Microsoft's earnings today gave plenty of reasons for both bulls and bears to take heart, after a mixed quarter that beat Wall Street expectations — but also saw the impact of a $2.1 billion operating loss factored in from the Nokia writeoff.
Buried deep inside Microsoft's financials however are two stats that bode very well for the company's future, as it shifts towards squeezing more value out of each customer.
Microsoft's off-balance-sheet revenues under contract reached an all time high of $24.5 billion, Microsoft Director of Investor Relations Todd McCommon told Business Insider.
"Off-balance sheet revenues" is the industry term for recurring revenue that's under contract, but not yet billed. It represents long-term commitments that enterprises are making with Microsoft, and a guarantee of future revenue. And so, it means that Microsoft has $24.5 billion basically locked down, but that hasn't been delivered yet.
It seems likely that Microsoft Office 365, the company's cloud-delivered, subscription-based productivity suite, is driving a significant portion of Microsoft's off-balance sheet revenues.
"Office 365 allows us to have a deeper relationship with all of our customers over time," Microsoft CFO Amy Hood said on a conference call today.
Microsoft Office 365 is the biggest revenue driver of the company's enterprise cloud offerings. And it's growing fast: Microsoft reported today that consumer version of Office 365 has added 3 million subscribers in the last quarter, bringing it to 15.2 million users total.
But Microsoft won't break out the revenue numbers for the commercial version of Office 365 (the one driving that $24.5 billion number), or its other big commercial cloud product, Azure, where customers can swipe a credit card and get access to basically unlimited supercomputing power.
On a conference call with analysts today, Microsoft CEO Satya Nadella repeatedly called out both Office 365 and Azure's strong growth in the enterprise.
Last quarter, he told Wall Street analysts that Office 365 has about 50 million employees using it, across all the companies that have signed up. On Tuesday, he said that Office 365 is "in four out of five Fortune 500 enterprises" and about half of them are using add-on "premium" services with it.
However, that $24.5 billion number also includes all kinds of other software that businesses buy from Microsoft as part of their long-term enterprise agreements: database software; Windows Server; development tools; its Salesforce competitor Dynamics.
As far as its cloud, Microsoft shared another happy growth statistic: The company's "annualized run rate," or ARR. That's a number that projects that if things kept going the way they are going, this is how much revenue Microsoft would make on a product over 12 months.
Commercial cloud ARR (the Microsoft division that covers cloud services sold to businesses, which includes Office 365, Azure and Dynamics) is at $8 billion, up from $6.3 billion last quarter, and $5.5 billion the quarter before.
Microsoft won't say how much of that growth is due to Azure. But the company did say that Azure revenue doubled, and CPU usage also doubled, meaning more companies are buying Azure, straight up. Microsoft salespeople have been giving customers free Azure credits so they can kick the tires and see how it works, and it seems to have been paying off.
As of the spring, numbers leaked to Business Insider showed Azure US revenue at $1 billion since 2011.
All in all, it points towards Microsoft successfully shifting towards a model where customers keep paying a little bit of money at a time, rather than a lot all at once. It's painful for anybody watching the still-shrinking numbers of its legacy Windows and Office businesses, but the idea is that Microsoft will eventually reap big rewards.
Then again, for the bears: as expected, the company posted a big loss, thanks to that enormous write-down from its Nokia acquisition. And with PC sales declining and the success of the forthcoming Windows 10 still an unknown, the company isn't out of the woods yet.
