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


(END) Dow Jones Newswires

October 27, 2020 17:47 ET (21:47 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
Microsoft (NASDAQ:MSFT)
Historical Stock Chart
From Nov 2020 to Dec 2020 Click Here for more Microsoft Charts.
Microsoft (NASDAQ:MSFT)
Historical Stock Chart
From Dec 2019 to Dec 2020 Click Here for more Microsoft Charts.