uploads/2015/02/commercial.png

How has Microsoft’s Commercial segment performed?

By

Updated

Cloud offering sees triple-digit growth

Microsoft’s (MSFT) Commercial segment caters to the business and enterprise space. It is composed of Licensing and Other, where Licensing involves volume licensing, Windows Server, and Office. Other refers to the cloud-based services. Amazon (AMZN) and Google (GOOG) (GOOGL) are leading players in the cloud space.

In 2Q15, total revenue for the commercial segment grew 5% to $13.27 billion. The segment’s gross margin stood at $10.83 billion, an increase of 3% and 9% on a year-over-year (or YoY) basis and over the prior quarter, respectively. Licensing revenue stood at $10.68 billion, a drop of 2% on a year-over-year basis, owing to a 13% decline in Office commercial sales, a 7% increase in Server product revenue, and a 3% increase in Windows volume licensing.

Article continues below advertisement

You can consider exposure to Microsoft through the Powershares QQQ Trust (QQQ) or the Technology Select Sector SPDR Fund (XLK). Microsoft makes up about 8.00% and 9.61% of these ETFs, respectively.

Good growth for Office 365 and cloud offerings

Other revenue grew by 46% to $2.59 billion. Microsoft’s Commercial Cloud offerings—Office 365, Azure, and Dynamic CRM Online—all showed increased demand that led Commercial Cloud revenues to soar by 114%. Strong sales of Office 365 Business largely drove this gain. This 114% triple-digit growth is the sixth consecutive quarter growth of the segment to reach an annualized revenue run rate of $5.5 billion.

Lower transactional revenue impacted Office Commercial, due to the Windows XP refresh, transition toward Office 365, and weakness in Russia and Asian economies such as China and Japan.

Advertisement

More From Market Realist