Microsoft's Cloud Business Drives Record Sales--Update
July 18 2019 - 6:02PM
Dow Jones News
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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