Microsoft Reports an Increase in Revenue and Profits Fuelled by its Cloud Computing Operations

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    Robust sales and profit-driven exceeded analysts’ estimates for the quarterly earnings of Microsoft Corp fuelled by its cloud-based software as per news from Bloomberg. 

    As per a statement made by the Redmond, Washington-based software giant, the QTR 1 ending on Sep 30 saw revenue climbing 22 % to $45.3 billion. This was the 11th consecutive month when the results topped analysts’ estimates. As per a poll conducted by Bloomberg, the average analyst revenue estimates were $43.9 billion for the quarter. 

    Profit before tax rose to $2.27 per share compared to forecasts of $2.07. Sales forecasts also topped expectations for the said quarter. 

    Microsoft extended success has been attributed to CEO Satya Nadella lining up continuous deals for its Azure software, which stores data and runs cloud computing applications for business enterprises. The internet-based office programs keep growing as the customers continue Microsoft services through its high-end versions. 

    The sale of Azure Software and other cloud-based services grew by 50% in the QTR, just short of 51% achieved in the previous period. Office 365 also rose by 23%, and demand for advanced features influenced customers to take higher-priced subscriptions. 

    A senior Manager, Portfolio with Synovus Trust Co, Dan Morgan, said, “We used to say that we will have a huge party if Microsoft achieves 10% revenue growth. Now it has doubled. Azure software is likely grabbing more of market share recently”. 

    The company owns shares of MicrosoftThe shares of Microsoft gained by around 1.6% in extended trading after it rose to $310.11 in New York. The stock saw an increase of 4.1% in the first quarter of this fiscal year as S&P 500 Index remained unchanged in the same period.

    In a conference call, Microsoft said that it foresees its Intelligent Cloud sales in the second quarter to be around $18.4 billion more than the analysts’ $17.9 billion average estimates. Amy Hood, Chief Financial Officer of Microsoft, forecast revenue in the Personal Computing division to $16.8 billion, exceeding estimates by more than $1 billion.

    The software giant shares hit an all-time high in the past week, reflecting investor optimism about Azure, Office 365, gaming, and AI growth prospects. Microsoft’s market capitalization is above $2.3 trillion.

    The first-quarter net income rose to $20.5 billion or $2.71 per share that included tax benefits which Microsoft received on account of some intellectual property it has brought back to the U.S. This will result in an overall higher tax rate later, as per Amy Hood in an interview.   

    Cloud sales to organizations in the first quarter rose by 36% to $ 20.7 billion, and crossed $20 billion mark for the first time. Gross profit and net operating costs narrowed to 71% as per its slide posted on its website. The change in accounting method impacted about 4% gross margin. 

    The Office software, which is cloud-based, has seen the customer subscription base expand and the more payment for premium products for getting additional features like enhanced security and voice controls. As per Hood, Corporate PCs are attracting windows software with premium versions. 

    The Azure Software business is facing stiff competition from market leaders Amazon web services and Google. Azure revenue has been growing at around 40% every quarter though investors are disappointed with its gains in certain quarters.   

    The growth rate of Azure fluctuated in recent quarters due to currency exchange rates. In the first quarter, the revenue increased to 48% when the currency was constant compared to 45% in the previous quarter.  

    “We see good consumption appetite in the broad portfolio and independent of whether they are infrastructure layer and data layer or adopting Azure AI technologies,” Hood said.

    Despite the solid overall gains, some investors and analysts are concerned that Microsoft will not keep up the pace after a strong performance in the last financial year when its total sales jumped by 18%.

    In sales breakup division wise in the first quarter is as follows:

    • The Revenue in Azure and server software that makes up the intelligent cloud increased to $17 billion and above analysts’ $16.6 billion average estimates.
    • The Office software sales were $15 billion compared to $14.7 billion predicted by analysts. 
    • The personal computing division of Windows, Xbox, and Surface had sales of $13.3 billion, more than analysts’ $12.7 billion estimates. 

    The Xbox business was affected due to supply-chain snags as chips supplies were affected and could not keep pace with console demand. Also, shipping slowdowns affected getting devices, which were imported from Asia. 

    As per Xbox chief Phil Spencer, delivery issues are expected to persist despite Microsoft working with its supply-chain partners to rush deliveries. The revenue from Xbox more than doubled though sales were low compared to the previous year. Revenue from the gaming segment grew by 16%. 


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