Daily Archives: May 4, 2020

This article is part of a series tracking the effects of the COVID-19 pandemic on major businesses, and will be updated. It was originally published on April 16.

As the last recession washed over Microsoft Corp. in 2009, the companys sales and earnings declined in the same year for the only time in the tech giants storied history.

A lot has changed since then at Microsoft. MSFT, -2.58% . As the COVID-19 pandemic brings fears of another economic downturn, the company could face difficulties in the same businesses that caused that decline, but could be spared a similar overall fate by the different focus that arrived with a new chief executive.

When Satya Nadella arrived in 2014, he refocused Microsoft on the cloud, putting money and other resources into the Azure cloud-computing business and transitioning Microsofts software offerings to cloud subscription offerings. Those businesses are less likely to be slammed by economic difficulties for Microsofts customers than the legacy Windows and on-premises IT businesses that Microsoft still has.

Business in the age of COVID-19: Read profiles of how other large companies will be affected by the coronavirus

For an example of this dynamic, consider Microsofts software business. In past recessions, customers would likely choose not to upgrade to a new version of Office in order to put off that expense, depriving Microsoft of that revenue. However, with cloud subscriptions, customers are more likely to maintain their subscription to avoid changes to workflow as employees are stuck at home and already facing new difficulties.

Microsoft has also repeatedly crowed about the performance of one of its newest software offerings, Teams, collaboration software that was launched in 2017 and seeks to combine the instant-messaging features of Slack Technologies Inc. WORK, -1.16% and teleconferencing abilities of Zoom Video Communications Inc. ZM, +2.50% .

For more: In just one week, Microsoft adds as many users to its Teams collaboration software as rival Slack has in total

While the cloud businesses should help Microsoft stave off the type of decline it suffered in 2009, it still has the businesses that suffered then, and their performance could obscure gains from next-generation counterparts. The Azure cloud-computing business is lumped with sales of servers and other IT-focused products in Microsofts earnings report, for example, so it may be tough to discern gains for one and losses for another. Microsoft typically discloses percentage gain in Azure sales, but could seek to provide more info or break out full results from Azure, as rival Amazon.com Inc. AMZN, -7.59% does for its Amazon Web Services cloud-computing division.

Microsofts stock performance in the first quarter reflects the dynamic at play: It was the only one of 30 Dow Jones Industrial Average DJIA, -2.55% components to gain in the first three months of the year as COVID-19 wracked the stock market, but added only a single penny to its share price.

Revenue: Expectations for Microsoft have declined by less than 1.5% overall, with analysts currently estimating that the company will report fiscal third-quarter sales of $34.05 billion, down from $34.55 billion expected at the end of January. Microsoft is scheduled to report third-quarter earnings on April 29. For the fiscal year, which will end at the end of June, analysts are currently estimating revenue of $141 billion, down from $141.88 billion as of the end of January.

Microsoft reports sales in three large buckets: Productivity & Business Solutions, which comprises most of the cloud software assets, including LinkedIn; Intelligent Cloud, which includes Azure, server sales and some other IT-focused offerings; and More Personal Computing, which includes the Windows and Xbox businesses along with Surface hardware and some other properties. Expectations for all three have declined, but the biggest hit is expected to come in the PC division, where third-quarter projections have declined to $10.6 billion from $10.95 billion at the end of January. Cloud expectations have dipped to $11.88 billion from $12 billion and software projections have dropped to $11.55 billion from $11.67 billion, according to FactSet.

Earnings: Analysts on average expect Microsoft to report fiscal third-quarter net income of $9.99 billion, or $1.30 a share, according to FactSet, down from $1.33 a share on Jan. 31. For the full year, analysts expect earnings of $5.61 a share, down from $5.69 a share at the end of January.

Stock movement: Microsoft added a penny to its share price in the first quarter, the best performance of any Dow component and one of only 30 S&P 500 components to increase in that period.

Microsoft has been collecting its COVID-19 communications and information on a single page. Here are some highlights.

April 9: Microsoft detailed the growth of Teams and other remote-work trends in a blog post, revealing that meetings on the software totaled a record of 2.7 billion minutes on March 31, a 200% increase from just two weeks earlier.

March 28: Microsoft posted on a blog that traffic for Azure had increased 775% amid the COVID-19 pandemic. Two days later, it corrected the post to note that figure was solely related to traffic for Teams meetings in one specific country, hard-hit Italy. Microsoft filed an 8-K with the Securities and Exchange Commission to acknowledge the error.

