Daily Management Review

Microsoft’s Quarterly Revenue Boosted by Cloud Business


Microsoft’s Quarterly Revenue Boosted by Cloud Business
The shares of Microsoft’s up more than 4 percent in after-hours trading, the company’s quarterly revenue was lifted above Wall Street's expectations buoyed by sharp growth in its commercial cloud computing business.
One of the priorities for Chief Executive Satya Nadella, who took the helm of the world's largest software company in early 2014 has been the new and growing cloud business - essentially selling computing services and storage in its data centers to corporate customers.
In the face of stagnation in its traditional PC-based Windows business, Nadella has refocused the company on cloud and mobile.
"Only two companies are setting the tone of enterprise computing, Microsoft Azure and Amazon AWS. These are the only two initiators in the whole enterprise space that are going to see growth in excess of 80 percent year-over-year for at least two or three years," said Trip Chowdhry, managing director of Global Equities Research, referring to Amazon.com Inc's web services unit.
"Intelligent cloud" businesses of Microsoft, which includes the Azure cloud platform and server software saw a rise in revenues by 7 percent to reach $6.7 billion.

While Microsoft did not say what the actual revenue figure was, it did mention that the revenue for its Azure product - which customers can use to host their website, apps or data - grew 102 percent.
This means that up sharply from over $8 billion a year ago, the an annual "run rate" of $12.1 billion for cloud-related revenue saw a huge jump. By multiplying revenue in the final month of the quarter for its cloud businesses by 12 is how Microsoft calculates run rate.
Microsoft is still struggling to increase profit in the capital-intensive cloud business despite the surge in revenue. There was fall of 17 percent in its operating profit in its intelligent cloud businesses to touch $2.19 billion in the quarter.
Since Microsoft is making investments and acquisitions to "drive cloud sales capacity and innovation", hence the drop in operating profits was mainly due to higher research, development, sales and marketing costs.
Overall, the revenue for Microsoft’s fiscal fourth quarter ended June 30 was up 2 percent from a year ago and clocked $22.6 billion after having adjusted for some one-time items.
Compared with a loss of $3.2 billion, or 40 cents per share, a year earlier, the tech giant reported net income of $3.1 billion, or 39 cents per share. To write down the value of its purchase of Nokia's handset business, it took a $7.5 billion charge in the year-ago quarter.

Microsoft reported earnings of 69 cents per share, excluding one-time items in the latest quarter. That was ahead of analysts' average forecast of 58 cents.
By shifting Microsoft Office software clients onto subscription-based cloud services, Microsoft is finally making headway, said Sanford Bernstein analyst Mark Moerdler. Office 365 increased subscribers to 23.1 million during the quarter and Office consumer products and cloud services were up 19 percent.
"People looked at Office as a product that was going to be in decline. We saw a dip, last quarter we came out of that dip, and now we're accelerating out of the dip," said Moerdler.
Microsoft shares were up 4.35 percent at $55.40 in extended trading on Tuesday.