2 Numbers Microsoft Investors Have a Right to Know

Microsoft's  (MSFT -1.00%) stock recently popped after its latest earnings report beat analysts' expectations. Most of its growth was driven by the expansion of its cloud business, which grew revenue 22% year over year to $28.5 billion and accounted for over half of its top line. But once again, Microsoft obfuscated the finer details of that segment's core growth engine -- the Azure cloud infrastructure platform.

Azure controlled 23% of the global cloud infrastructure market in the fourth quarter of 2022, according to Canalys, putting it in second place after Amazon's (AMZN 0.75%) Amazon Web Services' (AWS) 32% share. Alphabet's (GOOG -3.33%) (GOOGL -3.37%) Google Cloud Platform (GCP) ranked third with 10%.

But unlike Amazon and Google, which report AWS and GCP's revenue and operating profits on a quarterly basis, Microsoft hasn't disclosed either number for Azure yet. Instead, it provides the segment's year-over-year revenue growth rates in reported and constant-currency terms without disclosing any of the underlying numbers.

As a result, it's impossible for investors to clearly gauge Azure's importance -- even though management mentioned Azure more than 40 times during the conference call with analysts. I believe it's finally time for Microsoft to follow Amazon and Google and reveal the exact revenue and operating profits for Azure -- even if they aren't perfect yet.

A lack of detail

Microsoft is selective regarding the financial details of its cloud division. Its aforementioned $28.5 billion in cloud revenues is scattered across its three main business segments -- productivity and business processes, more personal computing, and the intelligent cloud. Azure is housed in the intelligent cloud segment, which generated $22.1 billion in revenue during the first quarter, and bundled with some of its other services in its "Azure and other cloud services" segment.  Here's how that segment, which generates most of its revenue from Azure, fared over the past five fiscal quarters.

Data source: Microsoft. Percentages are year-over-year increases.

The growth in the Azure and other cloud services segment has decelerated over the past year as macroeconomic headwinds forced companies to rein in their spending. But it's still growing at a similar rate as AWS and GCP, which grew their revenue by 29% and 37%, respectively, in 2022.

But without any clearer revenue figures, investors are still relying on leaked information, analysts' best guesses, and third-party estimates to compare Azure to AWS and GCP -- all of which can cause confusion. 

How much money could Azure be making or losing?

According to a Google document reportedly leaked last December, Google used leaked Microsoft information and other numbers to estimate that Azure generated less than $29 billion in revenue in fiscal 2022 (which ended last June) as it racked up an operating loss of $3 billion. By comparison, AWS generated $80 billion in revenue and $23 billion in operating profits in 2022. GCP generated $26 billion in revenue for Alphabet in 2022 while incurring an operating loss of nearly $3 billion.

We should take the leaked estimates with a grain of salt, since they come from a direct competitor, but they imply that Azure isn't as far ahead of GCP as most third-party estimates suggest. They also indicate that Microsoft is still operating Azure at a loss -- which is troubling because AWS is consistently profitable and GCP finally squeezed out an operating profit last quarter.

During Microsoft's latest conference call in late April, CEO Satya Nadella said Azure "took share" from its competitors, but Chief Financial Officer Amy Hood said Azure's "lower margin" slightly reduced Microsoft Cloud's total gross margins. But Hood said Microsoft largely offset that pressure with its "cloud engineering efficiencies," which boosted Microsoft Cloud's total gross margin by about 2 percentage points year over year to 72%.

Microsoft's investors deserve to peek behind the curtain

Back in 2015, former Microsoft CEO Steve Ballmer publicly criticized the company for using opaque growth rates for Azure instead of disclosing its quarterly revenue. Eight years have passed and no change has been made. If Microsoft is serious about expanding Azure as the bedrock of its growing AI ecosystem, then investors deserve to know its exact revenue and operating profits so they can see how the platform actually stacks up against AWS and GCP.