the RMB10 billion revenue threshold for the first time.

Alibaba also announced that it had completed its migration to its own public cloud in the most recent quarter, a significant milestone because the company can point to its own operations as a reference to potential customers, a point that Daniel Zhang, Alibaba executive chairman and CEO, made in the company’s post-earnings call with analysts.

“We believe the migration of Alibaba’s core e-commerce system to the public cloud is a watershed event. Not only will we ourselves enjoy greater operating efficiency, but we believe, it will also encourage others to adopt our public cloud infrastructure,” Zhang said in the call.

It’s worth noting that the company also warned that the Coronavirus gripping China could have impact on the company’s retail business this year, but didn’t mention the cloud portion specifically.

Yesterday’s revenue report puts Alibaba on a $6 billion U.S. run rate, good for fourth place in the cloud infrastructure market share race, but well behind the market leaders. In the most recent earnings reports, Google reported $2.5 billion in revenue, Microsoft reported $12.5 billion in combined software and infrastructure revenue and market leader AWS reported a tad under $10 billion for the quarter.

As with Google, Alibaba sits well back in the pack, as Synergy Research’s latest market share data shows. The chart was generated before yesterday’s report, but remains an accurate illustration of the relative positions of the various companies.

Alibaba has a lot in common with Amazon. Both are eCommerce giants. Both have cloud computing arms. Alibaba, however, came much later to the cloud computing side of the house, launching in 2009, but really only beginning to take it seriously in 2015.

At the time, cloud division president Simon Hu boasted to Reuters that his company would overtake Amazon in the cloud market within 4 years. “Our goal is to overtake Amazon in four years, whether that’s in customers, technology, or worldwide scale,” he said at the time.

They aren’t close to achieving that goal, of course, but they are growing steadily in a hot cloud infrastructure market. Alibaba is the leading cloud vendor in China, although AWS leads in Asia overall, according to the most recent Synergy Research data on the region.

China Roundup: Ant Financial’s new boss and Tencent’s army of new apps

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. This week, we are looking at what Ant Financial’s executive shakeup could give to Alibaba’s financial affiliate and why Tencent has gone on an app-launching spree.

Return of the old boss

This week, Ant Financial, the online financial services company, 33% of which is owned by Alibaba and controlled by Jack Ma, announced Hu Xiaoming as its new chief executive. Management reshuffles aren’t rare at Alibaba, which prides itself on rotating executives every few months to stay fresh and agile in a competitive environment. The latest reshuffle is providing some clues to where Ant, the world’s most valuable private fintech company, is headed in the coming years.

Hu will take the lead in growing Ant’s domestic payments and financial services units while his predecessor and current chairman Eric Jing will manage overseas expansion and development of new technologies. Having worked at several major Chinese banks, Hu joined Alibaba in 2005 to expand the firm’s budding financial services and has since been credited with helping Ant identify paths to monetization.

Around 2009, Hu made a bold move to initiate a microloan service targeted at small and medium sellers on Alibaba’s e-commerce platform. It was a boon to millions of merchants who otherwise would not be able to borrow from traditional financial institutions because they lacked banking history. Instead, Alibaba assessed their creditworthiness based on digital records, such as online sales and customer ratings. Today, small loans are just one of the many offerings from Ant’s ever-expanding financial empire, which also operates the billion-user Alipay payments app, the world’s largest money market fund and credit-rating system Sesame Credit.

In 2014, the storied executive was assigned to lead Alibaba’s cloud business and later grew it into one of the firm’s fastest-growing segments and a serious contender to Amazon Web Services. Hu was no stranger to Alibaba Cloud, which had already been working to introduce cloud computing to the fintech unit’s existing IT environments (in Chinese). In fact, most of Alibaba Cloud’s early applications happened internally at Alibaba as the company felt the urgency to develop an IT system that was more scalable and customizable than most large international vendors could provide.

Under Hu’s helm, the cloud arm struck a major deal with the government of Hangzhou, Alibaba’s hometown in Eastern China, to ease traffic congestion using data analytics and cloud computing solutions. Government contracts are an important lever for businesses developing costly state-of-the-art technologies, for as soon as an innovation is proven in practice, private demand will pick up over time.

