The cloud floats Microsoft earnings again

(Reuters) - Microsoft Corp beat Wall Street estimates for revenue and profit in its first quarter on Wednesday, as more businesses signed up for its Azure cloud computing services and Office 365 software.

Reuters October 25, 2018 06:05:07 IST
The cloud floats Microsoft earnings again

The cloud floats Microsoft earnings again

(Reuters) - Microsoft Corp beat Wall Street estimates for revenue and profit in its first quarter on Wednesday, as more businesses signed up for its Azure cloud computing services and Office 365 software.

Microsoft shares have tripled since Satya Nadella became chief executive in 2014 and refocused the company on building data centre software and services. The stock, which has risen more than 21 percent over the past 12 months, gained 3.6 percent in after-hours trading following the earnings report.

Much of Microsoft's recent growth has been fuelled by its cloud computing business, which has benefited from companies rushing to shift their workloads to the cloud. The average recommendation of Wall Street firms for at least two years has been to buy the stock, as the company has consistently beat analysts' profit targets.

Commercial cloud revenue, which includes sales of Azure, Office 365, Dynamics 365 and LinkedIn's commercial business, hit $8.5 billion for the quarter, up 47 percent on the year.

Amazon.com Inc leads in cloud infrastructure services with over 30 percent market share in the second quarter, according to market research firm Canalys, but Microsoft drew closer, rising to 18 percent market share from 16 percent in the previous quarter.

Alphabet Inc's Google Cloud Platform was third with 8 percent of the market. Spending on cloud infrastructure services was up 47 percent on the year at $20 billion, boosting most companies in the sector.

Azure revenue rose 76 percent in the quarter, slower than the 89 percent rise in the previous quarter.

"We saw 62 percent for our commercial cloud growth margin, which is up four points year over year," Microsoft's director of investors relations Kristin Chester said by phone. "So that's substantial growth and that's being driven by a material improvement in the Azure gross margins."

Blair Hanley Frank, principal analyst at technology research and advisory firm ISG, said investors have been alerted to Azure's slower growth.

"Seeing that number decline to 76 percent where it was in the 80s and 90s is interesting. It's not yet clear what that means," Frank said. "Obviously Microsoft is going to see some fall in growth rate as the revenue grows."

Mark Sami, vice president at consultancy firm SPR, said Microsoft's "mature hybrid cloud offering" helps to fuel growth and leaves rivals like Amazon "playing catch up."

Microsoft's focus on fast-growing cloud applications and platforms is helping it beat slowing demand for personal computers that has hurt sales of its popular Windows operating system.

Revenue from Microsoft's personal computing division, its largest by revenue, rose 14.6 percent to $10.75 billion. That figure beat the consensus analyst estimate of $10.13 billion. The unit includes Windows software, Xbox gaming consoles, online search advertising and Surface personal computers.

Revenue at Microsoft's productivity and business processes unit, which includes Office 365, rose 18.6 percent to $9.77 billion, topping analysts' average expectation of $9.40 billion, according to Refinitiv data.

Overall, the Redmond, Washington-based software company's revenue rose to $29.08 billion from $24.54 billion, above analysts' average estimate of $27.90 billion, according to Refinitiv data.

Net income rose to $8.82 billion, or $1.14 per share, in the quarter ended Sept. 30 from $6.58 billion, or 84 cents per share, a year earlier. (https://bit.ly/2OKcXAi)

Analysts had expected earnings of 96 cents per share.

(Reporting by Vibhuti Sharma in Bengaluru; Editing by Bernard Orr and Richard Chang)

This story has not been edited by Firstpost staff and is generated by auto-feed.

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