Microsoft-Google-Visa earnings summary

The three companies beat market expectations and issued strong guidance based on strong revenues and on-going cost discipline. Both Microsoft and Google are seeing very strong momentum in AI services and infrastructure. 

Microsoft

Q4 EPS of $2.60 a $0.14 beat and Revenues of $56.2B +8.3% yoy and $710M above consenus

Microsoft Cloud revenue was $30.3 billion and grew 21% and 23% in constant currency, slightly ahead of expectations. Microsoft Cloud gross margin percentage increased roughly 3 points year-over-year to 72%.

The main areas of growth are AI and Teams.

1-     AI is powering cloud revenues

The Microsoft Cloud surpassed $110 billion in annual revenue, up 27% in constant currency, with Azure all-up accounting for more than 50% of the total for the first time. According to S. Nadella Microsoft CEO:  “Every customer I speak with is asking not only how, but how fast, they can apply next-generation AI to address the biggest opportunities and challenges they face”.

The client momentum is very strong across Azure OpenAI Service. More than 11,000 organizations across industries, including IKEA, Volvo Group, Zurich Insurance, as well as digital natives like FlipKart, Humane, Kahoot, Miro, Typeface, use the service. That is nearly 100 new customers added every day this quarter. Mercedes-Benz, for example, is bringing ChatGPT via Azure OpenAI to more than 900,000 vehicles in the United States, making its in-car voice assistant more intuitive. Moody's built its own internal copilot to improve productivity of its 14,000 employees. Microsoft is partnering broadly to scale their next generation of AI to more customers. Snowflake, for example, will increase its Azure spend as it builds new integrations with Azure OpenAI. KPMG has announced a multibillion-dollar commitment to Microsoft cloud and AI services to transform professional services.

2-     Strong momentum in Teams adoption

Microsoft has now more than 1,900 apps in Teams app store. And companies in every industry, from British Airways, Dentsu, to Eli Lilly have built over 145,000 custom lines of business apps within Teams. In just five months, Teams Premium has already gathered 600,000 seats at companies such as BNY Mellon, Clifford Chance, PepsiCo and Starbucks. Teams Phone is the market leader in cloud calling with more than 17 million users, up 45% year-over-year. Teams Room is used by more than 70% of the Fortune 500, including L'Oreal, United Airlines and revenue more than doubled year-over-year this quarter.

Google

Q2 GAAP EPS of $1.44 0.10 cents above expectation and Revenues of $74.6B up 7% yoy and $1.84B ahead of consensus

Google posted strong numbers and management sounded very upbeat during the earnings call. 

Google CEO Sundar Pichai highlighted very strong metrics that illustrate the platform power of the company: With 15 products that each serve 0.5 billion people and 6 that serve over 2 billion each.  Google Cloud revenues at $8bn rose 28%. The current 5% OP margin suggests a significant upside potential in the future. The reshaping of YouTube is starting to pay-off. 

1- AI 

Google generative is a key growth driver within the 9 million paying Google Workspace customer base. Google is expanding its partner ecosystem with hundreds of SaaS providers, such as Box and Salesforce and the world's largest consulting firms like Accenture and Deloitte. These partners are collectively committed to train more than 150,000 people on Google Cloud generative AI.

Google Cloud AI infrastructure is a leading platform for training and serving generative AI models. More than 70% of AI unicorns are Google Cloud customers, including Cohere, Typeface and many more. Google claims they are providing the widest choice of AI supercomputer options with its in-house TPUs (a unique processor specialized in AI) and advanced NVIDIA GPUs, and recently launched new A3 AI supercomputers powered by NVIDIA's H100. These enable customers to achieve nearly 2 times better price performance than industry alternatives. Google AI platforms has seen its number of customers growing more than 15x from April to June. Among them, Priceline, Carrefour which is creating full marketing campaigns in a matter of minutes or Capgemini. 

2- YouTube

Revenues across YouTube products were nearly $40 billion for the 12 months ending in March. YouTube is growing audiences and driving increased engagement. YouTube Shorts are now watched by over 2 billion logged-in users every month, up from 1.5 billion one year ago. YouTube is now reaching more than 150 million people on connected TV screens in the U.S. and seeing growth in momentum internationally. Late last year, Google announced over 80 million YouTube Music and Premium subscribers. 

Visa 

Q3 Non-GAAP EPS of $2.16 beats by $0.04. Revenue of $8.1B (+12.0% Y/Y) beats by $40M.

Visa explained its growth strategy built on three growth levers: consumer payments, new flows and value-added services all based on partnerships and co-branding with strong local players. 

For example, across Eastern Europe, Intesa Sanpaolo will issue Visa debit in Croatia, Hungary, Romania, Slovakia and Slovenia representing over 3 million Visa credentials. In Korea, Visa renewed its partnership with Hyundai Card. Hyundai will grow their share of Visa cards in credit and debit for consumer and business. Visa is also thriving on AI: Rakuten Card, a subsidiary of Rakuten Group, which operates the largest e-commerce marketplace in Japan, has signed a new credit deal with Visa in order to become a top global player. For many of the largest airline co-brands in the world, Visa remains a partner of choice, and recently renewed with Korean Air. In India, Visa signed a co-brand agreement with Indian conglomerate, Adani, serving 400 million customers through retail, airports and online travel services, among others.

Another example of partnership is SAP Asia-Pacific. Visa will integrate Visa’s virtual card and business solution payment capabilities into SAP’s business technology platform. SAP serves more than 46,000 customers across Asia-Pacific.