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Satya Nadella, CEO of Microsoft Corp., speaks at the WSJDLive Global Technology Conference in Laguna Beach, California, United States, Monday, October 24, 2016. The conference brings together an unrivaled group of CEOs, founders, pioneers, investors and luminaries to explore emerging technological opportunities around the world.
Patrick T. Fallon | Bloomberg | Getty Images
Microsoft’s Azure cloud for website and application hosting will replace Office productivity software as the company’s main revenue stream at some point in 2022, predicts Piper Sandler analyst Brent Bracelin.
It would be a milestone, highlighting Microsoft’s successful transition from on-premises software to cloud-based services since Satya Nadella took over from Steve Ballmer in 2014.
Piper Sandler, who has the equivalent of a buy note on Microsoft stock, said Azure revenue in the quarter was $ 7.20 billion in the quarter ended in December 2020, which would mean it contributed 17% of Microsoft’s total revenue, down from 4%. three years ago. Microsoft is not disclosing Azure revenue in dollars, but Piper Sandler’s estimate is in line with popular opinion. Analysts at William Blair, who also have the equivalent of a buy note for Microsoft, estimated Azure’s revenue to be $ 7.4 billion.
This means Azure is already much bigger than the Windows franchise, which dates back to 1985 and helped make Microsoft the world’s most valuable and powerful tech company in the 1990s. Windows generated 5.72 billion dollars in revenue in the quarter, according to Microsoft’s income statement.
Azure also outperformed Office 365 revenue from business customers in the second fiscal quarter, Piper Sandler believes.
Now the question is when Azure could eclipse all of Office, including consumer Office 365 subscriptions and traditional Office licenses. Piper Sandler says it will likely happen next year.
“We have Azure quarterly revenue of $ 11.8 billion by June 2022 (eclipsing Office’s total revenue of $ 10.9 billion for the first time),” Bracelin said. to CNBC Wednesday in an email.
Microsoft’s Office franchise has been around since 1989, and its oldest component, Word word processing software, has been around since 1983. It has a dominant market share, and under Nadella, Microsoft has shifted many business customers from it. ‘purchase of Office software licenses to permanently pay Office 365 subscriptions.
Azure, on the other hand, has only been available since 2010 – it was originally called “Windows Azure” – and technology research firm Gartner estimated that in 2019 it represented about 40% of the size of the market leader Amazon Web Services, introduced by Amazon in 2006.
Office 365 and Azure both originated from Microsoft when Ballmer was CEO, but Nadella made Azure an area of greater importance, forming cloud partnerships with companies that have always been competitors, including Salesforce and Sony. Nadella also ran Azure before accepting the title of CEO.
“He spearheaded the strategy and major technical changes in the company’s products and services, including our move to the cloud and the development of one of the largest cloud infrastructures in the world supporting Bing,” Xbox, Office 365 and other services, ”Microsoft said of Nadella in its 2014 management proxy circular after she took office. “This experience is fundamental to the current strategic direction of the company.”
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