ICONIQ Growth: Q2 2020 Cloud Commentary Report

1. Q2 2020 Cloud Commentary

2. ICONIQ Capital, LLC
Important Disclosures
2

3. 3
Company
Financial Profile/
Growth
• AWS revenue of $10.8B, an increase of 29.0%
Y/Y, up from $8.4B in Q2 FY19
• Though this was the eighth sequential quarter
of deceleration, signs that growth this quarter
was largely transitory as AMZN helped
customers temporary optimize consumption
• Backlog remains robust, growing 65% Y/Y
• AWS segment accounts for 12.2% of
consolidated revenue and 57.5% of
consolidated operating income
• Azure revenue increase of 50.0% FX-
neutral Y/Y (revenue undisclosed)
• Commercial Cloud revenue of $14.3B
(+32% Y/Y) and Intelligent Cloud revenue of
$13.4B (+19% Y/Y) in Q4 FY2020
• Deceleration driven by customers’ clear
shift to optimize Azure consumption
• Q4 FY20 Commercial Cloud gross margin of
66%, up slightly from 65% in Q4 FY19,
driven up by improved Azure margin
• $12.0B revenue run rate for Google Cloud
in Q2 FY20 (43.2% Y/Y). Despite Y/Y growth
deceleration, backlog remains strong with
$14.8B in future Google Cloud contracts
• GCP Growth remains significantly higher
than consolidated cloud revenue.
• Q2 FY20 consolidated operating income of
$6.4B for Google, down 25.5% Y/Y
(unknown portion allocated to GCP)
Products
• Core focus on developer tools, including code
optimization and enterprise search products
• Select strength in edge computing and IoT
• Significant focus on expanding AI portfolio
including partnership with OpenAI, Azure
Cognitive Sciences and Bot Framework
• “Really focused” on AI engineering teams
and investing appropriately, in line with
historical GCP engineering focus
Footprint
• Expansive footprint across many
industries/geos
• Working closely with companies in struggling
industries to selectively scale down usage
• Continued investment in infrastructure, with
Q2 FY20 purchases of PP&E under finance
leases(1) of $3.2B, (4.6%) Y/Y
• CapEx of $5.8B in Q4 FY20, up 9% Y/Y
(includes assets acquired under finance
leases), and 49% Q/Q
• Depreciable server life will increase to 4
years
• More data center regions than any other
cloud provider (added Italy, NZ, Poland)
• Q2 FY20 CapEx of $5.4B, down 12.0% Y/Y
from $6.1B in Q2 FY19. Reflective of
slowed pace of acquiring offices & building
office / data centers
• Expect modest decrease in total level of
CapEx in 2020 relative to 2019, though
continued investment into server efficiency
Impact of Macro
Environment
• AWS customer usage remains strong, but
growth varies across industries with travel
and hospitality clients cutting expenses
• Average contract length is over three years,
which may suggest long term stability for
AWS segment despite COVID-19 headwinds
• Though AWS faces short-term headwinds,
remain confident in future commercial
opportunity as cloud migration stays strong
and paring of usage is temporary/selective
• Overall, COVID-19 has demonstrated the
importance of technology for business
resiliency and continuity, with MSFT at the
forefront of these needs
• Revenue growth trends likely more
transitional results of customers working to
optimize consumption loads to save money
• Cloud offerings remain essential to
organizations working remotely
• Optimistic around cross-sell and net new
customer growth moving forward
• Google Cloud remained a key strength in
the midst of other struggling business units
• Management highlights two trends as
growth levers for Google Cloud: the future
of work being digitized and the importance
of digital collaboration, both of which are
enabled by Google Cloud
• Of all business lines, strategic focus and
long-term investment remains dedicated to
growth and opportunity of Google Cloud
Source: ICONIQ Growth diligence, AMZN, MSFT and GOOG public filings
(1) Under new accounting guidance, leases and capex spending previously
referred to as “capital leases” are now referred to as “finance leases”
Overview of Select Core Competitors
Cloud Provider Landscape
Summary Overview – Key Participants

