The rather awesome App Economy Insights newsletter recently share a range of interesting charts that give a granular look at how Microsoft stacks up against some of its biggest competitors.
Microsoft released strong Q4 2022 results a few weeks ago, underscoring a commitment to gaming while posting strong performance on Surface and other verticals. The PC business took a bit of a hit in the last quarter, but that’s to be expected compared to the pandemic boom of previous years – everyone ran out and bought shiny new Windows laptops to install home offices en masse. And now, well, they don’t really have to buy anymore.
In any case, let’s take a closer look at how Microsoft’s main competitors compare to each other, after Apple, Google (Alphabet) and Amazon.
Apple: hardware superhero
As we all know, Apple’s business model revolves entirely around the iPhone’s monstrous margins, with a growing services segment as the company strives to diversify. The App Store and things like Apple Music and Apple TV are heating up, and Mac is even starting to take a bite out of the Windows PC monopoly, due to the company’s heavy investment in its chipsets.
Apple’s fourth quarter of 2022 saw them hit $20.7 billion in profit on $90.1 billion in revenue. Revenue is almost double Microsoft’s $50.1 billion for the same period, but Microsoft’s profitability is no slouch, at $17.6 billion.
Google: Ad Alphabet
Google’s business still revolves entirely around ads, with ad services and the provision of ads creating the bulk of quarterly revenue of $69 billion. YouTube is a big chunk of that, though again, that ultimately comes down to their advertising business, for the most part. YouTube Premium subscriptions and other revenue streams also seem to work well here.
Google’s cloud and business services provision is no slouch at $6.8 billion, but it’s a dot on the radar of Microsoft’s combined Azure cloud and Microsoft 365 services, which exceed $36 billion.
Amazon: reduced margins
Amazon offers an impressive and diverse portfolio of services and is the dominant force in all online retail businesses. With $53 billion in revenue from online sales alone, Amazon continued to grow in a cooling market.
Amazon’s advertising and cloud computing businesses also grew, but the company’s overall profits were “only” $2.9 billion, giving them a slim 2% operating margin. , the weakest of the bunch here. Amazon’s mass execution operation will no doubt be uniquely affected by the current macroeconomic environment, as energy costs soar and inflation puts pressure to raise wages. Amazon is potentially among the most vulnerable of the four here when it comes to the strange economy we currently find ourselves in, as customers seek to tighten their belts. However, deal seasons like Black Friday and Prime Day should attract shoppers eager to save some cash.
Microsoft: King of the cloud (almost)
Microsoft’s business increasingly revolves around cloud services, with its Intelligent Cloud division hot on the heels of Amazon’s $20.5 billion to $20.3 billion cloud business. It seems entirely likely that Microsoft’s focus on the cloud could see them overtake Amazon’s AWS in the near future, at least in terms of revenue. It’s a stunning turnaround from a decade ago when AWS totally and completely dominated the space.
Microsoft has issued a notice to shareholders saying it expects its Azure business growth to slow in the coming quarters, amid fears of a global recession in the near future.
What’s notable here is that Microsoft has the highest operating margins of the Big Four for this specific quarter, at 35%. It’s even better than Apple itself
Cooling Outlook
Microsoft is well positioned to ride out a storm of macroeconomic headwinds throughout the next fiscal year. Gaming has generally proven to be recession proof year after year as gamers continue to gamble and spend on entertainment products even during an economic downturn. Microsoft’s investments in free gaming experiences and its more affordable Xbox Series S console could also see a boost as users choose to save money, rather than buy the PlayStation 5 or Xbox Series. X more expensive.
Microsoft’s PC sales could be hit the hardest. The pandemic boom has led businesses and users to buy mountains of PC gear to set up remote work scenarios, but that’s now completely over. The steady stream of PC sales of yesteryear may see an unusual dip over the next year, now that users already have all the hardware they need and are heading back to offices anyway. Hardware is probably one area where businesses and individuals choose to save money.
Either way, it’s interesting to see at a glance how Microsoft’s business stacks up against its major competitors in similar spaces. Tech companies have seen their power and wealth grow immeasurably in recent years, accelerated in part due to work-from-home culture and other factors. Technology has been particularly hard hit over the past year, with companies like Meta and Tencent having seen tens of billions of dollars wiped out of their value for a variety of reasons.
Microsoft’s stock price has also fallen from its peak this year in what appears to be a tough economic climate. It is quite likely that there will also be tougher times ahead.
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