AWS and Google Cloud report rampant growth

The hyperscaler duo both smashed earnings forecasts indicating a healthy public cloud market, but market leader AWS says Q3 was still a ‘a mixed bag’

       Two of the public cloud market's key giants both logged barn storming Q3s, despite pandemic pressures eating into revenues in other parts of their businesses.

At first glance - How the two compare Google Cloud revenues shot up 44.5 per

cent to $3.44bn (2.95bn). Parent company Alphabet logged revenues of $46.17bn beating Wall Street’s estimates of $42.9bn. It’s a return to form for Alphabet, which saw its sales decline in Q2 for the first time since the company went public in 2004, in its worst performance since the global financial crisis in 2009. The Google Cloud segment includes sales from Google Cloud Platform (GCP), Google Workspace (formerly G-Suite) productivity tools and other enterprise cloud services. Meanwhile AWS' Q3 sales were also up double-digits, rising 29 per cent to $11.6bn (9.94bn). As a whole, Amazon’s third quarter revenue grew 37 per cent to $96.1bn. However AWS' growth rate is significantly less than quarters in previous years. AWS used to generate growth in the region of 49 per cent when it first started reporting AWS as a separate unit in its financials back in 2015, and it has beentrending downwards every quarter since Q2 2018. Earlier in the week, Microsoft Azure logged sales growth of 48 per cent for its Q1. However, as market leader, AWS has a much a larger revenues base. And within the company, AWS still brought in the lion’s share of Amazon’s operating income in Q3; $3.53bn out of $6.2bn for the vendor as a whole. Both companies boasted that the cloud infrastructure services market is in robust health as COVID-19 lockdowns fuel migrations and workload demands. Google Cloud - Growing rapidly due to AI and multi-cloud support In an earnings call transcribed by Seeking Alpha, Alphabet CEO Sundar Pichai said Google Cloud’s stellar growth was fuelled by the vendor’s investments in high-value AI and machine learning capabilities. “As the shift to digital accelerates, Google Cloud continues to provide a foundation for data processing and analytics, one of the fastest growing segments of the market,” he said. Pichai highlighted BigQuery in particular; Google Cloud’s real-time and predictive analytics tool. “Customers value differentiated AI/ML-based industry specific solutions,” he said. Google Cloud remains the third largest global hyperscaler by market share, behind AWS and Azure. Chief financial officer for Alphabet, Ruth Porat, said the vendor is unfazed by remaining in third place, pointing to Google Cloud’s almost 45 per cent growth rate in Q3, and a forecast of hitting an annual run rate of $13.77bn for the financial year. “We are investing aggressively in cloud given the opportunity that we see,” she said. “Frankly, the fact that we were later relative to peers, we’re very encouraged by the pace of customer wins and the very strong revenue growth in both GCP and Workspace. We do believe were still early in this journey.” Another trends driving the continued momentum for the public cloud market for both vendors is customers increasingly moving to the cloud to drive efficiencies and lower IT costs in lockdowns. For Alphabet CEO Pichai, he sees Google Cloud offering multi-cloud support as a major USP for the company. “Our strength in multi-cloud is an advantage,” he said. “This is helping us win large datacentre and IT transformationdeals like Nokia, which recently announced its migrating and modernising approximately 30 datacentres across 12 countries onto Google Cloud.” He added: “Customers are looking to supporthybrid work environments. We’re seeing significant growth in demand.” The Nokia deal was announced two weeks ago, which the Nordic telco firm said was driven by a desire to “exit on-prem infrastructure as part of a new cloud-first strategy”. AWS - Cloud is a mixed bag' but operating profits are up 56 per cent For public cloud’s leader AWS, there were also large customer wins to talk up. “We’re seeing a lot of customers who are now moving to the cloud at a faster pace,” CFO Brian Olsavsky said on a Q3 earnings call. He revealed that Amazon has incurred more than $7.5bn “incremental COVID related costs” in the first three quarters of 2020 in other parts of the business including logistics, which AWS strong performance is helping to offset. “AWS customer usage remained strong. We continue to see companies meaningfully growing their plans to move to AWS.” Olsavsky noted that despite Q3’s revenues growth rate being a flat 29 per cent, the same as in Q2, the dollar amount of $11.6bn is still the largest the vendor has ever posted. Still, he conceded that COVID-19’s devastating impact on verticals such as retail meant Q3 was “a mixed bag” for AWS. “Cloud is a mixed bag right now because we’re very happy with the cloud performance and we’re seeing a lot of customers who are now moving to the cloud at a faster pace. It accelerated their plans,” he said. “But there’s anomalies in different industries going on this year like in travel and hospitality, which are down. A lot of companies are in a holding pattern in the middle and some are doing really well - things like video conferencing, gaming, and remote learning, and things tied to entertainment.” However, AWS' bottom line was much healthier. Operating profits were up 56 per cent. TechMarketView analyst Marc Hardwick noted that this is where AWS is excelling. “What looks most promising is that AWS appears to be turning market leadership into significant growth of the bottom line, with momentum building on a wide range of higher value activities from, payments, toAmazon Connectin the Call Centre toOperationalising AI/ML.” He said Looking into Q4, both vendors expect that this ever-present drive to cut own expenses as global lockdowns linger will continue to drive companies to the cloud. “Going to cloud is a good way to cut down on expenses long-term,” Olsavsky said. “We feel good about the state of the business and the state of our sales force and their ability to drive value during this period.”

Author: nima.green@incisivemedia.com(Nima Green)

Date: 2020-10-30

URL: https://www.channelweb.co.uk/news/4022565/aws-google-cloud-report-rampant-growth

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