How important is the intelligent cloud segment to Microsoft’s stock?

Microsoft (NASDAQ: MSFT) The Intelligent Cloud business is expected to contribute $41.9 billion to Microsoft’s revenue in 2020 (ending June 2020), or 31.2% of Microsoft’s $290.4 billion in expected revenue for the year. More Personal Computing and Productivity & Business Processes segments are expected to contribute 35.1% and 33.7% of total revenue, respectively, making the relative contribution of the 3 reporting segments to Microsoft revenue nearly identical . Notably, Microsoft is expected to generate $37.8 billion in revenue between 2017 and 2020, of which the Intelligent Cloud segment is expected to provide $14.5 billion, or 38.3% of the total expected increase. In fact, it’s strong revenue growth in Microsoft’s Intelligent Cloud segment that’s primarily responsible for the tech giant’s 200% stock jump since 2017. While the segment has considerable growth potential, its profit margins higher have released considerable value in recent years. year. We discuss Microsoft’s valuation analysis in its entirety, separately.

Below, we discuss Microsoft’s business model, followed by sections that review past performance and 2020 expectations for Microsoft’s revenue drivers and competitive comparisons of its revenue with Apple and Oracle. You can check out our interactive dashboard analysis~ Microsoft Revenue: How Does Microsoft Make Money? ~ for details.

Microsoft business model

What Microsoft offers:

• Microsoft is a technology company that makes money from the sale of software and hardware for individuals and businesses.
• Their products include operating systems; cross-device productivity apps; server applications; business solution applications; desktop and server management tools; software development tools; and video games.
• They also design, manufacture and sell devices, including PCs, tablets, gaming and entertainment consoles, other smart devices and related accessories.

Has 3 main operating segments:

• More personal computing: Segment revenue is derived from the sale of operating systems, devices, game offerings and search products.
• smart cloud: Segment revenue is derived from the sale of public, private and hybrid server products and associated cloud services.
• Productivity and business process: Segment revenue comes from the sale of Office subscriptions, revenue from LinkedIn, and Microsoft’s on-premises and cloud (Dynamics 365) enterprise solutions (including CRM and ERP).

What are the alternatives ?

Microsoft competes with:

• Apple and the open source players in office productivity and operating systems
• Amazon, Google and IBM in the cloud
• Amazon and Google looking
• Electronic Arts, Activision Blizzard and Google in-game
• Oracle, SAP and Amazon in databases and business systems.

What is the basis of competition?

• The industry is changing rapidly and companies compete on the basis of change and disruptive technologies and frequent introductions of new products and services. The ability to remain competitive in the market depends on the company’s success in manufacturing innovative products, devices and services that appeal to businesses and consumers.

Details on how Microsoft’s revenue shifts in recent years compare to rivals Apple and Oracle are available in our interactive dashboard.

• Total income grew from $96.6 billion in 2017 to $125.8 billion in 2019, driven primarily by the Cloud and Business Process segment. Trefis expects further growth of around 6.7% and revenue to reach $134.3 billion in 2020 (end June 2020).
• More personal computing The segment saw revenue grow from $39.3 billion in 2017 to $45.7 billion in 2019. Trefis expects further growth of around 3.2% and revenue to reach $47.2 billion in 2020.
• smart cloud segment saw the largest increase in absolute and percentage terms among Microsoft’s segments. Segment revenue grew from $27.4 billion in 2017 to $39 billion in 2019. Trefis estimates growth of approximately 7.4% in 2020, with segment revenue reaching $41.9 billion. dollars.
• Productivity and business process segment revenues have also been growing at a high rate over the past few years. It grew from $29.9 billion in 2017 to $41.2 billion in 2019. Trefis expects further growth of around 10% and revenue to reach $45.3 billion in 2020.

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