Microsoft’s Revenue Gets Lift From Cloud

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Microsoft
Corp.


MSFT -0.68%

topped $100 billion in annual revenue for the first time as the software giant remakes itself from a legacy software provider into a power player in cloud computing.

Much of that growth has come from persuading customers who run Microsoft’s software in their own data centers to mix in cloud services, a business known as hybrid-cloud computing. Microsoft remains a distant No. 2 in the cloud business behind

Amazon.com
Inc.,

but has established itself as a viable option for companies beginning the transition.

Microsoft’s success in building out its cloud business has driven up shares of the company more than 40% in the past year. The company’s market capitalization tops $800 billion, putting it in a league with internet giants

Apple
Inc.,

Amazon and

Alphabet
Inc.

Microsoft shares moved little after the company reported robust fiscal fourth-quarter results, but jumped more than 3% during after-hours trading when finance chief

Amy Hood

gave Wall Street analysts a strong outlook for the current quarter.

The 43-year-old company struggled for years as it wrestled with a slow-growing personal-computer business, which hampered its Windows operating-system franchise. Microsoft was late to tectonic industry shifts, including mobile devices and web search.

But the company has reversed its fortunes, largely under the direction of Chief Executive

Satya Nadella,

by focusing on the booming cloud-computing market. Earlier this week,

Walmart
Inc.

announced a five-year deal to use Microsoft’s cloud services.

In the fourth quarter, revenue from server products and cloud services, a category that reflects Microsoft’s performance in the hybrid cloud, rose 26%. The company doesn’t disclose revenue for the segment.

Stifel Nicolaus & Co. analyst

Brad Reback

estimates revenue in the category hit $7.9 billion—“massive” growth, he said. Microsoft is “playing from their strength,” he said, by using traditional server software to lure longtime customers to the cloud.

Those sales helped Microsoft generate $30.09 billion in revenue, a 17% gain from a year earlier, when measured using a new accounting standard the company adopted at the beginning of its fiscal year. Mr. Nadella, in the company’s call with analysts, cited Microsoft’s “hybrid value proposition” as a reason for its quarterly growth.

Overall, Microsoft had $8.87 billion in net income, or $1.14 a share. When using the new accounting standard, Microsoft’s net income a year ago hit $8.07 billion.

The performance of Microsoft’s Azure cloud-computing services, as well as its Office 365 online-productivity service for businesses, has pushed Microsoft shares to record highs over the past two weeks. Shares finished Thursday down less than 1% at $104.40, just off their peak of $106.40 set Tuesday.

After hours, shares touched record highs above $108 following Ms. Hood’s guidance for segments that include Azure and Windows. The projections topped Wall Street’s expectations.

In the fourth quarter, revenue from the company’s Intelligent Cloud segment, which includes its Azure business, rose 23% to $9.61 billion. Azure revenue increased 89%, compared with 93% three months ago—the first time the business has grown slower than 90% since Microsoft began reporting the metric in October 2015.

Revenue in the Office franchise, part of the Productivity and Business Processes segment, climbed 13% to $9.67 billion. The commercial version of its Office 365 online-productivity service climbed 38%, compared with 42% growth three months ago.

Revenue in Microsoft’s More Personal Computing segment, which includes the company’s venerable Windows franchise as well as the mobile-phone and games businesses, gained 17% to $10.81 billion. Microsoft doesn’t break out revenue for its Windows business, but the company said sales of the operating system to corporate buyers rose 14% in the period.

The market-research firms

Gartner
Inc.

and International Data Corp. earlier this month reported the strongest showing in PC shipments in six years, partly because corporate buyers are upgrading to Windows 10 before support for Windows 7 expires in January 2020.

Analysts surveyed by S&P Global Market Intelligence expected Microsoft to report per-share earnings of $1.08 on revenue of $29.23 billion.

Write to Jay Greene at [email protected]

Appeared in the July 20, 2018, print edition as ‘Microsoft Revenue Pushed Up By Cloud.’



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