Microsoft delivered a blowout fiscal second quarter as its commercial cloud hit a $50 billion annual run rate, but in the end we know just as little about Azure sales as we did before. In other words, we know nothing about Azure sales so let's put aside the breathless BS until Microsoft gives us some real data.
Here's what we know following Microsoft's second quarter: Azure sales were up 62% from a year ago. Growth reaccelerated from 58% in the previous quarter. The nagging question: What's the base for that growth?
We don't know. But I do know this: If Azure sales were all that and a bag of AWS market share, we'd know about it. Instead, Azure sales are lumped into commercial cloud, which doesn't align with Microsoft's reporting structure, and consists of Azure, Office 365 business services, Dynamics 365 services, Enterprise Mobility + Security and other Microsoft cloud products.
Various estimates for Azure quarterly revenue hover around $4 billion a quarter. At this point, Azure could be a $16 billion a year business or $20 billion. Either way, the bulk of commercial cloud is widely assumed to be Office 365. AWS exited its fourth quarter of 2019 with an annual run rate of $40 billion by itself with no Office 365, Dynamics or other boosters. AWS' sales growth was 34% for the fourth quarter and 37% for the year. Of course, there are the laws of large numbers at play and without Azure's base revenue it's hard to make a direct Azure vs. AWS growth comparison.
At this point, the lack of Azure disclosure merely means that we have an apples and oranges cloud comparison between Amazon and Microsoft. We also have a bunch of guesstimates and storylines that Microsoft is gaining in hybrid cloud. Maybe. Maybe not. Either way, the cloud computing buyer deserves more.
Wedbush analyst Daniel Ives noted:
Microsoft beat our Azure cloud estimate by 1,000 bps (not a misprint) coming in at 62% seeing an acceleration from the prior quarter as the cloud share shift from Bezos and AWS to Nadella and Azure is happening at an accelerating pace in our opinion.
That storyline from Ives is becoming commonplace even if it's not necessarily validated. A few weeks ago, a Goldman Sachs survey of 100 respondents was run with as validation that Azure is taking share from AWS.
Amy Hood, CFO at Microsoft, provided some Azure color.
A little bit about the reacceleration in the Azure growth rate, let me divide that into its components. We did have a very good and healthy, broad-based consumption growth, especially in IaaS and PaaS...The SaaS component or the per user component also tends to be where you'll get some variability as well. We did have a good SaaS component quarter in addition to the healthy base, and that does result in some movement in that number from quarter-to-quarter. And, I think Microsoft 365 suite, and the momentum we've got in security and management and mobility is a big contributor to that.
Now don't get me wrong. There was nothing to nit-pick about with Microsoft's second quarter. It was a complete blowout. And there's no shame in being a cloud juggernaut led by Office 365 and SaaS. But if we're really going to have a bake-off and comparison between Azure and AWS let's get some damn data. Right now, AWS provides the data and Microsoft is ducking with Azure.