Hu Xiaoming, new CEO of Alibaba’s financial affiliate Ant Financial (Ant Financial via Weibo)

Hu’s experience with commercializing new technologies and cooperating with state agencies makes him the ideal leader of Ant at a critical time. Last year, Ant’s highly anticipated IPO plans were pushed back reportedly because Beijing worried the private firm had amassed too much influence. To allay concerns among regulators and big banks, Ant has in recent times pivoted to focus more on selling technology solutions rather than financial services, per se.

Social networking anxiety

Tencent has launched at least seven new social networking apps since the beginning of 2019. Each comes with a slightly different focus, whether it’s targeting college students or specializing in video-based chatting. Industry observers said Tencent made these moves to defend challengers, particularly ByteDance of which TikTok (or Douyin in China) has taken the world by storm. Although short videos don’t directly compete with Tencent’s messengers WeChat, they certainly are consuming more of people’s screen time. And there are signs that ByteDance is encroaching on Tencent’s core markets after the upstart pushed into video games and messaging.

Tencent might also worry about WeChat’s slowing growth. The slowdown is in part attributed to the app’s already enormous base — more than 1 billion monthly users — so growth has inevitably cooled. WeChat gave Tencent a timely boost at the start of the mobile internet revolution when QQ, Tencent’s messenger that dominated China’s PC era, had seen its day. Now Tencent appears to be in need of a new growth engine, be it a groundbreaking feature of WeChat to rejuvenate the app or a brand new social network to replicate the success of WeChat and QQ.

It’s worth keeping in mind that Tencent, like all other large internet companies in China, is always testing new products to meet shifting landscapes in the tech industry. Tencent is famous for pitting different departments against each other in what it calls an internal “horse race,” which spawned WeChat almost 10 years ago. In most cases, these projects failed to catch on, but the cost of making new apps is negligible for a behemoth like Tencent because much of the development process has been standardized. All it needs is a skunkworks team of a dozen employees, ideally headed by a visionary such as WeChat’s Allen Zhang.

Also worth your attention

Nvidia, the chipmaker known for its GPUs, is already working with some 370 automakers, tier-1 suppliers, developers and researchers in the field of autonomous driving. This week to its family of partners it added China’s largest ride-hailing company, Didi Chuxing . Together the pair will work on developing GPUs for Didi’s Level 4 autonomous cars (which can operate under basic situations without human intervention), the companies said in a statement. Didi, which peeled its autonomous driving unit into a separate company in August, said last month (in Chinese) at an industry conference that it had plans to soon begin testing autonomous vehicles on Shanghai streets.

China Roundup: Alibaba’s Hong Kong listing and Tencent’s new fuel

Hello and welcome back to TechCrunch’s China Roundup, a digest of recent events shaping the Chinese tech landscape and what they mean to people in the rest of the world. The earnings season is here. This week, long-time archrivals in the Chinese internet battlefield — Alibaba and Tencent — made some big revelations about their future. First off, let’s look at Alibaba’s long-awaited secondary listing and annual shopping bonanza.

Forget about the number

It’s that time of year. On November 11, Alibaba announced it generated $38.4 billion worth of gross merchandise value during the annual Single’s Day shopping festival, otherwise known as Double 11. It smashed the record and grabbed local headlines again, but the event means little other than a big publicity win for the company and showcasing the art of drumming up sales.

GMV is often used interchangeably with sales in e-commerce. That’s problematic because the number takes into account all transactions, including refunded items, and it’s by no means reflective of a company’s actual revenue. There are numerous ways to juice the figure, too, as I wrote last year. Presales began days in advance, incentives were doled out to spur last-minute orders and no refunds could be processed until November 12.

Even Jiang Fan, the boss of Alibaba’s e-commerce business and the youngest among Alibaba’s 38 most important decision-makers, downplayed the number: “I never worry about transaction volumes. Numbers don’t matter. What’s most important is making Single’s Day fun and turning it into a real festival.”

Indeed, Alibaba put together another year of what’s equivalent to the Super Bowl halftime show. Taylor Swift and other international big names graced the stage as the evening gala was live-streamed and watched by millions across the globe.

