Microsoft (NASDAQ:MSFT) CEO Satya Nadella had much to say during the company's fourth-quarter earnings call as executives talked with analysts about what was a tough quarter overall for the software giant. Despite posting better-than-expected adjusted earnings, shares fell as Microsoft incurred a large loss on the writedown of its handset unit. During the call, Nadella touched on several key factors currently affecting Microsoft's business. Below are five of the most important quotes from that July 21 call.
Commercial cloud continues to grow
Microsoft is in the midst of a transformation. Its business centers more and more around subscriptions to cloud services, including Office 365, Azure, and Dynamics CRM. During the call, Nadella highlighted the continued demand it's seeing among enterprise users, and reiterated Microsoft's long-term goal.
In cloud ... our annualized commercial cloud run rate surpassed $8 billion this quarter, and the revenue grew 88% year over year. We are on a strong trajectory toward our goal of $20 billion in fiscal year 2018.
Microsoft has a new Office bundle aimed at enterprise customers
One of Microsoft's most interesting cloud services is Office 365, a subscription-based alternative to its established, popular productivity suite. Since its debut, Office 365 has functioned almost identically to its more traditional alternative. But earlier this month, Microsoft announced E5, an enhanced version of Office 365 aimed specifically at business users. During the call, Nadella detailed some of the additional functionality E5 offers, and highlighted its potential.
Now our customers will get rich new voice functionality in Skype for Business with Cloud PBX and PSTN Conferencing, deep analytics with Delve analytics and Power BI Pro, and advanced security features such as Lockbox and advanced threat protection. With E5, we have expanded our market opportunity for Office 365 by more than $50 billion. This new E5 SKU and the launch of Office 2016 will drive one of the biggest new businesses for us.
Demand for Microsoft's CRM software is surging
Another of Microsoft's cloud services, Dynamics CRM, competes with offerings from salesforce.com. Microsoft was widely rumored to be considering a purchase of salesforce earlier this year. Although it never came to fruition, those reports may have cast doubt on the performance of its own product. Yet that doesn't appear to be the case: During the call, Nadella drew attention to Dynamics CRM and the growth it enjoyed last quarter.
This quarter, total paid seats for Dynamics CRM online increased 140% year over year, and we have more than 8 million paid Dynamics seats across CRM [customer relationship management] and ERP [enterprise resource planning] in total, up 25% year over year.
Microsoft is optimistic about Windows 10
Microsoft's Windows-related revenue has been contracting in recent quarters (down 22% on an annual basis in the fourth quarter) as sales of traditional PCs continue to decline. Microsoft hopes that the next version of its operating system, Windows 10, will change that. During the call, Nadella offered up Microsoft's goals and expectations for its Windows ecosystem.
I am thrilled we are just days away from the start of Windows 10. It's the first step toward our goal of 1 billion Windows 10 active devices in the fiscal year 2018. Our aspiration with Windows 10 is to move people from needing to choosing to loving Windows. ... While the PC ecosystem has been under pressure recently, I do believe that Windows 10 will broaden our economic opportunity and return Windows to growth.
Bing should be profitable next year
For years, Microsoft's search engine, Bing, has been a source of red ink for the company and a lightning rod for criticism. Hedge fund manager David Einhorn once suggested that Microsoft sell it. Estimates pegged its cost at around $3 billion per year. Nevertheless, Microsoft has remained unwavering in its commitment to Bing. During the call, Nadella suggested that Microsoft's commitment to search may finally pay off.
In search, Bing will now power both differentiated experiences on Windows 10 such as Cortana as well as search and search advertising across [various partner firms]. With advertising revenue growth of 21% year over year, Bing will transition to profitability in the coming fiscal year.