Microsoft has revealed a rare number in its earnings announcement: the gross margins on its all-important commercial cloud computing business for the previous quarter: 49%, up from 42% the quarter before.
The “commercial cloud gross margin percentage” measures the gross margin on the company’s business-focused cloud products, including Microsoft Azure, Office 365, and Dynamics.
Microsoft has revealed it from time-to-time before, but it has now committed to reporting it quarterly. That’s a concession of sorts to Microsoft’s investors, notably former CEO Steve Ballmer, who have been calling for more transparency from the company when it comes to its cloud-computing revenue — especially given that Satya Nadella, the current CEO, has pegged so much of the company’s future on strong cloud growth.
Microsoft is known for cherry-picking its cloud numbers, disclosing information about users, usage, revenue, or margins for some cloud services but not others.
Cloud computing, where customers pay on an ongoing basis for subscription services delivered over the internet, can be a high-margin business, but it also requires a ton of investment into data centres and infrastructure to make sure it can meet demand all over the world. In other words, having a ton of customers doesn’t always translate to profitability.
So the fact that gross margins are improving, in line with predictions made by Microsoft CFO Amy Hood back in July, is a positive sign that all the cash the company is dropping on data centres was a wise long-term investment. With Microsoft betting big on the cloud, happier margins means happier investors, and if this trend continues, investors will be very happy, indeed.
Still, many Microsoft-watchers are pushing for the company to be even more transparent and reveal actual revenue figures for the segment. This is a small step in that direction, but an important one.