Microsoft Posts Profit on Ongoing Cloud Businesses Growth

Microsoft forecast revenue of between $29.4 billion and $30.1 billion in the current quarter

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January 31, 2019 – Microsoft said Wednesday it swung to profit in the past quarter on gains in cloud computing and business services, but shares took a hit on disappointing revenue growth. It met Wall Street’s targets for its quarterly results and forecast, though Azure cloud computing sales grew more slowly than a year earlier.

Chief executive Satya Nadella said Microsoft continues to see gains from its cloud services after having shifted away from many of its consumer offerings. “Our strong commercial cloud results reflect our deep and growing partnerships with leading companies in every industry including retail, financial services and healthcare,” Nadella said. “We are delivering differentiated value across the cloud and edge as we work to earn customer trust every day,” he added.

The transformation of Microsoft has brought it back to the ranks of the world’s most valuable companies after years of lagging behind the likes of Apple and Google. Microsoft ended the day in a virtual tie with Amazon, with a market valuation of more than $800 billion for each of the companies.

Microsoft reported a profit of $8.42 billion (roughly Rs. 60,000 crores). Excluding one-time items, it earned $1.10 (Rs. 78) per share, edging past analysts’ estimates of $1.09 per share. Shares of Microsoft, one of the most valuable US technology companies, fell 3 percent in extended trade even though earnings per share slightly beat analysts’ estimates. The stock had closed 3.3 percent higher in a broad tech rally.

 Azure, Microsoft’s flagship cloud product, had revenue growth of 76 percent in the fiscal second quarter ended December 31, down from a 98 percent surge a year earlier. Azure sales increased 76 percent in the September quarter as well.

Long known for its Windows software, Microsoft has shifted its focus to the fledgling cloud market where it is battling Amazon.com for dominance. The company is rapidly picking up business from the retail industry in particular, which is aiming to keep pace with the e-commerce business of Amazon. This month alone, Microsoft announced deals with Walgreens Boots Alliance Inc and Kroger Co, on top of a five-year agreement with Walmart Inc it unveiled this summer.

“Our strong commercial cloud results reflect our deep and growing partnerships with leading companies in every industry including retail, financial services, and healthcare,” Microsoft Chief Executive Satya Nadella said in a statement.

The Redmond giant has long courted customers outside the United States and has a 17 percent share of the global cloud market, research firm Canalys previously said. Amazon has 32 percent. Microsoft is spending more on the latest cloud technologies to narrow the gap. Research and development expenses rose to $4.1 billion in the quarter from $3.5 billion a year earlier.

Microsoft’s total revenue climbed 12.3 percent to $32.47 billion (roughly Rs. 2,30,000 crores). Wall Street analysts on average had expected revenue of $32.51 billion, according to IBES data from Refinitiv. But Wall Street has grown accustomed to blockbuster earnings beats as companies around the globe ditch their own data centres for the cloud. “It wasn’t a blowout quarter,” said analyst Shannon Cross of Cross Research. “That’s probably playing a bit into” the stock decline.

Microsoft forecast revenue of between $29.4 billion and $30.1 billion in the current quarter. Analysts were expecting $29.9 billion, according to IBES data from Refinitiv. The company also said a stronger US dollar would hit growth of its intelligent cloud business segment, which includes Azure and other products, by 2 percentage points. Revenues jumped 20 percent for Microsoft’s “intelligent cloud” services, the business and artificial intelligence unit that has become a core for the company.

Revenue from Microsoft’s productivity software unit climbed 13 percent to $10.1 billion, powered by double-digit revenue growth for LinkedIn and Office 365. LinkedIn, the professional social network acquired by Microsoft in 2016, saw a 29 percent jump in revenues and “record levels of engagement.” Wall Street analysts on average had expected revenue of $10.09 billion, according to IBES data from Refinitiv.

Microsoft’s personal computing division, home to Windows software and still its largest by revenue, showed revenue growth of 7 percent to $13 billion, while analysts had expected $13.07 billion. The unit also includes Xbox gaming consoles, the Bing online search service and Surface laptops.

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