Microsoft FY20 Q4 Commercial Cloud Revenue Up By 30%, Bigger than Google and IBM Combined

A robust cloud segment drove Microsoft’s results for the fourth quarter of its fiscal year 2020 (FY20 Q4). According to the research data analyzed and published by Stock Apps, during the period which ended on June 30, 2020, Microsoft had an increase of 30% in commercial cloud revenue.

Based on the tech giant’s earnings release FY20 Q4, the commercial cloud was a top performer. For the first time this year, annual commercial cloud revenue exceeded $50 billion, reaching a high of $51.7 billion for the fiscal year ended June 30, 2020.

In terms of segments, Intelligent Cloud revenue totaled $13.37 billion, an increase of 17% year-on-year (YoY), against an expected $13.11 billion according to FactSet. The segment includes Azure, GitHub, SQL Server, Windows Server and other enterprise services.

The Productivity and Business Processes segment posted $11.75 billion in revenue, an increase of 6%, lower than the expected $11.91 billion. Under this unit, the sub-segments include LinkedIn, Office and Dynamics.

More Personal Computing was up 14%, reporting $12.9 billion in revenue, higher than the expected $11.48 billion. Under this segment, products included Windows, Xbox, Surface and Search.

Overall revenue was up 13% YoY, from $33.7 billion in Q4 2019 to $38.0 billion. Operating income, on the other hand, improved 8% to $13.4 billion. Diluted earnings per share were up 7% non-GAAP at $1.46 and net income was up 5% non-GAAP at $11.2 billion. However, the latter two each reported a GAAP drop of 15%.

Azure Growth Rate Declines from 93% to 47% in 2 Years

It is noteworthy that Azure’s revenue growth of 47% drove the growth in server products and services revenue, which reported a 19% increase. However, an increase of 47% for Azure is not necessarily good news. Its figure has been dropping consistently since Q2 2018.

From 98% growth in Q2 2018, it went down to 93% in Q3 2018 and further down to 89 % in Q4 2018. The trend was similar in 2019 when it grew 76% in Q1 and Q2, going down to 73% in Q3 and even lower in Q4 at 64%.

In Q1 2020, it grew 59% in Q1, increasing slightly to 62% in Q2 and then dropping back to 59% in Q3, before dropping to the most recent 47%. Given Azure’s size, the growth slowdown is not unexpected. But it is apparent that the pandemic has taken a toll as well, speeding up its fall during the past two quarters.

While Azure led the growth in Microsoft’s enterprise cloud revenue, it hardly captures the fullness of the tech giant’s cloud portfolio. Over 3 million organizations use GitHub, including a good number of Fortune 50 companies.

Dynamics 365 is another rapidly growing component of the segment. With more than 4,500 organizations using it, it is, in fact, one of the category’s fastest growing SaaS solutions. Overall, Dynamics made over $3 billion in revenue during the quarter. At least 60% of this came from Dynamic 365, which saw a growth of 40% in revenue. This would mean its annual revenue was approaching $2 billion.

Azure Cognitive Services is another significant constituent of the segment. According to the Microsoft earnings report, in the month of June 2020 alone, it was used to process 13.5 billion transactions. It was also used in transcribing 9 million hours of speech and sending 2.5 billion messages.

Gaming Revenue Surged By 64% as Office 365 Users Hit 258M

It goes without saying that some segments of Microsoft’s business benefitted from the stay-at-home orders occasioned by the pandemic. Cloud usage surged with the higher numbers of customers learning, gaming and working from home.

In FY20 Q3, Office 365 business users rose from 200 million to 258 million. Surface revenue went up 28% from $1.34 billion in Q3 2020 to $1.72 billion in Q4 2020. Q4 Gaming revenue, on the other hand, increased by 64% while Xbox content and services revenue surged by 65%.

The revenue from server products and cloud services increased by 19%, while Windows OEM and commercial revenue grew 7% and 9%, respectively.

Based on the performance of FY20 Q4, Microsoft now sits at the helm of enterprise cloud business courtesy of its $14.3 billion revenue. It is way ahead of Amazon AWS, whose revenue was $10.8 billion. IBM and Google sit in third and fourth spots in terms of revenue with $6.3 billion and $3.0 billion, respectively.

During the second quarter of 2020, which is Microsoft’s FY20 Q4, Amazon’s AWS revenue surged 29% even as Amazon’s overall revenue grew 41%. Meanwhile, IBM Cloud grew by 30% while Google Cloud grew by 43%.