UPDATED 17:59 EDT / JANUARY 29 2020

CLOUD

Microsoft crushes it again thanks to cloud revenue growth

Microsoft Corp.’s stock rose almost 3% in after-hours trading today after the company posted solid second-quarter financial results that underscored the strength of its commercial and intelligent cloud businesses.

The Redmond-based firm reported a profit before certain costs such as stock compensation of $1.51 per share on revenue of $36.9 billion, up 14% from a year ago. Wall Street had Microsoft down for a profit of just $1.32 per share on revenue of $35.67 billion.

Strong cloud growth is becoming a habit for Microsoft, whose stock has risen by 63% in the past year, driven primarily by the success of its Azure public cloud infrastructure business and software-as-a-service offerings such as Office 365 and Dynamics 365.

In the quarter just gone, Azure revenue grew by 62%, slowing down from the 76% growth it posted in the same period a year ago but ahead of an estimate from Goldman Sachs, which had forecast 58% growth.

Of course, Microsoft doesn’t disclose actual revenue from Azure, so comparisons with its main public cloud rival Amazon Web Services Inc. aren’t possible. However, officials said the Intelligent Cloud business, which includes Azure and also GitHub, SQL Server and Windows Server, generated $11.87 billion in revenue in the quarter.

That’s up 27% from a year ago and above Wall Street’s forecast of $11.4 billion in revenue. Officials said the Intelligent Cloud benefited from end of support for Windows Server 2008, which has pushed many of its customers to upgrade.

Microsoft’s other cloud business segment, Productivity and Business Processes, recorded revenue of $11.83 billion, up 17% from a year ago. The unit includes Office 365, Dynamics 365 and LinkedIn.

Elsewhere, Microsoft’s biggest business, the More Personal Computing unit, pulled in another $13.21 billion in revenue, up 1.6% from a year ago. The unit includes revenue from Windows, Surface, Bing and Xbox – the latter of which saw revenue fall by 43% from a year ago. That’s understandable however, as consumers wait for the release of Microsoft’s next-generation Xbox console at the end of this year.

Microsoft’s Windows license revenue jumped thanks to the end of support for its venerable Windows 7 operating system, which has compelled many businesses to finally upgrade to Windows 10.

Moor Insights & Strategy analyst Patrick Moorhead told SiliconANGLE that Microsoft’s earnings were a carbon copy of its past few quarters, once again crushing it with its cloud and SaaS growth.

“I attribute this growth to increased cloud investments over the past five years and its ability to uniquely serve the needs of multinational corporations with end to end, secure solutions,” Moorhead said. “Microsoft has also stepped up its sales and marketing in key verticals like retail, manufacturing, healthcare, financial and large government, which I believe had a very positive impact.”

Holger Mueller of Constellation Research Inc. said the results put to bed any remaining doubts over Nadella’s strategy for Microsoft. He said the company was successful pretty much across the board, with even challenging areas of the past like Windows and Server now growing nicely.

“Azure remains the star performer and has turned the corner following three consecutive quarters of slight growth declines, to accelerating growth again,” Mueller said. “Now Microsoft needs to keep doing what it does, but also move the group of its products that are currently growing in the teenage percentage numbers towards the low twenties.”

Microsoft’s cloud business received a huge boost in the quarter just gone when it was announced that the company had been awarded the U.S. Department of Defense’s controversial Joint Enterprise Defense Infrastructure contract, which could be worth up to $10 billion over the next decade.

In other developments in the quarter, Salesforce.com Inc. announced it would use the Azure cloud to power its Marketing Cloud business, while the company also unveiled a new batch of Surface devices.

“We are innovating across every layer of our differentiated technology stack and leading in key secular areas that are critical to our customers’ success,” said Microsoft Chief Executive Satya Nadella (pictured). “Along with our expanding opportunity, we are working to ensure the technology we build is inclusive, trusted and creates a more sustainable world, so every person and every organization can benefit.”

Photo: Antonio E. Da Silva Campos/Flickr

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