Microsoft Changes Reporting Structure to Give Insight into Cloud Consumption Revenue

On Wednesday, Microsoft made an update to its quarterly revenue guidance related to its three business segments.

This change is aimed at providing investors better insight into the growing cloud infrastructure business of the software maker.

The Changes

The Productivity and Business Processes segment is the first one that the company plans on bulking up. It comprises of Office productivity software subscriptions

These have been included with services that were a part of the Intelligent Cloud unit for years, which is known to boast Azure.

Windows commercial products and cloud services will also become a part of the Productivity and Business Processes segment.

Previously, these had been a part of the More Personal Computing segment that comprises of cloud-based Windows tools and Windows operating systems’ volume licensing.

Azure and other cloud services had been a closely monitored metric and their growth has been tracked on a year-over-year basis.

However, Microsoft has decided to remove certain products from this metric. These include the Enterprise Mobility and Security group of products and also the Power BI analytics tool.

In a presentation to investors in which Microsoft summarized the changes. The company said that with removal of these two products, Azure would now align closely with their consumption business.

The Impact

Nonetheless, it should be noted that Microsoft plans to add revenue from its news advertising and search category into Azure and other cloud services.

Before this, the said category had been under More Personal Computing.

The company added that under the new definition it has decided to use for Azure and other cloud services, there will likely be a growth in revenue.

As a matter of fact, it clarified that it believes there will be about 33% growth in revenue for the fiscal first quarter.

But, this would be a slight decline from the fiscal fourth quarter. Following the previous Azure definition, there had been a growth of 28% to 29% recorded in late July.

Historically, Azure and other cloud services have recorded growth due to consumption instead of the per-user-tools.

Financial Reporting Methods

While Amazon does not have an issue in reporting revenue of Amazon Web Services. Microsoft does not use the same reporting method.

In fact, it has opted to use a per-user pieces method, which has made it quite difficult to make comparisons.

Microsoft also added that it would also add some revenue to Productivity and Business Processes from its acquisition of Nuance Communications in 2022.

This has been categorized under Intelligent Cloud until now. In addition, in every quarter, the company intends to reveal a combined growth rate for Windows and devices.

It is due to the fact that both of these are PC-oriented, so it does not make sense to do it individually. A new metric will be added to the Productivity and Business Processes segment.

This one will be named Microsoft 365 Commercial and will comprise of revenue from Office commercial products. Power BI, cloud services, Windows commercial products and cloud services and Enterprise Mobility and Security.

Microsoft stated that the changes were introduced to help manage business in a better way.