Microsoft’s earnings last week were a warning shot to Wall Street after years of rapid growth for cloud services during the pandemic. Although Microsoft has surpassed $100 billion in yearly sales for the first time among cloud vendors, it still confronts huge hurdles from aggressive and capable rivals, waning demand, and declining growth rates across its broad portfolio.
When it comes to cloud apps, infrastructure, databases, and cybersecurity, both Google Cloud and Oracle are outpacing Microsoft by a wide margin.
The following are Microsoft’s important statistics for its fiscal Q2 that concluded on December 31:
Revenue from Azure increased 31% (or 38% in constant currency), compared to Q2 of last year, when Azure growth rate was 46%.
Cloud sales were $27.1 billion, up 22% (up 27% in constant currency); in Q2 of last year, cloud growth rate was 32%. Microsoft Cloud generated $101.9 billion in sales throughout the year. 51.4% of Microsoft’s total income came from the cloud.
Dynamics 365 revenue increased by 21% (or 29% in constant currency) over the same quarter last year.
These figures coincide with a significant slowdown in the growth trajectory of Microsoft’s cloud business over the last several quarters. While there are numerous causes influencing that tendency, the following are the main ones:
Competition becomes more fierce
Microsoft and AWS controlled the majority of the industry five years ago. However, under Thomas Kurian’s direction, Google Cloud had a quick ascent. It is anticipated that Google Cloud will produce $26 billion in cloud revenue in 2022, growing at a pace of roughly 30%. And to add to the intrigue, Oracle has defied all expectations to emerge as a major participant in the cloud and currently holds the top spot in the Cloud Wars. Top 10 Increase Chart with cloud revenue growth of 45% and 43% over the previous two quarters.
Cloud Computing Is More Than Infrastructure: Microsoft CEO Satya Nadella has regularly emphasised the company’s presence across all three cloud levels — infrastructure, platform, and applications. However, Google Cloud and Oracle now compete at all three levels, and the other Top 10 Cloud Wars companies have also developed aggressive platform capabilities, so Microsoft is no longer unique in that aspect.
Dynamics 365: The modular cloud ERP suite from Microsoft earned around $4 billion in the calendar year 2022 (Microsoft’s fiscal year runs from July 1 to June 30). That’s a sizable sum, and Microsoft reported that revenue increased by a very healthy 21% this quarter. However, let’s examine that statistic in light of Dynamics 365’s growth rates over the previous eight quarters, starting with the most current data and going back eight quarters: 45%, 49%, 48%, 45%, 35%, 31%, 24% and 21%. Look at the figures for the last five quarters: 45%, 35%, 31%, 24%, and 21%. There’s little question that the growth rate is dropping in part as a result of the continually growing revenue base. There is simply no other way to put it than that trend is awful
It may be time to change our viewpoint and expectations for Microsoft’s $100 billion cloud business from amazing performance quarter after quarter to extremely remarkable growth in the mid-20s for an industry that generated just over $100 billion in revenue for the whole year. Microsoft is likely to unleash its AI war dogs in order to boost its growth rates back to a level that distinguished it from nearly all other cloud service providers on the world.