Microsoft (NASDAQ:MSFT) has recently made notable changes to its annual key performance indicators (KPIs) ahead of the FY25 reporting period, with a particular focus on reclassifying revenue streams to better align with the company's strategic priorities.
According to Citi analysts in a note Thursday, these changes are "more extensive than in the past" as they bring the key components of M365 within the PBP segment.
The investment bank explains that the reclassification shifts key components of M365 into the PBP segment, thereby increasing its revenue share while reducing the revenue contributions of the Intelligent Cloud (IC) and More Personal Computing (MPC) segments.
Citi says that specifically, per-user revenue streams such as Enterprise Mobility + Security (EMS) and Power BI, which were previously part of Azure, are now categorized under M365 Commercial Cloud/PBP.
The bank's analysts point out that these adjustments, while largely "mechanical in nature," don't impact Microsoft's total revenue, operating income, or earnings per share.
However, they do suggest a potential "stability in the Azure consumption business." This interpretation is based on the fact that Azure's Q4 growth of 35% year-over-year in constant currency remains consistent with Q3, indicating steady performance.
Interestingly, the analysts note a degree of "conservatism" in Microsoft's Azure consumption guidance, which anticipates a modest 1-2 point growth deceleration.
This is despite the removal of the slower per-user business from Azure and comments from CFO Amy Hood about consistent consumption trends between Q3 and Q4.
Overall, these changes are said to reflect Microsoft's strategic emphasis on M365 while also implying a cautious outlook for Azure's growth trajectory as the company moves into FY25.
The shifts in segment reporting appear to underline Microsoft's focus on stability and careful management of expectations in its cloud business.