Cloud set to lead Microsoft in the future, on track for a $20 billion annual run rate by fiscal 2018

Cloud set to lead Microsoft in the future: $20 billion annual run rate by fiscal 2018

Yesterday’s Fiscal Year 2015 Fourth Quarter Earnings Release by Microsoft has gotten a great deal of attention, as it should, for posting an operating loss of $2.1 billion dollars. The company’s decision to write down their acquisition of Nokia’s Devices and Services business certainly defined yesterday’s Earnings Release for many, but it wasn’t the only message to take away from the financials.

If the Nokia write-down, which is a non-cash charge to the company, and other one-time expenses are excluded from the financials, Microsoft showed a $6.4 billion dollar operating income in the fourth quarter. And the story of that $6.4 billion dollar operating income is worth noting as they show Microsoft has growing profitability in some key businesses.

CEO Satya Nadella mentioned in yesterday’s call that:

Our approach to investing in areas where we have differentiation and opportunity is paying off with Surface, Xbox, Bing, Office 365, Azure and Dynamics CRM Online all growing by at least double-digits.”

Yesterday, we reported how Surface is becoming a crown jewel for Microsoft as it was revealed that Surface revenue has grown by 117%. The financials also demonstrate that Microsoft’s commercial cloud business is a large and growing part of its future.

ZDNet’s Mary Jo Foley reported on how Microsoft’s commercial cloud business is taking off. Chris Suh, General Manager of Investor Relations, confirmed that Microsoft’s commercial cloud business is “absolutely on track” to reach an annualized run rate of $20 billion dollars by Microsoft’s fiscal year 2018.

Image credit: businessinsider

Yesterday’s earnings release showed that the commercial cloud service’s annualized run rate for FY15 Q4 reached over $8 billion, up from $6.3 billion in the previous quarter. This annualized run rate for the commercial cloud business also came in at over $2 billion dollars above analyst’s expectations.

Microsoft’s commercial cloud services include Office 365, Azure, and Dynamics CRM Online. While the earnings did not release specific information on Office 365 and Azure growth, it did note that Dynamics revenue grew by 6% (15% in constant currency) and that the Dynamics CRM Online install base grew by almost 2.5 times.

Positive gains in one area is by no means a smoke screen for a write-down the size of yesterday’s for Microsoft, or should it dominate the headlines, especially when it leads to an operating loss of that magnitude. However, the story of Microsoft’s future in cloud businesses, software and services, and even devices like the Surface go unnoticed either.

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