With AliCloud seeking to become a real competitor in North America, Baird’s top analyst Colin Sebastian weighs in on Alibaba Group Holding Ltd (NYSE:BABA). The analyst recently attended a public sales meeting with Alibaba Cloud, which provided further details into the company’s cloud strategy, including expansion plans into North America.
Alibaba’s cloud service is currently the single largest public cloud vendor in China. The service boasts more than 2.3 million users and offers more than 70 cloud services across computing, storage, databases, analytics, networking, messaging, machine learning and mobile.
Alibaba maintains an approximate 45% market share in China and international market growth Is expected to become increasingly important, according to Sebastian. The closest international substitute to AliCloud is Amazon’s AWS. Alibaba is currently marketing their cloud as a service comparable to AWS, with superior power in Big Data/Machine learning, security, and middleware. The analyst explains, “Without evaluating those claims in this research note, we would note that AliCloud offers unique access to China, a focus on training and support, and “competitive” pricing with AWS. In the meeting, one of AliCloud’s U.S. customers indicated they switched from VMWare/Amazon to AliCloud due to better network connectivity to China and better security.”
AliCloud maintains a home court advantage in China, with governmental policy allowing for the company to take advantage of domestic leverage. The analyst explains that cloud computing is of ever-increasing importance to China and also affirms that there is room for a largely successful AliCloud. The analyst maintains that many investors undervalue AliCloud’s long-term market opportunity and potential. In his words, “While we continue to expect Amazon to remain the clear market leader, and Microsoft and Google are serious contenders, we see AliCloud as a legitimate up-and-comer, and with a relatively clear path for revenue growth and profitability. On the margin, a more aggressive AliCloud could add some pricing pressure in western markets.”
The analyst reiterates an Outperform rating for BABA with a price target of $94.00.
According to TipRanks, Colin Sebastian is ranked #7 of 4,083 analysts. He maintains a 79% success rate and realizes an average return of 18.4%. When rating BABA, the analyst upholds a 100% success rate and boasts an average return of 11.6% on his ratings.
BABA is currently ranked as a Strong Buy on TipRanks, with 91% of analysts issuing a Buy rating for the stock, and the remaining 9% maintaining a Hold rating.