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Amazon Vs. Alibaba: Changes In Cloud Market Can Throw A Big Surprise

26 Feb 2019

Amazon’s AWS is growing at close to 50% with trailing 12-month revenue crossing $25 billion.

AWS also reported improvement in operating margin to 29.3% from 26.5% in the year ago quarter.

Alibaba cloud is becoming one of the strongest competitors to AWS with a growth rate of close to 100% in the last few quarters.

However, the latest trade rhetoric and Huawei fiasco should improve Amazon’s long term potential in Europe and South Asia.

Amazon is clearly undervalued when we look at the growth runway of AWS and market dominance within the cloud market.

Amazon (AMZN) has converted AWS into a major profit center as new services are added to the cloud operation. The operating margin within this segment is also on an uptrend. There was an improvement of 2.8 percentage points in the operating margin of AWS from the year-ago quarter while the growth rate increased to 46% from 44%. Despite severe competition from other tech majors, Amazon has been able to improve the potential of this segment.

Along with other US tech giants, Amazon also faces competition from Alibaba (BABA). Alibaba cloud grew by 84% in the recent quarter and the revenue has reached close to $4 billion on an annualized basis. Alibaba is making substantial investments to ramp up the growth rate of its cloud segment and increase the services offered to the customers. But the company faces an uphill task in regions outside China due to trade issues between the US and China. The negative sentiment around Huawei in the US and Europe could also impact Alibaba’s cloud ambitions in many international regions.

Amazon will be the de facto choice of enterprise customers

Fig: Net sales, growth rate and operating income of AWS. Source: Amazon Filings

Source: Seeking Alpha