Albaba's Cloud computing continued to deliver solid results in FY1Q17 (revs +156%YoY), with non-GAAP EBITA margin narrowing to -12.7% from -75.9% a year ago. We expect this business arm to maintain strong momentum for the next couple of years (CY17-19E revs CAGR of 63%), achieving break-even in CY17. Longer term, we expect its margin profile to match that of global peers (AWS?s operating profit margin at 24% in 2015), which suggests sizable margin improvement potential.
Due to consolidation of Youku, digital media and entertainment business revenue nearly tripled in FY1Q17. We believe the
segment (mainly UCWeb) also grew quickly ex-Youku over the past few quarters, mainly driven by UCWeb?s search, advertising and game distribution.
