But No New Numbers for Office 365 and Teams Users in Microsoft FY24 Q4 Results

As has become the norm, Microsoft delivered another solid set of quarterly results (FY24 Q4) on July 30. 2024. The headline number was the $36.8 billion for Microsoft Cloud, a 21% growth year-over-year equating to an extra $6.5 billion earned in FY24 Q4 compared to the same quarter the previous year. The annualized run rate for Microsoft Cloud is now $147.2 billion. The gross margin for Microsoft Cloud decreased two points to 69% but Microsoft expects it to go back up in the current quarter.

Also following its norm, Microsoft successfully obscured the numbers for segments like Teams (no updated number provided, so the official number remains at 320 million monthly active users claimed in October 2023). Teams Premium now has 3 million users, or less than 1% of the total Teams installed base. Microsoft said that the seat growth was up 400% year-over-year, proving once again that impressive growth figures are always possible from a low base.

Office 365 Numbers and Growth

Amy Hood said that Office 365 commercial seats grew 7% year-over-year, but this isn’t helpful without a base number to compare it against. The last we heard was the “over 400 million paid seats” cited in January 2024 or the 382 million number given in April 2023. Possibly the unwillingness to share precise numbers is to disguise a slowdown in new user acquisition over the last year or so. Office 365 Commercial revenue increased 13% (14% in constant currency). The same level of growth is expected to continue in Q1.

More impressively, Enterprise Mobility and Security now has 281 million paid seats. That’s an increase of 13 million over two quarters. Another number is that Power Platform now has 48 million monthly active users. I assume most of these people are Office 365 users. If so, has Power Platform really reached 12% of the Office 365 base? I guess it’s possible and Microsoft is certainly doing all that it can to encourage more use, such as retiring the Office 365 connectors in favor of workflows.

GitHub Everywhere

The Transcript of the call with market analysts illustrates Microsoft’s intention to discuss Copilot and AI at every opportunity and the continued fascination in the market about whether the huge investment in datacenter capacity will ever generate a return. CFO Amy Hood said that Microsoft spent $19 billion on capital expenditure during the quarter, almost all of it related to Cloud and AI. The spend breaks down roughly 50/50 between infrastructure and servers. In a response to a later question, Satya Nadella said that “the kit” for a datacenter represented about 60% of the total spend. Either way, Microsoft is spending heavily to support Cloud and AI.

Microsoft reported that the number of customers using Copilot for Microsoft 365 grew 60% quarter over quarter. Microsoft also said that the number of customers with over 10,000 Copilot for Microsoft 365 seats doubled quarter over quarter. However, in neither case did they give a firm number, preferring instead to mention some marquee names, such as the decision by EY to deploy Copilot for Microsoft 365 to 150,000 seats.

Given the huge marketing effort by Microsoft to push Copilot for Microsoft 365, it’s unsurprising to see substantial customer interest in the product. Everyone is curious about how generative AI can help people do their job smarter and better, so many tests are ongoing. One thing I hear time after time is the difficulty of measuring saved time or better outcomes, plus how to assess if people use saved time in a productive manner. After all, being able to save five minutes to draft and send an email isn’t much good if the time saved is devoted to non-essential tasks.

Satya Nadella said that GitHub Copilot used by more than 77,000 organizations (up 180% year over year). GitHub Copilot now represents 40% of GitHub Revenue. By itself, GitHub Copilot is larger in revenue terms than the entire GitHub was when Microsoft bought it. I don’t think this is surprising. I use GitHub Copilot with Microsoft 365 PowerShell every day and consider it to be an absolute bargain for what it delivers. Even though it is capable of creating some odd code, GitHub Copilot is a great example of how AI can be very effective when given limited goals.

New Fiscal Year, Continued Growth

It seems clear that the Microsoft Cloud will continue to grow revenue during Microsoft’s 2025 fiscal year. The growth probably won’t come from vast quantities of new Office 365 users. Instead, it will come from convincing customers to upgrade to more expensive licenses (like Office 365 E3 to E5), premium licenses, and AI.

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