(Bloomberg) — Microsoft Corp. reported profit and sales that topped analysts’ estimates after the software maker racked up several new cloud-computing deals and agreements from previous years began to pay off.
Net income was $8.8 billion, or $1.14 a share, for the quarter that ended March 31, the Redmond, Washington-based company said Wednesday in a statement. That compares with an average analyst estimate of $1 a share, according to data compiled by Bloomberg. Sales rose 14 percent from a year earlier to $30.6 billion. Analysts projected $29.9 billion.
The fiscal third quarter featured a flurry of large brands, particularly in retail, signing agreements to use Microsoft’s Azure cloud software. Clients included grocer Kroger Co., Walgreens Boots Alliance Inc. and oil company Exxon Mobile Corp. Some, such as Walgreens, also committed to using cloud-based Office and security software. The deals reflect Chief Executive Officer Satya Nadella’s efforts to draw some customers away from cloud market leader Amazon.com Inc. and ink more significant clients. Microsoft also is benefiting as more traditional companies that are longtime customers move to the cloud.
Azure cloud-services revenue rose 73 percent, slower than the 76 percent Microsoft posted in the fiscal second quarter. Some investors have been concerned that while Azure is still growing rapidly, those increases have slowed from the past when doubling was a regular occurrence. Sales of Office cloud software to business customers rose 30 percent.
“The Azure growth blew away Street expectations,” said Dan Ives, an analyst at Wedbush Securities. “This was an A+ quarter across the board for Redmond.”
The company’s shares rose about 3 percent in extended trading on the results, after closing at $125.01 in New York. Microsoft shares have gained 23 percent this year, topping the 17 percent increase in the S&P 500 Index. The software maker, for a time, leapfrogged Apple Inc. to become the most valuable publicly traded U.S. company by market capitalization.
Commercial cloud revenue, a measure of sales from Azure, internet-based versions of Office software and some smaller products, rose 41 percent in the period from a year earlier to $9.6 billion. Profit margins for the business widened to 63 percent.
Worldwide public-cloud services sales are expected to grow 17.5 percent this year to $214.3 billion, according to Gartner Inc. Software and cloud company stocks recovered in the first four months of 2019, with Facebook Inc., Apple, Alphabet Inc. and Amazon all up this year, after a roller coaster end to 2018 that saw shares drop amid concerns spending might be declining.
While the PC market declined in the first quarter, corporate machines were a “bright spot,” Gartner said. That helps Microsoft, which generally sells business customers a pricier version of Windows and has many of its corporate clients on a regular license for updates.
Microsoft said revenue for the Surface line of devices rose 21 percent from a year earlier to $1.3 billion.
Sales of Intelligent Cloud products, comprised of Azure and server software, rose 22 percent to $9.65 billion, above the $9.3 billion average estimate of seven analysts polled by Bloomberg.
Productivity sales, mostly Office software, rose 14 percent to $10.2 billion. That compares with an analyst average estimate of $10 billion.
More Personal Computing unit sales, products including Windows and Xbox, rose 8 percent to $10.7 billion. Analysts projected $10.5 billion on average.
(Updates with additional revenue details after sixth paragraph.)
To contact the reporters on this story: Dina Bass in Seattle at [email protected];Nico Grant in San Francisco at [email protected]
To contact the editors responsible for this story: Jillian Ward at [email protected], Andrew Pollack, Molly Schuetz
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