France-based cloud services provider, OVHcloud, revised its expectations for revenue growth for the full year due to the macroeconomic environment and delays in specific projects. The company now anticipates organic revenue growth to be in the range of 13% to 14% in 2023, down from its previous projection of 14% to 16%. It also predicts that its adjusted core profit (EBITDA) margin for 2023 will surpass 36%, as opposed to its earlier estimate of matching the 2022 level of 39%.
Hyperscalers earn revenue by providing cloud computing services to customers. These services include storage, computing power, data analytics, machine learning, and other related services that customers can utilize to run their businesses more efficiently and effectively. The hyperscalers charge customers based on usage, with pricing that varies depending on factors such as the type and amount of resources used, the location of the data center, and the level of service provided.
However, the cloud sector is grappling with higher electricity prices needed to power data centers, which is driving up operating costs for OVHcloud, especially in Germany. The company anticipates that electricity prices will eventually stabilize over the next few quarters, but it has had to increase prices to compensate for these costs. Despite OVHcloud’s expansion into new markets and active recruitment instead of layoffs, it faces stiff competition from U.S. tech giants such as Amazon and Microsoft.
The tech industry is experiencing cutbacks due to an uncertain economic outlook.
Earlier this year, Microsoft Corp. cautioned its investors about slowing cloud sales due to corporate spending cuts. Google Cloud also reported weaker sales. Amazon Web Services (AWS), a long-time cloud-market leader and a significant profit driver for Amazon, experienced a significant slowdown in sales growth, falling to 20% year-to-year in the fourth quarter, the lowest pace on record, from 27% in the previous quarter. Amazon recently announced that it would cut 9,000 jobs in its cloud and advertising divisions.
As more businesses move their operations to the cloud, hyperscalers should experience significant revenue growth. However, they faced a deceleration in revenue growth which may be attributed to customers optimizing their cloud usage and stretching out projects. The entire industry is trying to tackle cost challenges amidst economic uncertainties.