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OVHCloud results show its November price hike will be a nice little earner
CEO claims no pushback from customers
OVHCloud's strategy for maintaining its double-digit revenue growth rate amid rapidly rising energy prices is to pass the cost straight onto customers, the French cloud provider said in a Wednesday earnings call.
Since the illegal Russian invasion of Ukraine, energy prices in Europe have skyrocketed. In France, the average price now sits at roughly 0.39 Euro per kilowatt-hour, according to Statista. A 39.7 percent increase in energy costs and other inflationary forces were cited as key drivers in the company's September decision to hike prices "approximately ten percent" effective November 1 for public cloud services and December 1 for bare metal systems.
However, the earnings release [PDF] states "electricity costs in 2023 to be around mid to high-single digit percentage of its revenue, up compared to mid-single digit in 2022." That's considerably less than 10 per cent.
"We are all very aware that the current macroeconomic situation is uncertain with a high level of inflation globally," CEO Michael Paulin said on Wednesday's earnings call for the 2022 financial year. "The price increases announced will mitigate inflation on overall cost. Overall, we expect our pricing to allow us to maintain the company margin in 2023."
Overall the cloudy biz grew revenues 18.8 per cent to €788 million in 2022, now expects to grow organic revenue by 14–16 percent year over year. It reported a reduced loss of €29 million, saying it was "focusing on the growth of its business and does not plan to distribute dividends in the medium term."
On the call, Paulin assured analysts that the price increases were in line with those made by major public cloud providers – GCP, AWS, and Azure – and that the company had yet to face much if any blowback over the decision. "Following the announcement, customer dynamics and demand were unaffected, and we haven't seen much pushback at all," he said. "These increases were fully expected by our customers and are industry wide."
It should be noted that customers are unlikely to feel the price hike until at least the end of their next billing cycle, making the company's Q1 revenues a better bellwether for how people are likely to react.
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With energy prices across Europe expected to continue to rise heading into winter, OVHCloud says it doesn't expect any surprises with regard to energy costs in the new fiscal year. "Thanks to its active electricity hedging policy and its highly-regulated geographical footprint, [OVH] Group already knows the cost of 90 percent of its electricity consumption for the 2023 financial year," the company said.
Even with higher prices, Paulin argued that OVHCloud is competitive compared to larger cloud providers. "The announced increases leave our price advantage unchanged compared to the hyperscalers."
However, not every cloud provider is so optimistic about the future. This week Microsoft execs warned investors that cloud growth could slow over the next few quarters. However, execs said they'd be willing to accept this and even help customers cut costs if it buys them loyalty. "We will optimize for customer loyalty by helping customers to optimize spend," CEO Satya Nadella said.
Spending optimizations may not be enough to offset higher energy costs or inflation. Last week Canalys warned that public cloud customers should expect prices to surge by as much as 30 percent in Europe over the next year.
And some enterprises have gone so far as to abandon the cloud altogether. In a blog post last week, David Heinemeier Hansson, CTO of project management platform Basecamp, opined that "renting computers is (mostly) a bad deal" for those medium to large enterprises with largely steady and predictable traffic. ®