A year after becoming the Microsoft CEO, Satya Nadella set an ambitious target for the cloud business. Nadella wanted the Microsoft cloud business to hit $20 billion in annualized revenue sometime in 2018. And, on Thursday, Microsoft Corporation (NASDAQ:MSFT) made Nadella proud, by hitting that ambitious target (actually exceeding it) ahead of schedule.
Microsoft cloud business – makes CEO proud
When Nadella set the target, Microsoft’s commercial cloud business was generating $6.3 billion in sales on an annualized basis. On Thursday, the company reported that the commercial cloud annualized revenue run rate had hit $20.4 billion. According to Microsoft, the annualized revenue run rate is “calculated by multiplying revenue for the last month of the quarter by twelve.”
“This quarter we exceeded $20 billion in commercial cloud ARR, outpacing the goal we set just over two years ago,” Nadella said in a press release. “Our results reflect accelerating innovation and increased usage and engagement across our businesses as customers continue to choose Microsoft to help them transform.” Microsoft’s cloud business has been witnessing remarkable growth over the past few years. In the last quarter itself, annualized revenue for the segment reached 94.5% of its $20 billion target.
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Overall, for the quarter, the company reported a profit of $6.6 billion on $24.5 billion in revenue, compared to $4.7 billion and $20.4 billion from the same quarter last year. The Microsoft cloud business generated $6.9 billion in sales, up 14% year over year. Moving ahead, the company will not report annualized revenue for the commercial cloud business, rather it will reveal the reported revenue, notes Business Insider.
Others too in the race
Microsoft’s commercial cloud business is dominated by its cloud computing service, Azure, and the Office 365 productivity suite. Both are witnessing a massive growth. For the fiscal first-quarter, revenue from Azure increased by 90%, while Office 365 grew by 42% over the same period. Though the company does not give revenue figures for Azure, research firm Canalys expects the number to be somewhere around $2 billion. For Microsoft cloud, a big win last quarter was a deal with Costco as an Azure customer, according to Reuters.
Despite the impressive growth, the fact is that Microsoft is still catching up to Amazon, whose Amazon Web Services unit is expected to hit $18 billion revenue in 2017. For the quarter, AWS reported revenue of $4.6 billion, up 42% from the period last year. If you think that is less than Microsoft’s, you should know that AWS competes directly with just Azure. Though AWS missed Costco, it secured major deals with General Electric, Hulu and Toyota Racing Development.
Apart from Microsoft and Amazon, Google Cloud Platform is also in the race. Alphabet also does break out figures for the Google Cloud Platform, but Canalys estimates it to have generated $870 million in the quarter, an increase of 76% from last year, notes Reuters. Google Cloud Platform’s list of customers includes names like PayPal and Kohl’s.
Overall, for the third-quarter, Canalys estimates the cloud computing market at $14.4 billion, an increase of 43% year over year. Amazon leads the segment with 31.8% share, followed by Microsoft and Google at 13.9% and 6% respectively.
On Thursday, Microsoft shares closed up 0.17% at $78.76. Year to date, the stock is up almost 27%, while in the last three-months, it is up over 6%.