Microsoft reported a lot of good news with its earnings on Thursday, sending its stock to all-time highs.
For instance, it said revenue for its Productivity and Business Processes unit grew 6% (up 8% in constant currency) to $6.7 billion.
Most of that is from Office 365. Microsoft says that revenue from the consumer versions of Office 365 alone grew by $24 million. It doesn’t report the revenue of the Office 365 it sells to businesses, which is, presumably a lot more, but did say that it grew by 51%.
However, Microsoft also credited the unit’s good quarter to its Dynamics products. This is the software that competes with the likes of Salesforce, Oracle and SAP.
It includes software that helps salespeople manage their interactions with prospects and customers (known as customer resource management software, or CRM), which is Salesforce’s bread-and-butter. It also includes the financial apps (known as enterprise resource planning, or ERP), which is SAP’s bread-and-butter, and a big deal for Oracle, too, as well as Workday.
Dynamics products and cloud services revenue grew 11%, or 13% in constant currency, when allowing for the foreign exchange rate, Microsoft says.
The online version, Dynamics CRM Online, grew paid seats by more than 2.5 times.
And Microsoft says that “more than 70% of Dynamics CRM and ERP enterprise customer adds chose Dynamics online.” That basically means that most of its sales went to the online product instead of the old-fashioned software product, which is what anyone would expect in this age of cloud computing software.
These numbers are, of course, cherry-picked and don’t tell investors exactly what Dynamics actual revenue is, or even its actual number of users.
However, these are high-margins products and their growth are a good thing for Microsoft CEO Satya Nadella who has bet the company on the likes of commercial cloud products like these. This unit will eventually enfold LinkedIn when Microsoft completes its $26.2 billion acquisition of the company, expected by the year’s end.
That acquisition, and the increasing competition of the Dynamics products, has all but killed Microsoft’s and Salesforce’s short-lived love affair. The two companies are now pretty much at each other’s throats, even though they are still working to make some of their products play nicely together.
Some analysts are impressed. USB’s Brent Thill (who rates the stock a “buy”) says in a research note: “The commercial cloud business continues to impress, now at a >$13Bn revenue run rate, and remains on pace for management’s stated goal of $20Bn in FY18.” He thinks the stock will soar even higher, to $64 a share.
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