Microsoft Says Weaker E3 Sales Held Back 5% Seat Growth, While Metered Copilot Use Outside Coding Will Come Slower
CFO Amy Hood said GitHub Copilot offset soft Microsoft 365 E3 sales, and guided commercial cloud growth to about 19% next quarter.
Microsoft's Microsoft 365 commercial cloud revenue grew 18% in constant currency last quarter, CFO Amy Hood said on the company's earnings call Wednesday, with stronger GitHub Copilot adoption partly offset by "weaker sales execution in our M365E3 and standalone SKUs." Paid commercial seats grew 5%, she said, and she and CEO Satya Nadella said usage-based billing will spread more slowly beyond coding.
Where the sales motion slipped
Hood said Microsoft 365 commercial cloud revenue rose 18% on an adjusted basis, 19% in constant currency, after adjusting for a prior-year comparison that benefited from a point of in-period revenue recognition. On a reported basis, growth was 17%, or 18% in constant currency.
Results beat the company's expectations, she said, helped by GitHub Copilot adoption and usage. Seat growth of 5% was driven mainly by small business and frontline worker offerings, with some drag from the weaker E3 execution. Hood said Microsoft keeps adjusting its sales motions to balance traditional per-seat SKUs against the newer premium E7 and usage-based offerings. E7, she said, has already reached millions of paid seats.
For next quarter, Hood guided Microsoft 365 commercial cloud growth of about 19% in constant currency, with some improvement in E3 and standalone execution expected.
Coding first, everything else slower
A Stifel analyst asked whether metered billing for core Microsoft 365 would take off as fast as it did for GitHub, or need heavy sales effort. Nadella said coding "will be faster" because developers are used to paying as they go.
Hood added that it "will be a slower move outside of coding," while saying she still sees encouraging signs. She tied the new Frontier Core field engineering group and new Microsoft 365 sales motions to teaching customers when the meters deliver value.
Nadella said Microsoft does not want customers to overbuy one option and feel like they are "token maxing." He said the number of Copilot customers actively consuming credits through usage-based billing grew over 75% over the quarter.
The Copilot number stays private
A Bank of America analyst asked about Copilot figures. Hood said the company did not give an update on the Copilot number this quarter, and talked instead about momentum, revenue and usage.
Microsoft, the software and cloud company behind Windows, Microsoft 365 and Azure, closed the day with a market value of $3.95 trillion. Microsoft Cloud revenue topped $63 billion, Nadella said, with growth accelerating to 30%.
Hood said she expects Microsoft 365 commercial cloud revenue growth to keep accelerating through the fiscal year, driven mainly by revenue per user.
Sources
- Microsoft (MSFT) Q1 earnings report 2027 — CNBC
- Microsoft reveals strong cloud growth amid financial reporting overhaul | The Verge — The Verge
- Microsoft earnings live: Microsoft beats Q1 expectations on top and bottom line on AI growth — Yahoo Finance
- Microsoft’s cloud growth accelerates, and so too does the spending | Fortune — fortune.com
- Microsoft's cloud growth, cash flow offer respite from AI spending fears - CNA — channelnewsasia.com
