Last week, we received earnings reports for all three of the hyperscalers. These included Microsoft Azure and Google Cloud Platform on April 26th. Then, Amazon Web Services two days later on April 28th. As is normally the case, results for the cloud infrastructure business units are included within the overall company earnings report. As hyperscaler performance can yield signals for cloud infrastructure spending trends in general, I wanted to provide a short rehash of the performance of each hyperscaler for the past quarter. In addition to summarizing the results, I will also highlight any interesting mentions in the earnings calls and prepared remarks.
At a high level, the hyperscalers demonstrated fairly consistent growth in the first quarter of 2022. This was important to see, given ongoing macro concerns from the war in Ukraine, inflation, potential recession, etc. The market has been worried that cloud spending would slow down substantially as we exit possible Covid pull forward and face these new macro headwinds. We witnessed a pull effect with some other technology-enabled services, like video conferencing, electronic signature and telemedicine. The macro events could have exacerbated these. Additionally, some analysts expected a slowdown in spending regionally, specifically in Europe.
However, little to none of these concerns have manifested in the first quarter results thus far or were raised in prepared remarks. Analyst questions related to a slowdown in IT spending or European softness were answered by leadership with no visible impact to this point. The only headwind to revenue performance has been currency fluctuation, which appeared to cause a 2-3% reduction in overall revenue for the quarter. Microsoft called this out specifically, by reporting both absolute and constant currency revenue growth rates for Azure year/year. In Q1, the gap accounted for 3% of annual revenue growth. Amazon and Google did not provide insight into currency impact, which may explain some of their slight deceleration reported cloud unit growth.
With that set-up, these are the specific results and comments by hyperscaler:
AWS
AWS delivered revenue of $18.44B in Q1, versus analyst consensus estimates for $18.3B. This was up 36.6% y/y, from $13.50B in Q1 2021. Amazon didn’t break out currency impact for AWS, but did report a $1.8B headwind overall, which represented about 1.5% of total sales. We do know that the currency adjustment for Microsoft Azure was 3%. Applied to Amazon, a similar adjustment would bring annual growth into alignment with the prior quarter.
Looking back a year, these are the last four quarters of revenue growth for AWS:
| Quarter | Revenue | Y/Y Growth |
| Q1 2021 | $13.50B | 32.1% |
| Q2 2021 | $14.81B | 37.0% |
| Q3 2021 | $16.11B | 38.9% |
| Q4 2021 | $17.78B | 39.5% |
| Q1 2022 | $18.44B | 36.6% |
While the Q4 to Q1 transition may look like a deceleration, we can see that the Q1 growth rate was still in the 12 month range. Also, Q2 – Q4 2020 provided easy comparisons for 2021, as annual revenue growth dropped below 30% in 2020 due to the pandemic. Finally, as mentioned, there could be a 2-3% currency headwind in the Q1 metric.
Looking forward, we don’t have much input on revenue guidance for AWS. Amazon’s overall sales projection for Q2 2022 represents a substantial deceleration in annual growth, but they didn’t break that out for AWS. In response to an analyst question, Amazon leadership provided some detail on the AWS “backlog”, which represents committed spend that hasn’t been consumed (like RPO). The backlog balance was $88.9B at end of Q1, with is up 68% YoY. They also reported that the weighted average remaining term for those commitments is 3.8 years. They don’t provide the equivalent of current RPO, which would indicate what amount is expected in the next 12 months.
Finally, the prepared remarks called out AWS’ relationship with MongoDB as a positive new commitment.
Database platform MongoDB expanded its relationship with AWS, making it easier for joint customers to advance their cloud adoption journey. This includes integrated go-to-market activities, shared developer relations activities, and technology integrations to streamline the migration of on-premises workloads to MongoDB Atlas on AWS.
Amazon Q1 2022 Earnings release
MongoDB was the only software infrastructure provider recognized in the technology partner section. I think this deliberate mention is positive for MongoDB for a few reasons. First, if AWS were still intentionally competing with MongoDB (through their DocumentDB product), they wouldn’t mention this relationship. Second, they highlight the shared go-to-market activities and integrations, reflecting the fact that this relationship goes beyond a simple marketplace listing.
The reference to the “migration of on-premises workloads to MongoDB Atlas on AWS” is also enlightening. As I discussed in a prior post, these types of relationships between the hyperscalers and independent software providers are evolving from a headwind to a tailwind. The independent is now a net beneficiary of collaboration from hyperscalers like AWS. In the case of MongoDB, AWS is using the relationship to woo customers off of their private data centers and onto the AWS cloud. By allowing these customers to maintain their MongoDB database, the migration path is made much easier (versus forcing to another solution, like DynamoDB).
