Q1 2021 Cloud Commentary Report

April 25, 2021

Written by Zach Cherian, Christine Edmonds, And Vivian Guo 

ICONIQ Growth has been actively investing in cloud companies since our inception. As part of our work we closely track the major public cloud platforms: Amazon AWS, Google Cloud, and Microsoft Azure and what these platforms are experiencing regarding their adoption and growth.

The following is based on publicly available earnings transcripts as well as press releases issued by Amazon, Google and Microsoft, as well as Tencent and Alibaba quarterly filings.

In the most recent quarter (CY Q1 2021), the three leading public cloud service providers saw large gains in Y/Y growth, with Amazon re-accelerating Q/Q. Microsoft and Google saw only slight decelerations of (1–2%). Despite continued COVID-19 impact across various industries and customer segments, we believe all three companies expressed confidence in on-going momentum driven by accelerated digital transformations across industries, requiring migration to the cloud.

Amazon Web Services grew revenue 32% Y/Y on a constant-currency basis, ending the quarter at $54B in run-rate revenue. AWS usage and backlog ($53B) remained consistent with prior quarters. As Andy Jassy was named as Jeff Bezos’ successor last quarter, Adam Selipsky was chosen in March to lead AWS. Adam was the former CEO and President of Tableau Software, which was acquired by Salesforce in 2019 for $15.7B.

Google Cloud revenue grew 46% Y/Y, generating $16B in run-rate revenue this quarter (although not disclosed, we estimate GCP run-rate revenue to be around $10–12B). Google Cloud has maintained an operating loss of $3.9B run-rate for FY2021, but this is down significantly from $5.6B loss in FY2020. We believe this operating loss highlights management’s continued focus on building out product and go-to-market. In its US market alone, Google announced its intention to invest $7B+ into offices and data centers this year, signaling the commitment to Cloud as a top priority for management.

Azure grew 46% Y/Y, on a constant currency basis, which is a slight deceleration from the previous quarter where it saw 47% Y/Y growth. Although not disclosed, we estimate Azure run-rate revenue to be around $31–33B. Notable highlights in the earnings call from management included Azure’s focus on industry-specific, verticalized cloud solutions focused on delivering superior time-to-value for customers. Another noted strength from the Azure platform was around database management, where SQL Server on Azure usage more than doubled Y/Y.

This post is an overview of our findings, please reach out to a member of the ICONIQ Growth team if you would like a copy of the full report.

1. Even as the major players continue to grow at-scale in the US, there is a growing focus on catalyzing opportunities with international partners

Across the three primary cloud players, there is still significant growth with very little deceleration — both Azure and Google Cloud saw very minor decreases in Y/Y run-rate revenue growth (1–2%) this quarter relative to prior quarter, and AWS’s growth remained relatively stable. Blue-chip partners with significant international presence such as Univision (Google), Global Payments (Google), Fujitsu (Microsoft), the German Bundesliga (Amazon) and Formula 1 (Amazon) helped drive this continued high-growth at-scale. As businesses across the globe continue to move workloads into the cloud, there is a corresponding need for Amazon, Microsoft and Google to meet them where they are and create data centers in new geographies. The major players have announced plans to build data center locations in international locations such as Spain (Amazon, Microsoft, Google), UAE (Microsoft), Bahrain (Amazon), Doha (Google) and several other locations across the globe. Amazon also announced the launch of a second full AWS region in Osaka, underscoring the robust demand for cloud infrastructure outside of the US.

While AWS, Azure, and Google Cloud all have strong international presence and plans for growing investments across new geographies, we have also continued to track the emergence of other players like Alibaba Cloud, IBM, and Tencent Cloud. While significantly smaller in scale , we estimate their growth to be similarly strong — with notable wins across healthcare, public sector, and retail customers. Both Chinese players also announced aggressive plans last year to invest billions in cloud infrastructure over the next 3–5 years.

2. Ecosystem specializations continue to be a theme among each of the major cloud players, with all three building sector-specific tools to augment customer experience while bolstering their ability to support AI/ML capabilities more broadly

While Microsoft has long been a leader in the healthcare cloud-IT space, Google Cloud and Amazon have begun to focus efforts building an ecosystem around AI/ML services. Microsoft announced specific industry clouds this quarter, which it already had for Healthcare and Retail, for several new verticals: financial services, manufacturing and non-profits.

