Microsoft earnings and revenue soared past Wall Street’s expectations during its fiscal second quarter, once again boosted by strong cloud growth.
The company’s Intelligent Cloud segment, which includes Azure public cloud, Windows Server, SQL Server, and GitHub, reported $11.9 billion in revenue during its fiscal second quarter of 2020, up about 27% year over year. While Microsoft doesn’t disclose Azure-specific revenue, the company said Azure grew 62% in Q2. This was down from 76% revenue growth a year ago, but up from 59% during the first quarter.
Looking ahead to Q3, Microsoft expects its Intelligent Cloud business to bring in revenue between $11.85 billion and $12.05 billion. “In Azure, revenue growth will continue to reflect the balance of our strong growth in our consumption-based business and moderating growth in our per user business, given the size of the installed base,” said CFO Amy Hood, according to a Seeking Alpha transcript.
Azure is Amazon Web Services' (AWS') biggest competitor. And while Microsoft’a public cloud remains a distant second to AWS in terms of market share, Azure’s growth margins in recent quarters have outpaced AWS. Amazon will report its quarterly earnings later today.
Microsoft received a big cloud boost during the quarter when the Department of Defense (DoD) awarded the $10 billion JEDI cloud contract to Microsoft instead of frontrunner Amazon. Microsoft CEO Satya Nadella noted this major win on a call with analysts where he touted Microsoft’s cloud prowess.
“Azure is the only cloud that offers consistency across operating models, development environments, and infrastructure stack, enabling customers to bring cloud compute and intelligence to any connected or disconnected environment,” Nadella said, according to a transcript. “Our differentiated approach across the cloud and edge is winning customers.”
Microsoft Commercial Cloud on the RiseMeanwhile, Microsoft’s commercial cloud revenue grew 39% compared to a year ago, reaching $12.5 billion in Q2. This segment includes some Azure cloud services as well as cloud-based Office software. Hood attributed this growth to Azure gains.
Overall, the company reported 14% year-over-year revenue growth of $36.9 billion for the quarter. For comparison, analysts expected $35.7 billion in revenue. And Microsoft’s earnings, at $1.51 per share, also beat the $1.32 per share expectation.
“Microsoft’s Q2/20 earnings appears to be a carbon copy of the past few quarters. Again, it crushed it with its cloud and [software-as-a-service] growth,” said Moor Insights and Strategy analyst Patrick Moorhead in an email. “I attribute this growth to increased cloud investments over the past five years and its ability to uniquely serve the needs of multinational corporations with end to end, secure solutions. Microsoft has also stepped up its sales and marketing in key verticals like retail, manufacturing, health care, financial, and large government, which I believe had a very positive impact.”