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Webscale Network Operators: 2Q21 Market Review

Webscale revenues now $1.96 trillion over four quarter, more than telecom
The step change in revenue growth for webscalers that appeared in late 2020 has continued. Year over year (YoY) revenue growth in the sector has exceeded 30% for the last two quarters. On an annualized basis, webscale revenues grew 28% YoY in 2Q21 to reach $1.96 trillion, a bit more than the telecom operator market.
Alphabet and Facebook had the fastest revenue growth rates among large webscalers in 2Q21, and they are also the webscalers most exposed to advertising revenues. Some of their outperformance is due to a relatively weak ad market in 2Q20. But more of it is a function of the increasingly dominant role these two companies play in ad markets. For Alphabet, cloud services revenue growth is also a factor, to be sure. But Google Cloud Platform revenues in 2Q21 grew 53% YoY, less than the company overall, and account for just 7.4% of revenues. There continues to be pressure on Alphabet and Facebook related to content policing, privacy, and anti-competitive practices, but the pressure has not yet made any dent in their revenue (or profit) growth. It remains to be seen whether Apple’s more stringent privacy protections, introduced in 2Q21, will have any effect on Facebook and Alphabet growth.
Annualized capex climbs to $153B in 2Q21; data center landgrab continues
Webscale capex has soared in the last few quarters. For the webscale sector as a whole, capex grew 28% in 2020, to $133.4 billion. For the annualized 2Q21 period, capex amounted to $153B, up 34% from 2Q20. The non-tech piece of capex amounted to $90B, or 59% of the total, and grew a bit faster than Network/IT capex in 2Q21. Capital intensity rose throughout 2020 but has flattened since then, ending 2Q21 at 7.8% on an annualized basis.
The webscale sector’s big cloud providers have accounted for much of the recent capex surge. Amazon, Alphabet, and Microsoft have been...
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Matt Walker
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