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Microsoft’s cloud business is still on a tear, hitting a $18.9 billion run rate during Q4

We still don’t know exactly how much revenue Microsoft is making from its Azure cloud service, but it grew 97 percent during the company’s fourth fiscal quarter, as part of the overall Intelligent Cloud division’s revenue of $7.4 billion, the company announced Thursday.

Across all of its commercial cloud businesses — which include Azure, Office 365, Dynamics 365, and a few other things — Microsoft’s cloud strategy is paying off as the company is now up to an $18.9 billion annual run rate as it gets closer to its goal of hitting a $20 billion run rate by the end of its 2018 fiscal year, or this time next year. But we’ll have to wait at least another quarter before Microsoft starts breaking out Azure revenue as a separate line item, just as Amazon Web Services now does. Microsoft’s overall revenue was $24.7 billion, a nine percent increase compared to last year and it exceeded analyst expectations for the quarter.

Microsoft’s cloud business is still on a tear, hitting a $18.9 billion run rate during Q4

It was a particularly good quarter for renewals of Azure services, said Amy Hood, chief financial officer, on a conference call following the release of the results. The company also signed the largest number of multimillion dollar deals for Azure services it has ever inked, she said.

The Intelligent Cloud division also includes enterprise software like Windows Server and SQL server, and the $7.4 billion in revenue from that group was a 11 percent increase compared to the previous year. Revenue from server products and cloud services was up 15 percent, while revenue from enterprise services actually decreased slightly. Operating income for the Intelligent Cloud group was $2.5 billion, an increase of 15 percent compared to last year. Microsoft expects between $6.9 billion and $7.1 billion in Intelligent Cloud revenue in the current quarter, Hood said.

Across all of Microsoft’s commercial cloud business, gross margin hit 52 percent, which was a ten-point increase from the comparable period last year. That’s a sizable increase for a business that requires a lot of technology investment to stay even with AWS and Google.

Microsoft made several acquisitions during the quarter to bolster its Azure service, including security startup Cloudyn, Kubernetes startup Deis, and data-management platform Intentional Software. It also introduced Azure Cosmos DB, a new database designed for speed and reliability when used with globally distributed applications.

(Editor’s note: This post was updated to correct the year that Microsoft has said it will achieve a commercialized cloud revenue run rate of $20 billion.)

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