Microsoft beats profit estimates on gains from cloud services

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Microsoft Corp reported better-than-expected quarterly profit on Thursday as demand for its cloud computing services for companies rose and its personal computer software business stabilized.

Shares of the world’s largest software company rose 3.1 percent to 81.20 US dollars in trading after the bell.

Microsoft’s focus on fast-growing cloud applications and platforms is helping it beat slowing demand for personal computers that has hurt sales of Windows – the software that powered the company to the top in the 1990s.

Under Chief Executive Satya Nadella, Microsoft’s cloud business – which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform – has emerged as a major source of growth.

Revenue from Microsoft’s intelligent cloud business rose nearly 14 percent to 6.92 billion US dollars in Microsoft’s fiscal first quarter, ended Sept. 30. Analysts on average had expected 6.70 billion US dollars, according to financial data and analytics firm FactSet.

Azure’s strong performance helped lift the gross margin at Microsoft’s cloud business to 57 percent, said Stephanie Rodriguez, director of investor relations for Microsoft.

Microsoft said its commercial cloud annualized revenue run rate reached 20.4 billion US dollars in the quarter. In 2015, Nadella set a target of 20 billion US dollars in cloud revenue by 2018.

In a call with analysts after earnings, Nadella said retailer Costco Wholesale Corp recently chose Azure its hybrid cloud platform.

Revenue from Microsoft’s personal computing division, its largest by revenue, fell 0.2 percent to 9.38 billion US dollars but handily beat analysts’ estimate of 8.81 billion US dollars.

“Microsoft is set for an acceleration of growth and bookings with margin concerns that were overblown heading into 2018,” said Daniel Ives at research firm GBH Insights. “A slowly improving PC environment is also a modest tailwind for Microsoft with cloud remaining the Trojan horse growth driver for Redmond over the coming years.”

Microsoft's shares had risen nearly 27 percent this year through Thursday, eclipsing the 14.4 percent gain in the broader S&P 500 index.

Source(s): Reuters