For the most part, Microsoft has made all the right moves since Satya Nadella took over as CEO of the company. However, the software giant is still in a pickle as evident in its latest quarterly earnings call.
Just last week, Microsoft stock took a huge hit after earnings for the quarter fell below market expectations. To make matters worse, this result is considered guidance for the rest of year — something investors are not particularly happy about.
The news coming out of this most recent earnings call should serve as a reminder to many that despite the increased love for Microsoft, the company still faces challenges in several areas, with revenues continuing to slide until they are addressed. Nadella has an answer, though, and that is to transform Microsoft into a cloud-first, mobile-first company. These plans were laid bare several years ago but as it stands right now, things are moving along slowly. The PC market still suffers and the company’s mobile ambitions are next to dead.
The cornerstone of Microsoft’s strategy going forward is its Azure platform and Office 365. These platforms have done well for the giant from Redmond, particularly Office 365. We found it surprising that Microsoft managed to get folks to subscribe to Office 365 but then later realized its user experience is welcoming, easy-to-use, and ultimately worth the price of entry.
Still, revenue from certain aspects of the cloud sector experienced a 3% downturn since 2015, and Office 365 revenue only increased by 1% when compared to the previous quarter, so while things are not rosy, they aren’t all bad either. At the end of the day, though, Microsoft is hoping the falling software business will help increase its cloud revenue in the long run. This is not a bad way to view things seeing as cloud apps are slowly taking over. In a few years, we expect many important apps to be connected to the cloud completely.
“Ultimately, I don’t [think] the miss was a big deal, but for the reminder that Microsoft is by no means in the clear: the company is fully committed to shifting its business, and it has done an excellent job of bring Wall Street along with it, but given the scale of contribution to the bottom line any unexpected acceleration of decline in legacy business will be hard to spin,” according to analyst Ben Thompson.
Satya Nadella is not the type of CEO to focus too heavily on revenue. He believes in customers loving what Microsoft brings to the table. If the customers feel that way about the company’s products then ultimately the revenue will follow — something we stand with him on.