The pretty cool App Economy Insights newsletter recently shared a series of interesting graphics that provide a detailed look at how Microsoft stacks up against some of its biggest competitors.
Microsoft posted strong Q4 2022 results a couple of weeks ago, emphasizing a commitment to gaming while showing solid performance across Surface and other verticals. The PC business has taken a bit of a hit in the past quarter, but that’s hardly to be expected compared to the pandemic boom of years past — everyone ran out and bought shiny new Windows laptops to set up home offices en masse. And now they don’t really need to buy more.
In any case, let’s take a closer look at how Microsoft’s biggest competitors stack up against each other, after Apple, Google (Alphabet) and Amazon.
Apple: Hardware superhero
As we all know, Apple’s business model revolves entirely around monstrous iPhone margins, with a growing services segment as the company makes efforts to diversify. The App Store and things like Apple Music and Apple TV are heating up, and the Mac is even starting to take a bite out of the Windows PC monopoly, due to the company’s strong investment in its chipsets.
FYQ4 2022 for Apple saw them reach $20.7 billion in profit on $90.1 billion in revenue. The revenue is almost double Microsoft’s $50.1 billion for the same period, but Microsoft’s profitability is not worse, at $17.6 billion.
Google: The Alphabet of Ads
Google’s business still revolves entirely around ads, with ad services and ad serving generating most of its $69 billion in quarterly revenue. YouTube makes up a big part of that, although again it’s ultimately within their ad business, for the most part. YouTube Premium subscriptions and other revenue streams seem to perform well here as well.
Google’s offering of cloud and enterprise services isn’t sloppy at $6.8 billion, but it’s a blip on the radar for Microsoft’s combined Azure cloud and Microsoft 365 enterprise services, which tops $36 billion.
Amazon: Narrow margin
Amazon has an impressive and diverse portfolio of services and is the dominant force in all online commerce. With $53 billion in revenue from online sales alone, Amazon continued to see growth in a cooling market.
Amazon’s advertising and cloud businesses also grew, but the company’s total profits were “only” $2.9 billion, giving them a tiny 2% operating margin, the lowest of the bunch here. Amazon’s massive fulfillment business will no doubt be uniquely affected by the macroeconomic environment right now, as energy costs rise and inflation increases pressure to increase wages. Amazon is potentially among the most vulnerable of the four here when it comes to the strange economy we’re in right now, as customers try to tighten their belts. Although deal seasons like Black Friday and Prime Day should attract shoppers eager to save money.
Microsoft: King of the Cloud (almost)
Microsoft’s business is increasingly revolving around cloud services, with its Intelligent Cloud division hot on the heels of Amazon’s $20.5 billion cloud business of $20.3 billion. It seems entirely likely that Microsoft’s sharp focus on cloud could see them overtake Amazon’s AWS in the near future, at least in terms of revenue. It’s a stunning turnaround from ten years ago, when AWS was completely and utterly dominant in the space.
Microsoft has issued an advisory to shareholders that it expects growth in its Azure business to slow in the coming quarters, amid fears of a near-future global recession.
What’s notable here is that Microsoft has the highest operating margins of all the Big Four for that particular quarter, at 35%. It’s even better than Apple itself
Microsoft is well positioned to weather a storm of macroeconomic headwinds in the next fiscal year. Gaming has generally proven to be recession-proof year in, year out, as gamers continue to play and spend on entertainment products even during times of economic downturn. Microsoft’s investments in free-to-play experiences and its more affordable Xbox Series S console could also see a boost as users choose to save money over buying the more expensive PlayStation 5 or Xbox Series X.
Microsoft’s PC sales may take the biggest hit. That pandemic boom led to businesses and users buying up mountains of PC equipment to set up remote work scenarios, but that’s all over now. The steady stream of PC sales of yesteryear could see an uncharacteristically steep decline over the next year, now that users already have all the hardware they need and are still heading back to the office. Hardware is likely to be an area where both businesses and home users choose to save money.
Either way, it’s interesting to see at a glance how Microsoft’s business stacks up against its biggest competitors in similar spaces. Tech companies have seen their power and wealth swell exponentially in recent years, accelerated in part by work-from-home culture and other factors. Tech has been uniquely impacted over the past year, with companies like Meta and Tencent seeing tens of billions wiped off their value for various reasons.
Microsoft’s share price has also fallen from its peak this year, in what amounts to a tough economic climate. It is quite likely that there are also tougher times ahead.
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