Azure
Microsoft Azure grew by 46% (49% in CC) for Q3 FY22, which equates to calendar Q1 2022. In constant currency, this represented an acceleration of 3% over the prior quarter and is the highest annual growth rate in the last year. Microsoft doesn’t provide the absolute revenue totals for Azure, just the annualized revenue growth rate.
| Quarter | Revenue Growth (in CC) |
| Q1 2021 | 46% |
| Q2 2021 | 45% |
| Q3 2021 | 48% |
| Q4 2021 | 46% |
| Q1 2022 | 49% |
From the prepared comments and discussion on the earnings call, I captured some additional relevant notes:
- Azure is building a distributed computing fabric from cloud to edge. Edge is becoming an important focus.
- They more helped more customers than ever this quarter. Speaks to customer additions.
- The number of $100M+ deals more than doubled y/y.
- CosmosDB usage has increased by over 100% y/y for the past 3 quarters. This is notable because CosmosDB is Microsoft’s MongoDB equivalent. While that reflects strong growth for Microsoft’s product, we could extrapolate similar strong demand for MongoDB on AWS.
- Usage of Microsoft’s Synapse product doubled as well.
- Saw strong usage of Azure ML with an 86% increase in queries y/y.
- 90% of the Fortune 500 use GitHub.
- Experienced better than expected growth in long-term Azure contracts.
They expect Q4 (the current quarter) to be another strong quarter of revenue growth.
Google Cloud Platform (GCP)
Google Cloud, which includes GSuite, had revenue of $5.82B in Q1. This was up 43.8% y/y and beat the analyst estimate was for $5.73B. Google doesn’t break out Google Cloud Platform revenue separately from GSuite, but did mention that GCP’s revenue growth was “again greater than Cloud’s”. This implies that GCP revenue growth is higher than 43.8%.
| Quarter | Revenue | Y/Y Growth |
| Q1 2021 | $4,047B | 45.7% |
| Q2 2021 | $4.628B | 53.9% |
| Q3 2021 | $4.990B | 44.9% |
| Q4 2021 | $5.541B | 44.6% |
| Q1 2022 | $5,821B | 43.8% |
Comparing to prior quarters, we can see a slight deceleration in revenue growth for Google Cloud. Similar to Amazon, Google didn’t break out the impact of currency fluctuations on growth rates. This may have accounted for a little bit of the quarter to quarter change. Also, changes to GSuite growth rates would have impact here.
Cloud’s performance in the first quarter reflects growing deal volume and strength across multiple industries and regions. Customers are increasingly choosing Google Cloud to help them digitally transform their businesses using our global infrastructure offerings, our data analytics and AI capabilities and the collaboration benefits of Workspace. We continue to invest aggressively in Cloud given the sizable market opportunity we see.
Google Q1 2022 Earnings Call
During the CEO’s opening remarks, he highlighted some customer wins and focus areas for Google Cloud Platform:
- Cybersecurity introduced some new offerings during the quarter, including assured workloads to address digital sovereignty in the European Union. They also added virtual machine threat detection, an agentless malware detection capability and an advanced intrusion detection system for network threats.
- Organizations like T-Mobile and DoorDash were cited as example customers protecting their systems and data with Google Cloud’s cybersecurity products.
- Announced the intent to acquire Mandiant, a provider of dynamic cyber defense and response.
- Continue to evolve their data cloud solutions. These include:
- Serverless Spark to run batch Spark workloads
- BigLake, a new storage engine that unifies data warehouses and lakes
- Dataplex, which provides unified management and governance of data across data warehouses and lakes
- The unified data cloud and AI platform is helping organizations like KeyBanc, LG Electronics, and Macy’s work intelligently with data across multiple clouds.
- BigQuery customers references included Kraft Heinz and Mercado Libre
- AI and ML services customer highlights were BT Group, UPS and other leading brands.
- Their Contact Center AI platform helped The Home Depot improve their call containment by 185%.
- Compute and storage infrastructure customers included brands like Dun & Bradstreet, Boeing, and Kyocera.
Investor Take-Aways
Cloud spending momentum appears to have maintained continuity through Q1 and into the current quarter. As we move through 2022, we might see a slowdown if macro conditions worsen, but we have no direct evidence of that yet. A number of the independent software providers are reporting this week, including Datadog, Cloudflare, Twilio, Fastly and Confluent. These will provide more insight into the current spend environment and momentum in their particular product categories.
NOTE: This article does not represent investment advice and is solely the author’s opinion for managing his own investment portfolio. Readers are expected to perform their own due diligence before making investment decisions. Please see the Disclaimer for more detail.
