Among the three biggest public cloud vendors, only Amazon provides revenue and operating income for AWS while Microsoft and Google (Alphabet) have refrained from doing the same. Alphabet (Google) will pull the curtain a little bit on the state of GCP in their imminent earnings call, but Microsoft hasn’t, even in the latest call last week. While it’s highly challenging to put a precise figure on the revenue from Azure without official disclosures, I think that by digging into their financial documents, we can have a pretty good idea of what it may be and as importantly, what it canNOT be.
If you read Microsoft’s financial filings, it can give you a headache trying to work out what all the buckets and segments mean and what goes into where. First, you can look at the business from a 4000-foot perspective into Products and Services. On a deeper level, there are three big segments: 1/ Productivity and Business Processes, 2/ Intelligent Cloud and 3/ More Personal Computing. Under each segment, there are different metrics which combine different products and services whose financial figures aren’t reported. According to Microsoft’s disclosures, Azure revenue falls into the bucket called “Server Products and Cloud Services”, as you can see in the screenshot below. Since Microsoft refuses to offer specific numbers on Azure, what we can do is to estimate it through Server Products and Cloud Services, whose numbers Microsoft does reveal.
Here is what Microsoft did say on Server Products and Cloud Services (SPCS) on their latest 10Q:
Server products and cloud services revenue increased $2.6 billion or 26%, driven by Azure. Azure revenue grew 50%, due to growth in our consumption-based services. Server products revenue increased 4%, driven by hybrid and premium solutions, offset in part by continued transactional weakness, on a strong prior year comparable that benefited from demand related to Windows Server 2008 end of support.
Source: Microsoft
Based on the disclosure and the composition of SPCS, we can be sure that Azure’s YoY revenue growth in the last quarter cannot be bigger than $2.6 billion. This insight can help us put a maximum limit on what Azure cannot exceed. Let’s assume that all the growth in SPCS is down to Azure and all the other products and services didn’t grow at all, meaning that Azure grew by $2.6 billion in Q2 FY2021. Because Microsoft said that Azure grew by 50%, that means its revenue in Q2 FY 2020 would have been $5.2 billion. As a result, Q2 FY2021 revenue would be $7.8 billion. Using the same logic, let’s go back to a few quarters and see what it would look like.
| 1Q2019 | 2Q2019 | 3Q2019 | 4Q2019 | 1Q2020 | 2Q2020 | 3Q2020 | 4Q2020 | 1Q2021 | 2Q2021 | |
| SPCS YoY Revenue Increase | $ 1,562 | $ 1,492 | $ 1,710 | $ 1,729 | $ 2,134 | $ 2,328 | $ 2,437 | $ 1,858 | $ 2,003 | $ 2,610 |
| Azure Revenue Growth (100% of SPCS growth) | $ 1,562 | $ 1,492 | $ 1,710 | $ 1,729 | $ 2,134 | $ 2,328 | $ 2,437 | $ 1,858 | $ 2,003 | $ 2,610 |
| Azure Revenue YoY Growth | 76% | 76% | 73% | 64% | 59% | 62% | 59% | 47% | 48% | 50% |
| Revenue Base | $ 3,617 | $ 3,755 | $ 4,131 | $ 3,953 | $ 4,173 | $ 5,220 | ||||
| Quarterly Revenue | $ 3,617 | $ 3,755 | $ 4,131 | $ 3,953 | $ 4,173 | $ 5,220 | $ 6,568 | $ 5,811 | $ 6,176 | $ 7,830 |
| 4-quarter revenue (annual run rate) | $ 15,455 | $ 16,011 | $ 17,477 | $ 19,914 | $ 21,772 | $ 23,775 | $ 26,385 |
The first row is the revenue growth in absolute numbers every quarter of SPCS that Microsoft revealed. In this line of logic, we assume that is also the growth of Azure. Microsoft also revealed the YoY growth rate of Azure on the 3rd row. Based on the absolute numbers that we assume and the YoY growth rate, we can calculate the revenue base. For instance, the revenue base in Q2 FY2020 of $5.2 billion would be equal to $2.6 billion divided by 50% and the revenue base in Q1 FY2020 would be equal to $2 billion divided by 48%. To arrive at the estimated quarterly revenue of the last four quarter, we add the revenue base and the increase that we assumed accordingly. For instance, the $6.6 billion in Q32020 would be the sum of $4.1 billion in Q3 FY2019 and the $2.4 billion increase. Based on that logic, the absolute maximum revenue Azure could achieve in Q2 FY2021 would be $7.8 billion. If we do a quick calculation of 4-quarter revenue or what they call run-rate, the absolute maximum Azure could generate in 4 quarters would be $26.4 billion.
