Big tech heads into earnings with investors questioning: how resilient are cloud sales during a recession?
Amazon, Alphabet and Microsoft are all reporting earnings this week. Their primary businesses are expected to take a hit (i.e., e-commerce, advertising and hardware), but they all have one division in common driving growth: their cloud units.
Cloud computing is seen to be more resilient during recessions:
- Cloud spending — crucial to a tech company’s operations — is one of the last areas to be cut.
- Recurring subscription pricing models also help make cloud companies more resilient.
Per IDC analyst Dave McCarthy, cloud usage is like electricity — which can’t be turned off (MW). Cack Wilhelm of investment firm IVP, thinks companies can’t decrease spending by too much. Otherwise, they risk app outages or performance issues (Insider).
But it doesn’t mean they’re entirely recession-proof…
Cloudy conditions: Companies can often dial down on cloud spending based on usage — and with slowing growth, technology spending will likely follow.
- In May, Coinbase — whose business activity has fallen significantly — said it would cut its cloud spending.
- More cash-strapped companies are negotiating with vendors to lower prices.
This could pressure Alphabet, Amazon and Microsoft’s cloud growth — whose cloud divisions are expected to grow 28% this quarter, down from 33% in the previous quarter.
The fourth largest cloud infrastructure provider Alibaba (NYSE:BABA) reported a 12% growth in its cloud division in May — down from 20-33% in the past three quarters.
But Alibaba is going through unique political challenges in China, so it’s uncertain how a slowing economy impacts cloud spending.
Cloud watch: Cloud sales data from this week’s earnings will show us how resilient sales will be during a recession.