With Alibaba's belated earnings, the Q2 scorecards for the five global cloud giants are now complete.
1
Amazon AWS
Global Cloud Leader
Q2 revenue was $22.14B, up 12% year over year, with growth continuing to decelerate, and up 4% sequentially; operating income was $5.365B, down 6% year over year; operating margin was 24%, down 5 percentage points year over year.
AWS Q2 revenue accounted for 16% of Amazon's total revenue and contributed 70% of Amazon's operating income.
Since Q3 last year, enterprises of all sizes began optimizing cloud spend, slowing growth; this trend will persist but has decelerated; July AWS year-over-year growth rate was consistent with Q2, providing a glimpse of recovery.
2
Microsoft Azure
Second-Largest Global Cloud
Q2 revenue was $14.841B, up 26% year over year and up 2% sequentially.
Azure's parent Intelligent Cloud segment (Server + Azure + Enterprise Services) operating income was $10.526B, up 20% year over year, setting a new record high; operating margin was 44%.
Intelligent Cloud Q2 revenue accounted for 43% of Microsoft's total revenue and contributed 43% of Microsoft's operating income.
Azure market share continues to rise. Azure OpenAI Service customers now exceed 11,000, adding nearly 100 new customers daily this quarter. AI contributed 1% to Azure growth. Azure Arc customers exceed 18,000, up 150% year over year. Azure deals in the tens of millions hit a record high this quarter; average annualized contract value reached a new high. Azure AI results will mainly appear in FY24H2.
3
Google Cloud
Third-Largest Global Cloud
Q2 revenue was $8.031B, up 28% year over year, with growth still outpacing Microsoft and Amazon; operating income was $395M, operating margin 5%, profitable for the second consecutive quarter, mainly due to operating expense adjustments that carved out DeepMind and other AI investments.
Over 70% of AI unicorns are Google Cloud customers; 750,000 Workspace users have adopted AI features. A key highlight for Google this year is Google Cloud's profit inflection; year-end OPM above 10% should be achievable, and over time it will gradually approach AWS's ~20% level.
4
Alibaba Cloud
China's Cloud Leader
Q2 revenue was RMB 25.1B ($3.465B), up 4% year over year; the revenue definition was changed this quarter (Cloud Intelligence Group = Alibaba Cloud + DingTalk + other), likely to make post-spin-off financials look better. This quarter saw strong demand from Alibaba ecosystem, financial services, education, power, and automotive, while project-based cloud business was relatively weak.
Q2 EBITA profit was RMB 389M, EBITA margin 1.5%, profitable for the tenth consecutive quarter; DingTalk bandwidth and other costs declined.
5
Oracle Cloud
Global cloud #4
Q2 revenue was $4.437B, up 54% year over year; by scale it should be the fourth-largest cloud globally, composed of $1.4B IaaS (up 76% year over year) + $3.0B SaaS (up 45% year over year).
Oracle's cloud disclosures are messy and complex, with no direct profit breakdown, but AI-driven growth is indeed the fastest.
6
DigitalOcean
AWS for Everyone
Q2 revenue was $170M, up 27% year over year. ARR was $682M, up 25% year over year. Gross margin was 60%, down 5 percentage points year over year. Operating loss narrowed sharply; operating margin -1%. Monthly ARPU was $90.84, up 14% year over year.
Q2 EBITDA profit was $72.2M, up 57% year over year; EBITDA margin 43%, up 9 percentage points sequentially; notably, net dollar retention rate continued to decline to 104%, a new low since Q3 2020.
DigitalOcean's hallmark is low sales expense ratio, only 9.5% this quarter, consistently below R&D and G&A ratios. The persistent decline in net dollar retention rate is a concern.
DigitalOcean's customer base is predominantly SMBs, making it highly sensitive to macro cycles; although ARPU continues to rise, customer count shows signs of decline, and the stock plunged post-earnings.
Conclusion
Macro headwinds persist; overall Big 3 cloud growth continues to decelerate; cloud giants are still helping customers optimize spend, and the broader SaaS sector remains in a trough. Recent blow-ups from star SaaS names like FTNT and DDOG contrast with "contrarian" performers like NET. AI-driven recovery for cloud/SaaS may be just around the corner.
Amid macro weakness, cloud vendors continue to rein in capex; FAMG Q2 total capex fell 9.4% year over year, the second consecutive quarterly decline. However, with AI/ML resurging, 2023 cloud capex will shift dramatically toward GPU servers.