Returning home

Alibaba is going ahead with its secondary listing in Hong Kong on the heels of reports that it could delay the sale due to ongoing political unrest in the city-state. The company is cash-rich, but listing closer to its customers can potentially ease some of the pressure arising from a new era of volatile U.S.-China relationships.

Alibaba is issuing 500 million new shares with an additional over-allotment option of 75 million shares for international underwriters, it said in a company blog. Reports have put the size of its offering between $10 billion and $15 billion, down from the earlier rumored $20 billion.

The giant has long expressed it intends to come home. In 2014, the e-commerce behemoth missed out on Hong Kong because the local exchange didn’t allow dual-class structures, a type of organization common in technology companies that grants different voting rights for different stocks. The giant instead went public in New York and raised the largest initial public offering in history at $25 billion.

“When Alibaba Group went public in 2014, we missed out on Hong Kong with regret. Hong Kong is one of the world’s most important financial centers. Over the last few years, there have been many encouraging reforms in Hong Kong’s capital market. During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright. We hope we can contribute, in our small way, and participate in the future of Hong Kong,” said chairman and chief executive Daniel Zhang in a statement.

Missing out on Alibaba had also been a source of remorse for the Stock Exchange of Hong Kong. Charles Li, chief executive of the HKEX, admitted that losing Alibaba to New York had compelled the bourse to reform. The HKEX has since added dual-class shares and attracted Chinese tech upstarts such as smartphone maker Xiaomi and local services platform Meituan Dianping.

Tencent’s new fuel

Content and social networks have been the major revenue drivers for Tencent since its early years, but new initiatives are starting to gain ground. In the third quarter ended September 30, Tencent’s “fintech and business services” unit, which includes its payments and cloud services, became the firm’s second-largest sales avenue trailing the long-time cash cow of value-added services, essentially virtual items sold in games and social networks.

Payments, in particular, accounted for much of the quarterly growth thanks to increased daily active consumers and number of transactions per user. That’s good news for the company, which said back in 2016 that financial services would be its new focus (in Chinese) alongside content and social. The need to diversify became more salient in recent times as Tencent faces stricter government controls over the gaming sector and intense rivalry from ByteDance, the new darling of advertisers and owner of TikTok and Douyin.

Tencent also broke out revenue for cloud services for the first time. The unit grew 80% year-on-year to rake in 4.7 billion yuan ($670 million) and received a great push as the company pivoted to serve more industrial players and enterprises. Alibaba’s cloud business still leads the Chinese market by a huge margin, with revenue topping $1.3 billion during the September quarter.

Also worth your attention…

Luckin Coffee, the Chinese startup that began as a Starbucks challenger, is starting to look more like a convenient store chain with delivery capacities as it continues to increase store density (a combination of seated cafes, pickup stands and delivery kitchens) and widen product offerings to include a growing snack selection. Though bottom-line loss continued in the quarter, store-level operating profit swung to $26.1 million from a loss in the prior-year quarter. 30 million customers have purchased from Luckin, marking an increase of 413.4% from 6 million a year ago.

Minecraft is on the brink of 300 million registered users in China, its local publisher Netease announced at an event this week. That’s a lot of players, but not totally unreasonable given the game is free-to-play in the country with in-game purchases, so users can easily own multiple accounts. Outside China, the game has sold over 180 million paid copies, according to gaming analyst Daniel Ahmed from Niko Partners.

Xiaomi founder Lei Jun is returning a huge favor by backing a long-time friend. Xpeng Motors, the Chinese electric vehicle startup financed by Alibaba and Foxconn, has received $400 million in capital from a group of backers who weren’t identified except Xiaomi, which became its strategic investor. The marriage would allow Xpeng cars to tap Xiaomi’s growing ecosystem of smart devices, but the relationship dates further back. Lei was an early investor in UCWeb, a browser company founded by He and acquired by Alibaba in 2014. A day after Xiaomi’s began trading in Hong Kong in mid-2018, He wrote on his WeChat feed that he had bought $100 million worth of Xiaomi shares (in Chinese) in support of his old friend.