Microsoft’s Intelligent Cloud group posts a 17 percent jump in revenue on 93 percent growth for Azure

Microsoft CEO Satya Nadella addresses shareholders at the company’s Dec 2017 annual meeting. (GeekWire Photo / Todd Bishop)

Cloud computing has been a strong part of Microsoft’s turnaround during CEO Satya Nadella’s tenure as CEO, and its Intelligent Cloud group picked up the growth pace slightly in its third fiscal quarter.

Revenue from the Intelligent Cloud group was $7.9 billion, a 17 percent increase over the prior year, and following growth of 15 percent during Microsoft’s second fiscal quarter. The group generated $2.65 billion in operating profit during the third quarter, up 24 percent compared to the prior year.

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Azure, Microsoft’s cloud infrastructure service, grew at 93 percent during the quarter. That’s a slight decrease from 98 percent growth in the last quarter, but given that Microsoft hasn’t disclosed revenue from Azure it’s hard to say how meaningful that really is. Revenue from Office 365 Commercial rose 42 percent during the quarter, while revenue from server products grew 20 percent.

Microsoft’s commercial cloud revenue, which was a closely watched metric over the last few years after Nadella set a $20 billion-a-year revenue goal back in 2015, reached $6 billion during the quarter. This includes sales of the SaaS products like Office 365 Commercial that aren’t part of the Intelligent Cloud group.

CEO Satya Nadella shed new light on a few metrics during a conference call following the release of Microsoft’s results. Office 365 now has 135 million monthly active users, and Azure Cosmos DB, a new database unveiled almost a year ago, is on a $100 million-a-year revenue pace, he said.

“We made the right investment decisions, and they are having an impact,” Nadella said. The company is looking for Azure growth at the higher levels of the stack — such as databases and artificial intelligence services — to offset a slight gross margin decline as Azure becomes a larger part of Microsoft’s overall commercial cloud revenue.

During the quarter, Microsoft invested $3.5 billion in capital expenditures “in order to support growth in our cloud offerings,” the company disclosed in presentation slides accompanying its earnings release. Earlier this week Google surprised cloud watchers with its $7.67 billion outlay on capital expenditures, although around half of that number involved property acquisitions.

Looking ahead to the next quarter, Microsoft Chief Financial Officer Amy Hood said to expect between $8.95 billion and $9.15 billion in revenue from the Intelligent Cloud division.

(Editor’s note: This post was updated several times Thursday afternoon as more information became available.)