The Microsoft stock price has been riding on a cloud lately.
Microsoft Corp.'s (Nasdaq: MSFT) rapidly growing cloud businesses were the main reason the MSFT stock price rose nearly 13% in the two days following a strong Q1 earnings report last month.
Microsoft's cloud-based businesses - Office 365, customer relationship management (CRM), and Azure - all had a monster Q1:
- Office 365 revenue grew 70% in constant currency year over year, while the subscriber base increased nearly 20% from the previous quarter, to 18.2 million.
- Dynamic CRM revenue grew 12% in constant currency, while the user base more than tripled from the same period a year ago.
- Azure revenue grew 135% in constant currency, and usage more than doubled.
Since taking the helm in February 2014, CEO Satya Nadella has pushed a "mobile first, cloud first" strategy that focuses on segments that offer MSFT stock the best chances for growth.
He realized that Microsoft needed to act quickly to offset slowing Windows sales - the result of the relentlessly shrinking PC business.
"I think he is realistic about the role of Windows," Gartner tech analyst David Smith told the Associated Press last month. "[Nadella] is much more focused on cloud computing and other services. That's where the future of the company will be."
And despite the recent successes, Microsoft is not standing still with its cloud businesses. In the weeks since those Q1 earnings, the Redmond, Wash.-based company has announced several initiatives to grow its cloud businesses even faster. And that bodes very well indeed for the future of Microsoft stock.
Two Cloud-Based Catalysts for the Microsoft Stock Price
Just today (Thursday), for example, Microsoft announced a deal with long-time rival Red Hat Inc. (NYSE: RHT), which sells and supports its own version of the open source Linux operating system.
The deal specifies that Microsoft will make Red Hat's Linux the preferred option for enterprise customers using its Azure cloud service.
That gives enterprise customers another reason to buy (or stick with) Microsoft's Azure, which faces tough competition from Amazon.com Inc.'s (Nasdaq: AMZN) Amazon Web Services and Alphabet Inc.'s (formerly Google Inc.) (Nasdaq: GOOGL, GOOG) Google Cloud Platform.
The cooperative effort with Red Hat is a far cry from Microsoft's days under former CEO Steve Ballmer. Back in 2001, Ballmer infamously referred to Linux as a "cancer."
Meanwhile, Nadella is pursuing an even bigger cloud opportunity for Microsoft - his native country of India.
Nadella announced partnerships with three e-commerce companies in India today, integrating such Microsoft technologies as the Cortana voice assistant and Office 365 with their services.
That comes on the heels of an Oct. 11 announcement of an expansion of the Microsoft cloud in India by launching three Azure data centers in addition to bringing Office 353 to India.
Microsoft is smart in emphasizing India in its cloud strategy. When it comes to the Internet, India is the next big growth market after China.
According to a report done by the Internet & Mobile Association of India & KPMG, the number of Internet users in India is expected to grow from 350 million this year to 500 million in 2017. And the number of mobile Internet users, even more likely to use cloud services, is expected to reach 314 million by 2017.
Strategy Analytics says that over the next few years, India will be the only country in the world with double-digit smartphone sales growth as its middle class grows and snaps up the devices.
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Microsoft's cloud strategy is paying dividends now, as we've seen from the boost in the Microsoft stock price. But the efforts to keep expanding its cloud businesses mean this segment will remain a key catalyst for MSFT stock for years to come.
Combined with Microsoft's other efforts, the cloud businesses will help the MSFT stock price move into the low $60s by the middle of 2016.
The Microsoft stock price was flat, hovering near $54.40 in mid-day trading Thursday.
Follow me on Twitter @DavidGZeiler.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.