Cloud Race Gets More Interesting--and Confusing
MARKETWATCH 7:00 AM ET 2/5/2020
Symbol Last Price Change | GOOG | 1447.07 | 0 (0%) | | AMZN | 2049.67 | 0 (0%) | | MSFT | 180.12 | 0 (0%) | | QUOTES AS OF 04:00:00 PM ET 02/04/2020 |
The most recent round of earnings reports makes clear that the largest cloud service providers are having no trouble finding new business. Good luck figuring out how each is faring against the others in a hypercompetitive market, though.
Fourth-quarter results (https://www.wsj.com/articles/google-parent-posts-disappointing-earnings-but-discloses-new- youtube-cloud-details-11580765421?mod=hp_lead_pos3&mod=article_inline) from Google(GOOG)-parent Alphabet(GOOGL) Inc. late Monday added both clarity (https://www.wsj.com/articles/google-parent-posts-disappointing-earnings-but-discloses-new- youtube-cloud-details-11580765421?mod=hp_lead_pos3&mod=article_inline) and confusion to the issue. The report included the first disclosures of its Google Cloud business, which generated $8.9 billion in revenue for 2019. The numbers also showed Google Cloud's growth accelerating to 53% last year from growth of 44% the year before, confirming some early success of the company's stepped-up effort to sell its services to large corporate clients. The company said on its earnings call Monday that the number of deals worth over $50 million more than doubled in 2019 from the previous year.
The numbers also seemed to confirm Google's(GOOG) place as a distant third to Amazon.com(AMZN) and Microsoft(MSFT). Google Cloud is about one-quarter the size of Amazon's(AMZN) AWS, which reported about $35 billion in revenue for 2019, up 37% from the prior year. Microsoft(MSFT) doesn't report revenue for its Azure cloud service specifically, but consensus estimates from Visible Alpha have Azure revenue at $16.4 billion for the calendar year 2019, which is up 39% from the prior year. Microsoft's(MSFT) fiscal year ends in June.
However, Google's(GOOG) Cloud revenue numbers include both its enterprise cloud service known as Google Cloud Platform, or GCP, as well as its G Suite line of productivity software that includes services such as Gmail for business users and Google Docs. In this light, Google's(GOOG) new disclosures are more in line with Microsoft's(MSFT) Commercial Cloud (https:// www.wsj.com/articles/microsoft-steps-up-push-to-dominate-hottest-segment-of-the-cloud-11572876001), which groups Azure with the enterprise portions of Office 365, LinkedIn and Dynamics. Microsoft's(MSFT) Commercial Cloud revenue for 2019 was $ 44.7 billion, up 39% from the prior year.
That measurement would put Microsoft(MSFT) ahead of even Amazon(AMZN), which has very little software-related revenue in AWS. Amazon(AMZN), of course, could change that by launching more software offerings on its own or by acquiring an established player. But Amazon(AMZN) is still widely considered the leader (https://www.wsj.com/articles/microsoft-steps-up-push-to- dominate-hottest-segment-of-the-cloud-11572876001) in the cloud market due in part to its first-mover advantage. The company formally launched its Web Services business in early 2006--way before cloud computing entered the lexicon. Azure was first announced by Microsoft(MSFT) four years later.
However the top two are ranked, investors should expect the race to remain hot given the potential upside. Cloud spending still accounts for a relatively small portion of the corporate IT market. Morgan Stanley estimates that only about 23% of business-computing workloads have moved to public cloud services to date.
The race will also be expensive. Dell'Oro Group estimates that Amazon(AMZN), Microsoft(MSFT) and Google(GOOG) spent a combined $42.4 billion on data-center capital expenditures last year and will raise that bill by 20% this year. At least that part of the cloud business remains clear.
Write to Dan Gallagher at dan.gallagher@wsj.com (mailto:dan.gallagher@wsj.com)
-Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com |