March 21: CEO Nadella posted an email to employees publicly on Microsofts business-networking property, LinkedIn, that detailed what the company was doing to address COVID-19 for customers and employees. In the following days, Nadella gave interviews to CNBC and Axios on the same topic. Azure also detailed its efforts in a blog post on the same day.

March 13: Microsoft co-founder, chairman and former chief executive Bill Gates stepped down from the Microsoft board. Gates has focused on his foundation, which is seeking to combat the coronavirus pandemic, and also stepped down from the board of Berkshire Hathaway on the same day.

Feb. 26: Microsoft disclosed it would not reach its guidance for the More Personal Computing segment because of supply-chain issues, but maintained guidance for its other segments.

While the company will navigate through this downturn better than most, it is not immune to a broader contraction in IT spending. The clear positives for Microsoft are the uptick in demand for Teams, cloud consumption (Azure), and Xbox Live. However, on the other side of the coin, PC demand, new enterprise bookings and higher potential churn for O365 subs could create some near-term headwinds. Evercore analysts on April 15, maintaining an outperform rating and $190 price target.

Microsofts diverse businesses do, unsurprisingly, suggest a range of positive and negative impacts from COVID and a recession. However, we expect the companys momentum as it aggregates increasing portions of enterprise application, database, data center and cloud spend to continue through this period, prompting as enterprises consolidate vendor choices even more in this environment, prompting us to a below sector mean cut to estimates. We see more economic sensitivity in the Windows PC OEM and Server businesses and its more transactional businesses, and less so in Office/Azure and its EA businesses. We see Microsoft benefiting as a COVID play around collaboration (Teams), gaming, virtual desktop, and some areas of cloud, offset by likely slower server, services, and Windows OEM. Raymond James analysts on April 3, maintaining a strong buy rating and decreased price target to $183 from $200.

Weve heard from more large enterprise customers that have told us that the pace at which theyve been able to pivot to WFH technologies and scale down less-critical IT projects has been constrained by their on-premise infrastructures and that at a result, they plan to accelerate their move to Azure (and AWS/Google) once the crisis passes. In fact one such customer told us today that they had a precrisis plan to be 40% in the cloud within 10 years and now have an accelerated goal (admittedly aspirational) to be 80% in the cloud in 5 years. This is a key part of the medium-term bull case on Microsoft and AWS and we agree. Deutsch Bank analyst Karl Keirstead on April 1, with a buy rating with $180 price target.

The main message is that spending on AWS and Azure may prove to be a particularly resilient vector, much more so than other software categories, as the shocks from COVID-19 create a forcing function which catalyzes faster public cloud adoption as companies understand the need to scale up remote work capabilities. JP Morgan analysts on April 3, with an overweight rating with $185 price target.

Microsoft has added new incentives (effective 1st April through 30th September) for partners who work with customers to achieve 15% usage in Teams deployments. Credit Suisse analyst Brad Zelnick on April 3, who has an outperform rating with a $190 target.

While our 1Q20 AlphaWise CIO Survey indicates slower IT budget growth and potential for negative revisions, software is still an IT budget share gainer and Microsoft is exposed to many near-term remote work priorities. Microsoft remains a top vendor for the key secular trends in tech postcrisis. While Microsoft is not immune to impact from COVID and likely will see macro drag on the transactional businesses in addition to some demand destruction on new business in non Work from Home businesses, our 1Q20 CIO survey highlights Microsofts strong positioning for both the near-term and longer-term environments. Morgan Stanley analysts on April 2, with an overweight rating with a $180 price target.

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Microsofts push to the cloud may save it from a coronavirus crash - MarketWatch

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Between the effects of COVID-19, post-holiday lulls, and the continued waning console cycle, it was a quiet Q3 for Microsoft's gaming segment.

Today, the company reported its quarterly financial results for the period ending March 31, 2020, stating that gaming revenue was down 1% year-over-year and Xbox content and services revenue up 2%.

Microsoft noted that the slight rise in Xbox content and services revenue was attributable to more people sheltering in place due to COVID-19, but was partially offset by "a high prior year comparable primarily from a third-party title" -- a line that's been used in the last several prior quarterly reports.

For the More Personal Computing business segment, which includes Xbox and gaming as well as Windows OEM, Surface, and search advertising, revenue reached $11 billion -- up 3% year-over-year.

This is within the company's projections of between $10.75 billion and $11.15 billion for the segment this quarter, even though Microsoft said in late February it expected to miss argets.

Operating income for the segment was at $3.63 billion, up 15% year-over-year.

Revenue for the company as a whole reached $35 billion, up 15% year-over-year, with Microsoft reporting that COVID-19 had a minimal net impact on the company as a whole.

