Microsoft’s cloud-based software helped deliver strong sales and profit growth that surpassed analyst estimates for the 11th straight quarter.
Revenue in the first quarter ended September 30 rose 22% to $ 45.3 billion, the Redmond-based software maker said in a statement on Tuesday. This exceeds the average estimate of analysts surveyed by Bloomberg at $ 43.9 billion. Profit excluding taxes rose to $ 2.27 a share from a forecast of $ 2.07. Sales forecasts by division for the current period also exceeded forecasts.
Chief Executive Officer Satya Nadella has expanded the company’s cloud computing success by building a steady stream of deals for Azure software that stores data and runs applications for corporations. Office online programs also continue to grow as Microsoft convinces customers to pay for high-quality versions and extended contracts.
Sales of Azure and other cloud services have increased 50% in the last period, down from 51% in the previous quarter. Office 365 sales to business customers grew 23% as demand for advanced features pushed more customers towards higher priced subscriptions.
“We used to say, ‘We’re going to have a big party if they can get more than 10% more revenue,’ and now they are about double that,” said Dan Morgan, senior portfolio manager at Synovus, which owns Microsoft. “It looks like Azure has taken over a little more market lately.”
Microsoft shares rose about 1.6% in extended trading after rising to $ 310.11 in New York. In the first quarter of the fiscal year, shares were up 4.1%, while the S&P 500 was unchanged over the same period.
During the conference call, Microsoft said it forecast Intelligent Cloud sales in the second fiscal quarter at $ 18.4 billion, higher than the analyst average of $ 17.9 billion. CFO Amy Hood predicts More Personal Computing in revenue of $ 16.8 billion, more than $ 1 billion above estimates.
The software giant’s shares hit all-time highs last week, reflecting investor optimism about the growth prospects of Azure, Office, artificial intelligence and gaming. The market capitalization of the company exceeds $ 2.3 trillion.
Including tax breaks, first-quarter net income rose to $ 20.5 billion, or $ 2.71 a share, Microsoft said. Hood said in an interview that the benefit comes from Microsoft returning some of its intellectual property back to the United States, which would subsequently lead to an increase in the overall tax rate.
Sales of cloud services to enterprises in the last quarter rose 36% to $ 20.7 billion, according to Microsoft, exceeding $ 20 billion for the first time. Gross margins, or the percentage of sales remaining after deducting operating costs, in this area narrowed “slightly” to 71%, according to the company’s slides posted on its website. Without the accounting change, gross profit would have increased by 4 percentage points.
With Office software available through the cloud, customers are increasing the number of user subscriptions they buy and paying more for premium product tiers to get features like added security and voice control, Hood said. She also highlighted the strengths of corporate PCs running a more expensive version of Windows.
The Azure business faces stiff competition from market leader Amazon Web Services and third place Google. Although Azure revenue is growing at a rate of over 40% per quarter, investors are sometimes disappointed when this growth slows down at certain times.
Azure’s growth rate has fluctuated in recent quarters due to currency exchange rates. In the first quarter, revenue from this business increased 48% in constant currency, up from 45% in the prior period.
“Whether we’re talking about the infrastructure layer or the data layer, or the implementation of some of the Azure AI technologies, we’re seeing good, strong growth in consumption across a broad portfolio,” Hood said.
The strong gains overall have allayed fears by some investors and analysts that the company may not be able to maintain momentum after strong performance last fiscal year, when total sales jumped 18%.
In the first quarter, sales by divisions were distributed as follows:
- Revenue from the Intelligent Cloud, comprised of Azure and server software, rose to $ 17 billion, higher than the average analyst estimate of $ 16.6 billion from analysts surveyed by Bloomberg.
- In the Productivity division, the core office software, sales were $ 15 billion. Analysts expected $ 14.7 billion.
- More Personal Computing, which includes Windows, Surface and Xbox, had sales of $ 13.3 billion. This compares with an analyst estimate of $ 12.7 billion.
The company’s Xbox business, in particular, was hampered by supply chain obstacles that were running out of chips to meet demand for consoles. The slowdown in shipments has also made it difficult to ship devices that come from Asia. Microsoft is working with its supply chain partners to speed up delivery, Xbox chief Phil Spencer said at the Wall Street Journal earlier this month, but challenges will persist next year.
Xbox hardware revenues more than doubled, although LFL sales were low a year ago ahead of a new version of the console, Microsoft said. Total gaming revenue grew 16%.
Hood said the company still expects demand for the Xbox to outstrip supply as chips remain in short supply.