Satya Nadella, CEO of Microsoft Corp., speaks at the WSJDLive Global Technology Conference in Laguna Beach, California, USA, Monday, October 24, 2016. The conference brings together an unparalleled group of CEOs, founders, pioneers, investors and luminaries to explore the technological opportunities that are emerging around the world.
Patrick T. Fallon | Bloomberg | Getty Images
The Microsoft Azure cloud for hosting websites and applications will replace Office productivity software as the company’s largest source of revenue at some point in 2022, predicts Piper Sandler analyst Brent Bracelin.
It would be a striking step, highlighting Microsoft’s successful transition from local software to cloud-based services, since Satya Nadella took over from Steve Ballmer in 2014.
Piper Sandler, who has the equivalent of a buy-in rating on Microsoft shares, said Azure revenue in that quarter reached $ 7.20 billion in the December 2020 quarter, which would have contributed 17% of revenue Microsoft’s total compared to 4% three years ago. Microsoft does not disclose Azure revenue in dollars, but Piper Sandler’s estimate is consistent with broader sentiment. Analysts at William Blair, who also have the equivalent of a buy rating for Microsoft, estimated that Azure’s revenue was $ 7.40 billion.
This means that Azure is already significantly larger than the Windows franchise, which dates back to 1985 and helped transform Microsoft into the world’s most valuable and powerful technology company in the 1990s. Windows generated $ 5.72 billion in revenue in the quarter, according to Microsoft’s earnings statement.
Azure also surpassed Office 365 revenue from business customers in the second fiscal quarter, Piper Sandler said.
It’s now a matter of determining when Azure could overshadow all of Office, including Office 365 consumer subscriptions and traditional Office licenses. Piper Sandler says this is likely to happen next year.
“We have Azure’s quarterly revenue of $ 11.8 billion as of June 2022 (for the first time, overshadowing the Office’s total revenue of $ 10.9 billion),” Bracelin told CNBC on Wednesday.
The Microsoft Office franchise has been in operation since 1989, and its oldest component, Word word processing software, has been in existence since 1983. It has a controlling market share, and under Nadella Microsoft has moved many of its customers to business from buying Office software licenses to continuous payment for Office 365 subscriptions.
Azure, on the other hand, has only been available since 2010 – it was originally called “Windows Azure” – and technology industry research firm Gartner estimates that in 2019 it was about 40% the size of Amazon Web Services market leader, which Amazon has introduced in 2006.
Both Office 365 and Azure came from Microsoft, while Ballmer was CEO, but Nadella made Azure an area with a greater focus, forming cloud partnerships with companies that have historically been competitors, including Salesforce and Sony. Nadella also led Azure before accepting the title of CEO.
“He has led major strategies and technical changes between the company’s products and services, especially our move to the cloud and the development of one of the largest cloud infrastructures in the world, which supports Bing, Xbox, Office 365 and other services,” Microsoft said of Nadella in her 2014 power of attorney statement after becoming CEO. “This experience is fundamental to the company’s current strategic direction.”
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CLOCK: Azure is the key to Microsoft’s development: Bernstein’s Mark Moerdler