Update: Microsoft's 10Q form offers a bit more color on its gaming segment, specifying that segment revenue for gaming reached $2.35 billion in Q3, down $14 million from the previous year's revenue.

Xbox hardware revenue was down 20%, which Microsoft attributes to recent price decreases in hardware.

Xbox content and services revenue was up $33 million.

Update: During today's earnings call with investors, Microsoft CEO Satya Nadella revealed that there are now over 10 million Xbox Game Pass subscribers, and that during the last quarter the company saw "record levels of engagement," with nearly 90 million monthly active users of Xbox Live.

Additionally, Xbox's Xcloud service now has "hundreds of thousands" of active users in beta.

Update: Also during today's earnings call, Microsoft announced it projected that the More Personal Computing segment would bring in between $11.3 billion and $11.7 billion during Q4 2020 ending June 30, with gaming revenue growth in the high teens.

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Microsoft's gaming revenues flat in Q3 2020 - GamesIndustry.biz

Microsoft has seen massive growth in the adoption of Microsoft Teams as a video conferencing solution but in many cases, a service is only as productive as the quality of the voice and video quality, which not only depends on your connection but the hardware you use to stream with.

To help companies get the most out of Microsoft Teams, Microsoft, working with device partners, has announced a new range of Teams certified devices. The new range of certified personal devices are aimed at supporting customers working remotely.

The Microsoft device Certification Programis designed to offer Microsoft customers confidence that third party devices will provide a compatible, high-quality experience when used with Microsoft Teams.

Certification highlights for headset and speakerphones

All the headsets listed below deliver the longstanding benefits of certification, such as great audio and integrated call control. They also include two additional important benefits offered by many of the devices below:

Below are a range of new Teams certified devices across all categories.

Teams headsets

Teams phones

Teams rooms and room accessoriesWith Microsoft Teams Rooms and certified meeting room accessories, organizations can transform any space to a Teams meeting place.

Via theWindowsClub

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Microsoft announce new Microsoft Teams Certified hardware - MSPoweruser - MSPoweruser

In late March, Microsoft (NASDAQ:MSFT) announced that COVID-19 lockdown measures in Italy sparked a 775% jump inTeams' calling and monthlymeeting users within a single month. It also noticed a "very significant spike" in Teams usage worldwide, as over 44 million daily users spent more than 900 million meeting and calling minutes on the platform within a single week.

That growth spurt seemed like bad news for Slack Technologies (NYSE:WORK), which competes against Microsoft Teams with its messaging and collaboration platform. To make matters worse, research firm SimilarWebrecently revealed some head-to-head comparisons between Microsoft Teams and Slack throughout the crisis, and claimed the former left the latter "in the dust."

Ed Lavery, Director of Investor Solutions at SimilarWeb, noted that the COVID-19 pandemic "gave Teams a huge opportunity to onboard millions of users," and Microsoft Teams "couldn't have dreamed of a better March than the one it just had."

Let's discuss the two main ways Microsoft beat Slack in March.

Image source: Getty Images.

SimilarWeb noted users downloaded the Microsoft Teams app on Android 1.22 million times in March and 2 million times within the first quarter -- which marks 500% year-over-year growth and 140% quarter-over-quarter growth. Slack's Android app was downloaded just 1.02 million times in the first quarter.

That surging in interest in Teams is troubling for Slack since it serves a smaller audience. Last October, Slack revealed that it had 12 million daily active users. In late March, it noted its total concurrent users topped 10 million onMarch 10, rose to 10.5 million on March 16, and hit 12.5 million March 25.

But those figures still paled in comparison to Microsoft Teams' 44 million daily active users and indicated Microsoft's marketing blitz -- which included pricey TV ads aimed at Slack -- was paying off.

SimilarWeb claims Microsoft's Teams website racked up 187 million visits in March, compared to just 134 million visits to Slack.com. This marked a major jump for Microsoft Teams, which averaged just 39.2 million monthly visits in January and February while Slack served an average of 95 million monthly visitors.

Slack's month-over-month growth is impressive, but it's clearly failing to keep pace with Teams' explosive growth. That raises another red flag, since Slack has repeatedly touted its gains against Microsoft in recent conference calls.

Image source: Slack.

During last quarter's conference call, CEO Stewart Butterfield stated that Slack continued "to win not just against the status quo, but head-to-head against Microsoft Teams," and that four of its top five biggest deals in the fourth quarter were against Teams.

Butterfield declared that customers chose Slack over Teams for its scale and security and that one of its Fortune 100 customers that temporarily switched to Teams struggled with "challenges from a near-complete lack of engagement to architectural deficiencies."

