Microsoft and Google both reported yesterday and to no surprise, cloud growth was quite strong for both companies, especially Microsoft. Here is a quick breakdown of each and a few tidbits from their CC’s that stood out to me.
Revenue Growth: Azure and other cloud services revenue grew 40% and 46% in constant currency. This was a slight decrease from 49% YoY last quarter.
Forecast: 43% YoY; I would expect there is some sandbagging here and the real number will come in a couple ticks higher - “We expect Azure revenue growth to be sequentially lower by roughly three points on a constant currency basis… We expect moderation in growth rates, given the size of the installed base.”
Q&A from the CC:
Analyst Question: “With all the concerns about macro and recession… how do you think about Azure’s resiliency? How do you think about Azure’s exposure to advertising business, consumer Internet, and SMB if we do see a real recession?”
CEO Answer: “But what’s happening with Azure though, is in some sense, businesses trying to deal with the overall macroeconomic situation and trying to make sure that they can do more with less. So for example, moving to the cloud is the best way to shape your spend with demand uncertainty, right? Because – and in fact, if anything, one of the things that we’re seeing is an increased shift toward the cloud… And that’s why I think coming out of this macroeconomic crisis, the public cloud will be even a bigger winner because it does act as that deflationary force. So that’s sort of what we are seeing in the Azure numbers. We will be exposed to consumer-driven businesses and SMBs.”
Revenue Growth: Google Cloud grew 36% to $6.3B, although it is important to note this was not in constant currency. I’d expect growth was closer to 40% in constant currency. This was a bigger deceleration than Azure as growth last quarter was 44%. However, Google Cloud revenue also includes G Suite. The Google Cloud Platform (GCP) grew faster than the overall cloud growth. From the CC - "GCP maintained a strong level of revenue growth it delivered in the first quarter and its revenue growth was again meaningfully above cloud overall.
Forecast: None provided from what I can tell however, an analyst did probe during the Q&A and this is what the CFO had to say about the month of July - “Cloud has maintained its strength consistently and I’d say that, that with a business that’s growing at this pace, it’s really much more about a secular trend to the move to cloud.”
Q&A from the CC:
Analyst Question: "I just wanted to ask two questions related to Google Cloud if I could. One, Sundar, I was wondering if you could share with us how you’ve seen the change in pace of customers migrating workloads to the Cloud given COVID and I’m also wondering if you could share with us kind of the puts and takes… for those that have accelerated workload migration to the cloud, how much has that offset the impacted industries or companies that you might be serving where they are seeing lower utilization than what they normally do of cloud capacity.
CEO Answer: “Overall, from my vantage point, obviously with Google Cloud, we’ve been investing to scale up… it’s been good to see as we are scaling up, we are executing more effectively. I’ve been personally involved in many, many conversations last quarter. We had many large customers come on to cloud, big telco deals and banking deals, Deutsche Bank as an example. So, overall I felt the momentum was strong. Generally felt like things were continuing well through the course. Felt like more a secular interest in our digital transformation. Companies are deeply thinking long-term and planning for it. So, overall I felt that the momentum was there…”
All in all, I would say those are a couple strong reports for cloud growth in the quarter given the back drop for most companies who have reported are one miss after another. I am especially pleased with Microsoft’s guidance of 43% for Azure next quarter. Most businesses are guiding lower in this market yet Microsoft and Google are continuing to see strong growth and momentum in their cloud businesses. On Thursday we will get Amazon’s ER which will shed light on AWS growth. I’d expect a set of strong numbers again. Consequentially, I expect strong numbers from my cloud holdings once they start reporting next week and will not have as long of a leash as I might have after reading these reports.