Run for the hills? Not quite yet. Microsoft shares took a brief tumble in trading today, as Azure optimists who were hopeful of another near-doubling of the business showed signs of concerns.
The technology titan revealed its Q2 fiscal earnings today, and the performance was in line with what seems to be an industry-wide phenomenon — the slowing down of the cloud business, at least compared to the highs that this market witnessed each quarter in 2017 and 2018.
Intel already warned of this when it said that cloud providers were slowing down purchasing chips, and Juniper Networks made no secret of the companies slowing down spending as they grow into the infrastructure that they previously purchased.
Microsoft CFO Amy Hood said during an earnings call with analysts on Wednesday that the declining capital expenditures were due to the timing of their cloud infrastructure buildout.
But that did not stop Microsoft stock falling down nearly 4% in after-hours trading on the earnings report. Part of the selloff may have been due to the slowdown in the growth of the Azure cloud platform, which saw its revenue growing by 76% last quarter.
Down from the 98% a year earlier.
As Daniel Ives, an analyst at Wedbush Securities, opines, this is simply a dose of reality:
“Microsoft went through a period of hypergrowth — they are still seeing growth, but the comparable numbers have gotten harder. The company went from massive beats to an in-line quarter, and that’s been a dose of reality as it wasn’t the blowout some people hoped.”
While a 76% growth is nothing to scoff at, never is, the slowdown is concerning for two reasons.
One, Azure is the driving engine behind the transformation of Microsoft in the post-PC era, where Windows is not as relevant as before for the company’s bottom line.
And secondly, it faces intense competition from other cloud providers, both home and abroad. Amazon Web Services, Google Cloud Platform, IBM and even the nascent cloud business that Alibaba is pursuing make for a tough fight.
The cloud infrastructure market for Microsoft stands at 14%, well behind the 34% that Amazon has cornered, according to Synergy Research.
All this leaves little room for slowdowns like these.
