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$BABA cloud business is being completed missed by the market.

Let me explain why Alibaba Cloud, which makes up just ~10% of LTM revenues, could become worth more than the entire current market cap by FY25

1/

Alibaba Cloud made US$9.2 Billion in revenue for FY21 and grew 33% YoY.

They have ~38% market share of the cloud industry in China. Which is slightly more market share than AWS has in the US.

2/

In their investor presentation, $BABA projected that the cloud market in China will grow at a 37% CAGR until 2025.

The IDC estimated the CAGR to be 33% over the next 5 years.

The global cloud market is estimated to grow at 17.5% annually.

3/

If we take the IDC’s more conservative annual growth estimation of 33%, and $BABA maintains their 38% market share, they would generate $28.8 billion of revenue in FY25.

Alibaba cloud even benefit from scale economies and continue to take more market share.

4/

If we apply a 10x sales multiple we get to a $288 billion valuation for the cloud business in FY25.

Analysts typically value AWS, Azure & Google cloud at closer to 15x sales. So a 10x multiple for a company with more domestic market share and a higher CAGR isn’t unreasonable

1/

$BABA in their most recent investor presentation reported the China cloud market size in 2020 at $32B of which they have a market share of ~30% which equated to $11B in revenues FY21.

Now here’s where it gets pretty crazy …

2/

They estimate the China cloud market size in 2025 to be $154B which is a 37% CAGR.

If $BABA maintain ~30% market share that will be $46B in revenues from the cloud business in FY25. Over 4x the current revenue for Alibaba cloud.

3/

Western cloud businesses like AWS and Azure are valued at ~15x sales or more by most analysts.

An equivalent multiple to $BABA cloud in 2025 would give a value of $693b which is over double the current market cap for Alibaba.

4/

If we put a 50% discount on the cloud business in FY25 for regulatory concerns and use a 7x sales multiple .. we still get to the current market cap in value.

Cloud is only ~9% of LTM revenues for $BABA, yet the FY25 value of cloud is potentially equal to the market cap.