Why Microsoft Will Post Excellent Cloud Results and Calm Jittery Market

With global markets still reeling from SAP’s Q3 numbers, I’m expecting Microsoft to post excellent cloud results in its fiscal-Q1 numbers later today and thereby dispense with the panicky notion that the sky above the cloud is falling.

Later this week, I believe we’ll hear more good news from high-flying ServiceNow on Oct. 28, and from both Amazon’s AWS and Google Cloud on Oct. 29.

(On my weekly Cloud Wars Top 10 rankings, Microsoft is #1, Amazon is #2, Google Cloud is #4, SAP is #5, and ServiceNow is #9.)

In a moment, I’ll offer 3 specific reasons for my confidence about the forthcoming Microsoft cloud numbers, but first we all need to bear in mind some macro issues that point to enormous strength and vibrancy of the enterprise-tech sector:

• COVID-19 has forced businesses to turn themselves inside-out to meet the new demands and requirements of customers, and the cloud is by far the best approach to those digital futures;
• even before COVID, digital transformation was a powerful and disruptive trend across many industries, and that massive movement to digital via the cloud is getting stronger rather than diminishing;
• the cloud has proven to be the ideal environment for the profusion of a new wave of remarkably powerful new tools and solutions—AI, ML, IoT, predictive analytics, conversational AI, autonomous technologies, and industry-specific apps—that are revolutionizing the business world; and
• in resetting some future expectations, SAP also delivered broad-based cloud growth of 26% along with a cloud-revenue backlog that grew 16%.

And Microsoft—the largest and most-influential cloud vendor in the world—has been at the forefront of each of those high-growth disruptions.

It was Microsoft CEO Satya Nadella who first uttered a phrase that’s now become commonplace about the unprecedented acceleration of digital-transformation initiatives wrought by COVID-19: 

“We’ve seen two years’ worth of digital transformation in two months. From remote teamwork and learning, to sales and customer service, to critical cloud infrastructure and security – we are working alongside customers every day to help them adapt and stay open for business in a world of remote everything,” said Satya Nadella, chief executive officer of Microsoft.

Nadella made that statement exactly six months ago as Microsoft released its fiscal-Q3 results for the quarter ended March 31, as the stunning economic impact of the pandemic was first being revealed.

In spite of that devastating hit to the global economy, Microsoft continued to deliver at a high level because it had the mindset and the technological depth and the will to adapt blazingly fast to conditions none of us had ever experienced before.

Here’s Nadella from 3 months ago in his opening remarks during Microsoft’s fiscal-Q4 earnings-call:

We delivered record results this fiscal year, powered by our commercial cloud, which surpassed $50 billion in revenue for the first time – up 36 percent year over year.

The last five months have made it very clear that digital tech intensity is key to business resilience. Organizations that build their own digital capability will recover faster and emerge from this crisis stronger.

We are seeing businesses accelerate the digitization of every part of their operations – from manufacturing to sales and customer service – to reimagine how they meet customer needs – from curbside pickup and contactless shopping in retail, to telemedicine in healthcare.

And as Microsoft releases its fiscal-Q1 results later today, I believe it will once again report excellent cloud growth of 30% or more with strength across all of its cloud businesses. Here are my 3 reasons for that confidence:

1. Commercial Cloud revenue growth of at least 30%. In its year-earlier fiscal Q1, Microsoft said its cloud business grew 39% (constant currency) to $11.6 billion. If it grows at a 30% rate in its current Q1, that incremental growth will represent an additional $3.6 billion in cloud business. Microsoft’s cloud business has achieved a scale the cloud industry has never seen.
2. Dynamics 365 revenue will remain in hypergrowth at 40%. While Azure gets the lion’s share of attention—and rightfully so—don’t forget that Microsoft has quietly built an $2-billion AI-powered enterprise apps business with Dynamics 365, and I expect it will maintain the 40% growth rate it achieved last quarter.
3. Microsoft has mastered the art of strategic partnerships with customers. From Novartis to Kroger to FedEx and beyond, Nadella has pushed a new type of customer engagement that transcends simple transactions and is centered on the co-creation of new capabilities, innovations, products, services—and revenue for both parties.

Disclosure: at the time of this writing, Microsoft, Google Cloud, and SAP were among the many clients of Cloud Wars Media LLC and/or Evans Strategic Communications LLC.

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