Featured Article

What is this, revenue growth for ants?

Or: Big Tech companies are more cloud-dependent than you thought

Comment

A computer running Windows.
Image Credits: Drew Angerer (opens in a new window)

It’s earnings season, that time of the quarter when we get to judge how well public tech firms are fulfilling all the lofty promises they’ve been making. So far this week, we’ve heard from Microsoft and Alphabet (Google) and Meta (Facebook), among other names.

While results from companies like Roku and Spotify hold interesting information about particular segments of the consumer tech market and the health of advertising demand more generally, the sheer extent of Big Tech’s reach means their results bring a sheaf of color to our understanding of the current tech and business worlds.


The Exchange explores startups, markets and money.

Read it every morning on TechCrunch+ or get The Exchange newsletter every Saturday.


What have the majors shown us this week? The most important trend we’ve gleaned from three of the American big five (we’ll hear from Amazon later today and Apple next week) is their very moderate pace of trailing growth.

Investors were largely mollified, if not downright pleased, by these results. Both Alphabet and Microsoft are each up a few points in early trading, and Meta is up nearly 15% after it managed to pleasantly surprise investors, who expected it to post another quarter of slowing revenues.

We’ve spilled more ink than I want to recall covering investors’ new preference for more profitable growth instead of crazy, unprofitable growth. Mostly, we’ve discussed that in reference to startups, but in the case of these tech giants, things get a bit more nuanced. That said, it’s clear that trimming costs and investing in growth are efforts that make investors happy.

3%, 3%, 7%

Given that we often hear of startups bearing growth expectations in the triple digits, it may be surprising to assume that roughly $4 trillion in market cap across three companies could be defended with revenue growth in the single digits, but here we are.

Alphabet’s 3% rise in revenue was driven by Google Cloud’s top line increasing to $7.5 billion from $5.8 billion a year earlier. Search grew by less than $1 billion to $40.4 billion, while Google Network and YouTube advertising incomes dipped.

Why are investors content with this mixed set of numbers from the company’s biggest businesses? Well, everyone already knows that the advertising market is weak these days, and seeing Google Cloud flip to positive operating income from a $701 million operating loss a year ago was enticing. Alphabet also spent a lot of time talking about AI, and right now, investors love AI.

Meta’s quarterly results are slightly funnier. The company’s expenses rose faster (10%) than its revenue (3%), so its operating income dipped just as its operating loss from its metaverse efforts widened to nearly $4 billion from around $3 billion a year ago. But what investors cared about was that the company posted some kind of growth after several quarters of a shrinking top line.

And if you consider the continued, if modest, expansion of its user base and the slight decline in headcount, it seems fair to say that Meta will retain its ability to repurchase its stock at a rapid pace ($9.22 billion in Q1 2023, with $41.73 billion left). That’s good news for investors because buybacks increase how much value each share carries, and when crossed with a bit of operating leverage in terms of revenue per employee, the stock is positively investor catnip. Meta capped off the quarter by forecasting better Q2 revenues than analysts expected, and up went the stock.

Next, we have Microsoft. The company spent a good chunk of its earnings call discussing its various AI efforts, which includes AI services it sells to other companies via its public cloud and the use of AI in its own products and services. Microsoft reported more operating income in the quarter compared to a year earlier, unlike Meta and Alphabet, which means Microsoft grew more rapidly than the others while also becoming more profitable.

Given the sheer number of categories Microsoft competes in, we can’t go too deep into its results without exploding our word count. Suffice it to say that Microsoft saw the most growth in areas of investor interest (cloud, SaaS) in the quarter, and the declines were found in more mature categories (Windows) or smaller efforts that don’t play a big role in driving growth at the company (devices).

In fewer words, Microsoft grew where it matters.

Before we condense all of that into a set of viewpoints that we can apply to startups, let’s talk about the cloud.

Google Cloud grew 28% and Azure expanded by 27% in the quarter, if you count some other items. Given the size of those businesses and their respective growth rates compared to the overall revenue expansion at both companies, you can see why investors and operators alike are so focused on their performance.

We’ll have more on cloud growth after Amazon posts its results, but given what we know, it’s not too early to say that without public cloud spend rising, Alphabet and Microsoft would have seen their already modest growth rates being diminished dramatically.

So what?

It’s a somewhat boring point to make, but the changes in investor preference we’ve been hearing about in the venture community appear to apply to the biggest tech companies as well. Growth matters, but given the slack macroeconomic environment, smaller numbers are OK so long as there are clear factors driving both revenue and profit in the future.

Startups shouldn’t feel unfairly maligned, in other words. They are not expected to announce 11-figure buybacks or return cash to shareholders at all, but the same mix of cost-efficiency and forward-looking focus that venture investors are looking for is what’s being cheered on in the public markets as well.

How can we say that if Alphabet and Microsoft’s shares aren’t screaming higher this morning? Simple: Before market open today, shares of Alphabet were up around 16% from the start of the year, while Microsoft had gained more than 23%, and Meta’s been enjoying a stonking 68% rise; those figures have all improved since the start of the formal trading day. Even a small bump to preceding gains is a win in today’s business environment, where we’re talking more about down rounds and layoffs than about exuberant growth.

For startups, that means that a focus on slashing burn alongside continued growth is the ticket for being venture-ready while private, and potentially, public-markets-ready in the future.

More TechCrunch

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

22 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

23 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck