Microsoft's Earnings Continue to Ride Pandemic-Fueled Demand for Cloud, Videogaming -- 2nd Update
October 27 2020 - 6:02PM
Dow Jones News
By Aaron Tilley
Microsoft Corp. posted another quarter of strong earnings fueled
by pandemic-era demand for cloud-computing services, videogaming
and computers.
The software company on Tuesday said sales rose 12% to $37.2
billion, generating a net profit of $13.9 billion in the first
quarter of its fiscal year. The results surpassed Wall Street
expectations on revenue and profit for the quarter ending in
September.
Revenue from Azure, the company's massive cloud-computing
service that has underpinned its financial success in recent years,
increased 48% from the year-ago period. Sales from commercial
cloud, a broader metric of its cloud business, reached $15.2
billion, compared with $11.6 billion in the year-ago quarter.
"Demand for our cloud offerings drove a strong start to the
fiscal year, " Microsoft Chief Financial Officer Amy Hood said.
Microsoft's personal computing business -- which includes
licensing revenue from PC sales, the Xbox gaming platform and
Surface laptops -- saw sales advance 6% to $11.8 billion. The
gaming content business saw a 30% jump in sales over the previous
year. The business is also expected to further benefit later this
year with the release of the new Xbox Series X gaming console.
Chief Executive Satya Nadella is doubling down on the company's
gaming effort. Microsoft last month said it would spend $7.5
billion to acquire ZeniMax Media Inc., the owner of game developer
Bethesda Softworks as well as the Doom videogame franchise. The
deal came shortly after Mr. Nadella's failed bid to buy parts of
the popular short-form video app TikTok from Beijing-based
ByteDance Ltd.
Throughout the pandemic, Microsoft has enjoyed a boost to its
cloud services, including its workplace-collaboration software
package Teams that offers features that compete with Slack
Technologies Inc. and video-teleconferencing service Zoom Video
Communications Inc.
"The next decade of economic performance for every business will
be defined by the speed of their digital transformation," Mr.
Nadella said.
Microsoft shares were little changed following the earnings
release, after rising 1.51% in regulator trading.
The shift to the cloud is expected to be a continuing focus for
companies. Research firm International Data Corporation Tuesday
said that by the end of next year it expects 80% of enterprises
will put a mechanism in place to shift to cloud-centric
infrastructure and applications -- a rate twice as fast as before
the pandemic.
Strong demand for long-term Azure contracts swelled commercial
bookings in the quarter, Microsoft said. They rose 23%
year-over-year, far ahead of the 7% and 12% increases the Redmond,
Wash.-based company saw in the previous two quarters during the
start of the coronavirus pandemic.
And with people working from home and many students still stuck
learning remotely, laptops and tablets have been selling strongly.
Microsoft said sales of its Surface computing devices grew 37%.
"Enterprises are transitioning from Covid-19 triage to starting
to renew their digital transformation plans with a focus on hybrid
work. Microsoft is taking advantage of this phenomenon," said
Patrick Moorhead, president of the technology-industry analysis
firm Moor Insights & Strategy.
The increase in cloud demand hasn't been pain free, though.
Microsoft has at times struggled to keep its cloud services running
smoothly. An outage last month resulted in its cloud software tools
being inaccessible for hours.
Microsoft also could see its search-engine business, Bing, gain
momentum after the Justice Department filed an antitrust case
against Alphabet Inc.-owned Google for its practices in search and
advertising. Bing has less than 7% market share in the U.S.
search-engine market, little changed since it launched in 2009. The
Google case, though, is expected to take years to play out.
Microsoft's ad businesses, meanwhile, remains under pressure as
companies cut back on spending during the pandemic. Ad sales, the
company said, fell 10%.
Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
October 27, 2020 17:47 ET (21:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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