Microsoft's Record Cloud Quarter In Two Charts

Alex Wilhelm alex

Microsoft beat earnings expectations yesterday, a win that was partially-predicated on its cloud results.

Why do we care? Because the earnings of certain public companies can help us better understand tech startups. For example, the changing value of public cloud companies can help us understand what revenue startups can ultimately expect to command when they debut. And growing revenue categories — say, SaaS, or public cloud infrastructure — can help us grok other verticals intra-tech, demystifying the world at least in part.

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Today, we’ll do both. By taking a moment to understand Microsoft’s most-recent cloud results, we can learn more about our regular work of understanding the financial world of private companies. It being earnings seasons, we are merely working backward from public results to private implications.

Milestones

Before we dive into charts, we need to understand the three key cloud-related facts from the company’s earnings report. In order:

The company’s “Commercial Cloud” annual run rate reached $18.9 billion.
The company generated more money from Office 365 than Ye Olde Office.¹
The company’s public cloud platform Azure grew 97 percent year over year.

As it turns out, the latter two are component metrics to the first, as discovered when we pinged Microsoft about just what counts as “Commercial Cloud.”

A Microsoft spokesperson said that commercial cloud is Azure, Dynamics, and business-sold Office 365, with some other products such as Yammer included. More succinctly, it’s the set of services that Microsoft sells to corporations that are hosted in a cloud environment. Shocking, I know, given its name.

So the company’s public cloud growth and the commercial side of Office 365 are a component to Commercial Cloud. As such, we have a single proxy data point for both things that we care about.

For startups, Office 365 is also a bellwether of sorts for enterprise and commercial SaaS. Microsoft is large enough that its ability to move its customers from single-sale software to a managed service can guide us in terms of how we view the market.

The faster Microsoft converts companies to SaaS Office, the faster we can infer that SaaS adoption may be currently growing. That impacts private cloud companies.

And Azure matters to younger tech shops as its growth implies that Amazon will not be able to run away with the public cloud market. More mildly, it implies that the public cloud market won’t become a duopoly of sorts between Amazon and Google. For startups in favor of tech giants battling for their business through price cuts, it matters.

Charts: Raw And Percentage

Two charts are needed to complete our work this morning.

First, the company’s quarterly results regarding its Commercial Cloud annual run rate. Critical to the following is Microsoft’s prior promise to push this particular result to $20 billion inside of its fiscal 2018. For reference, the company just reported its fourth quarter fiscal 2017 results. So Microsoft has had four quarters left to hit the number.

It won’t need that long barring a Free AWS For All Prime deal or something large smacking the planet. To wit, we graphed the company’s growth on the figure since the first quarter of its fiscal 2016:

I hope the final two bars of the chart make it plain as to why we are here today; the firm posted a surprisingly strong result given its prior, more-incremental growth.

Before we look at sequential-quarter percentage growth — the good stuff — recall our short notes on Office 365 and Azure, and what their performance could individually indicate. We can’t get more specific, sadly, given the opacity of the Microsoft reporting method.

Now to the growth pace. Here’s the last four quarters of the Commercial Cloud collection’s sequential quarterly growth in annual run rate on a percentage basis:

The above makes our preceding chart feel even more dramatic. (As an aside, the final figure above is a coup of sorts for Microsoft, which has been busy trying to avoid being killed by a secular shift in the software world towards SaaS.)

So, we can take our prior inferences that commercial SaaS, and doubly so productivity-related commercial SaaS, is doing just fine.² This vacates some potential excuses from startups who hit growth speed bumps. It is also likely that Microsoft has reached sufficient growth in dollar terms to ensure that Azure keeps AWS on its toes.

And some people say that earnings season is boring. What the hell is their problem?