Microsoft’s cloud computing business continued to fuel growth for the software giant in its most recent quarter ending Sept. 30, as it produced $6.4 billion in sales and helped contribute to 31 percent of the company’s total revenue.
Revenue from Microsoft’s “Intelligent Cloud” segment was up 8 percent, or $490 million, from the year-ago quarter. That segment includes Azure, as well as server products and cloud services, including SQL Server, Windows Server, Visual Studio and System Center, as well as Enterprise Services, including Premier Support Services and Microsoft Consulting Services.
Revenue from Azure alone during the quarter grew 116 percent year over year, and usage “more than doubled” year over year, Microsoft said in its earnings release. The company doesn’t provide dollar figures for Azure revenue but does quantify the service’s revenue growth in percentage terms. Azure revenue increased 113 percent year-over-year in Q4FY16, 120 percent in Q3FY16, and 140 percent in Q2FY16, Microsoft has said.
Microsoft said the annualized run rate for its cloud offerings surpassed $13 billion, which is up from the $12.1 billion it figured after last quarter’s earnings. The rate is calculated by multiplying revenue for the quarter’s last month by 12 for Office 365 Commercial, Azure, Dynamics Online, and other cloud properties. The company is still on pace to reach a $20 billion run rate in fiscal 2018.
Gross margin for the Intelligent Cloud segment — a metric released for the first time — increased $75 million, or 2 percent, mainly due to higher revenue but offset in part by the higher cost of revenue, Microsoft said. Gross margin is the selling price of an item, less its production or acquisition costs, expressed as a percentage. Microsoft started releasing this metric in response to what a spokesperson called “feedback directly received from investors over the course of the fiscal year.”
Microsoft’s growing cloud business helped it beat expectations for its FY17 Q1 earnings report, as the company posted adjusted earnings per share of 76 cents and $22.3 billion in revenue. Shares rose 5 percent in after-hours trading and reached all-time highs.
On the company’s earnings call with analysts and reporters, CEO Satya Nadella said that more than 60 percent of Fortune 500 companies have at least three of Microsoft’s cloud offerings, up 20 percent year-over-year.
“They choose Microsoft for three reasons,” he said. “They want a trusted, global, hyperscale cloud provider to meet their enterprise needs; hybrid support architected for hyper-scale service and cloud service; and they want high-level services to help them build their own digital capabilities, inclusive of DevOps productivity, new IoT and enterprise app development, advanced analytics, and machine learning and AI capability.”
By virtually all measures, Azure is the second-largest public cloud service, behind Amazon Web Services. AWS garnered $2.88 billion in revenue in its most recent quarter, up 58 percent year over year. Google, another competitor, does not financial information about Google Cloud Platform.
Microsoft has spent heavily building out the data centers essential to the widespread geographical presence that’s expected from a cloud leader. Its capital expenditures were $8.3 billion in FY2016, up 40 percent over the prior year, and that investment appears to be paying off. The Intelligent Cloud segment has been its largest earner, generating 31 percent of total revenue in FY2016, up from 25 percent in FY2015.