4. 4
Cloud Commentary
Amazon – Q2 2020 Earnings Call & Press Release
Theme Commentary
Financials
• Eighth consecutive quarter of decelerating % Y/Y revenue growth, but on a base of $43.2B run-rate revenue in Q2
• AWS a strong component to consolidated Amazon gross margin expansion
• AWS operating profit continues to contribute meaningfully to consolidated Amazon operating profit
• Backlog of future AWS contracts growing at 65.0% Y/Y
Product
• Announced HoneyCode, a fully-managed service for building powerful applications with no programming required
• Announced Amazon Kendra, an enterprise search service ,leveraging ML, enabling clients to index and search data across
siloes by employing natural language requests
• GA of UltraWarm for ElasticSearch Service, a low-cost warm storage tier that provides interactive analytics of log data
• GA of sixth-generation EC2 with three ARM-based instances, delivering up to 40% better price and performance
• GA of CodeGuru, a developer-quality service leveraging ML for providing recommendations to improve code quality
• GA of SnowCone, a portable and secure edge computing and data transfer device
• Ga of IoT SiteWise, a managed service that collects and labels data which is used to generate metrics to help industrial
customers make data-driven decisions
• Announced Amazon Interactive Video Service, a managed service used to set up live, interactive video streams for web or
mobile applications
Customers
• AWS being leveraged by customers like WHO, UNC Health and Orange County United Way to lessen the impact that COVID
is having on families, communities and businesses
• New customer commitments and migrations from HSBC, IHS Markit, Formula 1, Bundesliga, Capella Space and Genesys
who are leveraging AWS to drive digital transformation agendas and deliver dynamic user experiences for their customers
• AWS and Slack announced multi-year agreement and migration of Slack Calls capability to Amazon Chime, AWS’
communication service for hosting business calls
Summary
Outlook
• Despite slowdown in % Y/Y revenue growth, management is confident in their ability to successfully serve clients over the
longer term, noting they are actively working with select clients to scale down deployments to help them better navigate
cost cutting as a result of COVID impact, which is positively influencing the “health of the relationship”
• Seeing many companies wishing they had made further progress on cloud deployments and are witnessing migration plans
accelerate, which suggests a positive outlook for revenue growth in the long-term
Source: ICONIQ Growth diligence, AMZN public filings

5. 5
Theme Commentary
Financials
• Azure revenue increased 50% Y/Y FX-neutral (revenue figures not disclosed), down from a 61% Y/Y last quarter and 68% Y/Y
in Q4 FY2019. Growth was driven by their consumption-based services as people continue to work and learn from home.
• Commercial Cloud surpassed $50B in annual revenue for first time, growing 32% Y/Y. Growth was propelled by continued
digitization across business segments, industries, and operations as companies adapt to new customer needs and demands
• Closed record number of multi-million dollar commercial cloud agreements while number of $10M+ Azure contracts grew;
Commercial bookings growth ahead of expectations due to increased renewals and large, long-term Azure contracts
• Continued investment in infrastructure paying dividends as server depreciable life will increase to 4 years moving forward
Product
• New Azure-Arc-enabled Kubernetes to enhance current control plane build for the multi-cloud, multi-edge world
• Increased capabilities in the Azure Stack HCI to help companies bring the cloud to their own datacenters
• Acquisitions of Affirmed and Metaswitch are helping to extend Azure to the network edge and support telecom shift to 5G
• Continue to differentiate their Azure offering with limitless data and analytics capabilities using a combination of SQL
Hyperscale, Cosmos DB, Synapse Analytics, and new Synapse Link (enables live analytics)
• New capabilities across Azure Cognitive Services (building application across 49 languages), Microsoft Bot Framework
(building bots with low code), and Azure Machine Learning (deploying AI responsibly & safely).
• Acquisition of CyberX will assist in securing customers IoT deployments as IoT adoption (and security risks) accelerate
Customers
• Azure continues to support more datacenter regions than any other provider, adding Italy, New Zealand, and Poland in Q4
• New customers include: Land O’Lakes, National Australia Bank, John Hopkins Medicine, Citrix, Finastra, SAS, and Workday
• Usage continues to increase, with Azure Cognitive Services processing 13.5B transactions in June
• Breakthrough Innovation of GPT-3 AI model from partnership with OpenAI was trained on Azure AI supercomputer
• AI becoming essential across industries, with Azure AI being used by companies from Bridgestone to United Health to EY
• Azure Active Directory has over 345M MAU across 200K+ organizations (e.g. GM); Azure Sentinel has 6,500 customers
Summary
Outlook
• Despite some slowdown in SMB segments and on-prem solutions, MSFT cloud business remains in a strong position as
more companies understand that cloud technology is essential to business resilience and continuity
• Will continue to invest in long-term, strategic opportunities to support customer needs and demands. Strong usage and
consumption growth expected as new customers are signed and existing customers cross-sell into other product lines
• Intelligent cloud projected to drive $12.55B - $12.8B in revenue in Q1 FY2021
• Management guides they are increasing the depreciable lifetime of a server to four years, which will favorable impact
operating income by $900M in Q1 ’21 and $2.7B in FY21
Source: ICONIQ Growth diligence, MSFT public filings
Cloud Commentary
Microsoft – Q4 FY2020 Earnings Call & Press Release

