Cloud Wars: Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT), Or International Business Machines Corp. (IBM)
The Cloud module is gaining traction among the different sectors of various industries. Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and International Business Machines Corp. (NYSE:IBM) are all big players with a lot of growth coming from cloud in the last one-year period. Amazon started revealing its cloud performance only in the current year. It was Satya Nadella, CEO of Microsoft, who wanted the company to shift towards a ‘mobile first, cloud first’ strategy on assuming the position. Similarly, IBM has shifted its focus on the cloud to compensate the loss of revenue from different divestitures in the last few years. None-the-less, it is the cloud that is primarily holding the three firms flock together, and aims to take it further. However, who is getting the most and who is benefiting the most is the question. Let’s look at the numbers delivered and see where each company stands at the end of the third quarter.
Amazon.com, Inc. (NASDAQ:AMZN)
All of the top three companies have their own strength in cloud computing but Amazon is the clear King of cloud. Amazon’s Amazon Web Services (AWS) core strength is its Infrastructure-as-a-Service (IaaS). As a result, it allows its customer to have the same kind of platform. The company leads by a wider margin in the segment. The company is said to be enjoying a market share of nearly 29% in cloud space. For the third quarter, AWS generated revenue of $2.085 billion versus $1.169 billion in the previous year quarter. That represented a phenomenal growth of 78.4%. For the nine-month period too, sales jumped 69.8% to $5.47 billion from $3.22 billion in the same period last year.
For Amazon.com, Inc. (NASDAQ:AMZN), AWS performance is crucial. The online retailer is known to work on a thin margin and was suffering losses from the online business since it was making continuous investments to realize long-term gains. One of the investments made was AWS and that is delivering its value now. The money earned in AWS is spent on other divisions like Amazon TV, which is offered free to its Prime subscribers. In the last two quarters, the company delivered profit because of AWS. Its operating income surged 431.6% to $521 million in the third quarter and 180.2% for the nine-month period. The net profit for the third quarter was only $79 million suggesting that without the AWS performance, it would have continued to suffer a loss. Therefore, AWS will continue to play a key role in dictating the performance of Amazon.com, Inc. (NASDAQ:AMZN) and allow the management the expected leverage to try innovative things.
Microsoft Corporation (NASDAQ:MSFT)
The software company provides mixed service in cloud computing. There are primarily three areas. One is Software-as-a-Service (SaaS), the second is Infrastructure-as-a-Service (IaaS), and the third is Platform-as-a-Service (PaaS). Though the company started its Microsoft Azure as a PaaS, its revenues can be divided between PaaS, as well as, IaaS. In any case, it has the strength to focus itself to offset the weakness it has been witnessing like the drop in OS sales. The software firm was nearly written off before Nadella took over because of all-round weakness. Now, the cloud has given a fresh lease of life to the company and its shareholders.
In the September quarter, the company’s Windows Service and Cloud services recorded 6% and 13% growth respectively in terms of constant currency fueled by is SQL server. On top of this, the adoption rate of its Azure platform was also growing driven by 135% growth in revenue. Significantly, the company generated $5.9 billion of revenues from the intelligent cloud. The segment included Microsoft Azure, enterprise services, and server products. Also, the company could witness 12% uptick in revenue from its dynamic products, as well as, cloud services in constant currency.
Microsoft Corporation (NASDAQ:MSFT) said that its yearly revenue run rate from cloud surpassed $8.2 billion at the end of the September quarter. The software firm was encouraged by the continuous growth of the division, which is becoming a key driver for its value. Cloud is gaining traction in the company and is offsetting the weakness in OS sales and also the mobile devices. However, the company is not like Amazon to be saved from the losses. Its focus on cloud has boosted the profit and more than that the confidence among the investors on the stock’s future looks encouraging now. Synergy Research Group assigned the second rank since Microsoft Corporation (NASDAQ:MSFT) enjoyed a market share of approximately 16%.
International Business Machines Corp. (NYSE:IBM)
The company is focused on creating private clouds among the established customer base, as well as, on designing those clouds so as to work in a mixed style with its public cloud service. IBM is getting most of its revenue in the cloud from private and hybrid services. The rest of its revenue comes from SoftLayer public cloud, as well as, its Bluemix PaaS service. International Business Machines Corp. (NYSE:IBM) has been recording a drop in sales for the fourteenth continuous quarter. Its CFO, Martin Schroeter, told analysts that the company was focused on cloud computing, mobile, security, and data analytics businesses. He expressed his confidence that the aggressive investments made today will yield results in the future.
The company’s cloud division generated 65% more revenue for the year-to-date period after giving adjustments to currency while it grew 45% on a reported basis. Its total cloud revenue was $9.4 billion for the trailing four quarters. As far as cloud delivered as a service, its annual run rate was $4.45 billion compared to $3.1 billion in the year-ago quarter representing 45.2% growth. International Business Machines Corp. (NYSE:IBM) is enjoying a market share of 7% while Alphabet Inc (NASDAQ:GOOGL) is closely followed with nearly 6% share.
The top four companies enjoy a combined market share of 54% in the cloud computing. While all three companies have different focuses and the numbers are not directly comparable, Amazon.com, Inc. (NASDAQ:AMZN) is clearly the King of Cloud. The company is far and away a Magic Quadrant Leader by Gartner and has a lead in the pure play categories. Microsoft Corporation (NASDAQ:MSFT) and International Business Machines Corp. (NYSE:IBM) are not quite as pure of plays in the arena.While SoftLayer has improved IBM’s public cloud offerings, the company has more of a lead when it comes to Private Cloud for businesses that want more control then the cloud offers. Microsoft has a variety of services in the IaaS, SaaS, and PaaS space which have differentiated the company and allowed for strong performance. While cloud is boosting the profit of Microsoft and IBM, strong cloud performance has enabled Amazon to turn to profit. The company clearly registered stronger growth than the rest. Therefore, it can be safely said that Amazon is the leader.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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