- Amazon and Microsoft each reported earnings this week - both showing a slowdown in their respective cloud businesses.
- Amazon Web Services' revenue growth rate fell to 35% from 37% last quarter, on $9 billion in revenue. Microsoft Azure's revenue growth rate fell to 59% from 64% last quarter, though the company doesn't break out specific revenue figures for that business.
- In both cases, Wall Street analysts said those numbers don't tell the whole story, and remain bullish on both clouds.
- Amazon Web Services still leads the market, and posted $2.3 billion more in sales growth over the last quarter than it did in the same period of 2018. Analysts also praised Amazon's recently disclosed plans to hire more in sales and marketing to better appeal to larger customers.
- Microsoft, for its part, is making the right moves to expand its edge in the the so-called hybrid cloud market, analysts said, and it could help its Azure platform catch up.
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From the looks of the earnings reports Amazon and Microsoft each released this week, their cloud businesses appear to have the same problem: Slowing revenue growth.
Amazon Web Services, the retailer's market-leading cloud platform, saw its revenue jump 35% since the same quarter last year, to nearly $9 billion. That's continuing a trend of slowing growth: In the fourth quarter of 2018, it posted 46% growth. In each subsequent quarter, that rate has gone to 42%, then to 37%, and now to this newest 35% figure.
Microsoft, for its part, said that revenue in its Azure cloud platform grew 59% from the same period of 2018, but the company doesn't report specific revenue figures for that business. In the same period of 2018, it posted 76% growth, the same for the quarter after that, 73% the next, then 64%, and now the new number of 59%.
On the face of it, this could be bad news for Microsoft and Amazon both. The cloud computing business is the central pillar of CEO Satya Nadella's grand reinvention of Microsoft, while Amazon Web Services is the single most profitable part of the retail giant's empire, accounting for over two-thirds of its operating income in the last quarter.
However, Wall Street analysts and industry experts seem almost entirely unfazed by these figures, and remain bullish on both Amazon Web Services and Microsoft Azure as the two continue their run as the first- and second-place players in the cloud, respectively.
A common denominator
Indeed, there appears to be at least one common factor between both Amazon's and Microsoft's cloud slowdown, several analysts told their clients in research notes reviewed by Business Insider: The bigger they get, the harder it is to post the triple-digit growth figures that they did when the platforms were younger.
Analyst Patrick Moorhead of Moor Insights and Strategy said this week that Amazon's slowing cloud growth is simply the "law of large numbers." He notes that putting the percentage points aside, AWS posted $2.3 billion more in revenue this quarter than in the same period of 2018, which is more than other cloud companies' entire revenue.
RBC Capital Markets said in a note to clients that Amazon Web Services' "slightly soft quarter" was likely due to the company's push into going after larger customers, calling out the investments Amazon is making to help AWS compete, particularly with Microsoft, for
Microsoft's big chance to strike back
And ultimately, while the cloud computing market is more competitive than ever, JPMorgan analysts wrote in a note to clients that Amazon Web Services is still the dominant platform, with a marketshare that they peg at 60% in the United States.
With a $36 billion annualized run rate, a measure of revenue over a 12-month period, Amazon Web Services is more than twice the size of Microsoft Azure, and four times the size of Google Cloud, the JPMorgan analysts said.
However, several analysts noted that Microsoft's earnings also show that the company is making the right moves to stay competitive with Amazon Web Services, and that its big bet on hybrid cloud technology - which mixes traditional, legacy servers and data centers with public cloud infrastructure - could help it close the gap.
"In a world increasingly moving to the cloud, but still encumbered by legacy investments that sit elsewhere and still drive value today, Microsoft is uniquely positioned to take an increasingly large percentage of corporate IT budgets in a hybrid world," RBC Capital Markets analysts wrote in a research note on Thursday.
