Earlier this week, Microsoft (Nasdaq: MSFT) announced its first-quarter results that outpaced market expectations. Microsoft is firing on all cylinders, but its Teams still lags far behind Zoom.

Microsoft’s Financials

Microsoft’s Q1 revenues grew 22% to $45.3 billion, ahead of the market’s forecast by 22%. Non GAAP net income was $17.2 billion, or $2.27 per share, which was also ahead of the Street’s forecast of $2.06 per share.

By segment, revenues from the Intelligent Cloud segment that includes Azure grew 29% to $17 billion. Revenue from Productivity & Business Solutions, which includes cloud software assets such as LinkedIn, grew 20% to $15 billion. Revenues from More Personal Computing, which includes Windows, Xbox, and Surface, grew 11% to $13.3 billion. Microsoft’s Cloud was one of its biggest growth drivers for the quarter with revenues growing 36% to $20.7 billion. This was the first time ever that its cloud revenues crossed an annualized run rate of over $20 billion.

The market is looking for an EPS of $2.19 on $48.44 billion in revenues for the second quarter, and an EPS of $8.65 on $190.12 billion in revenues for the current fiscal year.

Microsoft’s Stellar Growth

During the quarter, Microsoft saw growth across all of its segments. GitHub became one of the most used developer tools and is now home to 73 million developers, more than doubling since Microsoft acquired it three years ago. Last quarter, Microsoft introduced more than 70 enterprise features on GitHub. GitHub is already being used by 84% of the Fortune 100 companies, and Microsoft is seeing growing usage from across the spectrum including digital-native companies such as Pinterest to more established firms such as Procter & Gamble.

Dynamics 365 is also seeing similar growth. By integrating Dynamics 365 and Teams, Microsoft is creating a new category of collaborative applications that help businesses evaluate data and insights across the entire organization. Its customers are using it to create a 360-degree view of their end customers to deliver more personalized experiences. Overall, the number of customer profiles on Dynamics 365 increased 174% over the year.

LinkedIn continued to grow rapidly as well. The service now has nearly 800 million members and continues to be a choice platform for hiring. Confirmed hires on the platform increased more than 160%. During the quarter, it launched new ways to help job seekers discover roles that align with how they want to work. LinkedIn Learning is also attracting enterprise customers. Microsoft now has over 15,000 enterprise customers of LinkedIn Learning, and it is now expanding this opportunity in the creator economy by offering new ways for LinkedIn Learning instructors to build their audiences and connect with learners live.

Recently, Microsoft announced a partnership with Truveta, a health provider-led data platform. As part of the partnership, the two companies will work together to leverage the cloud and AI capabilities to help Truveta save lives. Together, they will be able to scale Truveta’s platform globally, introduce customers, and accelerate opportunities for more health providers to become members, contributing to the data needed to help benefit health research.

Analysis of Microsoft’s Teams Strategy

Given the continued remote working conditions, Microsoft is also expanding its Microsoft 365 and Teams capabilities. It announced Windows 365 to be available to all businesses. Windows 365 takes the operating system to the Microsoft cloud, and streams the entire Windows experience to both personal and corporate devices. It secures and stores information in the cloud and not on the device, thus providing a secure and productive experience for all types of workers.

Microsoft Teams has never seen higher usage than now. Almost 140 organizations globally now have more than 100,000 users of Teams and more than 3,000 organizations have over 10,000 users. It also added several new features to Teams. Recent updates include new AI-powered cameras and spatial audio within Team Rooms to deliver a better meeting experience. It is also working on releasing Teams Connect, a service that allows employees across multiple companies to chat and collaborate as one extended team without switching tenants. Organizations are continuing to integrate their third-party and line of business applications with Teams. The number of organizations with more than 10,000 users leveraging these integrations grew 82% over the year.

The competition faced by Teams remains high. The pandemic has accelerated the usage of Zoom (ZM) across enterprises, and more traditional meeting players like Cisco’s Webex and Microsoft Teams have had to deliver significant enhancements to keep up with it. All three of these key services offer similar features, and now these players are looking to capture the contact center market. Zoom, for instance, recently added features that would allow organizations to use Zoom to conduct video chats with end customers. Cisco already offers Webex Contact Center, which organizations can add to the overall Webex suite for a single, integrated platform. Besides Teams Connect that Microsoft is working on, it already has several partnerships with third-party contact center vendors to target that market.

Microsoft and Cisco (CSCO) also have the advantage of being long-time established vendors for the enterprise segment. But Zoom is giving them a tough run within the video conferencing market. Zoom commanded a 49% share of the market, a significant growth over the 26% recorded the previous year. Usage for Teams during the same period grew from 10% to 15%. The video conferencing market is estimated to grow to $10.9 billion by 2027, and Zoom is well poised to retain the lion’s share there.

Its stock is trading at $324.35 with a market capitalization of $2.44 trillion. It hit a 52-week high of $326.10 earlier this month and a 52-week low of $199.62 in October last year.

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