“We are off to a strong start to the fiscal year driven by the continued strength of Microsoft Cloud, which surpassed $31.8Bn in quarterly revenue” shares Satya Nadella, MSFT CEO. 💡 But what are its growth drivers?
Azure stands out as a major performance accelerant - its revenue surged by 29% QoQ, outstripping analysts' predictions of 26%. Nadella attributes this to “three things all happening in parallel.”
📈 Continuous cloud migrations and the Oracle partnership
“A good reminder of where we are and even the core cloud migration story is the new Oracle announcement. Once we announce that the Oracle databases are going to be available on Azure, we saw a bunch of unlock from new customers who have significant Oracle estates that have not yet moved to the cloud because they needed to run the GUI with the rest of the app estate in one single cloud….
In some sense, even the financial services sector, for example, is a good place where there's a lot of Oracle that still needs to move to the cloud.”
🛠️ Customers moving past optimization
Nadella underscores the cyclical growth of Azure: customers introduce cloud workloads, optimize them, and, once content with their setup, expand further. He points out that there were periods where customers were heavily focused on optimization, which might have slowed growth, but he anticipates moving past that phase in the H2 of this year.
“the workloads start, then workloads get optimized and then new workloads start - and that cycle continues. We'll lap some of those optimization cycles that were fairly extreme perhaps in the second half of our fiscal.“
✨AI is driving cloud spend and net new customers
“More than 18,000 organizations now use Azure OpenAI service, including new-to-Azure customers…. Given our leadership position, we are seeing complete new project starts, which are AI projects. And as you know, AI projects are not just about AI meters. They have lots of other cloud meters as well.”
🤝 Amy Hood, Microsoft's EVP & CFO summarized that strong performance was delivered by “consistent execution by our sales teams and partners” and while “in Azure, as expected, the optimization trends were similar to Q4”, “higher-than-expected AI consumption contributed to revenue growth in Azure”.
💰$212 billion in customer commits
Besides its revenue, Microsoft reported $212 Bn in customer commitments (relating to the commercial segment of revenue). This quarter's commits are lower than last quarter (224Bn), but higher than the one before that ($196Bn - see previous post, link in comments).
Yet, these numbers are poised to climb, as Amy Hood emphasized, “For our full FY '24, we remain committed to investing for the cloud and AI opportunity”.
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