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Microsoft Coy on Cloud Profit After Amazon Delivers

Microsoft Coy on Cloud Profit After Amazon Delivers

By Reuters | Updated: 24 April 2015 15:57 IST

Amazon.com Inc surprised investors on Thursday by disclosing for the first time that it makes a profit from its fast-growing cloud-computing business.

Microsoft, its closest rival in that arena, also touted a fast-growing cloud business, but held back on key numbers, leaving investors with as many questions as answers.

Analysts honed in on Azure, Microsoft's cloud-computing platform, in a conference call on Thursday after earnings, but Microsoft executives avoided specific answers.

"The lack of disclosure on Azure profitability is conspicuous by its absence," said Todd Lowenstein, a portfolio manager at HighMark Capital. Amazon's disclosures "will put pressure on Microsoft to disclose more and lift up the kimono."

Amazon said on Thursday its Amazon Web Services operation - which sells computing power, storage and other services on its own servers - took in $1.57 billion in revenue in the quarter and profit of $265 million, indicating a 17 percent operating profit margin, above most investors' assumptions.

Microsoft said only that revenue from Azure - which provides similar services to AWS but is also a much broader platform - was growing. It did say that total commercial cloud revenue, which includes online versions of its Office and Dynamics applications, more than doubled, and is now running at a rate of $6.3 billion in revenue per year.

One analyst asked Microsoft Chief Executive Satya Nadella if Amazon's cloud profitability set a benchmark for Microsoft, but he did not bite.

"I don't think the comparison between Azure and AWS is true for me," said Nadella. He suggested that Azure's broader range of services meant the margins on Microsoft's cloud business were more of a mix, without giving any specifics.

Microsoft may have more time than Amazon to show a profit from the cloud, given that the world's largest software company is already highly profitable from its traditional lines of business. Amazon, which only fitfully yields an overall profit from its massive online retail business, has been under much greater scrutiny to provide details on its cloud unit.

"There was more pressure for Amazon to do that versus Microsoft, given their model," said Daniel Ives, an analyst at FBR Capital Markets. "The Street is laser-focused on top-line growth for the coming year and for Nadella the focus should be on cloud growth and Windows 10."

© Thomson Reuters 2015

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