It's safe to say at this point thatMicrosoft CEO Satya Nadella has things moving in the right direction. Coming off a great year, Microsoft is once again pushing the innovation envelope with new projects, including mind-bending virtual reality solutions and see-through "smart" covers for its tablets. This is quite a change from even a year or two ago when the company seemed to have lost its mojo under then-CEO, Steve Ballmer.
Working on cutting-edge technologies is a good thing and will help position Microsoft as a tech leader rather than a follower. But when push comes to shove, investors should pay special attention to a couple details included in the fiscal second-quarter earnings announcement on Jan 26th. Sure, growth across its numerous business lines would be nice, and is likely, but if Microsoft can hit these two business segments out of the park, 2015 is going to be even better than last year for shareholders.
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Keep your head in the cloudIt can be difficult to measure Microsoft's cloud revenue relative to its peers, as Google and presumed cloud leader,Amazon.com , lump cloud sales into their respective "other" revenue buckets. Meanwhile, Microsoft and another one of its main cloud competitors,IBM , are happy to share specifics.
And why not? Nadella already has Microsoft at the forefront of the cloud wars. As of last quarter, cloud sales again jumped by triple-digits year-over-yearand are tracking at about $4.7 billion annually. That compares favorably with Amazon Web Services and bests IBM's cloud efforts, which are on pace to hit about $3.1 billion in annual revenue.
What makes Microsoft's spectacular growth even more impressive is that it was late to the cloud party, just as IBM was. Amazon.com has long been the entrenched leader, but Microsoft's bevy of software-as-a-service and related solutions is where the cloud revenues are, not in the already commoditized hosting services whereAWS largely lives.
But this is where things get a bit tricky leading up to Microsoft's Jan. 26th earnings announcement. Nadella and team need to continue delivering triple-digit cloud revenue growth to reassure investors that their all-in strategy is still paying off. If that happens, 2015 could be the year Microsoft leaves AWS, IBM, and all the others in the cloud dust.
It's not about hardware, right?If you logged on to the Internet or watched any television over the holidays, you likely caught at least a couple of Microsoft's Surface Pro 3 ads. The "tablet that can replace your laptop" was plastered across the airwaves. Though Nadella has made it clear the "mobile-first" pillar of his mobile and "cloud-first" initiative is about much more than selling devices, investors would be wise to stay tuned to Surface Pro 3 results.
Surface revenue topped $900 million last quarter. The holiday marketing push made it clear Microsoft is going full bore with its Surface Pro 3 efforts, and a failure during the most important tech shopping time of the year would raise some serious, and legitimate, questions.
Anything less than solid Surface Pro 3 results would also put a damper on the news that the division actually turned profitable in the last quarter after losing nearly $2 billion over the past two years. The question now is whetherNadella and team can keep the momentum going, or whether hardware again becomes a drain on earnings.
To keep things in context, last quarter's $908 million in Surface revenue accounted for less than 10% of total sales for the devices and consumer business unit. But at this point in its transition to a "mobile-first, cloud-first" world, Microsoft must keep its cloud and Surface momentum going. Doing so on both counts willbe a clear indication that Microsoft is still firing on all cylinders.
The article Microsoft Corporation: The Two Things I Want to Hear from Satya Nadella on Jan. 26 originally appeared on Fool.com.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Google (A shares), Google (C shares), International Business Machines, and 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.
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