Nadella Puts Microsoft Teams at Center of Earnings Call

Microsoft released its first quarter earnings on Tuesday afternoon, reporting revenues of $37.2 billion and earnings of $1.82 per share. The company beat analyst expectations on the back of strong cloud growth.

However, the centerpiece of the Satya Nadella-led earnings call on Tuesday evening was the Microsoft Teams collaboration platform, which keeps surging to new highs due to COVID-19-related remote work.

Microsoft Teams now has 115 million daily active users (DAU), Nadella told analysts during the call. That's a 475 percent increase over the 20 million DAU that Microsoft reported for Teams in November 2019, before a huge portion of the global workforce started logging in from home offices rather than their companies' office space. It's also a 53 percent jump over the last number Microsoft released -- 75 million DAU in April.

Unlike some metrics that Microsoft reports consistently, the Teams DAU figure is revealed sporadically and only when the company has a milestone that fits a positive growth story. For example, Microsoft reported DAU in March of 44 million, and then a month later released the 75 million DAU figure for April to show the 70 percent growth of users in about a month of global work-from-home decisions. Since then, growth has slowed and the company went quiet for six months.

"We are seeing increased usage intensity as people communicate, collaborate and co-author content across work, life and learning," Nadella said before tossing out a few more momentum metrics:

• Referencing Teams as a part of the larger Microsoft 365 suite, Microsoft reported that Microsoft 365 users generated more than 30 billion collaboration minutes in a single day in the quarter.
• Nearly 270,000 educational institutions are using Teams.
• A large deal with PepsiCo will include a rollout of Microsoft 365 and Teams to 270,000 employees worldwide.

During a question portion of the call with analysts, Nadella answered an inquiry about the Teams opportunity by describing how he views Teams. "Teams is very exciting to us because, unlike anything else that we have done at the application layer, it's literally like a shell. It has a platform effect because meetings, chat, collaboration, as well as business process applications, integrate into Teams so that scaffolding richness makes it a very robust platform," Nadella said.

Nadella also highlighted for analysts the pace at which Microsoft is adding new features to Teams. He claimed more than 100 new capabilities in the last six months, and specifically called out breakout rooms, meeting recaps, shift scheduling and events with up to 20,000 participants.

During a separate question about artificial intelligence, he called out how heavily Teams is drawing upon Microsoft's AI research and development. "Every Teams session is full of AI because of the transcription services, the speech recognition services and so on that it incorporates," Nadella said.

Other positives in the quarter for Microsoft were Azure growth of 48 percent and 20 percent growth of the larger Intelligence Cloud segment generally, which includes Azure. Negatives included a 5 percent drop in licensing revenues from Windows OEMs and a 10 percent drop in search advertising business compared to the year-ago quarter. Contributing to the Windows decline is a comparable against a quarter that benefited from the end of support for Windows 7, but it also comes in a quarter that Canalys, Gartner and IDC all reported as a boom time for PCs.

Microsoft stock rose by about 1 percent in after-hours trading on the earnings news but moved 2 percent lower after Microsoft shared second-quarter guidance that was more conservative than analysts expected.

Posted by Scott Bekker on October 28, 2020