Microsoft sales beat expectations as cloud growth slows
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FILE PHOTO: The Microsoft sign is shown on top of the Microsoft Theatre in Los Angeles, California, U.S. October 19,2018. REUTERS/Mike Blake/File Photo
Since Chief Executive Satya Nadella took over in 2014, Microsoft has been shifting away from its Windows operating system software and toward cloud services, in which customers move their computing work to data centers managed by Microsoft. The company’s market value has nearly quadrupled since Nadella became CEO, and Microsoft has avoided much of the regulatory and antitrust scrutiny centered on other large tech firms Alphabet Inc (GOOGL.O), Apple Inc (AAPL.O) and Facebook Inc (FB.O).
Revenue growth in Azure was 64% in the reported quarter, compared with 89% a year earlier and 73% in the prior quarter. Microsoft does not provide an absolute revenue figure for Azure, blending it into its “intelligent cloud unit,” which had revenue of $11.4 billion compared with analyst expectations of $11.0 billion, according to Refinitiv data.
(For an interactive graphic, click here tmsnrt.rs/2JIzvfe)
Shares of Microsoft rose 1.2% to $138.13 in extended trading.
Cloud growth powered Microsoft’s market value past $1 trillion for the first time in April. On Thursday, Microsoft’s Azure-based business segment for the first time ever reported slightly more quarterly revenue than its Windows-based segment.
In the cloud computing business, Azure’s chief rival is Amazon Web Services, which dominates the industry with a 32.8% market share, according to research firm Canalys. Microsoft has a share of 14.6%, while Google has 9.9%. The company is also competing against Amazon.com Inc (AMZN.O) for a $10 billion contract with the U.S. Department of Defense.
Microsoft has also gained ground in the past year by bundling its Azure computing service for developers along with Office and other software products for end users, such as in the more than $2 billion cloud deal it signed with AT&T Inc (T.N) earlier this week.
“The pressure was obviously on but they executed,” said Hal Eddins, chief economist for Microsoft shareholder Capital Investment Counsel. “The cloud is such a key driver of growth for them and they seem to have painted a big bullseye on the back of AWS.”
Revenue in Microsoft’s productivity software unit jumped 14.3% to $11.05 billion, powered by double-digit revenue growth for LinkedIn and Office 365. Analysts on average had expected revenue of $10.71 billion, according to IBES data from Refinitiv.
Meanwhile, its personal computing division, home to Windows software, rose to $11.3 billion, compared with analyst estimates of $10.98 billion. The unit also includes Xbox gaming consoles, the Bing online search service and Surface laptops.
Microsoft’s net income rose to $13.19 billion or $1.71 per share in the quarter ended June 30, from $8.87 billion or $1.14 per share a year earlier. (bit.ly/2JDI8Jq)
Excluding items, the company earned $1.37 per share, topping estimates of $1.21 per share.
Total revenue rose 12% to $33.72 billion, above average analysts’ estimates of $32.77 billion.
Reporting by Vibhuti Sharma in Bengaluru and Stephen Nellis in San Francisco; Editing by Anil D’Silva and Matthew Lewis