Unfortunately, SimilarWeb's download and traffic numbers suggest that Slack merely woke a sleeping tiger, which can leverage its dominance of the OS, productivity software, and cloud services market to pull customers away from Slack.

Slack is still growing at a robust clip: Its revenue rose 57% last year as its paid customer base expanded 25%. However, Slack's net loss still widened on a GAAP basis, and it has no clear path toward profitability. The stock is also richly valued at 17 times this year's revenue forecast.

Microsoft is firmly profitable, has a lot more cash than Slack, and can afford to rack up losses on Team's plans to drive Slack out of the market. Slack isn't in serious trouble yet, but it probably can't survive a prolonged war with Microsoft.

The pandemic presented Slack with an opportunity to shine, but Microsoft arguably stole the spotlight. In retrospect, the COVID-19 crisis could be the defining moment that tilts the scales back in Microsoft's favor and throttles Slack's growth.

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2 Ways Microsoft Is Leaving Slack Technologies in the Dust - Motley Fool

A vulnerability existed in Microsoft's Slack for Suits tool, Teams, that could have let a remote attacker take over accounts by simply sending a malicious GIF, infosec researchers claim.

The pwn-with-GIF vuln was possible, said Cyberark, thanks to two compromisable Microsoft subdomains along with a carefully crafted animated image file.

Although it was a responsibly disclosed theoretical vuln, and was not abused in the wild as far as is known, it illustrates that not all online collaboration platforms are as secure as one might hope.

"Even if an attacker doesn't gather much information from a Teams' account, they could use the account to traverse throughout an organization (just like a worm)," mused Cyberark researcher Omer Tsarfati.

The Israeli infosec outfit said it had alerted Redmond to the two subdomains, resulting in their DNS entries being tweaked. The rest of the Teams vuln was patched last Monday, 20 April.

Cyberark said that Teams fetches image content in messages in different ways. One of those, it said, involves using the device browser's resource loading, which it described as setting "an 'src' attribute of a URI to an HTML IMG tag" along with setting cookies.

After examining Teams' network traffic, Cyberark said its researchers discovered that one of those cookies contained a unique key needed to create an authentication token, which then allowed its crew access to "valuable" information, including the content of messages.

"If an attacker can somehow force a user to visit the sub-domains that have been taken over, the victim's browser will send this cookie to the attacker's server, and the attacker (after receiving the authtoken) can create a Skype token [a named token used to authenticate the user to Teams for loading images]. After doing all of this, the attacker can steal the victim's Teams account data," said the research outfit.

From here it was straightforward to create a malicious GIF file that could be sent in a Teams message. By "sending an image to our victim with an 'src' attribute set to the compromised sub-domain via Teams chat," said Cyberark, "the victim's browser will try to load the image and will send the authtoken cookie to the compromised sub-domain."

With a copy of the cookie, the attacker can then extract images, files and so on from the targeted Team user's account.

Microsoft has been asked for comment.

El Reg analysed Teams in detail earlier this month from a business usability perspective after new features were added.

Sponsored: Webcast: Build the next generation of your business in the public cloud

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We could have pwned Microsoft Teams with a GIF, claims Israeli infosec outfit - The Register

Use your own custom images with Microsoft Teams videoconferencing calls.

You can finally add your own background to Microsoft Teams video chats. Designed for business and education, Teams includes group chat, video calling and collaboration tools, and has seen a spike in usage since countries and states have started directing residents to stay and work from home when possible to help stop the spread of the coronavirus.

With the update to Microsoft's collaboration tool, you can now pick a custom image as your video chat background. TheZoom video chat servicealso lets you pick yourown custom background images for calls. But with recent concerns about Zoom security,some users are starting to look to other services such as Teams for their chats.

Keep track of the coronavirus pandemic.

Important catch: This feature is only available for scheduled meetings, according toMicrosoft.

1. Start or or join a Teams meeting, from the Windows or Mac application (you can't change your background on the web app at this point).

2. At the bottom of the screen, click or tap the three dots to go to your Meeting controls.

3. SelectMore actions>Show background effects. Either selectBlurto blur your background, or choose from the available images to replace it.

4. You'll be able to preview your background to see how it looks. If you like it, hit Apply. That's it!

In the future, you'll also be able to create your own images, upload them to Teams, and then select them as a background image for your video chats, Microsoft said.

You can have video chats with up to 250 people in Microsoft Teams, and if your workplace or school has access to Office 365, you already have access to it. You can also check out a free version of Microsoft's communication tool.

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Microsoft Teams backgrounds: Here's how to customize yours - CNET