Thursday, September 19, 2019

Alibaba ($BABA) is that giant Chinese technology company that claims to do just about everything. Imagine Amazon, eBay, Venmo, Netflix and more, all rolled into one business.

Well, we were skimming Alibaba’s financial numbers the other day, and found something else the company does — lose money on cloud computing.

We didn’t think such a thing was possible, because the economics of cloud computing are so simple. You buy computer servers and rent out space to customers. It’s not a new business model, and anyone with an online presence needs some sort of cloud computing. Losing money at cloud computing is like losing money when you own a casino.

Yet, somehow, Alibaba has done precisely that for at least three years running.

See Figure 1, below. These are the operating segments Alibaba reported in 2018 and 2019 (priced in Chinese renminbi). Cloud computing is the second segment listed, and we flagged the money-losing portion in blue.



So how rare is it to lose money in cloud computing? Calcbench can tell you.

First, we held our cursor over that (5,508) loss to find out how Alibaba tagged that number. As one would expect, the tag is “OperatingIncomeLoss.”

When you know the XBRL tag on a piece of financial data, you can then use our XBRL Raw Data Query page to find all other companies that use the same tag. Yes, many companies do use the OperatingIncomeLoss tag — but only a handful use that tag and cross-reference it to include the word “cloud.”

Indeed, for calendar 2018 we found five firms that used those tags in their filings at all, and only three of them are companies you’ve ever heard of:

  • Microsoft: $13.92 billion Operating Income from Cloud
  • Oracle: $21.587 billion Operating Income from Cloud
  • Alibaba: $776.2 million Operating Loss from Cloud (converted from renminbi).

We can think of other firms that also offer cloud computing services under another name. Amazon Web Services, for example, would technically qualify as cloud computing (it’s data storage via the cloud), although Amazon cross-references to its own secondary tag (technically called a “dimension”) dubbed “AmazonWebServicesSegmentMemeber.”

Like Microsoft and Oracle, however, AWS also makes gobs of money: $25.6 billion in revenue last year and $7.3 billion in profit. (Do the math, and AWS may take over the world around 2046 or so.)

Searching the Text Disclosures

So anyway, why does Alibaba lose money on cloud computing? First we found this description of what that line of business is, from the company’s annual report:

The Company’s cloud computing segment is comprised of Alibaba Cloud, which offers a complete suite of cloud services including elastic computing, database, storage, network virtualization services, large scale computing, security, management and application services, big data analytics, a machine learning platform and Internet of Things (“IoT”) services.

OK. That’s no help.

The MD&A provides a few more statistics about the overall growth of Alibaba’s cloud computing. For example, cloud revenue increased 84 percent from 2017 to 2018, “primarily driven by an increase in average spending per customer.”

That’s nice news unto itself, but cloud revenue was only 7 percent of Alibaba’s overall revenue. So this is a fast-growing segment for Alibaba, but it’s still a small segment — and we still don’t know why the firm is losing money.

One hint came in a discussion of cost of revenue. Alibaba did say costs were up “in bandwidth and co-location fees and depreciation expenses as a result of our investments in our cloud computing,” among other items.

So maybe — maybe — Alibaba’s losses in cloud computing are growing pains. The company says demand is growing for sophisticated cloud-based services like network virtualization. Investment to deliver those sophisticated services ain’t cheap. Maybe the investments now will pay off in black ink for the cloud computing segment later.

Then again, Alibaba has been reporting losses in cloud computing for three straight years. We’ll be curious what the company reports sometime next spring with its next annual report.


FREE Calcbench Premium
Two Week Trial

Research Financial & Accounting Data Like Never Before. More features and try our Excel add-in. Sign up now to try the Premium Suite.