By Asa Fitch
Microsoft Corp. said strength in its cloud-computing business
drove record revenue in the latest quarter, extending the strong
performance under Chief Executive Satya Nadella that has made it
the world's most valuable public company.
Revenue rose 12% to $33.72 billion from the year-earlier period,
the company said Thursday, beating Wall Street estimates. Profit
also topped expectations.
The results for Microsoft's fiscal fourth quarter ended in June
reflected continued strength in corporate spending on the cloud
services that have revolutionized business computing over the past
decade. Companies increasingly are paying subscriptions for
software and renting computer power, rather than buying
applications that run on their own servers.
Microsoft's strong revenue continues to demonstrate that the
company is "a clear winner in the digital transformation trend that
corporations of all sizes are now undertaking," said Brad Reback,
an analyst at Stifel, Nicolaus & Co. "They are a vendor of
choice."
Revenue in Microsoft's cloud-computing businesses, which
accounted for about a third of sales in the period, rose 39%. The
company's transition to offering customers subscriptions to
cloud-based versions of its Office productivity suite and other
popular programs has helped propel that growth. So has the
popularity of Azure, a cloud service that is second in size only to
Amazon.com Inc.'s AWS.
There are no signs that Microsoft's fortunes will reverse
anytime soon. Chief Financial Officer Amy Hood told analysts that
the current fiscal year should again see double-digit sales
growth.
Still, while cloud-computing sales are growing fast, the
business also is increasingly competitive. Alphabet Inc.'s Google
and China's biggest tech companies are vying for their share.
Google last year poached a top Oracle Inc. executive to run its
cloud business as it seeks to challenge Azure and AWS.
International Business Machines Corp. recently closed its $34
billion purchase of open-source software giant Red Hat, as it gears
up to compete for cloud contracts.
Research company Gartner Inc. forecast in April that spending on
cloud services would rise nearly 18% this year, topping $214
billion.
AT&T Inc. said Wednesday that it is shifting most internal
business applications used by its biggest unit to Azure, in part to
cut costs. That came a day after AT&T announced a separate
cloud deal with IBM.
Microsoft shares traded up more than 2% after-hours Thursday
following the earnings report. Investors have rewarded the
company's recent success by pushing its stock to a record close
earlier in the week and giving it a market capitalization north of
$1 trillion.
Mr. Nadella credited deep partnerships with companies in every
industry with propelling Microsoft's strong performance in the
latest period.
Since taking over in early 2014, Mr. Nadella has guided
Microsoft through a major reorientation of the business, making up
for slowing sales of Windows by expanding in other areas. That has
put Microsoft back at the pinnacle of the tech industry after years
of struggle to find its way as computing shifted to mobile from
desktop computers.
The rise of cloud computing has been central to the success of
that retooling. Azure revenue in the latest quarter grew 64% from a
year earlier, Microsoft said, though the pace has been moderating
as the business got bigger.
Profit in the fiscal fourth quarter rose 49% from a year earlier
to $13.19 billion, or $1.71 a share. The total was a quarterly
record bolstered by a one-time tax gain of $2.6 billion. But even
absent that tax windfall, it would have been a record for the
company. Adjusted to account for that tax issue, earnings were
$1.37 a share, topping consensus expectations of $1.21 for analysts
surveyed by FactSet.
In Microsoft's fiscal year, revenue and profit both grew by
double digits and reached record levels. The company made more than
$125 billion in the year.
Microsoft expects revenue of $31.7 billion to $32.4 billion in
the current quarter, Ms. Hood said, up from $29.1 billion in the
year-ago period.
Microsoft has invested in areas besides cloud computing, raking
in revenue from sales of Surface tablets, Xbox gaming consoles and
a growing stable of software and services. Gaming was a rare low
point for Microsoft in the latest quarter. Revenue in the typically
cyclical business fell 10%, as the company faced a tough comparison
to a year earlier when the hit battle-royale game "Fortnite"
propelled sales.
Microsoft, once the target of a major regulatory battle over its
power, has avoided the harsh spotlight shone on many of its fellow
tech giants in recent years over issues of privacy, misinformation,
and competition.
Microsoft in 2016 bought LinkedIn, a social network oriented
around jobs; its revenue rose 25% in its latest quarter. The
company also owns teleconferencing software Skype and the search
engine Bing.
Sales of Windows commercial products and cloud services grew
13%, buoyed by customers upgrading to newer versions of the
operating system ahead of January, when Microsoft will stop
supporting Windows 7.
Despite its mammoth size, Microsoft has managed to maintain
overall revenue growth in the double digits, outdoing other
established tech giants like Amazon and Google parent Alphabet,
which have seen growth slow in recent quarters.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
July 18, 2019 19:34 ET (23:34 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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