More than three years ago, Microsoft promised to reach an annualized revenue of $20 billion in its corporate cloud business by the end of its 2018 fiscal year (ending in June 2018). The company has delivered early: In its Q1 2018 earnings released today, the company has shared that its cloud annualized run rate has hit $20.4 billion.
In Q1 2018, Microsoft reported revenue of $24.5 billion, net income of $6.6 billion, and earnings per share of $0.84 (compared to revenue of $22.3 billion, net income of $6.0 billion, and earnings per share of $0.76 in Q1 2017). Analysts had expected Microsoft to earn $23.56 billion in revenue and earnings per share of $0.72. In short, the company beat expectations. The company’s stock was flat in regular trading, but up 4 percent in after-hours trading (expected, given the results). Microsoft said it returned $4.8 billion to shareholders in the form of share repurchases and dividends during the quarter.
“This quarter we exceeded $20 billion in commercial cloud ARR, outpacing the goal we set just over two years ago,” Microsoft CEO Satya Nadella said in a statement. “Our results reflect accelerating innovation and increased usage and engagement across our businesses as customers continue to choose Microsoft to help them transform.”
In short, Nadella’s plan to turn Microsoft into a cloud company is working.
Here are the highlights across the company’s three operating groups:
- Productivity and Business Processes: Up 28 percent to $8.2 billion. Office commercial revenue grew 10 percent, Office consumer revenue was up 12 percent, and Dynamics revenue increased 13 percent. Office 365 subscribers hit 28 million. LinkedIn contributed revenue of $1.1 billion.
- Intelligent Cloud: Up 14 percent to $6.9 billion. Server products and cloud services revenue grew 17 percent. But the big number as always was Azure revenue, which grew 90 percent.
- More Personal Computing: Flat at $9.4 billion. Windows OEM revenue was up 4 percent, while Windows commercial revenue increased 7 percent. Search acquisition costs jumped 15 percent. Surface revenue increased by 12 percent, and gaming revenue was up only 1 percent (Xbox revenue grew 21 percent, but was offset by lower hardware revenue).
A growth in revenue for Surface is always notable, as the category has had many ups and downs — lately it has seen multiple declines as the company prepared to add to the product lineup. Microsoft attributed this quarter’s increase to Surface Laptop sales, suggesting the company is moving at least some units of its new, least expensive product. The much more expensive Surface Book 2 ships next month, meaning we won’t see the impact of that machine until next year.