Microsoft Cloud Service Revenues Skyrocket Past $50 Billion

Microsoft reported that sales rose 13 percent to $38 billion in its fiscal Q4, for a net profit of $11.2 billion. Largely due to continued demand for its Azure cloud-computing services, both figures exceeded Wall Street expectations. Microsoft’s revenue from the commercial cloud division “surpassed $50 billion for the first time ever in the latest fiscal year.” The company is also the target of a complaint Slack filed with the European Commission, accusing it of using its market power to crush rivals.

The Wall Street Journal reports that sales of Azure grew 47 percent from the previous year, with 59 percent growth in the preceding quarter and 64 percent in the prior year quarter. According to Microsoft chief executive Satya Nadella, “the last five months have made it clear that … organizations that build their own digital capability will recover faster and emerge from this crisis stronger.”

Although Microsoft shares fell more than 2 percent in after-hours trading, they have “gained about 34 percent so far this year, compared with a 5 percent decline in the Dow Jones Industrial Average.”

In Q4, the company’s intelligent-cloud segment, including Azure, “booked revenue of $13.37 billion, up 17 percent from a year earlier.” For its productivity and business process segment, including LinkedIn Dynamics and commercial subscriptions to Office 365, revenue rose 6 percent to $11.75 billion. Sales of its PC business, including licensing revenue from PC sales, the Xbox and Surface laptops, rose 14 percent to $12.91 billion, and the gaming content business saw a 65 percent uptick in sales over the previous year.

WSJ reports that, according to finance chief Amy Hood, “the decline in Microsoft’s profit margin in the latest period reflected investments in increasing its cloud capacity, giving out free trials of software and offering flexible financing options for customers’ struggling with slowdowns in their business.” Although cloud-computing benefitted early in the pandemic from remote working, “some cloud customers also have been looking to cut costs” due to the economy.

The New York Times reports that, “Slack claims that Microsoft has illegally tied its collaboration software, Microsoft Teams, to its dominant suite of productivity programs, Microsoft Office, which includes Outlook, Word, Excel and PowerPoint,” a “bundling tactic” it says is “part of a pattern of anticompetitive behavior.”

Slack VP of communications and policy Jonathan Prince noted that his company “threatens Microsoft’s hold on business email, the cornerstone of Office, which means Slack threatens Microsoft’s lock on enterprise software.” Now it’s up to the European Commission to determine whether or not to pursue a formal investigation.

Slack general counsel David Schellhase stated at a news conference that, “the company sought an order to remove Teams from Office, make it a stand-alone product and charge a ‘fair price’.” Microsoft has responded that it will be happy to answer any questions the European Commission might have. Slack, which “serves as a gateway to online work for many people … is a nascent challenge to one part of Microsoft’s business … [but] whether a software program like Slack could emerge as a genuine business threat to Microsoft is uncertain.”