Early this week Microsoft released it FY Q1 earnings (its fiscal year starts July 1st) and it exceeded expectations with respect to cloud revenues (overall earnings were down as expected because of the Nokia hit). The Wall Street Journal perhaps said it best that Microsoft is bucking the trend as revenues rose 11%, while competitors like IBM, Oracle and H-P are posting slow or shrinking sales growth. “Microsoft may not be cool, but its sales continue to defy expectations…” wrote Shira Ovide at WSJ.COM. MarketWatch reported that CEO Satya Nadella pitched that Microsoft’s strengths in cloud-based business services – primarily Web-friendly Office 365 and Azure – had resulted in double cloud revenue. That could spell double trouble for Amazon (more on that in a moment).
I, along with investors, are very interested in how much cloud sales are eroding higher-margin revenue from traditional software licensing (think DataCenter and SQL Server). Windows sales increased 10% in the quarter, so for now, the erosion is continued. But long-term, while Microsoft may win the cloud war, earnings erosion is an area I will continue to monitor. Essentially, Office 365 saves business customers money, but results in less revenue for both Microsoft and is partners. I predict Microsoft will continue to cut costs and shrink the number of employees and contractors long-term to match its operational costs to the new cloud revenue streams. You heard it here first!
But overall – bravo! Microsoft celebrates a blowout quarter and again publically acknowledges the 100%+ growth of Office 365. And that’s the type of validation any O365er can appreciate.
Across town: Amazon Misses!
On the same day, Amazon reported its quarterly results. Amazon competes with Microsoft in numerous areas, including phones (ouch on the Fire result) and Amazon Web Services (which competed against Azure). It reported a stunning (and unexpected) $ 437 million or nearly a buck a share ($0.95). CNBC reporting Microsoft took more share shift from Amazon than expected. Investors are starting to get tired that Amazon is “investing in losses” while Microsoft is harvesting profits. At best, Amazon is a HOLD, as Bezos free pass is over from impatient stockholders. I’m disappointed in Amazon’s performance, and it’s tracking for its worst year since 2008.
