Microsoft adjusts Azure cloud department structure and correspondingly lowers revenue growth expectations

Microsoft suddenly announced an adjustment to its business department structure overnight, updating the revenue outlook of the corresponding departments to reflect this change. Specifically, it raised the revenue outlook for productivity and business processes while lowering the revenue outlook for intelligent cloud.

In the announcement, Microsoft stated:

The revenue of Microsoft 365 commercial components (Office commercial products and cloud services, Power BI, Enterprise Mobility & Security, and Windows commercial products and cloud services) will be consolidated into its Productivity and Business Processes department;

It is worth noting that Office commercial products and cloud services, Power BI, and Enterprise Mobility & Security were previously part of the Azure intelligent cloud business, while Windows commercial products and cloud services were previously part of the More Personal Computing department.

The revenue of Copilot Pro AI productivity tool will be transferred to its More Personal Computing department, which includes search and news advertising business.

The revenue from the acquisition of Nuance Enterprise in 2022 will be transferred from the Intelligent Cloud department to the Productivity and Business Processes department, and the revenue from Windows and devices will be reported together.

Microsoft pointed out that the new Azure business after the adjustment is "now closer to consumer business," reflecting more transparently the active use of computing and storage services by commercial customers in Azure.

William Blair analyst Jason Ader said:

Investors can now see the actual situation of the Azure business more clearly, as Microsoft has removed the part billed by users from the calculation of Azure's growth rate. In the past, Azure's growth numbers included the growth in the number of users, which could make it difficult for investors to distinguish between actual consumption growth and the impact of user growth on the business.

With so much content included in the Productivity and Business Processes segment, Microsoft may make it more difficult for investors to understand the health of core business subscriptions for Office productivity software. Investors are "slightly concerned" about the slowdown in growth.

With the business adjustment, Microsoft also updated the performance outlook for the first quarter of the 2025 fiscal year for the reorganized departments.

The expanded Productivity and Business Processes department is expected to have revenue between $27.75 billion and $28.05 billion, higher than the previous forecast of $20.3 billion to $20.6 billion.

The revenue of the Intelligent Cloud department is expected to be between $23.8 billion and $24.1 billion, lower than the previous outlook of $28.6 billion to $28.9 billion.

The revenue of the More Personal Computing department is expected to be between $12.25 billion and $12.65 billion, compared to the previous expectation of $14.9 billion to $15.3 billion However, Microsoft still expects full-year revenue to be around $64.3 billion. The company anticipates no changes in revenue costs, operating expenses, other income and expenses, or tax rates