Microsoft Charging Full Speed Ahead

It appears to be the quarter of the Cloud as most technology companies are delivering strong results, all thanks to their Cloud computing focus. Earlier last week, Amazon surprised the market with a stunning performance and now it is Microsoft’s turn to follow.

Microsoft’s Financials

Microsoft’s first quarter revenues fell 7% over the year to $21.66 billion, ahead of the market’s forecast of $21.04 billion. EPS of $0.67 was also ahead of the Street’s expectations of $0.58 for the quarter.

By segment, revenues from the Productivity and Business Processes segment fell 3% over the year to $6.3 billion. On a constant currency basis, revenues would have recorded a 4% growth instead. Within the segment, office commercial products and cloud services revenue grew 5% on a constant currency basis with Office 365 revenue recording nearly 70% in constant currency. During the quarter, Microsoft added 3 million users to the Office 365 subscription, ending the quarter with 18.2 million subscribers. Commercial Office 365 monthly active users grew to more than 60 million of which nearly 60% were using premium services. The revenues from the Intelligent Cloud segment, which includes Azure and Enterprise Server, grew 8% to $5.9 billion while revenues from the Personal Computing segment fell 17% over the year to $9.4 billion.

For the current quarter, Microsoft expects revenues of $24.8 billion-$25.4 billion, ahead of the market’s projections of $24.66 billion.

Microsoft’s Cloud Growth

When Satya Nadella took over Microsoft’s leadership, he intensified Microsoft’s focus on the cloud initiative, a move that has stood Microsoft in good stead since. Now, Microsoft is targeting an annualized commercial cloud revenue of $20 billion by 2018, a significant leap from the current annualized run rate of $8.2 billion. But, Microsoft is convinced that it will get there.

Azure is already witnessing strong growth. During the quarter, Azure revenue and compute usage more than doubled over the year. According to Synergy research, Microsoft is the second biggest player in the cloud services market with a 12% market share, a distant second compared with Amazon’s 29% share. Gartner, in its magic quadrant for cloud infrastructure-as-a-service, also recognizes Microsoft as the second leading player in the industry, after Amazon.

To make its cloud services more attractive, Microsoft has been building a hyper-scale public cloud by reinventing servers as the edge of their cloud to offer their customers a true hybrid distributed computing platform.

They are strengthening this offering through acquisitions as well. Last month, Microsoft announced the acquisition of cloud security services firm Adallom for a rumored $320 million. Palo Alto-based Adallom was founded in 2012 and soon became known for their software used for monitoring cloud-based services such as those of Dropbox, Google Apps, and Amazon Web Services. Adallom’s software establishes a typical usage pattern and alerts the admit team if it finds anomalies in the pattern that could signify security threats. The acquisition will help Microsoft expand their existing identity assets, and give customers visibility and control over application and critical company data stored across cloud services.

Windows 10 Successful

Meanwhile, Microsoft has also found success in the latest Windows release. To counter the declining trend in their Windows sales, Microsoft released Windows 10 with an offer that allowed consumers with Windows 7 or Windows 8 installed on their PCs to install Windows 10 for free. The move has helped drive adoption for Windows 10 which is already running on over 110 million devices. Compare that with the 6 months it took Microsoft’s Windows 8 to breach the 100 million device barrier. Windows 10 is an essential part of Microsoft’s strategy as it helps unify most of their product lines. According to its results, nearly 20% of Bing usage in September was from Windows 10 devices as Bing is built directly into the taskbar of Windows 10 and is also used to power Microsoft’s digital personal assistant Cortana.

But PCs are not all. In the coming month, Microsoft will release an update to Xbox One console that will use Windows 10 as its core OS so that all of Microsoft’s devices will be able to talk the same language.

Overall, it was a solid performance for Microsoft that has sent their stock soaring. It is currently trading at $54.25 with a market capitalization of $433.34 billion. The stock surged to a 52-week high of $54.32 after its results announcement. Its all-time high was $59.97 in December 1999.