6. 6
Theme Commentary
Financials
• Google Cloud decelerated meaningfully to 43.2% Y/Y generating $3.0B in revenue vs. 52.2% Y/Y revenue growth in Q1 FY20
• Slowed revenue growth partially due to G Suite lapping the price increase initiated in April 2019
• Strong confidence for future of Google Cloud, reflected by increase in long-term, multi-year contracts and a backlog of
$14.8B
• Increased administrative and fixed costs partially attributed to cloud division, as the most sizeable head count increases
were in technical and sales roles within Google Cloud division
Product
• Keen focus on the Google Cloud Go-To-Market organization and strengthening partner network
• GCP growth and customer adoption led by infrastructure offerings and broad data and analytics product suite. Continued
focus on R&D and enhancing AI offerings
• More broadly, G Suite has introduced an integrated workspace for Gmail, Chat, Meet, and Drive on mobile to aid continued
collaboration as people continue to work and learn from home
Customers
• Customers continue to choose Google Cloud to drive digital innovation and increase operating efficiencies
• Highlighted commercial customers include Keurig, Dr. Pepper, Deutsche Bank, Lowe’s, Telefonica, and Orange
• Moreover, Google Cloud is working with many government agencies to help deliver care during COVID—including
governments in Oklahoma, New York, Arizona, Italy, and Spain
• Broad use cases for G Suite tools, from financial advisory to telemedicine to teaching
• Management highlighted Q2 Google Meet usage peaked at 600M participants in one week, as well as PWC employees
conducting nearly ten million hours of videoconferencing in a single month
• Average revenue per seat and absolute seat growth witnessed in G Suite install base
Summary
Outlook
• Expect modest decrease in CapEx in 2020 relative to 2019. This is driven by a slower pace of acquisition and slower ground-
up construction for both office facilities and data centers due to COVID-19
• As in the past, will continue to invest strategically in Google Cloud as it remains a key lever of growth. Expect investment in
head count for Google Cloud on both the engineering and sales side, along with long-term investment in data centers,
cloud regions, and improvements in server efficiency.
• Management did not provide quantitative forward guidance on Google Cloud revenue or profitability but noted a large
backlog of $14.8B for Google Cloud contracts
Cloud Commentary
Google – Q2 2020 Earnings Call & Press Release
Source: ICONIQ Growth diligence, GOOG public filings

7. 7
Cloud Commentary
AWS Revenue Growth
AWS Quarterly Revenue ($M) – Constant Currency Basis
 AWS Q2 FY20 revenue of $10.8B, up 29.0% Y/Y
 Eighth consecutive quarter of decelerating, but impressive Y/Y revenue growth
 Largest sequential decline in % Y/Y revenue growth since Q1 FY19
$2,566
$2,886
$3,231
$3,536 $3,661
$4,100
$4,584
$5,113
$5,442
$6,105
$6,679
$7,430 $7,696
$8,381
$8,995
$9,954 $10,219
$10,808
63.9%
58.2%
55.0%
47.0%
42.7% 42.1% 41.9%
44.6%
48.6% 48.9%
45.7%
45.3%
41.4%
37.3%
34.7% 34.0% 32.8%
29.0%
0%
10%
20%
30%
40%
50%
60%
70%
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
FY2016 FY2017 FY2018 FY2019 FY2020
AWS Revenue % Y/Y Revenue Growth (constant currency basis)
Source: ICONIQ Growth diligence, AMZN public filings

8. 8
Cloud Commentary
Azure Revenue Growth
Illustrative ICONIQ Growth Estimate: Azure % Y/Y Revenue Growth(1) – Constant Currency Basis
Source: ICONIQ Growth diligence, MSFT public filings,
William Blair
(1) Microsoft does not disclose revenue figures directly
attributed to Azure, and only discloses Azure revenue %
Y/Y growth
 In Q2 FY2020, sell-side analysts estimated Azure revenue at a ~$20B run rate
 ICONIQ Growth estimated historical Azure revenue figures by leveraging historical Azure revenue growth rates provided by
management, as well as published broker research estimates
 Microsoft’s Azure segment grew 50% Y/Y on a constant currency basis in Q4 FY2020, a significant decline from the 60%+ growth over
the prior year
94.0%
98.0%
89.0%
98.0%
89.0%
85.0%
76.0%
76.0%
75.0%
68.0%
63.0% 64.0%
61.0%
50.0%
0%
20%
40%
60%
80%
100%
120%
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY2017 FY2018 FY2019 FY2020
Azure Revenue (ICONIQ Growth Estimate) % Y/Y Revenue Growth (constant currency basis)

9. 9
Cloud Commentary
Google Cloud Revenue Growth
Google Cloud Quarterly Revenue ($M) – Constant Currency Basis
Source: ICONIQ Growth diligence, GOOG public filings
 Google Cloud has maintained a 45.7% CAGR over the past 7 quarters
 Growth of Google Cloud decelerated meaningfully in Q2’20
 Google does not disclose actual GCP revenue, though it is noted that GCP continues to grow significantly faster than the consolidated
Google Cloud business
$1,709
$1,825
$2,100
$2,379
$2,614 $2,777
$3,007
53.0% 52.2%
43.2%
0%
10%
20%
30%
40%
50%
60%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Q4 Q1 Q2 Q3 Q4 Q1 Q2
FY2019 FY2020
Google Cloud Revenue % Y/Y Revenue Growth (constant currency basis)