Microsoft exceeds sales, profit estimates on cloud gains

Profit excluding certain items was 84 cents a share on adjusted sales of $25.8b

Microsoft Corp’s secondquarter sales and profit exceeded analysts’ projections, bolstered by rising customer sign-ups for cloudbased services and a stabilising personal-computer market.

Profit excluding certain items, such as a few weeks of results from newly acquired LinkedIn Corp, was 84 cents a share on adjusted sales of $25.8 billion (Dh94.76 billion), the software maker said Thursday in a statement. Analysts on average had estimated profit would be 79 cents on revenue of $25.3 billion in the period ended December 31, according to data compiled by Bloomberg.

Chief Executive Officer Satya Nadella is reformulating the company as a seller of internet-based corporate services for running applications, storing data, collaborating and enhancing worker productivity.

Azure cloud services revenue almost doubled, keeping up its steady pace of growth, and both consumers and corporations continue to purchase Office 365, which includes software like Word and Excel, Microsoft said. Another surprising bright spot was the PC market, which is showing signs of life after years of contraction.

“As long as cloud is growing, people are happy,” said Second-quarter sales in the company’s More Personal Computing business, including Windows and Xbox, fell 5 per cent to $11.8 billion (Dh43.34 billion). That compares with the $11.44 billion average estimate of five analysts polled by Bloomberg. Gaming revenue for Xbox and PC fell 3 per cent.

Worldwide PC shipments in the December quarter fell 1.5 per cent a slower pace than in the previous period, but the industry remains in a multi-year slump. The company is seeing the market stabilise and even improve, and Windows sales are doing even better than the PC market, Hood said. “That segment outperformed even more than with others,” she said of the More Personal Computing unit.

Revenue from sales of Windows to PC maker partners rose 5 per cent, and Windows commercial products and cloud services increased at the same rate. Windows sales are growing in the corporate PC market and among consumers purchasing pricey machines, and Windows PC makers were able to take some share from Apple, Hood said. Mark Moerdler, an analyst at Sanford C. Bernstein & Co., who rates the shares outperform. “If margins are growing, people are even happier.”

On December 8, the company completed its biggest acquisition, the $26.2 billion purchase of LinkedIn, whose data and professional networking tools will augment Microsoft’s own productivity products. LinkedIn contributed revenue of $228 million in the quarter following the deal’s close.

Shares gain

Microsoft shares gained 1.2 per cent in extended trading following the report. The muted reaction to the better-thanforecast results followed the stock’s 23 per cent surge in the past year to an all-time closing high of $64.27, reached Thursday in New York.

Azure revenue almost doubled in the recent quarter, and corporate versions of Office 365 saw sales increase 47 per cent. Almost 25 million consumers are now subscribed to Office 365, the company said.

Redmond, Washingtonbased Microsoft has been spending on data centres and adding products to win new cloud customers. Chief Financial Officer Amy Hood said in July that gross margins, a measure of profitability, for the commercial cloud business would “materially improve” in the current year. That’s because previous years of investment are starting to pay off as those data centers support more customers. Second-quarter commercial cloud gross margin was 48 per cent, 2 per cent wider than a year earlier.

Microsoft has pledged to reach annualised revenue of $20 billion in its corporate cloud business by the fiscal year that ends in June 2018.