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Microsoft Cloud Keeps on Growing as Microsoft Keeps on Paying for More Datacenters
Every quarter, I like to look through Microsoft’s results to extract whatever seems interesting and relevant to the Microsoft 365 ecosystem. Microsoft announced their FY27 Q1 results on October 28. Details can be accessed on Microsoft’s investor website, together with the always interesting transcript of the call between Satya Nadella and Amy Hood (CFO) with market analysts. Any quotes from the transcript are in italics.
Microsoft Cloud hit $63.9 billion for the quarter, or an annualized run rate (ARR) of $255.6 billion. A year ago, the equivalent figures were $49.1 billion (ARR of $196.4 billion). Given Microsoft’s total revenues of $92.3 billion, Azure, Microsoft 365, LinkedIn, and other diverse cloud offerings represent around 69% of all revenues. According to Techcrunch, Azure revenues were $33.2 billion. However, I can’t find a Microsoft statement giving that fact.
Truly, Microsoft is very much a cloud company. That fact was underlined by the capital expenditure number, mostly for datacenters to support cloud and AI activity, which Amy Hood said she expected to reach $170 billion for the year.
Microsoft Pushes E7 Licenses
Microsoft CFO Amy Hood reported that ARPU (average revenue per user) growth was led by “premium seat-based offerings, including M365 Copilot, E5, and E7” and noted that E7 licenses have already been “reached” by “millions of paid seats.” I assume that reached means that the seats are now covered by E7 licenses. No further details were given about the precise number of Microsoft 365 users have upgraded to E7.
Microsoft expects Microsoft 365 commercial revenues to grow 19% in the next quarter, saying that they expect “continued momentum across our premium per-seat offerings and usage-based offering” and “growth will be driven primarily by ARPU, with additional contribution from [new] seats.” In other words, while revenues from growth in the number of new Microsoft 365 seats slow, Microsoft will continue efforts to grow revenues by upselling E5 and E7 licenses to existing customers, selling Microsoft 365 Copilot licenses wherever they can, and selling consumption-based offerings like GitHub Copilot and Copilot credits.
And of course, as customers renew contracts, the July 2026 Microsoft 365 price increases will increasingly feed into revenue.
Copilot Numbers
Speaking of Copilot, or “the new OS for work,” Microsoft didn’t give a new number for paid seats. An analyst asked a direct question on this point, but Microsoft passed because they wanted to talk about “momentum in revenue and usage.” Usage is usually linked to the number of users, but I guess not here.
Microsoft did say that the number of customers with more than 50,000 Copilot seats increased eight times year-over-year, but that’s a pretty useless statistic without a baseline number to compare against. After all, the previous number might have been one and is now eight, and that wouldn’t be very impressive. In their discussion with the analysts, Microsoft also pointed to the recent deal to deploy Copilot to 330,000 Volkswagen employees (of 662,942 overall – some folks have to make the cars).
Microsoft appears to be fascinated by Purview audit and keeps pumping out statistics that are difficult to interpret. This time round we were told that customers used Purview “to audit over 7.6 billion agent activities to date, up 5X quarter over quarter.” Again, Microsoft offered no explanation of exactly which agent activities make up the figure or whether it includes standard Copilot interactions.
Microsoft 365 Seat Numbers
In terms of Microsoft 365 seat growth, Microsoft didn’t give a firm number for monthly active users or paid seats. The only comment when discussing Microsoft 365 with the analysts was that “commercial seats grew 5%.” Microsoft didn’t say whether this growth was year over year or quarter over quarter. I assume Microsoft meant year-over-year growth.
Five percent is lower than the six percent for the previous year, but the seat count has been on a gently declining curve for the past several years. The decline in percentage growth is inevitable given the size of the installed base. Starting from the more than 450 million paid seats Microsoft reported in January 2026, the current total is probably approaching 470 million.
Once again, Microsoft didn’t revise the number for Teams monthly active users, which remains at the 320 million reported three years ago. At that point, the Microsoft 365 seat count was around 390 million. Surely Teams has had some growth among the 80-odd million paid seats acquired by Microsoft 365 since then?
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