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Azure Active Directory creates an earnings virtuous circle for Microsoft

Microsoft is set to grow its cloud business to $20bn thanks to the growth of platform as a service and, in particular, Azure Active Directory

Microsoft has reported first-quarter 2015 revenues of $21.7bn, down 7% from 2014, but the company is adamant its cloud business will grow significantly over the next two years.

Earnings for the three months to 30 September 2015 were $4.6bn compared with $4.5bn for the same period in 2014.

Revenue in its productivity and business processes declined by 3% (up 4% in constant currency) to $6.3bn, while its intelligent cloud revenue grew by 8% (up 14% in constant currency) to $5.9bn.

"Our leading indicators around usage, new cloud services and customer demand remain healthy, and we are clearly on track for our $20bn goal in fiscal year 2018," said Microsoft chief financial officer Amy Hood, according to a transcript of the earnings call posted on the Seeking Alpha financial blogging site.

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She said Microsoft's intelligent cloud segment, which includes server products, Azure cloud services and enterprise services, delivered $5.9bn of revenue, up by 8% (up 14% in constant currency).

"Azure revenue and compute usage more than doubled year over year, and we are continuing to channel our innovation into high-growth scenarios with new features and services," said CEO Satya Nadella.

"In the last quarter alone, we made major updates spanning Azure app services for building enterprise web and mobile apps, Azure Data Lake for infinite data management and analytics and advanced threat analytics which helps organisations identify breaches and threats using behavioural analysis."

Responding to a question from investment bank Goldman Sachs on the growth of Microsoft's infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS) during the earnings call, Nadella discussed the opportunity of Azure Active Directory to drive cloud adoption.

"On the mix between IaaS, PaaS and SaaS, we are seeing that all of these are growing, but the most interesting thing for me as a pattern is that growth in IaaS leads to growth in other PaaS services or SaaS services," said Nadella.

"I mean to put it very concretely. Take something such as Azure Active Directory, that's probably the best manifestation of the virtuous cycle we see in any of the cloud adoption that we have.

"It could be as someone coming from Office 365 or someone coming from Azure, Dynamics or EMS. All of those tenants get into Azure Active Directory, our largest PaaS service, because it's got developer APIs [application programming interfaces], so that means more developers are using it," he said.

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