Past recessions have taught us that leading Technology companies typically gain marketshare during down economies. I would expect this economic down period to be no different. Good news for Amazon (AMZN), Microsoft (MSFT), and others.
Amazon (AMZN) and Microsoft (MSFT): Amazon’s AWS unit and Microsoft’s Azure unit will be mixed bags:
- Usage: Usage – and therefore revenue – will decrease near-term as customer organizations layoff people or worse – go out of business.
- Taking share from “internal server” market: However, on the positive side, companies will replace internal servers with AWS, Azure and to a lesser degree Google Cloud (GOOGL) and Oracle (ORCL) to shrink expenses.
I believe #1 will outweigh #2 in the near-term (over the next 12 months). Longer-term, AWS, Azure, Google Cloud and Oracle will resume growth driven by new company formation and taking share from the “internal server” market.
Outside of the cloud/remote server businesses, Amazon will capture share on the retail side from smaller mom-and-pop operations, larger chains as well as national brands such as Wayfair (W).
We could see Microsoft do more strategic deals to extend Azure and “Intelligent Cloud” services deeper into organizations. Microsoft’s deal with the London Stock Exchange (LSE) is one such example. Recall that LSE acquired the old Thomson Reuters FinTech business – Refinitiv – through its $27 billion 2021 acquisition. Microsoft is becoming a FinTech player through the back door.
Intercontinental Exchange (ICE): On the FinTech side, ICE is well-positioned to capture share, especially given that the company is strategic when it comes to M&A. For example, as Coinbase (COIN), falls completely on its back, I could see ICE acquiring that business for its Distributed Ledger Technology (“DLT”) infrastructure. JP Morgan (JPM), could also be a potential acquirer of Coinbase as could Fidelity (private). Coinbase’s valuation needs to pull back further however. Perhaps by June/July COIN will be ready to be put out of its misery.
Google (GOOGL): Google’s Ad business has been hit by last year’s iOS change while competitors such as Amazon and TikTok have gained marketshare. The long-term solution to Google’s Ad woes is to generate more subscription and usage-based revenue. To this end YouTube continues to grow subscriptions, Google Cloud continues to grow usage-based revenue, and other offerings such as the Google Workspace product family are charging users for services as data usage exceeds a certain threshold. Other Google products such as the Google Pixel phone (a high-quality phone, read about it HERE), lend the company cache while driving revenue.
However, to be more of a player in the cloud/remote server market Google should acquire Oracle. A combined Google/Oracle would have the scale and partnership network to better compete with AWS and Azure.