Since 2022, the stock market has continued to face pressure under the influence of multiple factors, such as the conflict between Russia and Ukraine, rising interest rates, and supply chain challenges. The question that investors are most concerned about is when will the stock market bottom out.
Yesterday, the news that Tesla CEO Elon Musk bought Twitter for about US$44 billion in cash boosted the morale of technology stocks. The stock prices of technology giants such as Microsoft, Google, Amazon, and Apple showed varying growth. This week, technology giants like Microsoft, Google, Apple, Meta Platforms, and Amazon released their latest financial results for the first quarter. Can they release some positive signals and boost investor confidence?
After the U.S. stock market closed on Tuesday, Microsoft and Google released their financial reports on the same day. Will the performance of these two technology giants determine the overall trend of U.S. technology stocks in the next few months? Who performed better?
Performance PK, which is more robust and weaker between Microsoft and Google?
From the perspective of long-term investment, both Microsoft and Google are good investment targets. The two announced their financial reports on the same day; whose performance is more satisfactory to investors?
1. Driven by business diversification, Microsoft’s quarterly revenue exceeded the market; affected by multiple factors such as the economy, war, and inflation, Google, which relies on online advertising, performed poorly.
Data show that in the first quarter of fiscal year 2022, Alphabet, the parent company of Google, achieved revenue of US$68.011 billion, a year-on-year increase of 23%; Microsoft achieved revenue of US$49.36 billion in the third quarter of fiscal year 2022, an increase of 18% year-on-year, much higher than the US$47.5 billion generally expected by Wall Street.
From the perspective of revenue composition, Microsoft has achieved business diversification, which makes Microsoft’s overall performance in the new quarter relatively stable. At present, Microsoft is mainly serving the B-side to a large extent, but it is not giving up the consumer business of doing the C-side. The previous acquisition of Activision Blizzard for nearly 70 billion US dollars in all cash has not reflected how much growth it has brought to Microsoft’s game-related business.
By comparison, Google parent Alphabet’s “other bets” — including companies like Waymo self-driving cars, Calico, and Verily’s life sciences division — have been loud and quiet, and it’s still considered a consumer internet company in the short term.
Online advertising is Google’s largest source of income. Affected by multiple factors, such as macroeconomic downturn and inflation, the growth rate of Google’s online advertising business revenue has slowed down severely. The company’s advertising revenue for the quarter was $54.66 billion, up 22% year-over-year. This growth rate was lower than the 32% growth rate in the same period last year and the 33% growth rate in the previous quarter. YouTube’s advertising revenue was US$6.869 billion, lower than market expectations of US$7.51 billion, an increase of 14% year-on-year, lower than the growth rate of 49% in the same period last year, and a sharp drop of 20% month-on-month.
According to Rohit Kulkarni, an analyst at MKM Partners, online advertising companies are facing four significant macro headwinds: (1) the direct impact of the Russia/Ukraine war; (2) the indirect impact and potential contagion of the war in Europe; (3) soft brand advertising spending, especially around geopolitical content; and (4) the possible impact of weaker European consumer spending driven by inflation and rising oil prices. “
According to eMarketer’s forecast, the industry with the fastest growth in advertising spending in the United States in 2022 is retail, followed by fast-moving consumer goods, and they are all areas where Google is excellent. If the epidemic can be alleviated and travel demand rises, the travel and offline entertainment industries may also become important revenue growth engines for Google.
2. During the reporting period, the net profits of the two companies were similar, with Microsoft increasing and Google decreasing.
Data show that Alphabet, the parent company of Google, had a net profit of US$16.436 billion in the first quarter, a year-on-year decrease of 8.3%. Analysts expected US$17.4 billion, compared with a year-on-year increase of 35.6% in the fourth quarter of last year. Google Cloud is currently at a loss, and Alphabet’s other investments, including life sciences companies and self-driving car division Waymo, are also at a loss. During the reporting period, the department’s failure was US$1.155 billion, slightly higher than last year’s US$1.145 billion.
From this, it is not difficult to see that the consumer Internet has contributed all the profits to Alphabet, Google’s parent company.
Microsoft’s net profit in the third quarter of fiscal year 2022 was US$16.728 billion, an increase of 8% compared with the net profit of US$15.457 billion in the same period last year and a year-on-year increase of 17%, excluding the impact of exchange rate changes (not by US GAAP); diluted earnings per share were US$2.22, a year-on-year increase of 9%, 3 cents higher than Wall Street analysts expected.
On the whole, Microsoft’s net profit has maintained a growth trend, while the net profit of Alphabet, Google’s parent company, has shown a downward trend.
Cloud business is the key growth driver of the two, and Microsoft’s intelligent cloud has apparent advantages.
From a business perspective, the two technology giants have different business scopes. Still, both involve cloud business, and the growth of cloud business revenue has become a key growth driver for both.
Microsoft’s business mainly comprises the Productivity and Business Process Business Unit, Intelligent Cloud Business Unit, and Personal Computing Division. The intelligent cloud business is the fastest-growing among Microsoft’s three key industries.
Microsoft Cloud refers to “Azure and other cloud services, Office 365 commercial version, LinkedIn’s commercial part, Dynamics 365 and other commercial cloud services.” During the reporting period, Microsoft Intelligent Cloud continued to make efforts, and its revenue increased by 26% year-on-year to 19.05 billion US dollars, exceeding the previous analyst’s expectation of 18.9 billion US dollars. As Microsoft’s cloud infrastructure service Azure, the revenue of Azure and other cloud services increased by more than 46% during the reporting period, becoming a business category that performed well in Microsoft’s overall business.
Similarly, Google Cloud’s revenue is growing the fastest among Google’s various businesses. Data show that in the first quarter of fiscal year 2022, Google Cloud revenue increased by 44% year-on-year to US$5.821 billion.
From the perspective of the revenue scale of the cloud business, the scale of Microsoft Smart Cloud is almost 3.3 times that of Google Cloud. Google Cloud’s revenue volume is much smaller than that of Microsoft’s Smart Cloud, and its year-on-year growth rate is higher than that of Microsoft’s Smart Cloud business. However, judging from the year-on-year growth rate of the two cloud business revenues, both have maintained relatively stable growth.
According to Gartner’s latest forecast, global end-user spending on public cloud services is expected to increase by 20.4% to US$494.7 billion in 2022 from US$410.9 billion in 2021. End-user expenditure is expected to reach nearly $600 billion by 2023.
The pandemic and the proliferation of digital services are making cloud services “central to new digital experiences,” according to research firm Gartner. The firm predicts total global cloud revenue will reach $474 billion this year, up from $408 billion in 2021.
Gartner analysts estimate that cloud revenues in related enterprise IT markets will exceed non-cloud revenues in the next few years. The company predicts that by 2025, more than 95 percent of new digital workloads will be deployed on cloud-native platforms, up from just 30 percent in 2021.
From this, it can be judged that there is still much room for future growth in the cloud business market, and both Microsoft Smart Cloud and Google Cloud have excellent growth potential. However, what needs to be reminded here is that in the competition for cloud market share, both Microsoft Smart Cloud and Google Cloud will face intense competitive pressure from Amazon AWS.
In the market competition with the industry leader AWS, Microsoft Smart Cloud is more “resistant” than Google Cloud. In the past few years, Microsoft’s Azure has continued to increase its share in the cloud computing market. Compared with Google Cloud, its growth in cloud market share will be in a favorable position. Microsoft said that after reaching the hybrid advantages of Azure, AWS is five times more expensive than Azure on Windows Server and SQL Server, which also allows enterprises to use Windows Server and SQL Server with internal software assurance on Azure.
According to Gartner’s 2021 global cloud computing IaaS market share data, Amazon’s AWS share, which ranks first, has dropped slightly to 38.92% from the previous year. Microsoft and Alibaba Cloud rank second and third, and their market shares have expanded. At present, the market share of AWS has been relatively stable, and it is in a dominant position in the cloud market. Can Microsoft Smart Cloud shake AWS’s industry leader status?
The scale of Google Cloud is still far behind Amazon AWS and Microsoft Azure. Since Google lacks both an enterprise software business and a lack of scale, it is unlikely to challenge its leadership in the cloud computing market in the short term. Microsoft Smart Cloud is likely to erode Google Cloud’s market share further.
Additionally, a newly released report identifying critical security and risk management trends for 2022 states that organizations worldwide are facing sophisticated ransomware, attacks on digital supply chains, and deeply embedded vulnerabilities. Security expertise and capabilities have become essential to effective cloud service operations.
According to a recent Bloomberg survey, CTOs expect to spend more in 2022, mostly on cybersecurity and cloud computing.
Amazon AWS, Microsoft Azure, and Google Cloud have all made acquisitions in the cybersecurity space over the past year. In early March, Google acquired cybersecurity firm Mandiant for $5.4 billion. Mandiant will become part of Google Cloud at the close of the acquisition, providing threat intelligence services.
Microsoft made two significant acquisitions in 2021 to bolster the security of its Azure cloud service. First, it acquired CloudKnox Security, a cloud infrastructure entitlement management (CIEM) technology provider, to provide customers with unified privileged access and cloud entitlement management across multi-cloud and hybrid cloud environments.
Another significant security acquisition by Microsoft is threat intelligence and attack surface management provider RiskIQ. The company’s products are designed to help organizations assess the security of their entire attack surface, including cloud services from Microsoft, AWS, and other clouds and on-premises and supply chain systems. They can identify and remediate vulnerable IT components before attackers exploit them.
AWS acquired Wickr, a company providing an encrypted messaging platform that corporations and government agencies use. The deal, which was not disclosed, gives AWS advanced security features for messaging, voice and video calling, file sharing, and collaboration.
The move to the cloud has been accelerated by an increase in hybrid work due to the pandemic, presenting a challenge for cybersecurity executives to protect an increasingly distributed enterprise while dealing with a shortage of skilled security personnel, which is both a challenge and an opportunity for cloud service providers.
Since the beginning of this year, due to many unfavorable factors, such as the conflict between Russia and Ukraine, repeated epidemics, persistent inflation, and expectations of interest rate hikes, global stock markets have been turbulent, stock prices have fallen, and investor confidence has been hit. Even if Microsoft’s performance exceeds market expectations, it will be challenging to boost technology stocks. Will FB, Amazon, and Apple release more positive signals next?
