Tomasz Tunguz - Predicting Cloud Growth Rates for 2023
Tomasz TunguzVenture Capitalist If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Predicting Cloud Growth Rates for 2023
I’m watching public company earnings to identify early weaknesses in the software market. Yesterday, Google & Amazon announced earnings which completes the picture. Growth will continue to slow this year. A year ago, AWS, GCP, & Azure averaged 44% annual growth. Today, that figure has dropped to 27%. Amazon also guided to lower growth rates in the future.
The collection of these three earnings calls presages continued reduction in growth rates, likely through the end of the year, as most businesses favor profits over growth - a trend echoing across Startupland.
With an operating loss of $480m on 7.3b in revenue, GCP is at -7%, not far off breakeven, but a long way from AWS’ 30% profit margins. One surprising nuance from the Google call:
Infrastructure spend is more resilient than application spend. This may be the result of layoffs: applications are sold by the seat. Less hiring growth means smaller expansion. Meanwhile, the servers keep chugging along & data compounds at a constant growth rate. Long-term the growth potential remains.
And despite slowing growth rates, 20% growth of an $85b revenue business is $17b of new spend annually.
Overall, given the trends we’re seeing, I expect cloud growth rates to fall into the 18-22% range for 2023, about of the growth rate of a year ago. |
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