Microsoft’s FY17 Q2 results posted on January 26 boasted a 49% year-over-year growth in commercial Office 365 revenues, contributing to an annualized run rate for commercial cloud products that now “exceeds” $14 billion. Commercial cloud products include Office 365 and Azure and other cloud products.
Revenue for the segment that hosts Office 365, Productivity and Business Processes was $7.38 billion, a year-over-year increase of 12% in constant currency. Operating income for the segment was $3.26 billion.
The recent strength of the U.S. dollar is obvious. in some results. For example, Productivity and Business Processes dropped $108 million through currency fluctuations. All those Office 365 subscriptions from around the world deliver less when converted to dollars!
The other products in the Productivity and Business Processes segment are consumer Office 365 subscriptions (now over 24.9 million), Dynamics 365, and LinkedIn, which contributed $228 million in revenues for the quarter, a net loss of $100 million. Unsurprisingly, Microsoft is prioritizing the integration of LinkedIn with Dynamics 365, which should help to increase revenues for both products. Another loser was Office commercial products, which declined by 13% as users moved to the cloud.
Microsoft reports Azure revenues as part of the Intelligent Cloud segment, which reached $6.9 billion, up 10% in constant currency. Azure revenues grew 95% year-over-year in constant currency.
The $14 billion mark is a $1 billion uplift in the annualized run rate reported in the last quarter. It keeps Microsoft on course to achieve Satya Nadella’s goal of a $20 billion run rate for commercial cloud products by the end of Microsoft’s fiscal year in June 2018.
Six quarters to go and six billion to generate. Given Microsoft’s track record over the last two years and the growth in cloud revenues, who would bet that they will not achieve their target?
Microsoft said that 65 million active devices use Office on iOS and Android (doubling year-over-year), most of whom are used by human beings. They did specify how many of these people use Outlook on these platforms, but given that the last public number was 30 million, I assume that some growth has occurred, especially now that Microsoft moved processing off AWS to Office 365. The need to store user data on AWS was a big reason why some tenants stopped people using Outlook for iOS and Android.
As if we did not already know it, these numbers confirm one thing. Microsoft’s future is in the cloud and all the action is around Office 365, Azure, and other cloud services. Those clinging to the notion that Microsoft will suddenly regain interest in on-premises servers are likely to be disappointed. There is only one direction now and that is up.
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