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Microsoft Azure Revenue Growth Decelerates in Q3 FY20

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Microsoft just reported its Q3 earnings. The latest Q3 report was published on the companies website on April 29 2020. The overall revenue as well as the earnings of the company surpassed the expectations of the quarter and were recorded to be $34.0 Billion and $1.29 per share.

Microsoft further expects the earnings and gross profit margins to increase over the next few quarters as a result of the following reasons-

  1. Expansion of data centers into regions such as Israel and Qatar which would help the firm reach a global footprint of 56.
  2. Increased investments into the technology to cater to the growing demands.

Microsoft Office

Azure’s innovations and software updates have been credited as the key pointers for the quarterly success of Microsoft by Investment banking Analyst Raymond James. Furthermore, though the market is dominated by Amazon Web Services (AWS) in context to the market share, Microsoft has taken a lead in the revenues generation. New innovations, software updates and resellers of the software with an increased interests in collaborations with the Microsoft teams across companies have helped Azure and other Microsoft clouds to grow consistently in the market.

Revenue for the latest quarter-

(Source: Business Quant)

It can be seen from the above chart that the revenue that are generated for the company are cyclical in nature. The revenues that are earned by the company are divided under three business segments-

  1. Productivity and business processes
  2. Intelligent Cloud
  3. More Personal Computing

The Intelligent cloud sector was seen as the fastest growing sector in 2019. The revenue for the segment increased 30% which was driven by the Azure revenue growth of 59%. Furthermore,”Research firm Gartner Inc. expects total cloud revenue across for the entire industry to exceed $260 billion in 2020. In order to capture as much of that revenue as possible, Microsoft plans to continue investing in data centers and other infrastructure to support its cloud services.”

Per our database, Azure’s revenues have been growing at over 60% for the past several quarters now. We at Business Quant estimate Azure’s revenue to amount to $13.1 billion on an annualized basis and its revenue grew by 59% during Q3 FY20.

(Source: Business Quant)

The CEO of the company Satya Nadella in a conference call stated that “Tech spend as a percentage of GDP is projected to double over the next decade. At Microsoft, we are focused on building the most differentiated tech stack to enable every organization in every industry to build their own digital capability and tech intensity, with a business model that is trusted and aligned with their success in this new era. Now I’ll briefly highlight our innovation momentum, starting with Azure. Every customer will need a distributed computing fabric across the cloud and the edge to power their mission-critical workloads and meet regulatory as well as operational solvency needs.” Such product differentiation and updates for the product would help Microsoft hold its market but also attract new consumers increasing its footprint and market share.

Profitability in the latest quarter-

(Source: Business Quant)

The company has recorded the highest profits for the sector among all its peers in the quarter. If the company persists its performance in the coming quarters it would be a promising scenario for its investors. A high gross profit and revenue for the company in the quarter would also help increase its credibility among its short term lenders. The short term liabilities would be efficiently looked after keeping aside sufficient amounts to cater for its long term liability requirements. The company would be able to invest more amounts in its innovations and researches to improve the digital experiences for its users, this would in return induce more consumers to turn towards the platform sustaining its high gross profits in the coming futures.

This also acts as an indicator for us to understand the company is efficiently managing its costs from the revenues that are being generated. Also, higher gross profit indicates a higher profitability of the organization in terms of its performance indicators.

The estimates of revenues are expected to grow over the years as Microsoft looks at opportunities to expand its global footprint by entering new geographical regions for the first time. Better innovations that would help the interface be more user friendly and customized to understand and perform functions that are business centric for its business customers would also attract new consumers to join Microsoft.

These revenue and Gross profit figures if are obtained regularly by Microsoft would be beneficial for its investors as well. Microsoft would prove to be a safe investment option for its investors in both equity and debt markets. The company can look forward to moving towards a different capital structure with reducing its debt component in the business. Higher Goodwill can also be attained by the company.

Even during recent times facing the pandemic situation the company can function with consistency keeping into account its financial health. The company does not have to face difficulties regarding its obligations towards its various stakeholders. The company is currently focusing on increasing its market share as it is already leading the sector in terms of the profitability. The use of new age technology to innovate and bring consumer friendly interfaces is the key forward for Microsoft!

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