ICONIQ Growth: Q1 2020 Cloud Commentary Report
ICONIQ Growth has been actively investing in cloud companies since our inception. As part of our work we closely track the major public cloud platforms: Amazon AWS, Microsoft Azure and Google Cloud and what these platforms are experiencing regarding their adoption and growth.
The following is based on publicly available earnings transcripts as well as press releases issued by Amazon, Microsoft and Google.
In the most recent quarter (Q1’20), demand for public cloud services from the three most significant domestic providers remained robust with strong growth, and these companies expressed fairly consistent confidence and intent for continued investment in their cloud platforms.
Amazon grew 33% Y/Y, on a constant currency basis, at $40.9B scale on a run-rate basis, and is very likely to have surpassed Oracle to become the #2 software company in the world(1) without meaningful M&A. Management was pleased with growth and spoke of durability given customer breadth.
Azure, estimated to be ~$20B on a run-rate basis at the end of 2019 (exact numbers not disclosed), grew an impressive 61% Y/Y, on a constant currency basis, with many notable blue-chip customers. Management is expecting a surge in demand for Azure and cloud services and investing accordingly in CapEx as a result.
GCP grew meaningfully higher than Google Cloud’s 52% Y/Y (some estimate 75–80% Y/Y) with a slew of notable new customers and continued plans for investment through 2020.
This post is an overview of our findings, please visit our LinkedIn SlideShare for a copy of the full report.
- Public cloud vendors continue to deliver strong results despite broader economic volatility
While COVID-19 has impacted many businesses globally, it has also caused many companies to accelerate their digital transformation journeys. AWS, Azure, and GCP all demonstrated sustained growth this quarter and are largely viewing the current environment as a growth lever for their cloud offerings both in the near-term and long-term, while also acknowledging a breadth of impact across the customer base.
2. Amazon remains the largest cloud provider, with AWS revenues surpassing $10Bn this year — representing growth of 33% Y/Y
The impact of COVID-19 will vary by industry, but AWS is confident in its continued growth given the breadth of customers and industry verticals they support. Many organizations, from the NFL to the World Health Organization to England’s NHS have relied on AWS to adapt to the challenges imposed by COVID-19.
AWS continues to drive much of the profitability for AMZN, especially as the firm invests meaningfully in response to COVID-19, representing just 13.5% of revenues but 77% of operating income. Looking forward, AMZN expects a significant increase in expenses related to COVID-19, noting they will invest the entirety of their Q2 operating income (estimated $4.0Bn) or more to related causes, such as PPE, testing, warehouse safety etc. With regards to AWS specifically, AMZN potentially expects CapEx to decrease near-term as lifetime of servers and datacenters increase.
3. Microsoft’s Azure continues to penetrate further into the public cloud market, establishing itself as an expansive platform capable of serving the entirety of a businesses’ needs between Azure, Commercial Cloud and Intelligent Cloud services
Microsoft reported a strong quarter, rooted in the growth of their cloud segments. The investment in Azure infrastructure has been pivotal as organizations around the world shift to the cloud and increase their usage. While exact Azure numbers are not disclosed (estimated to be ~$20B on a run-rate basis at end of 2019), it continues to grow meaningfully at 61% Y/Y on a constant currency basis.
Moving forward, Microsoft will continue to invest strategically into their cloud platform, secure strongholds in large enterprises, and deepen technological capabilities in the areas of machine learning and artificial intelligence. While being thoughtful about the near-term environment, Microsoft will continue to invest in CapEx to meet the growing demand for cloud services in both the short and long-term.
4. GCP continues to grow their platform of offerings and establish a foothold for themselves within machine learning and compute-intensive services
Google Cloud, and specifically GCP, remains a key lever of growth for Google. Google Cloud grew 52.2% Y/Y to $2.8B in revenue and an $11B revenue run-rate during Q1 2020, with many estimating GCP’s growth at 75%-80% Y/Y.
Overall, Google Cloud performed well this quarter and the momentum is expected to continue long-term as more enterprises shift to the cloud. While CapEx may compress slightly in 2020 relative to 2019, Google is continuing to grow their product offerings and customer base in a substantial way which reflects the heightened competitive environment within the public cloud market.
A common theme among AWS, Azure and GCP was ongoing commitment to the cloud and their customers. While exact impacts of COVID-19 are too soon to tell, all companies remain optimistic about their cloud business lines. Thoughtful and strategic investments to build out enhanced product capabilities appear to remain a priority for each of these providers.
We hope this overview helps provide insight into the growth of public cloud providers in recent quarters, and how these management teams expect to evolve their platforms in the future. For more detailed information, please visit our LinkedIn SlideShare for a full copy of the report.
