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Microsoft scores record quarterly profit on cloud boost

Microsoft scores record quarterly profit on cloud boost

FILE PHOTO: A Microsoft logo is seen a day after Microsoft Corp's $26.2 billion purchase of LinkedIn Corp, in Los Angeles, California, U.S. June 14, 2016. REUTERS/Lucy Nicholson/File Photo

Microsoft posted its most profitable quarter on Tuesday (Jul 27), beating Wall Street expectations for revenue and earnings, as demand soared for the software giant's cloud-based services.

Profits for the fiscal fourth quarter rose 47 per cent to US$16.5 billion and revenue grew 21 per cent to US$46.2 billion.

The pandemic-driven shift to remote work has boosted consumer appetite for cloud-based computing, helping companies including Microsoft, Amazon.com's cloud unit and Alphabet's Google Cloud.

"We are innovating across the technology stack to help organisations drive new levels of tech intensity across their business," said Satya Nadella, chairman and chief executive officer of Microsoft.

"Our results show that when we execute well and meet customers' needs in differentiated ways in large and growing markets, we generate growth, as we've seen in our commercial cloud - and in new franchises we've built, including gaming, security, and LinkedIn, all of which surpassed US$10 billion in annual revenue over the past three years."

The results included a 20 per cent rise in revenue in Microsoft's Office commercial products and cloud services, and a 46 per cent increase in revenue for its LinkedIn professional social network.

Revenue in its "Intelligent Cloud" segment - a key segment for the company which has shifted its emphasis from consumer to enterprise services - rose 30 per cent to US$17.4 billion, with 51 per cent growth in its Azure cloud-computing business.

Analysts had expected 43.1 per cent growth in Azure, according to consensus data from Visible Alpha.

"It's a very impressive report from Microsoft with the company easily surpassing expectations on the performance of almost all business units," said Haris Anwar, senior analyst at Investing.com.

He noted Azure's growth and strong demand for the company's legacy Office and software products.

"That said, Microsoft's stock has made a big run since the beginning of the pandemic, and is trading at rich multiples," Anwar said. "After such a powerful rally, its shares may take a breather, especially when investors are still unclear how the demand scenario will evolve in the post-pandemic environment."

Microsoft's market capitalisation stands at nearly US$2.2 trillion, fueling concerns among some analysts that it may be overvalued.

The stock has climbed nearly 30 per cent so far this year, compared with 18 per cent for the overall S&P 500 Index, according to Refinitiv Eikon data based on Monday's closing price.

Revenue from personal computing, which includes Windows software and Xbox gaming consoles, rose 9 per cent to US$14.1 billion.

But Xbox content and services revenue dipped, suggesting that a pandemic-fueled gaming boom is beginning to wane, said Paolo Pescatore, an analyst at PP Foresight. The company must strengthen its presence in the home to better compete with rivals, he added.

Some Microsoft hardware lines were affected by a shortage of components such as chips, said Kyle Vikstrom, director of Microsoft investor relations. Makers of cars to smartphones have grappled with an unprecedented chip shortage in recent quarters.

"We are seeing supply chain constraints that are impacting Windows OEM and Surface ... and also impacting Xbox consoles," she said.

The chip shortage could also be contributing to Microsoft's dip in Xbox content and services revenue, as constrained hardware sales lead to a weaker performance in services, said Daniel Ives of Wedbush Securities.

"If there's any lagging part of Microsoft, it's the consumer piece," he said. "I think that continues to be a work in progress."

Source: AGENCIES/aj

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