BEIJING, February 8 (TMTPOST) – China’s cloud computing leader Alibaba Cloud has reported a moderate rise in revenues but a surge in its profits in the third quarter of 2024, the first quarter when Alibaba Group CEO Wu Yongming also took charge of the cloud business.

Alibaba Cloud's revenue in the third quarter of 2024 was 28.066 billion yuan, a 3% increase from 27.364 million yuan in the same period in 2022, according to the quarterly results announced by Alibaba Group on Wednesday evening. The revenue growth was mainly attributed to internal cloud use as external cloud use growth fell.

The third quarter of 2023 was the first quarter when Wu became Chairman and CEO of Alibaba Cloud. He focused on protifs, rather than revenues, and took bold and decisive actions, which yielded immediate results.

Despite a 3% increase in revenues, Alibaba Cloud's adjusted EBITA profit surged 86% to 2.364 billion yuan. It was a significant improvement, with the full-year adjusted EBITA profit reaching 4.545 billion yuan.

"With a strategic focus, we have achieved a solid quarter. The top priority for the group is to reignite the growth engines of our two core businesses: e-commerce and cloud computing. In the coming year, we will increase our investment in improving the core user experience to support the growth and solidify the market leadership of Taotian Group. We will focus our resources on developing public cloud products and maintaining strong growth momentum in our international business operations," Wu commented on Alibaba Cloud in the quarterly financial report.

However, it is worth noting that the year-over-year revenue growth was primarily driven by Alibaba Group's consolidated businesses. Excluding the revenue from Alibaba Group's consolidated businesses, there was a decline in year-over-year revenue, indicating that while cloud growth within Alibaba Group increased, cloud revenue from external sources decreased.

In the financial report, Alibaba explained that this was mainly due to the reduction of project-based contract revenue with lower profit margins, in order to continuously improve the quality of revenue. The revenue from public cloud products and services grew healthily year-over-year.

Compared to tactical foresight, Wu's strategic boldness is more commendable. After three changes for the postion of CEO in a year, Alibaba Cloud finally gotten on the right track.

The adjustments to Alibaba Cloud have shown results. Wu has set a strategy for Alibaba Cloud of "AI-driven, public cloud priority" and has established three core business divisions: the Public Cloud Business Division, the Government and Enterprise Business Division, and the Overseas Business Division.

Among them, the Public Cloud Division prioritizes scale and aims to expand market share; the Government and Enterprise Business Division meets the needs of certain industries that are restricted by policy and cannot use the public cloud in the short term, aiming for more standardization, focusing on profit assessment, reducing project-based hardware and software order sales, and encouraging government and enterprise customers to prioritize the use of the public cloud.

As the helmsman of Taotian Group and Alibaba Cloud, Wu also mentioned in the earnings call that there is great potential for synergy between Alibaba Cloud and Taotian Group, especially in the area of AI. Based on the Tongyi Qianwen large-scale model, Alibaba has conducted some tests and found that there is a significant improvement in search, advertising, and other businesses, whether it's the conversion rate of search transactions or the monetization efficiency of advertising matches. However, all of these are still in the early stages of product development.

The future growth of Alibaba Cloud depends on the extent to which AI transforms the cloud. The more the existing cloud computing system fails to meet the needs of large AI models, the more valuable Alibaba Cloud's pre-laid full-stack cloud + AI technical system becomes. 

(Note: 1 yuan equals 0.14 U.S. dollar)

(This article was first published on the TMTPost App.  Author | Zhang Shuai)