Microsoft's Cloud Business Drives Record Sales--Update

Date : 07/18/2019 @ 11:02PM
Source : Dow Jones News
Stock : Microsoft Corporation (MSFT)
Quote : 137.83  -0.58 (-0.42%) @ 8:48PM

Microsoft's Cloud Business Drives Record Sales--Update

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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% from the same period a year earlier to $33.72 billion for the quarter that ended in June, the company said Thursday, beating Wall Street estimates. Profit in the quarter also topped expectations.

The results for Microsoft's fiscal fourth quarter 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 revenues "continue to clearly 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 for 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.

AT&T Inc., for example, said Wednesday 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 International Business Machines Corp.

Microsoft shares traded up more than 1% after-hours Thursday following the earnings report. Investors have rewarded the company's recent success by pushing its stock to an all-time record close earlier this 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 from desktop computers to mobile.

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, though it benefited from a one-time tax gain of $2.6 billion. Adjusted to account for that tax issue, earnings were $1.37 a share, topping consensus expectations of $1.21 for analysts surveyed by FactSet.

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 quarter. Revenue in the typically cyclical business fell 10%, as the company faced a tough comparison to last year 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.

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 Inc., which have seen growth slow in recent quarters.

Write to Asa Fitch at asa.fitch@wsj.com

 

(END) Dow Jones Newswires

July 18, 2019 17:47 ET (21:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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