Microsoft Corp. (MSFT) and Alibaba Group Holdings Ltd. (BABA) may be best known for their software and ecommerce businesses, respectively, but during the most recently reported quarter, both companies showed huge growth in their cloud computing units.
Take Microsoft, which reported third-quarter earnings results on April 27. While Microsoft still makes most of its money hawking its Windows operating system, its cloud computing business is becoming a bigger portion of its growth. Microsoft said that for the three months ended in March, revenue in its Intelligent Cloud business came in at $6.8 billion up 11% compared to the year ago and up 12% on a constant currency basis.
During the quarter Microsoft said server products and cloud services revenue increased 15%, driven by Azure cloud revenue growth of 93%. Enterprise services revenue declined 1% with a decrease in custom support agreements offsetting growth in Premier Support Services and consulting. For the quarter, Microsoft posted revenue of $23.6 billion on a non-GAAP bases and diluted earnings per share of $0.73, also on a non-GAAP basis. “Our results this quarter reflect the trust customers are placing in the Microsoft Cloud,” said Satya Nadella, chief executive officer at Microsoft in a press release announcing third quarter results. “From large multi-nationals to small and medium businesses to non-profits all over the world, organizations are using Microsoft’s cloud platforms to power their digital transformation.” (See also: Microsoft’s Azure Cloud Revenue Estimated at $3B.)
Coming off of its strong showing in the cloud market during the third quarter Credit Suisse started coverage of Microsoft with an outperform rating and a price target of $80 a share, implying upside of more than 17%. The way analyst Michael Nemeroff sees it, Microsoft will see big earnings growth and earnings power over the course of the next few years thanks to growth in its commercial cloud computing business and higher gross margins for the unit. (See also: Microsoft’s Azure Cloud Revenue Estimated at $3B.)
Meanwhile, China’s Alibaba also saw great growth in its cloud business AliCloud in its fiscal fourth quarter ended in March, which Alibaba reported Thursday. For the quarter, Alibaba said AliCloud increased revenues 175% year over year (YOY), which comes off a 126% increase growth in AliCloud in its fiscal third quarter. During a conference call to discuss quarterly results, Joseph Tsai, executive vice chairman at Alibaba, said, “AliCloud is today one of the largest cloud computing businesses in the world.” The executive went on to note that “several of our businesses have emerged with high growth traction and expanding operating leverage.”
AliCloud now has more than 500,000 paying customers and is the biggest growth business for the Chinese ecommerce giant. Its main business of hawking products online increased 41% YOY. Leading up to Alibaba’s earnings report, analysts have been getting more bullish on the company, largely because of its AliCloud unit. (See also: Alibaba Diversification Earns Analysts’ Approval.)