But since this scenario is impossible as the other components under SPCS do generate revenue growth every quarter, Azure’s run rate as of Q2 FY2021 has to be less than $26.4 billion. What would it look like if Azure’s growth was responsible for 95% of SPCS’ growth every quarter?
| 1Q2019 | 2Q2019 | 3Q2019 | 4Q2019 | 1Q2020 | 2Q2020 | 3Q2020 | 4Q2020 | 1Q2021 | 2Q2021 | |
| SPCS YoY Revenue Increase | $ 1,562 | $ 1,492 | $ 1,710 | $ 1,729 | $ 2,134 | $ 2,328 | $ 2,437 | $ 1,858 | $ 2,003 | $ 2,610 |
| Azure Revenue Growth (if 95% of SPCS growth) | $ 1,484 | $ 1,417 | $ 1,625 | $ 1,643 | $ 2,027 | $ 2,212 | $ 2,315 | $ 1,765 | $ 1,903 | $ 2,480 |
| Azure Revenue YoY Growth | 76% | 76% | 73% | 64% | 59% | 62% | 59% | 47% | 48% | 50% |
| Revenue Base | $ 3,436 | $ 3,567 | $ 3,924 | $ 3,756 | $ 3,964 | $ 4,959 | ||||
| Quarterly Revenue | $ 3,436 | $ 3,567 | $ 3,924 | $ 3,756 | $ 3,964 | $ 4,959 | $ 6,239 | $ 5,521 | $ 5,867 | $ 7,439 |
| 4-quarter revenue (annual run rate) | $ 14,683 | $ 15,211 | $ 16,603 | $ 18,918 | $ 20,683 | $ 22,586 | $ 25,065 |
Based on this assumption, the annual run-rate of Azure as of Q2 FY2021 would be $25 billion and the growth of SQL Server, Windows Server, Visual Studio, System Center, and related CALs; and GitHub combined would be around $130 million. Lacking visibility into these products and services, I cannot say if that increase in revenue for a quarter is reasonable. What about if Azure was responsible for 90% of SPCS’ revenue growth every quarter?
| 1Q2019 | 2Q2019 | 3Q2019 | 4Q2019 | 1Q2020 | 2Q2020 | 3Q2020 | 4Q2020 | 1Q2021 | 2Q2021 | |
| SPCS YoY Revenue Increase | $ 1,562 | $ 1,492 | $ 1,710 | $ 1,729 | $ 2,134 | $ 2,328 | $ 2,437 | $ 1,858 | $ 2,003 | $ 2,610 |
| Azure Revenue Growth (if 90% of SPCS growth) | $ 1,406 | $ 1,343 | $ 1,539 | $ 1,556 | $ 1,921 | $ 2,095 | $ 2,193 | $ 1,672 | $ 1,803 | $ 2,349 |
| Azure Revenue YoY Growth | 76% | 76% | 73% | 64% | 59% | 62% | 59% | 47% | 48% | 50% |
| Revenue Base | $ 3,255 | $ 3,379 | $ 3,717 | $ 3,558 | $ 3,756 | $ 4,698 | ||||
| Quarterly Revenue | $ 3,255 | $ 3,379 | $ 3,717 | $ 3,558 | $ 3,756 | $ 4,698 | $ 5,911 | $ 5,230 | $ 5,558 | $ 7,047 |
| 4-quarter revenue (annual run rate) | $ 13,910 | $ 14,410 | $ 15,729 | $ 17,922 | $ 19,594 | $ 21,397 | $ 23,746 |
Under this scenario, Azure’s run rate would be $23.7 billion and all the other products under SPCS would contribute around $260 million in revenue growth in the last quarter. For the same reason stated above, I am unable to say if the latter figure is correct, but you can use the same rationale and play around with assumptions to get an estimate of how big Azure can be.
In the Q1 FY2021 earnings call, an analyst commented that Azure revenue made up 17% of Microsoft’s total revenue; which the Executives didn’t comment on:
If that estimate is true, this will be Azure’s quarterly revenue
| 1Q2019 | 2Q2019 | 3Q2019 | 4Q2019 | 1Q2020 | 2Q2020 | 3Q2020 | 4Q2020 | 1Q2021 | 2Q2021 | |
| Total Revenue | $ 29,084 | $ 32,471 | $ 30,571 | $ 33,717 | $ 33,055 | $ 36,906 | $ 35,021 | $ 38,033 | $ 37,153 | $ 43,076 |
| Azure Revenue (17% of total revenue) | $ 4,653 | $ 5,195 | $ 4,891 | $ 5,395 | $ 5,289 | $ 5,905 | $ 5,603 | $ 6,085 | $ 5,944 | $ 6,892 |
The number in Q1 FY2021 ($5.9 billion) isn’t so far off what we had in the 95% scenario above. While nobody, except the people at Microsoft, can say for sure what Azure revenue is, I think it’s fairly likely that its run rate is about $25 billion as of Q2 FY2021.
Disclaimer: I own Microsoft stocks in my portfolio.
Minh Quang Duong 
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