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It's Past Time for Microsoft to Disclose Azure Details

It's been over five years since Amazon.com (NASDAQ: AMZN) started disclosing detailed results for Amazon Web Services (AWS). The cloud infrastructure business was simply becoming too important to the company's overall results, particularly given AWS is far more profitable than the core e-commerce business. Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) began reporting Google Cloud revenue for the first time earlier this year and is preparing to give investors even more information.

It's Microsoft's (NASDAQ: MSFT) turn to follow suit with how it reports Azure results.

Alphabet is about to give more detail around Google Cloud. Image source: Google.

Breaking out Google Cloud

When Alphabet reported third-quarter earnings last week, CEO Sundar Pichai said that the tech giant will start breaking out Google Cloud results as a separate reporting segment starting in Q4.

"Given the progress we are making and the opportunity for Google Cloud in this growing global market, we continue to invest aggressively to build our go-to-market capabilities, execute against our product road map, and extend the global footprint of our infrastructure," Pichai commented on the conference call with analysts. "With this segmentation, you'll additionally see information about the scale of our investments, which should help you gauge the progress we are making on the multiyear path ahead to create sustainable value."

CFO Ruth Porat added that Alphabet will provide Google Cloud data for the past three years, as well as operating income so investors can gauge the profitability of that segment as the company invests heavily in future growth. Those investments will include capital expenditures for hardware infrastructure and hiring activity -- Google Cloud represents the "largest headcount additions," according to regulatory filings.

Here's how AWS and Google Cloud stack up currently.

Q3 2020 Metric

AWS

Google Cloud

Revenue

$11.6 billion

$3.4 billion

Year-over-year growth

29%

45%

% of total revenue

12%

7%

Data source: SEC filings.

Amazon also discloses AWS operating income, which was $3.5 billion last quarter, good for a 30% operating margin and representing nearly 60% of consolidated operating income. Investors will soon receive similar information for Google Cloud profitability.

Your move, Microsoft

Unlike its peers, Microsoft obfuscates many details around its Azure segment, which is also becoming increasingly important to the overall bottom line. The enterprise software behemoth only provides investors with Azure revenue growth rates (48% last quarter), but that figure isn't all that relevant without more context of what the revenue base is in dollar terms. Azure's growth has been naturally decelerating in recent quarters as the business gets larger.

Azure is part of Microsoft's larger Intelligent Cloud segment, which generated $13 billion in revenue last quarter. Intelligent Cloud also includes offerings like SQL Server, GitHub, and other enterprise services.

Investors have been calling on Microsoft to provide greater transparency around Azure for years. The company has resisted thus far, but it's well past time for Microsoft to open its cloud computing books.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.


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