There’s nothing like a balance sheet to show how successful an enterprise strategy is or isn’t. Yesterday's fourth quarter earnings indicate Microsoft has shrugged off the inertia that marked the final year of former CEO Steve Ballmer's reign.
They also show current CEO Satya Nadella’s gamble on the cloud is starting to pay off. The Redmond, Wash.-based giant reported profits of $6.5 billion on revenues of $24.7 billion.
Intelligent Cloud Bet Pays Off
Of those revenues, $7.4 billion came from what Microsoft describes as its "intelligent cloud," as the company moves from its traditional packaged software model to a new, cloud services-based model with Office 365 and Azure at the center.
“Our technology world view of an intelligent cloud and an intelligent edge is resonating with customers everywhere,” Nadella said on the company’s earnings conference call with investors on Thursday.
"Intelligent cloud" refers to Microsoft's cloud computing services with an underlying foundation of analytics and artificial intelligence.
Dig a little big deeper into the figures and the truth of this is apparent. Revenues from Azure, a direct competitor to Amazon Web Services (AWS), nearly doubled over the quarter with long-term uncollected earnings rising by 61 percent.
The latter figure is particularly significant as it represents contracts that have, or are in the process of being signed, which will generate future revenue. It also indicates the level of commitment of its existing and new customers.
The cloud services revenues not only suggest Nadella's "Cloud First, Mobile First" strategy is working, but also indicate a level of financial stability for the company.
Growth in Productivity Offerings
Azure isn't the only service performing, with cloud services like Office 365 and newcomer Dynamics 365 also reporting growth, which bodes well for the newly released Microsoft 365. The popularity of the productivity offerings are indisputable:
- Office commercial products and cloud services revenue increased 5 percent, driven by Office 365 commercial revenue growth of 43 percent
- Dynamics products and cloud services revenue increased 7 percent, driven by Dynamics 365 revenue growth of 74 percent
- Server products and cloud services revenue increased 15 percent, driven by Azure revenue growth of 97 percent.
Nadella's Take on the Earnings
In an earrings call following the publication of the results, Nadella explained Microsoft’s progress was built on the back of digital workplace transformation.
“The workplace is transforming — from changing employee expectations, a need for more diverse skills and globally distributed teams, and an increasingly complex threat environment. Only Microsoft gives customers a comprehensive approach for this new culture of work,” Nadella said.
“Earlier this month we introduced Microsoft 365, which brings together Office 365, Windows 10 and Enterprise Mobility & Security in a complete, secure solution to empower employees, safeguard businesses and simplify IT management. Microsoft 365 is a fundamental shift in how we design, build and go-to-market to address customer needs.”
It is worth noting here that the SharePoint renaissance is also feeding the growth in its productivity business.
“We continue to see strong growth of Office … customers are moving beyond core workloads to adopt higher value workloads. For example, we’ve seen a significant increase in SharePoint usage, which nearly doubled year-over-year.”
LinkedIn also added to the quarter’s figures with reported revenues of $1.1 billion. But Nadella predicts this is only the start.
“We are investing in the LinkedIn flagship experience to create new value for members and customers and accelerate growth.”
He went on to outline some of the new LinkedIn-based releases over recent weeks, including a new messaging overlay resulting in record levels of messages sent on the professional social network.
LinkedIn also introduced a career advice marketplace that will let members easily tap into the professional expertise of more than 500 million members around the world.
A View to the Future
As expected, personal computing revenues were down by two percent driven primarily by lower phone revenue according to a statement from the company outlining the results.
The company also announced $306 million in restructuring charges to cover the costs of the sales and marketing reorganization announced earlier this month. The restructuring resulted in layoffs for thousands of Microsoft employees.
And for the future? Cloud, artificial intelligence and digital experience, according to Nadella.
“Transformation is a continuous process of renewal and reinvestment. We will continue to invest in the highest growth opportunities, lead innovation in the cloud and AI, and bring our technology and products together into experiences and solutions that unlock new value for customers.”