Microsoft is doing exactly what it needs to do

Nadella’s game is playing out.
Nadella’s game is playing out.
Image: AP Photo/Ted S. Warren
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Microsoft’s stock took a small hit in after-hours trading today (Jan. 30) following the release of its second-quarter results. But while investors weigh a lot of numbers when making trades, there’s one that matters more than any other for Microsoft: growth in its Azure cloud division.

Quite simply, it’s the most analogous way to track Microsoft’s progress against Amazon’s AWS, which currently leads the cloud market. Azure grew 76% in the most recently completed quarter compared to a year earlier, Microsoft reported, which is steady compared to the prior quarter. However, growth is down from the same time last year, when Microsoft reported Azure grew 98% from the year prior. A significant slowdown in the future would be cause for concern. Microsoft does not break out Azure’s revenue on its own.

As a whole, Microsoft’s commercial cloud revenue grew 48% over the same time last year, reaching $9 billion during the quarter, Microsoft CFO Amy Hood wrote in a statement. That number includes Azure, but also other cloud and legacy businesses such as Windows Server and SQL Server.

The company’s personal computing business traditionally gets a bump during the holiday quarter from selling more Xboxes and Surface products. Surface revenue grew by a strong 39%, but Microsoft’s business of licensing Windows to computer makers shrank by 6%, an unsurprising turn in the era of the smartphone.

The big takeaway from this quarter’s earnings is that the pillars of Microsoft’s reinvention—a move to cloud services and shifting its other businesses to subscription-based models—are all still growing solidly. While Azure was the star, its business analytics and CRM tools business, Dynamics 365, grew sales 51% over last year, and Office 365 Commercial grew 34% over the same time.