Microsoft (NASDAQ:MSFT) posted its fourth-quarter earnings on July 27. Its revenue rose 21% year-over-year to $46.2 billion, clearing expectations by $1.9 billion, as its earnings jumped 49% to $2.17 per share and beat estimates by $0.25. Its commercial cloud revenue -- which mainly comes from Microsoft 365 (formerly Office 365), LinkedIn, Dynamics CRM, and its cloud infrastructure platform Azure -- increased 36% year-over-year to $19.5 billion.

That marked an acceleration from the commercial cloud segment's 33% growth in the third quarter, but Azure's 45% year-over-year constant currency revenue growth actually decelerated from its 46% growth in the third quarter. But on a reported basis, Azure's revenue still rose 51% -- compared to its 50% growth in the previous quarter -- so it benefited from more favorable currency tailwinds.

Three people with their heads engulfed by "digital" clouds.

Image source: Getty Images.

Azure's growth rates still look robust, but Microsoft's refusal to divulge any additional numbers for the cloud platform is frustrating. Let's discuss three reasons Microsoft should finally pull back that curtain.

1. It's one of Microsoft's most important businesses

Azure is the commercial cloud unit's core growth engine. It consistently grows faster than Microsoft/Office 365 and Dynamics 365, and remains the world's second-largest cloud infrastructure platform after Amazon (NASDAQ:AMZN) Web Services (AWS).

Azure controlled 22% of the global cloud infrastructure market in the second quarter of 2021, according to Canalys. That puts it behind AWS' 31% share, but far ahead of Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Cloud, which ranked third with an 8% share.

Revealing exactly how much revenue and profits Azure is generating would let investors know if Microsoft has pricing power in this competitive market, or if it's merely trading margins for market share.

2. Amazon and Google aren't hiding their cloud numbers

Amazon started reporting AWS' exact revenue and operating profits in 2015. Google followed suit by reporting Google Cloud's exact revenue in 2019, then revealing the unit's operating losses in 2020.

Amazon's AWS revenue rose 30% to $45.4 billion, or 12% of its top line, in 2020. The segment's operating profit increased 47% to $13.5 billion and accounted for 59% of its operating income. In other words, Amazon can subsidize the expansion of its lower-margin retail business with its higher-margin cloud business, which gives it an advantage against other online and brick-and-mortar retailers.

Alphabet's Google Cloud revenue rose 46% to $13.1 billion, or 7% of its top line, in 2020. The unit's operating loss widened from $4.6 billion to $5.6 billion, but Alphabet's total operating income still increased 20% to $41.2 billion. These numbers suggest Google Cloud is offering lower prices than AWS to expand its market share, but it can afford to pursue this loss-leading strategy because it can offset its cloud losses with its higher-margin ad revenue.

With Azure, investors still don't know exactly how much the cloud platform is boosting Microsoft's revenue, or how much it's dragging down its earnings growth.

3. No more vague hints about Azure's margins

Microsoft's management mentions Azure dozens of times during each conference call, but it's only provided a few hints regarding the platform's actual gross margins. During Microsoft's third-quarter conference call in April, CFO Amy Hood said Azure's gross margin was expanding -- but a "sales mix shift to Azure" still weighed down the commercial cloud segment's total gross margin.

During the fourth quarter, Microsoft said its commercial cloud gross margin "increased 4 points to 70% despite revenue mix shift to Azure," and its 14% year-over-year increase in operating expenses was mainly "driven by investments in Azure" -- but we don't know exactly how much it spent.

These vague statements tell us three things about Azure: it generates much lower margins than Microsoft's other commercial cloud businesses, it's offering customers lower rates to keep up with AWS and Google Cloud, and it's constantly expanding with new investments and services.

Providing exact revenue and operating profit figures would clear that air and show investors exactly how much money Microsoft is losing (or possibly making) from one of its fastest-growing businesses.

The key takeaways

Microsoft's former CEO Steve Ballmer urged the company to disclose its cloud revenue, margins, and profits back in late 2015, but his successor, Satya Nadella, didn't comply. Nadella's stance made sense back then, since Microsoft was just starting its "mobile first, cloud first" transition, but it doesn't make much sense today -- especially after Amazon and Google laid all their cards on the table.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.