Last quarter I posted the results of the hyperscalers in anticipation of our companies results and I wanted to update this data ahead of Q3.
Revenue Growth: Google Cloud grew 38% YoY to $6.9B. This is a slight acceleration from last quarters growth rate of 36%. Additionally, revenue grew 9.4% sequentially which is an improvement from the 7.8% QoQ growth from both last quarter and Q3 of last year. Again, please note Google Cloud revenue includes G Suite and is not in constant currency. And like last quarter, the CEO & CFO mentioned the Google Cloud Platform grew faster than the overall cloud.
There was no forecast provided by Google once again but we did get this tidbit from the Q&A.
Doug Anmuth – J.P. Morgan – Analyst
Ruth, you highlighted momentum in Cloud and growth accelerated in 3Q. Are you seeing any changes in Cloud demand as existing or potential customers perhaps rethink their priorities?
Ruth Porat – Chief Financial Officer
We talked about this about last quarter, in some cases, certain customers are taking longer to decide, and some have committed to deals with shorter terms or smaller deal sizes, which we attribute to a more challenging macro environment. Some are impacted due to reasons that are specific to their business. But overall, as you can see from the results here again, we’re pleased with the momentum in Cloud and do continue to be excited about the long-term opportunities.
Revenue Growth: Azure and other cloud services revenue grew 35% and 42% in constant currency. What is most concerning about this is they missed their own forecast by about one percent for the second report in a row. It appears things are contracting faster than they have anticipated. This was another decrease from 46% YoY growth reported last quarter.
Forecast: 37% YoY; it is obvious Azure is seeing a steady slowdown. Revenue growth was north of 50% just a year ago, although one could argue this kind of growth is still quite strong given their scale and the macro environment.
Given the consecutive misses on Azure growth and the lackluster forecast, it is not surprising the first and second analyst question addressed this.
Keith Weiss – Morgan Stanley – Analyst
How should we think about that forecast? Have you applied more conservatism in it? And how should we think about Azure growth like the glide path for the whole year?
Amy Hood – Chief Financial Officer
What we did see through the quarter is a real focus, both by customers, but also by our sales and customer success teams on going proactively to customers and making sure we are helping them optimize their workloads. And as we went through the quarter and as, of course, the macroeconomic environment got more complicated we continued to focus on that, because ultimately, those optimizations bring value even as budgets are still growing and budgeted spend is still growing. And so it’s this nuance of you’re still seeing digitization. This is still the tailwind that helps customers solve problems.
Revenue Growth: Sales increased to $20.5 billion in Q3, up 28% YoY excluding foreign exchange impacts. This follows the trend of slowing growth, down from 33% YoY last quarter. As others pointed out in a separate post, this was a big drop in sequential growth as well at 4% QoQ, the lowest in Q3 by a wide margin.
Amazon did not guide to AWS growth but these remarks were made on the call.
Brian Olsavsky – Chief Financial Officer
With the ongoing macroeconomic uncertainties, we’ve seen an uptick in AWS customers focused on controlling costs. And we’re proactively working to help customers cost optimize, just as we’ve done throughout AWS’ history, especially in periods of economic uncertainty.
Brian Olsavsky – Chief Financial Officer
We do see some of the consumers are cutting their budgets and trying to save money in the short run. I would say that although we had a 28% growth rate for the quarter for AWS, the back end of the quarter, we were more in the mid-20% growth rate. So we’ve carried that forecast through to the fourth quarter.
All in all, I would call this a mixed bag with more bad than good. Google’s cloud revenue actually accelerated, although only marginally, while both Microsoft and Amazon continue to see Azure and AWS growth taper off. Google Cloud is a fraction of the size of Azure and AWS so this is not too surprising.
Both Microsoft and Amazon sang a similar tune on their calls. Customers are looking to optimize workloads and control cost. The macroeconomic environment is certainly making its impact felt on these companies and their cloud growth rates. On the flip side, the cloud is still growing 25% - 40% for these giants while most of their other segments like YouTube, Search, e-commerce, etc. are struggling. It goes to show just how important and how big the cloud market is.
I would say my expectations are reduced after glossing through these reports. This quarter was undoubtedly more challenging than the last and I would expect our companies to share a similar story. Looking forward to discussing the upcoming reports with you all.
Best of luck to everyone.