Google v Microsoft: how did the vendor rivals fare in their latest cloud results?

Google and Microsoft have both been hit by a slowing economy and the strengthening dollar

Cloud giants Microsoft and Google have reported revenue growth in their latest results despite both feeling the sting of the strengthening US dollar.

Microsoft's revenues grew 11 per cent to $50.1bn in the first quarter of its fiscal year 2023, ending September 30.

Operating income stood at $21.5bn, representing a rise of six per cent.

Google owner Alphabet, meanwhile, said revenues climbed six per cent to bring in $69.1bn in its Q3 2022 results ending September 30.

Its operating income also rose 25 per cent to $17.1bn.

EMEA revenues were down two per cent year on year to $19.4bn from $19.8bn.

These results marked the group's weakest quarterly growth in nearly a decade excluding the pandemic.

Google CEO to 'realign resources' following quarterly slump

Alphabet and Google CEO Sundar Pichai said the firm was "sharpening" its focus on a clear set of product and business priorities.

While its CFO Ruth Porat added they are "working to realign resources" to fuel its highest growth priorities.

Pichai added the group's Q4 headcount additions will be "significantly lower" than Q3, and as it plans for 2023 he said it will "continue to make important trade-offs where needed", focusing on moderating operating expense growth.

Both vendors recognised that the cloud are their revenue breadwinners, with Microsoft CFO Amy Hood admitting revenue will "continue to be driven by Azure" and Pichai stating Google Cloud is a "key priority for the company."

Microsoft Azure hit by foreign exchange

Microsoft Cloud GAAP revenue swelled 24 per cent to $25.7bn in its fiscal Q1.

Azure's 35 per cent jump was the driving force behind Microsoft's 22 per cent growth in server products and cloud services revenues, which falls under the Intelligent Cloud arm.

This segment also saw a double-digit upswing of 20 per cent to $20.3bn.

Speaking to listeners in an earnings webcast, Hood said: "In our commercial business, we saw strong overall demand for our Microsoft Cloud offerings, with growth of 31 per cent in constant currency as well as share gains across many businesses.

"Excluding the FX (foreign exchange) impact, growth was driven by strong renewal execution and we continued to see growth in the number of large, long-term Azure and Microsoft 365 contracts across all deal sizes."

As Hood alluded to, Microsoft felt the negative effects caused by foreign exchange, which shrunk Intelligent Cloud revenue growth by six points.

"With the stronger US dollar and based on current rates, we now expect FX to decrease total revenue growth by approximately five points and to decrease total COGS and operating expense growth by approximately three points," Hood said on the call.

"Within the segments, we anticipate roughly seven points of negative FX impact on revenue growth in Productivity and Business Processes, six points in Intelligent Cloud."

Google Cloud plays key role during uncertain macroeconomic times

Google Cloud continued to see momentum with Q3 revenues up 38 per cent to $6.9bn however with an operating loss of $699m.

"The long-term trends that are driving cloud adoption continue to play an even stronger role during uncertain macroeconomic times," Pichai told viewers during a webcast, transcribed by The Motley Fool.

Pichai was quizzed during the webcast on changes in cloud demand and pace of investments.

He said: "In some cases, certain customers are taking longer to decide, and some have committed to deals with shorter terms or smaller deal sizes, which we attribute to a more challenging macro environment.

"Some are impacted due to reasons that are specific to their business. But overall, as you can see from the results here again, we're pleased with the momentum in cloud and do continue to be excited about the long-term opportunities."

During his closing comments, Pichai addressed headwinds caused by foreign exchange, given the ongoing strengthening of the US dollar and expects "even larger" headwinds in Q4.