Microsoft Revenue heading for the Cloud



Microsoft Revenue heading for the Cloud

When Microsoft recently announced it’s Fourth Quarter Fiscal Year 2018 Results, it boosted market confidence in Microsoft and CEO Satya Nadella’s strategy. The stock market reacted with an immediate 4% increase in after-hours trading as the results beat analyst’s expectations.

Since Satya became CEO in 2014, Microsoft’s stock price has more than tripled. The numbers are impressive. Revenue was 30.1 billion dollars and earnings 8.8 billion dollars for the last quarter of the fiscal year 2018. For the whole fiscal year, 2018 revenue surpassed 100 billion dollars, 110 billion dollars to be precise, and operating income for the fiscal year was 35 billion dollars. So what’s behind the numbers?

Since Satya became CEO in 2014, Microsoft's stock price has more than tripled.

Cloud revenue soaring

As Satya Nadella explained in a conference call with investors, it is the early investment in cloud-based activities such as Azure and Office 365 which are now paying off.

As you can see in the slides Microsoft made public about its Q4 2018 results [1], the revenue from cloud-computing platform Azure rose 89 percent in the quarter, while sales of web-based Office 365 software to businesses climbed 38 percent (the published slides are, of course, powered by Powerpoint Online, part of Office 365).

Satya Nadella actually used the phrase “intelligent cloud and intelligent edge” in explaining some of the drivers for the good results [2]. We have previously written about the intelligent cloud, intelligent edge and Microsoft’s AI-based activities [3] [4].

The importance of developer mindshare

It is worth contemplating the run-away success of Azure. Sure, Amazon is still the undisputed leader in the cloud computing arena with AWS commanding a market share around 33%, but Microsoft is a very solid number two with 13% of the cloud computing market, leaving an otherwise impressive Google trailing as an also-ran with 6% [5].

I predict that Azure will grow even more in the future and will be the only serious contender to AWS. I will even go out on a limb and say that Azure will most likely even overtake AWS at some point in the future.

That’s a bold, maybe even ridiculous, statement but please bear with me and consider how Satya Nadella as part of the presentation of the results highlighted the “increasingly vital role developers play”. He mentioned how Microsoft’s acquisition of Github (which is not reflected in the Q4 FY 2018 results as the acquisition is still pending) will “bring our tools and services to a new audience”.

That’s a very important point. When it comes to developer tools, Microsoft is the undisputed leader and Microsoft’s developer mindshare will inevitably turn into more market share in cloud computing, as I discussed previously in my blog post about Microsoft’s acquisition of Github [6].

Windows, Gaming, Surface and LinkedIn

The area which laid the foundation for Microsoft many years ago, operating systems, are also doing fine. Windows revenue was up 14%. Windows is lumped together with Gaming (Xbox), Surface and Search in the “More Personal Computing” business segment which altogether experienced 17% growth.

The good news from Microsoft was in stark contrast to social media companies who a week later experienced drops in their stock after disappointing quarterly results from Facebook. Facebook was hardest hit with a 20% drop in stock value. Microsoft is also involved in the social network market after they bought LinkedIn back in 2016, which I wrote about in an earlier blog post [7]. Revenue for LinkedIn increased 37%, and operating loss was 182 million dollars compared to 353 million dollars a year ago.

This is a minor blot on an otherwise perfect result. The sun is shining through Microsoft’s Intelligent Cloud giving growth to its More Personal Computing & Productivity and Business Processes.

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LINKS

[1] Fourth Quater Fiscal Year 2018 results
[2] Earnings Press Release FY18 Q4
[3] Build 2018 Review: Intelligent Cloud and Intelligent Edge
[4] Inspire 2018 review – AI, Azure and Microsoft 365
[5] Cloud Growth Rate Increased Again in Q1; Amazon Maintains Market Share Dominance
[6] Microsoft buys GitHub and is more valuable than Google
[7] Why Microsoft is LinkedIn to Open Source

Dan Mygind

Author: Dan Mygind

Dan is a Journalist and Computer Scientist with a strong interest in technology, technology-related businesses, and the transforming effect source code can have on society.
He has worked for startups, SMEs and global IT-organisations such as IBM as a developer, consultant, and IT-architect. With a solid technology background, he has written extensively for a wide variety of publications such as Computerworld as well as writing technical white papers for Microsoft and other companies.
He is also a published author, ‘World Storytellers

Contact Dan Mygind: mygind{at}writeit{dot}dk

The views expressed are those of the author and do not necessarily reflect the view and opinion of Curo Talent.

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