Microsoft’s Azure, the platform at the center of the software giant’s thriving enterprise-cloud services, saw its growth rate slow in the fourth quarter of 2018, helping to drag the company’s revenue and earnings below analyst expectations.
Overall revenue rose 12% to $32.5 billion in the quarter, Microsoft said Wednesday, while GAAP earnings per share came in at $1.08 a share, or a penny below estimates. Revenue was also below Wall Street estimates by $40 million.
Microsoft’s stock fell nearly 4% in after-hours trading on the earnings report, despite the fact that its numbers fell short of forecasts by a small amount. Part of that selloff may have been due to the slowdown in Azure’s growth. Azure revenue grew by 76% last quarter, down from 98% a year earlier.
While a 76% growth rate is nothing to scoff at, the slowdown is concerning for two reasons. Azure is the engine driving the growth behind Microsoft’s revival in a post-PC era where Windows software is becoming less relevant. But Microsoft also faces intense competition, especially from Amazon’s Web Services, but also Google’s cloud and Alibaba’s nascent cloud business.
Azure continues to sign up new customers—it announced Walgreens and Kroger as new clients this month—but its share of the cloud-infrastructure market stands at 14%, well behind Amazon’s 34%, according to Synergy Research. Amazon is expected to report its fourth-quarter earnings Thursday, including an update on its AWS business.
Separately, Microsoft said Wednesday that many users—particularly those in Australia, New Zealand, and parts of the U.S. West Coast—suffered an outage that affected Azure, Office 65, and LinkedIn accounts.