  • Google partnered with Databricks in February, creating a unified AI/ML platform for users to dovetail with its cloud offering

  • Google management cited its wins with major financial services companies such as HSBC, BBVA and SEB Group as tied to its strength in providing a leading AI/ML ecosystem on top of its GCP offering

  • Amazon announced Lookout for Vision, a computer vision platform designed to augment manufacturing capabilities

  • Amazon also launched Sagemaker Model Explainability, a new product in the Sagemaker ecosystem which walks through the mechanics behind each Sagemaker model

  • Microsoft management highlighted its pending acquisition of Nuance, which they aim to integrate into the communication pathway between patient and physician and further showing its interest in leading the healthcare cloud ecosystem

  • Additionally, Microsoft announced the migration of its Healthcare Bot (which serves major providers such as CDC, Walgreens, Premera among others) over to Azure, another sign of Azure’s increasingly robust healthcare IT cloud ecosystem

3. AWS, the largest public cloud provider, grew its run-rate revenue by 32% Y/Y in Q1 2021 and announced global partnerships with media and sports companies

AWS reported a run-rate revenue of $54B with Y/Y growth of 32% in Q1. AWS was reported as accounting for 47% of Amazon’s consolidated operating income and 13% of consolidated revenue, highlighting its strategic nature for the Amazon business overall.

While CapEx declined slightly, Amazon announced plans to build 15 new AWS availability regions across the globe, in countries such as Australia, India, Indonesia and Switzerland. Amazon’s Sagemaker and EC2 ecosystems continue to build out additional features and products, such as a new slate of EC2 instances that offer far superior efficiency and savings for heavy-compute workloads.

Andy Jassy’s successor was named in March: Adam Selipsky, coming to Amazon from Salesforce where he had led Tableau software through its $15.7B acquisition. Selipsky had previously worked at AWS for 11 years as VP of Marketing, Sales and Support.

Amazon announced new partnerships with global sports leagues such as the German Bundesliga, NHL, and the PGA TourIn Media and Telecommunications, Amazon mentioned its work with Disney Plus and Dish Networks. AWS re-acceleration was attributed to strong appetite for cloud infrastructure across virtually every industry.

4. Google’s GCP continues to grow impressively at-scale and management reiterated its commitment to investing in sales, product and infrastructure for their cloud offerings

Google Cloud (including GCP and Google Workspace) continued to deliver high growth, with $16B in run-rate revenue at a stable Y/Y growth rate of 46% — very much consistent with Q4 results and at increasingly larger scale. Although not disclosed, GCP was reported to continue having a growth rate meaningfully above that of Google Cloud overall. Notably, Google Cloud signed a number of new multi-year deals with companies like Global Payments, Grupo Global and Univision.

Google’s continued focus on offering the flexibility for a multi-cloud strategy helped partners such as TELUS (Canadian telecom company) to reportedly save on overall spending while migrating to cloud.

Continuing its disclosure of operating loss, which started last quarter, GCP reported a current run-rate loss of $3.9B. This is significantly down from the previously-announced $5.6B figure for FY2020. Google also outlined its plans to continue spending on building out GCP go-to-market and product functions, as well as a major $7B+ commitment to building out a new set of data centers and offices in its US market.

5. With very consistent 47% Y/Y growth this quarter, Microsoft Azure continued to show strong growth and new focus on facilitating AI deployment at the edge

Microsoft Azure’s strong Q3 FY2021 was driven by its success and leadership in providing hybrid cloud management, as well as business tools on top of its ecosystem in areas such as business intelligence (Microsoft PowerBI) and analytics (Azure Synapse).

Azure has continued to require high CapEx (+54% Y/Y growth), a figure that is indicative of the incredible pace of investment that Microsoft is deploying into Azure and its larger cloud strategy.

Microsoft also announced Azure Precept, a new platform designed to create, deploy and maintain edge deployments of artificial intelligence. Management highlighted how this was a natural extension of Azure’s significant efforts in IoT, Digital Twins and other adjacent technologies.

Microsoft has also continued to see major momentum from its Azure Active Directory, which it highlighted the paying user volume doubling Y/Y, signaling its key role in cybersecurity and threat management.

We hope this overview helps provide insight into the growth of public cloud providers in recent quarters, and how these management teams expect to evolve their platforms in the future. For more detailed information, please reach out for a full copy of the report.