Latest Microsoft results show strength in Teams and Azure

Microsoft has reported what it describes as a “record quarter” for Q2 2020, driven by its commercial cloud business, which grew by 34%, boosting revenue by $16bn. Revenue for the quarter was $43.1bn, up 17%.

In her prepared statement during the earnings call posted on the Seeking Alpha financial blogging site, CFO Amy Hood described how digital transformation was driving “healthy demand” for Microsoft’s hybrid and cloud offerings. She said the company had received over $10m in Azure and Microsoft 365 contracts.

“We saw stronger Azure consumption as well as higher usage of Teams, Power Platform and our advanced security and compliance offerings, and within our small and medium business customer segments, transactional licensing trends continued to show some improvement,” said Hood.

Microsoft reported $14.6bn revenue in its intelligent cloud business, an increase of 23% from the previous year. Azure revenue grew by 50%. Hood said this growth was driven by strong growth in Microsoft’s consumption-based business.

The company reported Office commercial revenue growth of 11%, while Office 365 commercial revenue increased by 21%.

The company has also benefited from the growth in PCs during the pandemic. Hood said the stronger PC market had led to 1% growth in Microsoft Windows licences. “In our consumer business, we expect to see healthy demand for PCs and productivity tools continue,” she said. “The growth rates will again be impacted by the end of support for Windows 7 last year.”

Asked about growth in its Azure business, CEO Satya Nadella described Microsoft’s core differentiation as its hybrid leadership and integration with every other layer of the Microsoft stack, including GitHub, Teams and Power Apps. Combined with industry-specific product offerings, this had improved “time to value” and enabled Microsoft to offer price differentiation and cost advantage to customers, he said.

During the earnings call, Nadella was asked about the growth of Teams as an integration platform. He answered by giving the example of a frontline retail staff: “There is some shift scheduling application, some inventory counting application that the frontline person is using on a mobile phone with Teams, but the inventory management app is just a Power app, then the integrations into Dynamics and integration into all SaaS applications, whether it’s Workday or whether it’s SAP or whether it is ServiceNow and even Salesforce.

“All of these applications are getting integrated into Teams very rapidly. That’s the power of Teams as a platform capability. It is no longer about just knowledge workers collaborating. In fact, if anything, it’s about knowledge workers collaborating and enabling frontline workers to participate with digital tools in the workflow, versus being disconnected.”

Microsoft’s leaders believe the company is well positioned to take advantage of demand for technology that drives digital business transformation initiatives in the coming years. Nadella said: “The next decade of economic performance for every business will be defined by the speed of their digital transformation. We are innovating across our full modern tech stack to help our customers in every industry improve time to value, increase agility, and reduce costs.”