Microsoft is coming for the cloud and AWS should be concerned. MSFT stock value gained over 55% in 2019 and that is mostly thanks to the emphasis on and success with their cloud computing division.
The success has really been consistent through all segments of the Microsoft empire. The ageless Office commercial software up 27%, with an emphasis on the Office 365 subscription model, which showed significant performance. LinkedIn revenue was up 25% over the last year and Dynamics, fueled by Dynamics 365 grew a satisfying 42%.
The real star of the show, however, has to be Intelligent cloud earnings, which was up 27% to reach $11.9 billion. These services include Microsoft’s server business, specific cloud services and, of course, Azure, which itself was up 62%. Part of the reason cloud computing is driving so much success is its profitability. The margin is now up to 67%, showing a 5 percentage point increase over the previous year. Cloud computing demand is incredibly strong right now, as demonstrated by a 31% increase in commercial bookings.
Microsoft is communicating continued positivity about growth prospects in this area. Investors are told to expect 13% increase in revenue for the fiscal third quarter. That somewhat goes against the tech giant’s penchant for underpromising and over-delivering, but the trends seem to clearly favor continued strength in cloud computing.
There are now three US companies that can claim a $1 trillion plus market cap. Microsoft joins Apple and Amazon in that rarified air. The software stalwart has clearly found its footing to start another surge into its forty-fifth year. Instead of becoming complacent and bloated, Microsoft has managed to chart a course toward parabolic success with its perfectly timed pivot to cloud services.
A lot of the success is due to Microsoft’s ability to position itself as a trusted name in the new space. The competition between Azure and AWS is a perfect example. MIcrosoft is big enough to play Amazon at its own game by underselling AWS and by emphasizing Amazon’s long list of unsavory business practices, including privacy and anticompetitive practices. Granted, Microsoft had its own struggles in this area, but turnabout is fair play and Amazon’s rough reputation is well-earned.
Does Microsoft overvalue the upcoming quarter? Probably not. All indications are that cloud computing is just getting started and that growth will continue, for those able to take advantage, into the foreseeable future.