Microsoft’s cloud growth propels quarterly sales and earnings

Microsoft’s cloud growth propels quarterly sales and earnings

Microsoft's cloud growth propels quarterly sales and earnings

(Bloomberg) — Microsoft Corp. announced quarterly sales and earnings that beat analysts’ forecasts, fueled by robust growth in demand for cloud services. Shares jumped 6.9% late in the session.

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Revenue for the third quarter, which ended March 31, rose 18% to $49.4 billion, the Redmond, Wash.-based software maker said Tuesday. in a press release. Net income reached $16.7 billion, or $2.22 per share. That compares with average analyst projections for $49 billion in sales and $2.19 per share in earnings, according to a Bloomberg survey.

Chief Executive Satya Nadella has turned the company’s two main cloud businesses, Azure and internet versions of Office, into engines of steady growth that help insulate Microsoft from supply chain weaknesses that hurt PC availability and Xbox consoles. Azure – trailing only Amazon.com Inc. in the market for cloud infrastructure services, computing power and storage delivered over the Internet – grew 46%, matching the rate in the second quarter and in line with estimates.

“Investors thought we would return to a growth trajectory trend for Azure, as opposed to the deceleration we saw in the second quarter,” said Dan Morgan, senior portfolio manager at Synovus Trust Co., which owns shares of Microsoft.

Microsoft shares alternated between gains and losses in extended trading after the report, eventually hitting $289 as investors digested the company’s results. The stock was down 3.7% at $270.22 at Tuesday’s close in New York. While stocks jumped 51% in 2021, they have fallen 20% so far this year amid a rout in big tech stocks.

Chief Financial Officer Amy Hood said Xbox hardware revenue, which rose 14%, exceeded her expectations as Microsoft was able to get more console supplies to stores. Revenue from Xbox content and services has grown 4% in the recent period. The console has gained market share in each of the past two quarters, Nadella told analysts on a conference call.

Azure’s 49% growth rate in constant currencies was also higher than expected, Hood said. The company has seen an increase in commercial bookings, a measure of future revenue, with multi-year agreements for Office 365, Microsoft 365 and Azure fueling growth. Contract renewals exemplify satisfaction with Microsoft’s cloud products, she said. “There’s nothing quite like the moment you ask people to pay you again and re-engage only to know they’re getting great value,” she said in an interview.

On a call with analysts, Hood said that excluding the impact of currency fluctuations, Azure’s revenue growth would be 2% slower in the fiscal fourth quarter compared to the prior period. Still, that would be higher than many analysts’ estimates, which were more like 40%, said Wedbush analyst Dan Ives.

Hood’s projections for each of the company’s three divisions were in line with analysts’ estimates. While that forecast takes into account the current disruptions in computer and console supply due to Covid-19-related shutdowns in China, if this situation persists it could worsen the results, she said.

In the third quarter, overall enterprise cloud revenue grew 32% to $23.4 billion. Gross margin, the percentage of sales remaining after subtracting production costs, narrowed “slightly” to 70% in the cloud business, the company said in an earnings slide presentation on its website. Excluding accounting changes, the margin would have increased by 3%.

The software giant’s financial report comes two days ahead of rival Amazon. Google, which is trying to catch up with Microsoft, posted cloud unit sales up 44% on Tuesday. Last week, International Business Machines Corp. reported sales that beat analysts’ estimates on the strength of its hybrid cloud offerings, indicating healthy demand for enterprise software that should also boost Microsoft, Morgan said.

Sales of Office 365 to business customers increased 17% and revenue from Windows operating system software sold to PC manufacturers increased 11%.

In the Productivity and Business Processes unit, sales jumped 17% to $15.8 billion, in line with forecasts. Revenue for LinkedIn, which is part of this division, grew 34% year over year. Intelligent Cloud unit sales increased 26% to $19.1 billion, beating forecast of $18.9 billion. The More Personal Computing division reported an 11% increase in revenue to $14.5 billion, also beating estimates.

(Updates with revenue projections in the ninth paragraph.)

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