Microsoft Corporation (NASDAQ:MSFT) Q4 2019 Earnings Conference Call - Final Transcript
Jul 18, 2019 • 05:30 pm ET
Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.
Excellent. Thank you, guys, for taking the question, and very nice end to a really strong FY19. I wanted to focus on the Office 365. If I'm looking at this right, I think you guys saw acceleration in the Office 365 commercial business and in the kind of recipe to getting there seem to have changed a little bit of that as more sort of positive pricing versus the seat growth. Is there a changing dynamic and kind of what's pushing growth there, because we had seen the F1 SKU in the front-line workers bringing down the price point a little bit, it looks like the pricing actually improved this quarter. How should we think about sort of the dynamics of what's going to be driving growth for Office 365 into FY20 and beyond?
Thanks, Keith. Let me walk through a little bit of this, because there are some new behaviors that I think are important at this quarter, but the fundamentals that you talked about are relatively unchanged. We continue to see and saw again installed base growth across all of our customer segments from the enterprise to small business, that's happening not just because of front-line workers but also continued expansion and continued movement in every segment where we see the opportunity to increase the installed base.
We did see ARPU growth this quarter. It wasn't as much different from past quarters, we continue to see improvement from E3 and E5 transition, saw both again and I think we are quite encouraged by E5 performance, particularly in Q4 as we ended the quarter, which is great to see.
And what you saw a little bit and I refer to it was some more in-quarter recognition, but let me talk about why that's happening, because it's got two important and positive trends that underlie it. The first thing is, we're seeing longer commitments. When you see longer commitments under 606, you often have more recognition upfront. And so, we saw longer commitments and we got a little bit more recognition in the quarter and so you saw then revenue grow a little faster.
The other thing that we saw is increasing focus as we were having more conversations across organizations around Azure and rethinking their digital transformation plans with us. It opens up a very large conversation around the value Microsoft 365 can bring as people go through and think about those transitions. And so the fact that we -- then we're often seeing extension to take place of prior commitments on Office 365 to again be longer and include the Azure Contract. When that happens, it's almost like you're adding new product and new value and a lot of that gets recognized faster in quarter when you see that happen. And so when you have a Dynamic where you're seeing a longer contract, plus you're able to sell