Amazon.com (AMZN) has been booming in 2015, with AMZN stock up over 70% year-to-date. Part of that is thanks to impressive Amazon earnings, with the e-commerce king finally posting some substantive profits, but a lot of the early run-up in 2015 was because of much-anticipated details about Amazon Web Services.
Specifically, the cloud computing arm of AMZN was revealed in April to be a powerhouse. It’s tracking $6 billion in revenue this year and, most importantly, enjoys significant margins that are boosting profitability for Amazon.com as a whole.
As InvestorPlace’s John Divine notes, in recent Amazon earnings, “AWS was just 7.9% of the company’s total revenue, but its operating income of $391 million was a remarkable 36.4% of AMZN’s total operating income of $1.08 billion.” AWS is also growing fast, at a roughly 50% rate annually.
It’s no surprise that investors are bullish about AMZN stock as a result.
But, what may come as a surprise is China’s closest version of Amazon.com — that is, e-commerce giant Alibaba Group (BABA) — could be imitating its Seattle-based forerunner.
According to the Wall Street Journal, Alibaba is planning a massive push into cloud computing to the tune of $1 billion.
The web services division, known as Aliyun, has high hopes, according to the WSJ report:
Though it faces challenges attracting U.S. customers unfamiliar with the brand and its offerings, Mr. Hu said, Aliyun aims to become serious competition for Amazon.com Inc.’s cloud-computing unit, Amazon Web Services.
“We see that Amazon took 10 years to get to where it is today,” Mr. Hu said last week. “Aliyun is just past its sixth year and we hope to match or outperform Amazon within three or four years.”
So, can Alibaba pull this off? Well, while some of the bluster is assuredly posturing, it’s important to note that cloud-computing revenue for the Asian internet stock was up 82% year over year in the latest earnings report. The raw total is still paltry at just $63 million, but the growth — and the potential — seem to be there.
It is probably unrealistic to think that BABA will ever compete with Amazon on U.S. soil, either in flat-screen TV sales or on cloud computing services. But, in the emerging markets of Asia, Alibaba could be well-positioned to capitalize on this in-demand service.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
