No clouds over Microsoft as it turns in its first $20 billion quarterly profit

We are building Azure as the world's computer.

A bold declaration from CEO Satya Nadella yesterday as Microsoft’s quarterly profit topped $20 billion for the first time. Total Q1 revenues were $45.3 billion dollars, up 22% on last year, while quarterly profit of $17.2 billion was up 48%. Cloud was the main driver, but The Great Resignation also gave a boost to the firm’s LinkedIn business, which saw its revenues increase 42% year-on-year.

Cloud first

Overall cloud revenue jumped by 31%, with Azure business up 48%. Nadella said:

We're partnering with mobile operators from AT&T and Verizon in the US, to Telefonica and BG in Europe, Telstra and SingTel in Asia Pacific, as they embrace new business models and bring ultra-low latency compute power and storage to the network and the enterprise edge. 78% of the Fortune 500 use our hybrid offerings. And with Azure ANC, customers like Nokia, Royal Bank of Canada and SKF can deploy and run applications at the edge or in multi-cloud environments.

Organizations also prefer our Cloud to power the mission-critical apps they rely on every day. G Healthcare and Procter & Gamble migrated critical workloads to Azure this quarter. And leading companies in every industry including Bertelsmann, Kimberly-Clark, the NBA Softbank, Decent Crop, all chose Azure for their SAP workloads.

Industry vertical clouds are also on the rise, he added:

We're seeing strong customer adoption of our new Industry Cloud for healthcare, and our clients for financial services and manufacturing will become more broadly available next week.

And with COP26 in Glasgow just around the corner, Nadella also bigged up Microsoft’s cloud-centric sustainability offering:

Sustainability is an existential priority for our society and for every business today. And when we think about our approach to sustainability, it's more than just the carbon footprint of our own data centers.

With our Microsoft Cloud for sustainability, we're creating an entirely new business process category to help organizations monitor the carbon footprint across their operations. The world's largest baking Company, Grupo Bimbo, for example, is using our tools to report, record, and reduce its emissions in every country where it operates.

Great Resignation

As for the ongoing Great Resignation phenomenon, that’s providing fuel for growth for the LinkedIn division, with Nadella commenting:

We're experiencing a great reshuffle across the global labor market, as people are rethinking not only where and how they work, but why. As more people change jobs than ever before, we saw record engagement as they increasingly turn to LinkedIn to connect, learn, grow, and get hired. LinkedIn now has nearly 800 million members. Confirmed hires on the platform increased more than a 160% year-over-year. And this quarter, we launched new ways to help job-seekers discover roles that align with how they want to work. In a rapidly evolving labor market, companies are increasingly turning to LinkedIn Learning to up-skill and re-skill their employees.

We now have over 15,000 enterprise customers of LinkedIn Learning, and we are expanding our opportunity in the creator economy, including offering new ways for LinkedIn Learning instructors to build their audiences and connect with learners live. Businesses continue to choose LinkedIn as the trusted way to reach professionals. LinkedIn advertising revenue was up 61% year-over-year.

As for the wider future of work, with the prospect of some form of remote working still high on most organizations agendas, Teams and Microsoft 365 are set to benefit, argued Nadella:

Flexibility and productivity are not mutually exclusive. We are innovating to empower people to have impact from home, in the office, and anywhere in between. Microsoft Teams is the only solution that supports all the ways people work. Usage has never been higher. A 138 organizations now have more than a 100,000 users of Teams, and more than 3,000, and have more than 10,000 users. Updates to Teams' rooms, including new AI Pod cameras, and spatial audio, ensure every meeting attendee is always a first-class participant.

The rise of hybrid work is also transforming the enterprise phone market, he added, boasting that Microsoft is taking share from PSTN, and VoIP:

Calls originating from Teams chats increased 50% this quarter compared to a year ago. Operator Connect enables organizations to bring their existing service directly into Teams. And leaders in every industry, including Schlumberger, Westpac, ZF Group, REI, and SAP chose Teams [Indiscernible] this quarter to meet all their internal and external calling needs. Moving forward, organizations will need a digital fabric that spans organizational boundaries to address key challenges like customer service swarming and supply chain resilience.

With Teams Connect, employees across multiple companies can chat and collaborate as one extended team without switching tenants. In private preview, we're already seeing strong interest in usage from companies like LVMH and WPP. Teams by itself has become a first-class platform for application development. For example, employees at Levi Strauss, an NTT data are using service now, applications right within Teams Drax's critical info within the flow of work.

Looking ahead into the Vaccine Economy, Nadella suggested that inflationary pressures would assist with digital transformation agendas:

Digital technology is a deflationary force in an inflationary economy… In an inflationary environment, the first place any business should go to is how to really ensure that they're able to get productivity gains. And even dealing with constraints, for example, if you have supply chain constraints, one of the things you want to do is run your factories at the efficient frontier. That means things like digital twins, simulation, are the ones where you are going to make sure that every production run has the least amount of wastage.

I think any which way you look, whether it's in the knowledge work, first-line work, whether it's actually digital twins and simulation, all of those things are going to be the best way for any company to deal with inflationary pressures, so that they can, in fact, have the best productivity and thereby the best ability to be able to meet aggregate demand out there. That's why we're very, very excited about making sure our software products are available to our business customers all around to be able to manage through this inflationary environment.

My take

A cracking quarter from a confident cloud services provider.