Satya Nadella, chief executive officer of Microsoft Corp., speaks at the WSJDLive Global Technology Conference in Laguna Beach, California, USA on Monday, October 24, 2016. The conference brings together an unparalleled group of top CEOs, founders, pioneers, investors and celebrities. explore technological opportunities that are emerging around the world.
Patrick T. Fallon | Bloomberg | Getty Images
Microsoft’s Azure cloud for hosting websites and applications will replace Office productivity software as the company’s largest source of revenue sometime in 2022, predicts Piper Sandler analyst Brent Bracelin.
It would be a striking milestone, underscoring Microsoft’s successful transition from on-premise software to cloud-based services since Satya Nadella took over from Steve Ballmer in 2014.
Piper Sandler, who has the equivalent of a buy rating on Microsoft stock, said Azure sales in the quarter were $ 7.20 billion in the quarter ended December 2020, which would mean it contributed 17% of the total. Microsoft sales, compared to 4%. three years ago. Microsoft doesn’t disclose Azure earnings in dollars, but Piper Sandler’s estimate is in line with broader sentiment. Analysts at William Blair, who also have the equivalent of a buy rating to Microsoft, estimate Azure sales to be $ 7.40 billion.
That means that Azure is already significantly larger than the Windows franchise, which dates back to 1985 and helped Microsoft become the most valuable and powerful technology company in the world in the 1990s. According to Microsoft’s earnings statement, Windows generated $ 5.72 billion in revenue in the quarter.
Azure also surpassed commercial customers’ Office 365 revenue in the fiscal second quarter, Piper Sandler estimates.
Now it’s a matter of determining when Azure could obscure all of Office, including Office 365 consumer subscriptions and traditional Office licenses. Piper Sandler says this will likely happen next year.
“We will have quarterly Azure sales of $ 11.8 billion by June 2022 (exceeding $ 10.9 billion in total revenue for the first time),” Bracelin told CNBC in an email Wednesday.
Microsoft’s Office franchise has been around since 1989, and its oldest component, Word processing software, has been around since 1983. It has a controlling market share, and under Nadella, Microsoft has moved many of its business customers from buying Office software licenses to recurring payment. for Office 365 subscriptions.
Azure, on the other hand, has only been available since 2010 – it was originally called ‘Windows Azure’ – and research firm Gartner estimated that in 2019 it was about 40% the size of market leader Amazon Web Services, which Amazon introduced in 2006. .
Both Office 365 and Azure originated at Microsoft while Ballmer was CEO, but Nadella has made Azure an area of greater emphasis by forming cloud partnerships with historically competitive companies, including Salesforce and Sony. Nadella also led Azure before accepting the title of CEO.
“He led significant strategic and technical shifts in the company’s products and services, most notably 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,” said Microsoft about Nadella in his 2014 proxy statement after becoming CEO. “This experience is fundamental to the company’s current strategic direction.”
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