Microsoft, Alphabet stocks fall as cloud and ad growth slows
The main revenue engines of the largest tech giants - cloud and ads - are being hit by prevailing market conditions
Microsoft said on Tuesday that its cloud business is experiencing a slowdown as businesses rein in spending due to the prevailing economic conditions globally.
Growth in Azure revenues is forecast to decline by 5% in the current quarter. Together with lower than expected growth in the preceding two quarters, the forecast indicates that enterprise customers are displaying caution in the face of more uncertain conditions.
Azure revenues grew by 42% in the quarter ending September, 1% below analysts' expectations. During the pandemic, when many organisations rushed to move services to the cloud to support homeworking, Azure saw revenue growth rates of 50% or more.
"In a world facing increasing headwinds, digital technology is the ultimate tailwind," said Microsoft CEO Satya Nadella.
Nadella also blamed higher energy prices for the shortfall, saying they would add $800mn to running costs this year.
Azure, which in common with the other big public cloud services has grown rapidly for many years is a cornerstone of Microsoft's growth, helping to offset a declining market for its PC software.
Chief financial officer Amy Hood said in a conference call that the company is likely to be cutting back further on spending. The company laid off nearly 1,000 employees earlier this month.
Microsoft reported net income of $17.6 billion for the third quarter, a decrease of 14% year-on-year. However, revenues grew 11% to $50.1 billion, exceeding analysts' expectations.
Microsoft shares fell 7% in after-market trading on Tuesday.
Alphabet hit by ad spend slowdown
Alphabet posted lower than expected returns on Tuesday, blaming a slowing growth of ad sales.
The parent company of Google, YouTube and DeepMind saw overall revenues rise by 6.1% year-on-year to $69.1 billion, below analyst forecasts of $70.6, with the rise in ad sales, which make up the biggest proportion of its earnings slowing to 2.5% to $54.48 billion. YouTube ad sales rose 3%, the lowest rate of increase since 2013.
Google Cloud revenues rose by 37.6% to almost $6.9 billion, although the losses on its cloud division, which has yet to make a profit, also increased from $644 million to $699 million.
Online ad sales have been hit by the economic downturn, increased regulation, and measures such as Apple's privacy policy. The big US firms also face increased competition from TikTok.
Social media firm Snap said last week that Snap warned that this quarter could see zero revenue growth as a result of declining ad spending, sending its stock down 25%. Meta is due to announce its third quarter results today.
Ruth Porat, CFO of Alphabet and Google, said: "Financial results for the third quarter reflect healthy fundamental growth in search and momentum in cloud, while affected by foreign exchange. We're working to realign resources to fuel our highest growth priorities."
Google shares were down more than 5% lower in after-hours trading on Tuesday.