American technology investors are well aware of the dominant position Amazon.com (ticker: AMZN) has built in the cloud services business. But while Amazon is building its cloud empire in America, Alibaba Group Holding Ltd (BABA) may be quietly doing the same across the Pacific Ocean.
According to a new research note from Bernstein analyst Bhavtosh Vajpayee, Alibaba is following in Amazon’s footsteps and stretching its lead over the cloud competition in China. For years, Amazon prioritized expanding its customer base and gaining market share over booking quarterly profits. Vajpayee says Alibaba is now doing the same.
“Profitability in the cloud business remains a choice for the firm – we reckon the management will choose some more quarters of share gains before pressing the pedal on profits,” Vajpayee says. “Alibaba is several years ahead of its peer group in its enterprise cloud platform, a lead that is hard to bridge.”
Bernstein says Alibaba’s GAAP operating margins could expand 7.2 percent by 2020 once the company moves past its cloud investment phase. The firm is calling for overall revenue growth of 30 percent in fiscal 2018.
In the meantime, Alibaba’s massive e-commerce business is still growing as well. Vajpayee estimates Alibaba holds a dominant 40 percent market share of the China mobile advertising market compared to a 20 percent share for Baidu (BIDU) and an 11 percent share for Tencent.
Bernstein isn’t the only research firm that is bullish on Alibaba’s growth prospects. Earlier this week, Barclays analyst Ross Sandler named Alibaba, Tencent and Weibo (WB) as his top Chinese internet stock picks. Sandler said Alibaba should reach $1 trillion in gross merchandise volume by 2020.
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