Falling demand for Microsoft's Lumia phones weighed on its revenue outlook. Source: Microsoft
Continue Reading Below
Microsoft shares fell more than 7% last month, following the release of the company'sfiscal third-quarter earnings report. The maker of Windows and Office posted revenue that was roughly in line with analyst estimates, but its earnings and outlook fell short.
In the company's subsequent earnings call, CEO Satya Nadella and CFO Amy Hood touched on several key factors driving Microsoft's business. What follows is six of the most important quotes from that earnings call (via Thomson Reuters).
There are more than 70 million workers using Office 365 on a monthly basis, and 22 million consumers subscribing
Microsoft's commercial cloud services have emerged as a key drive for the company's business. Office 365, the cloud-based alternative to Microsoft's traditional Office software suite, has been growing particularly rapidly in recent quarters. In Microsoft's fiscal first quarter (which ended last September), management noted that there were 60 million workers using Office 365 on a monthly basis. Last quarter, Microsoft said there were 20.6 million consumers subscribed to Office 365. During the earnings call, Nadella provided an update.
"Consumer subscriptions of Office grew to more than 22 million. Devices with our mobile apps grew approximately 4 times year-over-year. Commercial Office 365 customers surpassed 70 million monthly active users, and we grew seats by 57%."
Cybersecurity is benefiting the Office business
Microsoft offers Office 365 at several different price points. Last year, Microsoft introduced E5, a premium version of Office 365 that included unique security features. During the call, Nadella touched on how the company's interest in cyber security is benefiting its Office business.
Continue Reading Below
"... the cybersecurity market is expanding rapidly, and it's a place where we have unique capabilities like advanced threat protection, cloud app security, and advanced e-discovery. This combination drove a 35% quarter-over-quarter growth of monthly active users of our premium information protection services in Office 365. A key driver of this growth is our new premium Office 365 Suite E5."
Enterprise customers are interested in Windows 10
Microsoft's latest operating system, Windows 10, is currently powering more than 270 million machines. But Microsoft's ambitions are far more broad: the company hopes to hit 1 billion Windows 10 users. To get there, Microsoft will have to convince enterprise customers to make the switch. During the call, Nadella quantified enterprise interest in the operating system.
"What we hear most frequently from [enterprise] customers is how much they value the advanced productivity, security, and device management capabilities in Windows 10. In fact this is what led to one of the most security-conscious organizations in the world, the United States Department of Defense, to upgrade all of their PCs and mobile devices to Windows 10 this year. We see this trend across our enterprise customers, with 83% of them in active pilots to date."
On that disappointing guidance
Microsoft's revenue guidance came in a little weaker than some analysts had anticipated. Management was asked to provide more color about the factors that have accounted for that disappointment. Hood cited weak sales of Microsoft's traditional software products (including Office), poor Lumia sales, and some weakness in particular geographies.
"It's really, as we've talked about, transactional weakness in productivity and business process ... it's the PC weakness, and our traditional transactional Office business that's impacting that segment ... In intelligent cloud, it's a very similar dynamic ... it's the transactional weakness that you're seeing overall, as well some ... geo weakness [in Latin America, the Middle East and Africa] ... And in More Personal Computing, the largest of change in that segment is frankly the phone."
Opening Office up to developers
Office is ubiquitous, but Microsoft believes it can strengthen it even further by allowing developers to take advantage of the data it often contains. Early in the call, Nadella cited the example of Starbucks giving a customer the ability to send the gift of a cup of coffee over email. Later, he added additional color on how the company views the larger opportunity Office development presents.
"The other thing that I'm also excited about, when it comes to Office 365, is for the first time we're opening up Office 365. Not just as an end-user, and [an] enterprise tool and a service, but as a developer platform. In its own right, we think of Office as perhaps one of the most strategic developer assets we have, and with the Microsoft Graph API, and what we see as activity around it. We think about the platform effects of that, as also being very key."
Taking on Amazon Web Services
In addition to Office 365, Microsoft offers several other major enterprise cloud services. One of the most important is Azure, Microsoft's cloud computing solution. Azure faces several different competitors, but the most fearsome may be Amazon Web Services (AWS). AWS has enjoyed impressive growth in recent years, and generated nearly $9 billion in sales over the past 12 months. Meanwhile, it's profitable: it posted adjusted operating income of $604 million last quarter.
During the call, Microsoft was asked about AWS and how it compares to Azure. Nadella offered up what he believes are Azure's key advantages over Amazon's offering: A better solution for firms that want a hybrid solution that blends their own servers with Microsoft's cloud.
"... where our differentiation lies? The first one is hybrid. Most people think about hybrid where, they think about the cloud as the edge of their server. We obviously support that with all of our service. Every server product of ours, has cloud enrollment rights, whether it be SQL, whether it be Windows server, and you'll see that increasingly, even in this next wave of servers ... But we also think of, in fact, our servers as the edge of our cloud. That I think is where the world is going to go to, where distributed computing will remain distributors. So Azure Stack is completely unique to Microsoft. No one else who is in the public cloud business at any scale, has that kind of capability. So, I would say that's another point of differentiation."
The article 6 Must-Read Quotes from Microsoft's Earnings Call originally appeared on Fool.com.
Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com and Starbucks. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2016 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.