Last week, Microsoft released its Q2 2020 earnings. Microsoft as ever divided the earnings into three primary revenue streams, i.e., Commercial (includes the commercial portion of LinkedIn), Productivity & Business Processes and Intelligent Cloud, and More Personal Computing.
CMI is breaking down Microsoft’s Q2 2020 earnings with the highlights, why the Q2 earnings are hyped up, and how did Microsoft hit the bullseye. One thing that nobody can deny is that Microsoft has emerged as “the real-competitor” for AWS.
Highlights of Microsoft’s Q2 earnings
- Microsoft clocked $36.9 billion in revenue registering 14% overall growth
- Operating income touched $13.9 billion, an increase of 35%
- Net income accounted to be $11.6 billion, an increase of 38% GAAP and 36% non-GAAP
- Microsoft came out with quarterly earnings of $1.51 per share, a rise of 40% GAAP and 37% non-GAAP
- Intelligent Cloud revenue grew 27%, driven by server products and cloud services
- Azure grew by 62% compared to its year-end results
- Server product revenue grew 10% driven by hybrid and premium solutions
- Office 365 business revenue increased by 27%, compared to its previous year
- “Office consumer products and cloud services” are up 19%, compared to their last year results
- Dynamics 365 grew 42% compared to its year-end results
- LinkedIn registered the growth of 24%
- Surface had a minimal growth of 6%
- Microsoft took a set-back in the gaming industry with Xbox’s revenue down by 11%
Note: The figures are referred from the official release of Microsoft’s FY20 Q2 earnings.
Why Microsoft’s Q2 2020 earnings is hyped up?
Redmond crushed the analysts’ expectations
The quarterly earnings released by Redmond company crushed what Wall Street’s analysts predicted. This affirms the company’s bet on a cloud-dominated future as defined by “digitization of people, places, and things,” in the words of CEO Satya Nadella.
According to Bloomberg, the expected revenue that analysts predicted Microsoft’s quarter earnings to be $35.7 billion with the earnings of $1.32.
How did Microsoft hit the bullseye?
In recent quarters, investors have witnessed Microsoft’s success in attracting new cloud-computing customers. This, in turn, helped the company to accelerate earnings, revenue, and, obviously, stock growth. Azure is up against its dominant rival, Amazon Web Services, in the battle to raise its market share. Microsoft is getting close to the cloud crown.
The company’s diversion from the licensing model to a subscription model is paying off very well. The credit for this strategy goes to CEO Satya Nadella’s vision to penetrate the cloud industry. Well, the “intelligent cloud” revenue’s growth by 26% year over year to $11.8 billion continues to justify that.
In a recent call with analysts, Satya Nadella said, “I think, overall, in terms of the Azure momentum, it’s sort of the thing that we have seen even in the previous quarters, so, which is we have a stack that is, from infrastructure to the PaaS services, that’s fairly differentiated.”
Microsoft leadership’s laser focus on the cloud business, Azure, is one of the prominent reasons to beat analysts’ earnings expectations.
Busiest Quarter for Microsoft
Work, work, and work. The Q2 2020 has been one of the busiest quarter for Microsoft in terms of product releases and updates. In the Azure portfolio, the company announced more than 150 product releases and updates. The series of announcements started from Microsoft Ignite 2019’s highlight – Azure Arc.
In a recent call with analysts, Satya Nadella said, “We have more datacenter regions than any other cloud provider and will be the first to open in Israel and Qatar, expanding our footprint to 56 in total. Azure is the only cloud that offers consistency across operating models, development environments, and infrastructure stack, enabling customers to bring cloud compute and intelligence to any connected or disconnected environment.”
The JEDI deal played the supporting role
Department of Defense (DoD) awarded the most-awaited defense deal to Microsoft; instead of front-runner AWS. DoD planned to avail Azure’s cutting-edge cloud capabilities at a whopping $10 billion, over a period of ten years.
Suggested Reads: The JEDI Contract: What really happened?
Although the deal was protested by Amazon; and requesting a halt on further proceedings from DoD and Microsoft. The deal was not reflected on Microsoft’s balance sheets but played a crucial role in building the market’s trust in Azure’s cloud abilities. The announcement gave a much-needed boost to the quarter’s growth.
The highlights of past quarter deals include a partnership with AT&T to develop new network edge computing technology; and acquisition of Canadian start-up Mover to enable smooth migration on Microsoft 365.
“End of support for Windows 7” pushed Microsoft to the finish line
Microsoft recently announced to end the support for Windows 7. This doesn’t mean the end of business for them. First of all, the legacy enterprises dependent on Windows 7 migrated on the upgraded versions, driving the market for Windows subscriptions.
This also led to the growth in Premier Support Services, fueling the Enterprises Services revenue by 6%.