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“… We view Alibaba as an emerging giant in China given its public cloud business leadership (50% of China’s public cloud sales in 2016, we estimate). The analysis in this report supports our view that Alibaba’s cloud business is undervalued by the market as both our cloud base and bull case suggest upside to current share prices, 12% and 21% respectively. We also see the information security concerns as a tailwind for Alibaba to develop public cloud business in China even though its technology may still be behind the global leaders. Additionally, we highlight the public cloud market is still nascent in China which suggests a long runway for growth. Revenues from China’s public cloud market should reach US$2 billion in 2016 (per IDC forecast), making up merely 2% of the global market, curved by low adoption currently. Therefore, our assumptions here could be still conservative as we apply consistent assumptions because 1) the growth trajectory in China could be different from other leading players as the public cloud market in China is just the beginning and 2) the cost structure could be different as the majority of Alicloud datacenters are in China even though it is expanding its global footprint…."
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