Microsoft Corp. again demonstrated how tech providers are thriving during the COVID-19 pandemic, issuing quarterly results today that easily beat earnings and sales estimates thanks to strong growth for cloud services and personal computer software.

However, the company issued slightly weaker-than-expected guidance for the upcoming quarter. That sent its stock down nearly 2% in after-hours trading. Microsoft shares are still up nearly 35% this year.

Fiscal first-quarter profit rose 30% from a year ago, to $13.9 billion, or $1.82 a share, blowing past analyst estimates of $1.54, on revenue of $37.2 billion, up 12% and well ahead of estimates of $35.76 billion. The strong results stood in contract to that of SAP SE, which saw its stock plunge 24% Monday after the enterprise software giant said COVID-19 was affecting its business more than expected.

“Even though investors were thinking about the SAP earnings disaster earlier this week, Microsoft delivered bigtime by beating expectations,” said Patrick Moorhead, president of Moor Insights & Strategy. “Enterprises are transitioning from COVID-19 triage to starting to renew their digital transformation plans with a focus on hybrid work. Microsoft is taking advantage of this phenomenon.”

Azure growth slows

Microsoft’s Intelligent Cloud segment grew 19% in constant currency terms spurred by 47% growth in the Azure infrastructure-as-a-service business. That was consistent with the previous quarter’s growth but below the 59% logged in the third fiscal quarter that ended in March.

Still, Azure’s growth rate is faster than that of rival Amazon Web Services Inc., which grew 30% in its most recent quarter off a much larger base. Server products and cloud services revenue rose 21% in constant currency.

The stalling of cloud growth “suggests to me that the dramatic growth in cloud driven by companies struggling with the initial move to work from home may be subsiding,” said Charles King, president and principal analyst at Pund-IT Inc. Nevertheless, he added, organizations rushing to respond to the crisis “need IT partners they can depend on. Microsoft is clearly among the vendors at the top of that list. Azure appears to have a great deal of headroom for future growth.”

That view is shared by Wedbush Securities Inc. analyst Dan Ives, whom several news outlets quoted as saying that the rapid and likely permanent shift to greater work-from-home arrangements will benefit both Microsoft’s cloud and PC businesses for the long term. “While we have seen the momentum of this backdrop in the last few quarters, we believe deal flow looks strong heading into FY21 as we estimate that Microsoft is only 35% through penetrating its unparalleled installed base on the cloud transition,” Ives wrote in an analysis quoted by Dow Jones & Co. Inc.

Talking up Teams

In light of enterprises’ newfound appetite for virtual collaboration — not to mention the stratospheric valuation of Zoom Video Communications Inc. — Chief Executive Satya Nadella (pictured) devoted part of his prepared remarks to analysts to the performance of Microsoft’s Teams collaboration platform.

Users spent 30 billion minutes on Teams this quarter and the platform has been adopted by 270,000 educational institutions to support remote learning, Nadella said. Microsoft is also building out Teams to support the move to virtual events with support for up to 20,000 concurrent participants planned. He didn’t provide revenue or growth figures, however.

Revenue in the Productivity and Business Processes segment climbed 11%, to $12.3 billion, driven by Office 365 Commercial revenue growth of 20%. Office 365 now accounts for more than 70% of Microsoft’s entire Office commercial business, said Chief Financial Officer Amy Hood.

The Office Consumer business, which is also no doubt benefiting from business from homebound customers, saw revenue increase 13%, with the Microsoft 365 Consumer base growing to 45.3 million subscribers. Even LinkedIn, which said in July that it will lay off 6% of its workforce as a result of slower hiring, grew revenue 16%. Advertising on LinkedIn “returned to near pre-COVID levels, up 40% year-over-year,” Nadella said.

Dynamics stealing share?

The Dynamics 365 line of customer relationship management and enterprise resource planning software, which is Microsoft’s most ambitious bid yet for line-of-business applications, grew 37%, roughly equal to the previous quarter’s growth. The growth rate indicates “some share shift from Salesforce to Microsoft,” Moorhead said, referring to the Salesforce.com Inc. CRM platform.

The category Microsoft calls “More Personal Computing” –which comprises Windows sales through channels, Windows commercial products and cloud services, the Xbox gaming console, Surface hardware and advertising — grew 6%, to $11.8 billion. That was led by growth rates of 30% in Xbox and 37% in Surface, offset by a decline of 5% in Windows OEM sales and a 10% decline in advertising revenue.

“Microsoft’s PC/device segment performed more weakly than any other group,” said Pund-IT’s King. “It’s also worth mentioning that the company’s mishandling of a significant price drop in its newest Surface devices suggest leadership in that group may need some attention.”

The advertising results won’t help Google LLC in its defense against the antitrust suit the U.S. Justice Department filed last week, which alleges that the company used predatory tactics to all but corner the search market. Despite including the Edge browser preconfigured with Bing search in most copies of Windows 10 shipped over the past five years, Microsoft has barely been able to crack 25% market share, according to Statista.

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