Microsoft rides COVID-19 wave as Q2 revenues soar

Profile picture for user ddpreez By Derek du Preez January 27, 2021 Audio version
Summary:
Microsoft CEO Satya Nadella said that the company is at the forefront of the “second wave of digital transformation”.

Satya Nadella

Microsoft shares were up this week at CEO Satya Nadella announced an incredibly strong quarter for the technology company, which is experiencing a solid boost in revenues across almost all of its divisions, in part thanks to the COVID-19 pandemic. 

Whilst many companies have suffered significant losses over the past year, the enterprise technology industry has been fairly well protected as businesses look to invest and adapt. Customer and employee expectations are rapidly changing, with a shift to digital, and companies are addressing how they can use technology to enhance agility and boost resiliency. 

With Microsoft having a stake in a number of areas that play well to these changes, including cloud infrastructure, mobile computing, collaboration software, and even gaming, the company has fared well. 

Second quarter revenues for FY2021 were up 17% to $43.1 billion and net income increased 33% to $15.5 billion. Breaking this down into more granular detail, some highlights include: 

  • Office commercial products and cloud services revenue increased 11%, driving by Office 365 revenue growth of 21%

  • LinkedIn revenue increase 23%

  • Dynamic products and cloud services revenue increased 21%, driven by Dynamics 365 revenue growth of 39%. 

  • Azure revenue grew by 50%

As a sign of the company's confidence, Microsoft also forecast revenue for the current quarter of $40.3bn-$41.25bn - which would account to another double digit revenue growth. 

Commenting on the results, CEO Satya Nadella said that Microsoft is well positioned to take advantage of the changes happening in the market, as a result of the pandemic. He said: 

It was a record quarter driven by our commercial cloud which surpassed $16 billion in revenue up 34% year-over-year. What we are witnessing is the dawn of a second wave of digital transformation sweeping every company and every industry. 

Digital capability is key to both resilience and growth. It's no longer enough to just adopt technology. Businesses need to build their own technology to compete and grow. Microsoft is powering this shift with the world's largest and most comprehensive cloud platform.

Nadella pointed to its commercial cloud business as key to supporting companies through their ongoing transitions, highlighting the announcement of seven new data center regions in Asia, Europe and Latin America, as well as adding support for top secret classified workloads in the United States. 

The data capabilities of Azure are proving particularly compelling for customers, Nadella added. He said: 

At the data layer Azure is the only cloud with limitless data and analytics capability that enable organizations to build the predictive and analytical path required to digitally transform. Azure Synapse brings together big data, data warehousing and data integration all into one powerful solution. Leading companies like FedEx, Grab and P&G are using Synapse to generate immediate insights from massive amounts of structured and unstructured data and we are seeing strong overall growth in our analytics business as companies accelerate their data initiatives to build competitive advantage.

Data governance is top of mind for every business leader and will grow into an important category on its own as critical as any AI or analytics category today. We are investing to participate in this growth. Azure Purview provides an end to end view of an organization's data state across on-premise, multi-cloud and SaaS apps that previously was impossible.

In addition, Nadella highlighted customers such as Home Depot, which is using Microsoft 365 and Yammer for its 390,000 associates to "foster connection and engagement", whilst the US department of Veteran Affairs has 500,000 employees using Teams to collaborate. 

COVID-19 insights

Nadella said that whilst companies are continuing to figure out what the future looks like for them ‘post-pandemic', the one thing that is becoming abundantly clear is that there will be no return to what the world of work looked like in January 2020. 

However, Microsoft doesn't see a purely digital enterprise becoming the status-quo anytime soon. There needs to be a meaningful and flexible blend of practices that enable efficiency and productivity for companies to adapt and change as they see fit. Nadella said: 

I think the key for us is to really maintain flexibility. And that's why even going back to the conversation around Teams, it's not like the work only happens in online meetings. Work happens before meetings, during meetings, after meetings and especially in hybrid work you need that sophisticated set of tools that really track workflow irrespective of who is where and so that's what we are focused on. 

And in our own policies we have laid out policies which give more flexibility and it'll be different by function, different by geography, different in time. So that's how we expect essentially work to evolve.

And Microsoft is in a strong position to enable this for the enterprise, Nadella believes. He noted that whilst COVID-19 has put immense pressure on many of its customers, as a enterprise supplier with a wide range of services, Microsoft is becoming a critical partner for many. 

So as a tech company with that comprehensive differentiated portfolio all the way from business applications, industry solutions, to infrastructure - that's what you saw this quarter.  But more importantly for me, when I look at the next 10 years of what compute and digital technology will do across industries, that's the opportunity that we are obviously staying very-very focused on and investing in.