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Equity Analyst, LightStream Research

Supun Walpola

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Alibaba Group Holding  / Equity Bottom-Up

<p>The fact that Alibaba Cloud does not have any tangible results to show yet and the fact that AWS’s OP margin was around 15%-20% when it started having a meaningful impact on Amazon’s valuation suggests that it could be still too soon for Alibaba’s valuation multiples to rerate to reflect a potential turnaround of the Cloud business. However, given that Alibaba Cloud’s ARPU needs to increase by only around 16% for the business to break-even at the current level, we would not rule out the possibility of Alibaba Cloud turning profitable towards the end of this financial year, and would closely watch out for any early signs of this happening, such as improving marginal profitability and ARPU growth over the next few quarters.</p>

The fact that Alibaba Cloud does not have any tangible results to show yet and the fact that AWS’s OP margin was around 15%-20% when it started having a meaningful impact on Amazon’s valuation suggests that it could be still too soon for Alibaba’s valuation multiples to rerate to reflect a potential turnaround of the Cloud business. However, given that Alibaba Cloud’s ARPU needs to increase by only around 16% for the business to break-even at the current level, we would not rule out the possibility of Alibaba Cloud turning profitable towards the end of this financial year, and would closely watch out for any early signs of this happening, such as improving marginal profitability and ARPU growth over the next few quarters.

Alibaba: Can Alibaba Cloud Turn A Profit This Year?