Growing cloud demand bolsters Microsoft and Google earnings

28 Apr 2021222 Views

Image: © Mariakray/Stock.adobe.com

The tech giants saw adoption of cloud services increase, while ad revenue at YouTube saw a large bump compared to a year ago.

Microsoft and Google reported strong earnings for the first quarter of the year with both seeing increased revenue from their cloud businesses.

Microsoft announced revenue of $41.7bn with net income of $15.5bn, while Google’s parent Alphabet booked revenues of $55.3bn with net income of $17.9bn.

Satya Nadella, chief executive of Microsoft, said that the past year amid the pandemic has accelerated adoption of the company’s cloud services.

“We are building the cloud for the next decade, expanding our addressable market and innovating across every layer of the tech stack to help our customers be resilient and transform,” Nadella said.

Intelligent cloud, the division that includes several business lines including Azure, Windows Server, SQL Server and GitHub, raked in $15.1bn in the quarter.

Microsoft doesn’t disclose specific figures for its Azure cloud business, which competes head on with Amazon Web Services, but the company said that Azure revenue grew 50pc.

“The Microsoft cloud, with its end-to-end solutions, continues to provide compelling value to our customers generating $17.7bn in commercial cloud revenue, up 33pc year over year,” chief financial officer Amy Hood said.

Google’s cloud services saw growth too, bringing in $4bn in the first three months of the year, but is still running at a loss. In its 2020 annual report, Google revealed the finances of Google Cloud for the first time. This time around, it showed that its quarterly loss in the division has narrowed to $974m, down from $1.7bn a year ago.

“Total revenues of $55.3bn in the first quarter reflect elevated consumer activity online and broad based growth in advertiser revenue,” said chief financial officer Ruth Porat.

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“We’re very pleased with the ongoing momentum in Google Cloud, with revenues of $4bn in the quarter reflecting strength and opportunity in both GCP [Google Cloud Platform] and Workspace.”

Ad business

Despite some shakiness in ad spending last year, Alphabet reported bumps in sales across all its advertising business lines.

Revenue from YouTube ads was up to $6bn, an increase of $2bn compared to the same period last year and much higher than analyst expectations.

YouTube revenue has grown particularly during the pandemic with more people turning to video. The first quarter also saw the initial launch of Shorts, YouTube’s TikTok competitor.

In total, Google’s ad revenue for the quarter was $44bn, up more than $10bn from the same quarter in 2020.

Computer demand

Microsoft also benefitted from a spike in demand for computing and productivity services as PC shipments across the whole industry grew 32pc in the first quarter of 2021.

Its business unit that comprises Windows, computers, gaming and search generated $13bn. The company recently unveiled its latest Surface device.

Microsoft does not reveal figures for Teams, its video-conferencing and workplace communications suite. It did however report its earnings on Tuesday (27 April), the same day that Teams suffered a widespread outage that lasted about two hours.

In the background of these revenues, Microsoft has been seeking out several acquisitions. Since the beginning of the year, it has closed and announced a number of large acquisitions, including its $19bn deal to buy voice-tech firm Nuance and closing its $7.5bn takeover of Bethesda. All the while its reported talks with Discord came to an end.

Microsoft also recently secured a $21.9bn contract with the US army to provide augmented reality headsets.

Jonathan Keane is a freelance business and technology journalist based in Dublin

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