CEO Satya Nadella at Microsoft Corp.’s Ignite Spotlight event in Seoul on November 15, 2022.
Cho Sung Joon | Bloomberg | Bloomberg | Getty Images
Google has been catching up in the cloud infrastructure market for years. Amazon When microsoftThe challenge for investors is that the three companies did not report their cloud infrastructure metrics in a way that could be easily compared.
But internal estimates compiled by Google employees, based on speculation from leaked Microsoft documents and other market statistics, suggest that Google is closer to second place than analysts think. increase.
According to Google documents, Microsoft reported less than $29 billion in Azure consumption revenue in its most recent fiscal year ended June 30, estimated to reflect the value of cloud infrastructure services used by clients. increase. That’s billions of dollars less than Wall Street analysts expected. Bank of America is the most bullish, he predicted Azure revenue of $37.5 billion in fiscal 2022. Cowen said he projected revenue of $33.9 billion and UBS he projected $32.3 billion.
According to Google documents, Azure ended fiscal 2022 with an operating loss of nearly $3 billion, down from a loss of more than $5 billion in the previous year. Azure sales and marketing costs are approaching $10 billion, and he claims 34% of consumption revenue.microsoft Said Company-wide sales and marketing expenses represent 11% of revenue for the same period.
One analyst dismissed Google’s revenue tally.
“It’s not going to be that big of a loss,” said Derrick Wood, an analyst at Cowen, which is Microsoft’s equivalent of a buy rating. His research shows that Azure boasts an operating profit margin above his 30%, while Google’s estimated profit margin is -10%.
The cloud is one of the most important battles in technology. The largest and most well-capitalized U.S. technology company is poised to win lucrative deals from large corporations and government agencies that are increasingly pushing critical computing and storage needs out of their data. Center.
Google and Microsoft have invested heavily to prevent Amazon Web Services from dominating the market of e-commerce companies it pioneered in 2006.
Microsoft provides year-over-year growth rates for Azure and other cloud services, but does not provide monetary figures or identify how much growth Azure alone provides. Azure and other cloud service metrics also include, among other things, Enterprise Mobility and Security (EMS) tools that can be sold separately.
Meanwhile, Google’s parent company, Alphabet, has not disclosed to investors the revenue or operating profit that Google Cloud Platform (GCP) will generate. We only disclose figures for Google Cloud, which includes subscriptions to Google Workspace collaboration software, and Azure’s direct competitor, GCP.
Amazon reports both AWS revenue and operating profit, which provides investors with the clearest picture of cloud business among the three companies. AWS posted a 26% operating margin in the third quarter, while Google’s cloud group reported a -10% operating margin.
Microsoft has never provided gross profit or operating profit for its Azure division. CEO Satya Nadella said in 2019 that customer adoption of “higher levels of service” beyond raw computing and storage resources could lead to “good long-term profit margins.” .
according to Gartner dataAWS will dominate 39% of the global cloud infrastructure market in 2021, followed by Microsoft at 21%, China’s Alibaba at 9.5% and Google at 7.1%.
Google and Microsoft representatives declined to comment for this article.
According to Google’s documentation, the analysis is done as follows: insider articlecited a leaked Microsoft presentation containing Azure Consumption Revenue (ACR) for US enterprise businesses over the past few years. In its documentation, Google said the leaked presentation allowed for a more accurate modeling of its business, and Google’s calculations show that ACR is the primary source of revenue for Azure and other cloud services. suggesting.
Google made a series of guesses based on the leaked ACR information. Microsoft’s statement Approximately 51% of total revenue for fiscal 2022 came from Google’s customers located in the United States, based on market data from Gartner and other sources, followed by other revenues such as the public sector and regulated industries. of customer segments were added.
To determine operational costs, Google assumed 65,000 people were either dedicated to or working primarily in Azure. report Microsoft’s cloud and artificial intelligence organization reportedly has more than 60,000 employees.
If Google is correct, Microsoft’s ACR is about 40% larger than Amazon’s AWS business and 27% larger than Google’s cloud business.
“Analysts include revenue share from EMS and Power BI, both of which are highly profitable SaaS businesses, with estimated gross margins of over 80%,” says a Google document. . “A realistic analysis of Azure profitability requires the removal of these allocations.”
Google concluded that Microsoft’s ACR growth slowed from 61% in fiscal 2020 to about 50% in fiscal 2022. This is a faster growth rate than Microsoft provides across Azure and other cloud services, growing from 56% growth to 45% over the same period.
Google forecasts that Azure’s gross profit, or revenue after accounting for cost of goods sold, will grow from less than 29% in fiscal 2019 to nearly 63% in fiscal 2022. Azure Gross Margin.
At these levels, the cloud is less profitable than Microsoft’s Windows and Office software franchises. For fiscal 2022, Microsoft’s total gross margin was approximately 68%.
None of the three US market leaders have announced gross margins for their cloud groups.
Cowen expects the broader Azure and other cloud services group to account for 27% of Microsoft’s revenue in the current fiscal year 2023. He said Microsoft could clarify things by providing a more detailed breakdown.
“A more specific disclosure about that would be helpful,” Wood said.