Microsoft revenues surge once again thanks to the cloud

This will officially be the last time we talk about Microsoft’s recovery, as it is unfair to undermine the continued progress and domination of the firm on the digital economy.

Everyone in the TMT industry knows the trouble Microsoft faced in bygone years, and everyone understands why the firm found itself in that position. But there is no need to discuss this aspect of the business anymore. CEO Satya Nadella has redefined the organization, leaving the troubles in the past. This business is a new beast and the latest financials prove it is one of the dominant forces in the digital economy.

“We are off to a strong start in fiscal 2020, delivering $33 billion in revenue this quarter,” Nadella said. “Our Commercial Cloud business continues to grow at scale as we work alongside the world’s leading companies to help them build their own digital capability.”

Fundamentally, Microsoft is a different business. In the 90s and 00s, Microsoft was defined by its dominance of the PC operating software world. Although this presence still exists today, the focus is on enterprise customers, however, the prospects of the business are perhaps more acutely focused on Azure, the cloud computing unit. The Microsoft of today and the troubled Microsoft of yesteryear are chalk and cheese.

Looking at the financials for the first quarter which were announced following the close of the market yesterday [23 October], they are once again pretty impressive. Total revenues increased 14% year-on-year to $33 billion, while operating income stood at $12.7 billion, up 27% from the same three-month period in 2018.

Revenues at Microsoft Azure increased 59% year-on-year, while the team has stated there has been a ‘material increase’ in the number of $10 million + contracts. The cloud is driving Microsoft forward, while the excitement around edge computing opens-up new prospects for the business.

This quarter also saw the team open two new datacentre regions, in Germany and Switzerland, taking the total up to 54 worldwide. Microsoft Azure is now available in 140 countries around the world, with the geographical footprint focused in Europe and North America.

Asia is one market where the team could grow further, and this might be a development worth keeping an eye on as more countries travel through the digital transformation journey. Nadella paid homage to a partnership with Indian telco Reliance Jio as a green-shoot of growth in the market.

Alongside the progress which is being made to expand the datacentre footprint of the business, the team is also pointing towards strategic partnerships with the likes of VMWare, Oracle and SAP for the added momentum in the cloud business.

“You’d actually see it in a couple of places [impact of partnerships], not just in Azure, which may in fact be the most logical extension,” said CFO Amy Hood during the earnings call.

“But, at the heart of this is making it easier, faster and more reliable for us to help customers move their estate to the cloud and to migrate that with confidence.”

This is perhaps one of the most exciting aspect of the cloud segment and will not just be limited to the success at Microsoft. There is still a huge amount of growth left to realise.

Many companies around the world will claim to be cultivating a cloud-first mentality, and many of these companies are migrating workloads across to the cloud. However, what has been achieved to date is only a fraction of the total. The cloud has matured, availability is increasing, and prices are decreasing. The likes of Microsoft, Amazon and Google might be hoovering up the profits, but there is still huge potential for growth.