Anamika Dey , editor
Brief news
- Microsoft updated its quarterly revenue guidance for its three business segments, providing investors with a better understanding of its expanding cloud infrastructure business.
- The company is expanding its Productivity and Business Processes segment by incorporating services from the Intelligent Cloud unit, including Azure, and Windows commercial products and cloud services from the More Personal Computing segment.
- Microsoft made changes to its reporting metrics, removing Power BI and Enterprise Mobility and Security from the Azure growth metric, and incorporating revenue from search and news advertising into Azure and other cloud services.
Detailed news
In a move that is expected to provide investors with a more comprehensive understanding of the software company’s expanding cloud infrastructure business, Microsoft updated its quarterly revenue guidance for its three business segments on Wednesday.
The company is expanding the Productivity and Business Processes segment, which encompasses subscriptions to Office productivity software, with services that have been available within the Intelligent Cloud unit, which includes Azure, for years.
Productivity and Business Processes will also acquire Windows commercial products and cloud services, which are part of the More Personal Computing segment. This segment encompasses volume licensing of the Windows operating system and cloud-based Windows tools.
The Power BI data analytics tool and the Enterprise Mobility and Security group of products are being removed from a closely monitored year-over-year growth metric known as Azure and other cloud services by Microsoft.
“The new Azure number now more closely aligns to consumption business,” Microsoft stated in an investor presentation summarizing the changes, as a result of the departure of those two. Commercial clients are actively utilizing Azure’s computation and storage services, as evidenced by consumption.
However, Microsoft is now incorporating revenue from its search and news advertising category, which was previously classified under More Personal Computing, into Azure and other cloud services.
The company anticipates a 33% constant-currency revenue growth for Azure and other cloud services in the fiscal first quarter under the new definition, which is a 1 to 2 percentage point decrease from the fiscal fourth quarter. The company had anticipated a 28% to 29% increase in growth at constant currency in late July, as per the previous Azure definition. The growth of Azure and other cloud services has historically been driven by consumption, as opposed to the per-user tools, which have experienced a decrease in seat growth.
Jason Ader, an analyst at William Blair with a buy rating on Microsoft shares, stated, “We have increased our visibility on Azure.” The per-user elements of Azure growth that Microsoft has included in the tabulation for years were removed, which made it more difficult to understand consumption, according to him.
Amazon discloses revenue for its market-leading Amazon Web Services division; however, Microsoft’s financial reporting method for Azure has included per-user components, rendering comparisons difficult.
Furthermore, Microsoft has announced that it will allocate revenue to Productivity and Business Processes as a result of its 2022 acquisition of Nuance Communications, which has been classified under Intelligent Cloud. The company will disclose a combined growth rate for Windows and devices every quarter, rather than communicating them separately, as both are PC-oriented.
A new metric, Microsoft 365 Commercial, will be introduced within the Productivity and Business Processes segment. It will encompass revenue from Windows commercial products and cloud services, Power BI, Enterprise Mobility and Security, and Office commercial products and cloud services. Microsoft stated in the presentation that the modification is intended to “harmonize the business’s management methods.”
However, Ader expressed concern that the company may be complicating the process for investors to ascertain the health of core commercial subscriptions for Office productivity software by investing so heavily in Productivity and Business Processes. Ader stated that investors are “minorly concerned” about a potential decline in development.
The More Personal Computing segment is generating revenue from subscriptions to Copilot Pro, which provides generative artificial intelligence capabilities to Word, Excel, and other consumer applications. Since the introduction of Copilot Pro earlier this year, that revenue has been evident in Productivity and Business Processes.
Microsoft’s fiscal first-quarter revenue forecast for the Productivity and Business Processes Segment has increased from $20.3 billion to $20.6 billion in late July to $27.75 billion to $28.05 billion as a consequence of the numerous modifications.
The anticipated revenue for Intelligent Cloud is $23.80 billion to $24.10 billion, a decrease from $28.6 billion to $28.9 billion. The revenue range for More Personal Computing is $12.25 billion to $12.65 billion, as opposed to $14.9 billion to $15.3 billion previously.
However, Microsoft anticipates a total revenue of approximately $64.3 billion. And it does not anticipate any changes to the tax rate, other income and expense, operating expenses, or cost of revenue.
Source : CNBC News
